July 21, 2024

Uganda’s economy growing well but significant risks persist, World Bank says

The World Bank said on Thursday the economy of Uganda continues to grow, driven by strong levels of domestic consumption and sustained levels of public and private investment.

“Net Foreign Direct Investment inflows shot up to 5.1% of gross domestic product (GDP) in FY18/19 from 3% of GDP the previous year. The construction sector continues to grow at double-digit levels. There has been a jump in manufacturing growth supported by recent expansions in the sector, including investments in new factories,” the World Bank said.

“Agriculture was boosted by another decent harvest and a strong rebound in fisheries. Nevertheless, growth is falling short of the where it needs to be if the country is to meet its target of attaining lower middle-income soon. To meet that target the economy needs to grow by at least 8% over the next decade,” the World Bank added.

The World Bank added that tax revenues (at 12.6% of GDP) exceeded the budget target of 12.4% for FY18/19 but remain significantly lower than government’s medium-term target of 16% of GDP and regional peers like Kenya (17.9%) and Rwanda (16.3%).

“A small number of citizens still pay the most taxes, so widening the tax base is a big priority. Limiting exemptions to investors would boost collection in the long term. Uganda’s public debt is currently sustainable, but vulnerabilities are increasing and delays in the oil sector’s Final Investment Decision (FID) are also a major concern”.  

The Uganda Economic Update (UEU) is a bi-annual assessment of the state of the country’s economy. It analyzes the performance of the economy, key challenges and opportunities, and provides an economic forecast for the year ahead. The UEU is divided into two parts: the macro-economic analysis which provides insight into the day-to-day management of the economy, and the special topic which usually examines a key driver of the economy in more detail, and its contribution to growth, reduction of poverty and boosting opportunity. The last UEU examined the social and economic benefits of increasing public spending on education to achieve higher levels of human capital, reduce poverty and boost economic growth.

Looking ahead, the World Bank warned that while the growth outlook for Uganda is favorable, risks are tilted to the downside.

“As the 2021 elections draw closer, heightened political activity and uncertainty could lead to a rise in spending, and a fall in investment and economic activity. Reliance on rain-fed agriculture and systemic challenges in the sector remain risks to GDP growth, the poor’s income, and export earnings. Regional and global factors could also undermine the outlook. Reduced foreign demand, which would weaken exports and present risks to external stability, could come in the form of regional instability or as a result of trade uncertainties between the US and China, which might further slow global growth.”

It said one in five Ugandans still live in extreme poverty and more than a third live on less than $1.90 a day. That is 21.4% of the population.

“Many households in Uganda remain vulnerable, mostly to income fluctuations, food insecurity, and climate-related shocks. They do not have the means to cope with shocks that they may experience. Droughts, irregular rains, serious illnesses, or accidents to the main income earners erode gains made in reducing poverty, but also sink households into further poverty.  Social protection programs that support investment in human capital and help mitigate shocks can contribute to reducing vulnerability of populations and support economic growth,” the World Bank said, adding that the two main existing public programs in Uganda – the Senior Citizens Grant (SCG) and the Northern Uganda Social Action Fund (NUSAF) – have very low coverage reaching 0.7% of the population.

“It means many people in need of social safety nets are left out, leaving them to sink further into poverty or to expose them to other vulnerabilities. Financing for the two programs accounts for just 0.16% of the GDP which is lower than what Kenya and Rwanda spend – i.e 0.4% and 0.3% respectively on direct income support. Most of the funding for these programs comes from donor sources and this is not sustainable”.

Notify of
Inline Feedbacks
View all comments