Middle income status slips further away for Uganda

May 23, 2018 in Finance, Policy by Editor

May 23, 2018—The government’s plans for Uganda attaining middle-income status by 2020 look over ambitious in light of the continued rapid population growth and an economy not generating new wealth fast enough to cope with the rapid demand for public goods. At 3 pc, Uganda has one of the fastest population growth rates in the world with the total number of Ugandans today hovering around 41 million.

Middle income countries have a per capita income of at least $1000 while at present Ugandans have to make do with about $700 and hopes that commercial oil production beginning in two years time will help to spark off a surge in economic growth. Uganda’s Gross Domestic Product (GDP) has steadily fallen from the highs of 8 pc and 9 pc seen during the 1990s to less than 5% in recent years.

According to the latest World Bank Economic Update, Uganda’s GDP is expected to reach 5.5 pc this financial year compared to the 3% recorded last year.

This follows a better than expected recovery from the low growth rate last year caused by a decline in agriculture production due to bad weather.

Rachel Sebudde, the Senior Economist at the World Bank’s Country Office this positive outlook is attributed to output growth in agricultural sector which grow by 6%.  Good weather and control of the army worm outbreak helped this turnaround in the agricultural sector.

According to the same report, in the first half of the financial year 2017/2018, exports grew at 12% due to strong external demand and the global economy which has been picking up. Nevertheless, Uganda’s trade balance remains negative as it continues to twice more than it exports, a difference of about $2 billion.

However, Christina Malmberg Calvo, the World Bank Country Manager said,  “Given the very high population growth, such economic growth rates, although sizable, are still insufficient to keep the country on track to attain middle income status.”

Sebudde said, “Private sector credit also grew by 5.5 pc during this period, despite high cost of credit, as lending rates slowly respond to the sustained reduction in the Central Bank Rat now standing at 9%.”

She said the other areas that have led to this growth include stable macro- economic conditions supported by low inflation rate, a relatively stable exchange rates, better managed government investments in energy, roads and other oil related infrastructure which are also key to sustaining this growth.

She suggested the government continues to improve its domestic revenue mobilization so that it can be able to collect enough revenue to sustain its investment programme.

Moses Kajubi,  a senior Public Sector specialist at World Bank in Kampala said, “There are three ways; expanding tax base by getting more entities to pay tax, making sure tax instruments are improved to make them more efficient and raising efficiency of tax administration.”

A state minister in the finance ministry, David Bahati who officially launched the report, said the government is doing everything possible to generate revenue locally so that it can reduce the debt burden.

“We are worried about the growing debt, currently at 37.6%. We have to find means of increasing the revenue to GDP ratio  to at least 18%. We are building capacity for URA to be able to collect more revenue,” Bahati said