Uganda Balance of Trade performance drops

                   October 2, 2013

 The Uganda central bank says the increased government and private sector expenditure on imports has directly affected the rate of balance of Uganda earnings and expenditures. But because more foreigners came into the country with foreign currency to invest here, the margin between the country’s expenditures was somehow served. The rate at which the commercial banks are lending to individuals and private companies has also improved.

 The Uganda’s balance of payment is likely to drop in the short term resulting from the weakening of the emerging economies performance yet such economies are Uganda’s export markets. The central bank projects a possible rise in international oil prices hence forcing arise in pump prices. The governor bank of Uganda Emmanuel Mutebire attributes the scenario to the fact that Uganda is a net oil importer therefore the trends are likely to also push inflation upward.  Mutebire reveals that there are also fears that the instability in the global markets might result into exchange rate disturbances through spill over’s to the domestic market.

 But hope lies in the expected increase in foreign direct investment.  The experienced current account deficit is also attributed to the increased merchandise imports, Government expenditures on services and lower current transfers which exerted pressure on foreign earnings. The high import bill   that resulted from high private sector and government project imports deteriorated the trade balance with private imports only, representing 72.8% of the total   formal imports.

Improved real economic growth has been realized due to the different monthly economic indicators of strong economic activities. The growth has resulted from private sector investment especially in the oil sector, government investment in the infrastructural sector and recovery of the Commercial banks’ lending to private sector and households. This has increased investment and consumer expenditures respectively. Given the indicators of strong economic activities a 6.0% economic growth projection for 2013/14 can be achieved.

Meanwhile Inflation has continued to rise largely because of temporary rise of food crop prices.  Food inflation is however expected to decline in the second half of this financial year with projected decline in international food prices. The shilling has also appreciated against the dollar because of the strong dollar inflows from mainly Offshore and NGOs amidst relatively stable demand from Manufacturing and Energy.

Based on the current global and domestic economic environment and the outlook, the current monetary policy stance is appropriate, therefore, Bank of Uganda is holding the CBR unchanged at 12%.