Economic studies
Uganda

Uganda

Population 37.7 million
GDP 707 US$
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) 2.6 5.1 5.8 6.0
Inflation (yearly average, %) 5.5 5.6 2.9 4.7
Budget balance (% GDP)* -4.8 -3.9 -4.7 -5.7
Current account balance (% GDP) -2.6 -4.3 -6.6 -7.3
Public debt (% GDP) 37.3 39.5 42.9 44.7

(e): Estimate. (f): Forecast. *Fiscal year 2019 from the 1st July 2018 to the 30th June 2019.

STRENGTHS

  • Natural resources: fertile land, oil fields, hydroelectric potential
  • Diversification efforts, particularly in the agri-food sector
  • International support for infrastructure projects
  • Debt mainly on concessional terms

WEAKNESSES

  • Poverty and inequality
  • Inadequate infrastructure
  • Insecurity in border areas (Democratic Republic of Congo, South Sudan)
  • Slow progress in governance (particularly control of corruption)

RISK ASSESSMENT

Consumption and public investment support growth

Growth should tick upwards in 2019, continuing the rebound driven by private consumption and public investment. The implementation of infrastructure projects under the second National Development Plan will lend support to this momentum. Target areas for public investment will include transport sectors, as the government bids to improve road and rail networks, and the energy sector, amid efforts to expand the electricity distribution network. With the Karuma and Isimba hydroelectric power plants coming onstream, electricity generation should be boosted, supporting the development of industry, as well as ICT services. However, the latter could suffer from a new tax on social media use. The prospects for oil production (which is scheduled to begin in 2021) and the start of construction of the pipeline linking the country to Tanzania should provide support to private investment. The private sector could also target opportunities in the mining and agricultural sectors, which are expected to continue to expand. Pulled down by imports of capital goods, the contribution of the trade balance to growth will remain negative, despite the expected increase in production of coffee and gold, the two main export products. Conversely, private consumption is expected to continue to support growth, benefiting in particular from the pick-up in credit growth and from the fact that inflation is close to the central bank's target (5%), despite the key interest rate hike introduced in late 2018 to temper inflationary pressures. After dipping below 2% in the first half of 2018, inflation is expected to continue on the upward path begun since then, fuelled by brisk domestic demand, rising fuel prices and shilling depreciation.

 

Greater vulnerability to external shocks

The budget deficit is expected to continue to widen in 2018/19, in line with the increase in expenditure. Most of this increase will result from capital spending. However, as in previous years, these expenses are expected to be inferior to the declared objectives. Current expenditure is also expected to continue to go up, reflecting the increased wage bill, education, and health expenditure, as well as interest payments. At the same time, low domestic resource mobilisation will remain an obstacle to revenue growth. Grants and loans will therefore remain necessary to finance the budget deficit, and debt will continue to accumulate. A domestic debt build-up is already causing debt service to increase. While the large share of concessional debt supports the sustainability of the external debt trajectory, a shock could compromise it.

Imports of capital goods and petroleum products are expected to continue to weigh on the trade and current account deficits. The balance of services, particularly those related to project implementation, will also remain in deficit. The income balance will continue to be affected by profits repatriation from investors. The only positive contribution to the current account balance is the transfer balance, which will be mainly driven by expatriate remittances. A combination of FDI and external borrowing will finance the current account deficit. With the US tightening monetary policy, the widening current account deficit is putting pressure on foreign exchange reserves (sufficient to cover about 4.5 months of imports) and the Ugandan shilling. However strong growth prospects should protect the shilling against a major sell-off.

 

Yoweri Museveni hopes to rule beyond 2021

In power since 1986, President Yoweri Museveni was re-elected following the 2016 general elections, which also gave his party, the National Resistance Movement, an absolute majority. After removing the age limit of 75 years by means of a constitutional amendment upheld by the Constitutional Court in July 2018, the President – who was born in 1944 – will be able to run for a sixth term in the next election in 2021. This amendment, despite being a source of dissatisfaction, should allow Mr Museveni to keep his grip on power. Regularly accused of maintaining its hold by silencing dissenting voices, the President's administration was criticised in the summer of 2018 following the arrests and alleged torture of several prominent opposition figures, including Robert “Bobi Wine” Kyagulanyi, a singer turned politician. After his arrest, Mr Kyagulanyi gained domestic importance and drew the international community's attention to the government’s increasingly strong-handed responses to dissent. The lack of political freedom, coupled with dissatisfaction over corruption and slow progress in raising living standards are fuelling social unrest.

The country also faces an unstable political and security situation on its borders (South Sudan, Democratic Republic of the Congo). As the supplier of most of the troops to the AU Mission in Somalia (AMISOM), the country is also a potential target of Islamist terrorism, as demonstrated by the attack in Kampala in 2010, where more than 70 people died. Red tape remains an obstacle for companies and a persistent weakness in the business environment.

 

Last update: February 2019

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