IMF SAYS UGANDA'S ECONOMY MAY BE DERAILED BY POLITICAL INSTABILITY IN THE REGION

By REUTERS
December 9 2009
KAMPALA

Uganda's economy could face risks from political instability in trade-partner nations in the region as well as from any derailing of the global economic recovery, the International Monetary Fund said.

East Africa's third-largest economy has largely weathered the fallout from the world financial crisis and has seen increased exports to non-traditional markets like south Sudan and eastern Democratic Republic of Congo, buoying its balance of payments.

But IMF Uganda Representative Tom Richardson told Reuters in an interview that any instability in Congo or south Sudan could hurt the Ugandan economy.

"There's a lot of uncertainty in southern Sudan ... DRC has issues, so there are risk factors related to trade with these non-traditional markets," he said late on Tuesday.

"It's a little too soon to declare victory (over the global economic recovery) ... that means for Uganda that there's still risk out there in the global economy, and that demand for Ugandan exports including services like tourism could be vulnerable."

A Reuters poll of analysts showed that Uganda's economy is expected to grow 6.4 percent next year, nudging down from 6.5 percent in 2009.

The nation's balance of payments has been supported by trade in food and industrial products mainly to south Sudan, which is recovering from decades of war. But an election next year and a referendum on independence in Sudan in 2011 have raised risks.

Foreign investors have been returning to Uganda's fixed income and currency markets since exiting late last year due to the global crisis. Investor interest in its burgeoning oil sector is also heating up.

The IMF expects Uganda's trade deficit to fall to 7.8 percent of its gross domestic product (GDP) in 2010 from 8.2 percent this year, and to post GDP growth of 6 percent next year.

"If trade with southern Sudan and DRC and so forth holds up, because those are new markets that have been tapped, and the global economy recovers ... then the projections could also go on the upside," he said.

"It could go either way."