IMF Executive Board Concludes the Fourth Review Under the Extended Credit Facility Arrangement with Uganda
IMF Executive Board Concludes the Fourth Review Under the Extended Credit Facility Arrangement with Uganda
June 21, 2023
- The Executive Board of the International Monetary Fund (IMF) concluded today the fourth review of Uganda’s Extended Credit Facility (ECF). This completion enables the immediate disbursement of the equivalent of SDR 90.25 million (about US$ 120 million). The program aims 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 reducing corruption, and enhancing the monetary and financial sector frameworks.
- The Ugandan economy is projected to grow by 5.5 percent in FY 22/23 and 6 percent in FY 23/24. Inflation has been declining and is expected to reach the Bank of Uganda’s medium-target of 5% core inflation by end-2023.
- A stronger tightening of global financial conditions would constrain the availability of syndicated loans and weigh on financial sector stability. Fiscal consolidation and tight monetary policy remain essential to keep debt on a sustainable path. Structural reforms will need to continue focusing on strengthening governance and anti-corruption frameworks, enhancing domestic revenue mobilization, and boosting financial inclusion. Together with these initiatives, efforts to increase social spending will also improve prospects for achieving more inclusive, sustainable, private sector led long-term growth.
Washington, DC : The Executive Board of
the International Monetary Fund (IMF) today concluded the fourth review of
Uganda’s
Extended Credit Facility
(ECF) Arrangement. Further, the Executive Board granted a waiver of
nonobservance of a performance criterion on the net credit to the
government from the Bank of Uganda (BoU).
The completion of the fourth review enables the immediate disbursement of
SDR 90.25 million (about US$ 120 million). This brings the aggregate
disbursement under the ECF arrangement to SDR 541.5 million (about US$750
million).
In completing the fourth review, the Executive Board also approved the
authorities’ request for a waiver of nonobservance of a performance
criterion on the ceiling on net credit to the central government from the
BoU.
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 (see
Press Release 21/197
), 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 reducing corruption, and
enhancing the monetary and financial sector frameworks.
Despite repeated external shocks and tighter financial conditions, the
economy is projected to grow by 5.5 percent in FY 22/23 and 6 percent in FY
23/24. Inflation has been declining and is expected to reach the BoU’s
medium-target of 5% core inflation by end-2023. The improved near-term
outlook (growth in FY 22/23 has been revised up slightly, and inflation
projections are marked down for FY 23/24) reflects the impact of more
favorable weather conditions on domestic harvests, the softening of global
commodity prices and easing of global demand-supply imbalances, and the
lagged effects of monetary and fiscal policy tightening.
Risks to the outlook remain elevated, including from further tightening of
external financial conditions, a renewed pickup in inflation which would
increase borrowing costs via additional monetary tightening, and a
stronger-than-expected drag of higher borrowing costs on private sector
credit and investment. The conflict in Sudan could have a negative impact
on exports. A stronger tightening of global financial conditions would
constrain the availability of syndicated loans and weigh on financial
sector stability given that foreign exchange credit accounts for around 30
percent of bank loans. Moreover, the recent signing into law of the
’Anti-Homosexuality Bill, 2023’ could have a larger-than-anticipated
impact on the availability of grants and external loans from development
partners, as well as Foreign Direct Investment (FDI) flows and tourism.
Fiscal consolidation, tight monetary policy, and continued exchange rate
flexibility remain essential to keep debt on a sustainable path, reduce
the current account deficit and protect foreign exchange buffers.
Structural reforms will need to continue focusing on strengthening
governance and anti-corruption frameworks, enhancing domestic revenue
mobilization – including through more ambitious rollback of tax
expenditures, and boosting financial inclusion. Together with these
initiatives, efforts to increase social spending will also improve
prospects for achieving more inclusive, sustainable, private sector led
long-term growth.
At the conclusion of the Executive Board’s discussion, Mr. Kenji
Okamura, Deputy Managing Director and Acting Chair made the following
statement:
[1]
“The Ugandan authorities remain firmly committed to their economic program
amidst a challenging environment. Most quantitative targets were met in
December 2022 and March 2023. The Quantitative Performance Criterion (QPC)
on the ceiling on the Bank of Uganda (BoU) net credit to government (NCG)
was missed by a very small margin in March 2023. All structural benchmarks
due between March and June 2023 have been met.
“The full implementation of the Domestic Revenue Mobilization Strategy
(DRMS), including the additional tax administrative measures identified by
the authorities, is crucial to help maintain the debt-to-GDP ratio on a
declining path, and allow for an increase in social spending over the
medium term. Increasing the pace of Public Financial Management (PFM)
reforms is essential to enhance the capacity to execute social spending in
a timely manner. The tax exemption rationalization plan remains an important
component of the revenue mobilization effort.
“The banking system is well-capitalized, and liquidity has rebounded, but
the asset quality of some banks has deteriorated. Against this backdrop,
safeguarding financial stability and strengthening the supervisory
framework remain paramount. The current monetary policy stance is
appropriate, but the BoU should stand ready to resume its tightening if
signs emerge of a slower-than-expected disinflation. Exchange rate
flexibility remains crucial to preserve external buffers.
“Accelerating the momentum on structural reforms is essential to unlock
Uganda’s growth potential and require more proactive efforts. Priorities
include enhancing domestic revenue mobilization, strengthening the
anti-corruption framework and the AML/CFT regime, advancing the financial
inclusion agenda, and climate adaptation measures. The authorities should
sustain efforts to improve transparency of implementation of the asset
declaration framework including sanctions enforcement for violations.”
[1]
At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:
http://www.IMF.org/external/np/sec/misc/qualifiers.htm
.
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Tatiana Mossot
Phone: +1 202 623-7100Email: [email protected]
