How will Ebola outbreak affect Uganda’s struggling economy?

By Musinguzi Blanshe
Posted on Wednesday, 12 October 2022 17:28

Uganda Ebola Outbreak
People walk inside the Mubende Regional Referral Hospital, in Mubende, Uganda Thursday, Sept. 29, 2022. (AP Photo/Hajarah Nalwadda)

As tourism businesses raise alarm, economists remain cautiously optimistic that if the Ebola outbreak doesn’t last long, it will not have dire effects on Uganda’s economy, which like many across the continent, has incurred shocks from the Ukraine war, and is yet to recover from the Covid-19.

The world is starting to react to the outbreak by adopting extra measures, such as screening for travellers from Uganda. First reported on 20 September in Mubende district, 100 kilometres from the capital city Kampala, the Ebola virus has since spread to five districts. There are 43 confirmed cases and nine deaths as per latest government statistics.

The US government was the first to announce measures targeting travellers from Uganda. The Joe-Biden administration announced that effective 7 October, travellers who have been to Uganda within 21 days of their trip to the US will be directed to five American airports for Ebola virus screening and there will be a follow-up on them three weeks after that.

Uganda has tried to assuage fears with a statement from the ministry of health, which says: “The current Ebola outbreak is under control and anybody with […] plan[s] to travel to Uganda [is] encouraged to continue with their plan.”

Feeling the impact

Herbert Byamugisha, president of the Uganda Tourism Association, tells The Africa Report that tour companies have already been hit by the effects of Ebola. “We are already experiencing a lot of cancellations; so far, about 30% to 40% of reservations are estimated to have been cancelled,” he says, adding that “if it goes to December, we may expect to have total cancellations”.

The impact is huge, it’s going to finish [our] business

On Saturday 8 October, Byamugisha said his company had registered two cancellations the previous day from American clients due to measures taken by the US. “The impact is huge, it’s going to finish [our] business,” he said.

With no data in yet, economists say it’s hard to tell what the impact of the outbreak will be, but they are cautiously optimistic. “It won’t be much of an issue at this point in time, but if it persists, we might start seeing its effect later in the year, maybe if it persists up to November,” Fred Muhumuza, an economist at Makerere University, tells The Africa Report.

Struggling economy

Uganda’s economy, like many across the continent, is struggling due to Russia’s invasion of Ukraine and the Covid-19 pandemic-induced shocks. The government has also been tightening both monetary and fiscal policy in a bid to dampen inflation, which reached 10% at the start of October. Inflation has been rising fast, doubling in the past five months, and it’s the first time in a decade that Uganda has registered a double-digit figure.

The Bank of Uganda, which increased its lending rate to 10% on 6 October, says inflation will average 7.3% in 2022, 8% to 10% in 2023, before decreasing to 5% in 2024, which is the bank’s medium target. “The outlook for inflation is highly uncertain,” the Bank of Uganda deputy governor, Michael Atingi-Ego, said when reading the monetary policy statement.

Atingi further noted that the potential for a sustained weakening exchange rate, low foreign exchange reserves and constrained demand for exports, higher domestic interest rate, low private sector credit will further constrain economic growth, which is expected to remain below its medium target of 6%.

The failure of several government ministries, departments and agencies to pay salaries has been a ubiquitous story in the first quarter of the 2022/23 financial year. In addition, all government institutions were short of budgetary development financing as the government tightened fiscal policy. However, Ramathan Ggoobi, the permanent secretary to the finance ministry and treasury secretary, assured public officers that salary delays will not be experienced in the second quarter, which started this month. He was speaking during the announcement of the release of USh7.3bn ($1.9m) for the second quarter of the financial year. The government has also started releasing development financing in the second quarter.

People are more pessimistic about the next quarter. People think things won’t improve any time soon

As the government starts to relax fiscal policy, Atingi says the Bank of Uganda has advised the Ministry of Finance to focus investment in sectors that will stimulate production in the economy. “Trying to trigger aggregate supply at least in the short to medium term will help in dampening inflationary pressures.”

Less optimism in the private sector

In its July report, Stanbic Bank’s Purchasing Managers Index (PMI), which measures business sentiments, showed that business conditions in the Ugandan private sector have deteriorated. “New orders decreased for the first time since July 2021, with firms reporting that price rises and a lack of money in the economy had acted to dampen demand,” the report said.

Paul Corti, co-publisher of a quarterly business climate index at Economic Policy Research Centre (EPRC), a think tank in Kampala, tells The Africa Report that “business climate remains below potential for the 10th consecutive quarter since January to March 2020 when Covid-19 started”.

“People are more pessimistic about the next quarter. People think things won’t improve any time soon,” he says.

Muhumuza also sees a tough time ahead for the business sector because as the government budget is constrained, a lot of activities and businesses which benefit from government spending will also be constrained. The Bank of Uganda is continuing with its efforts to fight inflation, limiting money supply, increasing the cost of credit and limiting business activities in the private sector, he adds.

“A number of businesses are a little bit smarter nowadays. They have learnt that you don’t borrow money because someone is lending, you need to look at opportunities of where you will sell,” Muhumza tells The Africa Report. “We see businesses not borrowing because they are looking forward and seeing no opportunities on the demand side.”

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