Country Report Uganda

Outlook for 2008-09

• The main challenges for the president, Yoweri Museveni, are to bring about a permanent end to the Lord's Resistance Army (LRA) and to tackle Uganda's infrastructure bottlenecks—especially in the power sector.
• Economic growth is forecast at 6.4% in 2008 and 6.6% in 2009, supported by growth in construction and services.
• Real GDP growth rates of 7-8% a year are required to make a substantial impact on poverty, but with a solution to the electricity shortages still a distant prospect, Uganda is unlikely to achieve this in the forecast period.
• Rising food and oil prices will remain the biggest determinants of inflation. Assuming normal weather conditions, the Economist Intelligence Unit forecasts an inflation rate of 7.5% in 2008 and 6.5% in 2009.
• Stronger demand in neighbouring countries is expected to boost Ugandan exports. However, further import growth, driven mainly by capital imports for the power sector, will ensure a widening current-account deficit in 2008-09.

Monthly review

• Relations between Uganda and the Democratic Republic of Congo (DRC) deteriorated at the beginning of May, when Congolese forces near the border with West Nile occupied a stretch of land whose ownership is disputed.
• In a further indication of damaged relations, the DRC appears to have backtracked on a commitment to take military action against the LRA. This had been an important development in efforts to thwart the LRA.
• A resumption of the civil war in neighbouring Sudan is a possibility as tensions are rising between the authorities in Khartoum and Juba. If that were to happen, the LRA might once again be able to count on Sudanese support.
• Financial support from the World Bank to the Ugandan government has fallen to US$200m for financial years 2007/08-2008/09. The reduction is due to budget overruns in public administration and defence spending.
• The government is considering launching a dollar-denominated international bond worth US$1bn to provide financing for infrastructure projects. The proposal will be presented to parliament in the forthcoming budget.
• Latest figures indicate that the banking sector is showing signs of vigorous expansion. Despite increasing competition, five of the top commercial banks reported a 50% increase in profits in 2007.
• The level of NPLs for commercial banks has declined to just 4%, compared with 50% ten years ago. This has been attributed to liberalisation of the financial sector and improved supervision by the central bank.