Monday, February 21, 2011


I have no clue what happened, what the outcome was of the 2011 presidential and parliamentary election.

That probably sounds funny from where you are standing but its true. I wrote this long before a single vote was cast (I hope) and I am therefore writing it blind so to speak.

Prophesies they say, tell more about the prophet than the events being foretold.
I will therefore not predict who won.

But whoever he or she is there will be no time to rest on their laurels.

I am a Ugandan and we Ugandans like to talk politics, but I shall desist. Our politics anyway is too murky a subject to be unraveled in 700 or even 700,000 words.

Whoever takes over is going to have to mop up all this money that has been sloshing around during the last few months of electioneering.

Consumption went up a few scores of billion shillings in the last few months with the biggest beneficiaries I guess, being fuel, telecom and beverage companies.

Consumption drives production but we all know this was a bleep on our consumption graph, unlikely to happen again until 2016. So there is a very real danger that inflation – price increase prompted by too much money chasing too few goods, will rear its ugly head shortly.

In January annual inflation rose to 5% from 3.1% the previous month.

The government whose target is an annualised inflation rate of 5% can be expected through the Bank of Uganda to mop up these excess monies.

So in a way one does not want to be in the next government’s shoes. They will have to tighten government expenditure while finding a way to pay for all the campaign pledges they made. A poisoned chalice if ever I saw one.

Former Minister Richard Kaijuka once lamented that if it were not for politics, turning around the Ugandan economy – at that time just under $10b worth, would not be a big deal.

If this was a purely economic question the central bank and treasury have proven time and time again that they know what to do. As recently as August 2008 inflation touched 16%.

It is not easy for economic growth to happen when government is putting the breaks on spending.

Without government spending on infrastructure, business will be hard to do in this country. Without spending on health and education the productivity of our workforce will be further depressed. Without spending on the judiciary the case backlog will persist further dampening business efficiency.

And growth is critical if we are to continue pulling more and more people out of poverty.

In controlling inflation we may see a rising in lending rates in responses to actions taken by the Bank of Uganda.

If the central bank issues more government securities we can expect yields to rise. It is a against these yields that banks peg their lending rates, often in addition to their administrative costs, risk element and margin.

So we might have to sweat through higher lending rates for the next 12 months at least. On the flip side people investing in treasury bills and bonds maybe laughing all the way from the bank.

High lending rates do not augur well for business and therefore a powerful dent in economic growth.

The new government will have some hard and unpopular decisions to make.

As if that is not enough, last week the International Monetary Fund (IMF) expressed displeasure at our handling of the economy.

Uganda which has graduated from the poorest countries but still needs the nod from the IMF to access funds from other bilateral lenders, apparently reneged on an agreed economic program, most probably our spending got out of hand in recent months.

While have reduced our donor dependence significantly over the last two decades they are still important players in our economy.

So remedying our errant spending ways, while massaging bruised egos in Washington will be at the top of the to-do list of the Finance minister.

As Nelson Mandela said, after climbing a great hill, one only finds that there are many more hills to climb.

It’s a thankless job but someone has got to do it.

1 comment:

  1. it was a win at all costs now the pay back.fuel will be hitting 4000 by July.