KAMPALA, Aug. 13 (Xinhua) -- Uganda's central bank, the Bank of Uganda, on Monday said the country's economy will grow at 6.3 percent in the medium term.
Emmanuel Tumusiime Mutebile, the bank's governor, told reporters that economic growth continues to strengthen, while the real gross domestic product (GDP) growth for financial year 2017/18 is estimated at 5.5 percent compared to 3.9 percent in 2016/17.
"Economic growth is projected to strengthen further in financial year 2018/19 to 6 percent and to an average of about 6.3 percent over the medium term," Mutebile said.
He said the growth is supported by public infrastructure investments, improving agricultural productivity, recovery in foreign direct investment, and strengthening private sector credit growth. He noted that this is partly a result of the easing monetary policy.
Mutebile said there are however downside risks to the growth outlook including challenges relating to financing of public investment programs and weak external balance position coupled with escalation of global trade tensions.
"Although public investment programs could substantially raise output and be self-financing in the long run, transitional challenges of funding these investments can be formidable, and may crowd out private investment and consumption, thus delaying the growth benefits of public investment," he said.
About the core inflation forecast, Mutebile said it will continue rising and peak in the range of 6-7 percent in the second half of financial year 2018/19 but will stabilize around the medium-term target of 5 percent by end of 2019.
He said the rise is a result of a combination of several factors that include increase in fuel prices, the closure of the negative output gap and the increased taxes.
"Key risk to the inflation outlook is the shilling exchange rate which remains vulnerable to the domestic market conditions and possibility of tighter global financial conditions. The weaker shilling exchange rate combined with higher oil price assumptions could result in a more elevated inflation trajectory," he said.
"Food prices are projected to remain low in the forecast horizon and are not seen as a major risk to the inflation outlook, but this can quickly change depending on the weather conditions," Mutebile said.
Stephen Kaboyo, managing director of Alpha Capital, a private financial firm, told Xinhua that the central bank will have to balance the growth outlook and the incipient risks of higher than usual inflation against a backdrop of volatility in oil prices, weakening shilling, and the impact of the recently introduced fiscal measures.
"Because of these upside inflationary risks, including supply shocks if oil prices continue to climb as well as possible further currency depreciation, the central bank will have to keep a watchful eye and maintain a neutral stance," he said.
