## cr1707 ## Source details **Canonical URL:** [cr1707](https://www.imf.org/-/media/files/publications/cr/2017/cr1707.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2017/cr1707.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2017/cr1707.pdf.json) --- ### Executive summary — background, growth, and risks - Political cycle and elections: - February 2016 presidential and parliamentary elections weighed on sentiment and contributed to fiscal slippages. - President Museveni declared winner with 61 percent of the votes; parliament and cabinet took office in June. - Authorities reiterated objective: reaching middle-income status by 2020 through infrastructure investment, agricultural growth, and private sector job creation. - Growth and external outlook: - Growth slowed marginally to 4.8 percent in FY2015/16 from 5 percent in the previous year. - Growth projected to nudge up to 5 percent in FY2016/17, supported by rising private and public investments. - Current account deficit narrowed by 1 percentage point to 5.9 percent of GDP in FY2015/16; projected to widen in FY2016/17 reflecting higher infrastructure investments. - Poverty, refugees, and social context: - Poverty rate declined from 62.2 percent in 2003 to about 34.6 percent in 2013 (international poverty line). - About 43 percent of Ugandans classified as insecure non-poor. - Uganda hosting over 922,000 refugees (about 2¼ percent of the population), about 553,000 from South Sudan; arrivals since September 2016 about 2,000 to 3,000 per day. - Near-term risks: - Adverse weather (drought risk), global/regional developments (including spillovers from South Sudan), public investment inefficiency, muted private sector sentiment. ### Program performance and IMF recommendation - Mixed implementation under the PSI: - Monetary tightening in 2015 contained inflation; BoU commenced easing in April 2016. - Lower nominal growth and election-related spending resulted in missed revenue and deficit targets; government partly relied on BoU advances. - Structural reforms progressed with delays. - Staff recommendation: - Staff recommends completing the seventh review under the PSI. - Staff supports a waiver of the non-observance of the Quantitative Assessment Criterion on the ceiling on the overall deficit of the central government on grounds the non-observance was temporary. ### Fiscal policy, public investment, and arrears - Authorities’ strategy and objectives: - Scaling up infrastructure investment seen as appropriate if accompanied by policies to safeguard debt sustainability. - Authorities aim for a prudent deficit in FY16/17, supported by a ½ percent of GDP increase in tax collections. - Fiscal targets, execution, and arrears: - Target: overall deficit to widen by ¾ percentage points to 6 percent of GDP (¼ percentage point lower than envisaged in the sixth review). - Tax policy and administration measures intended to increase revenue by ½ percent of GDP. - Preliminary stock of domestic arrears as of June 2016: 3.2 percent of GDP (text also reports reconciled arrears Ushs 1.4 trillion in June 2014 and preliminarily Ushs 2.7 trillion in June 2016). - Government to utilize a US$200 million non-concessional loan from PTA Bank to replace World Bank budget support and repay outstanding BoU advances. ### Monetary policy and inflation outlook - Monetary stance and actions: - BoU tightened policy in 2015 (CBR up 600 basis points from 11 percent to 17 percent by October 2015) and commenced easing in April 2016. - CBR reduced by 100 basis points to 13 percent in October 2016; cumulative reduction of 400 basis points since April. - Inflation and reserves: - Core inflation decelerated to 5.1 percent year-on-year in October from 7.5 percent in December 2015. - Headline inflation decelerated to 4.1 percent year-on-year from 8.4/8.5 percent peaks. - BoU accumulated about US$170 million gross international reserves to US$2.96 billion (about 4½ months of next year’s imports); NIR at end-June 2016 US$2,962 million = 4.5 months of imports; after purchases of US$249.1 million by September 2016 = 4.4 months of import cover. - Main risks to inflation outlook: - Food prices and exchange rate movements. ### Financial sector health, Crane Bank intervention, and stability measures - Banking sector indicators and developments: - Banking sector remains well capitalized though NPLs elevated. - NPLs rose to 8.3 percent in June 2016 from 4 percent a year earlier; preliminary figures show NPLs declined to 7.7 percent in September 2016. - Credit to the private sector stalled; private sector credit growth 3.1 percent year-on-year in September 2016 (text also cites 4.0 percent in some tables and projections). - BoU took over Crane Bank on October 20th 2016 (Crane Bank estimated to account for 10 percent of credit to the private sector). - Policy responses and prudential reforms: - BoU intervention considered appropriate; finding a strategic investor and swift resolution prioritized. - New cap on loan-to-value ratio (May 2016); Tier IV Microfinance Institutions Act approved July 2016. - Implementation of Basel III capital standards and macro-prudential tightening underway; introduction of Capital Conservation Buffer of 2.5 percent of RWA effective December 2016; D-SIBs to hold between 1–3.5 percent additional capital. ### Humanitarian response and refugee policy (Box 1) - Refugee protection and integration: - Uganda’s refugee policy (2006 Refugee Act) supports a “non-camp” approach granting refugees rights including the right to work, free schooling and healthcare, freedom of movement, and allocation of agricultural land. - Refugee settlement included in National Development Plan II. - Response financing and challenges: - Donor-financed programs cover training, rural livelihoods, cash-based food assistance, healthcare, WASH, and non-food items. - Refugee response plan only about 20 percent funded; local government service delivery strained; high influx likely to constrain agricultural plots and threaten food security. ### Debt Sustainability Analysis (DSA) — assessment and recommendations - Overall assessment: - Risk of external debt distress: Low. - Public gross debt projected to stabilize at about 42 percent of GDP after current investment scaling-up is completed (tables show public gross debt series and projections). - Key vulnerabilities: - Exposure to export shocks, exchange rate depreciation, low revenue base, and short maturity of domestic debt. - Debt service-to-revenue ratio described as close to 40 percent until FY2022—among highest in low-income countries. - Projections and stress tests (selected numeric highlights preserved): - Public gross debt (percent of GDP) series: 25.9 28.3 31.8 36.9 34.5 40.5 38.6 41.5 41.4 40.9 41.1 - PV of PPG external debt-to-exports sequence (selected): 68.5 (2017), 85.3 (2018), 98.4 (2019), 99.3 (2020), 100.8 (2021), 100.7 (2022) - DSA baseline growth assumptions: medium-term growth projected at about 6½ percent; oil production raises GDP by one percentage point on average during FY2023–FY2027. - Policy recommendations: - Further raise revenue-to-GDP ratio (authorities committed to increasing tax revenue by at least ½ percentage point of GDP per year). - Strengthen public investment management (rigorous feasibility studies; Appraisal User Manual to be finalized and mandatory). - Extend maturities of domestic debt (Medium Term Debt Strategy: keep average maturity above three years; target short term bills to longer term bonds ratio 30:70). - Cautious reliance on oil proceeds; maintain prudent fiscal planning. ### Program design adjustments and structural benchmarks - Program adjustments proposed: - Adjust two QACs (ceiling on overall deficit and minimum accumulation of international reserves) and a few indicative targets; reschedule some structural benchmarks; add four new structural benchmarks. - Four proposed new structural benchmarks (dates preserved): - Amend Anti-Terrorism Act to criminalize financing of terrorism — SB, end-December 2016. - Establish framework for follow-up/reporting on Auditor General’s value-for-money audit recommendations — SB, end-March 2017. - Produce manual setting national parameters, shadow prices, and conversion factors for project appraisals prior to PIP admission — SB, end-March 2017. - Prepare and submit to Cabinet a policy to regulate mobile money banking — SB, end-April 2017. ### Reporting, monitoring, and conditionality specifics - NDF (Net Domestic Financing) definition and measurement: NDF defined on a cash basis as change in net claims by banking system plus change in net claims by nonbank institutions and households; central government comprises treasury and line ministries. - QAC on NIR (Net International Reserves) of the BoU: defined as reserve assets net of short-term external liabilities; NIR limits are cumulative changes from beginning of fiscal year. - Ceiling on accumulation of new external payments arrears: zero; applies continuously relative to end-June 2016 levels. - Adjustors: NIR and overall deficit targets adjusted for deviations in projected budget support (Schedule A), inflows into Petroleum Fund (Schedule B), BoU recapitalization (Schedule C), externally financed projects (Schedule D), and other recapitalization (Schedule E) — numeric schedules preserved in the document. - Reporting requirements: detailed reporting calendar for BoU and Ministry of Finance with specified frequencies and submission lags (examples: weekly reporting of government securities and FX operations with 5 working days lag; monthly summary of central government accounts with 4 weeks lag; semi-annual reporting of arrears with 3 months lag). ### Key numeric facts and selected indicators (preserved as in source) - Real GDP (annual percentage change) series excerpt: 2.7 5.2 5.1 5.0 4.8 5.5 5.0 5.5 6.0 6.3 6.5 - Core inflation (period average) series excerpt: 6.6 4.6 3.3 6.8 6.7 5.1 4.8 4.6 4.8 5.0 5.0 - Current account balance (including grants, percent of GDP) series excerpt: -6.3 -7.6 -7.2 -9.7 -5.9 -10.7 -7.1 -8.2 -8.8 -8.9 -8.8 - Revenue and grants (percent of GDP) series excerpt: 12.7 12.6 14.2 15.7 14.9 16.2 15.9 15.9 16.1 16.2 16.5 - Expenditure (percent of GDP) series excerpt: 16.2 16.6 18.5 22.1 19.7 22.5 21.9 20.8 20.1 19.1 19.3 - Public gross debt (percent of GDP) series excerpt: 25.9 28.3 31.8 36.9 34.5 40.5 38.6 41.5 41.4 40.9 41.1 - NPLs to total gross loans (percent): 4.7 4.0 4.4 6.0 6.2 5.8 5.3 4.1 4.2 4.0 3.9 5.3 6.9 8.3 - Gross international reserves (US$ billions): 2.9 3.4 2.9 2.7 3.0 2.9 3.0 3.1 3.5 3.9 4.4 - Selected fiscal flows (Billions of Ush, annual): Total revenue and grants 12,647 (2015/16 Est.), 14,868 (2016/17 Proj.); Expenditures and net lending 16,727 (2015/16 Est.), 20,464 (2016/17 Proj.); Overall balance -4,393 (2015/16 Est.), -5,596 (2016/17 Proj.) - Key discrete figures: - BoU takeover of Crane Bank: October 20th 2016. - Crane Bank share of credit to private sector: estimated 10 percent. - China-Exim bank loans disbursed: 16.3 percent (or US$313 million) of project costs by end-June 2016. - Oil pipeline project estimated cost: US$ 3.5 billion; planned oil production target: 2020. - PSI revenue shortfalls: international trade taxes short by Ushs 44 billion; excises short by Ushs 190 billion; missed end-June IT on overall revenue Ushs 207 billion or 0.2 percent of GDP; missed QAC on overall deficit by 0.5 percent of GDP. - Government debt: 34.5 percent of GDP at end-June 2016. - Domestic securities issued: 1.6 percent of GDP (net) by June 2016. - Reconciled arrears: Ushs 1.4 trillion in June 2014; preliminarily Ushs 2.7 trillion in June 2016. - Mobile banking: over 21 million registered users. - Tax-to-GDP ratio planned increase: ½ percent. *Source: EXECUTIVE SUMMARY, cr1707 - December 16, 2016.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Background and recent developments - Political cycle and elections: - February 2016 presidential and parliamentary elections weighed on sentiment and contributed to fiscal slippages. - President Museveni was declared winner with 61 percent of the votes; parliament and cabinet took office in June. - Government objective reiterated: reaching middle-income status by 2020 through infrastructure investment, agricultural growth, and private sector job creation. - Growth and macro performance: - Growth slowed marginally to 4.8 percent in FY2015/16 from 5 percent in the previous year. - Growth projected to nudge up to 5 percent in FY2016/17, supported by rising private and public investments, but remains low relative to past performance and regional peers. - Current account deficit narrowed by 1 percentage point to 5.9 percent of GDP in FY2015/16; projected to widen in FY2016/17 reflecting higher infrastructure investments. - After a sharp depreciation in 2015, the Shilling appreciated and stabilized; international reserve coverage remains adequate. - Poverty and social context: - Poverty rate declined from 62.2 percent in 2003 to about 34.6 percent in 2013 (international poverty line). - About 43 percent of Ugandans classified as insecure non-poor; vulnerability remains high. - Uganda is hosting refugees from South Sudan through an integration model. - Private sector and other risks: - Private sector sentiment appears muted: export weakness, standstill in private sector credit expansion, increased NPLs, domestic government arrears, and arrears from South Sudan to Ugandan businesses. - Concerns of a possible drought also affect expectations. - Mission timing and meetings: - Discussions held in Kampala during October 12–26, 2016; mission met with President Museveni, Minister of Finance Kasaija, Bank of Uganda Governor Tumusiime-Mutebile, other senior government officials, and representatives from private sector, civil society, and international community. ### Performance under the PSI and program implementation - Mixed program performance: - Monetary policy tightening in 2015 helped contain inflation in the target range; Bank of Uganda (BoU) commenced an easing cycle in April. - Lower than expected nominal growth and election-related spending resulted in missed revenue and deficit targets. - Government partly relied on BoU advances