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Frontier country report | August 16, 2013
Key strengths
Low GDP per capita
Good growth prospects. Currently subdued relative to the past due to stagnating
public spending and weak external demand, GDP growth is expected to pick up
in the coming years on the back of infrastructure investments and newfound oil
(production could start in 2016). Investment is pouring into the nascent oil
industry. The main source of employment remains agriculture (traditional cash
crops and subsistence agriculture).
Moderate public and external debts. At around 35% of GDP, public debt is
relatively low, although growing. At 23%, external debt is low, too. International
reserves are growing rapidly (currently at over 4 months of import cover).
Sharp fall in inflation. Inflation has come down from a peak of over 30% in
October 2011 to close to 5%, which is the government’s target level. Price
pressures are expected to remain low, although a drought would increase food
prices, which account for over a quarter of the CPI.
2008 2009 2010 2011 2012 2013 2014
GDP growth, % (left)
GDP per capita, USD (right)
Source: IMF
Key weaknesses
Twin deficits
% of GDP
2008 2009 2010 2011 2012 2013 2014
Fiscal balance (left)
C/A balance (right)
Source: IMF
Low level of economic development. Although growth has driven a decrease in
poverty (to 15% of the population in 2012 from 55% in 1993 ), Uganda’s GDP
per capita (at around USD 580) is one of the lowest in the world. Rapid
population growth remains a challenge: at above 6 children per woman, the total
fertility rate is among the highest in the world. Infrastructure deficiencies are
Poor governance. Governance and doing business indicators remain low for
Uganda. Weak bureaucracy, corruption and a lack of political transparency
hinder Uganda’s development as a democracy. President Museveni, in power
since 1986, remains politically dominant. Given that he enjoys the full support of
the security forces (and due to a poorly organised political opposition), political
stability is expected to continue.
Heavy dependence on donors, currently strained relations. The government
adopted policies that contributed to reducing the fiscal deficit (currently 3%) but
the deficit is expected to widen in the lead-up to the 2016 elections. Alleged
misappropriation of aid funds resulted in the suspension of support from several
donors in late 2012. This has put pressure on the state’s finances and the
uncertain outlook for aid underpins the government’s budget framework paper
for 2013/14. (Aid is budgeted at 3.7% of GDP down from 5% of GDP in 2012/13,
it typically accounts for around 25-35% of government revenue). The agreement
between the IMF and Uganda in May 2013 on a successor policy support
instrument (PSI) may persuade donors to reintroduce some support over time.
(Priorities of the new PSI are improving public financial management and
refining the inflation-targeting framework. It will also likely contribute to
improving the business environment).
Wide current account deficit. Currently at 13% of GDP, the current account
deficit is expected to remain wide due to high import growth (oil, capital goods
and consumer goods) while coffee remains the main export. The CA deficit is
likely to remain high until oil production starts.
Global Risk Analysis
Claire Schaffnit-Chatterjee | [email protected] | +49 69 910-31821
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| August 16, 2013
Frontier country report