Uganda’s Economy to Grow Robustly in Medium-term Despite First Oil Delay – Economist

Uganda’s economy is expected to grow robustly in the medium-term with or without the production of first oil, according to Razia Khan, Chief Economist, Africa and Middle East, Standard Chartered Bank.

Initially, government projected that the first commercial oil from the Albertine Graben would be produced in 2020.

However, Energy Minister, Eng Irene Muloni said last month the 2020 timeline would be pushed ahead to 2020 as the joint venture partners Total, CNOOC and Tullow are yet to make the investment decision to develop the oil fields in Tilenga and Kingfisher blocks.

Muloni said the final investment decision could be made in the first quarter of 2019 and the first oil in 2022.

Chief Economist, Razia Khan now says that despite the delay in oil production, Uganda’s economy will grow robustly in the medium term.

“We expect robust medium-term economic growth – with or without first oil – as the government ramps up infrastructure spending,” she said.

The Central Bank’s Composite Index of Economic Activity indicates above-potential growth of 7-8% in FY19 (ends 30 June 2019) thanks to a favourable agriculture outlook.

“To reflect this, we raise our 2018 GDP growth forecast to 6.0% (from 5.5%). We still expect growth to average close to 6% in the coming years, accelerating even further with oil production”.

She also projected a downward revision in Uganda’s current account deficit in 2019 from 8.6% to 8% as a result of the delay in final investment decision by the JV partners.

Uganda’s imports (raw materials) are expected to spike as the construction of the oil pipeline to the port of Tanga in Tanzania commences, Razia says.

According to Razia, inflation is likely to exceed the Central Bank’s 5% target by end-2019 and in 2020.

“We revise our average headline CPI inflation forecasts to 2.7% in 2018, 4.8% in 2019 and 6.7% in 2020 (from 3.1%, 5.8% and 6.6% prior, respectively)”.

On the fiscal side, she cited persistent concerns related to the low rate of revenue collection.

While this has traditionally been mitigated by weak execution of public investment projects, says Radiah, there is now a greater urgency to complete projects.

More measures to expand the revenue base are expected when the budget for FY20 is announced in June 2019, she said.