BoU tags Uganda’s growth in 2023 on oil investments, reduced food prices

Bank of Uganda has said the economy is expected to grow at around 5.3 percent for Financial Year 2022/23 largely due to investments in the oil sector and a rebound in agriculture production and productivity

In the State of the Economy Report for December 2022, Bank of Uganda said this will be an improvement from the 4.6 percent in the previous fiscal year that was affected by the Covid-19 pandemic.

“GDP growth is now projected in the range of 5-5.3 percent for FY 2022/23, up from 4.6 percent in the previous fiscal year. The main driver of the uptick in growth is the investments in the Oil sector which has seen recent upsurge in Foreign Direct Investments and economic activity,” BoU said.

“A rebound in agriculture production and productivity owning to government interventions and rebound industrial sector activity are yet other factors underpinning the projection,” it added.

 Nevertheless, BoU said economic growth would pick up in outer years but is likely to remain below its long-run trend until FY2025/26.

It also warns of substantial risks to the growth outlook, with the balance of risks tilted to the downside, including worsening of the Ebola outbreak, delayed implementation of oil-related projects, tighter financial conditions coupled with fiscal consolidation, and materialization of a global recession would weigh down on the domestic economic growth prospects.

On the upside, Bank of Uganda said growth could surprise if foreign direct investment associated with oil-related projects is higher than anticipated.

“GDP growth is now projected in the range of 5-5.3 percent for FY 2022/23, up from 4.6 percent in the previous fiscal year. The main driver of the uptick in growth is the investments in the Oil sector which has seen recent upsurge in Foreign Direct Investments and economic activity,”

Bank of uganda report

The Bank of Uganda has revised inflation projection downwards. Inflation will continue to moderate, average between 6 to 8 percent in 2023 and stabilize around the medium-term target by the end of 2023. This forecast is 2 percentage points lower than what had been earlier projected.

The forecast revision is due to the dissipating impact of the earlier increases in global commodity prices, subdued domestic demand, expected decrease in global inflation, and lower than anticipated exchange rate depreciation.

However, the trajectory of inflation remains uncertain due to the ongoing evolution of supply shocks. The upside risks include potential increase in international commodity prices beyond current forecasts due further in oil supply cuts by the OPEC+, higher shilling depreciation than currently being projected due to simultaneous tightening of monetary policies by major central banks, persistence of supply and logistical constraints to production and recurrence of bad weather in the coming year.

Uganda’s public debt is set to increase from the current 48.4 percent to 53.1 percent in 2023, according to the estimated budget for the Financial Year 2023-2024 released by the Finance ministry.