Uganda’s economy weathered successive shocks in 2022 with GDP growth expected to recover to 5.7% during FY23. A post-COVID-19 recovery in services and industrial sectors offset the weather-induced decline in agriculture. An uptick in investments and employment growth reinforced domestic demand before lending rates rose in response to a tighter monetary stance starting in June 2022.
Inflation subsided beginning November 2022, thanks to lower international commodity prices and Bank of Uganda’s (BoU) tight monetary policy. In February 2023, BoU maintained its policy rate at 10%, 350 basis points above its level a year ago, for the fourth consecutive month. Hence, the annual headline and core inflation slid to 9.2% and 7.8%, respectively, in large part driven by the reduction in energy and utility prices.
Uganda’s economic growth is expected to accelerate to above 6% per year in the medium term as inflationary pressures lessen, BoU eases monetary policy, and the government relies mainly on revenue collection and spending efficiencies to cut the deficit. The investments and exports of oil will support the government’s other promotion efforts for tourism, export diversification, and agro-industrialization. Nonetheless, the slowdown of global growth, disruptions in global financial conditions, and increasingly volatile weather remain major downward risks.
Accelerated growth may reduce poverty (measured at the $2.15/day international poverty line) from 41.4% in 2023 to 39% by 2025. But given that households have limited adaptive capacity, the pace of poverty reduction will ultimately depend on how food access and affordability evolve, and on the incidence of weather and any environmental shocks.
Increased shocks and less momentum behind policy reform create challenges for sustaining economic growth and reducing poverty in Uganda. Real GDP per capita grew by only 1.0% per year between 2011 and 2022 in a context of rapid population growth, drought and other external shocks, a less supportive external environment, and weakening policy and institutional framework (including centralization of policymaking). The pace of poverty reduction decelerated, as most households rely heavily on agriculture and are vulnerable to climate change and weather shocks.
Ahead of a possible transition into an oil producer in 2025, the Ugandan economy needs to structurally transform and shift labor into more productive employment to reinvigorate economic activity and reduce poverty. The private sector must drive this transformation and diversification. Uganda’s growth model of debt-financed public spending—which has emphasized physical infrastructure—has crowded out private sector investment and is not sustainable. A more appropriate role for the state is to build human capital, facilitate private investment and job-creation, and pursue measures to reduce inequality and strengthen resilience. The prospects for the shift to private sector-led growth depend on macroeconomic stability, more efficient and effective public spending, increased government support for the most vulnerable, and the uptake of digital and other innovative technologies.
Uganda’s Human Capital Index is low. Children born in Uganda today are likely to be 38% as productive when they grow up as they could be if they enjoyed complete education and full health. Children who start schooling at the age of 4 are only expected to complete 6.8 years of school by their 18th birthday, compared to the Sub-Saharan average of 8.3. However, a child’s actual years of learning are 4.3, with 2.5 years considered “wasted” due to the poor quality of education.
Last Updated: Mar 30, 2023