Country Report Uganda August 2008

Outlook for 2008-09

• The main challenges over the forecast period for the president, Yoweri Museveni, will be to defuse growing regional pressures, bring a permanent end to the Lord’s Resistance Army (LRA) and improve Uganda’s infrastructure.
• Economic growth is forecast at 6.4% in 2008 and 6.6% in 2009. Large projects at Bujagali and Hoima will stimulate the construction sector, and expansion in telecommunications and finance will boost the services sector.
• Real GDP growth rates of around 10% are required to make a substantial impact on poverty but Uganda is unlikely to achieve growth of this magnitude during the forecast period, owing to infrastructure bottlenecks.
• The Bank of Uganda (BoU, the central bank) will seek to keep monetary policy tight to ensure that expansion in broad money remains manageable.
• The Economist Intelligence Unit has revised its inflation forecasts to 9.2% in 2008 (from 8.1%) and 7.2% in 2009 (6.7%), owing to high food and oil prices.
• Strong demand in neighbouring countries is expected to boost Ugandan exports. However, even faster import growth, driven mainly by capital imports for infrastructure, will keep the current account in deficit in 2008-09.

Monthly review

• In efforts to dampen speculation about the condition of the ruling National Resistance Movement (NRM) and his leadership, the president confirmed that he was prepared to stand for another term at the 2011 election.
• The most significant opposition to the president comes from ambitious politicians in the NRM, who see their advancement blocked and who represent areas of Uganda where regional sentiment has been building up.
• The vice-president of Southern Sudan, Riek Machar, has requested that the Ugandan army withdraw units that are operating inside Sudan.
• The government has launched a Rural Financial Services Programme to address the lack of small-scale rural finance. This aims to improve regulations and increase the capacity and credit available to rural financial institutions.
• Headline inflation rose to 12.4% in June, driven by food and household goods. Food price inflation has been boosted by rising global prices, poor weather in 2007 and growing demand for food exports from neighbouring countries.
• Freight rates for the railway link between Kampala and Mombasa are to rise by 14.5%, increasing import costs.
• Recent finds have confirmed the potential of the Lake Albert Rift Valley basin as a major oil-producing area, but the requirement of refineries, pipelines and storage will remain speculative until the size of reserves is determined.