Uganda Current-Account Gap to Widen on Projects, World Bank Says

KAMPALA (Capital Markets in Africa)- Uganda’s current-account gap could widen to between 8 percent and 10 percent of national output annually over the next two years as imports for infrastructure and oil-related projects grow, the World Bank said.

The shortfall on the current account, the broadest measure of trade in goods and services, in the East African nation on the cusp of becoming an oil producer came in at 5.9 percent of gross domestic product in the year through June 2016, the International Monetary Fund said in January. Companies including London-based Tullow Oil Plc, China National Offshore Oil Corporation, and France’sTotal SA are jointly developing the nation’s crude finds of 6.5 billion barrels.

Uganda, Africa’s biggest coffee exporter, may grow by as much as 6 percent during the next two financial years from 4.8 percent in 2015-16 as the impact of drought recedes, the banking sector contains troubled assets and as the government executes investment projects, the World Bank said.

“The government’s reinstatement of oil-related infrastructure, coupled with a renewed FDI impulse in the extractives sector following the issuance of exploration agreements could propel construction and services sectors as the main drivers of growth,” the Washington-based lender said in an emailed response to questions.

While the budget deficit will narrow when two hydroelectric dams the government is constructing are complete, the Treasury’s ability to reduce its spending shortfall was “extremely limited” due to the state’s low domestic revenue collection, which is equal to 13 percent of GDP.

Expensive Loans
Borrowing from China to fund infrastructure developments, especially in developing the oil sector, can be “expensive,” the lender said. The World Bank estimates that the Asian superpower may account for about 37 percent of Uganda’s investment program in the three years that end in June 2020. That’s the time the country expects crude production to begin.

Uganda’s debt stock could increase to 38.6 percent of GDP in the current financial year from an estimated 34.8 percent in 2015-16 as the country maintains spending on infrastructure, the lender said. While the debt is sustainable, “continued failure to collect revenue in the context of a rapid fiscal expansion could increase the risk of debt distress.”

Source: Bloomberg News