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Uganda Country Risk Report Q4 2016

  • August 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

Uganda's growth will slow in 2016, with high borrowing costs weighingon consumer spending and a deepening net exports burden. Economicactivity is set to rebound in 2017, as lower lending rates and relativelysubdued inflation bolster private consumption, while a spate of majorplanned infrastructure projects bolster fixed investment.Ugandan government debt will rise over the coming years as the authoritiesengage in an ambitious infrastructure spending programme.Although we believe that the increase in debt will be sustainablegiven improvements in revenue generation, the emphasis on nonconcessionaland foreign currency-denominated debt will test thegovernment's creditworthiness over the coming years.Uganda's central bank will continue cutting the policy rate in thecoming quarters in an attempt to spur sluggish growth. Coupled withmore benign inflation, as greater shilling stability tempers importedprice pressures, this underpins our view that the Bank of Ugandawill cut the policy rate to 11.0% by end-2017.Uganda's current account deficit will widen to 10.1% of GDP in2016, and 10.3% in 2017, due to a ramp-up in capital imports forgovernment infrastructure projects. Meanwhile, weaker remittanceand aid flows will weigh on the income account.

Table Of Contents

Uganda Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Key Risks.5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook 8
Growth To Bounce In 2017.8
Uganda's growth will slow in 2016, with high borrowing costs weighing on consumer spending and a deepening net exports burden.
Economic activity is set to rebound in 2017, as lower lending rates and relatively subdued inflation bolster private consumption, while a
spate of major planned infrastructure projects bolster fixed investment.
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS..9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS...10
TABLE: FIXED INVESTMENT FORECASTS..10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook.. 11
Rising Infrastructure Spending Will Test Sovereign Credentials.11
Structural Fiscal Position 13
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...13
External Trade And Investment Outlook 14
Current Account Deficit To Widen On Capital Imports And Weak Remittances.14
Uganda's current account deficit will widen to 10.1% of GDP in 2016, and 10.3% in 2017, due to a ramp-up in capital imports for
government infrastructure projects. Meanwhile, weaker remittance and aid flows will weigh on the income account.
Outlook On External Position.. 15
TABLE: CURRENT ACCOUNT BALANCE FORECASTS...16
Monetary Policy 17
Weaker Domestic Demand Will Prompt Further Easing17
Uganda's central bank will continue cutting the policy rate in the coming quarters in an attempt to spur sluggish growth. Coupled with
more benign inflation, as greater shilling stability tempers imported price pressures, this underpins our view that the Bank of Uganda will
cut the policy rate to 11.0% by end-2017.
Monetary Policy Framework 18
TABLE: MONETARY POLICY FORECASTS..18
Currency Forecast 19
UGX: Steady But Slower Depreciation Ahead19
Over the coming two years, the Ugandan shilling will depreciate, albeit at a much slower pace than it did during the 2015 sell-off. The
weakness will be driven by rising capital imports and deterioration in the terms of trade.
TABLE: BMI CURRENCY FORECAST19
Chapter 2: 10-Year Forecast... 21
The Ugandan Economy To 2025. 21
A Decade Of Promise But Also Of Risk..21
We are forecasting robust real GDP growth averaging around 7.0 % over our 10-year forecast period as private consumption and
agricultural exports continu e to grow; the country starts producing oil; and electricity generation increases, which together have the
potential to stimulate non-agricultural sectors and reduce the country's energy import bill.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.21
4 www.bmiresearch.com Business Monitor International Ltd
UGANDA Q4 2016
Chapter 3: Political Outlook... 23
SWOT Analysis. 23
BMI Political Risk Index... 23
Domestic Politics. 24
Constitutional Amendment Poses Risks To Social Stability24
The ruling National Resistance Movement party is likely to remove the presidential age limit from the Ugandan constitution this year,
leading to a sharp uptick in popular protests and weighing on political stability in the coming quarters. Multilateral donors will likely react
with disapproval to the amendment and resulting unrest, suggesting potential for aid to be pared back and increasing the risks to the
country's already tenuous fiscal position.
TABLE: POLITICAL OVERVIEW 24
Long-Term Political Outlook... 26
Political Challenges For Museveni Ahead..26
Uganda will face several challenges over the coming decade, including a presidential succession as well as the need to overcome
the legacy of civil war in the north and create jobs for its youthful population. That said, we maintain a positive outlook on Uganda and
foresee a relatively successful resolution of these challenges.
Chapter 4: Operational Risk... 29
SWOT Analysis. 29
Operational Risk Index 29
Operational Risk... 30
TABLE: OPERATIONAL RISK.30
Market Size And Utilities.. 31
TABLE: SUB-SAHARAN AFRICA-MARKET SIZE AND UTILITIES RISK..32
Labour Costs 35
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE... 35
Chapter 5: BMI Global Macro Outlook... 39
Global Macro Outlook.. 39
Brexit To Hit Global Growth.39
TABLE: GLOBAL ASSUMPTIONS..39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...41
TABLE: MACROECONOMIC DATA and FORECASTS..43

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