List of Acronyms

Acronym Expansion
BTI Business Tendency Index
BOU Bank of Uganda
B.Franc Burundian Franc
CIEA Composite Index of Economic Activity
EAC East African Community
EFU Energy, Fuels and Utilities
FX Foreign currency
FY Financial Year
HIPC Heavily Indebted Poor Countries
HPP Hydro Power Plant
ICBT Informal Cross Border Trade
KShs Kenyan Shilling
MDAs Ministries, Departments and Agencies
MOFPED       Ministry of Finance, Planning and Economic Development
NGO Non-Government Organisation
PAYE Pay as You Earn
PMI Purchasing Managers Index
PSC Private Sector Credit
R.Franc Rwandese Franc
SOPs Standard Operating Procedures
T-Bills Treasury Bills
T-Bonds Treasury Bonds
TShs Tanzanian Shilling
UAE United Arab Emirates
UBOS Uganda Bureau of Statistics
UShs Ugandan Shilling
US$ / USD United States Dollar
VAT Value Added Tax

Summary1

Real Sector

  • Economic activity in August and business sentiments for the next three months improved on the back of easing of COVID 19 related restrictions.

  • The PMI improved significantly to 50.2 from 34.6 in July, largely on account of renewed increases in new orders and output following the loosening of the COVID-19 lockdown measures. The Composite Indicator of Economic Activity (CIEA) indicated that the economic activity grew by 0.2% from 145.44 in June 2021 to 145.69 in July 2021

  • Business people were more optimistic in August than in July. The BTI recorded a value of 50.80 compared to 47.02 in July, driven by optimism in the sectors of construction, manufacturing and wholesale trade.

  • Annual headline inflation decreased to 1.9% in August 2021, from 2.1% the previous month, with consumer prices going down for categories of Transport; Alcoholic beverages; and Recreation, Sports and Culture during the month of August. Venues for recreation, sports and culture have been affected by subdued demand which has led to lower prices.

Financial Sector

  • The Uganda Shilling strengthened against the US Dollar, posting an average mid-rate of Shs 3537.04/USD in August 2021 from Shs 3552.31/USD recorded the previous month. This appreciation was attributed to the higher net inflows from remittances and portfolio investment that outmatched corporate demand.

  • Commercial banks’ shilling denominated lending rates continued on a downward trajectory in July, decreasing to a weighted average of 16.28% from 17.00% in June. This movement was partly attributed to the accommodative monetary policy stance coupled with a decline in Non-Performing Loans (NPLs). A decline in NPLs reflects a decrease in the risk of default thus a reduction in the risk premium which is part of the interest rate. Similarly, foreign currency lending rates decreased from a weighted average of 6.03% to 5.44% over the same period.

  • In August, Government raised Shs 1,020 billion (at cost) from the primary market auctions. Securities worth Shs 535.31 billion matured and were refinanced; while Shs 484.69 billion went towards financing other items in the Government budget.

  • Yields (interest rates) declined across all Treasury Bill tenors, partly attributed to increased demand for Government securities. The annualized yields for August were 7.25%, 9.00% and 9.93% for the 91, 182 and 364 day tenors, respectively.

  • The stock of outstanding private sector credit increased by 1.3% to Shs 18,415.82 billion in July from Shs 18,187.86 billion the previous month. Whereas this growth was lower than the 2.2% recorded in June, it was much higher than the average growth of -0.1% realized for the period January to May 2021.

External Sector

  • During the month of July 2021, the merchandise trade deficit narrowed from USD 478.12 million in June 2021 to USD 196.37 million, largely on account of a larger decline in the import bill that more than offset the fall in export receipts.

  • Export receipts declined for the second consecutive month, and amounted to USD 300.39 million in July 2021. The decline in the export receipts was on account of trade disruptions due to the Covid-19 lockdown as well as a significant decline in exports of mineral products during July 2021.

  • Merchandise worth USD 496.76 million was imported during the month of July 2021, registering a decline of 46.8% from the previous month. The significant decline was mainly due to lower imports of mineral products that dropped to USD 15.46 million in July from USD 316.31 million recorded the previous month.

  • Uganda traded at surplus with the EAC and the Rest of Africa but at a deficit with the Middle East, European Union, Rest of Europe, The Americas and Asia. Uganda registered a trade deficit with the Middle East for the first time since April 2020 following the no exportation of mineral products to that region.

Fiscal Sector

  • Government operations during the month of August 2021 resulted in an overall fiscal deficit of Shs 958.79 billion which was lower than the planned deficit of Shs 1,388.15 billion. This performance was attributed to lower than planned expenditures.

