PERFORMANCE OF THE ECONOMY. November 2016

Transcription

1 PERFORMANCE OF THE ECONOMY November 2016 MACROECONOMIC POLICY DEPARTMENT MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT

2 Contents 1.0 Highlights REAL SECTOR Inflation: Increased to 4.6% Business Tendency Index (BTI) and Composite Index of Economic Activity (CIEA): FINANCIAL SECTOR Exchange Rate: Shilling depreciated further by 3.6% Private Sector Credit: Gradually recovering, grew by 1.5% Government Securities EXTERNAL SECTOR Merchandise Trade Balance: Trade deficit narrowed Exports: Export receipts improved Imports: Imports declined FISCAL SECTOR Revenue and Grants: Performed slightly below the target Expenditure and Net lending: Lower than projected Financing P a g e

3 1.0 Highlights Inflation: Annual headline inflation rose to 4.6% in November 2016 from 4.1% the previous month. The increase in headline inflation was largely as a result of an increase in food crop inflation. Food crop prices have been affected by food shortages in some parts of the country which resulted from the prolonged dry conditions. Business Tendency Index (BTI) and Composite Index of Economic activity (CIEA): The Composite Index of Economic Activity (CIEA) improved from in September to in October, 2016 showing improved economic activity. As at November 2016, the investors sentiments about doing business in Uganda are still positive, as shown by the BTI which stood at Exchange Rate: The Uganda Shilling depreciated by 3.6% against the US Dollar to an average rate of Shs 3,560.6/US$ in November from Shs 3,435.8/US$ in October The shilling depreciation was on account of elevated demand for the US dollar, especially from telecommunications, oil and manufacturing firms, as well as bearish sentiments on expectations of further dollar demand. Private Sector Credit (PSC): The stock of outstanding private sector credit (PSC) increased from Shs.11, billion in the month of September to Shs.11, billion in October 2016, registering growth of 1.5% compared to 0.1% in the previous month. The recovery in PSC is partly attributed to continued monetary policy easing by the Central Bank, with the CBR falling from 14% in September to 13% in October Government Securities: The primary market was characterized by a decline in yields across all tenors. The average weighted yields to maturity for November were 14.1%, 14.7% and 15.1% for the 91, 182 and 364 day tenors, respectively. This compares with 14.1%, 14.9% and 15.3% in October All T-Bill auctions were oversubscribed as indicated by an average bid to cover ratio of 1.4. Merchandise Trade Deficit: The merchandise trade deficit narrowed by 30% on a monthly basis, from US$ million in September 2016 to US$ 99.9 million in October 2016 due to a reduction in the import bill and an increase in the exports. 3 P a g e

4 Fiscal Performance: Revenue and grants during the month were nearly on target registering a performance rate of 99.7% against the monthly target, as a surplus on grants nearly offset the shortfall on domestic revenues. Overall expenditure was affected by lower than expected absorption on the domestic development and non-wage recurrent expenditure items. 4 P a g e

5 2.0 REAL SECTOR 2.1 Inflation: Increased to 4.6% Annual Headline inflation rose to 4.6% in November 2016 from 4.1% the previous month. The increase in headline inflation was mainly as a result of an increase in food crop inflation which rose to 7.1% from 1.7%. Food crop prices were affected by food shortages in markets which resulted from the prolonged dry conditions in most parts of the country. At the same time, increases in the cost of services on an annual basis, contributed to a slight increase in the annual core inflation rate to 5.2% in November 2016 from 5.1% the previous month. On the other hand, the Energy, Fuel and Utilities (EFU) inflation rate fell by 2.2 percentage points from minus 1.9% in October 2016 to minus 4.1% in November The major driver for the decrease in EFU inflation was the lower prices for liquid fuels as compared to a year ago. Prices for petrol, diesel and kerosene during the month were lower by 12.6%, 9.5% and 6.7%, respectively as compared to the levels in November Figure 1 shows the annual inflation rates between November 2015 and November Figure 1: Annual Inflation Rates (November, 2015 November 2016) Annual Inflation (%) Food crop Inflation Core Inflation EFU Headline Inflation Source: UBOS Inflation within the EAC Partner States Annual Headline inflation for Burundi, Kenya and Tanzania rose to 7.1%, 6.68% and 4.8% In November 2016, from 6%, 6.5% and 4.5% respectively, the previous month, mainly on account of rising food prices. Rwanda s Inflation remained unchanged at 9.1% over the same period. 5 P a g e