for financing. - Structural reforms have progressed, albeit with many delays. - Staff recommendation: - Staff recommends completing the seventh review under the PSI. - Staff supports a waiver of the non-observance of the Quantitative Assessment Criterion on the ceiling on the overall deficit of the central government on the grounds that the non-observance was temporary. ### Fiscal policy, public investment, and debt sustainability - Authorities’ strategy and risks: - Authorities’ strategy of scaling up infrastructure investment remains appropriate, accompanied by supporting policies to safeguard debt sustainability. - Debt sustainability analysis shows a low risk of debt distress, but vulnerabilities have increased. - Authorities aim for a prudent deficit in FY16/17, supported by a ½ percent of GDP increase in tax collections. - Public investment management and arrears: - Ongoing reforms to public investment management need to ensure infrastructure spending yields the intended growth dividend. - Authorities’ emphasis on reducing domestic arrears is welcome and needs to be followed with concrete action. - Financing: - The current account deficit was fully financed in FY2015/16. ### Monetary policy and inflation outlook - Monetary stance and outcomes: - BoU successfully steering inflation; monetary policy has space for further easing. - BoU commenced an easing cycle in April after 2015 tightening. - Main risks to the outlook: - Food prices and the exchange rate are identified as the main risks to the inflation outlook. ### Financial sector and banking system - Banking sector health: - Overall, the banking sector remains well capitalized despite elevated NPLs. - Credit to the private sector has stalled; non-performing loans have increased, partly reflecting domestic government arrears. - BoU intervention: - BoU appropriately took over an under-capitalized systemically important bank; effective and swift resolution of this bank is a key priority. ### Near-term risks and downside scenarios - Key near-term risks: - Adverse weather. - Global and regional developments, including spillovers from neighboring South Sudan. - Continued problems with public investment efficiency, which would undermine growth prospects and debt sustainability. *Source: EXECUTIVE SUMMARY, cr1707 - December 16, 2016.* ### Box 1. Uganda’s Humanitarian Response ### Box 1. Uganda’s Humanitarian Response ### Refugee situation and response - Total number of refugees in Uganda is estimated at over 922,000 (about 2¼ percent of the population), of which about 553,000 come from South Sudan. - Since September 2016, arrivals have been about 2,000 to 3,000 per day, the majority women and children. - Uganda’s refugee policy provides for integration with local communities; the 2006 Refugee Act supports a “non-camp” approach and grants refugees similar rights as nationals, including: - the right to work and establish businesses, - free schooling and healthcare, - freedom of movement, - allocation of agricultural land. - Refugee settlement is included in Uganda’s National Development Plan II, linking humanitarian and development aspects. - Government contributions to refugee response have included allocations for disaster preparedness, allocation of communal land, and enrollment of child refugees in schools. - Donor-financed programs include training and rural livelihoods support, cash-based food assistance, healthcare services, provision of water, sanitation and hygiene facilities, and other essential non-food items. - Challenges from the recent surge: - Local government service delivery systems strained, partly because of shortfalls in donor funding. - Continued high influx likely to constrain available agricultural plots for refugees, potentially threatening food security and increasing reliance on humanitarian assistance. ### Real sector developments (high-level points from figures) - Growth has been stable at about 5 percent in recent years. - Leading indicators rebounding, suggesting recovery of economic activity. - After significant depreciation prior to September 2015, the Shilling appreciated and stabilized in nominal terms; effective exchange rates broadly stable. - Core inflation returned to the BoU’s target range; price movements across CPI sub-groups mirrored overall trend. ### External sector developments (high-level points from figures) - The current account deficit narrowed in FY15/16 due to a sharp drop in imports associated with public investment delays. - Capital and financial account declined with lower FDI and project loans and portfolio outflows; foreign investors’ participation in government securities recently rebounded. - Higher infrastructure investments contributed to a buildup of public and private external debt. - International reserves remained comfortable. ### Fiscal sector developments (high-level points from figures) - Tax revenues picked up and grants are recovering. - Current expenditures increased, including higher poverty-alleviating expenditures (program objective for FY15/16 met). - Overall deficit widened and public debt increased. ### Monetary and financial sector developments (high-level points from figures) - Central bank rate reduced by 400 bps since April. - Core inflation forecast stayed close to target. - Treasury bill rates declined after the elections while lending rates remain high. - High excess reserves began to decline as increased repo sales mopped up structural excess liquidity. - Banking sector remains well-capitalized; liquidity ratio far exceeds regulatory minimum. - Profitability and earnings remained solid but declined recently due to a sharp rise in nonperforming loans and provisioning costs. - Rising NPLs concentrated in agriculture, building and construction, trade and commerce, and transportation and communication. - Shilling loans stabilized; foreign currency lending continues to contract. Shilling deposits recovered; foreign currency deposits continue to decline. - Interest rate spreads increased during the tightening cycle and remained high despite easing. - FX loans-to-deposit ratio stable and persistently below regulatory norm; declining trend in FX exposure to regulatory tier 1 capital suggests the system is structurally short. ### Performance under the PSI (through end-June 2016) - Performance was mixed (MEFP, para. 11-18). - BoU kept core inflation inside its inflation target band; softer growth and election effects led to non-observances of fiscal targets that were more muted than during previous presidential elections. - Structural reforms progressed, albeit with many delays. Key numerical outcomes and developments under the PSI: - Core inflation decelerated to 5.1 percent year-on-year in October from its peak of 7.5 percent in December 2015, remaining well within the inner band of the inflation consultation clause at end-June. - Headline inflation decelerated to 4.1 percent year-on-year from its peak of 8.4 percent. - The BoU accumulated about US$170 million gross international reserves to US$2.96 billion (about 4½ months of next year’s imports), exceeding the end-June target. - Tax revenue fell short of target by 0.3 percent of GDP, reflecting lower nominal growth. - Higher than anticipated election-related spending led to an overrun of current expenditure of 0.1 percent of GDP. - The program fiscal deficit target (QAC) was missed by 0.5 percent of GDP; the government partly relied on BoU advances for financing needs. - Externally-financed development spending (including hydro power projects) was under-executed by 2.4 percent of GDP, and the overall fiscal deficit was 1.2 percent of GDP lower than anticipated, partly because the necessary domestic contribution was not budgeted for. - Preliminary estimates put the stock of domestic arrears as of June 2016 at 3.2 percent of GDP. - Two out of five structural reforms were completed on time. Additional structural and institutional notes: - Regulations for implementing the PFM Act were issued, though some key elements (e.g., management of oil revenues) were not yet incorporated. - The charter of fiscal responsibility was sent to Parliament, including measurable fiscal objectives and commitments to transparency; it could have included a requirement to explain deviations from measurable objectives. - Delays occurred in publication of quarterly reports on unpaid bills and domestic arrears; reconciled reports on the stock of domestic arrears for June 2015 and June 2016 were rescheduled to December 2016. - Delays occurred in passage of the amended Anti-Money Laundering (AML) Bill and the Insurance Regulatory Bill (relevant for exit from FATF “gray list”). - Delay in approval of Amendments to the BoU Act designed to enhance BoU’s capital and operational independence. ### Policy discussions and medium-term outlook - With elections over, authorities aim to refocus macroeconomic policies on medium-term objectives: - Fiscal policy to emphasize improving quality of spending and continued increases in domestic revenues to create space for scaled up infrastructure and preserve debt sustainability. - Monetary policy has scope for further easing if favorable inflation forecast remains in place. - Structural reform agenda to be pushed ahead, though some measures may take more time than initially hoped for. - Medium-term growth outlook remains favorable: - Authorities expect growth to reach 6½ percent over the medium-term as infrastructure bottlenecks are eased and more investments for oil production commence. - After some delays, oil production licenses have been awarded and the pipeline route through Tanzania has been agreed on. *International Monetary Fund staff summary of Box 1. Uganda’s Humanitarian Response* ### 11. While the baseline outlook is favorable, risks are tilted to the downside. As other ### 11. While the baseline outlook is favorable, risks are tilted to the downside. As other ### Risks overview - Uganda remains exposed to risks from lower global growth and trade as well as tighter global financing conditions. - Negative spillovers from the conflict in South Sudan could further weigh on exports and growth. - The growing refugee influx could entail budget pressures. - Rainfalls have been late this year, and an unfolding drought could adversely affect food security and add to fiscal pressures. - There appears to be negative sentiment in the private sector not yet captured in headline numbers, which may forewarn of a potential deterioration in economic conditions. ### A. Fiscal Policy — findings and risks - Authorities aim for a slightly tighter fiscal stance in FY16/17 compared with the sixth review and their budget to ensure Uganda remains at low risk of debt distress. - Target: overall deficit to widen by ¾ percentage points to 6 percent of GDP (¼ percentage point lower than envisaged in the sixth review). - Authorities have taken tax policy and administration measures to increase revenue collection by ½ percent of GDP. - Budgetary pressures: - Revenue collection could be lower in shilling terms due to downward revision of nominal growth. - Debt service was underestimated by about 0.2 percent of GDP and is intended to be accommodated within the existing envelope. - Authorities do not want to significantly increase reliance on bank financing, with private sector credit growth already near zero. - About 55 percent of the budget has been released in Q1 and Q2, implying strict expenditure control will be required to meet targets. - Risk: government could miss its deficit target and may have to consider additional domestic financing to avoid relying on BoU advances again. - Financing strategy: - Government will utilize a US$200 million non-concessional loan to replace World Bank budget support and repay outstanding BoU advances from FY15/16. - Loan provider: Eastern and Southern African Trade and Development Bank (PTA Bank). - Commitment: use BoU advances only for cash-flow management. - Domestic arrears: - Preliminary stock of domestic arrears reported as of June 2016; fully reconciled data to be provided by December 2016. - Specific front-loaded allocation for domestic arrears clearance in FY16/17 and additional allocations in medium-term budget framework. - Guidance issued to provide arrears repayment the first call on budgetary resources. - Technical assistance requested from AFRITAC East to improve expenditure commitment controls. ### B. Monetary Policy and Financial Stability — findings and policy stance - BoU easing cycle: - CBR reduced by 100 basis points to 13 percent in October meeting. - Cumulative reduction of 400 basis points since April. - Treasury bill rates have declined across all tenors since the elections, but CBR reductions have been slow to transmit to lending rates. - Scope for further easing guided by BoU’s inflation forecast: - BoU notes food prices subject to considerable risks from unfavorable weather; Shilling depreciation could pose inflation risks. - BoU’s inflation model (developed with Fund support) projects core inflation to converge to its target. - Staff concurs BoU may have further space to ease monetary policy if inflation outlook remains benign. - Crane Bank intervention: - BoU took over management of the third largest domestic bank after it became undercapitalized and faced deposit outflows and signs of asset stripping. - Deposit outflows have reportedly stopped; authorities aim to find a strategic investor and staff cautions considering contingency plans. - Banking sector resilience and concerns: - Most banks meet increased Basel III capital requirements. - BoU’s top-down stress tests point to sector resilience. - NPLs rose to 8.3 percent in June 2016 from 4 percent a year ago; preliminary figures show NPLs declined to 7.7 percent in September. - Rising NPLs and elevated provisioning costs have prompted tightening of lending standards; some smaller banks struggle with profitability and face social media rumors. - Government efforts to clear domestic arrears expected to reduce NPLs and improve private sector credit conditions. - Prudential oversight enhancements: - New cap on loan-to-value ratio in May 2016 to address real estate lending vulnerabilities. - Commissioned