The COVID-19 pandemic affected many economies all over the world. In fact, it worsened the problems that many economies were already facing, especially in the third world countries. Certain response measures such as lockdown, quarantine, curfews and travel bans among other measures, had to be put in place to control the spread of the virus. These response measures however, halted many economic activities hence reducing productivity and stunting economic growth. In this article, we focus on how the pandemic affected the economy of Uganda.
The COVID-19 pandemic negatively affected the economy of Uganda, in that key activities such as tourism, which is Uganda’s top foreign exchange earner, were halted due to the COVID-19 response measures. The slowdown of the global economy has also led to weak demand for its export commodities, thus causing a loss in a significant share of its export earnings. According to the Bank of Uganda state of the economy report(2019), Uganda’s exports had already declined by US$31 Million by February 2020, while imports declined by US$108Million. Remittances from abroad also reduced and at global level, the flow of remittances declined by 20% in 2020, as reported by World Bank. These remittances help to support families in Uganda and due to low wages and a decrease in employment, many families in Uganda could not afford healthcare and basic needs during the COVID-19 pandemic. The ministry of finance warned that the economy would continue to decline until the COVID-19 pandemic is contained at global level.
Uganda’s informal sector contributes to 50% of the country’s GDP and the COVID-19 response measures negatively affected people’s income. Majority of workers such as boda boda riders, taxi drivers, food vendors and hawkers among others, lost their jobs. In the private sector, some people also lost their jobs as well, while some employers had to terminate their staff contracts because they could not pay them anymore. This reduced the number of taxpayers in Uganda, hence reducing revenue collection. The Ministry of Finance in Uganda also warned that revenue collection in Uganda would reduce by UGX 82.4 Billion Shillings in the last quarter of 2020. This would definitely increase public debt since the government of Uganda will have to borrow money to cover for the deficit. Public debt in Uganda has been increasing over the years from 22.4% of GDP in 2010 to around 40% of GDP in 2020, according to the Ministry of Finance in Uganda. A continuous increase in public debt over the years can negatively impact economic growth, economic stability , unemployment and strength of the currency. Resources allocated to help eradicate property, improve healthcare services and sustain the economy will instead be used to finance debt and this may negatively affect the standards of living in Uganda. The graph below shows how Uganda’s public debt has been increasing and it is expected to continue increasing significantly, as long as the COVID-19 response measures are continuing to be implemented.
The slowdown of the Ugandan economy brought about by the adverse effects of COVID-19, led to an increase in national poverty. According to World Bank 2016, (http://pubdocs.worldbank.org/en/381951474255092375/pdf/Uganda-Poverty-Assessment-Report-2016.pdf) there are 8 million Ugandans living in under the national poverty line. This number is expected to increase due to an increase in unemployment and labor income shocks as associated with COVID-19 response measures such as lockdowns(https://www.wider.unu.edu/publication/precarity-and-pandemic). Agriculture is also a source of income and food for 70% of the Ugandan population and it is a sector that has been negatively impacted due to COVID-19 response measures. Natural disasters such a drought and floods made things worse in the agricultural sector, hence making a large population to fall back into poverty. Other sectors that also rely on agricultural produce such as the retail sector also suffered great losses during the COVID-19 pandemic, hence reducing productivity in the country.
An increased occurrence of preventable deaths is also another effect of the COVID-19 pandemic. According to the Development Initiatives report in Uganda, a large population of Ugandans relying on free healthcare services experienced a reduced access to primary healthcare and this led to an increase in preventable deaths during childbirth and other health emergencies. Furthermore, patient visits to hospitals also reduced due to an increased fear for contracting the virus. This of course affected the income of health workers, especially for those working in the private sector. President Yoweri Museveni also banned all incoming and outgoing travel to highly affected countries, and this prevented people from accessing quality healthcare services in different counties.
The government’s response to the COVID-19 pandemic was very impressive. According to the Development Initiative report in Uganda, UGX 304 Billion was set aside to facilitate an immediate response to the pandemic. The budget was distributed across multiple sectors to facilitate activities within each sector. A National Response Fund to COVID-19 was also launched to raise funds for the purchase of testing kits, new Personal Protection Equipment and support materials for medical teams on the frontline, as reported by (https://www.newvision.co.ug/new_vision/news/1517815/covid-19-fund-account-govt-entities-return-cars). Moreover, in April 2020, the Bank of Uganda’s lending rate was lowered by 1% to allow people to access credit and to allow financial markets to continue functioning amidst the pandemic.
The national budget speech made by the Government of Uganda in 2020, indicated that in the near future, the government plans to increase employment by increasing supply of agricultural inputs to farmers, which will in turn enhance and upscale agricultural activities. More jobs will also be created by increasing labor intensive activities in the informal sector. Low interest rate financing will also be provided to manufacturing, agribusiness and other private sector firms. SMEs will also benefit from access to credit, hence increasing output and enhancing growth of various businesses. Finally, businesses facing hardships will be given a Pay As You Earn tax payment deferral, to allow them to focus on other activities that will help the business to grow. With these financial measures, the economy of Uganda still has a bright future despite the adverse effects of the COVID-19 pandemic.
Melyn Atieno. Strathmore University of Mathematical Sciences Writer at Cue Africa Email: email@example.com LinkedIn: Melyn Were