IMF Executive Board Completes First PSI Review for Uganda

Press Release No. 13/522
December 18, 2013

The Executive Board of the International Monetary Fund (IMF) completed today the first review of Uganda’s economic performance under the program supported by the Policy Support Instrument (PSI). The Board’s decision was taken on a lapse of time basis.1

The PSI was approved by the Executive Board on June 28, 2013 (see Press Release No. 13/78). The IMF’s framework for PSIs is designed for low-income countries 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 (see Public Information Notice No. 02/145).

Uganda’s economic recovery continues to gain momentum. Mainly driven by public investment, and supported by appropriate policies, GDP growth reached 5¾ percent in 2012/13. Supported by the recovery of private sector activity and significant public investment in the construction of two large hydropower plants and road projects, growth is expected to rise to 6¼ percent in 2013/14. Monetary policy responded to a recent drought-related food price shock in a timely manner, keeping inflation within the expected path toward the 5 percent medium-term target. Aided by an improvement in the current account deficit, international reserves remained at a level equivalent to 3.9 months of imports, maintaining a welcome buffer against the uncertain global environment.

Program performance was broadly satisfactory. All the end-June 2013 quantitative assessment criteria were met, and reforms on the structural front advanced. In particular, the first stage of the Bank of Uganda (BoU) recapitalization was completed, strengthening its balance sheet and reinforcing its independence. Actions were taken to improve public financial management practices, including the first phase of implementation of a treasury single account and the upgrading of key accounting systems. The Parliament is currently examining the Public Finance Management Bill, aimed at improving budget execution and credibility, and enhancing the reporting and accountability of public finances. However, progress on strengthening tax revenue collection has been slow. Further improvements are also required to avoid the accumulation of payment arrears and reduce the frequency of supplementary budgets.

Monetary policy, in the context of the BoU’s inflation targeting framework, struck the right balance between signaling its commitment to low inflation, avoiding excessive exchange rate volatility, and ensuring consistency with the fiscal policy stance. Ongoing institutional reforms to strengthen central bank operations and consolidate its credibility will be critical.

Fiscal policy is expected to accommodate the envisaged scaling up of public investment in infrastructure, while supporting low inflation and avoiding crowding out of private sector activity. In this context, it will be important to resist pressures for additional current spending through a strict adherence to the approved budget and financing.

The construction of two hydropower plants, Karuma and Isimba, will more than double current electricity production and address a critical structural bottleneck to growth. The increase in the non-concessional borrowing ceiling under the PSI to finance these projects is consistent with debt sustainability, and the risk of external debt distress is expected to remain low. Going forward, to minimize risks it will be important to ensure timely implementation of the projects, transparent and efficient management and an adequate cost recovery strategy.


1 The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.



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