After contracting for four consecutiveyears since FY2014/15, the economy is estimated to haverecovered with a growth rate of 3.2 percent in FY 2018/19.These developments reflect activity in the oil sector, whichrebounded strongly, and dividends from the peace agreement,which led to a reduction of hostilities in some regionsacross the country, leading to a mild recovery in a fewnon-oil sectors. Growth in the oil and mining sectors wasestimated at 10.7 percent, services sector is estimated tohave grown by 0.4 percent, and agriculture is estimated tohave contractedby 2.5 percent. The oil-led growth may havelimited impact on the welfare of most citizens as relativelylittle of it trickles down and very little is spent on basicservice delivery. Slow growth in the non-oil sectors,coupled with limited expenditure on service delivery, andlimited linkages between the oil and non-oil economycreates a disconnect between the observed oil-led growthand citizen welfare. Recent budget execution reportsindicate that the social sectors not only get smallerallocations, they are also faced with under execution. Theeconomy is still beset with high inflation and a soaringforeign exchange rate premium. The rate of inflation isestimated to have increased from 40 percent in December 2018to 86 percent in June 2019, reversing the downward trendobserved in the first half of FY2018/19. By October 2019,inflation is estimated to have risen to 170 percent. At thesame time, the gap between the official exchange rate andthe parallel market rate remains high, indicating that theofficial rate is overvalued and does not reflect theunderlying economic fundamentals. While the increase in oilproduction and prices coupled with an improved outlook for apeaceful settlement initially led to a marked decline in thepremium in the second half of 2018, this gap has beenwidening in the first half of 2019 and increased from 65percent in December 2018 to 95 percent in September 2019.
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