The World Bank has revised its economic growth forecast for Uganda upward, predicting that real GDP will grow by about 6.2 percent in the current fiscal year.
This GDP growth projection is slightly higher than the 5.5 percent forecast presented in the Uganda Economic Update for December 2022.
The World Bank explained in its Uganda Economic Update for last month, titled ‘Leveraging Sustainable Tourism to Support Growth and Diversification,’ which it shared with Daily Monitor yesterday, that this upward revision reflects a more modest pass-through effect from high commodity prices to domestic inflation, an earlier-than-expected easing of key international commodity prices, and the dismissal of a lawsuit against TotalEnergies in March 2023, which may have slowed growth.
“The economy has proven resilient to recent shocks, and growth is expected to accelerate as inflationary pressures subside and the central bank eases monetary policy. The sustained push to commence oil production during FY24/25 has accelerated the construction of $20 billion in oil-related infrastructure, and firms are close to concluding a financing arrangement to support oil production,” said the World Bank.
“However, non-oil private investment is expected to increase more modestly amid a difficult economic environment marked by volatile commodity prices, disruptions to global supply chains, tighter global financial markets, policy uncertainty, and a climate-driven increase in adverse weather events,” it added.
Last year, when presenting the National Budget for the current fiscal year, Finance Minister Matia Kasaija stated that based on 11 key policy interventions, Uganda’s economy is expected to grow by 6% in fiscal year 2023/2024.
According to the World Bank report, overall growth will be moderated by fiscal consolidation efforts and the phase-out of Covid-19 pandemic-related public investment programmes.
“In the medium term, economic activity will be driven by private investment, oil exports, and the government’s efforts to promote tourism, export diversification, and agro-industry,” the World Bank predicted.
The World Bank, on the other hand, stated that the high cost of living will continue to dampen the recovery in employment and real household income, adding that while high commodity prices are expected to boost returns on cash crops, households that farm cash crops will suffer as a result. crops represent only a small share of all rural households due to the low level of commercialisation in the Ugandan agricultural sector.
On the current account, the World Bank warned that slowing global economic activity could stymie the recent surge in commodity exports such as coffee, maize, and tea. Solid growth could be sustained in the medium term if regional demand rises and consumers begin substituting high-value Ugandan products.
The World Bank warns that non-concessional financing is likely to be limited as the authorities seek to maximise the use of concessional financing in order to limit debt stock growth.
The Bank of Uganda is anticipated to gradually loosen monetary policy to aid the recovery of the economy, according to the World Bank, as the outlook for inflation improves.
It also emphasised the need to maintain a delicate policy balance that supports economic activity without creating additional inflationary pressures in order to deal with uncertain global developments, volatile commodity prices, and climate shocks.