The COVID-19 pandemic has had a profoundly adverse impact on Uganda’s economy, business activity, and livelihoods. When the pandemic struck in early 2020, Uganda implemented one of the strictest lockdowns in Sub-Saharan Africa to contain the spread of the virus. However, this disrupted many sectors and triggered rising unemployment and poverty.
The lockdown restrictions and slump in external demand led Uganda’s GDP economy growth rate to plummet from over 6% in 2019 to just 2.9% in 2020. Sectors like- tourism, manufacturing, transport, wholesale & retail trade that involve significant human interaction were severely affected. With firms facing cash flow issues, many workers in these informal sectors lost their jobs and incomes. Uganda’s poverty rate has increased by 2-3 percentage points with an additional 2.6 million Ugandans falling into poverty.
Exports of key commodities like- coffee, tea, cotton, and horticulture products also declined due to the global economic downturn. Uganda’s import bill has gone up faster than exports, straining the country’s balance of payments position. Loss of tourism revenues and portfolio fund outflows have also depleted Uganda’s foreign exchange reserves.
At the same time— increased healthcare spending to combat COVID-19 has expanded Uganda’s fiscal deficit. With revenue collection missing targets, public debt is projected to reach almost 50% of GDP by 2023. This reduces Uganda’s ability to provide an economic stimulus just when it is most needed.
So while Uganda’s economy is forecast to recover to 5.5% growth in 2022— the pandemic has set back poverty reduction and development plans. Further waves of infection, global financial tightening, inflationary pressures and climate change impacts pose risks to the outlook.
Decline in exports and foreign direct investment (FDI) flows by over 50% in 2020 and is putting pressure on Uganda’s balance of payments position and foreign exchange reserves. Key exports like coffee, tea, and horticulture products faced a slump in demand.
Revenue shortfalls and increased health spending have strained Uganda’s fiscal position, widening the budget deficit. Public debt is projected to reach 50% of GDP by 2023.
However—the economy is projected to recover in 2021 and 2022 as lockdown measures ease and global growth picks up. The IMF projects Uganda’s economy to grow by 3.7% in 2021 and 5.5% in 2022. But risks remain from new COVID waves and global financial tightening.
