Uganda Headed for Accelerated Growth Even without Oil – Experts

Uganda will realize robust growth with or without oil, economists have revealed.

The final investment decision (FID) by JV partners on oil production has been pushed back to 2019.

This means that first oil is unlikely until 2021 or later.

“We expect robust medium-term economic growth – with or without first oil – as the government ramps up infrastructure spending,” said Razia Khan – Chief Economist, Africa and Middle East, Standard Chartered Bank.

Uganda is estimated to have 6.5 billion barrels of oil deposits with an estimate of 1.4-1.7 billion barrels recoverable.

ChimpReports understands differences between government and oil companies have delayed oil production.

While most oil companies are pushing for the prioritization of the oil pipeline to sell crude, government insists on having an oil refinery in place too.

Khan said the Central Bank’s Composite Index of Economic Activity indicates above-potential growth of 7-8% in Financial Year 19 (ends 30 June 2019) courtesy of a favourable agriculture outlook.


“To reflect this, we raise our 2018 GDP growth forecast to 6.0% (from 5.5%). We still expect growth to average close to 6% in the coming years, accelerating even further with oil production. While this looks strong, in per-capita terms it translates into only c.2%,” he emphasized.

The bank also lowered its 2019 current account (C/A) deficit forecast to 8.0% (from 8.6%) to reflect the FID delay in Uganda.

“Construction of an oil pipeline to the port of Tanga in Tanzania will require more imports, eventually widening the C/A deficit, but the absence of oil-related activity is likely to contain the deficit for now,” said Khan.

Inflation is expected to exceed the Central Bank’s 5% target by end-2019 and in 2020.

Above-potential economic growth, with a continued recovery in private-sector credit, raises risks.

However, said Khan, inflation has been better behaved in the recent past, and the Bank of Uganda (BoU) moderated its near-term assessment at its December 2018 meeting.

“To account for this, we revise our average headline CPI inflation forecasts to 2.7% in 2018, 4.8% in 2019 and 6.7% in 2020 (from 3.1%, 5.8% and 6.6% prior, respectively). The more benign inflation outlook in early 2019 and recent Ugandan shilling  stabilisation should give the BoU room to pause its policy tightening, after a pre-emptive 100bps hike in the central bank rate (CBR) in October 2018. We see BoU hikes resuming from April 2019, with the CBR ending the year at 12.0% (11.5% prior) and rising to 13.5% by end-2020 (13.0% prior),” he emphasized.

Additionally, fiscal concerns related to the low rate of revenue collection persist.

While this has traditionally been mitigated by weak execution of public investment projects, there is now a greater urgency to complete projects.

Khan said recurrent expenditure remains strong.

“Uganda has avoided borrowing from international capital markets; however, public debt already stands at 41% of GDP, and reliance on more short-term commercial borrowing is increasing. More measures to expand the revenue base are expected when the budget for FY20 is announced in June 2019. An increase in the public borrowing requirement should, however, keep domestic interest rates elevated,” he observed.

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