State of Uganda’s Economy: In August 2023, Uganda witnessed mixed economic trends: decreasing inflation, positive business sentiment, currency depreciation, trade imbalances, and cautious optimism with projected economic recovery while facing uncertainties.
Uganda’s Annual Inflation: In August 2023, Uganda’s annual headline inflation rate decreased from 3.9% in July to 3.5%. Core inflation also dropped from 3.8% to 3.3% in the same period, mainly due to reduced inflation in various commodities like rice, maize flour, dried kapenta (Mukene), and groundnuts.
Annual Services Inflation: Annual services inflation declined to 2.0% in August 2023 compared to 2.5% in July 2023 attributed to Annual Passenger Transport Services inflation that decelerated to minus 8.8% in August 2023 compared to minus 7.0% in July 2023.
Energy, Fuel, and Utilities (EFU) Inflation: EFU inflation dropped to minus 2.7% in August 2023, down from minus 1.6% in July 2023. This decrease was primarily due to the decline in liquid energy fuels annual inflation, including petrol and diesel.
Food Crops Inflation: Annual food crops and related items inflation increased to 9.8% in August 2023, up from 9.3% in July 2023. This rise was attributed to significant increases in round onions, mangoes, papaya, and oranges inflation rates.
Business Perceptions and Economic Activity: Business sentiment remained positive in August 2023 but slightly less optimistic than in July, with a Business Tendency Index (BTI) declining from 63.63 in July to 61.25 in August 2023. However, the Composite Index of Economic Activity (CIEA) showed a 0.43% improvement, indicating increased economic activity. The suspension of World Bank funding due to human rights concerns is a potential threat to economic stability.
Exchange Rate Movements: The Ugandan Shilling depreciated by 0.8% against the US dollar in August 2023 due to debates and consequences related to Uganda’s Anti-Homosexuality Act. This depreciation may impact import costs but enhance export competitiveness.
Interest Rate Movements: The Central Bank of Uganda reduced the Central Bank Rate (CBR) from 10% in July to 9.5% in August 2023 to stimulate economic activity while maintaining inflation within the target range. Shilling-denominated credit rates decreased influenced by prime borrowers accessing credit at lower rates due to their strong credit histories, but foreign currency lending rates rose, affecting borrowing costs.
Domestic Credit: Uganda’s domestic credit experienced a modest decline in July 2023, falling from UGX 38.999 trillion in June to UGX 38.582 trillion, marking a 1.1% contraction, primarily due to reduced government borrowing. However, private sector credit increased by 0.6%, rising from UGX 22.158 trillion in June to UGX 22.283 trillion in July 2023, indicating growing business confidence and investment activities.
Trade Balance and Terms of Trade: Uganda faced a trade deficit of $278.52 million in July 2023, with imports exceeding exports. This raised concerns about foreign exchange reserves and economic stability. The terms of trade index declined by 3% to 110.64 in July, suggesting a relative decrease in export prices compared to import prices, impacting overall economic welfare.
Trade Balance with the East African Community (EAC): Uganda’s trade with EAC neighbors showed mixed results in July 2023. Uganda exported $185.67 million worth of goods but imported $209.40 million, resulting in a negative trade balance of -$23.74 million. While it had trade surpluses with some EAC countries, there was a significant trade deficit with Tanzania (-$104.05 million), largely due to cereal imports.
Trade Balance with the East African Community (EAC): Uganda’s trade with EAC neighbors showed mixed results in July 2023. Uganda exported $185.67 million worth of goods but imported $209.40 million, resulting in a negative trade balance of -$23.74 million. While it had trade surpluses with some EAC countries, there was a significant trade deficit with Tanzania (-$104.05 million), largely due to cereal imports.
Economic Outlook: The Bank of Uganda’s forecasts for the 2023/24 fiscal year project a gradual economic recovery in Uganda, with growth expected to range between 5% and 6%. However, uncertainties like weaker foreign demand, supply chain disruptions, tight fiscal policy, and the suspension of World Bank funding due to human rights concerns could impact this outlook.
