According to Bank of Uganda’s Business Tendency Indicators report for March 2020 released this week, the index that measures the confidence that a cross-section of business leaders from different sectors have in the economy hit a score 54.19- the lowest since January 2016 when it last hit 53.77.
The index that has been falling month on month, since January 2019, has since lost nearly 5 basis points.
According to the index introduced by Bank of Uganda in July 2012, scores less than 50 imply negative and pessimistic expectations about the economy, while indices greater than 50 imply optimism.
The highest ever reached was 62.68 in December 2012.
Respondents are drawn from construction, manufacturing, wholesale trade, agriculture, and services sectors.
Falling exports, less money, fewer orders, and fewer jobs
Most leaders interviewed were bleak about both their present situation and indicated declining hopes in their business situation in the next 3 months. They also indicated that they expected to buy less from their suppliers, hire fewer people and also predicted falling prices. Consequently, many said they didn’t see their financial situation improving in the subsequent three months as they expected even more restrictions on accessing credit.
Meanwhile, figures released by Bank of Uganda also indicated that Uganda’s February 2020 export earnings fell by 8% from USD383.6 million in January to USD353 million in February. Earnings from coffee fell by 3% from USD48.2 million to USD46.7 million while non-coffee export earnings experienced a sharper fall- 10.5% from USD288 million in January to USD257.9 million in February.
In absolute terms, gold export earnings registered the biggest fall- by USD15.27 million from USD104.6 million in January to USD89.3 million, followed by maize and fish which fell by USD4.1 million and USD2.9 million respectively.
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BoU reports also indicate that private-sector credit remained steady- at UGX14.83 trillion in February, falling by a minor UGX70 billion from UGX14.90 trillion in January.
However, the situation is expected to get worse as the impact of the lockdown and the consequent travel restrictions in and out of the country instituted from March 18th in Uganda as well as those imposed by many of Uganda’s trade partners make full impact.
According to the Ministry of Finance projections, due to depressed global demand and travel restrictions associated with Covid-19, there will be a severe reduction in exports and tourism receipts. The ministry also said that foreign workers’ remittances and Foreign Direct Investments (FDIs) will “decline significantly”.
This, combined with an estimated 50% reduction in loan disbursements in the last five months of FY2019/20 will not only reduce money inflows but will also put pressure on the shilling, eventually causing foreign exchange reserves to decline from 4.2 future months of imports to about 3.5 months.
The government has also warned that the banking industry non-performing loans could worsen from 4.7% to 5.9% and that the worst affected sectors will be trade, tourism, transportation, and construction.
Banking experts have however put the NPLs figure at between 7% to 10%.
The resultant reduction in international trade taxes, as well as consumptive taxes, is expected to lead shortfalls in government revenue, that could reach anywhere between SHS82.4 billion and Shs288.3 billion in FY 2019/20, possibly worsening to between SHS187.6 billion and SHS350 billion in FY2020/21, should the prevalence of Covid-19 be prolonged.
Overall, government growth prospects for FY2019/20 have as a result been reduced from 6.0 percent to anywhere between 4.6% to 5.7% and in a worst-case scenario, this could see up to 2.6 million people relapse into poverty.
