Bank of Uganda’s Proactive Monetary Approach Steers Economic Stability
World Business Journal talks to Dr. Michael Atingi-Ego, Deputy Governor of the Bank of Uganda, about the impact of robust monetary policies on inflation, optimistic indicators signalling resilience and growth, and the pivotal role of financial inclusion in advancing the country’s economic development agenda.
What factors contributed to the drop in annual inflation, and what’s the expected trend in the medium term?
We implemented robust monetary measures to counter rising inflation post-lockdown and when the Russian-Ukraine conflict started. These included increasing the Central Bank Rate (CBR) from 6.5% in May 2022 to 10% by June 2023 and a 10% increase in the Cash Reserve Requirement (CRR). Tight interbank liquidity led to increased usage of the Standing Lending Facility (SLF) Window for short-term liquidity needs. Despite recent fuel price increases, annual inflation stood at 2.4% in October 2023, significantly lower than the 10.7% recorded in October 2022. Annual core inflation was at 2.0%, much lower than the 8.9% registered over the same period last year. This moderation in inflation is attributed to effective monetary and fiscal policies, diminishing impacts of drought on food prices, and easing global cost pressures. In the medium term, the downward trend in inflation is predicted to continue, eventually returning to the target. Forecasted inflation is in the 3-4% range in Q4 2024, rising to 4-5% in 2025. The current monetary policy stance is deemed appropriate for maintaining inflation within the medium-term target and supporting economic stability for saving, investment, growth, competitiveness, and socio-economic transformation.
What strategies are being implemented to drive inclusivity and digitalisation within the financial sector?
We’re committed to leveraging digitalisation to drive socio-economic transformation and foster financial inclusion. Through partnerships with financial institutions and fintech firms, we aim to empower individuals at the grassroots level and broaden access to financial services, including micro-savings, loans, and insurance. The 2020 National Payment Systems Act introduces flexible licensing criteria and regulatory sandboxes to encourage innovation while ensuring compliance, alongside Consumer Protection Regulations that enhance digital security and promote fair competition in the financial sector.
Following the issuance of Uganda’s first Islamic banking license last year, what impacts do you anticipate?
Granting the inaugural Islamic banking license signifies a transition towards a profit-and-loss-sharing financial model, indicating diversification within the financial sector. Islamic banking, focusing on asset acquisition, addresses high-interest rate concerns and enhances financial inclusivity, adding a vital dimension to the financial sector.
What factors fueled economic expansion, and what are the growth forecasts for Uganda in 2024?
UBOS reports a 5.3% growth for FY2022/23, exceeding the previous year’s 4.6%, highlighted by a 6.8% surge in Q4 2023. Growth is driven by the services sector, accounting for 42.6% of GDP. The rebound in services and industry, notably in extractive sectors, is propelled by foreign direct investment (FDI), which soared by 80% to US$2.2 billion, 67% of which is linked to oil projects. The economy demonstrated a resilient recovery from the challenges faced in FY2019/20, showcasing a significant expansion of 5.3% during FY22/23 and exceeding the 4.6% growth recorded in FY21/22. Forward-looking projections indicate a robust economic trajectory, anticipating a growth rate of 6% in FY23/24 and 6%-7% over the medium-term.
