The macroeconomic implications of COVID-19 pandemic and associated policies: An economy-wide analysis of Uganda

This study evaluates the economy-wide impact of Covid-19 pandemic and associated mitigation polices in Uganda. Uganda instituted Covid-19 pandemic mitigating strategies ranging from home/institutional quarantine to social distancing of entire the population where all households reduced contact outside their household. The mitigating strategies result in economic consequences with some sectors being affected more than others. We employ a recursive dynamic computable general equilibrium model to evaluate the aggregate impact of Covid-19 pandemic on the Ugandan economy. We design scenarios to mimic the impact of mitigating public health policies on the economy, focussing on impact channels via labour supply, labour productivity, government health spending and remittance inflows. Results indicate that growth in sector output declines for most sectors under all scenarios except for the increase in non-tertiary rural labour scenario. The increased government health spending induces expansion in the healthcare output but the sectors that produce the intermediate inputs for healthcare production do not grow in tandem. This suggests the healthcare inputs are largely imported. There is an increase export growth rates when we assume an increase in supply of non-tertiary rural labour, suggesting that agricultural products exported to neighbouring countries through informal channels persist even during the Covid-19 restrictions. The sector performance results call for policymakers to revisit Uganda’s industrial policy and reorient it towards domestic production of commodities that are intermediate inputs to critical domestic sectors such as healthcare. Additionally, there is a need to accelerate rural infrastructure development to facilitate an integrated economy induced by the shift in labour and enterprise towards rural areas. The results of negative welfare effects call for the government to consider transfers to households to mitigate the adverse effects of Covid-19.