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Economy up but fears still loom

By Vision Reporter

Added 30th October 2005 03:00 AM

UGANDA'S economy is set to continue growing over the next few years, but a looming election year is causing concern that the attendant surge in government spending will lead to higher lending rates next year as the central bank tries to rein in inflationary pressures, analysts say.

UGANDA'S economy is set to continue growing over the next few years, but a looming election year is causing concern that the attendant surge in government spending will lead to higher lending rates next year as the central bank tries to rein in inflationary pressures, analysts say.

By Paul Busharizi

UGANDA'S economy is set to continue growing over the next few years, but a looming election year is causing concern that the attendant surge in government spending will lead to higher lending rates next year as the central bank tries to rein in inflationary pressures, analysts say.

Stanbic Investment Management Services (SIMS) in their October Economic Review, projects the economy to grow by 5.4% this year down from 5.8% last year.
“The main dampener of growth this year was the rising oil prices but this was offset somewhat by an increase in coffee export receipts,” SIMS general manager, Martin Owiny said.

In 2004/05, monies from coffee rose to $162.1m from the previous season’s $115.7m on the back of improved world prices of the bean.
This was on the back of a 0.8% drop in exported coffee volumes.

In its October “Africa Focus” publication, Standard Chartered Bank also pointed to growth in the economy this year but unlike SIMS, expected the economy to grow by 6.0%.

SIMS projects this year’s average inflation rate at about 9.1% above the Government’s 5% target.

“We expect the impact of the weaker shilling exchange rate and rising fuel prices to result in further overall price increases.

“Additionally, the likely increase in food prices in the next few months will add to overall inflationary pressure,” SIMS said.

“Despite this, the overall inflation rate is likely to remain below the 8% level in the remainder of this year averaging 9.1% in 2005 compared to 3.7% in 2004,” the SIMS review explained.

Standard Chartered noted government’s success in reducing Treasury bill interest rates and in a strong foreign exchange reserve position but raised the specter of an election year – which they euphemistically refer to as “political developments,” as one that could upset the status quo.

“Near-term, the exchange rate may be vulnerable to political developments and swings in sentiment and some depreciation is probable.

“Interest rate sentiment may be affected by political developments, with upside risk to T-bill yields,” the bank’s economc review said.

The bank projects that average interest rates in 2006 will be up to 12.00% from 9.45% registered during the 2005.

According to the review, exchange rate will suffer a similar fate with the shilling depreciating to an average of sh1,960 to the dollar next year from sh1,776 this year.

Economy up but fears still loom

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