Uganda's economic recovery is clouded by the adverse impact of the second wave of the COVID-19 pandemic, the country's central bank said Thursday.

The COVID-19 restrictive measures still in place, and possible reintroduction of ones on gatherings and mobility due to "the emergence of vaccine resistant variants" will continue to weigh on economic activity, the Bank of Uganda said in its monthly monetary policy statement.

The central bank kept the Central Bank Rate at 6.5 percent, saying that the risks to the economic growth outlook are still imminent, which calls for accommodative monetary support.

Uganda is just coming out of a 42-day lockdown that ended on July 30, during which the daily infection rate has dropped from over 1,000 cases in June to about 70 cases.

"The outlook continues to be highly conditional on the containment of the pandemic which will be premised on the vaccination rates and the extent to which standard operating procedures are observed," the statement said.

UNCERTAINTY

The statement said economic growth is expected in the range of 3.5-4.0 percent in the financial year 2021/22, a downward revision compared to the June 2021 projection.

Economic activity may "remain well below the pre-pandemic path" for an extended time, as the central bank projected the economic growth to return to 6-7 percent in the financial year 2024/25.

The Purchasing Managers' Index, which indicates a decline of business conditions if falling below the threshold of 50, decreased in July to 34.6 from 34.9 in June, according to a report by Stanbic Bank Uganda, reflecting lower output and less new orders as companies scaled back their employment and purchasing activities due to the lockdown.

Earlier this year, the PMI readings were above 50 and on a recovery trend, according to business reports.

In the financial sector, the central bank said although the lending rates declined from May to June, and loan approvals rose from the quarter to March to the quarter to June, the value of loan applications fell, which shows low demand largely due to the slow pace of economic recovery.

Both business and consumer perceptions over the next three months declined, driven by uncertainties surrounding the resurgence in COVID-19 infections, low vaccination rollout and lockdown measures in June and July, the central bank said.

LIMITED OPTIMISM

Although economic growth is expected to slow down in the quarter to September 2021, there are possibilities of recovery later in the year, said Emmanuel Tumusiime-Mutebile, governor of Bank of Uganda, in the statement.

"If vaccination picks up in the latter part of the year and movement restrictions are eased, this will allow for gradual economic growth recovery," Mutebile said.

A rebound of economic activity will be sustained by "an acceleration in private consumption due to pent-up demand and strong growth in the external demand, which should contribute to a solid pickup in exports," according to the statement.

"In addition, a gradual return of tourism, the Final Investment Decision in the oil sector and broad-based improvements in business confidence should also provide support to growth," it said.

Despite the optimism, the central bank said significant uncertainties continue to surround the economic outlook.

The emergence of "vaccine resistant variants," according to the bank, would prompt the reintroduction of restrictions on gatherings and mobility, which will derail the economic recovery.

Uganda this week resumed its vaccination after weeks of stock-out, aiming to receive at least 12.3 million doses of COVID-19 vaccines by early 2022, according to its health ministry.

Experts said the country needs to vaccinate about 22 million people, or nearly half the population, before fully opening up the economy.