Ugandan economic outlook

Uganda's economy is facing a series of challenges with proposed tax changes affecting consumer spending and business activity, and inflation remaining a key focus. Daisy Anthea Nitwe, Country Lead at Stanbic Bank, Uganda, discussed the impact of these changes on the economy and the weakening Kenyan shilling during a recent interview with CNBC Africa. Inflation numbers in Uganda have seen a marginal decrease from 3.3% to 3.2%, driven mostly by food prices. The Central Bank of Uganda raised its central bank rate to 10.25% citing risks from currency depreciation and global factors like geopolitical tensions affecting commodity prices. While inflation across East Africa remains below the target of 5%, central banks are vigilant about potential risks that could push it higher, such as geopolitical tensions and weather-related disruptions. With the US Federal Reserve signaling higher rates for longer, regional markets are expected to maintain or increase their policy rates to avoid policy divergence. This could lead to high foreign currency borrowing rates and delay sovereigns' return to international debt capital markets. Looking ahead, the Fed's policy will be influenced by inflation trends, which will also guide regional economies in their monetary policy decisions. The stability of the Uganda shilling has been supported by corporate demand slowing down and increased supply from commodities, offshore investors, and remittances. On the other hand, Kenya has experienced a depreciation of the shilling due to profit-taking by offshore investors and private sector demand. The impact of this depreciation is felt in the upcoming Eurobond repayment, with Kenyans needing more shillings to repay the bond. Despite these challenges, Kenya has secured funding from the IMF and taken measures to stabilize the currency to ease future repayment pressures.