Uganda’s Economic Outlook Remains Positive Amid Challenges and Global Uncertainty
Uganda’s economy has shown consistent growth in recent years, with 2023 marking a 5.0% increase in GDP. After a dip in 2020 due to the pandemic, the country’s economy rebounded in 2021 and 2022 with growth rates of 5.7% and 6.1%, respectively. According to Jeff Gable, the head of research at Absa Uganda, the country’s economy is expected to continue growing at an annual rate of 5.0-6.0% over the next decade, potentially doubling in size every 13-14 years. Agriculture is the primary driver of this growth, though sectors such as mining, education, and telecommunications have seen slower progress.
Business sentiment in Uganda is optimistic, as seen through positive trends in the Purchasing Managers’ Index (PMI) and increasing access to credit. Businesses are borrowing money to invest in their futures, which is a promising sign for the long-term stability of the economy. However, inflation remains a concern, particularly in areas like fuel, food, education, and healthcare. While fuel prices have stabilized, food costs continue to rise due to a recent drought, and double-digit price hikes in education and healthcare put additional strain on household budgets.
The Bank of Uganda (BoU) has taken steps to manage inflation by cutting interest rates, with expectations for further reductions in 2025. However, public finance remains a critical issue, with a significant portion of government revenue being allocated to servicing debt. While Uganda is not at immediate risk of a debt crisis, Gable emphasizes the importance of improving tax mobilization and revenue generation to prevent future financial challenges. The Uganda shilling has remained relatively stable in recent years, providing some stability to businesses and households, although global economic uncertainties could have an impact on the currency.
Uganda faces challenges from global instability, including geopolitical tensions, the ongoing conflict in Europe, and shifting dynamics in the United States. These factors have contributed to rising inflation and currency fluctuations, which could affect Uganda’s economic outlook. Despite these external challenges, Uganda’s economy remains resilient, with opportunities for growth through regional trade agreements such as the African Continental Free Trade Area (AfCFTA). By diversifying its economy and capitalizing on opportunities, Uganda can reduce reliance on hydrocarbons and continue to build a more sustainable economic future.
Source: MONITOR