6 Table1: Headline Inflation for the EAC Partner States July 16 August 16 September 16 October 16 November'16 Burundi 3.9% 6.6% 7% 6% 7.1% Kenya 6.4% 6.3% 6.3% 6.5% 6.68% Rwanda 7.8% 7.5% 7.4% 9.1% 9.1% South Sudan 661.3% 729.7% 682.1% 835.7% *** Tanzania 5.1% 4.9% 4.5% 4.5% 4.8% Uganda 5.1% 4.8% 4.2% 4.1% 4.6% Source: Respective Bureaus of Statistics 2.2 Business Tendency Index (BTI) and Composite Index of Economic Activity (CIEA): Continued to show positive sentiments The high frequency indicators of economic activity have remained positive. The Composite Index of Economic Activity (CIEA) increased from in September to in October 2016, due to a recovery in the private sector credit and increased export receipts. At the same time, investors sentiments about doing business in Uganda remained positive, as shown by the BTI which stood at 54.35, well above the threshold of 50. Figure 2 shows the trends in the indices of economic activity. Figure 2: Trends in the Business Tendency Index (BTI) and Composite Index of Economic activity (CIEA) Source: Bank of Uganda 3.0 FINANCIAL SECTOR 3.1 Exchange Rate: Shilling depreciated further by 3.6% The Uganda Shilling depreciated by 3.6% against the US Dollar to an average rate of Shs.3,560.6/US$ in November from Shs.3,435.8/US$ in October Similarly, within the month under review, the shilling depreciated by 4.6% opening at Shs.3,469.35/US$ and closing at Shs.3,630.22/US$, the highest end period rate since October The shilling depreciation was account of elevated demand for the US dollar, especially from telecommunications, oil and manufacturing firms, as well as from 6 P a g e

7 offshore investors exiting the government securities market. In addition, there were bearish sentiments regarding the strengthening of the US dollar against other major currencies. Figure 3 below shows the movements in the monthly exchange rates between November 2015 and November Figure 3: UGX/USD Exchange Rate Trend (November 2015 November 2016) Uganda Shs per US$ Period Average Rate End Period Rate Source: Bank of Uganda. 3.2 Private Sector Credit: Gradually recovering, grew by 1.5% The stock of outstanding private sector credit (PSC) increased from Shs.11, billion in September to Shs.11, billion in October 2016, registering growth of 1.5% compared to 0.1% in the previous month. The recovery in PSC is partly attributed to continuous monetary easing by the Central bank where the CBR was reduced from 14% in September to 13% in October Figure 4 illustrates the distribution of the stock of outstanding PSC at the end of October 2016 by sector, and it shows that the building, mortgage, construction and real estate sector accounted for 22.6% of outstanding PSC at the end of October. Other notable sectors with significant credit outstanding include trade (19.7%); personal and household loans (16.5%); manufacturing (13.1%) and agriculture (10.4%). 7 P a g e

8 Figure 4: Sectoral Shares of Outstanding Stock of PSC in October, 2016 Personal Loans and Household Loans, 16.5% Business Services, 3.8% Community, Soci al & Other Services, 3.4% Other Services, 0.9% Agriculture, 10.4 Mining and % Quarrying, 0.6% Manufacturing, 1 3.1% Building, Mortga ge, Construction and Real Estate, 22.6% Source: Bank of Uganda Electricity and Water, 2.0% Trade, 19.7% Transport and Communication, 7.2% There was growth in credit in all the key sectors in the economy, with the exception of business services (-0.5%) and community social & other services (-1.2%), which together account for only 7.2% of total outstanding PSC in October Table 2 provides the monthly growth rates in PSC to the different sectors. Table 2: Monthly growth rates of PSC October 2015 September 2016 October 2016 Sectoral share of outstanding stock PSC - October 2016 Agriculture -1.8% 0.01% 2.8% 10.4% Mining and Quarrying 5.5% -22.1% 27.2% 0.6% Manufacturing -1.8% -1.3% 0.6% 13.1% Trade -1.4% 4.0% 1.7% 19.7% Transport and Communication -4.8% -1.0% 0.4% 7.2% Electricity and Water 3.8% 0.1% 2.5% 2.0% Building, Mortgage, Construction and Real Estate -1.9% 1.0% 1.2% 22.6% Business Services 0.8% 0.7% -0.5% 3.8% Community, Social & Other Services -5.6% -0.9% -1.2% 3.4% Personal Loans and Household Loans -0.3% 2.3% 2.0% 16.5% Other Services 3.1% -18.3% 1.6% 0.9% Source: Bank of Uganda. 8 P a g e

