PwC forecasts growth for Uganda’s economy

PwC has recently released the latest Uganda Economic Outlook, predicting an economic growth rate of 5% for the 2017-2018 financial year. This positive outlook is supported by factors such as single digit annual headline inflation, a stable shilling, and an accommodative monetary policy with the central bank rate at a historic low of 10%. Francis Kamulegeya, a Partner at PwC Uganda, discussed these forecasts and their implications in an interview with CNBC Africa's Arnold Kwizera. The economic forecast for Uganda is optimistic, but there are significant challenges that need to be addressed for the country to achieve its growth targets. Infrastructure investment is a key focus area for Uganda, with projects in power, energy, roads, rail, and the oil and gas sector driving economic development. However, corruption remains a major concern, impacting the execution and value for money of these projects. Kamulegeya emphasized the importance of timely project completion and demonstrating good value for money to stimulate economic activity and achieve the projected 5% growth rate. One of the critical factors contributing to Uganda's economic growth is an accommodative monetary policy. While the country has made progress in this area, addressing domestic fiscal arrears is essential to ensure that monetary policy actions translate into private sector growth and spending. High arrears have strained local enterprises, affecting liquidity, debt servicing, and investment. Clearing these arrears will provide a much-needed boost to domestic enterprises and support economic growth. Debt sustainability is another key concern for Uganda, with the debt to GDP ratio increasing over the years. Effective deployment of borrowed funds to create productive assets is crucial in managing debt levels. Kamulegeya highlighted the importance of borrowing for asset creation and domestic revenue mobilization in maintaining a sustainable debt to GDP ratio. By investing borrowed funds efficiently and enhancing revenue collection, Uganda can mitigate the risks associated with rising debt levels. Commercial banks play a vital role in facilitating access to credit for businesses and individuals. While the central bank has lowered interest rates to stimulate lending, commercial banks face challenges in approving loans, with approval rates below 50%. The cautious approach of banks, combined with liquidity constraints from government arrears, has resulted in high non-performing loan levels. Kamulegeya noted that the current macroeconomic environment, characterized by low interest rates, low inflation, and a stable currency, provides an opportune moment for banks to increase lending to the private sector. Overall, Uganda's economic outlook is promising, but addressing infrastructure challenges, corruption, fiscal arrears, and debt sustainability is crucial for sustaining and accelerating economic growth. The government's commitment to improving project execution, clearing arrears, and enhancing revenue mobilization will be key in realizing the country's growth potential.