Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the combined second and third reviews under the Extended Credit Facility (ECF) Arrangement for Uganda.
Further, the Executive Board granted a waiver of nonobservance of a performance criterion on the stock of net international reserves of the Bank of Uganda.
The completion of the combined 2nd and 3rd reviews allowed an immediate disbursement equivalent to SDR 180.5 million, about US$240 million, bringing the aggregate disbursement-to-date to US$625 million.
The ECF Arrangement for Uganda for a total of SDR 722 million (200 percent of quota) or about US$1billion was approved by the Executive Board on June 28, 2021, aiming to support the near-term response to the COVID-19 pandemic and boost more inclusive private sector-led long-term growth. Reforms focus on creating fiscal space for priority social spending, preserving debt sustainability, strengthening governance, and enhancing the monetary and financial sector frameworks.
The Ugandan authorities have managed to preserve macroeconomic stability while sustaining the post-COVID-19 recovery despite rising pressure from global shocks and successive domestic shocks, including new public health challenges.
The economy is projected to grow by 5.3 percent in FY 22/23 (revised down from 6 percent at the time of the 1st review in March 2022), while headline inflation is expected to rise to 8.3 percent (marked up from 4.6 percent at the 1st review). The forecast revisions reflect the impact of the war in Ukraine, tighter external financial conditions, drought and rising domestic borrowing costs. Risks to the outlook remain elevated, including from higher imported inflation, lower external demand, climate change, and public health outlook.
Tight macro policies and continued exchange rate flexibility will help strengthen external buffers. Fiscal consolidation and monetary tightening are essential to bring overall domestic absorption more in line with domestic production, reduce the current account deficit, and contain the decline in reserves.
Notwithstanding the challenging environment and a heavy reform agenda, all but one quantitative performance criteria and most indicative targets for March, June and September 2022 were met and the authorities have taken important steps to advance structural reforms.
Steps have been taken to strengthen the governance and anticorruption frameworks by (i) amending the regulations to include assets that are beneficially owned in the asset declarations, (ii) publishing information on compliance with the Leadership Code Act and on applications to access the declarations, and (iii) amending the law to establish a central registry for beneficial ownership information of legal entities, with forthcoming regulations expected to allow timely access to the beneficial ownership registry. The adoption of the tax expenditure rationalization plan will jump-start efforts to streamline the system and mobilize tax revenue in an efficient and equitable way.
Executive Board Assessment
Following the Executive Board discussion, Mr Bo Li, Deputy Managing Director and Acting Chair made the following statement:
“The Ugandan authorities remain committed to their economic program amidst a challenging environment. Most quantitative targets were met in 2022. Six of the twelve structural benchmarks due between March and December 2022 have been completed. A structural benchmark on the asset declaration regime was converted into a prior action for the review and has been met. Sound program implementation in the period ahead remains important to ensure economic resilience and support the country’s social and developmental objectives.
“The slight relaxation of the fiscal deficit in the fiscal year 2022/23 relative to the programmed target was necessary to support vulnerable households and introduce cost-of-living adjustments in the public sector, amid a deteriorating external environment and the sharp acceleration in inflation. The temporary deviation of the reserve cover is also appropriate given the tighter global financial conditions and the authorities’ commitment to continued successful program implementation. Returning to the programmed fiscal consolidation path and reserve cover remains essential to keep debt sustainable and maintain external buffers. Enhanced domestic revenue mobilization, including via the elimination of inefficient tax exemptions, rationalization of non-priority spending, and shifting the composition of spending towards priority social areas will help achieve the fiscal objectives and address large development needs. The introduction of the Parish Development Model was a welcome development.
“The banking system is well-capitalized and financial stability risks should continue to be minimized. Monetary policy should continue to tighten to achieve the core inflation target. Continued exchange rate flexibility is needed to preserve external buffers, with foreign exchange interventions limited to smoothing excessive exchange rate fluctuations. Continued improvements in the Bank of Uganda’s autonomy and governance framework would be important.
“Accelerating the momentum on structural reforms is essential to help move Uganda towards attaining its goal of middle-income status. Priorities include enhancing domestic revenue mobilization, strengthening governance, transparency, the anti-corruption framework and the AML/CFT regime, advancing the financial inclusion agenda, and climate adaptation measures.”
|Table 1. Uganda: Selected Economic Indicators, FY2020/21-FY2023/24|
|Real GDP Growth (%)||3.5||4.7||5.3||6.0|
|Headline Inflation – average (%)||2.5||3.4||8.3||7.2|
|Core Inflation – average (%)||3.5||3.2||7.5||6.8|
|Central Government Finances|
|Revenue and Grants (% of GDP)||14.3||14.1||15.1||15.5|
|Expenditure (% of GDP)||23.7||21.5||20.2||19.0|
|Primary Balance (% of GDP)||-6.7||-4.3||-1.8||-0.3|
|Fiscal Balance (% of GDP)||-9.4||-7.4||-5.1||-3.5|
|Public Debt (% of GDP)||49.0||50.6||50.9||49.6|
|Money and Credit|
|Broad money (% change)||8.5||10.0||14.5||12.6|
|Credit to Private Sector (% change)||8.3||11.0||8.3||12.8|
|Policy Rate, EOP (%)||6.5||7.5||…||…|
|Balance of Payment|
|Current Account Balance (% of GDP)||-9.5||-7.9||-9.2||-10.7|
|Reserves (in months of next year’s imports)||4.9||3.7||3.0||3.1|
|External Public Debt (% of GDP)||31.6||31.3||31.9||32.4|
|REER (% change)||0.6||3.7||…||…|