Uganda fiscal deficit to decrease,  says report

A report by Standard Bank Group on 2024 economic outlook for the country has shown that, through fiscal consolidation efforts, the fiscal deficit is projected to decrease to approximately 3.4 percent of GDP by the end of 2024.

The report reveals that the total deficit, encompassing grants, reduced from 7.4 percent of GDP in the Financial Year (FY) 2022 to 5.6 percent in FY 2023. This consolidation was primarily propelled by decreased development spending.

“The fiscal revenue remained broadly unchanged at 14 percent of GDP, below the target specified in the Domestic Revenue Mobilisation Strategy (DRMS),” the report adds.

It further shows that, despite the recovery in goods exports, tourism, and remittances, the deficit was offset by a significant increase in imports.

The country’s debt-to-GDP ratio, per the report, was estimated at 48.3 percent in 2023 by the International Monetary Fund, with a minor decline expected over the forecast horizon (to 46.3 percent by 2025).

It adds that the country has surpassed the Millennium Development Goal (MDG) of halving poverty by 2015, but the poverty rate has recently increased thanks to the effects of the pandemic.

In a related report by the World Bank, enhanced growth has the potential to decrease poverty (assessed at the $2.15/day international poverty threshold) from 41.7 percent in 2023 to 40.7 percent by 2025.

“However, the rate of poverty alleviation will hinge on the evolution of food access and affordability, as well as the occurrence of weather-related and environmental shocks, given households’ constrained adaptive capabilities,” the world bank report shows.

Data from the World Bank shows that unemployment was estimated at 2.9 percent in 2022. That said, the share of people active in the informal market is still high.

The World Bank report also states that the country’s industrial sector is small and is dependent on imported inputs such as refined oil and heavy equipment. It also points out a number of supply-side constraints, including insufficient infrastructure, lack of modern technology, and corruption hamper productivity. The industrial sector contributes to 26.8 percent of GDP, but employs only seven percent of the workforce.

The most important sectors are the processing of agricultural products, the manufacture of light consumer goods and textiles, and the production of beverages, electricity, and cement. Most industries are small, local firms with limited manufacturing added value, while the larger industries in the country are predominantly foreign-owned.

The manufacturing sector as a whole accounts for 16 percent of GDP, the World Bank report shows. Elsewhere, the services sector in Uganda represents 41.7 percent of GDP and employs 26 percent of the active population. It is, however, detached from primary sectors like agriculture and manufacturing, thus lacking the ability to spur economic growth.

The ICT sector is one of Uganda’s fastest-growing sectors, recording double-digit growth over the last few years, largely driven by the telecommunications sector.

Concerning the tourism sector, available data indicates that, for the first time since the Covid-19 pandemic reared an ugly head, international tourist arrivals surpassed the one million mark in 2023, compared to 814,508 in 2022 and 473,085 in 2021.

This surge in arrivals has led to a record-breaking revenue for the tourism sector, reaching Shs105 billion in the 12 months leading up to June 2023.