Uganda and East African countries are likely to face high global inflation than ever before due to the current global factors exacerbated by Russia’s invasion of Ukraine, the new World Bank Report has revealed.
The Report titled: Global Economic Prospects Report, says Uganda will not escape the slowdown in global growth that has been steepened by Russia’s invasion of Ukraine and its effects on commodity markets, supply chains, inflation, and financial conditions steepened.
The war in Ukraine, it says has disrupted the global cereals trade and worsened food shortages. Yet, still, Uganda and its neighbors;
The Democratic Republic of Congo, Madagascar, and Rwanda—which rely heavily on wheat imports from Russia and Ukraine are expected to experience persistently elevated food inflation.
But the World Bank flagship report says that in addition to the adverse impact of surging living costs, the growth outlook for low incomes countries like Uganda is anticipated to be further weakened by the global economic slowdown.
According to the report, such stagflation could eventually result in a sharp tightening of monetary policy in advanced economies, which could lead to financial stress in some emerging markets and developing economies. It suggests that “a forceful and wide-ranging” policy response is required to boost growth, bolster macroeconomic frameworks, reduce financial vulnerabilities, and support vulnerable groups.
…higher prices of grains are expected to limit the ability of farmers, especially those dependent on subsistence agriculture, to purchase enough seeds for the new planting season and feed for livestock, “
Home Pressure
A section of Ugandans including politicians have for long complained about the sky-rocketing prices of commodities.
Robert Kyagulanyi Sentamu the NUP President for example during his parrel State of the Nation address stung the government for doing nothing on the prices.
Kyagulanyi, for example, said the government can reduce taxes on grains like wheat since the majority of the urban population depends on Chapati, a statement that president Museveni bashed.
Museveni in his SONA said that the country cannot afford to cut taxes on Imports since it will not only affect our shillings, and send the economy into financial crisis but also encourage smuggling.
Inflation rates according to the Uganda Bureau of Statistics (UBOS) Consumer Price Index rose from 4.9% in April to 6.3% in May.
Bank of Uganda last week increased the CBR from 6.5% to 7.5%, citing inflationary tendencies.
Highlights of the Report
According to the report, the aggregate growth in low-income countries (LICs) is forecast at only 4.1 percent in 2022 and 5.3 percent in 2023 – 0.8 and 0.6 percentage points below the January projections. Uganda and others, according to the report have experienced planting delays because of poor rainfall.
“In some LICs, higher prices of grains are expected to limit the ability of farmers, especially those dependent on subsistence agriculture, to purchase enough seeds for the new planting season and feed for livestock, “ says the report. It also finds that the war in Ukraine has also markedly disrupted global fertilizer supply, with Russia the world’s largest fertilizer exporter.
“Higher prices of fertilizers and fuels are expected to weigh heavily on farming output as well,” warns the report “ Fiscal policy, already constrained by high public debt and tightening global financial conditions, have become even less accommodative.”
The researchers find that spending pressures to curb the impact of rising prices have been building in many countries (for example, fuel subsidies in Cameroon, Kenya, and Nigeria; a fuel levy reduction in South Africa), further straining fiscal positions.
“Moreover, rising core inflation in several countries Cameroon, Nigeria, and Uganda points to broadening price pressures, further reducing room for accommodative policies. Growth in Sub-Saharan Africa is projected to decelerate from 4.2 percent in 2021 to 3.7 percent in 2022, as high inflation and policy tightening weaken domestic demand.”
According to the report, a growth deceleration in major trading partners is compounding these headwinds. “Growth is projected to firm slightly to an average of 3.9 percent in 2023-24, assuming further progress with pandemic containment measures”.
