The economy is projected to grow faster this financial year compared to 2020/21 on account of a shorter lockdown period imposed by the Government that has allowed businesses to reopen after 42 days of closure.
The ease in restrictions followed a decrease in COVID-19 cases, positivity rate, and hospital admissions countrywide. Last year, some economic sectors spent nearly four months (March to June) under total lockdown.
The head of financial markets at Absa Bank, David Wandera, said relaxation on movement restriction will see a pickup in market activity in sectors such as real estate that had slowed.
“Considering that this lockdown was slightly shorter than last year’s and we have already carried out some vaccinations makes us better prepared for future infections.
I think there might be a muted impact on the economy compared to what we saw last year,” Wandera said.
“The risks that we expect now is that the sectors that we have seen growing may not grow as fast. Services and industry might face challenges,” he added.
Wandera was speaking during a webinar on the macroeconomic outlook for the region in the second half of 2021. Uganda’s economy was recovering before the 42-day lockdown due to an upsurge in coronavirus cases.
Despite the positive outlook, Uganda’s Purchasing Managers Index (PMI) remains depressed. The Stanbic PMI was relatively flat at 34.6 in July from 34.9 in June, indicating further contraction in business activity due to the COVID-19 lockdown.
Declines were registered in output, new orders and employment. However, input costs and output prices declined.
An index reading above 50 signals improving business conditions, whereas a reading below 50 indicates deteriorating business conditions.
Gross domestic product (GDP) growth is forecast at 4.3% in the 2021/22 financial year, from 3.3% in the 2020/21 financial year. The key risk to the growth outlook is the COVID-19 resurgence and the potential imposition of lockdown measures.
Growth for the second half of the year will also be pegged on how external borrowing from the Internal Monetary Fund (IMF) is deployed by the Government, fresh measuring of stimulating the economy to pre-pandemic levels, and the reopening of airports to allow tourism activity to fully resume.
ECONOMY PERFORMANCE
Uganda’s trade deficit widened in May and June as imports surged by over 70% year-on-year to a monthly all-time high of $933m due to imports of mineral products. Exports in comparison only grew by 34% year-on-year in June 2021.
In July, the Uganda shilling strengthened against all the major currencies we track in July 2021. The local currency appreciated against the dollar on account of strong inflows for government securities from offshore investors amidst lower demand due to the total lockdown.
In their report as part of the Capital Markets Authority, ICEA asset management said the shilling is expected to remain stable as demand slowly picks up following the relaxation of the lockdown.
ICEA noted that the treasury bill auction size rose by 14% from sh245b to sh280b. The report noted that rates are expected to be volatile as higher government borrowing offsets high liquidity at the auctions.
