Press Release: IMF Executive Board Completes Fifth Review Under Uganda's PRGF Arrangement and Approves US$2.9 Million Disbursement
July 8, 2005
The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Uganda's economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement and approved a disbursement for an amount equivalent to SDR 2.0 million (about US$2.9 million). This would bring total disbursements under the PRGF arrangement to SDR 11.5 million (about US$16.6 million).
Uganda's PRGF arrangement was approved on September 13, 2002 (see Press Release No. 02/41) for SDR 13.5 million (about US$19.5 million).
In completing the review, the Executive Board granted Uganda's request to extend the PRGF arrangement through December 31, 2005, and to waive the non-observance of the quantitative performance criterion relating to the accumulation of new domestic budgetary arrears under the commitment control system. The Executive Board also reviewed Uganda's poverty reduction strategy paper, the Poverty Eradication Action Plan, and the associated joint World Bank-IMF staff advisory note. Finally, the Board discussed an ex post assessment of Uganda's performance under Fund-supported programs.
Following the Executive Board's discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:
"The Ugandan authorities have maintained their commitment to sound financial policies to ensure continued macroeconomic stability and robust economic growth. In particular, they are to be commended on meeting their overall fiscal targets in 2004/05, although the accumulation of new domestic arrears remains an issue.
"Looking ahead, the main challenge will be to maintain high economic growth and make further inroads in alleviating poverty. This will require persevering with the stabilization effort and improving the investment environment by lowering the cost of doing business and squarely addressing governance issues. The government's revised Poverty Eradication Action Plan (PEAP), which sets out a comprehensive policy agenda for increasing economic growth and reducing poverty, will help achieve these goals, if fully implemented.
"To avoid crowding out private investment and export activities, the government should continue with the process of budget deficit reduction by stepping up domestic revenue collection and improving prioritization of recurrent expenditures. In this context, the revenue-enhancing measures and the envisaged reduction in the deficit announced in the budget for 2005/06 (July-June) are important steps in the right direction. The revenue effort should be supported by continued implementation of reforms at the Uganda Revenue Authority (URA). It will also be important to create sufficient space for productive investment through capping the growth in recurrent spending, especially on non priority public administration outlays. In addition, it will be important to ensure that inflows of foreign aid are allocated to the most economically and socially productive purposes.
"The authorities' commitment to strengthen public expenditure management and improve the quality of government spending is welcome. To this end, the authorities need to strictly enforce regulations and control the accumulation of domestic arrears.
"The authorities have maintained a sound monetary policy aimed at keeping inflation low. The Bank of Uganda (BOU) should continue to undertake foreign exchange sales as appropriate for sterilization purposes, as over reliance on open market operations with treasury bills would keep interest rates at unduly high levels and crowd out private investment. Vigorous supervision has contributed to the healthy state of Uganda's banking system. Additional policy steps that are envisaged, including the introduction of a credit reference bureau, should further improve the functioning of the banking system and deepen access to credit. The government should expedite efforts to divest interests in Uganda Development Bank and install a private management team.
"There is a crucial need to improve governance and reduce corruption in Uganda. There have been improvements in certain areas, most notably reforming the URA, but progress in addressing governance issues has been slow. In this respect, the authorities should vigorously implement the anti-corruption strategy.
"The creation of the EAC customs union should help promote intra-regional trade. However, it would be important to reduce the common external tariff over time as means of fostering greater international competitiveness and minimizing potential problems with trade diversion. The authorities should ensure that the proposed establishment of export-processing zones meets international best practices," Mr. Kato said.