Fears in oil markets hampering Ugandan economy



Emmanuel Mutebile, Governor, Bank of Uganda


Low global oil prices and uncertainties over developments in Uganda’s oil and gas sector are likely to have terrible consequences for the country, according to Emmanuel Mutebile, the Governor Bank of Uganda.

Speaking at a public dialogue on implications of the volatile oil prices on Uganda, Mutebile said, it is not certain whether oil prices in future will rise or remain low and this has negative impact on private investment and economic growth.

Mutebile warned lower oil prices would also reduce the country’s revenues, pile more risks on the government which would in turn push the burden to the people.

Since November 2014, prices of crude oil on the world market have nosedived from about $120.00 to nearly $40 per barrel.

The prices have since gone up to about $60 dollars a barrel, just below the break-even projection for Uganda’s oil.

The governor said investors in the oil industry are more uncertain about the future than ever before and this will see delayed or lower investments in the sector, especially in irreversible capital investments like refineries and pipelines.

He explained that even if oil prices increased in the future, that would not mean the government will earn more revenues from oil.

Speaking candidly, Mutebile said the government has to be honest and recognize that although the country has not faced fiscal crisis yet, the possibility is there.

The solution, he explained, lies in being farsighted and maintaining the macro-economic policies that have stabilized domestic growth at seven percent for the last 25 years.

“It would be very risky if the country doesn’t worry about future volatilities and incur public expenditures today in an unsustainable way. There is a need to develop other sectors too, instead of relying solely on oil,” he cautioned.

Fred Muhumuza of UK’s Department for International Development’s (DFID) Financial Sector Deepening Project, said there are fears that Uganda is already carrying out investments in anticipation of revenues from oil, a term called frontloading. He said it would be good for the government to realign public and private sector engagements in order to make the economy buoyant.

Lawrence Kiiza, the Director of Economic Affairs in the ministry of Finance, however refuted the claims that the government is already borrowing any money in anticipation of future oil revenues, adding “Uganda is not in debt stress”.
Elly Karuhanga, the president of Tullow Uganda, noted there are so many mismatches in the development of oil in the country with stakeholders pulling in different directions.

He also said there is so much greed in the sector, especially from those leading the process.
Peter Lokeris, Uganda’s State Minister for Energy in Charge of Mineral Resources, said he is optimistic that oil prices will rise in the future