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Long Read: Uganda’s Economy on Its Knees; Trade Crisis As Imports Almost Double Exports


Uganda’s economy has continued to grapple with Balance of Payments (BoPs) deficits despite of numerous measures put in place to save the collapsing economy, the December 2022 State of the Economy Report from Bank of Uganda has revealed.

The Report has revealed that the Balance of payments, Uganda’s external position weakened in the 12 months to October 2022, “reflecting adverse spillover effects 

associated with the Russia-Ukraine conflict especially on the commodities terms of trade which exerted pressure  on the trade balance, keeping the current account on the weakening path,”

The report further reveals that the combination of a widening current account and reduced financing resulted in an overall BOP deficit to a tune of $545.2m in the year to October 2022 from BOP surpluses recorded for similar periods in the previous two years. 

“On an annual basis, the trade deficit 

widened as exports fell considerably to $4,191.8m while the import bill increased marginally to $7,824.5m. Excluding gold trade, the trade balance deteriorated even further, by 21 percent to $3,623.6m due the deterioration of the terms of trade,”

The import bill excluding gold substantially increased reflecting the high private sector oil and non-oil imports which increased by 67.7%  and 15.8% to $1,530.7m and $5,697.3m , respectively, reflecting the war-induced escalation in oil and non-oil global commodity prices. The import price index rose by 19.8% , exceeding the 4.5%

increase in the export price index, reflecting a 13.3% percent deterioration in the terms of trade. 

“The financial account surplus recorded a steep contraction due to a surge in outflow of short-term capital and shrinkage of loan disbursements to government amid increased external debt service,” reads part of the report 

“Similarly, on a quarterly basis, the current account deficit widened although marginally due to widening of the services deficit on account of reduced inflows from tourists due to the Ebola epidemic,” it adds.

While the financial account  surplus somewhat recovered during the quarter to October 2022, the report says it remained insufficient to cover the current account deficit culminating into an overall BOP deficit of $184.9m which was 71% lower than what was recorded the preceding quarter.

“The current account deficit widened, both on an annual and quarterly basis, by $112.7m and $41.0m to $3,907.4m and $1,0693.3m, respectively,” says the report

It further adds that the  deterioration in the current account deficit was largely attributed to the 18.5% deterioration in the trade balance and a 25.9% increase in the services deficit, on an annual and quarterly basis, respectively.

In addition, the report says the widening of the deficit on primary income account by 8.9% to $794.24m was a drag on the current account due to increased interest payments on external debt while the improvements posted by the services and secondary income accounts offered support during the twelve months to October 2022. 


The report says the services account deficit improved by 16 percent to $1,433.9m due to the rebound in tourism 

activity before the recent Ebola outbreak hit the country and the secondary income surplus surged by 14.4% to $1,953.3m at the back of the increase in workers remittances and grants to government.

“On the financing side, the financial account surplus contracted by 32% to $2,419m in the 12 months to October 2022, largely driven by a sharp upsurge in portfolio capital reversal and a reduction in other investment net inflows.

The Monetary policy tightening in advanced economies in the later part of the reporting year triggered offshore investors’ exit from the domestic debt securities market in favor of the safe and 

increasing yields in Advance economies. 

“In addition, both budget and project support loan inflows contracted, amid tighter global financial conditions. On the upside, however, the financial account surplus was supported by foreign direct investment inflows which increased by 37 percent to $1,424.2m over the twelve months period, driven by oil sector project related foreign capital inflows.

“On a quarterly basis, the trade balance improved on account of a 12% expansion in export revenues, which exceeded the 4% increase in the import bill, driven by the resumption in gold trade following the abolition of the 5% export levy on refined gold that had led to a halt in gold trade activities for nearly 13 months,” the report expounds

Exclusively however, gold  exports contracted by 5.8% during the quarter to October 2022 while imports also contracted by 4.6% as global commodities prices eased during the quarter, according to the Report.

The easing of the global commodity prices, the report says impacted the exports price more than imports with the decline in the former standing at 20%  double that of later hence worsening of the terms of trade.

“The Ebola outbreak during the quarter scared away tourists, inducing a 30.7% plunge in travel receipts and a 25% deterioration of the deficit on the services account, and this was the main driver of the current account deterioration in the Quarter to October 2020. The primary and secondary income on the other hand slightly improved during the quarter to a deficit of $197.6m and a surplus of $533.3m owing to increased income on reserves and grants to the government, respectively,”  

On overall, the BOP deficits of $545.2m and $184.9m, according to the Report were registered both annually and quarterly, respectively leading to decline of gross reserves contracted to $3,610.8m, equivalent to 3.5 months of future import cover at end of October 2022. This is a major reduction relative to the stock of $4,331.2m or 4.8 months of future import cover obtained at the end of October 2021 and a stock of $3,883.7 million or 3.8 months of future import cover as at end of July 2022.

Balance of payments outlook

In the short-term Uganda’s external sector outlook remains subject to adverse spillover effects associated with 

the continuing geo-political tensions, high borrowing costs, elevated financial vulnerabilities, subdued global growth and the global commodities prices dynamics.

