IMF lowers Uganda growth rate to 4percent - Tight Monetary Policy Implicated
After two weeks of intensive review of Uganda’s economy, the International Monetary Fund has concluded that the economy will grow by 4 per cent this year instead of the projected 6 per cent.
The Fund also concluded that real economic growth is slowing down—both because of weakness in the global economy and due to the effects of tighter monetary and fiscal policies. Officials from the Fund were in the country from March 7 to 21 to review the economy under its Policy Support Instrument.
The team, led by Mr Thomas Richardson, the IMF mission chief, also the senior resident representative in Uganda, said Uganda’s key trading partners such as the Eurozone, are in recession and are expected to have relatively weak growth this year, as such, causing a negative impact on Uganda’s economy in terms of economic slowdown.
“For Uganda, real gross domestic product growth in 2011/12 should be in the neighbourhood of four-and-a-quarter per cent, while for 2012/13 growth is projected to be just below 5.5 per cent, before returning gradually to six and seven per cent over the medium term,” Mr Richardson said. The latest figure from the Fund is lower than the 5 per cent projected by Bank of Uganda last year at the height of economic challenges that saw the Shilling hit a 10-year low against major trading currencies, falling to Shs2,900 against the US dollar last December and inflation climax at 30.4 per cent in September.
The Central Bank is currently focusing on lowering inflation rate while laying the groundwork for a robust recovery of economic growth. Uganda’s economy also faces a challenge of a wide current account deficit.
Inflation is, however, still in double digits at 24 per cent, due to both external food price shocks and domestic factors. Mr Richardson said the mission welcomes the strong measures taken by BoU to rein it in, noting that they have already brought about a significant reduction in inflationary pressures.
He added that as a result of these measures, inflation is projected to fall to the single-digit range by end of year and to come within striking distance of the Bank of Uganda’s target of 5 per cent for core inflation by June 2013.