Central Bank Governor Tumusiime MutebileKey economic indicators remain stable but experts cautiously optimistic about 2014 economic prospects At the beginning of 2013, everyone wished that it would not be like the end of 2011 where year-on-year inflationary pressures jumped to over 30% - the highest since 1993 - the dollar exchange rate went up to unprecedented Shs 2, 900, and commercial bank interest rates touched the 30% mark in the middle of 2011 before easing at the beginning of 2012. The Central bank was desperate to ensure that the economic environment in 2013 was better and experts are satisfied that it fought and won the battle. Since introducing the Central bank rate in July 2011 under inflation targeting lite (ITL) regime among other policy measures, the Central bank has been able to influence banks to somewhat bring down interest rates and positively impact on economic growth of East Africa's third largest economy. When the Bank tightened the monetary policy in 2011 to battle high inflationary pressures, the economic growth stood at a negligible 3.4% in 2011/12 from 6% a year before. But it rebounded in 2012/13 and grew at 5.8% and it is expected to even grow higher in 2013/14 at over 6%, thanks to increased private sector borrowing as a result of reduced interest rates. Already, official figures contained in Bank of Uganda's monetary policy report for December indicate that Shs 162.3 billion was borrowed from commercial banks in October compared to Shs148.2 billion borrowed in the same period in 2012 - indicating a 9.5% jump. The annual growth in private sector credit was recorded at 8.95% in Oct. 2013 , higher than 8.8% in September, same year and 7.31 in Oct. 2012 . Also, month-on-month, net credit extensions increased by 77.4%. Of the total loans, traders took the lion's share at 23.8%, followed by household loans at 15%, and manufacturers at 11.5%. Analysts believe traders could have benefited here unlike in 2011 when they had to even shutdown shops protesting the high interest rates. "Things have been better this year though we hear that money in circulation is still low," said Issa Sekitto, the Kampala City Traders Association (KACITA) spokesperson. Other sectors like agriculture, electricity and water, land purchase, commercial mortgages took the least 6.2%, 0.3%, 0.5% and 1.6% respectively. As a whole, the report indicates that commercial bank interest rates have continued to decline to an average of 22.2% in October 2013 , down from 26.6% in January 2012 , which partly explains the higher appetite for loans. Comparatively, the Central bank's CBR currently stands at 11.5% as of December down from over 20% in 2011. Luis Kasekende, the BoU deputy governor, said at the beginning of December that by continuously reducing the CBR, they were implementing an "accommodative" monetary policy, which would boost real economic activity "which continues to show signs of recovery." He said the growth momentum would benefit from the private consumption, which is projected to rise as consumer and household credit extension gradually gain momentum in the medium term. He said the reduction in headline and core inflation in November and the stability of the exchange rate warranted monetary policy easing. At the end of November, the Uganda Bureau of Statistics (Ubos) announced that annual headline inflation had declined to 6.8% in November from 8.1% in October, while core inflation, which the monetary policy targets, slowed to 7% from 7.2% in November and October respectively. Kasekende said their forecasts suggest that year-on-year inflation will edge down further in the coming 2-3 months driven by crop harvests to about 5.5-6.5% but rise to about 6-7% during the second half of 2014. Annual core inflation is forecast to stabilise around BoU's policy target of 5% in the medium term. For the shilling, despite the global strengthening of US-dollar (1.2% month-on-month), the unit appreciated by 0.4% in Nov. 2013 , lower than the 1.3% appreciation penned in Oct. 2013 and 3.8% year-on-year to average midrate of Shs 2, 523.13 to the dollar. The Central bank said the appreciation was attributed to seasonal factors, offshore inflows attracted by higher yields on treasuries, and inflows from NGOs and exports amidst weak dollar demand. Kasekende said, however, that there are potential risks of stronger inflationary pressures emanating from a mix of factors pertaining to domestic demand pressures and global economic recovery. But he promised that, his team would continue to assess the global and domestic economic and financial developments and their implications on the overall outlook for inflation and growth of the Ugandan economy, and take appropriate actions to maintain future average annual core inflation around the medium target of 5%. 