{UAH} Uganda's economy grew by 5.3% in 2104/2015 financial year

By Duncan Abigaba

Lately, the public has been awash with myths and self-invented theories about the economy, thedepreciation of the shilling, possible increase in the prices of goods and services etc. Some people even believe we could end up in the Greece situation.

However, we need to look at the major performance indicators of the economy. These include; economic growth rate, Gross Domestic Product (GDP), inflation, interest rates, Balance of Payments (BOP), foreign reserves, revenue performance, fiscal deficit, fiscal policy and public debt.

Uganda's economy has been growing at various rates of 3.4 percent, 6.0 percent, 4.7 percent and 5.3 percent in financial years 2011/2012, 2012/2013, 2013/2014 and 2014/2015 respectively.

The economy is projected to grow at 5.8 percent in the 2015/2016 financial year and is projected to grow at 6.5 percent for the next five years.

The economy is valued at Shs. 75.183 trillion ($25b) and it is the 3rd largest in East Africa and the 17th largest in Africa.

In the ending financial year 2014/2015, inflation was kept at 2.7 percent from a record high of 11 percent in 2011/2012.

Even despite the weakening shilling, fuel pump prices have been kept at record low of Shs. 3,400 from Shs. 3,850 for petrol and Shs. 2,850 from 3,250 for diesel.

The Shilling has weakened majorly due to two factors; the strengthening of the US dollar against other international currencies we trade with and importing more than we export.

This is due to on-going works on Karuma and Isimba hydro power stations and other road works like the Entebbe Express Highway.

Interest rates have remained a bit high at 20.1 percent. This is majorly due to two factors; limited supply of long term capital in the economy and the lack of trust among the borrowers characterized by high default rates and non-performing loans.

Our balance of payments currently stands at negative as at March 2015. Our exports are valued at $2,701.6m whereas the imports are $5,048.9m.

This means our deficit has been standing at $2,347.3m. This is majorly due to the ongoing infrastructural investments in the oil sector, road works and hydro power stations of Karuma and Isimba.

Therefore, the increase in demand for foreign exchange to meet the import bill weakens the Uganda shilling.

However, in the ending financial year, this was mitigated by Foreign Direct Investment inflows of $1,200m and workers' remittances worth $915m, reducing it to $232.3m.

However, this was not enough to close the deficit, resulting into a reduction in external reserves amounting to $266.5m. Nevertheless, our reserves remain healthy at $2,974m, equivalent to 4 months of future imports of goods and services.

Our tax collections are projected at Shs. 11.333 trillion 2015/2016 up from Shs. 9.799 trillion in 2014/2015. Domestic financing through treasury bills and bonds will fall from Shs.1.775 trillion in 2014/2015 to Shs.1.386 trillion in 2015/2016.

This is because government is redeeming its treasury bills and bonds worth 6.4 trillion. The increase in the tax revenue is majorly due to; improved tax policy measures implemented this year, improved tax base and expansion of the tax base.

Our domestic revenue to GDP ratio is estimated at 13 percent. Total expenditure is estimated at 18.6 percent of the GDP, lower than 22 percent within the EAC countries.

Domestic resources will finance 76.4 percent the 2015/2016 budget. Whereas the balance will be financed through concessional loans, grants and donations.

Our public debt is projected to reach $7.6b by end of 2015/2016. 60 percent of the debt is external while 40 percent is domestic. The increase in the public debt reflects the increased borrowing to finance infrastructure investment.

Although our public debt has increased faster compared to the past trends, it is sustainable in relation to the size of the economy. Measuring public debt in relation to the size of the economy is standard practice to know whether our debt is sustainable or not.

Using this method, our debt to GDP ratio is estimated at 30.4 percent, which is far below the Public Debt Management Framework 2013 threshold and the East African Community Monetary Union convergence criteria requirement of 50 percent. Therefore, our public debt remains sustainable and our economy isn't under debt distress.

This has been confirmed by independent parties who undertake credit rating for Uganda, and the Debt Sustainability Analysis (DSA) conducted by IMF and World Bank.

Therefore, the Uganda shilling hasn't singly weakened against the dollar. All our major trading currencies including the Euro and the Great Britain Pound have fallen against the dollar.

What we must focus on is to produce for export; this can mitigate the situation by bringing in foreign exchange to boost our shilling. But the economy is on track.

Duncan Abigaba

The writer is a Deputy Presidential Assistant in charge of Research and Information. 

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*A positive mind is a courageous mind, without doubts and fears, using the experience and wisdom to give the best of him/herself.

 

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 individuals, the military or otherwise, is to put the people in charge  - Capt. Thomas. Sankara {RIP} '1949-1987

 *"Those who make peaceful revolution impossible will make violent

revolution inevitable"**…  *J.F Kennedy

 

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