Ministry of Finance, Planning and Economic Development Ministry of Finance, Planning and Economic Development TheThe BackgroundBackground toto thethe BudgetBudget 2011/122011/12 FiscalFiscal YearYear The Background to the Budget 2011/12 Fiscal Year Fiscal The Background to the Budget 2011/12 PROMOTING ECONOMIC GROWTH, JOB CREATION AND IMPROVING SERVICE DELIVERY NOT FOR SALE Ministry of Finance, Planning and Economic Development Plot 2-12 Apollo Kaggwa Road June 2011 P.O. Box 8147, Kampala Uganda www.finance.go.ug Layout, Design & Print by Vision Printing MINISTRY OF FINANCE PLANNING AND ECONOMIC DEVELOPMENT Background to the Budget 2011/12 Fiscal Year Promoting Economic Growth, Job Creation and Improving Service Delivery TABLE OF CONTENTS TABLE OF CONTENTS ............................................................................................................................................ I LIST OF TABLES .................................................................................................................................................... IV LIST OF FIGURES .................................................................................................................................................... V LIST OF ACRONYMS ............................................................................................................................................ VI PART ONE: INTRODUCTION AND GLOBAL ECONOMIC DEVELOPMENTS ........................................... 1 CHAPTER ONE: INTRODUCTION ........................................................................................................................ 2 CHAPTER TWO: GLOBAL AND REGIONAL ECONOMIC PERFORMANCE AND PROSPECTS ........... 5 2.1 GLOBAL ECONOMIC DEVELOPMENTS AND PROSPECTS ................................................................................. 5 2.1.1 Global Growth and Development ................................................................................................................ 5 2.1.2 International Trade ...................................................................................................................................... 6 2.1.3 World Commodity Prices ............................................................................................................................. 7 2.1.4 The Global Outlook for ODA ....................................................................................................................... 7 2.2 REGIONAL DEVELOPMENTS AND PROSPECTS ................................................................................................ 8 2.2.1 Sub-Sahara Africa ........................................................................................................................................ 8 2.2.2 East African Community .............................................................................................................................. 9 Development Strategy ...................................................................................................................................................... 10 East African Common Market .......................................................................................................................................... 11 East African Monetary Union (EAMU) ........................................................................................................................... 11 PART TWO: DOMESTIC ECONOMIC DEVELOPMENTS AND PROSPECTS ............................................ 13 CHAPTER THREE: ECONOMIC GROWTH ...................................................................................................... 14 3.1 GDP GROWTH ............................................................................................................................................. 14 3.2 DETAILED SECTORAL GDP GROWTH PERFORMANCE ................................................................................. 15 3.2.1 Agriculture, Forestry and Fishing Sector .................................................................................................. 15 Cash crops ........................................................................................................................................................................ 17 Food crops ........................................................................................................................................................................ 17 Fishing .............................................................................................................................................................................. 17 3.2.2 Industrial Sector ........................................................................................................................................ 18 3.2.3 Services Sector ........................................................................................................................................... 19 CHAPTER FOUR: MONETARY AND FINANCIAL SECTOR DEVELOPMENTS ....................................... 22 4.1 MONETARY SECTOR ................................................................................................................................... 22 4.1.1 Inflation Trends .......................................................................................................................................... 22 4.1.2 Interest rates .............................................................................................................................................. 25 4.1.3 Exchange Rate Policy and Foreign Exchange Market Developments ....................................................... 27 Foreign Exchange Rate Policy ......................................................................................................................................... 27 Exchange Rate Developments .......................................................................................................................................... 27 Foreign Exchange Trading Volumes ................................................................................................................................ 28 4.2 FINANCIAL SECTOR PERFORMANCE AND REFORMS .................................................................................... 28 4.2.1 Banking Sector ........................................................................................................................................... 28 4.2.2 Credit Institutions ...................................................................................................................................... 30 4.2.3 Microfinance Deposit Taking Institutions (MDIs) ..................................................................................... 30 Licensing of new MDIs .................................................................................................................................................... 31 MDI Deposit Protection Fund (MDI DPF) ....................................................................................................................... 31 Review of the MDI Act 2003 ........................................................................................................................................... 31 Overall Regulation of the Microfinance subsector ........................................................................................................... 32 4.2.4 Capital Markets ......................................................................................................................................... 32 East African Capital Markets Integration ......................................................................................................................... 33 4.2.5 Insurance ................................................................................................................................................... 33 4.2.6 Reforming the Pension Sector .................................................................................................................... 34 i CHAPTER FIVE: THE EXTERNAL SECTOR .................................................................................................... 36 5.1 OVERALL BALANCE OF PAYMENTS .............................................................................................................. 36 5.2 THE CURRENT ACCOUNT ............................................................................................................................ 37 5.2.1 Exports ....................................................................................................................................................... 37 5.2.2 Imports ....................................................................................................................................................... 38 5.2.3 Services Account ........................................................................................................................................ 38 5.2.4 Income Account .......................................................................................................................................... 39 5.2.5 Current Transfers....................................................................................................................................... 39 5.3 THE CAPITAL AND FINANCIAL ACCOUNT ................................................................................................... 39 5.4 PUBLIC EXTERNAL DEBT POSITION ...........................................................................................................