Investments in infrastructure should help raise Uganda’s economic growth to about 6.5 percent in the coming years from 5 percent in the last fiscal year, the International Monetary Fund said on Monday.
“Growth is expected to gradually return to its potential of about “6.5 percent,” the IMF said.
Monetary policy will remain vigilant of price developments and help moderate inflation expectations
“Authorities will continue their plans to scale up public investment … the completion of these projects should reduce infrastructure bottlenecks and support growth.”
In May, the IMF said Uganda’s economy would expand at 5.8 percent in the current fiscal year, which ends in June 2016.
The country is developing two hydro power dams expected to produce 780MW between them.
Plans are also underway to build a $2.5 billion, 60,000-barrel-per-day refinery to help process its crude reserves.
A Chinese-funded highway connecting the capital, Kampala, and the country’s sole international airport, Entebbe, is also under construction.
Potential hurdles include inflation, which has surged as the Ugandan shilling lost about 25 percent of its value against the dollar since January.
Year-on-year inflation rose to 7.2 percent last month from 4.8 percent in August.
Core inflation, which the central bank targets, rose to 6.7 percent from 5.5 percent in the same period.
Accelerating inflation has created “uncertainty for consumers and investors, and generated market uneasiness,” the IMF said.
However, it said, the central bank’s tight monetary policy should help bring back core inflation to 5 percent in the medium term.
Bank of Uganda has already raised its benchmark interest rate by 500 basis points this year, to 16 percent, to try to stem inflationary pressures and support the shilling.
“Monetary policy will remain vigilant of price developments and help moderate inflation expectations,” the IMF said.
The central bank’s tightening was timely, the IMF said, and would check price pressures and stabilise the local currency.