international firm to study mobile money industry and recommend supervisory strengthening. - Regional stress tests conducted and cross-border operations assessed. - Parliament approved Tier IV Microfinance Institutions Act in July 2016 to support a Microfinance Regulatory Authority. ### C. Financial Sector Development and Inclusion — reforms and indicators - Primary dealer review: authorities reviewing which banks should act as primary dealers due to underperformance affecting the secondary market. - BoU developing a master repo agreement to deepen the interbank market. - Passage of the Amended Financial Institutions Act in 2016 allows Agency Banking, bancassurance, and Islamic banking to enhance financial inclusion. - Regulations for Agency Banking expected to be approved by the Ministry of Finance later this year. - Draft regulations for bancassurance shared with industry for review. - Draft regulations for Islamic Banking under review with support from the Islamic Development Bank. - Mobile banking: over 21 million registered users. - A comprehensive regulatory framework for mobile money is under preparation (proposed new structural benchmark). - Consumer protection: - BoU enforces financial protection guidelines through annual onsite inspections and promotes financial literacy programs. - Banks required to issue key financial facts to consumers for all loan products at inception and upon contractual changes. ### D. Debt Sustainability — assessment and priorities - Debt Sustainability Analysis (DSA, Annex 2) shows low risk of debt distress but increased vulnerabilities. - Authorities acknowledge vulnerability to export shocks and emphasize importance of realizing the envisaged growth dividend. - Public debt projection: public debt would stabilize at about 42 percent of GDP after current investment scaling-up is completed. - Revenue mobilization: - Authorities committed to increasing tax revenue by at least ½ percentage point of GDP per year. - Request for FAD technical assistance on tax policy to assess priority reforms. - Staff suggests monitoring tax expenditures and their effectiveness. - Footnote: A 2014 FAD report on Value-Added Tax finds improving compliance and achieving regional average tax efficiency can help Uganda collect about 2–2½ percent of GDP. - Public investment management: - Authorities concerned about persistent investment under-execution; will require more rigorous feasibility studies and ensure required budget allocations for counterparty funding before loans contracted. - Aim to finalize an Appraisal User Manual by December and make it mandatory for all new projects (structural benchmark). - Requested FAD technical assistance to set reform priorities in public investment management. - Debt monitoring and PPPs: - PPP unit created at the Ministry of Finance, but sufficient resources yet to be provided. - Authorities establishing system for monitoring borrowing by government agencies and state-owned enterprises. - Staff encourages use of Fund or development partner technical assistance. ### E. Program Design — adjustments and structural benchmarks - Authorities propose program changes reflecting FY15/16 developments and a more muted outlook: - Overall program objectives remain, including raising revenue yield by ½ percent of GDP. - Propose to adjust two QACs (ceiling on the overall deficit and minimum accumulation of international reserves) and a few indicative targets for the remainder of the program. - Propose to reschedule structural benchmarks requiring more time. - Four proposed new structural benchmarks (SBs): - Ministry of Finance to liaise with Parliament to amend the Anti-Terrorism Act to adequately criminalize the financing of terrorism (SB, end-December 2016). - Ministry of Finance to establish a framework for following up and reporting on implementation of recommendations of value-for-money audits by the Auditor General’s office (SB, end-March 2017). - Ministry of Finance to produce a manual setting out national parameters, shadow prices, and conversion factors for all economic project appraisals prior to admission into the Public Investment Plan (SB, end-March 2017). - Ministry of Finance and BoU to prepare and submit to Cabinet a policy to regulate mobile money banking (SB, end-April 2017). ### Staff appraisal — evaluation and recommendations - Performance in election year: - Fiscal slippages contained compared with 2011 election; inflation kept close to target. - Growth at 5 percent—2 percent in per-capita terms—falls short of past performance and aspirations and seems insufficient to shake negative sentiment. - Scaling up of infrastructure investment should be combined with investments in human capital and improvements in the business environment. - Staff commends Uganda for hosting refugees and calls on the international community to provide financial assistance. - Program performance through June 2016: - Stable inflation and build-up of international reserves are welcome; poverty-alleviating expenditures protected. - Fiscal slippages partly reflect lower nominal growth. - Expenditure composition worsened as externally financed development spending fell short and current, less productive expenditure increased. - Points to weaknesses in budget and public investment management. - Staff supports modification of QACs, rescheduling of some SBs, and addition of proposed new SBs. - Policy objectives and cautions: - Staff welcomes FY16/17 policy objectives: inflation outlook permitting monetary easing; fiscal policy focused on increasing revenue by ½ percent of GDP while containing expenditures. - Achieving expenditure restraint will be difficult given line ministries’ budgeting for domestic component of development spending. - Staff encourages finalizing reporting of domestic government arrears and holding accounting officers responsible for arrears avoidance. - Staff cautions that new policy proposals must be accommodated without undermining revenue mobilization and debt sustainability. - BoU intervention and supervision: - BoU intervention in a systemically important bank was appropriate; search for strategic investor begun and contingency plans advised. - Review of the episode could yield lessons for bank supervision. - Implementation of Basel III capital standards and tightening macro-prudential standards should enhance sector resilience. - AML/CFT and legal reforms: - Authorities cooperating closely with FATF to ensure swift exit from “gray list.” - Necessary legal changes to the Anti-Terrorism Act, the AML Law, and the Insurance Act are under way and require deep engagement with parliament. - Staff calls on authorities to submit amendments to the BoU Act to parliament to strengthen the central bank’s ability to deliver on its mandate. - DSA implications and recommendations: - DSA underscores importance of further raising revenue-to-GDP ratio and ensuring public investment yields intended growth dividend. - Government could consider a more ambitious path of domestic revenue mobilization to mitigate vulnerabilities highlighted by shock scenarios. - Strengthening public investment management is instrumental to ensure projects are properly prepared, vetted, consistent with priorities, and executed efficiently. - Staff encourages authorities to speed up reforms in public investment management. *IMF staff appraisal and program assessment as presented in the provided chapter.* ### 37. Staff recommends completion of the seventh review of the PSI-supported program. The ### cr1707 - 37. Staff recommends completion of the seventh review of the PSI-supported program. The ### Program recommendation and conditional waiver - Staff recommends completion of the seventh review of the PSI-supported program. - The attached MEFP outlines the macroeconomic objectives and policies for the remainder of the program period. - Staff supports a waiver of the nonobservance of the ceiling on the overall deficit of the central government on the grounds that the non-observance was temporary. ### Macroeconomic outlook: output, prices, and exchange rate - Real GDP (annual percentage change): 2.7 5.2 5.1 5.0 4.8 5.5 5.0 5.5 6.0 6.3 6.5 - GDP deflator (annual percentage change): 6.1 3.4 5.1 7.6 4.0 4.4 5.1 4.7 4.8 4.8 3.8 - CPI (period average): 5.0 5.2 3.0 7.3 6.6 5.5 5.4 4.8 4.9 5.0 5.0 - Core inflation (period average): 6.6 4.6 3.3 6.8 6.7 5.1 4.8 4.6 4.8 5.0 5.0 - Terms of trade ("–" = deterioration): -8.2 4.7 18.8 2.5 5.0 -2.8 -0.3 -1.3 -1.0 -1.1 -0.9 - Exchange Rate (Ugandan Shilling/US$): 1.3 -2.0 11.4 ... 21.8 .................. - Real effective exchange rate ("–" = depreciation): 3.3 7.8 -3.7 ... -7.2 .................. ### Fiscal stance and central government operations - Revenue and grants (percent of GDP): 12.7 12.6 14.2 15.7 14.9 16.2 15.9 15.9 16.1 16.2 16.5 - Of which: grants (percent of GDP): 1.4 1.0 1.2 1.7 1.4 1.8 1.8 1.4 1.2 0.7 0.6 - Expenditure (percent of GDP): 16.2 16.6 18.5 22.1 19.7 22.5 21.9 20.8 20.1 19.1 19.3 - Current expenditures (percent of GDP): 9.0 9.5 9.9 10.7 10.8 10.4 10.4 10.3 10.3 10.3 10.1 - Capital (percent of GDP): 6.5 7.0 8.0 11.0 8.5 11.3 11.0 10.3 9.7 8.7 9.1 - Primary balance (percent of GDP): -2.1 -2.6 -2.7 -4.4 -2.8 -4.1 -3.6 -2.3 -1.2 -0.2 -0.2 - Overall balance (percent of GDP): -3.2 -3.5 -4.4 -6.4 -5.2 -6.2 -6.0 -4.9 -4.0 -2.9 -2.7 - Overall balance excluding grants (percent of GDP): -4.7 -4.5 -5.6 -8.1 -6.5 -8.1 -7.8 -6.2 -5.2 -3.6 -3.3 - Net domestic borrowing (percent of GDP): 1.0 2.2 3.2 1.6 2.2 0.9 0.7 1.0 0.3 0.0 0.6 ### Public debt and composition - Public gross debt (percent of GDP): 25.9 28.3 31.8 36.9 34.5 40.5 38.6 41.5 41.4 40.9 41.1 - External (percent of GDP): 15.0 15.8 18.5 23.2 20.9 27.1 25.0 28.1 29.1 29.9 30.5 - Domestic (percent of GDP): 10.9 12.5 13.3 13.8 13.7 13.5 13.6 13.4 12.3 11.1 10.6 ### Investment and savings - Investment (percent of GDP): 27.8 26.7 24.3 27.5 24.7 28.8 27.8 29.1 30.7 30.7 31.5 - Public investment (percent of GDP): 6.5 7.0 8.0 8.9 8.5 9.2 11.0 10.3 9.7 8.7 9.1 - Private investment (percent of GDP): 21.3 19.7 16.3 18.6 16.2 19.6 16.8 18.8 21.0 22.1 22.4 - Savings (percent of GDP): 21.2 18.8 16.8 17.3 18.4 17.9 20.4 20.6 21.1 21.6 22.3 ### External sector and reserves - Current account balance (including grants, percent of GDP): -6.3 -7.6 -7.2 -9.7 -5.9 -10.7 -7.1 -8.2 -8.8 -8.9 -8.8 - Current account balance (excluding grants, percent of GDP): -6.6 -7.9 -7.5 -10.1 -6.3 -11.0 -7.4 -8.5 -9.6 -9.1 -9.2 - Exports (goods and services, percent of GDP): 20.2 18.2 18.1 20.4 18.2 19.4 19.0 19.5 20.5 21.2 21.9 - Imports (goods and services, percent of GDP): 30.3 27.9 28.8 32.0 28.6 31.5 29.5 30.0 31.2 31.2 32.0 - Gross international reserves (US$ billions): 2.9 3.4 2.9 2.7 3.0 2.9 3.0 3.1 3.5 3.9 4.4 - Gross official reserves (US$ millions, Table 4 memorandum): 2,912 3,394 2,895 2,745 2,962 2,910 2,980 3,101 - Months of imports of goods and services (Table 4 memorandum): 4.5 5.1 4.9 3.9 4.6 4.0 4.2 4.0 ### Monetary accounts and financial sector indicators - Broad money (M3) annual percentage change (memorandum): 6.6 17.4 15.9 15.5 7.1 12.9 5.8 17.4 - Credit to the private sector (annual percentage change, memorandum): 6.4 13.9 20.4 16.2 4.0 16.2 8.3 15.0 - M3-to-GDP ratio (percent): 18.6 20.1 21.1 22.5 20.7 23.0 19.8 21.1 - Base money (end-period stock, Billions of Ush): 3,545 4,092 5,053 5,893 5,651 6,570 5,711 6,127 - Net foreign assets (BoU, Billions of Ush): 8,305 9,455 10,092 10,309 10,642 11,137 11,411 12,629 - Money and quasi-money (M3, Billions of Ush): 12,047 14,142 16,389 18,937 17,557 21,376 18,575 21,814 - Gross reserves of BoU (US$ millions): 2,912 3,394 2,895 2,745 2,962 2,910 2,980 3,101 ### Banking sector indicators (selected) - Regulatory capital to risk-weighted assets (percent): 24.5 24.3 23.1 22.1 23.6 22.8 22.5 22.2 23.2 21.2 19.7 21.0 21.8 21.7 - NPLs to total gross loans (percent): 4.7 4.0 4.4 6.0 6.2 5.8 5.3 4.1 4.2 4.0 3.9 5.3 6.9 8.3 - Return on assets (percent): 3.6 3.3 3.2 2.0 2.4 2.1 2.2 2.6 2.5 2.8 2.7 2.6 2.8 2.2 - Return on equity (percent): 21.0 20.4 18.9 12.4 14.2 12.8 13.1 16.0 15.6 17.7 17.2 16.0 16.8 13.8 - Net interest margin (percent): 12.5 12.2 11.8 11.6 11.4 11.5 11.3 11.0 11.0 10.9 11.0 11.3 11.6 11.9 - Liquid assets to total deposits (percent): 42.7 41.1 40.6 42.5 45.4 46.5 41.8 44.0 44.2 46.4 46.0 46.4 42.5 43.4 ### Fiscal quarterly dynamics (selected flows, FY2015/16–FY2016/17) - Total revenue and grants (Billions of Ush, annual): 12,647 (2015/16 Est.), 14,868 (2016/17 Proj.) - Revenue (Billions of Ush, annual): 11,500 (2015/16 Est.), 13,150 (2016/17 Proj.) - Tax revenue (Billions of Ush, annual): 10,833 (2015/16 Est.), 12,424 (2016/17 Proj.) - Expenditures and net lending (Billions of Ush, annual): 16,727 (2015/16 Est.), 20,464 (2016/17 Proj.) - Current expenditures (Billions of Ush, annual): 9,169 (2015/16 Est.), 9,710 (2016/17 Proj.) - Development expenditures (Billions of Ush, annual): 5,907 (2015/16 Est.), 9,054 (2016/17 Proj.) - Overall balance (Billions of Ush, annual): -4,393 (2015/16 Est.), -5,596 (2016/17 Proj.) - Underlying balance (excl. one-off spending, Billions of Ush, annual): -2,466 (2015/16 Est.), -3,315 (2016/17 Proj.) ### Capital flows and balance of payments (selected) - Current account (US$ millions, annual): -1,582 -2,105 -1,971 -2,357 -1,452 -2,850 -1,884 -2,316 - Trade balance (US$ millions, annual): -2,123 -2,367 -2,250 -2,169 -1,870 -2,505 -2,183 -2,416 - Exports, f.o.b. (US$ millions, annual): 2,912 2,706 2,738 2,687 2,705 2,691 2,865 3,149 - Of which: coffee (US$ millions): 423 404 400 342 352 308 388 457 - Imports, f.o.b. (US$ millions, annual): -5,035 -5,074 -4,988 -4,856 -4,575 -5,196 -5,048 -5,565 - Of which: oil (US$ millions): -1,028 -1,090 -933 -671 -647 -641 -743 -811 - Of which: government (US$ millions): -438 -361 -224 -644 -494 -489 -585 -597 - Capital and financial account (US$ millions, annual): 1,519 1,793 1,170 2,218 1,025 3,018 1,906 2,438 - Foreign direct investment (US$ millions, annual): 940 1,096 870 1,055 512 1,132 567 1,268 - Loan disbursements (US$ millions, annual): 617 403 385 1,294 807 1,540 1,499 1,303 - Amortization due (US$ millions, annual): -76 -83 -90 -98 -93 -112 -106 -212 ### Key policy and program implications - Staff supports a waiver for the temporary non-observance of the overall deficit ceiling, enabling completion of the seventh review. - The MEFP attached to the review sets out macroeconomic objectives and policies for the remainder of the program period, reflecting fiscal consolidation objectives amid elevated public investment and external financing needs. - Fiscal risks highlighted by the composition and scale of public investment (notably hydropower projects and externally-financed projects) and the role of non-concessional borrowing in development financing. - Monetary and financial sector indicators show adequate capital ratios and liquidity buffers alongside rising NPLs in recent periods, underscoring continued vigilance on asset quality and bank capitalization. *Sources: Ugandan authorities and IMF staff estimates and projections.