Uganda Economic Outlook
- Growth in the Ugandan economy slowed down to 4.8% in 2016 from 5.5% the previous year but is projected to rebound strongly in 2017 to 5.1% and expand further to 5.8% the following year.
- Uganda has made limited progress in improving human development but the National Development Plan (NDP II) envisages significant investments that could contribute to increased human capital development.
- With a significant share of the active labour force (35.5%) engaged in entrepreneurship, Uganda is one of the world’s most entrepreneurial nations but lacks a dedicated strategy or policy and comprehensive programme to support it effectively.
The Ugandan economy showed remarkable resilience in achieving modest gross domestic product (GDP) growth of 4.8% in 2016 compared to 5.5% growth in 2015. Real GDP projections for 2017 AEO indicate that GDP will grow by 5.1% in 2017 and 5.8% in 2018. Headline inflation is expected to increase slightly from 5.3% in 2017 to 5.9% in 2018, owing to rising food inflation on account of unfavourable weather conditions.
In support of macroeconomic management, the government has continued to implement large infrastructure programmes in 2016 balanced with a cautious but expansionary fiscal policy and a prudent monetary policy aimed at maintaining price, debt sustainability and exchange rate stability. The main focus has been to grow tax-to-GDP by 0.5% per annum to propel growth. However, continued institutional capacity constraints in implementing public investment projects have constrained GDP growth below the 7% full GDP potential.
The current account is expected to deteriorate from 6.5% of GDP in 2015 to 8.4% in 2016 and remain fragile in part due to the importation of inputs for large-scale infrastructure projects and a reduction in global demand for exports. According to the Bank of Uganda (BoU), the stock of foreign exchange reserves at the end of 2016 is equivalent to 4.3 months of import cover.
The country’s fiscal deficit is projected to widen slightly from 4.3% of GDP in 2014/15 to 4.8% of GDP in 2015/16 and oscillate within the range of 4.9 to 5.0% of GDP between 2016 and 2018. According to the Bank of Uganda, the low levels of absorption of externally financed development expenditures resulted in a significantly lower fiscal deficit in fiscal year (FY) 2015/16 than the 7% of GDP projected at the time of the FY 2015/16 budget. The low absorption for project grants and loans is estimated at 58% and 73%, respectively.
In a bid to accelerate growth and make it more inclusive, Uganda has made industrial development an integral part of the government’s overall development strategy in the NDP II period. Industrial sector development is at a nascent stage in Uganda. During FY 2015/16, the sector accounted for around 18% of GDP. The industrial sector remains largely dominated by manufacturing accounting for an average of 47% of GDP of sector, followed by construction (37%), electricity (6%), water (2%) and mining and quarrying (8%) during the period 2011-15. The relative share of industry and manufacturing has not changed over the last ten years. A large share of the active labour force is engaged in entrepreneurship mainly in the service sector. However, the country has no comprehensive policy or strategy to enhance the sector’s growth. Uganda has embedded entrepreneurship development in some of its policy and strategy such as MSME Policy.