Report paints gloomy picture of economy

The decline in exports is attributed to lower export earnings from mineral products, while import bills were reduced due to lower volumes of formal private sector non-oil imports particularly; vegetable products, animal products, beverages, fats, and oils as well as mineral products (excluding petroleum products) during the month.
Dr Fred Muhumuza, a development economist and lecturer at the College of Business, Makerere University, said the declines should raise concerns among planners.

“For exports, it means the production may be sluggish or it’s just a seasonal cycle. If the decline in imports is due to low demand and capital equipment, then the economy may have a mix of views. Hopefully, it’s not imports of goods used in development and offer of services,” he said.

During the period, the report indicates that the coffee earnings grew by 27 percent to $162.2b in June, driven by higher export volumes mainly on account of higher Robusta coffee yields from the Greater Masaka and South Western regions of Uganda, and an increase in international coffee prices which was driven by reduced supply of coffee from Vietnam and Indonesia, which experienced shortage in local supply due to poor harvests.

Exports of mineral products which recorded a whopping $494.1m in May reduced to $248.8m in June, according to the report.
The reduction of exports and imports value, experts said have a direct negative impact on the economy which earns a lot from foreign exchange.

“You are likely to experience an imbalance in terms of trade if exports drop yet the country earns a lot from foreign exchanges and yet the government is spending as if we are a very rich country,” Mr Richard Ssempala, an economist and a lecturer at Makerere University School of Economics, said.

The report stated that the perceptions about doing business in Uganda remained positive and optimistic because of the continued improvement in the level of economic activity reflected by the high-frequency indicators shown in the Composite Index of Economic Activity (CIEA) and Purchasing Managers’ Index (PMI) that grew by 0.97 percent and 53.7 percent respectively.
“The Business Tendency Index (BTI) was recorded at 59.03 percent in July 2024, exceeding the 50-mark threshold, with increased optimism observed in the wholesale trade and other services sectors,” the report highlighted.

Mr Ssempala said these figures do not reflect the reality on the ground. 
“In reality, the purchasing power of citizens is still struggling. For example, you cannot equate the Shs10,000 now to a few months ago, prices of commodities are increasing while the money is not,” he said.

Despite the report indicating that the Uganda Revenue Authority surpassed her monthly target by Shs1 trillion, but Mr Ssempala said this will not help because of extravagant expenditure.
“First of all this is just for a short time. We need to predict the future and secondly, this improvement will be robbed by the heavy expenditure by our government who spend as if we are a rich country yet we are not. If this issue is not addressed, nothing good will be realized,” he said.

Mr Enock Twinoburyo, an economist and a senior adviser on fiscal reform for Sustainable Development Goals (SDGs) at the Kigali-based SDG Centre for Africa, said the developments are positive, but not indicators of traction in the medium term.

“Appreciation of shilling is positive, but compared to last year, it is a depreciation. Again note the current account deficit narrowed because of both imports and exports reducing but imports more. A fiscal deficit narrow in the first quarter is not surprising. Fiscal expenses escalate in the other quarters. A narrow fiscal deficit may also come at additional arrears accumulation,” he said.

The report indicated that the shillings appreciated by 1.1 percent against the dollar to an average mid-rate of Shs3,705.85 per dollar in July compared to Shs3,747.19 per dollar in June which was due to an increased supply of dollars which outstripped its demand.

Among the East African Countries (EAC) partner states, it is only Ugandan currency that appreciated against the dollar while the rest depreciated.

The Tanzanian and Kenyan Shillings depreciated by 1.2 percent and 0.5 percent respectively, while the Rwandan and Burundian Francs weakened by 0.5 percent and 0.2 percent respectively.
Bank of Uganda, according to the report, increased the Central Bank Rate by 25 percent from 10 percent in July but also reduced the weighted average lending rates for shilling-denominated credit from 18.85 percent in May 2024 to 17.64 percent in June 2024.

This, the report adds, was driven by increased lending to prime borrowers, who secured loans at favorable rates due to their lower risk profile.
In June 2024, Uganda traded at a surplus of $45.2m with the rest of the EAC Partner States, a shift from the deficit of $72.2m registered the previous month.

“Imports from the region decreased by 40.9 percent to $188.35m in June 2024, down from $318.8m the previous month. Exports to the region also declined by 5.3 percent from $246.6m to $233.61m on over the same period,” the report reads.
The experts said the government however needs to invest in areas which will have a direct spill over to the economy.

Summary of State of the Economy
1. Real sector (Purchasing power) grew by 0.97 percent Shilling appreciated by 1.1 percent
2. Exports dropped by 23.6 percent from $940m in May to $718.6m in June.
3. Import bill declined by 6.5 percent from $1.03b in May to $966m in June.
4. Net borrowing (fiscal deficit) recorded at Shs29.9b against targeted Shs975.5b.
5. July 2024, revenue was Shs2.2 trillion, surpassing the Shs2.1 trillion target.
6. ExpenSes in July 2024 amounted to Shs2.1 trillion against the programme of Shs2.8 trillion.
Inflation increased to 4 percent from 3.9 percent.

Source: Performance of the Economy Macroeconomic Policy Department monthly report for July 2024