Press Release: IMF Approves Third Annual PRGF Loan for Uganda
December 10, 1999
The International Monetary Fund (IMF) today approved the third-year program for Uganda under the Poverty Reduction and Growth Facility (PRGF)1 in an amount equivalent to SDR 26.78 million (about US$36.7 million) to support the government's economic program.Uganda's three-year PRGF arrangement was approved on November 10, 1997 (see Press Release 97/52) in an original amount of SDR 100.42 million (about US$138 million), of which SDR 73.645 million (about US$100.8 million) has been disbursed. Today's decision provides Uganda with another SDR 26.78 million to be disbursed during the third year, with SDR 8.9 million (about US$12.2 million) available immediately.
In commenting on the Executive Board discussion on Uganda, Shigemitsu Sugisaki, Deputy Managing Director of the IMF, said:
"Directors welcomed the significant progress made in the recent past in strengthening the poverty reduction focus of Uganda's economic policies, and the steps already taken to produce a poverty reduction strategy paper next year. These steps include the following: a comprehensive review of Uganda's poverty characteristics; the institution of a broad-based participatory process for the development, implementation, and monitoring of poverty eradication programs--involving civil society, local governments, and the donor community; a marked increase in outlays on key social areas; and the establishment of a decentralized machinery for the delivery of essential services. These actions have been underpinned by prudent macroeconomic policies and a wide range of structural reforms that have helped to achieve broad-based economic growth. Directors stressed the importance of continued implementation of sound policies and maintenance of an open foreign exchange system, in order to strengthen the environment for private investment and to help maintain high economic growth, which they considered vital for the achievement of the authorities' poverty reduction objectives.
"Notwithstanding this impressive start, Directors expressed concern at Uganda's welfare indicators which remain among the lowest in Africa, and at the severe regional disparities in the incidence of poverty. They therefore called for early concerted actions to build an effective public service delivery system at the district level.
"While noting the importance of increased external resources for the implementation of Uganda's poverty reduction strategy, Directors welcomed the authorities' actions to improve domestic resource mobilization, which they considered to be crucial for the long-run viability of the strategy. Directors supported the steps to strengthen revenue, including by improved tax administration, and especially in view of the recent shortfall, as well as to restructure expenditure. Directors expressed concern, however, about the delays in implementing the Commitment Control System, and urged the authorities to press ahead with actions to improve the reporting, monitoring, and enforcement of expenditure commitments. They also underlined the importance of strict adherence to the budgetary limits for defense spending.
"Directors welcomed the authorities' commitment to promote transparency and good governance, which are crucial for improving the delivery of social services and for high economic growth.
"With regard to other structural reforms, Directors noted the progress made in addressing problems in the banking system, and welcomed the authorities' commitment to reforms in the areas of public enterprise restructuring and foreign trade. They stressed the need for sustained follow up actions in these areas.
"With a view to supporting Uganda's continuing efforts to reduce its external debt burden to a more sustainable level, Directors looked forward to an early consideration of further assistance to Uganda under the enhanced Initiative for Heavily Indebted Poor Countries," Sugisaki said.
Program SummaryMacroeconomic performance in 1998/99 was generally better than programmed. Real GDP growth was 7.8%, and inflation was 5.3%. With the stance of financial policies remaining broadly as envisaged under the program, the external current account deficit (excluding official transfers) was contained at the targeted level. However, Uganda continued to have difficulties in clearing all its outstanding external payments arrears in 1998/99, owing to the reported unwillingness of two multilateral creditors (The EADB2 and PTA Bank) and most non-Paris Club bilateral creditors to reschedule Uganda's debts in accordance with the HIPC3 Initiative terms.
The authorities' medium-term economic objectives aim at maintaining the progress that has been achieved thus far. Revenues are projected to increase to 12.5% of GDP in 1999/2000, reflecting the impact of the more depreciated exchange rate despite lower-than-expected revenues in the first quarter. Total expenditures are programmed to rise by 2.0% of GDP to
20.6% of GDP, resulting from higher social and development spending and the cost of the referendum scheduled for June 2000. The authorities are committed to containing defense expenditures, but outlays for defense-related wages will be higher than earlier projected. The authorities are cognizant of the need to closely monitor security outlays to facilitate adherence to the budgeted provision.
The fiscal program contains provisions for important contingencies. With regard to expenditure management, the Commitment Control System has encountered some initial reporting delays. However, the government has taken several measures aimed at improving reporting, monitoring, and enforcement. In response to revenue shortfalls in the first four months of the current fiscal year, the authorities have indicated their commitment to implement additional measures to maintain the program objectives.
Uganda's Poverty Reduction StrategyThe government has taken the key steps required for the production of its poverty reduction strategy paper (PRSP). The national policy framework for poverty eradication is set out in Uganda's Poverty Eradication Action Plan (PEAP) that was announced in 1997. The principal goal of the PEAP is reducing the incidence of absolute poverty to 10% or less by 2017. In addition, the PEAP sets forth the goals for achieving universal access to primary education, primary health care, and safe drinking water; guaranteeing political freedom and human rights; and establishing an effective disaster relief system targeted principally at the poor. The PEAP resulted from a long consultative process, which involved donors, local communities, and civil society organizations. Moreover, the poor were directly consulted through Uganda's Participatory Poverty Assessment Project (UPPAP). Substantial progress has been made in developing the institutional mechanisms for implementing the PEAP, including decentralization to districts of the public service delivery system.
Government expenditures on social programs increased substantially in 1998/99. Expenditures in seven key budget areas covering the vast majority of social services increased to 6.1% of GDP from 5.1% of GDP in 1997/98.
Uganda joined the Fund on September 27, 1963. Its quota4 is SDR 180.50 million (about US$247.1 million). Its outstanding use of IMF financing currently totals SDR 265.87 million (about US$364 million).