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Program overview and commitment - Update on progress under the IMF’s Policy Support Instrument (PSI) as of November 22, 2016. - Government remains committed to objectives described in the context of the 6th PSI review and requests completion of the seventh review under the PSI. - Commitment to implement measures to increase the tax-to-GDP ratio by ½ percent and to protect the quality and composition of expenditure within a tight envelope. - Bank of Uganda continues to target core inflation of 5 percent. - Government requests publication of the staff report, the letter of intent, the MEFP and the TMU for the seventh review under the PSI. ### Recent economic developments and outlook - Growth and composition: - Growth was 4.8 percent in FY2015/16, slightly below 5 percent in the previous fiscal year. - Key contributing sectors: services (especially information and communication services), agriculture, and construction; manufacturing experienced a notable slowdown. - Infrastructure and financing: - Construction underway on Karuma and Isimba hydro-power projects and the Kampala-Entebbe Express Highway. - China-Exim bank loans disbursed to 16.3 percent (or US$313 million) of project costs by end-June 2016. - External environment and oil sector: - Continued adverse effects from developments in South Sudan: hosting refugees, lower exports to South Sudan, decline in remittances, and unpaid bills affecting Ugandan traders. - Progress toward oil production in 2020: eight production licenses issued; pipeline route decided through Tanzania to the port of Tanga; pipeline project estimated to cost US$ 3.5 billion and to be financed by the private sector. - Negotiations with the strategic investor for the planned oil refinery were called off; alternatives are being explored. - National oil company and Petroleum Authority established. - Balance of payments and exchange rate: - Current account deficit including grants improved to 5.9 percent of GDP in FY2015/16. - Overall balance of payments recorded a surplus of US$ 95 million leading to a net build up in reserves. - After an annual average depreciation of nearly 25 percent in 2015, the shilling appreciated by 7.8 percent against the U.S. dollar on a year-on-year basis in September 2016. - BoU continued daily purchases of foreign exchange for reserve build up; recent sharp depreciation pressures seen following rebound in corporate demand. ### Financial sector and banking stability - Private sector credit and lending: - Private sector credit growth decelerated to 3.1 percent year-on-year in September 2016. - Foreign currency lending year-on-year growth was minus 1.9 percent in September 2016 (relative to 3.1 percent growth in June 2015, both adjusted for valuation changes). - Local currency lending began recovering after bottoming out in March 2016. - Lending to electricity and water and personal and household loans increased; lending to manufacturing, trade, building and construction and business services was minimal. - Non-Performing Loans (NPLs) and system resilience: - NPLs as a ratio of gross loans increased from 4.0 per cent in June 2015 to a peak of 8.3 percent at end-June 2016, declining to 7.7 percent at end-September 2016. - Survey-identified drivers of NPLs: government domestic arrears, diversion of borrowed funds, political instability in South Sudan, insufficient cash flows from slower economic activity, fraudulent practices, increased cost of borrowing after monetary tightening, and foreign exchange volatility affecting foreign currency borrowers. - Stress tests indicate system resilience to shocks, including an increase in industry average NPL ratio to 12.6 percent and other severe scenarios. - Bank of Uganda intervention: - BoU took over management of Crane Bank on October 20th 2016; Crane Bank was the fourth largest overall and the third largest domestic systemically important bank (D-SIB). - Crane Bank was undercapitalized following a significant increase in NPLs; statutory manager appointed and Board of Directors suspended. - Crane Bank accounted for an estimated share of credit to the private sector of 10 percent; its predicaments will likely constrain further private sector lending in FY2016/17. - New management is seeking a strategic investor. ### Monetary policy and inflation - Monetary tightening and easing: - In 2015, BoU tightened monetary policy by 600 basis points from 11 percent in March 2015 to 17 percent in October 2015. - As inflation moderated and demand remained subdued, BoU reduced its Central Bank Rate (CBR) in April, June, and August 2016. - In October 2016, BoU reduced the CBR by 100 bps to 13 percent. - Inflation developments: - Annual average headline inflation declined to 4.1 percent in October 2016 from a peak of 8.5 percent in December 2015. - Core inflation declined to 5.1 percent from 7.5 percent over the same period. - Core inflation is converging to the target and remained within the bands of the inflation consultation clause. ### External reserves - Net international reserves (NIR): - At end-June 2016, NIR stood at US$ 2,962 million, equivalent to 4.5 months of imports of goods and services. - By September 2016, after BoU purchases of US$ 249.1 million, the stock was equivalent to 4.4 months of import cover. - QAC for net international reserve accumulation was met with a comfortable margin. ### Fiscal performance and public finances - Revenue and expenditure execution: - Revenue shortfalls and higher-than-expected election-related expenditures affected fiscal outcomes. - PSI-target shortfalls: international trade taxes underperformed by Ushs 44 billion; excises underperformed by Ushs 190 billion. - VAT collections remained on target; income tax exceeded PSI projections by around Ushs 30 billion. - Infrastructure levy slightly underperformed. - End-June indicative target (IT) on overall revenue missed by Ushs 207 billion or 0.2 percent of GDP. - IT on poverty reducing expenditure was met and protected. - Overall fiscal balance and financing: - End-June 2016 QAC on the overall deficit was missed by 0.5 percent of GDP, despite the overall deficit being 1.2 percent of GDP lower than anticipated at the time of the last PSI review. - Government debt at 34.5 percent of GDP at end-June 2016 is lower than expected under the program due to under-spending on externally financed projects. - In the first quarter of FY2016/17, the deficit IT was not respected given frontloading of expenditures including repayment of arrears and softer revenue collection. - Domestic financing: issued domestic securities of 1.6 percent of GDP on a net basis by June, exceeding program forecast; took a temporary advance from BoU which could not be fully repaid by end-June 2016 and will be repaid during the financial year, leading to a missed related IT. - Government domestic arrears: - Reconciliation exercise indicates arrears were Ushs 1.4 trillion in June 2014 and, preliminarily, Ushs 2.7 trillion in June 2016. - Increase in arrears driven by methodological issues (new reporting entities), formalization of a commitment to pay pensions and gratuity for veterans (nearly half of the increase), increase in court awards and compensation, outstanding commitments of National Medical Stores, and VAT arrears amounting to Ushs 71 billion under the Ministry of Finance Planning, and Economic Development. - Government resuming semi-annual arrears reporting and monitoring. ### Structural reforms and governance measures - Public financial management and accountability: - PFM Act regulations were gazetted in June 2016; treasury instructions under preparation to cover detailed aspects of financial management and accountability. - Charter of Fiscal Responsibility submitted to Parliament to set clear fiscal objectives and enhance fiscal transparency. - Appraisal User Manual finalized and expected to be published and disseminated to all Ministries, Departments and Agencies by end-December 2016 (structural benchmark). - Development Committee Guidelines updated and to be published by end-December 2016 to ensure compliance with the Appraisal User Manual (structural benchmark). - Exercise to reconcile domestic arrears data practically completed. - Central bank and legal framework: - Amendments to the Bank of Uganda Act under preparation to strengthen central bank independence; cabinet memorandum prepared and to be presented to Cabinet and Parliament by March 2017 (structural benchmark). - Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT): - Working with the Financial Action Task Force to exit the “gray” list; expect to approve remaining legislative amendments by end-December 2016 to allow an on-site visit early in 2017 and Uganda’s potential exit from the list in June 2017. - AML Amendment Bill 2016 re-published and recommitted to the new Parliament in October 2016 for discussion and approval by end-December 2016. - Amended AML Act to expand record-keeping requirements to all financial institutions and designate supervisory bodies with enforcement powers, including proportionate and dissuasive sanctions. - Other legislative measures: - Insurance Regulatory Authority (amendment) Bill resubmitted to the First Parliamentary Council and expected to be considered and approved by Parliament by end-December 2016. - Anti-Terrorism Act amended to properly criminalise financing of terrorism and submitted to Parliament for approval; government will engage with Parliament to ensure passage by end-December 2016 (structural benchmark). ### Key statistics and exact figures cited - Growth: 4.8 percent in FY2015/16; 5 percent in previous fiscal year. - China-Exim bank loans disbursed: 16.3 percent (or US$313 million) of project costs by end-June 2016. - Private sector credit growth: 3.1 percent year-on-year in September 2016. - Foreign currency lending growth: minus 1.9 percent in September 2016 (year-on-year, adjusted for valuation changes). - NPLs ratio: 4.0 per cent in June 2015; peak 8.3 percent at end-June 2016; 7.7 percent at end-September 2016. - Stress-test NPL scenario: industry average NPL ratio to 12.6 percent. - Crane Bank takeover date: October 20th 2016. - Crane Bank share of credit to private sector: estimated 10 percent. - Current account deficit including grants: 5.9 percent of GDP in FY2015/16. - Overall balance of payments surplus: US$ 95 million in FY2015/16. - Exchange rate movement: annual average depreciation nearly 25 percent in 2015; shilling appreciated by 7.8 percent year-on-year in September 2016. - Monetary policy tightening in 2015: 600 basis points from 11 percent to 17 percent. - Headline inflation: 4.1 percent in October 2016 from 8.5 percent in December 2015. - Core inflation: 5.1 percent in October 2016 from 7.5 percent. - Central Bank Rate (CBR) after October 2016 reduction: 13 percent (reduced by 100 bps in October 2016). - Net international reserves (NIR): US$ 2,962 million at end-June 2016 = 4.5 months of imports; after purchases of US$ 249.1 million by September 2016 = 4.4 months of import cover. - PSI revenue shortfalls: international trade taxes short by Ushs 44 billion; excises short by Ushs 190 billion; infrastructure levy slightly underperformed; income tax exceeded projections by around Ushs 30 billion. - Missed end-June indicative target (IT): Ushs 207 billion or 0.2 percent of GDP. - Missed end-June fiscal deficit QAC by: 0.5 percent of GDP. - Government debt: 34.5 percent of GDP at end-June 2016. - Domestic securities issued: 1.6 percent of GDP (net) by June 2016. - Reconciled arrears: Ushs 1.4 trillion in June 2014; preliminarily Ushs 2.7 trillion in June 2016. - VAT arrears under the Ministry of Finance Planning, and Economic Development: Ushs 71 billion. - Oil pipeline project estimated cost: US$ 3.5 billion. - Planned oil production target: 2020. - Tax-to-GDP ratio planned increase: ½ percent. *Source: Appendix I. Letter of Intent, Memorandum of Economic and Financial Policies (Uganda), November 22, 2016.