Efficacy of COVID-19 Macro-economic Policy Responses in Uganda
COVID-19 has caused an unprecedented economic and health shock in Uganda, as has been the case globally. After the World Health Organization announcement that COVID-19 was a global pandemic, the government of Uganda undertook decisive measures to abate the spread of the virus through adopting COVID-19 containment measures. Also, in anticipation of the distortionary effects of COVID-19 on Uganda’s economy through the external and domestic effects channels, the government adopted an expansionary fiscal and monetary policy alongside financial sector interventions. Fiscal policy interventions involved the following: tax relief measures; government expenditure through extending seed capital to vulnerable groups; strengthening health systems; enhancing the supply of agriculture inputs through the use of e-vouchers; banning the disconnection of users from utilities such as water and electricity; and payment of domestic arrears, among others. Monetary policy interventions included reducing the central bank rate (CBR) to 7%, its lowest level since inception in 2011. Financial sector intervention involved credit relief, asset quality support and liquidity support measures alongside supporting a reduction in mobile money charges. As such, this paper explores the macroeconomic impact of COVID-19 on Uganda’s economy, the macroeconomic policy choices undertaken and, finally, inclusiveness and viability of the various macroeconomic policy choices undertaken. The study used high frequency macroeconomic data to tease out the impact of COVID-19 on Uganda’s economy. Furthermore, through exploring the policy choices adopted, we also assess policy choice viability and extent of inclusiveness. The aforementioned policy interventions mitigated the extent of COVID-19 distortions on Uganda’s economy. Indeed, although economic growth was slow at 2.9% in the financial year (FY) 2019/20, with especially the service and industrial sectors paying the highest price, the supportive environment ensured that the industrial sector picked up quickly in the first quarter (Q1) of FY2020/21. The roll-out of public works in urban and peri-urban areas was aimed at hedging livelihoods against the impact of COVID-19 on households as a result of dampened production in the industrial and service sectors. While inflation remained subdued, the reduction in aggregate demand and trade disruptions suppressed inflationary pressure on food thereby undermining rural incomes and thus perpetuating rural poverty. Even then, the introduction of the Emyooga fund1 and the rolling out of the e-voucher system to 10 additional districts in an effort to enhance the distribution of agricultural inputs are attempts to strengthen livelihoods in the rural areas in the midst of COVID-19 headwinds. Interest rates were relatively low on account of expansionary monetary policy and confidence in Uganda’s financial sector. This was largely on account of the Bank of Uganda’s interventions in the financial sector, which ensured a stable financial sector albeit with reduced profitability. The external sector was characterised by reduced foreign direct investment, tourism receipts and remittances. Overall, the policy interventions were inclusive as fiscal policy was both sensitive to the formal and informal sectors (except for households in urban, peri-urban and rural settings). Also, monetary and financial sector interventions were sensitive to commercial banks, credit institutions and microfinance deposit-taking institutions implying sensitivity to formal and informal businesses irrespective of size and location.