Uganda’s central bank said on Monday that although the country’s economy contracted in the second quarter of 2020, there are indications the economy is picking up as the country eases the COVID-19 lockdown restrictions.
Bank of Uganda (BOU) in a statement issued here to announce the lending Central Bank Rate (CBR) for the month of August said economic activity contracted by 3.2 percent in the second quarter of 2020 as a result of a combination of COVID-19 containment measures and floods.
The bank said complementary fiscal and monetary policy actions have provided a foundation for the recovery of economic activity as the lockdown is relaxed.
“The Composite Index of Economic Activity grew by 5.7 percent month-on-month in June 2020, indicating a pickup in economic activity relative to the contraction registered in the three months to May 2020,” the statement signed by Emmanuel Tumusiime-Mutebile, governor BOU said.
The Purchasing Managers’ Index also continued to register improvements since May 2020 and slightly crossed the 50 mark, indicating improvements in the business environment, according to the central bank statement.
The bank said, as the easing of the lockdown continues, the economy is expected to slowly recover, reflecting the effects of a slow rebound in both foreign and domestic demand and, subdued confidence on the part of households and firms.
The statement said many consumers are expected to be hesitant to resume their previous spending patterns, partly due to fears of contracting the virus and uncertainty about earnings. Even those whose incomes were not affected may increase their need for precautionary savings.
The bank said low exports of goods and subdued tourism receipts are projected to continue to weigh on economic growth given weaker global demand.
The slow recovery will lead the economy to grow at a projected range of 3.0-4.0 percent this financial year 2020/21, further increasing to 5.0-6.0 percent next financial year 2021/22.
The country’s economic outlook, according to BOU, is extremely uncertain, largely because of the unpredictable intensity and duration of the coronavirus pandemic.
“The downside risks to the economic growth projection include the possibility of a widespread and possibly more severe second wave of the virus, requiring a complete lock down, as well as, the locust invasion,” the statement said. The country is currently facing a locust invasion in the northern and northeastern parts of the country.
The country, according to bank, remains highly vulnerable to recurring spouts of global financial volatility, stemming either from continued global economic weakness or the uncontrolled spread of the COVID-19 pandemic.
In addition, increasing Non-Performing Loans and high lending interest rates could delay recovery of Private Sector Credit extensions to pre-COVID levels.
On the upside, economic growth could turn out stronger than projected if the spread of the virus is contained, or if a vaccine or effective treatment is available earlier than is currently being assumed. The bank said such a scenario could lead to greater business and consumer confidence, factors which would likely lead to stronger economic growth.
The bank, for the month of August, maintained the benchmark lending rate at 7 percent.