* ### 19. Real GDP growth is projected at about 5 percent, on account of the continuation of the ### 19. Real GDP growth is projected at about 5 percent, on account of the continuation of the infrastructure investments and a muted recovery in private sector demand. ### Short-term outlook and key macro projections - Real GDP growth is projected at about 5 percent, on account of the continuation of the infrastructure investments and a muted recovery in private sector demand. - Inflation is projected to remain close to its medium term target on account of a relatively stable exchange rate and lower commodity prices especially oil. - Current account deficit is anticipated to widen as a result of subdued exports (partly because of the strife in South Sudan) and low international prices of export commodities, while import levels remain high (particularly intermediate input and government infrastructure related imports). - International reserves: projected to remain adequate at around 4 months of import cover. - Private sector credit: expected to recover to about 8 percent, following monetary policy easing. - Exchange rate: projected to remain relatively stable. ### Medium-term outlook - Expected start of oil production in FY2020/21, together with the growth dividend from completion of infrastructure investment projects, are projected to improve Uganda’s growth prospects and fiscal and current account dynamics. ### Risks to the outlook - Global: slow recovery in global growth, low commodity prices, and continued unease in financial markets could reduce export growth and impact direct investment and financing flows. - Domestic and regional: implementation challenges for public investment projects; sustained foreign exchange demand for infrastructure projects; widening current account position; civil strife in South Sudan; volatile global financial markets. - Exchange rate risks from sustained external pressures. ### Policies for the remainder of FY2016/17 and beyond — overarching strategy - Macroeconomic policies aim at ensuring macroeconomic stability and enhancing sustainable growth. - Medium term strategy based on: scaling up infrastructure investment; protecting essential poverty-alleviating expenditure; increasing production and productivity; enhancing domestic revenue mobilization. - Structural reforms to improve the business environment to support private sector growth. - Fiscal sustainability and maintaining government debt at a low risk of distress are the anchor of the growth strategy. ### Fiscal policy — strengthening revenue mobilization - Revenue performance in Q1 FY2016/17 underperformed due to weaker import demand; corporation tax, withholding tax, VAT on services, and excise duties on sugar, soft-drinks and imports were below targets in the first two months, but overall collections for September recorded a surplus relative to projections. - Government implementing tax policy measures to yield the agreed revenue increase of at least Ushs 500 billion at the time of the 6th review. Measures include adjustments in excise duty on fuel, motor vehicle lubricants, cement, sugar, and various other fees and levies. - Two measures (increases in excise duty on cement and the environmental levy on used clothing) were rejected by Parliament and not implemented. - Compensatory administrative measures: boosting public sector office operations, strengthening valuation controls, debt collection, joint compliance activities with local government, further expansions to single customs territory activities, close monitoring of current declarations. - Business licensing reforms reduced time to register a business from 33 days in 2013 to 24 hours. - Uganda’s ranking in the World Bank Doing Business report improved seven positions in 2016. - Tax Registration Enhancement Programme: four institutions (Uganda Revenue Authority (URA), Uganda Registration Services Bureau (URSB), Kampala Capital City Authority (KCCA), and the National Social Security Fund (NSSF)) collaborate to provide TIN, trading license and NSSF registration upon business registration. - Government committed to further tax policy and administration reforms consistent with target of increasing revenue by 0.5 percent of GDP per year; committed to reducing scope of tax exemptions and tax holidays while balancing private sector development and welfare. - Joined the Addis Tax initiative to signal commitment to stepping up domestic revenue mobilization and policy coherence. ### Expenditure — efficiency, quality, and reprioritization - First half of the year: frontloaded significant expenditure to clear domestic arrears, meet counterpart financing obligations under roads and energy and social services; overall budget implementation reached 52 percent, particularly in development and Poverty Action Fund (PAF) related expenditures. - Target for remaining fiscal year: annual budget execution rate of 96 percent; implement cuts to non-essential nonwage recurrent expenditure (travel inland, travel abroad, workshops and seminars, advertising) while protecting poverty-reducing expenditure and counterpart funding under domestic development. - Accommodation of additional demands of about Ushs 100 billion for an unfolding food emergency in 80 districts. - Infrastructure priorities: Karuma and Isimba dams, roads, rehabilitation of Entebbe airport; strengthen public investment management through guidelines on appraisal, sequencing and implementation. - Social and human capital: plan to devote 21.5 percent of the budget to health and education, targeting primary health care, funding for malaria and HIV/AIDs, and the school capitation grant. - New Integrated Early Childhood Development policy launched targeting children from conception to 8 years, covering prenatal and postnatal care, early infant stimulation and education, parent education, health and nutrition education and care, sanitation, and protection against abuse, exploitation and violence — priority on most vulnerable children. ### Social protection and employment - Poverty Assessment Report (2016): 46 percent of Uganda’s population is insecure non-poor and prone to fall back into poverty when hit by a shock. - Social protection investments include: - Identification, verification, and payments of pensions, including pension arrears. - Social Assistance Grant for Empowerment (SAGE) — direct cash transfers to the elderly in pilot districts; allocated additional resources. - Continued funding for the Youth Livelihood Programme through allocations of Ushs 85.2 billion. - Uganda Women Entrepreneurship Programme (UWEP) (Ushs 43 billion) rolled out in 19 districts and Kampala City as a pilot to benefit vulnerable women. - Skills development program implemented to create employable skills and competencies and enhance private sector participation in policy development, implementation, monitoring and evaluation including financing and training. - Service delivery improvements guided by the national social service delivery atlas (Ministry of Finance, UNICEF and EPRC) to focus on processes, contexts and determinants of delivery. - World Bank froze lending for new projects (disbursements for ongoing projects continue), affecting the Development Policy Support Loan included in the current fiscal year budget; government working with World Bank to resolve issues and taking social safeguard measures (completing outstanding Resettlement Action Plans (RAPs), adopting a policy on Gender-Based Violence (GBV) and Child Abuse, developing an emergency protection response). - Enhanced portfolio review with development partners and strengthened capacity of implementing agencies in project supervision, contract management and monitoring. ### Refugee situation - Refugee population around 922,000 with about 2000 to 3000 arrivals a day, placing mounting pressures on local government service delivery and possibly the budget. - Uganda’s refugee management system provides refugees with the same rights as nationals (access to health, education, provision of land and right of establishment). - Refugee response plan is only about 20 percent funded; urgent need for international community contributions. ### Financing strategy and debt management - Advances received from BoU in FY2015/16 were not fully repaid by end-June 2016; government plans phased reimbursement during quarter two and three of FY2016/17. - Temporary advances from the BoU will only be used for cash management purposes and not exceed 10 percent of projected revenue (as stated in the PFM Act), and will be repaid before the end of the current fiscal year; such advances will bear an interest cost aligned with market rates (BoU Act 2000). - Planned financing: domestic, concessional and non-concessional loans. Non-concessional financing includes the PTA loan amounting to US$ 200 million planned to be disbursed this fiscal year; increase domestic debt issuances by Ushs 300 billion. - Core principle: keep debt at low risk of distress through long-term prudent debt management (Medium Term Debt Management Framework aims at minimizing costs and risks associated with public investment project financing). - Updated Debt Sustainability Analysis (DSA) results show that debt remains at low risk of distress, but sustaining this position requires improving GDP, revenue, and exports to minimize risks from weak exports and contingent liabilities (including PPPs). Government will closely monitor developments and adjust policies as needed. ### Monetary and financial sector policies - BoU policy stance guided by its inflation forecast to determine whether the easing cycle can continue; risks to inflation forecasts include exchange rate path, food price dynamics, fiscal prudence, global financial market uncertainty following the UK vote to leave the EU, and evolution of commodity prices (especially oil). - BoU committed to avoiding excessive exchange rate volatility while allowing the real exchange rate to reflect market conditions; interventions will be limited to preventing excessive volatility and will continue to be sterilized. BoU will seek opportunities to purchase foreign exchange for reserve build up. - BoU recapitalization: Ushs 100 billion in Q2 of FY2016/17 to facilitate monetary policy management. - Following expected amendments to the Bank of Uganda Act, a dynamic capital rule will be introduced to maintain capital as a share of monetary liabilities. - Structural liquidity: excess structural liquidity requires sterilization; plan to reactivate deposit auctions alongside repos for liquidity management. - Financial sector monitoring: asset quality deterioration expected to remain a short-term concern; Crane Bank takeover by BoU impacted market sentiment; banks remain well capitalized and able to absorb losses. - New capital requirement provisions (effective December 2016): Capital Conservation Buffer (CCB) of 2.5 percent of Risk-Weighted Assets (RWA) above minimum capital requirements for all banks; D-SIBs to have additional capital of between 1–3.5 percent of RWA above minimum capital requirements and CCB. Sector on track to meet these requirements. - Request for support to conduct an updated FSAP analysis to draw lessons and strengthen the financial sector. - Reforms in primary dealership system: requirements for posting two-way quotes for on-the-run securities (quotes good for Ushs 250 million); ability for banks to open CSD accounts for clients directly through the Primary Dealer Shared Gateway (PDSG); submit and settle bids for clients as well as proprietary bids. - Adoption of a globally recognized Global Master Repurchase Agreement (GMRA) with a Uganda annex and a buy/sell back annex. - Financial Institutions Act (FIA) amended in 2016 to allow agent banking, bancassurance and Islamic banking. Tier IV Microfinance Institutions Act passed to provide oversight for SACCOs, Money Lenders and Micro Finance Institutions. - Consumer protection: SFIs required to provide a key facts document to consumers; complaints desk set up at BoU and review of consumer complaints during on-site examinations. - Mobile money market: over 21 million registered customers; in April 2016 one additional player joined the market with an internet-based application not tied to a particular mobile phone network or bank. A mobile money service provider launched a micro savings and loan product at the start of FY2016/17. - 2013 Mobile Money Guidelines have provided clarity on roles and responsibilities, enhancing competition, financial inclusion and consumer protection. - Ministry of Finance and BoU working to develop a more comprehensive legal, regulatory and supervisory framework for mobile money activities (structural benchmark). *Source: cr1707 - chapter excerpt (text provided).* ### 46. Government is committed to ensuring the prompt exit of Uganda from the Financial ### 46. Government is committed to ensuring the prompt exit of Uganda from the Financial Action Task Force (FATF) Grey list ### FATF exit measures and AML/CFT actions - Passed further amendments to the Anti-Terrorism (Amendment) Act by Parliament; gazetted the Anti-Terrorist Regulations and the AML Regulations. - Planned accelerations to ensure prompt exit from the FATF Grey list: - Approval by Parliament of the amendments to the AML and Anti-Terrorism Acts (structural benchmark by December 2016). - Aim to have the mutual evaluation report widely publicized. - Complete the national risk assessment and have its report adopted by cabinet and published on the Financial Intelligence Authority’s website. - Prepare a five-year Strategic Plan and communications strategy for the Financial Intelligence Authority. - Initiate the update and preparation of the national AML/CFT policy. ### Structural reforms to prevent arrears and improve project appraisal - Measures to prevent reoccurrence of arrears: - Include non-accumulation of arrears as a key criterion for reappointing accounting officers. - Accounting officers asked to migrate all electricity and telephone utilities from post-paid to prepaid systems by 30th June 2017. - Thereafter, no funds will be released to non-compliant Ministries and Agencies. - Accounting officers who create arrears will face disciplinary action, including termination. - Request IMF TA to strengthen processes and prevent arrears recurrence. - Continue publishing semi-annual reports on unpaid bills (end-December) and arrears (end-June) for agreed ministries and departments (structural benchmarks). - Provided reconciled reports signed by the PS/ST on stock of outstanding arrears at end-June 2014, end-June 2015, and end-June 2016 (preliminary). - Strengthening infrastructure project implementation: - Finalized the Appraisal User Manual and Development Committee Guidelines: no project included in the Public Investment Plan (PIP) unless feasibility study done and counterpart funding provided in the medium term budget framework. - Setting up an Integrated Bank of projects as a central depository and real-time tracker. - Establish a project Development Facilitation Fund to allow priority projects to undergo feasibility and/or pre-appraisal studies while awaiting inclusion in the PIP and annual budget by March 2017. - Finalizing a project preparation manual setting national parameters, shadow prices and conversion factors for economic project appraisals prior to admission into the PIP (structural benchmark, March 2017). ### Public financial management, cash management, and procurement - TSA and