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Uganda Economic Outlook

Macroeconomic performance

Real GDP growth was an estimated 5.3% in 2018, up from 5.0% in 2017. On the supply side, industry (9.7% growth) and services (8.2%) contributed considerably, while agriculture showed slower growth (4.5%). On the demand side, greater investment in public infrastructure was the main contributor to growth, while the current account registered a deficit due to growing imports of capital goods, thereby stymieing growth.

The fiscal deficit widened to an estimated 4.7% in 2018, driven largely by ongoing public infrastructure investments supported by borrowing from both external and domestic sources. The country’s debt-to-GDP ratio was estimated at 40.0% in 2018, with external debt at 28.1% of GDP. The 2017 debt sustainability assessment indicated that Uganda is at a low risk of debt distress. Inflation fell to an estimated 3.2% in 2018, due mainly to lower food inflation and prudent monetary policy.

Tailwinds and headwinds

Real GDP growth is projected to improve to 5.5% in 2019 and 5.7% in 2020. Increased infrastructure investment, foreign direct investment in the oil and mining subsectors, and reforms to improve the business environment will drive stronger growth over the short and medium term. The current account deficit is projected to stabilize at 4.9% in 2019 and further weaken to 5.4% in 2020, and the fiscal deficit is projected to further narrow to 4.4% in 2019 and 4.3% in 2020. Headline inflation is projected to increase to 4.3% in 2019 and 4.8% in 2020.

Downside risks include adverse weather shocks, given agriculture’s high reliance on rain, and the slow implementation of infrastructure projects. Despite the government’s recent large public infrastructure investments, the quantity and quality of transport, water and sanitation, energy, and agriculture infrastructure remain inadequate to meet the country’s economic transformation and development objectives. The country continues to face shortages of skilled labor, especially in services and manufacturing, and several business climate challenges that undermine competitiveness: heavy burdens of regulations for registering and obtaining trading licenses and a high administrative burden of taxes.

Weaknesses in public sector management and governance remain. Performance in budget credibility and controls are on a positive trajectory but still at a low levels. Commitment controls are underperforming, contributing to a buildup of arrears, while inadequate financial management controls have led to mischarges of expenditures. Public investment management is affected by weak institutional and human capacities that often lead to project delays. And the country remains highly vulnerable to adverse climate changes, such as droughts.

Agriculture remains a strategic opportunity for spearheading the government’s development objectives. Uganda is abundantly endowed with natural resources, including oil, gas, and mineral resources and a natural habitat for diverse wildlife that could support the tourist industry. The country continues to post high economic growth and price stability driven by prudent macroeconomic policies. And its strategic location allows it to be accessible to Central and East African markets, including Common Market for Eastern and Southern Africa members, making it a possible transportation, logistics, and transit hub for regional trade.