Uganda’s growth outlook upbeat despite fiscal questions

Uganda's economic outlook remains positive despite the challenges posed by the global financial market, according to the latest Absa Africa Financial Markets Index 2023 report. The report, which focuses on macroeconomic factors deepening Africa's economy, highlights Uganda's impressive performance in the midst of a difficult financial environment. In a recent interview with CNBC Africa, Jeff Gable, Chief Economist at Absa Group, shed light on Uganda's economic growth, inflation trends, donor funding challenges, foreign reserves stability, and the impact on investors' decisions. Gable's insights provide valuable information on the current state and future prospects of Uganda's economy. According to the AFMI index, Uganda holds the fourth position, reflecting its resilience and potential for growth in the financial markets. Despite a challenging environment with global rates rising and increased risk aversion, over half of the 28 countries included in the index showed improvements in their scores. South Africa maintained its top position, followed by Mauritius and Nigeria, with Uganda closely trailing Nigeria. Uganda experienced a significant reduction in inflation rate from over 10% to below 3% in recent months, providing relief to businesses and consumers. The Bank of Uganda's decision to cut interest rates further eased the economic environment, although inflation is expected to rise moderately in the future. Gable noted that the slowdown in donor funds poses a challenge to Uganda's economic performance, emphasizing the need for alternative financing sources and increased reliance on domestic resources. While the impact of reduced foreign financing on economic forecasts is currently uncertain, monitoring the situation is crucial for Uganda's economic stability. Despite foreign reserves facing pressure, the Ugandan shilling has remained resilient, performing well compared to regional peers. Factors such as strong economic growth and limited exposure to offshore portfolio investors have contributed to the currency's stability. Additionally, the potential commercialization of hydrocarbons presents an opportunity for Uganda to boost its foreign exchange earnings. Geopolitical tensions and uncertain economic conditions globally may influence investors' decisions in emerging markets like Uganda. As global risk appetite evolves, countries with favorable domestic interest rates and low inflation rates, such as Uganda, may attract increased investment. Looking ahead, Uganda's GDP is expected to grow above 5% in 2023 and continue the positive trend into 2024. Key drivers of economic growth include the extractive industry and infrastructure development, particularly in preparation for the hydrocarbon sector. Recommendations for Uganda to sustain its economic growth include diversifying financing sources, monitoring inflation trends, and leveraging sector-specific strengths like extractives and construction. With a favorable growth trajectory and strategic focus on key sectors, Uganda maintains a promising outlook for economic development amidst global financial challenges.