cash management: - Treasury Single Account (TSA) framework extended to 56 Local Governments: 14 LGs on IFMS Tier 1 in July 2015 and an additional 42 LGs on IFMS Tier 2 in January 2016. - Further extension depends on enrolment onto IFMS. - Minimizing use of cash through Electronic Funds Transfer. - Audit follow-up and transparency: - Establishing framework for follow-up and reporting on implementation of recommendations of value-for-money audits by the Auditor General’s office (structural benchmark, March 2017). - A Public Expenditure and Financial Accountability (PEFA) exercise commenced jointly with the World Bank. - A Fiscal Transparency Evaluation (FTE) completed: identified good and advanced practices, and areas needing more work on coverage, quality and reliability of budget information. - Measures to improve budget credibility: align work plans, procurement plans, recruitment and cash-flows to the budget using the Output Based Tool; develop an integrated macro-economic model to improve fiscal forecasting. - Public procurement: - Strategic plan for the PPDA prioritizes strengthening accountability and transparency in public procurement. - Plan to roll out e-procurement to 50 percent of all Procuring and Disposing Entities by FY 2018/19. - Government initiated amendments to the PPDA Act to streamline administrative reviews of public procurements (source of extensive delays affecting project start dates). ### Program modalities, monitoring, and reporting - Program monitoring: - Progress monitored through QAC, ITs, and structural benchmarks detailed in Tables 1 and 2 and through semi-annual reviews. - The eighth review expected to be completed by end-June 2017. - The attached Technical Memorandum of Understanding contains needed definitions. - Consultation: - Authorities will continue to consult with the IMF on major policy initiatives before decisions are made. ### Selected structural benchmarks and statuses (excerpted) - Ministry of Finance to submit to Parliament amendments to the Bank of Uganda Act (support implementation of inflation targeting; limit intra-year advances to government to 10 percent of tax revenues of the previous year). - Date: September 2016 — Status: Not met. Draft Cabinet Memo to be presented to Cabinet; Approval of Cabinet Memo pending. - Revised date: March 2017. - Ministry of Finance to publish reconciled reports signed by the PS/ST on the stock of unpaid bills at end-December each fiscal year. - Original date: February 15, 2016 for December 2015 report — Status: Not met. Dropped because interim data superseded by end-year report. - Revised date: March 2017 for December 2016 report. - Ministry of Finance to publish reconciled reports signed by the PS/ST on the stock of domestic arrears at end-June of each fiscal year. - Dates: June 2016 for June 2015 report; December 2016 for June 2016 report — Status: Not met; expected to be met December 2016. - Regulations for implementation of the PFM Act to become effective. - Date: June 2016 — Status: Met. Instructions being prepared to complement the Regulations—to be reviewed by the Fund. - Ministry of Finance to send to Parliament the charter of fiscal responsibility. - Date: September 2016 — Status: Met. Sent to Parliament on August 18th. - Ministry of Finance to strengthen the AML/CFT framework in line with international standard (multiple legislative and supervisory amendments). - Date: June 2016 — Status: Not met. Additional deficiencies addressed by the Anti-Money Laundering (amendment) tabled in Parliament. Insurance Regulatory Authority (amendment) Bill recently resubmitted to First Parliamentary Council. - Revised date: December 2016. - Ministry of Finance to finalize, publish and disseminate the Appraisal User Manual to all MDAs. - Date: December 2016 — Status: Expected to be met. Second draft under consultative review. - Proposed new structural benchmarks (selected): - Amend the Anti-Terrorism Act to adequately criminalize financing of terrorism — Date: December 2016 — Status: The Amended Anti-Terrorism Act has been sent to Parliament for its approval. - Establish framework for following up and reporting on implementation of Auditor General’s value-for-money audit recommendations — Date: March 2017. - Ministry of Finance and BoU to prepare and submit to Cabinet a policy to regulate mobile money banking — Date: April 2017. - Ministry of Finance to produce a manual with national parameters, shadow prices and conversion factors for project appraisals prior to PIP admission — Date: March 2017. ### Technical Memorandum highlights: exchange rates and inflation consultation bands - Program exchange rates (end-September 2016): - Chinese Yuan/US$ 6.6704 - British Pound/US$ 0.77155 - Japanese Yen/US$ 101.08 - SDR/US$ 0.71643 - Kenyan Shilling/US$ 101.25 - Tanzania Shillings/US$ 2,182.0 - Euro/US$ 0.89598 - Canadian dollar/US$ 1.3117 - Australian dollar/US$ 1.3106 - Ugandan Shillings/US$ 3,381.41 - Note: For currencies not listed, cross exchange rates to the U.S. dollar at end-September 2016 will be applied. - Inflation consultation bands (twelve-month average CCPI): - Outer band (upper limit) 8.0 (Dec. 2016 and Mar. 2017) - Inner band (upper limit) 7.0 (Dec. 2016 and Mar. 2017) - Core inflation target 5.0 (Dec. 2016 and Mar. 2017) - Inner band (lower limit) 3.0 (Dec. 2016 and Mar. 2017) - Outer band (lower limit) 2.0 (Dec. 2016 and Mar. 2017) - Consultation mechanism: - If observed average CCPI inflation for test date linked to a PSI program review falls outside the outer band, authorities will complete a consultation with the Executive Board of the Fund on their proposed policy response before requesting completion of the review. - The BoU will report publicly reasons for any breach of the outer bands and its policy response. - BoU will conduct discussions with Fund staff when observed average CCPI inflation falls outside the inner band. *UGANDA — INTERNATIONAL MONETARY FUND (content from paragraphs 46–53 and accompanying tables/attachments).* ### 5. The NDF of the central government is defined from below the line on a cash basis as the ### 5. The NDF of the central government is defined from below the line on a cash basis as the ### Definition and measurement of the Net Domestic Financing (NDF) of the central government - NDF is defined from below the line on a cash basis as the sum of: - a. the change in net claims on the central government by the banking system: - Net claims on the central government by the banking system = outstanding amount of bank credits to the central government minus the central government's deposits, excluding deposits in the Energy and Petroleum Funds and project accounts with the banking system and the central bank. - Credits comprise bank loans and advances to the government and holdings of government securities and promissory notes. - b. the change in net claims on the central government of domestic nonbank institutions and households: - Net claims = treasury bills, bonds or other government securities held by nonbank institutions and households (including nonresident individuals and nonresident financial institutions), plus any other liabilities of the central government to domestic nonbank institutions or households. - The central government comprises the treasury and line ministries. - All changes calculated as the difference between end-of-period stocks, net of any valuation changes resulting from currency movements. - NDF will be calculated based on data from balance sheets of the monetary authority and deposit corporations and government liabilities to nonbank institutions and households as per the deposit corporations’ survey (DCS). ### Measurement of Changes in Net External Financing (NEF) - Changes in NEF will be measured using external financing (net) provided in the monthly government financial statistics. - These data will be based on reconciled donor disbursement figures obtained by the central bank and by Ministry of Finance, Planning, and Economic Development (MoFPED) through the Debt Management and Financial Analysis System (DMFAS) and Aid Management System (AMS). ### Floor on the Net International Reserves (NIR) of the Bank of Uganda (QAC) - NIR of the Bank of Uganda are defined for program-monitoring purposes as reserve assets of the BoU net of short-term external liabilities of the BoU. - Reserve assets: external assets readily available to, and controlled by, the BoU; exclude pledged or otherwise encumbered external assets, including assets used as collateral or guarantees for third-party liabilities. - Short-term external liabilities: liabilities to nonresidents, of original maturities less than one year, contracted by the BoU and include outstanding IMF purchases and loans. - For program-monitoring purposes, reserve assets and short-term liabilities at the end of each test period will be calculated in U.S. dollars by converting the stock from their original currency denomination at program exchange rates (as specified in text table 1). - The NIR limits are the cumulative changes of the NIR stock from the beginning of the respective fiscal year to the specified dates. ### Share of oil revenue placed in Petroleum Fund (QAC) - Purpose: avoid petroleum revenues bypassing the Ugandan budget framework. - The 2015 PFM Act established a petroleum fund; government has established a petroleum revenue account in the BoU. - QAC satisfaction condition: 100 percent of any kind of petroleum-related revenues (even before the start of oil production) is transferred to this account upon collection by URA. - These resources may then be spent or saved as governed by the 2015 PFM Act. ### Ceiling on cumulative changes in temporary advances from the Bank of Uganda to the central government (IT) - Purpose: define and monitor outstanding temporary advances and ensure prompt repayment; reduce likelihood of bypassing treasury securities issuance and monetization of fiscal deficits. - Definition: cumulative change, from the beginning of the respective fiscal year, in adjusted net claims on the central government by the BoU. - Adjusted net claims on the central government by the BoU = outstanding amount of BoU credit to the central government minus the central government's deposits, excluding deposits in administered accounts (including the energy and petroleum funds), project accounts with the central bank, and net recapitalization securities (recapitalization securities provided to the central bank less those used for monetary policy purposes). - Credits comprise BoU loans and advances to the government and holdings of government securities and promissory notes. - Calculation basis: data from balance sheets of the monetary authority as per the DCS. ### Floor on expenditures on poverty alleviating sectors (IT) - Scope: domestic expenditures inclusive of wages and salaries in the Health, Education, Water and Environment and Agriculture sectors, as defined by the Government of Uganda functional budget classification, excluding those which are externally financed. - Compliance verified on the basis of releases. ### Ceiling on issuance of guarantees by the government or Bank of Uganda (IT) - Purpose: prevent accumulation of contingent liabilities by the GoU (including entities such as ministries, agencies and authorities). - Coverage: any direct, contingent liabilities of the GoU (including entities that are part of the GoU such as ministries, agencies and authorities). - Exclusion: guarantee programs which have explicit budget appropriations. ### Tax revenue (IT) - A floor applies on tax revenue of the central government measured cumulatively from the beginning of the fiscal year. - Tax revenue defined as the sum of: - direct domestic taxes (PAYE, corporate tax, presumptive tax, other direct taxes, withholding tax, rental income tax, tax on bank interest, casino tax and unallocated receipts); - excise duty and value-added taxes net of refunds; - infrastructure levy; - taxes on international trade minus temporary road licenses and fees to hides and skins; - as defined by the GoU’s revenue classification. ### Net accumulation of domestic arrears of the government (IT) - A ceiling applies to net accumulation of domestic arrears of the central government as an indicative target; a negative target represents a floor on net repayment. - Ceiling for each test date measured cumulatively from the beginning of the respective fiscal year. - Unpaid bill defined as any verified outstanding payment owed by any entity that forms part of the central government votes for: utilities, rent, employee costs, other recurrent, court awards, compensation, contributions to international organizations, development, taxes, and other deductions. - Domestic arrears = total stock of unpaid bills as of June 30 of the fiscal year as reported in the consolidated financial statements of the GoU. - Observation frequency: semi-annual. For quarter ending December 31, the net change in the stock of unpaid bills as reported in the semi-annual report on domestic arrears will be used. ### Adjustors affecting NIR and overall deficit targets - NIR and overall deficit targets are based on program assumptions regarding: - (A) budget support excluding assistance provided under the Heavily Indebted Poor Countries (HIPC) Initiative and the MDRI; - (B) net inflows into the Petroleum Fund; - (C) recapitalization of the BoU; - (D) external financing tied to projects; and - (E) Other recapitalization. Adjustor related to budget support - The Uganda shilling equivalent of projected budget support (grants and loans) excluding HIPC Initiative and MDRI assistance in the form of grants on a cumulative basis from the beginning of the relevant fiscal year is presented under Schedule A. - Adjustment mechanics: - Floor on cumulative increase in NIR of the BoU will be adjusted upward (downward) by the amount by which budget support, grants and loans, excluding HIPC Initiative and MDRI assistance, exceeds (falls short of) the projected amounts. - Ceilings on the cumulative increase in overall deficit will be adjusted downward (upward) by the amount by which budget support grants, excluding HIPC Initiative and MDRI assistance, exceeds (falls short of) the projected amounts. Schedule A: Budget Support (Ush billions; cumulative from the beginning of the respective fiscal year) - Jun-16: Budget support grants 110; Budget support loans 0 - Sep-16: Budget support grants 4; Budget support loans 0 - Dec-16: Budget support grants 19; Budget support loans 0 - Mar-17: Budget support grants 47; Budget support loans 0 - Note: Budget support loans and grants excluding HIPC initiative and MDRI assistance. Adjustor on inflows into the Petroleum Fund - Ceilings on cumulative increase in overall deficit will be adjusted upward (downward) by the amount by which inflows into the Petroleum Fund (excluding valuation changes) falls short of (exceeds) the projected amounts as set out in Schedule B. Schedule B: Inflows into Petroleum Fund (Ush billions; cumulative from the beginning of the respective fiscal year) - Jun-16: 125 - Sep-16: 0 - Dec-16: 0 - Mar-17: 0 Adjustor related to BoU recapitalization - Ceilings on overall deficit will be adjusted upward (downward) by the amount by which the recapitalization of the BoU exceeds (falls short of) the projected amounts as set out in Schedule C. Schedule C: Recapitalization of the Bank of Uganda (Ush billions; cumulative from the beginning of the respective fiscal year) - Jun-16: 200 - Sep-16: 350 - Dec-16: 100 - Mar-17: 100 Adjustor related to externally financed projects - Ceiling on overall deficit will be adjusted downward (upward) by the amount by which (both concessional and non-concessional) external financing tied to projects falls short of (exceeds) the projected amounts as set out in Schedule D. - Any upward adjustment will be capped by 10 percent of the amounts set out in Schedule D. Schedule D: External Financing Tied to Projects (Ush billions; cumulative from the beginning of the respective fiscal year) - Jun-16: 4,356 - Sep-16: 1,018 - Dec-16: 3130 - Mar-17: 4318 Adjustor related to other recapitalization - Ceilings on overall deficit will be adjusted upward (downward) by the amount by which spending on recapitalization (excluding recapitalization of the BoU) exceeds (falls short of) the projected amounts as set out in Schedule E. Schedule E: Other Recapitalization (excluding Bank of Uganda) (Ush billions; cumulative from the beginning of the respective fiscal year) - Jun-16: 0 - Sep-16: 0 - Dec-16: 200 - Mar-17: 200 ### Ceiling on the accumulation of new external payments arrears incurred by the public sector - Definition of debt for the ceiling: as set out in point 8 of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No 6230–(79/140), as amended by Decision No. 15688–(14/107), effective June 30, 2015). - The definition applies to debt as defined and also to commitments contracted or guaranteed for which value has not been received. - Key elements of the debt definition (point 8 summary): - (a) "debt" = current (not contingent) liability created under a contractual arrangement through provision of value in the form of assets (including currency) or services, requiring future payments in assets or services to discharge principal and/or interest. - Primary forms include: (i) loans (including deposits, bonds, debentures, commercial loans and buyers' credits), temporary exchanges of assets equivalent to fully collateralized loans (repurchase agreements and official swap arrangements); (ii) suppliers' credits; (iii) leases (debt = present value at inception of expected lease payments excluding operation, repair, maintenance payments). - (b) Under this definition, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are included. Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. - The ceiling on accumulation of new external payments arrears is zero. - This limit is to be observed on a continuous basis. - Applies to the change in the stock of overdue payments on debt contracted or guaranteed by the public sector from their level at end-June 2016. - For monitoring compliance, external arrears are obligations (reported by the Statistics Department of the BoU, the Macro Department of the Ministry of Finance) that have not been paid on the due date (taking into account contractual grace periods, if any) but exclude arrears on obligations subject to rescheduling. - External payments arrears on external debt service obligations in respect of public private partnership projects are not included in coverage of this external arrears AC, unless these external payment arrears are overdue (under the terms of the contracts including any grace periods) by more than 30 days. *Source: cr1707 - 5. The NDF of the central government is defined from below the line on a cash basis as the* ### 25. The GoU will submit information to IMF staff with the frequency and submission time lag ### 25. The GoU will submit information to IMF staff with the frequency and submission time lag ### Submission instructions and monitoring - The GoU will submit information to IMF staff with the frequency and submission time lag as indicated in Table 1. - The quality and timeliness of the data submission will be tracked and reported by IMF staff. - The information should be mailed electronically to afruga@imf.org. ### Reporting requirements — Bank of Uganda (selected entries) - Issuance of government securities, repurchase operations and reverse repurchase operations. - Submission Frequency: Weekly - Submission Lag: 5 working days - Operations in the foreign exchange market and the level of the BoU‘s international reserves. - Submission Frequency: Weekly - Submission Lag: 5 working days - Interest rates (7 day interbank, commercial bank prime lending rate, government securities). - Submission Frequency: Weekly - Submission Lag: 5 working days - Private sector credit growth by shilling and forex, and excess reserves of commercial banks. - Submission Frequency: Monthly - Submission Lag: 5 working days - Disaggregated consumer price index. - Submission Frequency: Monthly - Submission Lag: 2 weeks - Balance sheet of the BoU, consolidated accounts of the commercial banks, and depository corporations’ survey. - Submission Frequency: Monthly - Submission Lag: 4 weeks - Monthly balances of net foreign assets, net domestic assets, and base money of the BoU. - Submission Frequency: Monthly - Submission Lag: 4 weeks - Details on the government position at the central bank including deposits broken down by i) net public debt, ii) government project accounts, iii) Petroleum Fund (specifying the currency), iv) Energy Fund, v) government ministries accounts, and the remainder in vi) other deposits. In addition, liabilities broken down by i) appropriation account (UCF), ii) other drawdown accounts, iii) government securities accounts and the remainder in iv) other liabilities. Detailed information about the recording of the recapitalization of the BoU. - Submission Frequency: Monthly - Submission Lag: 4 weeks - Monthly foreign exchange cash flow table of BoU. - Submission Frequency: Quarterly - Submission Lag: 4 weeks - Statement of (i) cash balances held in project accounts at commercial banks; (ii) total value (measured at issue price) of outstanding government securities from the Central Depository System (CDS); and (iii) the stock of government securities (measured at issue price) held by commercial banks from the CDS. - Submission Frequency: Quarterly - Submission Lag: 6 weeks - Summary of (i) monthly commodity and direction of trade statistics; (ii) disbursements, principal and interest, flows of debt rescheduling and debt cancellation, arrears, and committed undisbursed balances—by creditor category; and (iii) composition of nominal HIPC Initiative assistance. - Submission Frequency: Quarterly - Submission Lag: 6 weeks - Summary of stock of external debt, external arrears, and committed undisbursed loan balances by creditor. - Submission Frequency: Quarterly - Submission Lag: 6 weeks - Standard off-site bank supervision indicators for deposit money banks. - Submission Frequency: Quarterly - Submission Lag: 4 weeks - Summary table of preliminary program performance comparing actual outcome with adjusted program targets for (i) net claims on central government by the banking system; (ii) new non-concessional external borrowing; and (iii) net international reserves. - Submission Frequency: Quarterly - Submission Lag: 6 weeks - Currency composition of the BoU’s international reserves in unit of each currency at each end of quarter. - Submission Frequency: Quarterly - Submission Lag: 6 weeks ### Reporting requirements — Ministry of Finance (selected entries) - Summary of central government accounts. Revenues shall be recorded on a cash basis, with a breakdown including infrastructure levy. Expenditures shall be recorded when checks are issued, except for domestic and external debt-service payments, cash transfers to districts, and externally funded development expenditures. Expenditures on domestic interest will be recorded on an accrual basis and external debt service will be recorded on a commitment basis (i.e., when payment is due). - Submission Frequency: Monthly - Submission Lag: 4 weeks - Summary of the stock of arrears (or unpaid bills) by government entities contained in the central government votes as reported by the Accountant General and signed by the PS/ST. - Submission Frequency: Semi-annually - Submission Lag: 3 months - Summary of contingent liabilities of the central government and the BoU. For the purpose of the program, contingent liabilities include all borrowings by statutory bodies, government guarantees, claims against the government in court cases that are pending, or court awards that the government has appealed. - Submission Frequency: Quarterly - Submission Lag: 6 weeks - Detailed monthly central government account of disbursed budget support and project grants and loans (less change in the stock of project accounts held at the BoU and commercial banks), HIPC support, and external debt service due and paid. - Submission Frequency: Quarterly - Submission Lag: 4 weeks - Detailed central government account of disbursed donor project support grants and loans. - Submission Frequency: Monthly - Submission Lag: 6 weeks - Statement on new external loans contracted or guaranteed by the central government and the BoU during the period according to loan agreements. Parliament resolutions on any new loans. - Submission Frequency: Quarterly - Submission Lag: 6 weeks - Updated national accounts statistics (real and nominal) according to UBOS and medium-term projections. - Submission Frequency: Quarterly - Submission Lag: 12 weeks - Releases of domestic expenditures on wages and salaries in the Health, Education, Water and Environment and Agriculture sectors, as defined by the Government of Uganda’s functional budget classification, with a breakdown based on financing (domestically financed or externally financed). - Submission Frequency: Quarterly - Submission Lag: 6 weeks ### Note on recording convention - Footnote: The budget records domestic interest payments on cash-basis while for program purposes this entry will be reported on an accrual basis. *Source: Attachment Table II.1. Summary of Reporting Requirements (from the cited IMF document).* ### 2000. In February 2005, a STA mission prepared a ### cr1707 - 2000 ### Reporting to STA - Uganda reports government finance statistics (GFS) data according to the GFSM 2014 framework for the GFS Yearbook, but does not report any high frequency data for inclusion in the International Financial Statistics (IFS). - The Bank of Uganda (BoU) regularly reports monetary data for the central bank and ODCs in the SRF format. - The BoU reports all core FSIs and some FSIs for deposit takers, households, and real estate markets. - The monetary and financial statistics were not assessed in the 2005 ROSC mission (results published July 2006). ### Debt Sustainability Analysis (DSA) — Overall Assessment - Risk of external debt distress: Low. - Augmented by significant risks stemming from domestic public and/or private external debt? No. - The DSA update indicates Uganda remains at low risk of debt distress. - The authorities are scaling up public investment in infrastructure; debt is projected to continue increasing until projects are completed and the expected growth dividend materializes. - Key risks highlighted: - Weak exports. - Exposure to exchange rate depreciation. - Low revenues. - Short maturity of domestic debt. ### Background and Recent Developments - Infrastructure focus: roads, electricity transmissions, two major hydro-power projects (Karuma and Isimba), oil sector development (8 production licenses awarded), planned pipeline to Tanga, Tanzania and a domestic refinery, and a standard gauge railway to the Kenyan border. - Growth performance: - Average growth declined from close to 8 percent in the five years to FY2011 to 4½ percent in the last five years. - Average current account deficit widened from 6 percent of GDP to 7¼ percent of GDP in the same period. - Exports of goods and services declined from an average of 20 percent to an average of 4 percent. - Pace of exchange rate depreciation picked up from 5¼ percent to 8½ percent on average per annum. - Nominal GDP growth in U.S. dollars fell from 12½ percent to 4½ percent average annual growth. - Growth is projected to recover to about 6 percent over the medium-term. - Fiscal and debt composition: - Authorities target an annual improvement of the tax revenue take by ½ percent of GDP. - Securities with maturities lower than one-year constitute close to 40 percent of the total as of mid-September 2016. - Share of non-Paris Club creditors has increased to 19 percent of the total external public debt (reflecting higher borrowing from China). - Since debt relief in 2006, external public debt has been gradually accumulated to finance infrastructure (energy and transportation). ### Changes in Underlying Macroeconomic Assumptions and Main Projections - Baseline assumes implementation of authorities’ economic policies and structural reforms supported by the PSI. - Main assumptions and changes compared to the previous DSA: - Growth: - Projected at about 6½ percent on average over the medium term (1 percentage point lower