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AMR: Uganda

AMR: Uganda

We revise our GDP growth forecast for 2019 to 6.0% y/y, from 6.3% y/y. We expect the C/A deficit to widen to 9.0% and 9.4% of GDP in 2019 and 2020 respectively as well as USD/UGX trading at 3900-3950 by end 2019.

Nominal GDP
Real GDP growth

GDP growth - looking solid despite FID delay

We retain our GDP growth estimate for 2020 at 6.6% y/y hinging on our assumption that economic activity will be boosted by a further rise in FDI largely associated with the energy sector. Nevertheless, economic activity is likely to remain robust even if the FID on oil is say postponed to the end of 2020 or even later. In addition to the rise in public sector investment in infrastructure which has been underpinning economic growth, the private sector has also become an engine of growth over the past few years.

Balance of Payment - FDI to fund wider deficit 

We have revised upwards our C/A deficit projections for both 2019 and 2020 to 11.9% and 12.2% of GDP respectively. Large infrastructure projects that the government will be looking to complete that will be import-intensive. However, given that domestic demand is already robust, private sector imports are also likely to continue contributing to a wider trade balance over the next few years. We still believe the wider deficit will be adequately funded from the capital and financial account especially once the FID on oil has been made.

Monetary policy – hawkish bias from H1:20

We now expect the MPC to hike its policy rate from H1:20, rather than Q4:19 which was our previous expectation. The unexpected stability in USD/UGX for the better part of 2019 will probably provide comfort to the MPC that core inflation will rise more moderately than they previously expected. We see headline inflation rising to 4.1% y/y in Dec 19 and thereafter to 5.0% y/y in Mar 20 and 5.2% y/y in Jul 20. By Dec 20 headline inflation will probably be at around 5.6% y/y.

FX outlook – : moderate UGX weakness ahead

We now expect USD/UGX to rise to 3750-3800 levels by the end of 2019, from our previous forecast of 3900. However, despite the likelihood that FDI will increase further especially post-FID, prior to that there is likely to be a rise in imports of goods as the government prepares the required infrastructure for commercial oil production, hence creating a weaker UGX bias.

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