Country Report Uganda March 2011

Outlook for 2011-12: External sector

Uganda's external imbalances will widen in 2011-12 as import growth picks up. Export growth will be supported by regional trade; this accounts for more than one-half of total exports, and re-exports to Southern Sudan are increasingly important. Coffee export earnings should improve as the country increases production of the higher-quality arabica bean, which attracts a better price on world markets than robusta. The pace of import growth will quicken owing to growing capital imports for infrastructure projects (particularly in the oil sector). Import costs will outpace the growth in exports, and the nominal trade deficit will therefore widen in both years. Net current transfers will post a large surplus as donors remain engaged despite their many reservations. We forecast a current-account deficit of 4.3% of GDP in 2011 and 6.1% of GDP in 2012. This will be financed comfortably by a surplus on the financial account, particularly as foreign direct investment in the oil sector picks up.

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