Uganda and some of its neighbours will have a hard time as a new World Bank report warns of a possibility of high global inflation accompanied by tepid growth, reminiscent of the stagflation of the 1970s.
The Global Economic Prospects Report predicts that Uganda will not escape the slowdown in global growth that has been steepened by Russia’s invasion of Ukraine and its effects on commodity markets, supply chains, inflation, and financial conditions have steepened.
The war in Ukraine has disrupted the global cereals trade and worsened food shortages. Yet, still, Uganda and its neighbours; The Democratic Republic of Congo, Madagascar, and Rwanda—which rely heavily on wheat imports from Russia and Ukraine are expected to experience persistently elevated food inflation.
A number of Ugandans have recently complained about the increasing prices of wheat. Opposition politician, Robert Kyagulanyi this week called on President Museveni to bring down the prices by reducing taxes on imports.
But the World Bank flagship report says that in addition to the adverse impact of surging living costs, the growth outlook for low incomes countries like Uganda is anticipated to be further weakened by the global economic slowdown.
According to the report, such stagflation could eventually result in a sharp tightening of monetary policy in advanced economies, which could lead to financial stress in some emerging markets and developing economies. It suggests that “a forceful and wide-ranging” policy response is required to boost growth, bolster macroeconomic frameworks, reduce financial vulnerabilities, and support vulnerable groups.
Aggregate growth in low-income countries (LICs) is forecast at only 4.1 per cent in 2022 and 5.3 per cent in 2023 – 0.8 and 0.6 percentage points below the January projections. Uganda and others, according to the report have experienced planting delays because of poor rainfall.
“In some LICs, higher prices of grains are expected to limit the ability of farmers, especially those dependent on subsistence agriculture, to purchase enough seeds for the new planting season and feed for livestock, “ says the report. It also finds that the war in Ukraine has also markedly disrupted global fertilizer supply, with Russia the world’s largest fertilizer exporter.
“Higher prices of fertilizers and fuels are expected to weigh heavily on farming output as well,” warns the report “ Fiscal policy, already constrained by high public debt and tightening global financial conditions, have become even less accommodative.”
The researchers find that spending pressures to curb the impact of rising prices have been building in many countries (for example, fuel subsidies in Cameroon, Kenya, and Nigeria; a fuel levy reduction in South Africa), further straining fiscal positions.
“Moreover, rising core inflation in several countries Cameroon, Nigeria, and Uganda points to broadening price pressures, further reducing room for accommodative policies. Growth in Sub-Saharan Africa is projected to decelerate from 4.2 per cent in 2021 to 3.7 per cent in 2022, as high inflation and policy tightening weaken domestic demand.”
According to the report, a growth deceleration in major trading partners is compounding these headwinds. “Growth is projected to firm slightly to an average of 3.9 per cent in 2023-24, assuming further progress with pandemic containment measures”
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