Uganda’s Economy Surpasses Growth Expectations Amidst High Interest Rates

Bank of Uganda. PHOTO/COURTESY

Kampala, Uganda | THE BLACK EXAMINER | Uganda’s economy experienced a faster growth rate in the last financial year than previously expected, which is a positive sign for the Bank of Uganda. The Gross Domestic Product (GDP) increased by 5.3% for the Financial Year 2022/23, surpassing the revised growth rate of 4.6% for the previous Financial Year 2021/22. This growth was primarily driven by the services and industry sectors, with the services sector growing at 6.2% and the industrial sector at 3.9%. However, there are indications that this growth momentum may be slowing down due to factors such as low domestic demand and high-interest rates.

The local currency also faced pressure, mainly from the US dollar, because of global factors like geopolitical tensions, supply chain disruptions, and changes in global financial markets. To combat inflation, the Bank of Uganda raised the central bank rate and, in turn, commercial banks increased their lending rates to customers.

Despite these challenges, the banking sector in Uganda remained resilient, partially due to increased minimum capital requirements for financial institutions. Private sector credit grew, but it remained below pre-pandemic levels. The ratio of Non-Performing Loans to gross loans increased but later improved due to better liquidity conditions and increased economic activity.

Customer complaints against supervised financial institutions decreased, with the most significant number of complaints related to mobile money and mobile banking services. The Bank of Uganda also issued more currency to meet the economy’s demand, leading to an increase in currency issuance costs.

Looking ahead, the Bank of Uganda projects that the economy will grow in the range of 5-6% in the Financial Year 2023/24, driven by continued economic recovery and developments in the oil and gas sector.

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