IMF Wraps Up Fourth Review of Uganda's Credit Facility Arrangement

• 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."