(Adds details, background)
By Elias Biryabarema
KAMPALA Oct 6 The World Bank cut its 2016/2017
growth forecast for Uganda on Thursday to 5.5 percent from 5.9
percent, citing the impact of South Sudan's conflict on its
exports and sluggish investments due to slower economic activity
South Sudan is one of Uganda's major export markets but
roads between the two countries have been unsafe since an
eruption of violence in South Sudan in July.
"The current economic forecast ... is ... mainly because the
economy has responded less strongly to the post-election
monetary easing, as investments remain sluggish under a slower
global economy and the negative impact of the South Sudanese
conflict on Uganda's exports," the bank said.
However, a rebound in activity in the construction sector,
driven by aggressive public infrastructure investments will
offset the effects of a "weak external sector" and return growth
to above 6 percent in the 2017/2018 July to June fiscal year,
the bank said in an emailed response to Reuters questions.
Ugandan officials have said a quicker pace in oil-related
investments as the country prepared to start crude oil
production in 2020 will also help accelerate growth.
Crude oil was discovered in Uganda 10 years ago but
commercial production has been repeatedly delayed by spats over
taxation and disagreements over development strategy.
This year the government has given out new exploration
licences and also production licenses to operators including
Total, Tullow Oil and China's CNOOC
The World Bank said those steps will "accelerate foreign
direct investment flows, infrastructure development, employment
and local industry".
It warned of higher risks of debt distress if revenue
collection did not pick up, or if the infrastructure projects
failed to lift economic growth.
"Continued failure to collect revenue in the context of a
rapid fiscal expansion could increase the risk of debt
distress," it said.
"Moreover, if the investments in infrastructure do not
result in an improved rate of growth, or if they are delayed
significantly ... this could also result in rapid increases to
the debt-to-GDP ratio, most likely to a level in excess of the
threshold of 50 percent of GDP."
Last month the World Bank said it had decided to suspend the
release of outstanding funds to Uganda while it reviewed
performance on previous loans.
The bank has not disclosed how much funding was frozen.
Uganda relies heavily on aid - both grants and subsidised
credit - for its public spending and the World Bank is one of
its major sources.
Funds from the multilateral lender have been vital in
financing major projects in sectors such as energy and
transportation infrastructure but also an important source of
foreign exchange in a country whose export sector is still
Embezzlement and wasted aid is common in Uganda and the
World Bank and other donors, including the European Union have
previously suspended aid on similar grounds.
(Editing by George Obulutsa and Louise Ireland)