Uganda’s Economy Picks after Lifting of COVID-19 Restrictions

The month of July 2020 registered improvement in economic activity following a downturn caused by the COVID-19 pandemic, as the Government of Uganda continued to ease some of the containment measures that were instituted to prevent spread of the virus.

The Ministry of Finance said this was reflected by the performance of the key indices of economic activity – the Purchasing Managers Index (PMI), Composite Index of Economic Activity (CIEA) and the Business Tendency Index (BTI), which improved in July compared to the previous month.

Export earnings increased for the second consecutive month since the start of the calendar year by 15.9 percent to US$ 337.19 million from US$ 290.93 million in May 2020, implying an increase in trade due to easing of lockdown restrictions.

In comparison to June 2019, export earnings increased by 13.1 percent, from US$ 298.03 million to US$ 337.19 million in June 2020.

Export receipts from commodities like coffee, maize, beans and gold increased while earnings from tobacco, tea and oil re-exports dropped in comparison to the same month last year.

Coffee exports rose by 25.3 percent to US $ 39.9 million in June 2020 from US $ 31.9 million in June 2019 due to increased production, supported by favourable weather conditions.

Both the volume exported and the unit price increased by 23 percent and 1.9 percent respectively on an annual basis.

International trade improved as reflected by an increase the value of both exports and imports.

On an annual basis, there was an increase in exports to the Middle East, East African Community, Rest of Africa and the Americas.

Exports to European Union, Asia and the rest of Europe however declined.

The Middle East was the leading destination for Uganda’s exports accounting for 49 percent of the total exports followed by the EAC at 24 percent and the European Union at 11 percent.

Imports rise

However, Uganda’s merchandise trade deficit widened in June 2020 registering a deficit of US$ 206.4 million compared to a deficit of US$ 144.7 million in May 2020, following a higher increase in the import bill which offset the increase in export receipts.

 The value of imports increased to US $ 543.6 million in June 2020 from US $ 435.6 million in May 2020.

Uganda traded at a surplus with the Middle East (US$ 124.2 million) and the European Union (US$ 0.5 million) while deficits were registered with all other trading blocs in June 2020.

Compared to June 2019, the merchandise trade deficit narrowed by 35 percent from US$ 317.5 million to US$ 206.4 million in June 2020.

In June 2020, imports (f.o.b) amounted to US$ 543.6 million, an increase of 24.8 percent from US$ 435.6 million recorded the previous month.

Private sector imports increased while Government imports declined. Government imports declined by 19.3 percent driven by a drop in project imports while private sector imports increased by 27.5 percent as both oil and non-oil imports rose during the month.

The categories of private sector imports that recorded large increases include: petroleum products; prepared foodstuffs, beverages and tobacco; animal products and machinery equipment; as well as vehicles and accessories.

In comparison with June 2019, merchandise imports fell by 11.7 percent to US$ 543.6 million from US$ 615.5 million in June 2019, largely driven by a decline in Government imports.

Government project imports declined by 82.6 percent to US$ 20.7 million from US$ 118.8 million in June 2019 largely attributed to a disruption in the execution of Government projects due to the COVID-19 pandemic.

Officials said the monetary policy actions implemented by Government since April 2020 have also supported this improvement.

Specifically, Bank of Uganda maintained the Central Bank Rate at 7 percent in July 2020 and continued to provide liquidity support to the banking sector.

To continue supporting economic recovery during the COVID-19 pandemic, Government plans to implement various fiscal measures in FY 2020/21 such as recapitalising Uganda Development Bank; increasing funding to Uganda Development Corporation to facilitate public-private partnership investments as part of the import substitution and export promotion strategy; and expediting payment of arrears owed to the private sector in order to address liquidity constraints faced by suppliers of Government.

Meanwhile, Annual Headline Inflation rose to 4.7 percent from 4.1 percent in June 2020, due to an increase in annual core inflation, which rose to 5.8 percent from 4.9 percent recorded in June 2020.

The Uganda Shilling continued to strengthen against the US Dollar in July 2020, registering an appreciation of 0.9 percent on account of increased inflows amidst subdued demand.

The shilling traded at an average midrate of Shs 3,703.5/ US$ during the month compared to Shs 3,737.9/ US$ recorded in June 2020.

The average lending rates for both shilling and foreign currency denominated credit edged upwards in June 2020 as banks are more risk averse because of the COVID-19 pandemic.

Lending rates for shilling denominated credit rose to 19.3 percent in June 2020 from 18.8 percent recorded the previous month. Similarly, lending rates for foreign currency denominated credit increased to 5.5 percent in June 2020 from 4.2 percent the previous month.

The stock of private sector credit grew by 4.1 percent to Shs 16,980.9 billion in June 2020 from Shs 16,316.4 billion in May 2020.

New credit approved and extended in June 2020 amounted to Shs 770.3 billion which was higher than the Shs 589.5 billion that was extended the previous month. – Yields (interest rates) on T-Bills edged upwards for all tenors with the 91, 182 and 364-day recording values of 8.94 percent, 10.48 percent and 12.27 percent respectively from 8.69 percent, 10.31 percent and 12.13 percent respectively in June 2020.

The overall fiscal deficit amounted to Shs 1,723.31 billion in July 2020, which was lower than the programmed deficit of Shs 2,289.81 billion.

The lower deficit was a result of less expenditure during the month coupled with higher revenue collections compared to what was programmed for the month.

Domestic Revenue collections amounted to Shs 1,201.52 billion against a target of Shs 1,022.49 billion for the month, registering a surplus of Shs 179.03 billion in July 2020.

Government expenditure amounted to Shs 2,988.50 billion in July 2020 which was 13.6 percent lower than what was programmed for the month.

Region

At the regional level, Kenya registered a decline in annual headline inflation to 4.4 percent in July 2020 from 4.6 percent the previous month.

On the other hand, Rwanda’s inflation increased to 11.5 percent from 10.3 percent in June 2020 while Tanzania’s inflation increased to 3.3 percent from 3.2 percent in June 2020.

The Ugandan Shilling appreciated against the US Dollar by 0.9 percent in July 2020, while all other EAC currencies registered depreciations.

The Burundian and Rwandan Francs depreciated by 0.3 percent and 0.5 percent respectively, while the Kenyan and Tanzanian Shillings depreciated by 0.8 percent and 0.2 percent respectively, against the US Dollar in July 2020.

Uganda traded at a deficit of US$ 85.58 million with the rest of the EAC Partner States in June 2020. Kenya was the major destination of Uganda’s exports and also the major source of Uganda’s imports (US$ 33.5 million and US$ 73.2 million respectively).