than in the previous DSA). - Oil production is projected to raise real GDP growth by one percentage point on average during FY2023-FY2027 and would account for 5 percent of Uganda’s GDP during the peak extraction period (previously, 7 percent). - GDP deflator: - Projected at 5 percent over the medium term; expected to gradually converge to around 4 percent over the long term. - Oil revenue and production timing: - Oil revenue projections reduced following a downward revision in oil price assumptions (from 63 to 58 dollars per barrel in FY2022 when oil production is assumed to start). - Projected start of production delayed by one year compared to previous DSA; final investment decisions expected in February 2018. - Current account deficit: - Estimated at 9 percent of GDP on average over the medium term (1 percent of GDP lower than in the last DSA). - Fiscal deficit: - Estimated to average 3¾ percent of GDP a year over the medium term—a decline of about one percentage point compared to the last DSA. - Assumes a project execution rate of 80 percent. - Nonconcessional borrowing: - Projected to remain unchanged at about US$8 billion over the medium term (cumulative from June 28, 2013). - Debt contracted by end-December 2015: US$3 billion. - Project execution and disbursements: - Annual disbursements before FY2025 now anticipated to be lower given the 80 percent execution rate for externally-financed development spending. - Selected numeric projections from Text Table 1 (averages by period): - Real GDP growth (percent), Baseline: - 2017: 5.0 - 2018-2022 Average: 6.4 - 2023-2027 Average: 7.8 - 2028-2032 Average: 5.4 - 2033-2037 Average: 5.0 - Inflation (GDP deflator, national currency, percent), Baseline: - 2017: 5.1 - 2018-2022 Average: 5.1 - 2023-2027 Average: 4.1 - 2028-2032 Average: 4.0 - 2033-2037 Average: 3.9 - Nominal GDP (US$ billion), Baseline: - 2017: 26.5 - 2018-2022 Average: 33.4 - 2023-2027 Average: 59.6 - 2028-2032 Average: 99.2 - 2033-2037 Average: 145.0 - Current account balance (percent of GDP), Baseline: - 2017: -7.1 - 2018-2022 Average: -8.7 - 2023-2027 Average: -7.3 - 2028-2032 Average: -5.5 - 2033-2037 Average: -6.1 - Overall fiscal balance (percent of GDP), Baseline: - 2017: -6.0 - 2018-2022 Average: -3.4 - 2023-2027 Average: -2.0 - 2028-2032 Average: -1.7 - 2033-2037 Average: -1.5 - Public investment (percent of GDP), Baseline: - 2017: 11.0 - 2018-2022 Average: 9.2 - 2023-2027 Average: 9.0 - 2028-2032 Average: 9.0 - 2033-2037 Average: 8.7 - Oil-related revenue (percent of GDP), Baseline: - 2017: 0.0 - 2018-2022 Average: 0.2 - 2023-2027 Average: 1.9 - 2028-2032 Average: 2.7 - 2033-2037 Average: 2.4 - Present value of new debt (Year 1: FY2016/17) (Millions of U.S. dollars): - Present value of new debt: 1,299 - Concessional debt, of which: 707 - Multilateral debt: 595 - Bilateral debt: 112 - Non-concessional debt, of which: 592 - Semi-concessional debt: 592 - Commercial-term debt: - - Use of debt financing: - Infrastructure: 1,299 - Budget financing: - - Indicative projections Year 2: FY2017/18 Present value of new debt: 1,303 (volume 1,047) - Year 3: FY2018/19 Present value: - (volume -) ### External Debt Sustainability - PPG external debt is assessed sustainable over the projection period. - PV of PPG external debt-to-GDP ratio: - Expected to peak at 22 percent in FY2021. - Nominal PPG external debt would stay below 31 percent of GDP in the projection period. - All debt burden indicators remain below thresholds for medium policy performers under the baseline scenario. - Stress tests: - Under standardized stress tests, all but one debt service indicator remain below thresholds. - Only under the most extreme stress scenario (exports shock) does the PV of debt-to-exports ratio show a temporary breach of the threshold during FY2019–FY2021 with a maximum breach of 13 percentage points. - Staff assessment: external debt sustainability risk is low. ### Public Debt Sustainability (External + Domestic) - Total public debt is also assessed sustainable over the projection period. - PV of public debt-to-GDP ratio: - Projected to peak at about 36 percent in FY2021. - Benchmark level associated with heightened public debt vulnerabilities for medium performers: 56 percent. - Concerns: - Short average maturity of domestic debt. - Low revenue base. - Debt service-to-revenue ratio (including grants): - Projected to stay close to 40 percent until FY2022. - Described as among the highest in low-income countries, indicating high rollover and interest rate risks. - Debt management commitments: - Medium Term Debt Strategy (June 2016) commits to keeping the average maturity of domestic debt above three years and reduce ratio of short term bills to longer term bonds to 30:70. - Risks: - Deviations from fiscal objectives (e.g., fixed primary deficit over the projection period) would significantly raise PV public debt-to-GDP ratio, potentially exceeding 56 percent in the long run. - Customized alternative scenario without oil flows indicates elevated but limited risks. ### Key Policy Recommendations and Mitigating Actions - Ensure strong project selection and implementation frameworks to safeguard quality of spending and realize growth dividend. - Fiscal consolidation once large infrastructure projects are completed, including: - Boosting domestic revenue mobilization (target of annual improvement of tax revenue by ½ percent of GDP). - Reprioritization away from current to social and capital spending. - Strengthen competitiveness to boost exports, including effective public investment to fill infrastructure gaps. - Mitigate rollover and interest rate risks by: - Extending average maturities of domestic debt. - Keeping the average maturity of domestic debt above three years and shifting the composition of securities toward longer-term bonds (target short term bills to longer term bonds ratio 30:70). - Maintain prudent fiscal planning that does not overly rely on uncertain future oil proceeds; use of oil revenue in baseline assumes government uses half of oil revenue to finance additional public investment. - Strengthen governance frameworks to safeguard quality and effectiveness of public investment and spending. - Continue improvements in debt management, monitoring, and reporting with technical assistance support. ### Conclusions - Uganda’s risk of external debt distress remains low. - Debt levels remain low; temporary increase in borrowing aims to finance growth-enhancing scaled-up public investment. - Risks to debt sustainability have increased (e.g., export shock scenario breach); mitigation requires sound project selection, expenditure reprioritization, domestic revenue mobilization, strong governance, improved competitiveness, and cautious reliance on oil flows. *Prepared by the staff of the International Monetary Fund (IMF) and the International Development Association (IDA). December 16, 2016.* ### 12. The authorities concurred with staff’s views. They remain committed to ensuring debt ### cr1707 - 12. The authorities concurred with staff’s views. They remain committed to ensuring debt ### Authorities’ assessment and commitments - The authorities concurred with staff’s views. - They remain committed to ensuring debt sustainability through long-term prudent debt management, as outlined in their Medium Term Debt Management Framework, which aims at minimizing costs and risks associated with public investment project financing. - The authorities acknowledged the risks, in particular from weak exports, and intend to closely monitor developments, and stand ready to adjust policies as needed to safeguard debt sustainability. - They also commit to continue to engage with IDA/IMF staff on debt management issues and to address the short maturity of domestic debt by building policy credibility and deepening the markets. ### Debt sustainability indicators and stress-test design (Figures 1–2) - Indicators are presented for 2017–2037 under multiple scenarios: Baseline, Historical scenario, Most extreme shock, No oil scenario, and Threshold. - The most extreme stress test is defined as the test that yields the highest ratio on or before 2027. Specific correspondences: - In figure b. the most extreme shock corresponds to a One-time depreciation shock. - In figure c. the most extreme shock corresponds to an Exports shock. - In figure d. the most extreme shock corresponds to a One-time depreciation shock. - In figure e. the most extreme shock corresponds to an Exports shock. - In figure f. the most extreme shock corresponds to a One-time depreciation shock. - Charts illustrate time paths for: - a. Debt Accumulation (Rate of Debt Accumulation; Grant-equivalent financing (% of GDP); Grant element of new borrowing (% right scale)) - b. PV of debt-to-GDP ratio - c. PV of debt-to-exports ratio - d. PV of debt-to-revenue ratio - e. Debt service-to-exports ratio - f. Debt service-to-revenue ratio ### Key historical values and baseline projections (selected values extracted from DSA tables) - External debt (nominal): - 2014: 29.9 - 2015: 34.8 - 2016: 39.0 - 2017: 41.5 - Of which: public and publicly guaranteed (PPG) external debt: - 2014: 15.8 - 2015: 18.5 - 2016: 20.9 - 2017: 25.0 - Change in external debt (selected): - 2017: 2.4 - Identified net debt-creating flows (selected): - 2017: 3.6 - Non-interest current account deficit (selected sequence shown): - 2014: 6.2 - 2015: 6.1 - 2016: 4.7 - 2017: 5.2 - Net FDI (negative = inflow) (selected): - 2014: -2.9 - 2015: -1.9 - 2016: -1.7 - 2017: -3.0 - Endogenous debt dynamics (contribution, selected): - 2017: -0.4 - Residual (3-4) (selected): - 2017: -1.1 - PV of external debt (selected): - 2017: 30.7 - 2018: 32.7 - 2019: 34.8 - 2020: 35.6 - 2021: 37.0 - 2022: 39.4 - PV of PPG external debt (in percent of exports) (selected sequence): - 2017: 68.5 - 2018: 85.3 - 2019: 98.4 - 2020: 99.3 - 2021: 100.8 - 2022: 100.7 - PV of PPG external debt (in percent of government revenues) (selected sequence): - 2017: 92.3 - 2018: 115.4 - 2019: 131.7 - 2020: 136.3 - 2021: 138.0 - 2022: 138.1 - Debt service-to-exports ratio (in percent) (selected): - 2014: 11.7 - 2015: 9.6 - 2016: 15.3 - 2017: 15.7 - PPG debt service-to-revenue ratio (in percent) (selected): - 2014: 4.1 - 2015: 3.7 - 2016: 4.6 - 2017: 4.9 - Total gross financing need (Billions of U.S. dollars) (selected): - 2014: 1.8 - 2015: 2.0 - 2016: 1.9 - 2017: 2.3 - 2027: 4.3 - 2037: 13.5 ### Public sector debt (selected values and dynamics) - Public sector debt (central government gross debt): - 2014: 28.3 - 2015: 31.8 - 2016: 34.5 - 2017: 38.6 - Of which: foreign-currency denominated: - 2014: 15.8 - 2015: 18.5 - 2016: 20.9 - 2017: 25.0 - Change in public sector debt (selected): - 2017: 4.1 - Identified debt-creating flows (selected): - 2017: 3.6 - Primary deficit (selected): - 2017: 2.0 - Revenue and grants (percent of GDP) (selected): - 2014: 12.6 - 2015: 14.2 - 2016: 14.9 - 2017: 15.9 - 2022: 16.9 - 2027: 18.8 - Primary (noninterest) expenditure (percent of GDP) (selected): - 2017: 19.6 - Automatic debt dynamics (contribution from interest rate/growth differential) (selected): - 2017: -0.2 - PV of public sector debt (selected): - 2017: 26.2 - 2018: 29.9 - 2019: 32.6 - 2020: 33.5 - 2021: 34.8 - 2022: 35.8 - 2027: 35.3 - 2037: 27.6 - Gross financing need (percent of GDP) (selected): - 2017: 14.2 - 2018: 13.4 - 2019: 12.3 - 2020: 10.8 - 2021: 11.0 - 2022: 10.8 - 2027: 9.9 - 2037: 8.9 - PV of public sector debt-to-revenue and grants ratio (in percent) (selected): - 2017: 175.7 - 2018: 188.3 - 2019: 204.7 - 2020: 208.0 - 2021: 215.5 - 2022: 216.5 - 2027: 209.0 - 2037: 136.1 ### Key macroeconomic assumptions (selected) - Real GDP growth (in percent) (selected series): - 2014: 5.2 - 2015: 5.1 - 2016: 4.8 - 2017: 6.2 - 2018: 2.2 - 2019: 5.0 - 2020: 5.5 - 2021: 6.0 - 2022: 6.3 - 2027: 6.5 - 2037: 7.7 - GDP deflator in US dollar terms (change in percent) (selected): - 2014: 5.6 - 2015: -5.7 - 2016: -14.6 - 2017: 2.1 - Effective interest rate (percent) (selected): - 2014: 5.4 - 2015: 3.5 - 2016: 3.4 - 2017: 6.3 - Growth of exports of G&S (US dollar terms, in percent) (selected): - 2014: -0.1 - 2015: -1.2 - 2016: -9.8 - 2017: 11.8 - 2027 (example later projection): 19.6 - Growth of imports of G&S (US dollar terms, in percent) (selected): - 2014: 2.2 - 2015: 2.3 - 2016: -10.8 - 2017: 11.1 - Grant element of new public sector borrowing (in percent) (selected): - 2017 onward examples: 21.8, 16.0, 21.5, 22.2, 23.5, 21.4, 21.1, 17.2, 13.2, 16.2 ### Sensitivity analyses and stress scenarios (Tables 3–4, selected points) - Table 3 provides sensitivity analysis for PV of debt-to-GDP, PV of debt-to-exports, PV of debt-to-revenue, Debt service-to-exports, Debt service-to-revenue for 2017–2037 under: - Alternative Scenarios: A1. Key variables at their historical averages; A2. New public sector loans on less favorable terms; A3. No Oil Scenario. - Bound Tests: B1. Real GDP growth shock; B2. Export value growth shock; B3. US dollar GDP deflator shock; B4. Net non-debt creating flows shock; B5. Combination of B1–B4; B6. One-time 30 percent nominal depreciation in 2018. - Table 4 provides sensitivity analysis for PV of Debt-to-GDP Ratio, PV of Debt-to-Revenue Ratio, Debt Service-to-Revenue Ratio, with scenario breakdowns A1–A4 and B1–B5 (including shocks such as one-time 30 percent real depreciation and a 10 percent of GDP increase in other debt-creating flows). - Memorandum: Grant element assumed on residual financing (applies to stress scenarios except A2) is shown as sequence of “13” values in the memorandum (Grant element assumed on residual financing 6/ 13 13 13 13 13 13 13 13 13 13 13). ### Policy implications and monitoring - The authorities will closely monitor risks, particularly from weak export performance, and stand ready to adjust policies to safeguard debt sustainability. - Commitment to engage with IDA/IMF staff on debt management and to address short domestic debt maturities by building policy credibility and deepening domestic markets is emphasized as part of the debt management strategy. *Sources: Country authorities; and staff estimates and projections.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2017/cr1707.pdf_