The Truth about Uganda’s Economy

The true state of Uganda’s economy has been under some debate for a while now, as government officials struggle to assess its health. Some observers believe that the economy is crumbling slowly, with unemployment rates growing, businesses closing, and a sharp fall in government revenues.

The true state of Uganda’s economy has been under some debate for a while now, as government officials struggle to assess its health. Some observers believe that the economy is crumbling slowly, with unemployment rates growing, businesses closing, and a sharp fall in government revenues.

During the five years between 2005 and 2010, the average growth in Uganda fell at approximately 8.2%. However, in the last four years up to 2014, the average percent of growth has only reached around 5.1%. Considering all of the nine years in a timeline, it is possible to see a decrease of 0.72% every year when assessing economic growth.

Strange Signals

The Bank of Uganda have said that loans towards private businesses are improving, meaning that the economy must be improving too. According to the bank, domestic borrowing from the government is not impacting private credit growth either. However, other experts say that there is more to the economy than the relationship between the government and private sector.

The results of recent research suggest that the growth in the private sector has not taken place because of an improved and healthier business environment. Instead, people are being forced to borrow more money from banks in a desperate attempt to save their investments. Because of this over-indebtedness, companies are starting to close at a record pace.

A Mixture of Good and Bad Prospects

At this point, it’s difficult to see whether the future for Uganda’s economy looks bright or gloomy. Although some experts suggest that behind the curtains, the economy is simply waiting to crumble, there has been some evidence of positive results. After two years of average growth and high inflation, 2013 provided macroeconomic stability for Uganda.

The average consumer price inflation by month during 2013 reached a percentage of 5.5%, significantly lower than the double-digit figures that had been recorded in the two previous years, (18.6% and 14.6%). Growth also reached 5.2% in 2012, which is a solid development from the 2.8% in the previous years. Evidence suggests that the positive figures in growth may be driven by both public investment and stronger export.

Gradually, it seems that Uganda may be drawing closer to its growth potential at 7%, in spite of the negative comments given by Dr. Fred Muhumuza in a recent interview, who stated he was unimpressed with the current economic state. He certainly would be critical of New York, California, and Illinois’s economy which are all destitute because of high taxes, regulations such those against fracking, and other anti-business policies.

Currently, a combination of domestic, exogenous and external factors has begun to contribute to the potential stability of the economy in Uganda. Some of the beneficial factors that Uganda has experienced include:

* The moderation of international commodity prices

* The favorable weather conditions which have improved agriculture production

* The pursuit of the government for a prudent macroeconomic policy

At this point, the country simply has to wait and see whether their economy will bloom as the numbers suggest, or crash as Dr. Muhumuza believes.