Update on impact of Covid-19 shows worsening business conditions in Uganda

By George Mangula

The impact of the Covid-19 pandemic prevention measures during the month of April was reflected in the key indices of economic activity which track current business conditions and the outlook, with the Purchasing Managers’ Index (PMI) falling for a second consecutive month, signaling a further deterioration in business conditions as production levels declined, according to the latest Ministry of Finance report.

The April 2020 Performance of the Economy Report published on Monday also shows that Business Tendency Index (BTI) declined as investors’ sentiments about business conditions for the next three months were pessimistic.

According to the report, preliminary estimates now indicate that economic growth will slow to 3.9 percent during financial year 2019/20 down from a pre-pandemic projection of 6.0 percent. Lower economic growth will hamper domestic revenue mobilization efforts and limit household income.

“The pandemic outbreak comes at a time when government was grappling with the twin challenges of the locust invasion and revenue shortfalls, and further constrains the fiscal space in the government budget. Lower domestic revenues and the additional expenditure requirements to support the health sector and the vulnerable population, will further dent public finances leading to an expansion in the budget deficit.”

Furthermore, the report says, the outbreak is expected to worsen Uganda’s position with the rest of the world, as inflows from foreign direct investments, tourism, remittances, and exports sharply decline. “The deterioration in the external position will in turn exert pressures on the Shilling in the domestic foreign exchange market. While disruptions to global supply chains have curtailed imports, it should nonetheless provide opportunities for increased domestic production,” the report says.

Government has seized the opportunity and is working closely with the private sector to identify – for scaling-up, domestic production to replace certain imports and consequently boost exports. For instance, local manufacturing capacity for sanitization (hand-sanitizers) and pharmaceutical products has been boosted to meet growing demand, both domestic and regional since the pandemic outbreak.

“Government has put in place measures to address the economic and health challenges caused by the coronavirus outbreak. In addition to making available additional public resources for health spending, government has prioritized providing support to the most vulnerable among the population and taken key fiscal and monetary policy actions to mitigate the impact of the pandemic on businesses and households.”

The measures introduced by Government towards the end of March 2020 to counter the spread of the coronavirus pandemic were extended to April 2020. Beyond the inevitable impact of the global supply chain disruptions on the domestic economy, these measures – key amongst which includes closure of all international borders to persons except cargo and a partial lockdown – continued to dampen economic activities, with the effects of the lockdown mostly felt in the services sector, informal trade sector, domestic transport, retailers amongst others.