Uganda’s economy remained resilient in February 2020 with no negative effects linked to COVID-19.-according to Economy report for February 2020 published by Ministry of Finance.
However, the economy has started being affected negatively especially in areas of tourism, exports and imports.
The annual headline inflation rate for Feb.2020 remained unchanged from 3.4% recorded in Jan.2020. Similarly,core inflation for Feb.2020 was unchanged from 3.1% recorded in Jan.2020.
There was an improvement in the level of economic activity and sentiments about doing business in Uganda remained positive in February 2020.
In the financial sector, the foreign exchange market remained relatively stable during the month, as demand was matched by available supply.
The Uganda shilling depreciated by 0.1% against the US Dollar to an average midrate of Shs 3,681 per USD from an average mid-rate of Shs 3,676 per USD in December 2019.
Against the Euro, the Uganda Shilling has remained stable since October 2019, but appreciated by 0.2% against the Pound Sterling during the month.
In January 2020, the Central Bank Rate (CBR) remained unchanged at 9.0% premised on a fairly stable inflation outlook. Average lending rates for both shilling and foreign currency denominated loans reduced to 18.8% and 6.3% respectively in December, 2019, their lowest levels recorded for the last 12 months.
The lower lending rates are largely due to the prevailing accommodative monetary policy and reflect improvements in the quality of commercial bank’s overall loan portfolio
The stock of private sector credit increased by 1.8% from Shs 15,639.44 billion in November to Shs 15,927.93 billion in December, 2019.
The increase was largely attributed to foreign currency denominated lending, which rose by 4.2% and accounted for 76 percent of credit extended during the month.
Shilling denominated credit grew by 0.7%. The pace of growth in foreign currency denominated credit partly reflects the relatively stable conditions in the foreign exchange market in previous months, while the growth in overall stock of private sector credit has been supported by the accommodative monetary policy stance, which has contributed to lowering of average lending rates.
During December 2019, the Community, Social and Other Services sector received the largest share of credit approved (47%).
Other notable recipients of credit during the month were Trade (14%) and Building, Construction and Real Estate (10%). This reflects a big shift when compared to November 2019, where Community, Social and Other Services accounted for only 2% of new credit extensions.
The merchandise trade deficit narrowed on an annual basis but widened on a monthly basis. On a monthly basis, the deficit widened by 20.9% to USD 222.9 million due to an increase in imports (USD 36.0 million) and a reduction in exports (USD 2.5 million).
Compared to the same month the previous year, Uganda’s merchandise trade deficit narrowed by 16.6% from USD 288.01 million to USD 222.9 million in December 2019. This was due to a reduction in imports and an increase in exports
Export earnings declined on a monthly basis but increased on an annual basis. Export earnings dropped by 0.8% from USD 329.3 million in November 2019 to USD 326.8 million in December 2019.
This was mainly on account of a drop in earnings from coffee, electricity, tea, tobacco and fish. Compared to December 2018, export earnings increased by 8.0% from USD 302.5 million to USD 326.8 million in December 2019. Earnings from cotton, tobacco and beans exports recorded an improvement following an increase in their export volumes.
Destination of exports
During the month of December 2019, Middle East was Uganda’s top destination for merchandise exports, accounting for 32.5%. This was followed by the East African Community (EAC) and the Rest of Africa, which accounted for 26.6% and 17.9%, respectively.
In December 2018, EAC was the country’s top destination for merchandise exports, followed by Middle East, Rest of Africa and European Union.
The value of merchandise imports increased by 7.0% to USD 549.66 million in December 2019 from USD 513.65 million registered the previous month. This performance was mainly on account of higher private sector imports as both oil and non-oil imports increased.
Compared to December 2018, the import bill declined by 3.5% from USD 569.70 million to USD 549.66 million in December 2019, as a decrease in government imports more than offset the increase in private sector imports.
Origin of imports
During December 2019, Uganda’s biggest share of imports were sourced from Asia, accounting for 40%. This was followed by EAC, Middle East and Rest of Africa accounting for 19%, 16% and 11%, respectively.
The four trading blocs contributed 86% to total imports.
China accounted for 51% of the total imports from Asia while Kenya and Tanzania accounted for 96% of total imports from EAC.
In comparison, the largest source of imports for December 2018, was Asia, followed by EAC, Middle East and Rest of Africa. This shows that the largest source of the country’s imports has remained the same for the two periods.
Government operations in January 2020 resulted into an Overall Fiscal Deficit of Shs 1,487.4 billion which was higher than the planned deficit of Shs 898.0 billion, largely on account of higher than planned Expenditures and Net Lending.
In addition, there was a shortfall recorded in collection for revenues and grants during the month. Revenues and Grants continued to underperform registering a performance of 88.6% against the monthly target.
Domestic Revenues amounted to Shs 1,523.4 billion, registering a shortfall of Shs 176.3 billion against the monthly target. The shortfall was mainly attributed to Non-Tax Revenue (NTR) collections, which performed at 59.9% below the target for the month.
The NTR performance was affected by lower than projected collections for passport and immigration fees, two of the largest items in this subhead.
Similarly, Tax Revenues registered a shortfall amounting to Shs 85.3 billion or 5.5% as a result of lower Indirect Tax collections. Both Excise duty and VAT collections registered shortfalls amounting to Shs 35.4 billion and Shs 37.3 billion, respectively.
The performance of domestic revenue collections has been affected by several factors including; the delays in implementing policy measures introduced this Financial Year and changes in administration of consumptive taxes which has affected the yield.
Grants worth Shs 67.8 billion were received during the month. Of the total grants received, Shs 62.4 billion was for project support.