Alternatives to rising inflation...

   Alternatives to rising inflation

The current crisis in Uganda is a result of rising inflation rate, unpredictable exchange rates, which continue to be a challenge increasing debt burden for Uganda. With the rising cost of living, Uganda’s economy is persistently falling into the debt trap both domestic and foreign causing financial hardship, joblessness and decline in personal earnings. 

The current debt burden stands at $4.3b (close to 10 trillion) up from $1.4 billion (about 3.2 billion) in 2006/07. Since   2006/07 financial year public debt has been increasing steadily growing at an average of 17% per Annum and projected to increase by 20% in the medium term due to increased new borrowings to finance infrastructure projects required to enhance productivity in the country.

Economy is suffering under the 29.2 % inflation rate in 2012 which is the highest since 1993 when it was 24.9 %. The country’s inflation steadily moved from 14.1 % in April to 16.0% in May reduced slightly in July to 15.8% to 18.7%in August 2011 and now at 29.2% in January 2012 yet the shilling has not gained full momentum hence the exchange rate is expected to remain volatile due to dollar scarcity (which is hoped to improve this year 2012).

Inflation has been enhanced by reduced food supplies to most markets, increased transport costs and reduced supply of consumer goods in the country due to importation of consumer goods from countries with high inflation. Food inflation rose from 33.4% in June to 40.6% in July 2011 though its stated that prices are beginning to stabilize in 2012, some families have not witnessed the difference.

High or unpredictable inflation rates are regarded as harmful to an overall economy. They add inefficiencies in the market and make it difficult for companies to budget or plan long-term. Inflation acts as a drag on productivity as companies are forced to shift resources away from products and services in order to focus on profit and losses from currency inflation.

Uncertainty about the future purchasing power of money discourages investment and saving. This prompts employees to demand rapid wage increase to keep up with consumer prices.

Inflation leads to further inflationary expectations which escalate inflation levels like hoarding where people buy durable and non-perishable commodities to avoid losses expected from the declining purchasing power of money creating shortages of the hoarded goods.

Inflation can lead to massive demonstrations and revolutions. In particular food inflation is considered as one of the main reasons that caused the 2010–2011 Tunisian revolution and the 2011 Egyptian revolution according to many observatories including Robert Zoellick, president of the World Bank. Tunisian president Zine El Abidine Ben Ali and the Egyptian President Hosni Mubarak were ousted after only 18 days of demonstrations and protests soon spread in many countries of North Africa and Middle East.

With the current crisis, business owners should invest in increasing exports to boost dollar inflows.  Our investment choices need to shift from bulling houses and importing goods which reduce the amount of dollar in circulation to investing in fish farms and agriculture that bring foreign exchange into Uganda.  The government should maintain good programs to help the farmers become more productive considering that increased input in agriculture sector will bring food prices down through increased supply to markets.

The government needs to set their priorities right and reduce on the unnecessary spending and give focus to Uganda’s back bone-agriculture and ensure that the roads are in good shape to help farmers transport goods to the markets. There is also need to increase   tariffs on goods which are imported from countries with same problem of inflation indoor to control imported inflation.

#My Opinion