The global financial crisis affected Uganda’s economy through reduced
capital inflows, including remittances, portfolio investment, exports
and foreign aid, as well as through capital outflows that include
repatriation of profits by foreign investors and withdrawal of portfolio
investments. Almost all these categories of capital flows decreased and
manifested themselves in a depreciation of the local currency. Coupled
with increasing food prices, annual inflation rose. As a result, in
2008/09 Uganda recorded a growth rate of 7.1%, against a target of 8.5%.
This would ordinarily have an adverse impact on poverty reduction and
improvement of people’s welfare.
Uganda’s response to the crisis was not explicit; apart from expenditure
reprioritisation to focus more on public infrastructure, the country’s
fiscal and monetary policies remained largely unchanged. Even when the
shilling depreciated, Uganda did not respond by running down its foreign
exchange reserves to defend the local currency, nor did the country
utilise the stimulus packages provided by the International Monetary
Fund (IMF) and the World Bank. In addressing growth constraints, Uganda
had already increased public expenditure for infrastructure development,
which later was to be prescribed by the international community as the
wise thing to do in response to the crisis. The global financial crisis
also coincided with increasing regional trade for Uganda, which has had
significant positive effects on the country’s exports.
There are signs that Uganda’s economy is slowly beginning to recover
from the adverse effects of the global financial crisis. The Uganda
shilling is strengthening, which could be attributed to a rebound in
capital inflows and an improved current account balance. The current
account balance improved substantially by end-June 2009, recording a
positive balance. A similar improvement was observed in direct
investment, although portfolio investment remains sluggish. Overall, the
balance of payments position has improved. As the economy begins to
recover from the adverse effects of the global crisis, growth prospects
are brighter, with a likelihood of decreasing poverty.
Ssewanyana, S. and Bategeka, L. Global Financial Crisis Discussion Series. Paper 21: Uganda Phase 2. ODI, London, UK (2010) 27 pp.
Global Financial Crisis Discussion Series. Paper 21: Uganda Phase 2