Uganda is grappling with double-digit inflation as spillover effects of the global economic decline filter through the domestic economy, the country's central bank, Bank of Uganda (BOU) has said.
Domestic inflation hit double digits for the first time in a decade, rising to 10 percent in September from 2.7 percent in January 2022, according to figures by the country's statistics agency, Uganda Bureau of Statistics. According to BOU, the closest Uganda's inflation touched the current level was in August 2012.
BOU in its Annual Report 2021/22 issued here on Wednesday said while the country's economy grew by 4.6 percent, which was higher than the growth rate of 3.5 percent realized in the previous financial year 2020/21, the decline in growth started in the second half of the year. Challenges started cropping up just as the economy was recovering from the adverse effects of the COVID-19 pandemic.
The challenges, according to BOU, included tightening of global financial conditions, which triggered investors' exit from the domestic debt market, thus stoking depreciation pressures on the Uganda Shilling; the Russia-Ukraine conflict, which disrupted global production and supply chains; extended drought in some regions of the country; and increased global commodity prices.
The BOU report said a slump in global output is expected to constrain demand for Uganda's exports of goods and services as a number of advanced economies turn inward to boost their economies.
"The combination of reduced exports earnings with the higher cost of imports if the price effect dominates, implies reduction in net exports and thus lower domestic growth," the report said.
"As commodity prices remain elevated, the rise in global inflation means higher imported inflation going forward for Uganda. The high crude oil prices are already adversely affecting the Ugandan economy as fuel pump prices have risen to record highs catalyzing additional pressures to the inflation," the report added.
As advanced markets continue to grapple with record inflation levels and maintain tight monetary policy stances, developing economies like Uganda will continue to feel the pinch.
"The tighter financial market conditions is bound to worsen Uganda's debt position as loans become more expensive to acquire and service," the report said.
Michael Atingi-Ego, Deputy Governor of BOU in an article on Wednesday, said fighting the rising inflation is important for securing people's survival and well-being. Atingi-Ego argued that the country has a consistent and prudent economic policy framework that is being used to tame the rising inflation.
He said as the country grapples with restoring inflation to low and stable levels, there will be some repercussions, like a transitory increase in unemployment and a transitory reduction in the rate of output growth.