{UAH} IMF bullish on Uganda's economic recovery

IMF bullish on Uganda's economic recovery

November 23, 2013

Bernard Busuulwa, The EastAfrican -1

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New infrastructure projects and reserve accumulation measures undertaken by the Bank of Uganda (BoU) have kept the economy on track to achieve the 6.2 per cent growth target for this financial year, says the International Monetary Fund (IMF), but achieving more balanced growth remains an uphill task. Uganda's economy grew by 5.1 per cent in the past financial year, lower than the target of 5.4 per cent, with diminished growth in trade and commerce and low consumer demand cited for the weak output. Anticipated demand for goods and services pegged to the construction of large power dams like Karuma and Isimba is expected to boost growth among local firms contracted to supply various goods and services to these projects, leading to increased economic activity during the second half of this financial year. Procurement for these projects could generate large orders for local firms, which in turn could translate into greater turnover, more jobs, and higher tax revenues. Construction of the 600MW Karuma dam is projected to cost $2.2 billion , while the 183MW Isimba dam is estimated to cost $560 million , with both projects being financed by loans from the Chinese government. Five other energy projects have been lined up for commissioning. READ: Museveni takes over Karuma power project, gets funding from China Besides these developments, fresh orders for raw materials made by local manufacturers seeking to satisfy seasonal consumer demand for fast moving consumer goods during the festive season are likely to boost economic activity and push growth closer to 6.2 per cent, according to sources at the BoU. Signs of a recovery in bank credit allocation patterns have also boosted forecasts for strong growth. Net credit extensions recorded in the banking industry between July and August 2013 went up to Ush350 billion( $138.4 million ), according to BoU data, reflecting improved lending activity in some sectors like building and construction. On the other hand, sectors like agriculture, trade and commerce and services appear to be contributing little to the recovery. "There is little opportunity to generate strong growth momentum in sectors like agriculture and trade. The remaining portion of this financial year is too short to yield strong results from new stimulus measures," said Lawrence Othieno , a trade economist. Overreliance on a few sectors poses risks to steady economic recovery in case of sudden shocks in key growth areas, economists say. The IMF says bigger investments in agriculture and tourism could resolve imbalances in growth patterns. "Balancing growth in the economy requires improvement in the business climate. This leads to more even contribution ratios to net growth between the private and public sector. With further improvements in the business climate, additional investments could be attracted to the agriculture and tourism sectors backed by new infrastructure projects and could yield a more balanced growth base," said Ana Lucia Coronel , IMF's senior resident representative in Uganda . "Most of the economic recovery will be driven by new infrastructure projects and investments in the telecommunications sector. However, bigger investments that run for a duration of five years are crucial for stimulating strong knock-on growth patterns in agriculture plus trade and commerce sectors," said Charles Abuka, BoU's director for financial stability. Economists say bureaucratic hurdles in the government's financial systems make short term incentives harder to implement.

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