Uganda can take a few English lessons in economic management

This is not about the language but rather the people who live in England whom I have called “the English”, and have one of the best managed economies in the world. For example, they have had inflation of zero percent for much of this year despite the desire to raise it by 1.5 per cent towards the target of 2.5 per cent. The English economy has also created so many jobs that wages have remained lower than planned, which is one of the reasons inflation is zero.
Furthermore, while Uganda shilling lost value to the dollar by about 38 per cent between May 2014 and May 2015, the British pound gained by 6 per cent. The strong pound has ensured minimal imports, which create jobs abroad, and kept the English people employed and causing further fueling of the economy through domestic demand. What is it that the English are getting right in a challenging global economy that Uganda can adopt?
First, England manages and seeks to determine the short and long-term trend of the economy in a proactive rather than reactive manner. It is not about bolting (closing) the door after the horse has bolted (run). Interest rates are kept low to encourage investment, employment and growth, which contribute towards adequate supply of goods, services, and jobs all of which are critical for little or no inflation. The English have maintained interest rates of about 1 per cent for nearly six years, and are likely to defer plans to increase them beyond May 2016. This follows China’s decision to devalue its currency (depreciation) last week.
Uganda chose to target inflation, which is postmortem case that only signals expectations rather than realities of production for increased employment, and supply of goods and services. While the English have used an accommodative monetary policy for years, Uganda has adopted a restrictive, and certainly destructive approach for decades. No blame to the monetary authorities yet, as they appear to have been let out to dry by their fiscal policy counterparts.
The success of monetary policy in achieving stable prices (low inflation) depends crucially on being consistent with fiscal policy (government revenue and expenditure). Uganda’s fiscal deficit that is also funded through domestic borrowing and occasional printing of money results into an economic dilemma of too much money, high interest rates, unemployment, depreciation and low growth. Increasing interest rates only chokes the already ailing private sector but not government. In fact government borrowing and hence spending increases with interest rates
Thus, the second important English lesson to draw is the need for greater synchronization of monetary and fiscal policy. The English learnt that high inflation and higher unemployment in the 1970s and 1980s were a direct result of non-cooperation between monetary and fiscal authorities. For example, a budget increase due to an occasional spending on elections, should be counteracted by reduced capital spending on infrastructure during that period. After all, the ongoing inquiry seems to suggest that a good portion of the roads budget is simply stolen.
Stealing, or rather stopping the theft of public funds is the third English lesson for Uganda. Corruption, like a cancer, can partly be managed through reducing the flow of money (blood) and only encouraging the necessary amounts. The corrupt are never bothered by high interest rates and often store their loot in low-yielding assets that reduce growth, employment and increase inflation. The government, having lost money to the thieves, borrows more through higher interest rates – worsening the bad situation. Until Uganda takes a few English lessons, British Airways will not be back. Instead Ugandans will look for all ways to escape to the British.
Dr Muhumuza, is development economist committed to increasing financial inclusion for inclusive growth.


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