Business intelligence: World Bank slashes budget for Uganda

By Timothy Sibasi, timothy.sabasi@alleastafrica.com

KAMPALA – The World Bank has cut its 2016/2017 growth forecast for Uganda to 5.5 per cent from 5.9 per cent, citing the impact of South Sudan’s conflict on its exports and sluggish investments due to slower economic activity globally.

An International Monetary Fund Review mission to Uganda under a Policy Support Instrument in an October report said that growth declined to 4.8 per cent in 2015/16. This is against the backdrop of pre-and post-February 2016 elections where would be investors withheld capital as they watched political events unfold.

Other factors include global and regional developments that weighed in on the economic activities. The country, for instance, has been experiencing high import bills on petroleum product.

Bank of Uganda statistics show that export bill has declined to $2.6 billion while the import bill has grown from $2 billion to over $5 billion owing to slow rising oil prices. The global economic outlook, it is predicted, will make Uganda’s situation more complex.

Currently, Uganda’s current fiscal deficit stands at 6.7 per cent of the GDP due to increased public expenditure. In October/November 2016, Bank of Uganda revised the Central Bank Rate from 14 per cent to 13 per cent to ease financial constraints faced by investors because of high interest rates demanded by commercial banks.

“We believe the reduction will spill over and spur economic activities, but the value of non-performing loans presents another shock. The ability of commercial banks to quickly transmit back its benefits is weakened”, said Dr. Mugume Director Internal Banking BoU

The recent takeover of Crane Bank by BoU demonstrations the dire situation as bad loans formed the bulk of reasons for bank’s failure. BoU data shows that 8 per cent of non-performing loans is bad though manageable.

However, a rebound in activity in the construction sector, driven by aggressive public infrastructure investments will offset the effects of a “weak external sector” and return growth to above 6 percent in 2017/2018 July to June fiscal year, World Bank predicts.