2014 prospects: Kasekende says there has been a recovery in private sector consumption because of improved economic activity and increased private sector borrowing from commercial banks. "If this trend continues we are likely to see positive growth in 2014. If I had a choice on what I want to see in 2014; I would want to see core inflation falling to where we want it (5%) in 2014," he added. Isaac Nkote , a senior lecturer at Makerere University Business School , also commended BoU for a job well done and was cautiously optimistic about the New Year. "For 2014, I still expect the economy to remain calm but also expect some investors to hoard their cash because they are not sure about what will happen in the 2016 general elections. We are likely to see more political activity in 2014 because of the 2016 elections. That might somehow affect the economy. But we have to wait and see," he said. However, Sekitto said the macroeconomic stability has been maintained but on the micro side, small scale businesses are not making good profits and income inequality remains a big issue. The support: There are currently 16 active projects with a net commitment of $1 , 472 million supported by the World Bank . In line with government priorities, 60% of the funding goes to infrastructure; around one third to education, health and the social sector and another 7% to private sector development. The Bank has to date provided over $8 billion in financing, with more than $7.30 billion in loans and credits and another $650 million in grants. The bank has also provided a number of analytical reports which have informed national policies and strategies. Diop said the Bank's portfolio in Uganda is the eighth largest in Africa since the partnership came into force over 50 years ago, which Diop added has been "very successful." He added that when a country hasDiop and other officials inside the Bujagali powerhouse. Independent/ Julius Businge leaders who make a firm commitment, put in place the right policies, and have sustained financial and institutional support from the donor community, along with a firm social contract with their citizens; that country can go from a low equilibrium to one of higher, more sustained economic growth. Diop said when Uganda joined the World Bank in 1963, most African economies were in transition, taking charge of their economies and working hard to boost growth and make their way in the world economy. He said, however, despite the slow recovery of the global economy, growth in Sub-Saharan Africa remains strong at 5.8% in 2012 (excluding South Africa ) boosted by growing domestic demand and high commodity prices. Over the last decade, six of the world's fastest-growing economies were African, according to Diop, and Africa is the fastest-growing region, second only to East Asia , and Uganda is on track to achieving middle-income status. "This is not a question of luck," he said, rather the results reflect a sustained commitment by Uganda's leaders and it is a tribute to their vision and leadership." He suggested that with a more educated, more urbanized population, a new social contract is needed between Uganda's leaders and her people ahead of the forthcoming oil revenues if the country is to translate this mineral wealth into better health services and outcomes, greater transparency and improved governance. On the agriculture stage, Diop said the World Bank would earmark financial support to the coffee subsector. "This is one of the issues I discussed with president Museveni," he said, on top of maize, rice, cassava, beans which the bank has been supporting over the years. Kiwanuka on oil money: In response, Finance Minister Maria Kiwanuka attempted to allay Diop's fears, saying the government plans to put in place a petroleum reserve fund where all oil revenues would be channeled before any of it is spent. She added that Parliament will be a major institution to decide on where the money is spent. "But we will have to invest it in development sectors like infrastructure, education, health," she said, adding we believe investing in some of these especially infrastructure [roads, rail] will lower the cost of production and boost household incomes, which will automatically translate into economic growth. Kiwanuka applauded the World Bank for the support and said it remains one of the cheapest sources of money for Uganda to invest in projects critical for the country's economic transformation. "These loans are fixed at 1% interest and are payable in the period of 20 years," she said, this is manageable. She also appeared to allay fears over Uganda's debt burden when she said "it is still sustainable." Uganda's volume of external debt by March 2013 was $3.76 billion (about Shs 9.5 trillion) outstanding and disbursed, while $2.04 billion (about Shs 5.1 trillion) was committed but had not yet been disbursed. The World Bank's Uganda country representative, Moustapha Ndiaye said the future of the partnership was bright. "The partnership is evolving and it will continue to evolve as Uganda moves towards middle-income status," he said. He said going forward; the bank would increasingly be involved in large transformational operations to further spearhead the country's growth potential.
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