Uganda has recorded strong economic growth since 1992, driven mainly by the services, manufacturing and construction sectors. However, there are still challenges in terms of economic transformation, exemplified by persistent high poverty levels and inequality. The recent global economic crisis presents further challenges for the economy which, if not mitigated, may slow economic growth and exacerbate these ills. It was originally thought that Uganda would not suffer from the financial contagion on account of the limited linkages of its financial system to the global financial system, but the signs are that the impacts have already been felt. Pre- and post-crisis analysis of the main economic indicators shows that there are not only direct impacts, albeit not very significant, but also significant secondary impacts touching a number of sectors of the economy. Direct impacts include the negative impact on the stock exchange and on portfolio flows. Export volumes and prices have gone down: even regional-bound exports that were thought to cushion the economy have not been spared. Imports have shot up on account of the depreciation of the Uganda shilling, cutting into the profits of domestic firms. With foreign capital and other inflows like aid (at least non-official development assistance (ODA)) and remittances going down, coupled with reduced revenue collections, the budget deficit will increase and expenditure on priority areas may be affected. To mitigate these problems, it is important that the government reduces wasteful spending and targets its expenditure at productivity-enhancing sectors that may fiscally stimulate the economy.
Sarah Ssewanyana, Lawrence Bategeka, Evarist Twimukye and Winnie Nabiddo