Press Release No. 07/299

Press Release: IMF Executive Board Completes Second Review Under Policy Support Instrument (PSI) for Uganda

December 19, 2007

The Executive Board of the International Monetary Fund (IMF) today completed the second review under a three-year Policy Support Instrument (PSI) for Uganda. The PSI was approved on December 15, 2006 (see Press Release No. 06/281). The program objectives included macroeconomic stability, debt sustainability, financial sector deepening, and improved public sector financial management.

The Executive Board also approved Uganda's request for waiver for the non-observance of the end-June 2007 quantitative assessment criterion on the ceiling on the increase in base money liabilities of the Bank of Uganda as well as for the subsequent modification of quantitative assessment criteria designed to limit such occurrences in the future.

The IMF's framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. Members' performance under a PSI is reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).

Following the Executive Board's discussion, Mr. Takatoshi Kato, Deputy managing Director and Acting Chair, stated:

"Uganda's economy has continued to perform strongly, owing to appropriate fiscal and monetary policies and the country's structural reform efforts. A positive economic outlook, however, hinges on addressing key infrastructure bottlenecks, financial sector development, and maintaining sound economic policies in the face of volatile foreign exchange flows and budgetary pressures.

"A continued focus on price stability as the primary objective of monetary policy has allowed inflation to ease after temporary supply shocks last year. This focus will remain essential as increased volatility in foreign exchange flows poses challenges to the conduct of monetary policy.

"The government's restraint on less-essential current expenditure and continued efforts in tax revenue collection will be vital to raise public saving, provide room for poverty-reducing spending, and avoid domestic arrears. Expenditures associated with the Commonwealth Heads of Government Meeting in Kampala, floods, and peace in the North have already led to some expenditure overruns this fiscal year, and left limited space to accommodate additional budgetary pressures.

"A strong focus on public investment is needed to eliminate infrastructure bottlenecks and increase productivity. Implementation delays in donor-financed projects have led the government to explore alternative approaches to infrastructure investment and financing. Projects should be evaluated carefully in terms of their cost effectiveness and impact on debt sustainability, especially to the extent that financing may be non-concessional.

"Transparency and an appropriate balance between spending and saving will be key elements to maximize Uganda's benefits from future oil production. The government's comprehensive approach to the management of oil resources and the plans to introduce a national energy policy are encouraging steps toward these objectives," Mr. Kato said.