KAMPALA: In April 2024, Uganda saw a slight reduction in annual headline inflation, which dipped to 3.2% from 3.3% in March. This decrease is largely attributed to a stronger deflation in food crop prices, indicating a more significant year-on-year decline compared to the previous month. However, not all sectors experienced the same relief; energy, fuel, and utilities (EFU) and core inflation both saw increases. According to the Ministry of Finance’s April 2024 economic performance report, these mixed signals underline the complexity of Uganda’s economic landscape.
Economic activity and business conditions continued to strengthen, as evidenced by key indicators. The Composite Index of Economic Activity (CIEA) rose slightly to 162.38 in March from 162.19 in February, primarily driven by output increases in agriculture and industry. Similarly, the Purchasing Manager’s Index (PMI) improved significantly to 52.6 in April from 49.3 in March, reflecting enhanced business conditions supported by increased orders, output, and employment.
“The rise in the PMI is a clear indication of improved business confidence and activity. This is a positive sign for the economy, suggesting that businesses are gearing up for growth,” said an economist from the Ministry of Finance.
Investors maintained an optimistic outlook, as the Business Tendency Index (BTI) stayed above the 50-mark threshold, climbing to 55.57 in April from 55.54 in March. This sustained confidence underscores the resilience and potential of the Ugandan market.
Financial Sector Highlights
April 2024 saw the Ugandan Shilling appreciate by 1.9%, trading at an average mid-rate of Shs 3,822.7/USD compared to Shs 3,895.8/USD in March. This appreciation was driven by significant foreign currency inflows from increased offshore investments in government securities, higher export receipts (particularly coffee), foreign direct investments, private remittances, and contributions from NGOs and non-financial institutions.
The Central Bank Rate (CBR) was increased to 10.25% from 10.0% in March to further control inflationary pressures. Concurrently, the weighted average lending rates for Shilling-denominated credit decreased to 17.34% in March from 18.09% in February, partly due to more lending to prime corporate borrowers.
“Lower lending rates for prime borrowers are encouraging, as they suggest that banks are increasingly confident in the creditworthiness of these businesses, which can drive more economic activity,” noted a financial analyst.
Yields on Treasury Bills edged upwards in April, with annualized yields for the 364-day and 182-day tenors slightly increasing to 13.4% and 12.6%, respectively. The 91-day tenor yields remained unchanged at 9.8%.
External Sector Performance
Uganda’s merchandise exports increased marginally by 0.2% to USD 634.43 million in March from USD 633.0 million in February, driven by higher export receipts from tobacco, simsim, hides & skins, and gold. However, merchandise imports rose significantly by 14.1% to USD 1,037.84 million, leading to a widening trade deficit of USD 403.41 million, a 45.9% increase from February.
“The widening trade deficit highlights the need for policies that can boost export performance while managing import growth,” commented a trade expert.
Fiscal Sector Overview
In April 2024, total revenues and grants amounted to Shs 2,162.0 billion, falling short of the target of Shs 2,587.1 billion due to lower-than-expected collections in both tax and non-tax revenues. Government expenditure, on the other hand, reached Shs 3,463.61 billion, exceeding the target by 105.09% due to higher recurrent expenditures, particularly in wages, interest payments, and non-wage spending. This imbalance resulted in a fiscal deficit of Shs 1,301.61 billion, significantly above the target of Shs 405.32 billion.
Regional Comparisons
Across the East African Community (EAC) partner states, there was a general slowdown in annual headline inflation, with Rwanda and Kenya experiencing declines. However, Tanzania saw a slight increase, from 3.0% to 3.1%. The US dollar exchange rate trends varied, with the Ugandan and Kenyan Shillings appreciating, while the Tanzanian Shilling, Rwandan Franc, and Burundian Franc depreciated.
Conclusion
Uganda’s economic indicators present a mixed but cautiously optimistic picture. While inflation has eased slightly and business confidence remains high, challenges such as the widening trade deficit and fiscal imbalances persist. Continued monitoring and strategic policy interventions will be crucial in navigating these complexities and fostering sustained economic growth.
“Despite the challenges, the overall outlook for Uganda’s economy remains positive, with strong signals of recovery and growth,” summarized an official from the Ministry of Finance.
