Press Release: IMF Approves Third Annual ESAF Loan for Uganda
November 18, 1996
The International Monetary Fund (IMF) today approved the third annual loan under the enhanced structural adjustment facility (ESAF)1, in an amount equivalent to SDR 46.9 million (about US$68 million), to support Uganda's economic program in 1996/97. The loan is available in two equal installments.
Since 1987, the government of Uganda has been implementing a far-reaching economic recovery program supported by substantial economic assistance from the IMF and other multilateral and bilateral institutions. The current three-year ESAF loan has been in effect since September 1994 and has been successful in producing strong growth and holding inflation at moderate levels .
Over the past five years, real GDP has grown at an average annual rate of 7 percent, and per capita GDP growth has averaged 4 percent a year in real terms. Government revenues have risen by more than one percentage point of GDP a year, from 7 percent of GDP in 1991/92 to over 11 percent of GDP in 1995/96. At the same time, expenditures have been kept under strict control and have averaged about 19 percent of GDP. As a result, the overall fiscal deficit, excluding grants, has fallen during the period from 15 percent of GDP to 7 percent of GDP . In these five years, the external current account deficit has declined from 13 percent of GDP to an estimated 7 percent of GDP.
The government has also accelerated structural reforms to deregulate the economy and to increase private investor's confidence. Public enterprises have been privatized, interest rates have been liberalized, and expropriated properties have been returned to former owners.
Medium-Term Strategy and the 1996/97 Program
The government's medium-term strategy seeks to strengthen actions aimed at poverty eradication, particularly by achieving strong economic growth. At the same time, it will maintain macroeconomic stability by pursuing sound fiscal and monetary policies in a liberalized environment. Accordingly, the medium-term objectives of the program are to achieve a regionally balanced and broad-based annual real GDP growth of 7 percent (or about 4 percent per capita), to contain inflation at 5 percent a year, to strengthen the balance of payments, and to accumulate gross reserves equal to more than five months of imports.
To meet these objectives, medium-term fiscal policy envisages reducing the overall budget deficit by more than 3 percentage points of GDP. Improvements in tax and customs administration should increase revenues annually by 1 percentage point of GDP, while expenditures are to be maintained broadly constant relative to GDP. The external current account deficit (excluding grants) is expected to decline to 5.7 percent of GDP by 1998/99, from 7.1 percent of GDP in 1995/96, through a continued diversification of the export base, buoyant private inflows, and moderation of import growth.
Macroeconomic objectives for 1996/97 are to achieve a real GDP growth rate of 7 percent, contain inflation at 5 percent, limit the external current account deficit to 7.2 percent of GDP, and increase international reserves to 4.7 months of imports from 3.7 months of imports. The achievement of these objectives will require tight fiscal and monetary policies. The overall fiscal deficit (excluding grants, and a windfall coffee tax) will be reduced by 1 percent of GDP, to 5.8 percent of GDP. Revenues are programmed to rise by more than 1 percent of GDP to 12.3 percent of GDP, while total expenditures are to be maintained at about 18 percent of GDP.
Building on the steps taken in the recent past, privatization and restructuring of public enterprises will continue to be pursued under the program to open new opportunities for the private sector and to ensure that services offered by utilities are reliable and priced competitively. The divestiture of public enterprises will be maintained through auctions, and by public flotation of companies. This last action aims at facilitating the development of the stock market and the promotion of wider stock ownership. The financial sector reform program is to be continued through the restructuring of weak commercial banks, particularly the rapid privatization of the Uganda Commercial Bank, while strengthening the Bank of Uganda, and its supervisory capacity.
Parliament will vote early next year on a new income tax bill that rationalizes tax holidays and provides for the necessary tax incentives for investors. The government is also committed under the program to revise legislation on mineral taxation. The size and organizational structure of the central government is to be reviewed, including the number, functions, and staffing size of ministries in light of decentralization.
Addressing Social and Environmental Issues
The government is committed to strengthen the impact of growth on human development, and has initiated a participatory process to develop an Action Plan for Poverty Eradication and to provide a comprehensive framework for addressing poverty. The authorities are also aware of the need to promote sustainable development and management of Uganda's rich natural resource base. A National Environment Policy recently enacted calls for environment education, improved information dissemination, community participation, and environmental impact assessments.
The Challenge Ahead
The marked increase in private transfers, including foreign direct investment and sustained support by the international community are a testimony to external and internal confidence in the Ugandan economy. In light of the vulnerability of the external position and the relatively high debt stock, the authorities will need to maintain their policy of nurturing the diversification of the economy and of exports, through continuing the liberal payments and trade system, realistic exchange rates, market-oriented price structures, and structural reforms to strengthen and deepen the financial sector.
Uganda joined the IMF on September 27, 1963, and its quota2 is SDR 133.9 million (about US$195 million). Uganda's outstanding use of IMF financing currently totals SDR 269 million (about US$391 million).
Sources: Ugandan authorities; and IMF estimates and projections.
1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year, and are repayable over 10 years, with a 5-year grace period.
2 A member's quota in the IMF determines, in particular, its subscription, its voting power, its access to IMF financing, and its allocation of SDRs.