Bank of Uganda (BoU) has warned that the current slow economy activity in the country could remain amid the surge in the Omicron Covid-19 variant.
BoU in the state of economy report for December 2021 states that while increased vaccination rates and the reopening of the economy are encouraging, the emergence of Omicron has brought uncertainty.
“Variants like Omicron and whatever variant follows it are casting uncertainty over the outlook, and therefore, spare capacity in the economy could persist until 2025,” the report reads in part.
The government has reported a total of 6,327 new cases of Covid-19 infections in the last 10 days of December, a number eight times higher than the 754 cases registered in the previous 10 days.
According to BoU, the prevailing Covid-19 restrictive measures continue to weigh down economic activity.
However, they said as vaccination rates increase further and the health-related restrictions are eased, the economy is expected to bounce back strongly.
Therefore, BoU says economic growth is projected to be 3.5-3.8 percent in the FY2021/22 and 5.5-6.0 percent in FY2022/23, before increasing to 6.5-7.5 percent in the medium-term (2 to 3-years ahead).
“However, import growth is expected to outpace export growth due to recovery in import-intensive household consumption and private investment. As a result, the contribution of net exports to GDP growth will be negative for an extended period,” the report says.
Additionally, although the fiscal impulse remains positive in FY2021/22, its contribution to GDP growth is lower than last financial year owing to the limited fiscal space to support further increases in government expenditure, the report states.
But BoU says a rebound of economic activity will be sustained by an acceleration in private consumption, strong growth in external demand, a gradual return of tourism, and foreign and domestic private investment in the oil sector.