In its latest economic update, the World Bank reports that Uganda's real gross domestic product (GDP) growth increased from 4.6 per cent in financial year 2022 to 5.2 per cent in financial year 2023, signaling a steady economic recovery amidst persisting domestic challenges and a complex global environment.
This growth was largely driven by the services sector, which accounted for half of this GDP increase, led by professional, administrative, and accommodation and food services.
The agricultural sector also witnessed a 4.8 per cent growth, spurred by livestock and fishing activities, although crop production suffered due to irregular rainfall.
Despite these positive developments, the industrial sector experienced a slowdown, growing only by 3.5 per cent, primarily due to a decline in mining and quarrying activities. High-frequency indicators, however, predict that the economic activity will remain robust towards the end of the calendar year.
Inflation, a critical concern for the economy, saw a significant increase from 3.7 per cent in financial year 2022 to 8.8 per cent in financial year 2023, surpassing the central bank's target of 5 per cent. This was influenced by both global and domestic factors, including rising prices for nonfood goods, which accounted for 46 per cent of the total inflation increase.
However, tighter monetary policies implemented by the government have started to ease inflationary pressures, with the rate dropping to 2.6 per cent by November 2023.
The Ugandan economy has also benefited from strong inflows of Foreign Direct Investment (FDI), particularly in the oil and gas sector, which have helped finance a sizable current-account deficit of 7.9 per cent of GDP. Despite a surge in imports, the current-account deficit remained relatively stable due to a boost in exports and tourism inflows.
The government's fiscal management also showed improvement, with the central government’s fiscal deficit decreasing to 5.6 per cent of GDP in financial year 2023 from 7.4 per cent the previous year. Increased tax collection efficiency contributed to this achievement, with revenue from taxes like pay-as-you-earn, rental income, and casino taxes offsetting declines in corporate income and withholding taxes.
However, challenges remain in the realm of private sector credit growth, which slowed down due to the central bank's monetary tightening and rising cost of credit. While there was an increase in personal loans and commercial lending to specific sectors, the slower overall credit growth raises concerns about potential impacts on economic expansion.
In conclusion, Uganda's economy demonstrates resilience and potential for further growth, but it continues to navigate a path fraught with both domestic execution challenges and external economic shocks.
The focus on developing megaprojects and managing fiscal deficits, coupled with efforts to stabilize inflation and encourage private sector growth, will be crucial in shaping the country's economic trajectory in the coming years.