Uganda’s economy to grow 6.2% in FY2024/2025, says World Bank

Kampala, (UG):- The World Bank has projected Uganda’s economy to grow faster by 6.2% in the Financial year 2024/25, accelerating to 7% in the medium term, driven by investments in oil and gas.

This growth is slightly higher than earlier forecasts of 5.8% amidst heightened geopolitical tensions that will continue to exert upward pressure on prices, resulting in a much tighter monetary policy than anticipated six months ago.

According to the global bank’s 23rd Uganda Economic Update released in Kampala on June 27, aggregate economic growth in Sub-Saharan Africa (SSA) is expected to accelerate from 2.6% in 2023 to 3.4% in 2024, driven by growth in private consumption.

At least three of SSA’s ten largest economies Côte d’Ivoire, the Democratic Republic of the Congo, and Kenya are projected to post growth rates exceeding their long-term average. Growth is expected to accelerate in at least 70% of SSA economies during 2024.

However, sustained conflicts, particularly in Sudan, as well as new outbreaks of violence in Chad and Niger, are undermining regional stability.

“The ongoing construction of an estimated US$20 billion in oil-related infrastructure in Uganda will keep economic activity strong until oil production takes off in 2025,” the report states.

“However, the start of oil production in 2025 will hinge on the timely acquisition of the remaining 60% of pipeline financing, which is expected to come from external creditors.

“The preparation of the Tilenga and Kingfisher oil-drilling project areas and investments in supportive infrastructure both within and outside the oil-producing region, including the Kabaale International Airport and the 1,400km East Africa Pipeline, will further boost construction and related activities,” the report adds.

The report further notes that while the country’s debt distress remains moderate, debt vulnerability could increase due to an uncertain external outlook, environmental shocks, inconsistent reform efforts, delays in oil production, and the finite capacity of commercial banks to provide deficit financing.

It says an extreme shock; the public debt profile could arise from the materialization of contingent liabilities, potentially pushing the debt-service-to-revenue ratio to 65%, while a steep decline in exports poses the greatest risk to external debt sustainability.

Rising public debt

As of the end of December 2023, Uganda’s total public debt stood at US$24.69 billion (49.9% of GDP), compared to US$21.74 billion (49.6% of GDP) in the same period in the previous year. Domestic debt, which accounts for 41% of the debt stock, grew by 13.1% over the period to reach US$10.05 billion.

However, the latest joint World Bank-IMF Debt Sustainability Analysis (DSA), published in June 2023, concluded that Uganda is still solvent, with the present value of external debt relative to GDP and exports providing substantial scope to manage even in extreme shocks.

The report notes that since June 2023, debt reprofiling and higher interest costs have increased debt-service payments, which reached Shs3.1 trillion in the first half of FY23/24, 0.5 percentage points of GDP greater than anticipated.

Interest payments accounted for 16.8% of total spending in the first half of FY23/24, up from 14.7% during the first half of FY22/23, as the concessional share of Uganda’s debt continued to shrink. However, the debt level is estimated to have remained below 50% of GDP in FY23/24.

The global bank further projects that recent inflationary pressures are expected to subside in the medium term, boosting economic growth, employment, and real household income.

Human Resource Development

Meanwhile, human capital the knowledge, skills, and physical health that enable people to be productive—will play a pivotal role in Uganda’s development, according to Keith E. Hansen, the country director for Kenya, Rwanda, Somalia, and Uganda.

Hansen notes that the population is projected to increase by 60% in the next 20 years. However, due to chronic underinvestment in human capital, a child born in Uganda today will grow up to be only about 38% as productive as she would have been with a complete education and full health.

“For Uganda to benefit from a demographic dividend, the government will need to invest more resources in education, health, and social protection while leveraging efficiency gains to maximize the impact of its limited resources,” Hansen said.

“In addition, providing equal access to human capital development is key to addressing the inequality of opportunities and making future growth more inclusive.”

The government spending on the social sectors remains inadequate, with expenditures on human capital accounting for just about 16% of total government spending in the first half of FY23/24. Spending on education, health, social protection, and water, sanitation and hygiene (WASH) amounted to 8.2%, 5.5 percent, 0.4%, and 1.5% of the budget, respectively.

Overall, global economic growth is projected to hold steady at 2.6% in 2024 before edging up to an average of 2.7% in 2025-26. This is well below the 3.1% average in the decade before coronavirus pandemic.

This forecast implies that over the course of 2024-26, countries that collectively account for more than 80% of the world’s population and global GDP will still be growing more slowly than they did in the decade before the pandemic.

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