Treasury reports continued economic improvement

The Ugandan economy continues to show signs of improvement, as highlighted by high-frequency indicators in the Treasury’s July 2024 economic performance report.
Business executives remain positive and optimistic about the current business environment.
The report also noted a 1.1% appreciation of the Ugandan shilling against the US dollar, with the average mid-rate improving to Shs3,705.85/USD in July 2024 from Shs3,747.19/USD in June. This appreciation was primarily driven by an increased supply of dollars that exceeded demand.
Interestingly, while the Ugandan shilling appreciated, all other East African Community (EAC) currencies depreciated against the US dollar during the same period. The Tanzanian and Kenyan shillings saw declines of 1.2% and 0.5%, respectively, while the Rwandan and Burundian francs weakened by 0.5% and 0.2%.
In the financial sector, the Bank of Uganda maintained the Central Bank Rate at 10.25% in July 2024. However, in early August, the policy rate was revised downwards by 25 basis points to 10.0%. Lending rates for shilling-denominated credit decreased from 18.85% in May to 17.64% in June 2024, largely due to increased lending to prime borrowers, who secured loans at more favorable rates.
July 2024 saw the government raise Shs1,576.33 billion through the issuance of treasury instruments, with Shs823.00 billion from T-Bills and Shs753.33 billion from T-Bonds.
Yields on treasury bills generally declined, except for the 364-day tenor, which remained unchanged at 13.6%. The 91-day and 182-day tenors saw reductions to 9.9% and 12.9%, respectively, from 10.7% and 13.1% in June.
The stock of outstanding Private Sector Credit increased by 1.3% in June 2024, reaching Shs 21,919.51 billion, up from Shs 21,634.92 billion in May. This growth was driven by higher credit extensions due to the lower lending rates.
In trade, Uganda registered a surplus of USD 45.26 million with EAC partner states in June 2024, a significant shift from the USD 72.20 million deficit recorded in May.
However, Uganda's overall export earnings fell by 23.6% to USD 718.60 million in June, down from USD 940.93 million in May. This decline was mainly due to lower export earnings from mineral products. Excluding mineral products, total exports increased by 5.1% to USD 469.72 million, with coffee leading the gains.
The import bill also declined by 6.5%, from USD 1,033.50 million in May to USD 966.53 million in June 2024. This reduction was driven by lower volumes of formal private sector non-oil imports, particularly in vegetable products, animal products, beverages, fats & oils, and mineral products (excluding petroleum).
As a result, the merchandise trade deficit widened from USD 92.58 million in May to USD 247.93 million in June 2024, as the decline in export earnings outpaced the reduction in imports.
In the fiscal sector, a net borrowing (fiscal deficit) of Shs 29.95 billion was recorded in July 2024, far below the target of Shs975.55 billion. This was due to higher-than-expected tax revenues and lower-than-projected expenditures.
Total revenue in July amounted to Shs 2,233.73 billion, exceeding the target of Shs 2,181.48 billion, largely driven by improved tax performance across various categories.
Expenses for July 2024 were Shs2,198.50 billion, below the program target of Shs2,846.59 billion. The lower spending was due to delays in procurement processes and lower-than-expected external disbursements.
Inflation trends varied across the EAC in July 2024, with Uganda and Rwanda experiencing slight increases in annual headline inflation, rising to 4.0% and 1.5%, respectively, from 3.9% and 1.1% in June.
Overall, the report indicates a continued improvement in economic activity, with positive business sentiment prevailing.