Uganda Ill-Equipped for Global Shocks, Economists Warn

Recent global events have highlighted significant vulnerabilities in Uganda’s economic resilience. An example cited was the impact of the US-Israel-Iran conflict, which, despite Uganda’s indirect involvement, led to a weakening of the Ugandan Shilling, increased fuel prices, and rising food costs.

Experts speaking at a Uganda Development Bank webinar emphasized that the core issue is not the occurrence of such conflicts, but Uganda’s insufficient capacity to forecast and absorb their fallout. Dr. Francis Mwesigye, Chief Economist at UDB, stressed the need for enhanced systems to track global economic trends and model the impact of external shocks.

Joseph Mawejje, a Senior Economist at the World Bank, pointed to Uganda’s deteriorating fiscal buffers and rising debt levels, which severely limit the government’s options during a crisis. He underscored that disciplined public spending, improved tax collection, and careful debt management are crucial for a nation’s ability to respond rather than merely endure shocks.

Mawejje further explained that the recent conflict affected Uganda through increased oil prices, higher trade financing costs, exchange rate pressure, and diminished investor sentiment, all exacerbated by the shilling’s decline. The cost of servicing Uganda’s dollar-denominated debt also rose without new borrowing.

However, Mwesigye noted some natural insulation for Uganda, particularly in its largely local food production and low reliance on expensive fertilizers among its farmers. He suggested this presents an opportunity to accelerate import substitution, advocating for increased investment in agriculture, renewable energy, and manufacturing.

While investor interest in these sectors is growing, economists agree that translating this into actual investment requires policy stability and robust economic intelligence infrastructure. Mawejje also proposed deepening East African Community integration to create a more substantial economic bloc.

Looking ahead, Uganda’s anticipated oil production later this year could offer some protection against future oil price shocks. However, Mawejje cautioned that the benefits are not immediate or automatic, and significant questions remain about revenue management and distribution.

This article is based on reporting from the Daily Monitor (Uganda).