Uganda Faces Economic Risks – IMF

The International Monetary Fund has predicted that Uganda will face economic risks from both domestic and external environment, which are likely to impact negatively in health of economies despite high growth that has been projected for this year.
The IMF made the prediction in its latest Regional Economic Outlook report released in Kampala last week at Statistics House adding that the risks Uganda is facing is that the favourable factors that have supported growth in the region in the past have started to weaken.

A trader displays Uganda Shilling notes. IMF says there is likelihood of exchange rate depreciation as has already been observed in South Africa, Nigeria, Ghana and Zambia.

The warning about domestic risks, including persistently high fiscal deficits and rising public debt, comes after a decade in which the IMF largely praised the economic policies in sub-Saharan Africa, the world’s second fastest growing region after developing Asia.

“The time to fix the roof is now,” Abebe Aemro Selassie, deputy head of the Africa department at the IMF, said in an interview. “Growth has recovered to pre-crisis levels, however the fiscal deficit stance is akin to the one that countries put in place during the crisis. We are cautioning of the need to revert to smaller deficits.”

In spite of the domestic risks and external headwinds, the IMF painted a relatively rosy short-term outlook, saying in its twice yearly review of the region that economic growth will accelerate this year to 5.4 per cent, up from 4.9 per cent in 2013. In its previous outlook, released in October, the IMF anticipated growth of 6 per cent in 2014.

“More homegrown risks are also threatening growth prospects in several countries in the region,” the IMF said. “In a few cases policy missteps, such as large fiscal imbalances, threaten to undermine the hard-won macroeconomic gains of recent years,” it added
“A number of countries . . . have undertaken excessive fiscal expansions . . . partly financed by foreign borrowing, thereby increasing their vulnerability to sudden capital flow reversals.”

Mr Selassie said the IMF was not sounding the alarm, at least not yet. “The region has been doing well – we are focusing on what is needed to sustain this 10-year long boom,” he said.