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Rwakakamba to Kasekende: ‘Economic rebound’ not Felt in People’s Pockets

Harvard-trained researcher and economist, Morrison Rwakakamba has punched holes in statements made by Bank of Uganda Deputy Governor Louis Kasekende that the economy has made “important progress” over the last twelve months; saying the reality on ground tells a different story.

“Economic growth has rebounded strongly, inflation is firmly under control, export earnings have risen, and the financial soundness of the banking system has been strengthened,” said Kasekende as he addressed the Twenty-Year Anniversary Dinner for the Uganda Securities Exchange (USE) this past weekend.

The BoU official said this provides grounds for optimism about the prospects for the economy over the medium term.

But Rwakakamba told ChimpReports that Uganda Revenue Authority (URA) is proposing ‘hasty’ and ‘non-consultative’ policies because it’s struggling to raise the needed tax revenues from a troubled economy.

“These hasty, non-consultative and policy by slogan tax proposals are a response to an open secret – that the economy has been hurting since 2016 and the 6.7 percent GDP rebound that Deputy Governor, Bank of Uganda Dr. Louis Kasekende recently mentioned at a Uganda Securities Exchange event is not a concrete story and is not felt in people’s pockets,” said Rwakakamba.

“In the long run, the latter is determined on the supply side of the economy, not by monetary policy which affects aggregate demand,” he added.

Rwakakamba, who also is the Chief Executive Officer (CEO) at the Agency for Transformation (AfT), a think tank on agriculture and environmental policy, further observed: “Kasekende knows that Uganda has all the rights to brag about macro-economic stability and not micro-economic stability. The wellness of the economy should in fact be more at the core measured on number of meaningful jobs it creates, the purchasing power of citizenry – and the health of current account.”

On his part, Kasekende argues the “revival of economic growth has been accompanied by a very strong inflation performance” and that annual core inflation was only 1.7 percent in March 2017 and averaged only 3.6 percent over the last 12 months.

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“This demonstrates that the argument that the BoU’s commitment to an inflation target holds back real economic growth has no validity. Except in the very short run, there is no trade-off between inflation and real economic growth,” said the Deputy Governor.

Rwakakamba said since independence, Uganda has seldom operated a current account surplus.

According to open source datasets from Central Intelligence Agency, as of January 2018, Uganda’s current account deficit was at -$1.476 billion.

“Precisely, we continue to import more goods and services and export less goods and services. This speaks to the state of our strategic and productive capacity as a country – and even for the talk about spending and spending – are we are spending on the right skill-sets (person bytes) and known productive sectors of the economy like industry, research and agriculture?” he exclaimed.

Kasekende told the audience at the USE function that in the last six months of 2017, real GDP grew by 6.9 percent, compared to the same period in 2016.

“Furthermore, growth was widespread across the economy, with agriculture, industry and services all recording buoyant growth in the second half of 2017. The economy undoubtedly suffered a downturn in 2016, recording only sluggish growth, but those problems are clearly now behind us,” said Kasekende.

However, National Planning Authority (NPA) chairman Dr Wilberforce Kisamba Mugerwa said the economy grew at only 4.8 percent and 4.0 percent in 2015/2016 and 2016/2017 respectively.

He further said Uganda will not achieve the coveted middle income status by 2020 because of the declining economy.

“The low economic growth performance for the last three years of NDP II implementation implies that the country may not be able to achieve the lower middle income status,” he said in a letter to the Ministry of Finance and Parliament.

Asked what needed to be done to help the situation, Rwakakamba urged government to roll out a stimulus package in agriculture work, pay domestic debt arrears, control recurrent expenditure and stimulate production.

He stressed that interest rates must be reduced to enable small business acquire cheap credit which would result in creation of jobs and expanded aggregate demand.

“Remember GDP is the value of economic activity in a country. And the lowest value is represented by 70 percent population employed in agriculture sector.”

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