9 3.3 Government Securities There were three auctions of government securities in November 2016 from which Shs 448 billion (at cost) was raised, out of which, Shs 292 billion was in Treasury Bills and Shs 156 billion in Treasury Bonds. During the month, Shs. 341 billion of the amount raised was used for the refinancing of maturing securities whilst Shs 107 billion went towards financing the Government budget as shown in the table 3. Table 3: Issuance of Government Securities for FY 2016/17, Shs.bn Total issuance Net domestic Refinancing financing Q1 2016/17 2, ,330 October November /17 year to date 2, ,127 Source: Auction results, MoFPED Yields on Treasury Instruments: Yields edged downwards The primary market was characterized by a decline in yields across all tenors. The average weighted yields to maturity for November were 14.1%, 14.7% and 15.1% for the 91, 182 and 364 day tenors, respectively. This compares with 14.1%, 14.9% and 15.3% in October The fall in the yields is on account of the reduction in inflation and improving liquidity conditions in the money market. All T-Bill auctions were oversubscribed, with the bid to cover ratio 1 averaging at 1.4. Figure 5 illustrates the movement of Treasury bill yields on the primary market since July Figure 5: Primary Market Average Yields of Treasury Bills Source: Bank of Uganda 1 The bid-to-cover ratio is an indicator of the strength or demand for government securities in a given auction day. The bid to cover ratio of 1 means that the demand for a particular security is equal amount offered. A ratio less than 1 means the auction is under scribed and, a ratio greater than 1 means that the auction is over subscribed. 9 P a g e

10 4.0 EXTERNAL SECTOR 4.1 Merchandise Trade Balance: Trade deficit narrowed On a monthly basis, the merchandise trade deficit narrowed by 30%, from US$ million in September 2016 to US$ 99.9 million in October This was due to a combination of a reduction in the import bill and an increase in the export receipts, and represents the largest improvement in the trade balance since February 2016, when the deficit narrowed by 31.4%. Compared to October 2015, the trade deficit decreased by 36% due to a higher increase in exports that offset the increase in the import bill. 4.2 Exports: Export receipts improved The total value of exports increased by 4%, from US$ million in September 2016 to US$ million in October 2016 following improvements in the export volumes of coffee, maize, beans, tea, fish and its products. During the month, there was an improvement in the international prices for coffee, the largest export crop. Coffee prices increased by 5.7% on a monthly basis and by 12.9% compared to a year ago. Coffee exports in October 2016 amounted to 209,478 (60) kilo bags worth US$ million comprising 129,402 bags (US$13.61million) of Robusta and 80,076 bags (US$10.62 million) of Arabica. Table 4 below shows the performance of exports. Table 4: Performance of Exports (US$ million) Monthly Annual October 15 Sept 16 October 16 change change Total Exports % 32.8% 1. Coffee (Value) % 5.7% Volume ( 60-Kg bags) 223, , , % -6.4% Av. unit value % 12.9% 2.Non-Coffee formal exports % 39.7% o/w gold % % Fish (excl. regional) % 9.68% 3. ICBT Exports % 21.8% Source: Bank of Uganda Destination of Exports: EAC region remained the major destination In the month of October 2016, the East African Community remained the major destination for Uganda s exports, followed by the Rest of Africa, and the Middle East. Uganda`s trade with the EAC is facilitated by improved regional transport infrastructure. Exports to the EAC region grew by 14.2% from 10 P a g e

11 US$ million in October 2015 to US$ million in October Kenya took the largest of EAC exports (51.8%), followed by Rwanda (20.2%) then South Sudan (14.9%). The table below shows the destination of exports. Table 5: Destination of Exports (Percentage Shares) October 2015 October 2016 European Union 13.3% 15% Rest of Europe 1.7% 1.8% The Americas 1.6% 1.7% Middle East 7.5% 16.8% Asia 5.3% 3.7% EAC 50% 43% Rest of Africa 20.5% 17.9% Others % 0.01% Source: Bank of Uganda 4.3 Imports: Imports declined The value of merchandise imports registered a decline of 9% in October 2016, from US$ 377 million recorded in September 2016 to US$ million. The fall in import volumes (which were down by 9%) 3 contributed to the decline. Both Government and private sector merchandise imports registered declines of 54% and 8% respectively. Although oil and non-oil import prices rose 4 during the month, the declines in import volumes more than offset the price increases. The value of merchandise imports for the month was higher by 1% compared to October This is on account of the higher estimated private sector imports recorded in October 2016 and higher import prices (which were up by 4%) as compared to October Table 6 shows the performance of Uganda s imports for the month. Table 6: Performance of Merchandise Imports (US$ million), October Monthly change Monthly change Sep-16 Oct-16 Oct-15 Total Imports (fob) % 1% Government Imports % -61% Project % -73% Non-Project % 93% 2 Others include Australia, Iceland 3Uganda s Import Volume Index stood at in October 2016, down 9% from September (Bank of Uganda). 4Oil and non-oil import prices increased by 9% and 1% respectively in October 2016 (Bank of Uganda). 5 fob stands for free on board 11 P a g e

