Economy on recovery path from COVID-19 impacts

Corti Paul Lakuma, a Policy Analyst and Researcher with Makerere based Economic Policy Research Centre (EPRC) has expressed faith that Uganda’s economy is beginning to recover from the effects of the COVID-19 pandemic, months after government started easing a nationwide lockdown.

In an interview with theCooperator, Lakuma recalled that a May 2020 survey conducted by the research body found that Small and Medium Enterprises (SMEs) were drastically affected by the pandemic and subsequent containment policies.

However, the researcher argues that businesses are now beginning to recover from the economic downturn.

“From my experience as an economist, I can say that the economy is starting to recover, although not at the desired speed. Businesses are doing better than they were two or three months ago,” Lakuma observed, although he was quick to add that this judgement is based on intuition rather than hard evidence.

“We (EP RC) are now conducting a post-lockdown survey to provide empirical evidence on the
current state of SMEs in the country,” he said.

In a statement issued last week, the Central Bank revealed that economic activity in Uganda was beginning to pick up.

“Economic activity grew by 5.7% month-on-month in June, indicating pickup for our economy, relative to the contraction registered three months towards May 2020,” Prof. Emmanuel Tumusiime-Mutebile, the Governor Bank of Uganda (BoU) noted.

“The purchasing index also continued to register improvements since May 2020, and slightly crossed the 50 mark, indicating improvements in the business environment,” he added. COVID-19 disrupted both demand and supply of goods and services in the economy.

Mutebile said that whereas supply will initially recover with easing of the economy, demand can only gradually improve with increased export and domestic confidence to spend.

The subdued local confidence to spend is being orchestrated by months of lost incomes, during extended lockdown periods, and looming anxiety over another potential total lockdown, in case community cases skyrocket. Currently, Uganda has registered 15 COVID-19 deaths.

“The economic outlook is extremely uncertain, largely because of the unpredictable spread of COVID-19 pandemic. Increasing Non-Performing loans and high lending interest rates could delay the recovery of private sector credit extensions to pre-COVID levels,” Mutebile argued.

He also communicated that the central bank’s Monetary Policy Committee meeting of August 2020 maintained the Central Bank Rate at 7% and expressed BoU’s commitment to provide liquidity support to Supervised Financial Institutions (SFIs).

This is one of the moves intended to accelerate economic growth, projected to be in the 3-4% range for FY 2020/21.
On a related note,, amidst outcry for government support to distressed businesses, the Uganda Development Bank (UDB) on August 10, 2020 called for SMEs engaged in primary agriculture, agro industrialization and manufacturing to apply for credit financing, under government’s COVID-19 stimulus package.

The stimulus package is part of over Shs 1 trillion that government, this Financial Year, sunk into UDB to support economic recovery through production of essential goods and services, import substitution and export promotion.

According to the call by UDB, the credit facility will offer businesses a minimum of Shs 100 million at 12% interest rate. However, actors in the SME sector have warned that UDB only offers credit financing to long-term development projects, rendering it unsuitable to meet the immediate short-term liquidity relief businesses need to recover.

Experts like Lakuma also argue that Uganda’s private sector is largely informal, yet financial institutions such as UDB require formality, which creates inequity in distribution of relief financing under government’s stimulus package.