Overview:
Finance Ministry Permanent Secretary Ramathan Ggoobi says strategic government interventions have created a stable environment for economic progress.
At the start of 2024, the Government of Uganda painted an optimistic picture, projecting that the economy would expand by 6.0% in 2024 , buoyed by stronger regional growth as global supply chains normalize.
The government, said the oil sector would continue ramping up investments in wells and pipelines, further underpinning growth and future exports.
The signs started to show, at least going by statistics. During January 2024, there were improved sentiments about doing business in the Ugandan economy as shown by the Business Tendency Index (BTI). The BTI was recorded at 60.15 which is higher than the 59.58 recorded for December 2023. The index being above the 50 no-change mark implies positive sentiments investors and businesspeople have in the economy. The improved optimism in January 2024 was recorded in the sectors of construction, Manufacturing, Wholesale Trade, and Other Services.
By April, investors were more optimistic about the business environment, especially in the manufacturing and wholesale trade sectors. This was shown by the Business Tendency Index, which remained above the 50-mark threshold, increasing to 55.57 in April 2024 from 55.54 the previous month, according to the Performance of the Economy Report released by the Ministry of Finance.
Key indicators measured by the index show that the business community was most optimistic about employment prospects and business conditions in the next three months pointing to a positive outlook of the economy. For the first time since September 2023, the indicator for employee numbers rose above the threshold of 50 from 49.30 in March to 50.90 in April 2024, implying that investors were optimistic about hiring new staff going forward.
The industrial sector, accounting for 25% of the economy, remained the top contributor to growth, followed by services at 44%. An oil-related construction boom led to Foreign Direct Investment (FDI) reaching $2.3 billion during the first nine months of FY24.
Fast forward in December 2024, several reports indicate that Uganda’s economy has grown. For instance, the World Bank notes that Uganda’s real gross domestic product (GDP) growth accelerated from 5.3% in FY22/23 to an estimated 6% in FY23/24.
‘The low inflation and recovery of real income and employment bolstered consumption, while private investment remained resilient despite tight domestic and global financial conditions. As a result, exports and manufacturing orders increased between August 2023 and May 2024. Per capita income reached about $980 in FY22/23, and continued growth will push Uganda closer to the lower-middle-income country threshold,” the report indicates.
The Ministry of Finance says Uganda’s economic activity has continued to improve, as reflected by the high-frequency indicators such as the Composite Index of Economic Activity (CIEA) and the Purchasing Managers’ Index (PMI). The CIEA registered a growth of 0.4% in October 2024, rising to 168.74 from 168.08 in September, with heightened activity across all monitored sectors. Similarly, the PMI rose to 55.7 in November 2024 from 52.9 in October, driven by increased output and new orders fueled by sustained strong consumer demand.
The low inflation and recovery of real income and employment bolstered consumption, while private investment remained resilient despite tight domestic and global financial conditions. As a result, exports and manufacturing orders increased between August 2023 and May 2024. Per capita income reached about $980 in FY22/23, and continued growth will push Uganda closer to the lower-middle-income country threshold,
WORLD BANK ECONOMIC UPDATE
Similarly, perceptions about doing business remained optimistic as measured by the Business
Tendency Index (BTI). The BTI increased to 59.63 in November 2024, from 57.99 in October, partly due to consistent higher consumer demand within the business community.
In November 2024, Annual Headline inflation remained unchanged at 2.9%, the same rate recorded in October. This stability is attributed to declines in prices for transport services, inpatient care services and liquid fuels (petrol and diesel), which offset the increase in prices of food items such as milk and Irish potatoes.
Finance Ministry Permanent Secretary Ramathan Ggoobi says strategic government interventions have created a stable environment for economic progress. Two key policies stand out in 2024:
- Parish Development Model (PDM): The first phase of the PDM established and fully capitalized 10,585 savings and credit cooperatives in FY23, disbursing UGX877 billion (about $239 million) in loans to 880,000 households.
- Monetary Policy: The central bank of Uganda reduced its key lending rate by 25 basis points for the second consecutive time, bringing it down to 9.75%. This decision was based on expectations that inflation would remain below the target of 5% in the near term, as inflation decreased to 3.6%.
Challenges
To sustain the resilience and achieve inclusive growth, the World Bank report says Uganda needs to manage its debt, strengthen revenue mobilization, improve public investment management, plan to better manage oil revenues, and invest more strongly in human capital development drivers, such as health.
“Uganda has a young and growing population and is prone to public health emergencies, yet its public spending on health is low and declining. At $6.8 per capita, Uganda’s investment in health is one of the lowest in the region. Currently, households and external development partners finance a combined 84% of current total health spending,” the World Bank says.
On an annual basis, the merchandise trade deficit widened by more than 180 percent, rising from USD 188.61 million in October 2023 to USD 534.66 million in October 2024. This surge was driven by a rise of imports from USD 869.13 million in October 2023 to USD 1,279.52 million in October 2024. This increase surpassed that of export receipts, which rose from USD 680.51 million in October 2023 to USD 744.86 million in October 2024. Similarly in October 2024, Uganda’s merchandise deficit with the rest of the world increased by 45.0 percent from USD 368.34 million in September to USD 534.66 million in October. The widening of the deficit was attributed to an increase in the import bill, which more than offset the increase in export receipts during the month