Tuesday, May 26, 2015

IMF: LIES, LIES AND STATISTICS

The International Monetary Fund (IMF) recently concluded their latest country assessment of Uganda in which they concluded that Uganda continues on a growth path and despite concerns about external factors and inflation that the trend will continue.

They reported that “economic growth is projected to expand by a robust 5.3 percent in the current fiscal year and 5.8 percent in FY2015/16 (compared to 4.5 percent in FY2013/14), led by scaled-up public investment and a recovery of private consumption supported by stronger credit growth.”

The IMF also opined that “Strong growth and subdued inflation, alongside high international reserves (about 4 months of imports), a sound financial system, and relatively low government debt (currently at 30 percent of GDP) continue to provide buffers to shield the Ugandan economy against shocks.”

But they warned that “Nonetheless, there are risks to the outlook posed by domestic and regional uncertainties.”

"In a nutshell, that the ship is holding steady, an opinion the finance ministry was content to interpret as a clean bill of health.
That was the big picture, down on the ground a different story is unfolding.

Business is slow. Shops are shutting down. Property prices are sliding.

This should not come as a surprise. Two events in particular have conspired to generate the current situation.

After 2011 election related inflation shot up, peaking at 30 percent in October of that a year. In a bid to rein inflation the central bank signalled an increase in lending rates, issued more government paper and sold more foreign exchange. The aim to suck out any excess cash in the economy not backed by production. After all inflation is caused by too much money chasing too few goods.

Just when the Bank of Uganda was coming to grips with inflation, at the end of 2013 South Sudan imploded into civil war. This was bad because not only was South Sudan our biggest export market up to that  point but it was also a source of tens of millions of dollars, dollars  that were artificially holding up our local real estate market and retail consumption.

The double whammy of central bank anti-inflation policies and the drying up of Sudanese dollars are what is causing he pain at the micro level.

But also at that time the bursting of corruption scams in the public service ministry and prime minister’s office dealt a further blow to the easy money that used to keep our business afloat and water Kampala’s night life.

As if that was not enough the donors in reaction to these scandals, in righteous indigination closed the taps sucking out more easy money from the general economy.

But we are not done yet. The progress on the oil production slowed as government and the exploration companies negotiated themselves to a near standstill on the issue of production licenses.

So how then does the IMF give Uganda the nod on its future prospects?

According to classical economics growth comes from the sum total of consumption, investment, government expenditure and the net of exports and imports.

"Given the government’s massive outlays in roads and ongoing investments in energy and other infrastructure it is safe to say the overall picture could show that these are more than adequate to account for the dips in consumption in the general economy...

The investments in infrastructure are not expected to have an immediate impact but their returns will come much sooner than the returns from the UPE and USE investments that started a decade and a half or so ago.

We have been here before. In the early 1990s when government first determined to take a grip of inflation, the drop in economic activity with the wholesale wiping out of industries like the kibanda market, the air suppliers was just if not more staggering than what we were experiencing now.

But those were hard decisions that had to be made then so that we could enjoy the subsequent good times that followed.

With rehabilitation of the economy complete these new investments again are what are needed to take us to the next level of growth and development.

It serves as little consolation when making ends meet today is getting harder and harder but that is what it is.

Consider it a case of taking one step back to jump three steps forward.

"Seen in that context the IMF report is a good thing. It means that we are at least moving forward on a macro level. The hope is that sentiment on the micro-level catches up too....


However it is no reason to rest on our laurels. The feedback loop can be from the micro to the macro level – that the local depression can filter up rather than the macro growth trickle down, if for example these huge investments don’t come through on time or at all.

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