Spotlight: Uganda’s Economy On Mild Recovery Amid COVID-19

Spotlight: Uganda’s Economy On Mild Recovery Amid COVID-19

By Spy Uganda

Kampala: A series of financial reports indicate that Uganda’s economy is on a recovery trend, despite that the effects of the COVID-19 pandemic will drag on till 2021.

The east African country’s economy, hit hard by COVID-19, will contract up to 1 percent in 2020, down from 7.5 percent growth in 2019, according to the latest analysis by the World Bank.

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Since the country registered its first COVID-19 case on March 21, the government has implemented several measures, including a lockdown, which have disrupted trade activities and production.

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The pandemic led to a fall in household incomes as a result of widespread firm closures and job losses within industry and services, the World Bank said in Uganda Economic Update published on Dec. 2.

Despite this grim picture, there was a mild recovery of economic activity in the quarter to September, with an estimated growth of 2 percent from a sharp contraction of 6 percent in the quarter to June, the Bank of Uganda (BOU) said in its September 2020 monetary policy statement.

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The country’s simultaneous fiscal, monetary and financial stimulus measures have been effective in avoiding the most negative economic consequences of the COVID-19 shock, the central bank said.

The easing of the lockdown, the stability of the exchange rate, as well as a slight improvement in both foreign and domestic demand are supporting economic growth recovery, the BOU added.

The Purchasing Managers’ Index (PMI) in October stayed around the 50-mark threshold for the fourth consecutive month. Readings above 50.0 signal an improvement in business conditions while those below 50.0 show deterioration.

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The PMI rose to 55.8 in October from 54.5 in September, according to a report by the country’s finance ministry.

“This gives an indication of further recovery in economic activity, from the downturn caused by the COVID-19 pandemic,” the ministry said in its monthly economic report for October.

The Business Tendency Index, which measures business sentiments, rose to 51.68 in October from 50.80 in September, above the 50.0 threshold for the second successive month.

Risks to the country’s financial sector have also been reduced due to decisive and macro-prudential policies of the BOU, according to the central bank’s quarterly financial report for the months leading up to September 2020.

These measures contributed to a continuous growth of the inflow of offshore investors into the domestic financial markets, which enhanced the availability of funding for banks and supported the Ugandan shilling’s stability.

Offshore investors’ total assets in the banking system rose to 1.6 trillion shillings (438.4 million U.S. dollars) in September from 1.4 trillion shillings (383.6 million dollars) at the end of May. This reversed the trend of outflows seen in March and April at the height of uncertainty and risk aversion in global financial markets.

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Although Uganda’s economy is on a recovery trajectory, its outlook is uncertain, largely because of the unpredictable course of the virus and the wide range of shocks hitting the economy.

The BOU warned that the surging COVID-19 cases will have a negative impact on the growth momentum of gross domestic product in the 12-24 months ahead.

The country is likely to experience sluggish external demand, subdued consumer expenditure, weak performance of the service sector and commercial banks’ cautious lending among others.

Uganda registers an average of 2,000 COVID-19 cases per week, a figure much higher than what was recorded in months before September when cases started to surge, according to the health ministry.

So far, the country has more than 23,000 cumulative cases and over 200 deaths since the onset of the pandemic.

Joyce Moriku Kaducu, state minister for primary health care, recently said the country is likely to register more cases and deaths, as the public is getting complacent about the disease.

As the worsening pandemic across the country and beyond has increased risks to the economy, Uganda remains highly vulnerable to periodic bouts of global financial volatility, which stem from continued global economic weakness, geopolitical tensions and increasing protectionism, according to the BOU.

Although the country’s financial sector is somewhat stable, the outlook remains highly uncertain and dependent on the evolution of the pandemic and the pace of economic recovery.

“Risks to financial stability are likely to remain heightened going forward, until economic recovery is stronger,” the BOU said. Enditem

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