Uganda's economy will grow at a projected average of 6.1 percent in 2006 despite a cut back in donor budget support and high energy costs, a financial expert has said.

Releasing a report of the State of Uganda's Economy January- November 2005 available here on Friday, Executive Director for Research in Bank of Uganda Michael Atingi-Ego said that this calendar year, the country's economy grew at an average of 6 percent surpassing the projected 5.5 percent.

He said that though there have been cuts in donor support given to Uganda, the economy will not be affected in the short run.

"The total donor cuts to the budget have amounted to 73 million US dollars. While there are implications of these developments on the conduct of monetary and fiscal policies, its impact to the real economy, at least this financial year 2005/06, should be insignificant," said Atingi-Ego.

He said because the parliament had already passed the 2005/06 budget, expenditures on priorities like education and health could not be reduced.

He noted that following the donor cuts, government will resort to domestic borrowing to meet the expenditure.

He said the borrowing would not become inflationary because the monetary aggregates would remain the same

"You have one part of the aggregate which is the foreign assets reducing because of cuts in donor disbursement. So you can not build up the equivalent foreign currency. But you have domestic assets increasing because the government is borrowing from the banking system," he said.

He said despite next year's polls, there was nothing to suggest there will be expenditure over runs.

He observed that the country's economic growth has mainly been affected by the lack of adequate energy to allow industries to operate at optimum level.

Currently only 5 percent of Ugandans can access electricity. Industrialist always complain of power cuts which affect their production.

Atingi-Ego observed that if the power sector is development, then Uganda's economy is expected to grow further.

Statistics from Bank of Uganda show that the headline inflation for next year is projected to be 6.5 percent while underlying inflation is expected to average 4.9 percent.

Atingi-Ego said the prudence of fiscal and monetary polices has ensured inflation which had peaked to 12 percent in April this year had been contained to less than 6 percent.

Source: Xinhua