Statement by the IMF Mission at the Conclusion of a Visit to UgandaPress Release No.11/112
April 4, 2011
An International Monetary Fund (IMF) mission visited Kampala during March 16-31, 2011 to conduct discussions for the second review under the Policy Support Instrument (PSI). The mission met with Finance Minister Bbumba, Bank of Uganda Governor Tumusiime-Mutebile, and other senior officials, as well as representatives of parliament, the private sector, civil society, and development partners.
At the conclusion of the mission in Kampala, Mr. Thomas Richardson, IMF mission chief and senior resident representative for Uganda, made the following statement:
“Following discussions over the past two weeks, the authorities and the IMF mission reached understandings ad referendum on macroeconomic and structural policies that are consistent with the objectives of the PSI. These policies seek to lay the foundation for continued macroeconomic stability while providing the fiscal space to expand needed infrastructure investment. In particular, the agreed stance of fiscal policies will aim to bring the budget back in line with the PSI. On the basis of this understanding, we expect to bring the papers on the second review of Uganda’s program supported by the PSI for consideration by the IMF Executive Board before the end of June. (The IMF Executive Board decided in February not to complete the first review of the program due to a supplementary budget passed in early January which put program objectives at risk (see Press Release No. 11/40)).
“Uganda’s economic performance continues to be strong, with real growth of 9 percent in the first half of the fiscal year, but there will be significant policy challenges in the coming months. Expansionary fiscal spending has increased the importance of rebuilding of cushions in fiscal balances and international reserves. At the same time, inflation is rising rapidly, due to both higher domestic and international food prices, rising fuel costs, exchange rate depreciation, and high rates of private sector credit growth.
“The discussions focused on forward-looking measures to enhance domestic revenues to create fiscal space for public investment in infrastructure, which is critically important for enhancing growth. Uganda’s tax revenues—at about 12½ percent of gross domestic product (GDP)—are low by regional standards and insufficient to permit the infrastructure investment needed to boost growth. Thus, measures to broaden tax bases, particularly by eliminating exemptions, are urgently needed.
“Fiscal revenues related to oil exploration and external borrowing on commercial terms will be reserved for financing large infrastructure projects with high returns to growth. These oil revenues are to be handled transparently, subject to parliamentary approval as part of the formal budget process. At the same time steps are to be taken to improve the management of public finances in order to reduce the risk of accumulating government expenditure arrears.
“Fiscal and monetary policies for 2011/12 will need to be relatively tight in order to support the Bank of Uganda’s effort to bring down inflation. It will be particularly important to reinforce the government’s expenditure commitment control system going forward, and to ensure that budgets are executed as approved, in order to prevent the accumulation of expenditure arrears.
“Looking to the medium term, the Ugandan authorities remain committed to the objectives of the PSI. Uganda has strong prospects for economic growth in the coming years, particularly if the authorities can successfully manage the macroeconomic challenges associated with Uganda’s planned acceleration in infrastructure spending.
“Finally, the mission noted that the discussions were very fruitful and frank, and it expressed gratitude the authorities for their warmth and hospitality.”