Headwinds from extended global geopolitical tensions, tightening global financial conditions, subdued external demand, heightened foreign investor risk aversion, high cost of external borrowing and weakening global growth will continue to pose negative effects on Uganda’s external sector position. 

The current Ebola outbreak is expected to continue weighing down on Tourism inflows, while high government expenditure on imports and debt service obligations will likely constrain reserve 

build-up, further weakening Uganda’s balance of payments position.

In the medium term, the current account deficit is projected to widen, before progressively narrowing into FY2026/27. It further states that the trade deficit will follow the same path as imports are projected to remain high, however, increased export revenues boosted by intra-African trade (AfCFTA), will contribute to the narrowing of the trade deficit in the latter years.

The services’ deficit is anticipated to widen, as transport payments (freight services) increase in line with imports. On the upside, the current account will be supported by increased export revenues, persistent remittance inflows and a rebound in stable tourism receipts. 

The financial account surplus is projected to gradually narrow throughout the medium term, owing to decreased budget support loan inflows and rising external debt repayments in the medium term. 

On the other hand, the financial surplus will be supported by strong FDI inflows to the oil sector. Overall, BOP deficits are projected throughout most of the medium term, due to the projected narrowing of the financial surplus amid the widening current account deficit. Furthermore, the high cost of debt service will continue exert pressure on reserves.

Public Debt

The Report further reveals that the Public debt in nominal valueincreased to Shs79.9Tn 38.1(approximately 49 % of GDP) in October 2022. It however says the debt is still sustainable. 

Public debt as a ratio to GDP is projected to rise further in the medium term and peak at about 53%  before gradually easing and returning to the Government target of 50% by the end of FY2024/25. 

“However, public debt servicing continues to exert pressure on domestic revenues. Total debt service (domestic & external) as a percentage of domestic revenues averaged 37% in the first four months of FY2022/23,” it reads 

“Although most all debt risk indicators were within the 2018 PDMF thresholds, domestic debt interest payments continued to be in breach, reflecting liquidity pressures on the domestic revenues to finance the domestic debt liabilities at the expense of other priority budgetary items,” it adds

The report says that external debt serving which is projected to average $1.3Bn per year between FY2022/23-2025/26 remains a major strain on international reserves.

Domestic Economy

The domestic economy, according to the Report remains resilient to the current external shocks and isprojected to grow in the range of 5% and 5.3%  in FY2022/23, driven by improvement in agricultural productivity as a result of government interventions, investments in the oil sector, and a rebound in industrial activities. 

“However, this is slightly lower than the October 2022 round of forecast of 5%-5.5%. Indeed, the latest high-frequency indicators of economic activity show that economic activity weakened in the quarter to October 2022,” it states

It adds that business sentiments fell in November 2022, reversing the upward trend recorded in the previous two months. 

The softening of growth is attributed to a combination of moderation of external demand following softening global growth, continued adjustments in US interest rates which have contributed to a persistently strong US dollar environment and, fiscal policy consolidation that is likely to weigh economic growth downwards though imperative for debt sustainability, and tighter financial conditions due to higher interest rates. 

Economic growth is projected to strengthen in outer years but remains below its long-run trend until FY2025/26. The growth outlook remains subject to downside risks, which include weaker-than-expected global growth, 

higher risk aversion in global financial markets amid more aggressive monetary policy tightening in major economies, and further escalation of geopolitical conflicts that could spill over into constraining trade and disrupt global supply chain. 

Growth could be lower than projected should the Ebola epidemic worsen, implementation of oil-related projects be delayed, financial conditions and fiscal policy get much tighter or a global recession materializes.


The report revealed that inflation remains persistently higher than the target, although there are indications that it is losing momentum and peaking. 

“Annual headline inflation decreased slightly from 10.7%  in October 2022 to 10.6% in November 2022, while the annual core inflation declined from 8.9% in October 2022 to 8.8% in November 2022,”

“The easing inflationary pressures is a reflection of the impact of previous monetary policy decisions, diminishing effects of the supply disturbances such as global supply chain disruptions and war-induced elevation of global energy and non-energy commodities prices responsible for the recent high inflation. Indeed, the annual electricity, fuel and 

utilities inflation, has continued to fall after peaking at 19.6% in August 2022 and has since declined to 12.2% in November 2022,”  

According to the Report however, the main factor backstopping the fall of inflation remain the lagged impact of the drought which is still putting upward pressure on food prices. 

The elevation of food prices is temporary and should dissipate with the full harvests of the current season coming on board.

“In December 2022, the inflation outlook was assessed to be lower than predicted in October 2022 by 2 percentage points. Inflation is to peak in the last quarter of 2022 and will average between 6- 8% in 2023, converging back to the 5 percent medium-term target by the end 2023. 

“The downward revision of the inflation outlook is due to the dissipating impact of the earlier upsurge in global energy and nonenergy prices, subdued domestic and external demand, lower exchange rate depreciation, current monetary policy stance, and expected decrease in global inflation and international commodity prices.”it reads

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