IMF says low inflation in Uganda spurs business confidence

KAMPALA - Uganda's low inflation and signs the economy is gaining momentum are boosting business confidence, and growth could reach 6-7 percent in the medium term despite the loss of foreign aid, the IMF said on Wednesday.

Price pressures in east Africa's third-largest economy hit an 18-year high in October 2011 but have eased and inflation has been in single digits since September last year.

Headline inflation fell to 3.4 percent last month from 4 percent in March as food costs slowed.

"With low inflation and signs of economic recovery, market confidence and expectations are improving," the International Monetary Fund said in a statement issued by Ana Lucía Coronel, its senior resident representative in Uganda.

"Aided by foreign exchange inflows, international reserves were significantly higher than anticipated ... creating a significant buffer to the economy in the context of uncertainty in the international environment."

Foreign donors have withdrawn almost all direct budget support to Uganda after allegations $13 million was stolen by officials in the prime minister's office.

The prime minister said this month the loss of aid would mean "some hardship" but would probably not stop the economy growing faster in 2013 than last year.

The Fund said Uganda's economic outlook was "favourable" and maintained its January medium-term growth projection for the country at between 6-7 percent "in the context of mid single-digit inflation".