Uganda’s economy rebounded strongly as domestic economic conditions improved following the easing of mobility restrictions during the period October 2021–February 2022. The third wave of COVID-19 infections was also milder and is now over. With about 30 percent of the 22 million target population (aged 18+) fully vaccinated by late February, the objective of fully vaccinating 49 percent of the population will likely be reached by June 2022. The war in Ukraine and resulting economic sanctions are mainly affecting Uganda through commodity prices, which were already on the rise. Real GDP growth could fall below the recovery path that had been expected, to average 4.7 percent in FY22.
With lower consumption growth due to reduced remittances, limited credit, and job losses, poverty increased from 27.5 to 32.7 percent after the first lockdown in 2020. Employment rates fell again after the second lockdown in 2021.
Given a more positive COVID-19 and vaccine outlook, and the recent signing of the final investment decision in the oil sector, the economy was expected to continue gaining buoyancy. However, risks are tilted downwards. The worsening global environment, following Russia’s invasion of Ukraine, may reduce Uganda’s growth to below 6 percent in FY23 and FY24 because of trade disruptions, higher commodity prices, and increased risk aversion that may slow investments. Costlier inputs (e.g., fertilizers and transport) will also pose challenges for agricultural production, food security, and household incomes that are still recovering.
Compared to the strong performance in the 2000s, recent economic growth has slowed considerably. With reduced reform momentum, a less supportive external environment, and other exogenous shocks like droughts, growth since 2011 has barely surpassed the high population growth rate of 3 percent. As a result, in the five years prior to the COVID-19 crisis, per capita real GDP growth halved to 1.1 percent on average per year.
Structural transformation is key for growth and poverty reduction. This will require changing the growth model and role of the state. The current model of debt-financed public spending – which emphasizes infrastructure and has crowded out private sector borrowing – needs to be replaced with one where the private sector drives growth. The state can then provide support through a better balance of investments in human capital and infrastructure. The prospects for this shift will also rely on maintaining macroeconomic stability; better support for the vulnerable, farmers, and small enterprises; increasing uptake of digital technologies; and effective use of public resources.
Human Capital in Uganda
Uganda’s Human Capital Index (HCI) is low; a child born in Uganda today is likely to be 38% as productive when she grows up, as she could be if she enjoyed complete education and full health. A child who starts schooling at the age of 4 is only expected to complete 6.8 years of school by their 18th birthday, compared to the Sub-Saharan average of 8.3. However, actual years of learning are 4.3, with the 2.5 years considered “wasted” due to poor quality of education.
Last Updated: Apr 17, 2022