Razia Khan, the Chief Economist, Africa and the Middle East for Standard Chartered Bank has predicted a robust medium-term economic growth for Uganda – with or without first oil – as the government ramps up infrastructure spending.
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Uganda’s Economy to be strong with or without oil

Razia Khan, the Chief Economist, Africa and the Middle East for Standard Chartered Bank has predicted a robust medium-term economic growth for Uganda – with or without first oil – as the government ramps up infrastructure spending.

She says, with the Bank of Uganda’s Composite Index of Economic Activity indicating above-potential growth of 7-8% in the Financial Year 2019 (ends 30 June 2019) thanks to a favourable agriculture outlook, all indicators show that the economy will grow above average.

“To reflect this, we raise our 2018 GDP growth forecast to 6.0% (from 5.5%). We still expect growth to average close to 6% in the coming years, accelerating even further with oil production. While this looks strong, in per-capita terms it translates into only c.2%,” she said while giving her 2019 state of Uganda’s economy general outlook.

Khan added that after the Final Investment Decision (FID) by JV partners on oil production was pushed back to 2019, it means that first oil is unlikely until 2021 or later (if it goes ahead).

“We lower our 2019 current account (C/A) deficit forecast to 8.0% (from 8.6%) to reflect the FID delay. Construction of an oil pipeline to the port of Tanga in Tanzania will require more imports, eventually widening the C/A deficit, but the absence of oil-related activity is likely to contain the deficit for now,” said Khan.

Graphical Representation of the trend.
Graphical Representation of the trend.

She predicted that inflation will exceed Bank of Uganda’s 5% target by end-2019 and in 2020.

“Above-potential economic growth, with a continued recovery in private-sector credit, raises risks. However, inflation has better behaved in the recent past, and the Bank of Uganda (BoU) moderated its near-term assessment at its December 2018 meeting.

“To account for this, we revise our average headline CPI inflation forecasts to 2.7% in 2018, 4.8% in 2019 and 6.7% in 2020 (from 3.1%, 5.8% and 6.6% prior, respectively).

“The more benign inflation outlook in early 2019 and recent Ugandan shilling (UGX) stabilization should give the BoU room to pause its policy tightening, after a pre-emptive 100bps hike in the central bank rate (CBR) in October 2018.

“We see BoU hikes resuming from April 2019, with the CBR ending the year at 12.0% (11.5% prior) and rising to 13.5% by end-2020 (13.0% prior),” She said.

Khan added “Fiscal concerns related to the low rate of revenue collection persist. While this has traditionally been mitigated by weak execution of public investment projects, there is now a greater urgency to complete projects.

“Recurrent expenditure remains strong. Uganda has avoided borrowing from international capital markets; however, public debt already stands at 41% of GDP, and reliance on more short-term commercial borrowing is increasing.

“More measures to expand the revenue base are expected when the budget for FY20 is announced in June 2019. An increase in the public borrowing requirement should, however, keep domestic interest rates elevated.”

BY PAUL TENTENA