IMF predicts 6pc economic growth for Uganda

MF Managing Director Christine LaGarde

By Standard Reporter and Reuters

Uganda’s economic growth should accelerate to just above 6 per cent in the next fiscal year through June 2015 despite the risk of reduced foreign aid and unrest in the key export market of South Sudan, the International Monetary Fund (IMF) said yesterday.

Western donors have halted or re-directed about $118 million in aid to Uganda since President Yoweri Museveni signed a law in February that toughened existing rules against same-sex relationships.

President Museveni signed into law a Bill that toughens penalties against gay people and defines some homosexual acts as crimes punishable by life in prison early this year.

Homosexual acts are already illegal in Uganda, and Museveni had gone back and forth about whether he would sign the controversial Bill in the face of vocal opposition from the West.

At the public signing of the Bill, a defiant Museveni declared that he would not allow the West to impose its values on Uganda.

“We have been disappointed for a long time by the conduct of the West, the way you conduct yourselves there,” he told the media. “Our disappointment is now exacerbated because we are sorry to see that you live the way you live, but we keep quiet about it. Now you say, ‘You must also live like us’ – that’s where we say no.”

Analysts have said that the East African economy has become less dependent on aid for budget support in recent years, but the IMF said reduced foreign aid made it even more important for the country to expand its tax base.

Broadening tax base

“Following the recent large shortfall in tax revenue and the risk of reductions in foreign aid, broadening the tax base and improving efficiency in tax administration are more critical than ever,” an IMF statement said. Tax revenues have lagged as economic growth has been slower than expected this fiscal year although the IMF said the economy was still solid.

“Despite a slowdown in agriculture and unrest in South Sudan, growth continues to be robust,” it said. Neighbouring South Sudan has been experiencing violence since last December, disrupting trade between the two nations.

Ugandan exports to South Sudan include food, plastics, beverages and construction materials.

The IMF said Uganda needed to curtail its public spending to relieve pressure on credit markets and spur lending to the private sector.

“Restrained public consumption in the upcoming year ... would create room for improved credit conditions, laying the ground for a rebound in private sector activity,” it said.

The IMF’s projections for economic growth of 6.1 per cent in the 2014/15 fiscal year, and 5.7 per cent in the current fiscal year, broadly match those of the Ugandan central bank, which predicts growth will reach 6.0-6.5 per cent in 2014/15. The bank this month cut its forecast for growth this fiscal year to 5.7 per cent from 6 per cent.

Boosting tax collections and curbing public spending, the IMF said, would help limit government borrowing in the domestic market, keeping a lid on interest rates.

Benchmark rate

Interest rates have been on hold since the central bank unexpectedly cut its benchmark rate by 50 basis points in December to 11.50 per cent, saying economic growth was below potential.