BOU Tags Economic Performance on Strength of Omicron

Global economic uncertainties due to covid 19 are highly projected to continue into 2022 as the pandemic starts its third year. 

And this, among other factors, will have negative effects on the Ugandan economy next year, according to the analysis by the Bank of Uganda.   

Global economies have been recovering, though not in a stable trend, neither is growth expected to be uniform, with the imbalances resulting from differences in vaccination levels and policy mix.  

While generally global growth is expected to continue, it will be slowed down by the Omicron variant worsening the supply chain disruptions and depressing demand.  

According to the BOU Monetary Policy Report, higher global growth is good for Uganda since her export markets will demand more of her commodities and services.   But the slowdown in China and the possibility of lockdowns and border closures on account of omicron virus strain could have an impact on growth.  

Experts also fear that the recovery of the global markets will lead to higher global prices which could push domestic inflation up as Uganda imports more than it exports.  

Another concern is that developed economies are tightening their monetary policies and this could lead to tightening financial conditions in developing countries including Uganda.  

Uganda's economy grew faster in 2021 compared to 2020, as most sectors were more open, and the private sector is more hopeful for 2022 due to the expected full reopening of the economy as promised by the president.  

Growth was evident through the increased lending to 19 percent for the quarter ending October 2021 from an average 17.61 percent in the quarter ending July 2021, following the expiry of the Credit Relief Measures.  

As the economic activity picked up on easing of the lockdown measures, lending to the Private Sector also increased in the quarter ending October 2021, with the value of loans approved rising to 2.76 trillion shillings from 2.18 trillion in the quarter ending July 2021.

Total private sector credit thus grew by 9.2 percent in the same quarter relative to a 7.9 percent growth in the quarter ending July 2021.  

Manufacturing, Real Estate, and Personal loans were the main drivers of private sector credit growth, while growth was slower for Agriculture, Trade, and Business sectors.

This shows that there was a higher revival of activity in the manufacturing and real estate sectors.

However, generally, the effects of the second lockdown led to weaker growth in economic activity in the three-month period to October, while over the whole year to October 30, the growth rate was 4.4% according to the Central Bank.

According to the IHS Markit Purchasing Managers’ Index, private sector activity declined to 54.1 in November 2021 from 54.6 in October 2021. This still shows a positive trend since the index is above the 50 percent mark, for the fourth month running.

Both output and new orders increased, employment grew for the first time in six months and firms also increased their buying activity and inventory holdings in response to rising new business, according to Markit.

In a similar picture, the Business Confidence Index (BCI) stood at 51.9 points in November 2021, 0.7 points higher than October 2021. 

Business sentiments were positive in all sectors save for agriculture and wholesale-retail trade sectors.

The Bank of Uganda’s Monetary Policy Report for December shows that while international trade is yet to get to the pre-covid 19 levels, there has been an improvement lately, especially from coffee and gold.

If the country decided to institute new measures like lockdown against a new surge in covid 19 ingestions, this could affect growth going into the year 2022, which for now looks brighter, according to the BOU report.   

“The outlook on the economy (three months to February 2022) is more optimistic mainly because of the much-anticipated full opening of the economy in January 2022. Prices are expected to remain high in the short term and order volumes are expected to increase,” the report says.

There was an improvement in the balance of payments and a 246-million-dollar surplus was recorded. But this was mainly because of reduced imports and not necessarily an increase in exports.

Expenditure on all import categories; investment, consumption, and government; decreased, and this was attributed to subdued domestic demand.

Exports were also slightly lower due to lower domestic production and were further affected later when exports of gold were halted over tax disputes.