Counting the Cost of Drought Induced Productivity Losses in an Agro-Based Economy: The Case of Uganda

Climate variability can affect economies directly through its impact on agricultural output, and indirectly, through its effect on the activities of down-stream industries and household welfare. This paper uses a Computable General Equilibrium model with a disaggregated agricultural sector to analyse the impact of a drought on the Ugandan economy. The losses were assessed with respect to GDP, agricultural output, employment, the trade balance and household consumption. The drought effects were shown to vary by sector. The fall in employment within the agricultural industries was less compared to the output losses. At a macro level, exports declined, while at a household level, the terms of trade gains mitigated part of the potential welfare losses thereby reducing consumption, but to a lesser degree. The findings indicate that a drought can cause substantial losses to the economy. The need for targeted interventions to mitigate such drought impacts is therefore critical.