  • Domestic revenue collections amounted to Shs 1,537.34 billion, representing a 90.0% performance against the target for the month. This shortfall resulted from the underperformance of all major tax heads and non-tax revenue categories.

  • Total expenditure for August 2021 amounted to Shs 2,656.93 billion translating into 82.1% performance against target. This was on account of lower than planned spending under wages and salaries, other recurrent and domestic development activities.

East African Community

  • Within the EAC, annual headline inflation trended downwards for Uganda and Rwanda, increased for Kenya but remained unchanged for Tanzania. Kenya’s annual headline inflation edged upwards, increasing to 6.57% in August from 6.55% the previous month. This increase was among others driven by higher prices for vegetables and fruits. Rwanda’s annual headline inflation declined to -1.8% in August 2021 from -1.1% in July, whereas, Tanzania’s annual headline inflation stood at 3.8%, the same rate recorded the previous month.

  • While the Ugandan Shilling appreciated, the Kenyan shilling, Rwandese and Burundian Francs all depreciated against the US Dollar, while the dollar value of the Tanzanian shilling remained unchanged.

  • Uganda traded at a surplus of USD 44.32 million with the EAC Partner States in July 2021, a turnaround from deficits recorded in June 2021 and July 2020. This development was explained by a drop in the import bill and higher exports to the region.

Real Sector Developments

Inflation

Annual headline inflation decreased to 1.9% in August 2021 from 2.1% the previous month, mainly driven by a reduction in annual core inflation from 2.5% in July to 2.2% in August, which is below the 5% target of the Bank of Uganda. Specifically, consumer prices went down for the categories of Transport; Alcoholic beverages; and Recreation, Sports and Culture during the month of August. Venues for recreation, sports and culture have been affected by subdued demand which has led to lower prices.

Inflation [Headline \& Core] (Source: UBoS)

Inflation [Headline & Core] (Source: UBoS)

In addition, annual inflation for food and related items declined to 0.5% in August from 0.9% in July, mainly resulting from lower prices for fruits and nuts in August 2021 compared to the same month a year ago.The lower prices were driven by an increase in supply following the bumper harvest.

Energy, Fuels and Utilities (EFU) inflation experienced upward pressures emanating from higher prices for diesel, petrol and liquefied gas (propane) in the month of August compared to the previous month. Despite the upward pressures, EFU inflation was recorded at -0.5% meaning that the prices in this category were still lower in August 2021 compared to August 2020.

Inflation [Food and EFU] (Source: UBoS)

Inflation [Food and EFU] (Source: UBoS)

Economic Activity

Economic activity in August and business sentiments for the next three months improved on the back of easing of COVID 19 related restrictions.

Despite the lockdown, economic activity was resilient in July 2021, as shown by 0.2% growth in the Composite Indicator of Economic Activity (CIEA) from 145.44 in June 2021 to 145.69 in July 2021.

Economic Activity [CIEA] (Source: BoU)

Economic Activity [CIEA] (Source: BoU)

The monthly survey of business conditions in the private sector reflected an improvement in economic activity in August. The headline PMI moved back above the 50.0 threshold which signals an improvement in business conditions, posting 50.2 from 34.6 in July. There were renewed increases in new orders and output following the loosening of the COVID-19 lockdown measures at the end of July. The agriculture, industry, services and wholesale & retail categories all saw an increase in new orders, while construction declined during the month.

Economic Activity [PMI] (Source: Stanbic Bank Uganda)

Economic Activity [PMI] (Source: Stanbic Bank Uganda)

Economic Perceptions

The Business Tendency Index also showed optimism within the business community in August 2021. The BTI rose to 50.80 in August from 47.02 in July, an improvement that was attributed to the loosening of the COVID-19 lockdown measures. Sentiments about the business environment were more optimistic in the sectors of construction, manufacturing and wholesale trade compared to the previous month.

Economic Perceptions as shown by BTI (Source: BoU)

Economic Perceptions as shown by BTI (Source: BoU)

Financial Sector Developments

Exchange Rate Movements

The Uganda Shilling strengthened against the US Dollar, posting an average mid-rate of Shs 3537.04/USD in August 2021 from Shs 3552.31/USD recorded the previous month. While the forex trading market was largely characterised by balanced supply and demand for the US Dollar, net inflows from remittances and portfolio investments which outmatched corporate demand thus resulting in an appreciation of the Shilling.

The Ugandan Shilling strengthened by 0.9% and 0.5% against the Euro and the Pound Sterling respectively in August 2021. Figure 6 depicts the monthly movements of the Uganda Shilling against the USD, the Pound Sterling and the Euro.