12 Formal Private Sector Imports % -3% Oil imports % -17% Non-oil imports % 0% Estimated Private Sector Imports % 475% Total Private Sector Imports % 4% Source: Bank of Uganda Origin of Imports: largest percentage of imports came from Asia Imports from 5 out of 7 of Uganda s major trading partner regions declined in October Imports from European Union and Middle East posted increases of 35% and 1% respectively. Asia, Middle East and EAC regions were the largest contributors to Uganda s imports, contributing 43.4%, 16.9% and 16.2% of the total merchandise imports respectively. Kenya and Tanzania contributed more than three-quarters of the imports from EAC while China and India contributed two-thirds of imports from Asia. Figure 6 shows the origin of imports by percentage share in October Figure 6: Origin of Imports by Percentage Share in October Rest of Europe 1.1% Others 2.2% EAC 16.2% Middle East 16.9% Asia 43.4% Rest of Africa 8.1% Source: Bank of Uganda EU 12.2% FISCAL SECTOR 5.1 Revenue and Grants: Performed slightly below the target Revenue and grants in the month were nearly on target registering a slight shortfall of Shs. 3.5 billion or 0.3% against the target, as the surplus on grant inflows was more than offset by a shortfall on domestic revenues. 6 Others includes; USA, Brazil, Canada, Australia. 12 P a g e

13 Tax revenues performed at 98.2% against the target for the month with major shortfalls registered on import duty, VAT on imports, withholding taxes and excise duty on locally produced products. The performance on import duty and VAT on imports is partly attributed to the downward revision in the c.i.f 7 value of some imports by the Uganda Revenue Authority (URA) in October 2016, which led to lower tax collections than earlier programmed. Non tax revenue was almost on target posting a shortfall of Shs. 0.9 billion. The shortfalls were registered in passport fees, migration fees, and company registration fees. Government received project support grants of Shs billion which was Shs billion or 8.5% higher than expected. These disbursements were largely dominated by the disbursement of Shs billion (US$ 42 million) from African Union (AU) towards UPDF peace keeping in Somalia. 5.2 Expenditure and net lending: Lower than projected Total spending during the month amounted to Shs. 1,413 billion which amounts to 59.1% of the projected expenditure level. This performance was attributed to due to lower than expected absorption on non-wage recurrent expenditure (excluding interest) and domestic development expenditure items, which performed at 57% and 56% respectively, against their targets. It is worth noting that much as non-wage recurrent expenditure (excluding interest) registered a shortfall in the month; cumulative expenditure of this category is largely in line with the program. Table 7 shows a summary of fiscal operations in November Table 7: Fiscal Operations, November 2016 Outturn Program Preliminary Program Nov'15 Nov'16 Nov'16 Performance Deviation Revenues and Grants , , % (3.5) Revenues , % (18.8) Tax % (17.9) Non-Tax % (0.9) Oil revenues - - n.a Grants % 15.3 Budget Support (excl Debt Relief) n.a - Project Support % 15.3 Expenditure and Lending 1, , , % (977.6) Current Expenditures % (175.7) Development Expenditures , % (900.7) Net Lending/Repayments % 65.5 Domestic Arrears Repaym. and Contigency n.a 33.3 Overall Fiscal Bal. (excl. Grants) (370.8) (1,383.8) (425.1) 30.7% Overall Fiscal Bal. (incl. Grants) (315.0) (1,203.6) (229.5) 19.1% Source: Ministry of Finance, Planning and Economic Development 7 Coif stands for cost, insurance and freight 13 P a g e

14 5.3 Financing There was a loan disbursement towards the HPPs (Karuma and Isimba) of Shs billion compared to the program of Shs billion during the month. In addition, a budget support loan disbursement was received from the Eastern and Southern African Trade and Development bank (PTA) equivalent to US$ 45.6 million. This follows the first disbursement of US$ 26.4 million that was effected in the month of October P a g e