BUSINESS: Economy to rebound?

Business captains punch holes in Bank of Uganda projections

Uganda’s economy is expected to pick up steam this year, boosted by public infrastructure spending and easing of the monetary policy to stimulate economic growth. At least that is the view of Bank of Uganda Governor Emmanuel Mutebile.

Mutebile spewed his optimism to journalists at a briefing on the economy on December 14, 2016. He said economic performance in 2017 is expected to be better than 2016.

“The domestic economy is continuing to grow moderately driven mainly by public investments. BoU’s composite of economic activity improved in August and September, although growth decelerated in October,” Mutebile said.

To cement his positive outlook, Mutebile eased the monetary regime by lowering the Central Bank Rate for the fifth time in a row since April last year by 100 percentage points to 12%. He said this move too would contribute to stimulating economic activity.

A slew of data from the Bank of Uganda also projects a rebound in the economy, growing at 5% in the Financial Year 2016/2017, 5.5% in 2017/18, and 6% in the 2018/19, up from 4.6% recorded a year earlier, with inflation projected to remain around 5% in the next 12 months.

Mutebile’s positive vibes are a breath of fresh air for an economy that has been starved of good news for years. At least 25 major companies also suffered financial constraints and either closed shop or went into receivership since 2014, according data from Ligomarc Advocates, a Kampala based financial and corporate law firm. But the past year marked the peak of the economic pain.

The firm says, on average, each month of that period, a large company, employing hundreds and worth billions of shillings in turnover, was on the verge of folding up largely because of high levels of non-performing loans in the financial sector.

In 2016 a number of businesses, including Uganda’s fourth largest indigenous commercial bank; Crane Bank, fell into trouble as a result of the harsh economic environment. The central bank took over the management of Crane Bank on Oct. 20 citing undercapitalisation.

Last November, analysts at the global credit rating firm, Moody’s Investors Service downgraded the long-term issuer rating of the Government of Uganda to B2 from B1.

The firm’s analysts said the key driver of the rating action was the sustained erosion of fiscal strength that had occurred since the rating was assigned in 2013.

Over the past three years, Uganda’s debt burden had risen nine percentage points to 33% of GDP and is projected to continue rising towards 45% of GDP by 2020, according to the analysts.