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UGANDA Table 1 Recent developments 2015 Population, million 39.0 GDP, current US$ billion 27.4 GDP per capita, current US$ 702 Poverty rate ($1.9/day 2011PPP terms)a 34.6 Poverty rate ($3.1/day 2011PPP terms)a 65.0 Gini Coefficient a 41.0 Life Expectancy at birth, yearsb 57.1 Sources: World Bank WDI and M acro Poverty Outlook. Notes: (a) M ost recent value (2012) (b) M ost recent WDI value (2014) Uganda is expected to grow at 5.5 percent during FY16/17, higher than the 4.6 percent achieved in FY15/16. This is mainly in the account of acceleration of implementation of major public investment projects as well as an expected surge in private investment following an accommodative monetary policy. Growth will further peak at 5.9 percent in FY17/18 and 6.5 percent during FY18/19 reducing extreme poverty to 31.5 percent. Implementation delays, regional instability, currency depreciation, high interest rate, and volatile commodity prices remain the main challenges. Uganda’s GDP growth rate averaged 7.3 percent between 2000 and 2010. Poverty reduction was likewise impressive, driven by agricultural income growth along with prudent macroeconomic and fiscal management. However, widening socioeconomic and spatial disparities— accentuated by the lagging performance of the Northern region—present challenges that must be addressed. The economic slowdown between 2010 and 2013 was triggered by the 2009 global economic crisis and was amplified by inefficient utilization of public resources, successive droughts, and sub-regional political instability. Over the past year, growth decelerated to 4.6 percent due to the recent global economic slowdown, declining commodity prices and the currency depreciation (which increased imported factor costs and adversely affected the manufacturing sector). Public investments in infrastructure and the expanding service sector (including telecommunications and financial services) are the present drivers of economic growth. The share of agriculture in GDP declined, but the sector continues to provide close to 70 percent of total employment. Election induced uncertainties and external factors generated macroeconomic volatility with inflation rates rising to 8.5 percent end 2015. A restrictive monetary policy, which led to higher interest rates, helped mitigate inflationary pressures FIGURE 1 Uganda / Contributions to annual GDP growth but negatively affected economic growth. On the external side, lower oil prices reduced the import bill and freight charges. However, exports, FDI flows, and transfers remained subdued by sluggish global growth, low commodity prices, and continued instability in South Sudan and the Congo (DRC). The fiscal deficit for FY15/16 rose to 6.6 percent of GDP due to increased investments in roads and energy. The risk of debt distress remains low according the recent World Bank-IMF Debt Sustainability Assessment although the domestic debt stock is increasing. Outlook The economy is projected to accelerate to 5.5 percent in FY16/17. Acceleration of growth should reduce poverty further by an estimated 0.7 percentage points per year over 2016-2018 period down to 31.5 percent by 2018/19, although this could mainly be recorded in the central and western regions, widening regional spatial disparities. Construction and services sectors are expected to remain the main drivers of growth, particularly as ICT and tourism sectors benefit from a depreciated shilling and regional stability. Industry is projected to grow at 7.0 percent in FY16/17 supported by stronger public investments and a renewed impulse on FDI in the extractives sector. Private investments will intensify following the recent granting of oil production licenses. FIGURE 2 Uganda / Poverty rate and GDP per capita Percent 15 GDP per capita Percent 10 90 1,600,000 80 1,400,000 70 1,200,000 60 5 1,000,000 50 0 800,000 40 600,000 30 -5 -10 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Public consumption Total investment GDP growth Source: World Bank staff using UBOS. Private consumption Net exports 20 400,000 10 200,000 0 0 2002 2004 2006 2008 2010 2012 2014 2016 2018 $3.1/day PPP $1.9/day PPP Sources: UNHS and World Bank staff projections. MPO 282 Oct 16 GDP per capita (RHS) The fiscal deficit is projected to decline to 6.4 percent of GDP in FY16/17 as expenditures slightly decline in a postelection year. However, it is expected to further decline to 5.3 percent of GDP in FY17/18, on account of gradual improvements in revenue mobilization. The current account balance will be buoyed by the tourism industry, but may be constrained by lower export earnings and remittances from a weak Chinese economy and potential weaknesses in the global economy, as well as the expected rise in construction-related imports. However, as international oil prices recover, FDI especially in oil related sectors, will compensate for the gradual decline in official aid. Risks and challenges There are substantial fiscal management risks, particularly the sequencing and management of the public infrastructure development program, and the slow progress on domestic revenue mobilization, and increased spending pressures including those emanating from electoral promises. The negative effects of weaknesses in European and Asian economies and of instability in South Sudan and DRC on exports from Uganda, are yet another challenge. Moreover, an even weaker China could adversely affect financing TABLE 2 Uganda / Macro poverty outlook indicators Real GDP growth, at constant market prices Private Consumption for Uganda’s planned investments in infrastructure development program. Other macroeconomic vulnerabilities include currency depreciation, inflation, and high interest rates. Financing remains a major constraint for many firms either as a result of outstanding payment from government, slow disbursement of foreign investment, and rigidity of commercial bank operations. Lastly, the persistent high rates of poverty in the Northern region and regional instability pose a challenge on attainment of the twin goals. (annual percent change unless indicated otherwise) 2013 2014 2015 2016 f 2017 f 2018 f 3.3 4.8 5.0 4.6 5.6 6.0 0.1 1.7 11.8 7.7 9.1 8.5 -4.2 9.2 17.6 19.4 3.3 13.4 Gross Fixed Capital Investment 9.2 3.3 1.0 5.6 7.2 7.9 Exports, Goods and Services 6.7 0.0 -7.5 0.9 8.5 9.2 Imports, Goods and Services 0.0 -6.4 15.5 16.5 16.0 16.8 Government Consumption Real GDP growth, at constant factor prices 3.5 3.9 5.2 5.1 5.6 6.0 Agriculture 1.8 3.0 3.0 3.2 4.3 4.5 Industry 4.3 3.9 7.9 4.0 7.0 9.0 Services 4.0 4.3 5.3 6.3 5.7 5.5 5.5 4.3 5.2 7.7 6.3 5.0 Inflation (Consumer Price Index) Current Account Balance (% of GDP) -8.1 -10.7 -10.4 -11.5 -11.2 -9.9 Financial and Capital Account (% of GDP) 5.1 7.8 7.4 8.5 8.2 6.8 Net Foreign Direct Investment (% of GDP) 4.6 4.3 4.4 3.8 4.6 4.7 Fiscal Balance (% of GDP) -4.1 -3.7 -4.6 -6.5 -6.2 -5.3 Debt (% of GDP) 28.5 32.9 32.0 31.4 34.2 46.4 Primary Balance (% of GDP) -2.7 -2.1 -2.7 -4.6 -4.4 -2.8 Poverty rate ($1.9/day PPP terms) a,b,c 34.6 34.3 33.9 33.5 33.0 32.4 Poverty rate ($3.1/day PPP terms) a,b,c 65.0 64.7 64.3 64.1 63.6 63.0 So urces: Wo rld B ank, M acro eco no mics and Fiscal M anagement Glo bal P ractice, and P o verty Glo bal P ractice. No tes: e = estimate, f = fo recast. (a) Calculatio ns based o n 2012-UNHS. (b) P ro jectio n using po int-to -po int elasticity at regio nal level with pass-thro ugh = 1based o n GDP per capita in co nstant LCU. (c) P ro jectio ns are fro m 2013 to 2018. MPO 283 Oct 16