The government is still banking on the wealth creation program dubbed Emyooga to tame the adverse effects of the COVID-19 pandemic on the economy.
According to the Ministry’s economic performance for July, the COVID-19 pandemic continues to have a significant bearing on the economy.
The lockdown measures announced during the second half of June 2021 to curb the resurgence in infections extended through July 2021, with movements restricted and the majority of businesses remaining closed.
This, therefore, had an adverse impact on the level of economic activity as effects were experienced by sectors that remained in full lockdown like education and partial restriction like transport since the movement was restricted. The other sectors were also severely affected including the Small and Medium Enterprises (SMEs) as well as hotel and accommodation.
According to a monthly assessment of the economy by the Ministry, the weak pace of economic activity in July 2021 is expected to affect real GDP growth for the first quarter of the financial year, 2021/22.
“However, given Government interventions through the capitalization of the SME recovery fund, boosting the Emyooga funds and the on-going vaccination efforts, the impact on the overall GDP is expected to be less severe. The economy remains on course to achieve a growth rate of between 3.5% to 4.0% during FY 2021/22”, said the ministry.
On a more positive note, the average lending rates by commercial banks have decreased by 2.8 percentage points to 17% in June 2021 from 19.8% in May 2021 for shilling-denominated loans, according to the Central Bank.
The dollar-denominated loans also saw interest rates fall from 6.8% to 6%.
The banking sector is also hopeful that the increasing rate of borrowing will persist as the interest declines.
The total value of outstanding private sector credit increased by 2.2% to 18.1 trillion shillings, from 17.8 trillion shillings in May 2021, mainly due to recovery in the economic activity before the second lockdown.
There was also an increase in credit extended to prime borrowers such as telecommunication companies and a reduction in the Central Bank Rate over time.
However, the high-frequency indicators of economic activity show that the pace of economic activity slowed down following the second lockdown announced in June 2021.
On the external sector, the ministry of finance gives a mixed picture of Uganda’s trade balance, with the deficit in trade in merchandise widening more than doubling in June 2021, compared to the figure of the same month the previous year. While export volumes rose, the volumes of imports rose even higher.
“Uganda’s merchandise trade deficit widened by 135.6% to 481.8 million dollars in June 2021 from 204.5 million in June 2020 due to a higher increase in the import bill, despite a rise in exports too,” reads the report.
In June 2021, the value of imports increased to 933.6 million dollars from 542.6 million in June 2020. This was due to a rise in both imports by the Government and by the private sector, especially chemical and related products; machinery, equipment, vehicles and accessories; plastics, rubber related products; and petroleum products.
On the other hand, export earnings increased by a third from 338.1 million dollars in June 2020 to 451.7 million in June 2021, mainly due to an increase in coffee, minerals, cotton, tea, tobacco, beans, simsim and ﬂowers exports. Notably, Coffee exports grew by 46.4% during the period due to higher export volumes.
The high coffee export earnings were largely responsible for the 2.2 million dollar-trade surpluses against the European Union which is the largest single market.
However, the biggest surplus was 92 million dollars registered against the United Arab Emirates, mainly due to the high exports of gold and other precious minerals from Uganda to the region.
There is also a sharp increase in the imports from Tanzania into the country, which has affected Uganda’s trade balance with the East African Community to a deficit, according to the figures available.
“Uganda’s trade with the EAC resulted in a deficit of 91.7 million dollars in June 2021, higher than the deficit of 85.6 million recorded in June 2020. This was largely attributed to an increase in imports from Tanzania by 78.6% to 125 million dollars from 70 million,” it says.
In the public sector, the disruptions of COVID-19 on planning and implementation by the government continued to be manifested in July 2021.
Preliminary data shows that Government operations last month resulted in a deficit worth 1.2 trillion shillings, which was higher than the planned deficit of 935.85 billion shillings.
This is attributed to the shortfalls and higher than planned spending during the month, according to the ministry.
“Government revenue collections amounted to 1.38 trillion in July 2021, representing 90.6% performance against the planned target. Of this, 1.34 trillion was tax revenues while 39.6 billion shillings was non-tax revenues.”
On the other hand, Government expenditure amounted to 2.66 trillion, which shows a 103.0% performance against the planned spending level.
“Recurrent expenditure was higher than planned arising out of the need to provide additional resources to support the health sector as well as to provide for cash relief to most vulnerable sections of the population affected by the lockdown,” said the ministry in a short statement.