Press Release No. 08/172

Press Release: IMF Executive Board Completes Third Review Under the Policy Support Instrument for Uganda

July 10, 2008

The Executive Board of the International Monetary Fund (IMF) has completed the third 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 goals include macroeconomic stability, sustainable economic growth, poverty reduction, financial sector deepening, and improved public sector financial management.

In completing the third review under Uganda's PSI, the Executive Board approved Uganda's request for waivers of non-observance of four structural assessment criteria. The non-observance of these four criteria was largely due to adjustments in light of new information and reassessment of costs and priorities. The changes are deemed not to constitute significant deviations from program goals. The Executive Board also approved a modification of the continuous assessment criterion on external debt and three end-June 2008 quantitative assessment criteria.

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

"Uganda's economy has continued to thrive, owing to appropriate fiscal and monetary policies, improved regional stability, and its resilience to shocks. The economic outlook remains positive, supported by higher public investment in infrastructure and sound economic policies. A comfortable level of foreign exchange reserves and sufficient locally-grown food supplies are helping Uganda cope with the sharp increases in world fuel and food prices.

"A continued focus on price stability as the primary objective of monetary policy remains essential. Rising food and fuel prices have lifted Uganda's inflation to about 11 percent. The authorities have expressed their commitment to prevent any spill over into sustained higher inflation, and are adjusting monetary policies accordingly for the coming year.

"Following strong fiscal consolidation in recent years, the authorities are well-placed to scale up domestic investment to alleviate pressing infrastructure bottlenecks. Careful evaluation of the planned projects in terms of their cost effectiveness and impact on debt sustainability, especially to the extent that financing is non-concessional, is warranted. The planned restraint on current expenditure, will need to be implemented in a manner that does not give rise to new budget arrears or disruptions to key public services.

"Strengthening the authorities' focus on the long-standing problem of domestic budget arrears is essential. While clearing of old arrears is proceeding apace, accumulation of new arrears has yet to be arrested. To this end, the authorities' proposed new measures to address technical shortcomings in public financial management and to strengthen internal compliance with budget spending limits are welcome," Mr. Kato said.

The IMF's framework for PSIs is designed for low-income countries (and small island states) that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). 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 normally reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).