Impact of liberalization on key markets in sub-Saharan Africa: the case of Uganda

During the 1970s, Uganda suffered from an economic crisis characterized by distortions in all sectors of the economy. The exchange rate, for example, was highly overvalued, inflation was in the double-digit range while interest rates were held constant for most of the period resulting into negative real interest rates. In 1981, the first attempt to re-establish stability in the economy was made when government signed a stand-by arrangement with the IMF. Relative stability was created. However, the programme with the IMF faced slippages and was finally abandoned in the early 1980s when the government found it difficult to live within programme targets. Benefits to the economy were eroded as economic ills reappeared. Inflation accelerated to triple digit levels for most of the mid-1980s, overvaluation of the exchange rate worsened, parallel markets thrived while smuggling and capital flight became rampant. In May 1987, the economic reform programme was restarted and over the past twelve years has been broadened and refined with a view to re-establishing both internal and external balance. Initially the reform programme focused on eliminating distortions in the macroeconomic framework. Over the years, the focus has shifted to promoting efficiency in markets and according the private sector a dominating role in economic activities. The study shows the liberalization of markets and the shift to market determined prices has had a significant role in the re-establishment of stability in the economy and in promoting sustainable growth. The study also reveals the need to increase public investment in infrastructure and developing human capacity to facilitate private investment. The challenge is to adequately finance higher public expenditure while maintaining macroeconomic stability. Copyright © 1999 John Wiley & Sons, Ltd.