IMF Concludes Fifth Extended Credit Review for Uganda

• The Executive Board of the International Monetary Fund (IMF) concluded today the fifth 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 consolidate the recovery from COVID-19 and other recent shocks and support sustainable, inclusive private-sector led growth. Reforms focus on creating fiscal space for priority social spending and investment, preserving debt sustainability, strengthening governance, and reducing corruption, and enhancing the monetary and financial sector frameworks.
• Economic growth is projected at 6 percent in FY23/24 and to rise to 7 percent in FY24/25 and the medium-term. Core inflation is expected to remain subdued at 2.8 percent in FY 23/24 and rising to the Bank of Uganda's target of 5 percent in the medium-term.
• A tight fiscal policy will reduce financing and debt risks, while maintaining fiscal space for social and development expenditure. Monetary policy should be data dependent, and a flexible exchange rate will help rebuild external buffers.

Washington DC, USA: The Executive Board of the International Monetary Fund (IMF) today concluded the fifth review of Uganda's Extended Credit Facility (ECF) Arrangement. The completion of the fifth 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 631.75 million (about US$870 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, (IMF Executive Board Approves US$1 billion ECF Arrangement for Uganda), aiming to support the near-term response to the COVID-19 pandemic and boost more inclusive private sector-led long-term growth. Reforms have focused on creating fiscal space for priority social spending, preserving debt sustainability, strengthening governance, and reducing corruption, and enhancing the monetary and financial sector frameworks.

Uganda's economic recovery is gaining pace, with growth projected at 6 percent in FY 23/24, and rising to 7 percent in FY 24/25 and the medium-term. The inflation outlook has improved, with core inflation expected to remain subdued at 2.8 percent in FY 23/24 and rising to the Bank of Uganda's target of 5 percent in the medium-term.

Risks to the outlook remain on the downside. A further tightening of external financial conditions could constrain the availability of syndicated loans and jeopardize fiscal financing and the ongoing recovery. The passing of the Anti-Homosexuality Bill, 2023 (AHA) could negatively impact foreign investment, loans, and grants, as well as tourism. Uganda's mostly rain-fed agriculture also remains vulnerable to weather-related shocks. Risks to inflation are also on the upside, reflecting a slightly positive output gap, risks of higher international fuel prices from the ongoing Israel-Gaza war, exchange rate depreciation pressures from portfolio outflows, and weather-related shocks.

Fiscal consolidation is necessary to reduce risks to financing and debt sustainability, while maintaining fiscal space for social and development expenditure. A data dependent monetary policy stance will guard against risks while bringing core inflation back to the central bank's target. These policies, in addition to exchange rate flexibility, will help rebuild external buffers and improve competitiveness.

At the conclusion of the Executive Board's discussion, M. Bo Li, Deputy Managing Director, and Acting Chair made the following statement:^[1]

Uganda's recovery is becoming more broad-based, supported by falling inflation and oil industry investments. The ECF arrangement continues to support fiscal consolidation to keep the public debt ratio on a downward path, ensure sustainable social and development expenditure, and implement structural reforms to improve governance and facilitate private-sector-led growth. The economic outlook is positive but remains subject to downside risks including from lower external financing and tourism following passage of the Anti-Homosexuality Act (AHA). The authorities' commitment to strong policies and structural reforms will help ensure robust, sustainable, and inclusive growth going forward.

Continued commitment to fiscal consolidation is key to reduce financing risks and safeguard debt sustainability. Implementing the Domestic Revenue Mobilization Strategy will help secure consolidation gains and lower reliance on costly domestic and external financing. Improving the structure of expenditures will help maintain social services and space for growth-enhancing capital expenditures. Addressing deficiencies in public financial management will improve budgeting and expenditure control.

The Bank of Uganda has been proactive in addressing inflation, but upside risks remain. Monetary policy should remain data dependent, loosening only as inflation risks recede, to bring core inflation back to the central bank target.

Pursuing fiscal consolidation and maintaining a flexible exchange rate will help rebuild international reserves to safer levels. Limiting intervention in the foreign exchange market to situations of excess volatility will also help the economy adjust to external pressures and maintain competitiveness.

Vigorously pursuing structural reforms will set the preconditions for robust private-sector-led growth, in line with the authorities' National Development Plan III. Priorities include improving governance and reducing corruption, strengthening financial stability and access, enhancing the Bank of Uganda's independence, and improving spending efficiency. We welcome Uganda's progress in reforming its AML/CFT framework and its removal from the FATF grey list.

[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.