Uganda has in the past few years showed impressive growth rates despite a number of shocks including prolonged drought, severe energy shortage and the adverse impact of high oil and food prices. Public finances are in good shape with a very favorable debt situation and the financial sector is sound and well-capitalized. Uganda is, therefore, entering the global economic slowdown in a relatively strong position.
The first effects of the global financial crisis are already being felt on the currency and stock markets; both had been falling sharply but have now stabilized. The main transmission channels from the global economic crisis to the Ugandan economy are expected to be receding demand for Ugandan exports, reversing terms of trade and slackened capital inflows. All in all, the assessment is that the global economic slowdown will have noticeable but manageable effects on the Ugandan economy. In our new ‘global economic slowdown’-scenario for Uganda, we have revised growth downwards to average 6.9% (7.9%) during 2008/09-2010/11.
In terms of policy implications, there is room for prudent widening of the fiscal deficit. It should therefore be possible to accommodate spending as planned, including much-needed infrastructure investments. This will also serve as a much needed fiscal stimulus to the economy. Given the increasing concerns about domestic factors keeping inflation above target, the room for monetary relief is very limited.