WASHINGTON, DC– The International Monetary Fund – IMF said on Wednesday it has reached a staff-level agreement with Uganda for a release of about $240m (about Ugx873m) in financing to the country.
Uganda will have access to the funding once the review is formally completed by the executive board of the IMF in the coming weeks, it said.
The fund said the east African country’s economic recovery was underway despite a range of constraints including weak global demand and supply-chain shocks.
The financing is part of the Extended Credit Facility arrangement worth $1b, which was approved in May 2021 is to be disbursed over a three-year period. The facility’s overall aim is to help to develop the least-developed countries’ economies overcome the effects of the Covid-19 pandemic.
In his statement, Malhar Nabar said the staff was convinced by the reforms that the government of Uganda was implementing, including the Domestic Revenue Mobilisation Strategy aimed at growing local revenues to reduce the reliance on foreign debt, as well as measures aimed at enhancing transparency and accountability.
“IMF staff have reached agreement with the Ugandan authorities on a conclusion of the combined second and third reviews of the ECF-supported program. The agreement is subject to approval of IMF management and the Executive Board in the coming weeks. Upon completion of the Executive Board review, Uganda would have access to SDR 180.5 million (equivalent to about $240m), bringing the total IMF financial support under the ECF-financed program to SDR 451.25 million (equivalent to about $ 625m).
Others considerations were the prospective growth rates amidst the lagging effects of Covid-19; the high inflation rate caused by the high international commodity prices as well as the war on Ukraine. Ramathan Ggoobi, the Permanent Secretary at the Ministry of Finance, Planning and Economic Development said this should not be mistaken as an IMF reform initiative for Uganda.
He noted the growth rate that is expected at 5.5 per cent next financial year as impressive though it is a slight downward forecast from the previous projection, adding that there is a need to protect this growth that is also facing risks.
The new projected growth figure would still be higher than last year’s 4.7 per cent as economic activity picks up after the effects of Covid-19-related lockdowns in 2020 and 2021. Risks to its growth outlook, the statement said, include persistently higher inflation in advanced economies and associated tighter global financial conditions as well as more frequent disruptions in activity due to climate change.
“To this end, the authorities have adopted a plan to rationalize inefficient and costly tax expenditures.
Expenditure prioritization will continue but a small widening of the fiscal deficit this year, relative to the target set in the first review of the ECF is necessary to account for additional needs to support the vulnerable, including subsistence households while remaining focused on fiscal,” said Nabar.
He also hailed the Bank of Uganda’s aggressive measures against rising inflation, where the Central Bank Rate was raised to 10 per cent from six between April and October 2022.
“The Bank of Uganda (BoU) has tightened the policy rate in recent months and announced its readiness to take appropriate action to contain second-round effects of higher global prices. Given the broadening of inflation pressures and upside risks, continued tightening would help guide core inflation back to the target. Continued exchange rate flexibility is an important shock absorber and would help rebuild external buffers,” noted Nabar.
Bank of Uganda’s Deputy Governor, Michael Atingi-Ego said he was particularly relieved that the IMF staff had to bear with the Bank’s policies, which obviously affected household and other incomes, for the sake of ensuring inflation is controlled.
Ggoobi said the IMF approval gives them the confidence to continue implementing the reforms that are mainly aimed at strengthening revenue mobilization and protecting the revenues from leakages.
Moses Kaggwa, the Director of Economic Affairs said the reforms are aimed at enabling the economy to meet its revenue mobilisation potential of Ugx20 in revenues to be collected for every Ugx100. Currently, it is about just Ugx13, and the strategy provides for an increase of about half a shilling per year.
He explains that this is one of the reasons that the tax exemption policy is being reviewed to see whether the exemptions have negative or positive impacts on the economy.