Introduction
Currently, Uganda is experiencing a devastating economic performance making it unable to create necessary development for its citizens. Despite being a sovereign state with a fully functional government, Uganda has not been able to formulate effective fiscal policies to make it improve its monetary system. The country is presently facing overwhelming inflation following the sudden change in the prices of goods in the global market. The Ugandan government has failed to establish an effective foreign direct investment (FDI) to influence business organizations in the region. Issues such as corruption and an unfavorable political atmosphere have contributed to lowering the ability of the state to attract foreign investors to enhance economic growth. The underperformance of the Ugandan economy is caused by debt deficit, economic stagnation, poor fiscal policies, limited FDI, and expensive credit facilities that make it challenging for people and businesses to raise funds for investment.
Discussion
Over the years, Uganda has been borrowing loans from developed countries to facilitate its operations. The approach has made the country to have a recurrent deficit because the country’s expenditure is higher than its revenue generated. The need to maintain its spending has prompted the nation to continue borrowing loans from developed states which in turn impose higher interest payments. The government of Uganda is not able to invest effectively following the growing public debt. The increasing recurrent deficit is making it a challenge for Uganda to undertake essential developments that can promote its economic growth (Ssempala et al. 12). The amount of revenue generated from taxes that are supposed to be channeled into development and setting projects that can raise income is instead used to finance the loans. This aspect leaves the country with limited capital to invest in active areas.
Similarly, Uganda is facing serious economic stagnation that is majorly caused by the nation’s dependence on agricultural activities. Generally, the first-growing countries are more focused on industrial development especially the manufacturing sector, however, with Uganda; the export products are largely farm produce that does not generate sufficient capital. This facet makes the country to be unable to have adequate income to direct effective projects that have the potential of increasing the well-being of the people. Furthermore, the increase in oil prices is making Uganda spend more in securing the commodity making it experience low growth. In addition, Uganda has a high rate of unemployment thus making it difficult for the population to raise the necessary capital to support economic activities. These conditions contribute effectively to the slow growth rate of the Ugandan economy.
Generally, most countries focus is to formulating effective policies that ensure issues with money supply do not stimulate inflation. However, this is a different case with Uganda whereby the amount of money in circulation is high making the currency lose its purchasing power. The country’s fiscal policies are not effective and the ability of the government to control the money supply is significantly low. Another key contributor to the soaring inflation in Uganda is the rise in global food prices as well as energy (Musarat et al. 412). Even though the Ugandan economy is supported by the agricultural sector, the country imports a significant amount of food products from other nations. As the prices increase in the world markets, they are translated directly to the rise of prices of such products in the domestic markets. In addition, issues such as drought and famine that are experienced in the country instantly impose significant pressure on the supply side. In other words, the demand for food exceeds the supply thus making the overall charges increase. Moreover, Uganda depends on petroleum products to run its economy. The increasing prices of energy are making the domestic prices raise leading to high inflation in the country.
In most cases, economic growth is significantly influenced by the aspect of foreign direct investment (FDI) in the country. To have adequate FDI, the government must ensure there are effective policies as well as security to guarantee investors a haven for investment. However, the Ugandan authority has failed to maintain an effective system following a political interest that makes a section of the leaders dictate the terms and conditions for potential FDI. The aspect has made many financiers flee the country reducing employment creation for the people. Similarly, the ravaging corruption and nepotism have become a barrier to economic development (Esaku). Before an individual is allowed to establish a business organization, they are forced to bribe the authority to gain access to the market.
Furthermore, Uganda is facing poor economic growth which is causing the rate of unemployment to sore significantly. The country does not have adequate capacity to create enough employment opportunities for its citizens. Government institutions are not effective and are mainly dominated by people having self-interests. In addition, the government and opposition are always in constant conflict making the nation remain at a standstill for a long duration especially during and immediately after the general elections. Moreover, the majority of the people are poor and cannot access credit facilities to enable them to establish projects that can promote their economic reliance.
Generally, for people to undertake economic activities, they require affordable and reliable credit facilities. However, in Uganda, obtaining the necessary capital to invest is a challenge due to the expensive charges associated with the loans. Citizens rely on commercial banks to access loan products to facilitate their investments. The Ugandan government opted to privatize the financial institutions in the country. The policy has significantly divestiture all the country’s main commercial banks. By allowing the banking sector to be controlled by the private sector, the credit cost has been rising and the government has limited ability to influence it (Kirkpatrick 99). The country is experiencing high interest which is making it difficult for the common people and companies to access necessary financial support to increase their productivity in the economy.
In addition, the country does not focus on key strategic sectors that have the potential of generating high revenue. For instance, tourism which is a significant area worth investment is given little attention making it unproductive. The aspect reduces money inflow in the country hence the value of Ugandan currency keeps devaluing. The government is concentrated in sectors that do not have a wider impact even though they seem to be performing. For example, the agricultural segment is more likely to be affected by global price fluctuations and hence not effective.
Conclusion
In summary, the poor economic growth experience in Uganda is facilitated by several factors such as soaring inflation and improper relationship between the country and foreign investors. In addition, poor fiscal policies are contributing significantly to the increasing cost of living in the country. The inability of companies and people to access cheap loans from commercial banks is making Uganda have reduced business projects that can generate high income. The limitations prevent the possibility of the country to improve its economic performance.
Works Cited
Esaku, Stephen. “Does Corruption Contribute to the Rise of the Shadow Economy? Empirical Evidence from Uganda.”Cogent Economics & Finance, vol. 9, no. 1, 2021.
Kirkpatrick, Colin. “Some Background Observations on Privatisation.”Privatisation in Developing Countries, edited by Paul Crook and Colin Kirkpatrick, Routledge, 2019, pp. 94-102.
Musarat, Muhammad Ali, Wesam Salah Alaloul, and M. S. Liew. “Impact of Inflation Rate on Construction Projects Budget: A Review.”Ain Shams Engineering Journal, vol. 12, no. 1, 2021, pp. 407-414.
Ssempala, Richard, Kurayish Ssebulime, and Enoch Twinoburyo. “Uganda’s Experience with Debt and Economic Growth: An Empirical Analysis of the Effect of Public Debt on Economic Growth—1980–2016.”Journal of Economic Structures, vol. 9, no. 1, 2020, pp. 1-18.