Uganda Cuts Growth Forecast to as Low at 5% as Currency Weakens

Uganda lowered its economic growth for the current fiscal year to as low as 5 percent after the central bank raised interest rates to combat a weaker currency.

Expansion in East Africa’s third-biggest economy could come in at between 5 percent and 5.4 percent in the 12 months through June 2016, down from an earlier forecast of 5.8 percent, Keith Muhakanizi, permanent secretary at the Treasury, said in an interview in the capital, Kampala, on Monday.

The nation’s central bank lifted its benchmark interest rate by a total of 500 basis points this year to halt the shilling’s depreciation and curb inflation. Four increases this year have failed to support the shilling, which has fallen 25 percent against the dollar this year.

Growth “will be lower because of monetary policy tightening by the central bank,” Muhakanizi said. “Technocrats are working on a new forecast, which we believe will be above 5 percent and lower than 5.8 percent.”

The shilling’s depreciation is largely because of the dollar’s strength and Uganda’s negative balance of trade, he said. The “faster depreciation” compared to other currencies is due to “speculation,” he said.

Uganda, which made discoveries of oil in 2006, plans to start refining petroleum products around 2018, according to the government. London-based Tullow Oil Plc., China National Offshore Oil Corp. and France’s Total SA are jointly developing the nation’s 6.5 billion barrels of oil resource.