The Ugandan economy grew at 4.6% during FY22, faster than had been anticipated due to an uptick in activity after the economy reopened in January 2022. On the supply side, services and industry were the main drivers of economic growth. There was also strong recovery in wholesale and retail trade, real estate and education, with industry rebounding through construction and manufacturing. On the demand side, private investment and private consumption headed towards pre-COVID levels. The current account deficit widened to over 9% of GDP, primarily reflecting a deterioration in the terms of trade and wider trade deficit.
With higher prices and policy tightening, growth in real consumption slowed, possibly because of reduced purchasing power, limited credit growth, and job losses. Employment fell after the second lockdown in June 2021 and remained at the same level in June/July 2022. Half of the population was moderately food insecure. Households, in particular the poorest ones, felt a negative impact from increased prices, either by being unable to access food products or to buy them in desired amounts.
The rate of economic growth could rise to over 6% in the medium-term despite sustained commodity price-driven inflation pressures, gradual fiscal consolidation, and tighter monetary policy. Growth will benefit from a gradual increase in investments in the oil sector and any dividends from the Ugandan government’s promotion efforts for tourism, export diversification, and agro-industrialization. The slowdown of global growth and heightened tightening of global financial conditions pose major risks to Uganda’s growth, however. Accelerated growth may reduce poverty (measured at the $1.90 line) slightly to 41.9% by 2024, but this will depend on how COVID-19 evolves, how long Russia’s invasion of Ukraine and related sanctions continue, the pace of food inflation, and any environmental shocks that adversely affect households due to their limited adaptive capacity.
Compared to its 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 country’s high population growth rate of 3%. As a result, in the five years prior to the COVID-19 crisis, per capita real GDP growth halved to 1.1% on average per year.
Structural transformation is essential to reinvigorate economic activity and reduce poverty. Uganda’s growth model of debt-financed public spending—which emphasizes infrastructure and has crowded out private sector borrowing —is not sustainable. The state should instead support the economy through investments in human capital, through regulations that facilitate investment and job-creation, and through measures to reduce inequality and strengthen resilience. The prospects for this shift to a private sector-led growth model will also rely on maintaining macroeconomic stability and better support for the vulnerable, farmers, and small enterprises; increasing the uptake of digital technologies; and the effective use of public resources.
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 her 18th birthday, compared to the Sub-Saharan average of 8.3. However, her actual years of learning are 4.3, with 2.5 years considered “wasted” due to the poor quality of education.
Last Updated: Oct 05, 2022