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How Uganda’s economy performed in 2023
Uganda’s economy score declined to 62.8, from 64.4 the year before, the decrease was mostly driven by weaker performance in Access to foreign exchange. CNBC Africa’s Derrick Muhangi spoke to David Wandera, Executive Director at ABSA Bank Uganda Limited.
Wed, 07 Feb 2024 10:22:55 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- The decline in Uganda's economy score in 2023 was driven by weaker performance in Access to foreign exchange, with reductions in interbank foreign exchange transactions and months of imports cover.
- The effective monetary policy in Uganda has led to a significant decrease in inflation, positioning the country as an attractive destination for investors offering higher real returns.
- Global factors, such as increased interest rates in the U.S., have impacted capital flows, leading to challenges in attracting investment to emerging markets like Uganda.
Uganda’s economy faced a decline in 2023, with the overall score dropping to 62.8 from 64.4 the previous year. This decrease was primarily driven by weaker performance in Access to foreign exchange, as outlined by David Wandera, Executive Director at ABSA Bank Uganda Limited, in an interview with CNBC Africa’s Derrick Muhangi. Wandera highlighted the significant drop in Uganda's score in Access to foreign exchange due to a reduction in interbank foreign exchange transactions and a decrease in months of imports cover. These factors led to a drop in the score from 77 to 67 in this particular pillar.
Despite these challenges, Wandera pointed out some positive developments in the Ugandan economy. He praised the effective monetary policy implemented by the Central Bank, resulting in a significant decline in inflation to below 5 percent, averaging between two to three percent over the past five months. This low inflation rate has positioned Uganda as an attractive destination for rational investors, offering higher real returns compared to other economies. With inflation currently below 3 percent, and a projected medium-term increase to about 4.5 percent, Uganda remains below the Central Bank's 5 percent policy target, enhancing investor confidence.
However, the global landscape, particularly the significant increase in interest rates in the U.S., has impacted capital flows, leading to a flight of capital from emerging markets like Uganda. Despite this challenge, Uganda's inflation rate, expected economic growth of 5.7 percent, and risk-free rates on bills and loans above 10 percent provide a positive return for investors, particularly in government securities.
Looking ahead, Wandera highlighted the need for reforms in certain areas to ensure economic stability and attractiveness for investors. In light of volatile global conditions and geopolitical risks affecting fund availability for development, Uganda must focus on maintaining stability in inflation, interest rates, and currency value. As the government aims to fund its budget, potential increases in interest rates loom, posing risks for investors. However, with a focus on stability and moderation in key economic indicators, Uganda can create a conducive environment for investor returns.
One area of improvement highlighted by Wandera is Uganda's low number of double taxation agreements. With only eight agreements compared to the average of around 20, Uganda could benefit from expanding its network of agreements to boost investment and economic growth.
As Uganda navigates the challenges and opportunities in 2023, a focus on stability, policy reforms, and attracting foreign investment will be essential for the country’s economic growth and resilience in the global market.
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