New inflation forecast shatters Bank of Uganda expectations for 2023

The report indicates that inflation has been declining since last year after it accelerated to 10.7 percent in October. It began a steady decline in December and maintained the trend until it reached 9.2 in February 2023.

The five percent projection by the Bank of Uganda will instead be realised at some point next year. It notes that the economy remains prone to significant upside risks related to weather conditions and high prices for extended periods of time.

“We expect inflation to moderate to 5.5 [percent] in 2024,” the report reads in part.

Since inflation started rising in 2022, driven by high fuel and food prices, it has been attributed to tight monetary stances including the Central Bank's rate of 10 percent amid local and global vulnerabilities.

The new projections contradict BoU's forecast which said that inflation would drop somewhere between six and eight percent by the end of 2023 before stabilising at five percent. This was in part due to the rapid deceleration of fuel prices which had been the major driver of inflation.

Michael Atingi-Ego, the Bank of Uganda deputy governor, said in December that the “revision in the forecast is due to dissipating impact of earlier increases in global commodity prices, subdued domestic demand, effects of the current monetary policy stance, the expected decrease in global inflation, and lower exchange rate depreciation."

Fitch also indicated other economic fundamentals including:

During 2022, the economy grew by 4.9 percent lower than the 5.9 percent in 2021 but remained “resilient against the global economic slowdown and an Ebola outbreak in the fourth quarter of 2022."

Economic projections from the report indicate that it will reach 5.5 percent this year and accelerate to six percent in 2024 due to a recovery in agriculture and oil developments.

Expected oil production activity leading to 2025 will also further boost the GDP until the first oil which will boost it even higher.