Country Report Uganda May 2009

Outlook for 2009-10

• The president, Yoweri Museveni, will attempt to reassert his dominance over the ruling National Resistance Movement (NRM) following a large cabinet reshuffle in February as ambitious politicians bid to succeed him.
• Political in-fighting between rival factions in the NRM will intensify over the next few years as the 2011 presidential election draws closer.
• The Economist Intelligence Unit expects a loosening of monetary policy over the forecast period, primarily through lower interest rates, in response to the slowing economy and some easing of consumer price inflation.
• Weak global demand will hurt Uganda's open economy and hamper trade growth. Real GDP is forecast to post a weaker growth of 4% in 2009, rising to 5% in 2010.
• We expect inflation to fall from 14% in March to an average of 11% in 2009 and 8.5% in 2010 as international food and oil prices ease, but high domestic food inflation and looser monetary policy will prevent it from falling faster.
• The value of trade will stagnate in 2009 as weak global demand restricts export growth and falling commodity prices limit import costs. The current-account deficit is forecast at 10.6% of GDP in 2009 and 10.8% of GDP in 2010.

Monthly review

• A dispute over the nationality of tiny Migingo Island has escalated as youths in Nairobi damaged the Uganda-Kenya railway link. Both governments say that they will abide by the decision of a joint survey team due by May 15th.
• Tanzania has rejected the authority of the East African Community (EAC) council of ministers over the free movement of labour and goods, and access to land, which is a blow to Ugandan hopes for faster integration of the EAC.
• Budget estimates for 2009/10 (July-June) project a shortfall of USh1.7trn (US$827m). This will mean an increase in government borrowing unless there is further underspending owing to the poor absorptive capacity of ministries.
• Tullow Oil has reduced the expected output of its early oil production scheme. The scheme has been delayed until 2010 and initial production will be 500 barrels/day (b/d), down from 4,000-5,000 b/d originally forecast.
• The government has lowered its economic growth forecast for 2008/09 to 6.2% from 8.1% in the budget. This would be a fall of almost 3 percentage points on the previous year and the slowest growth rate for half a decade.
• Traditional exports have held up well at the start of 2009, and exports of cotton, fish, tea, tobacco, maize and beans were all up compared with the previous January.