## cr17130

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### PREFACE — Mission, Scope, and Stakeholder Engagement
- A Fiscal Transparency Evaluation (FTE) mission from the IMF’s Fiscal Affairs Department visited Kampala from April 27–May 10, 2016.
- Mission led by Suzanne Flynn; team included Kubai Khasiani, Fazeer Sheik Rahim, Brooks Robinson, Amitabh Tripathi (AFRITAC East), and Imran Aziz (AFRITAC South).
- Preparatory mission: March 21–24, 2016 (Fazeer Sheik Rahim, Brooks Robinson, Paul Seeds).
- Objective: evaluate Uganda’s fiscal reporting, fiscal forecasting and budgeting, and fiscal risk analysis and management against the 2014 IMF Fiscal Transparency Code.
- Evaluation based on information available at the time it was completed in May 2016; findings/recommendations reflect IMF mission team views; unless specified, data are IMF mission team estimates.
- Stakeholder meetings: Ministry of Finance (Permanent Secretary/Secretary to the Treasury; Economic Affairs, Budget, Cash and Debt Management Directorates; Accountant General’s Office); Auditor General; Parliamentary Budget Office; Uganda Revenue Authority; Uganda Bureau of Statistics; Bank of Uganda; National Planning Authority; Ministry of Energy and Minerals; Ministry of Local Government; Office of the Prime Minister; Economic Policy Research Centre; Electricity Regulatory Authority; Civil Society Budget Advocacy Group; donor partners.

### Executive Summary — Key Strengths
- Recent reforms added important elements of fiscal transparency:
  - Public Finance Management Act 2015 (PFMA) specifies budget calendar, main contents of budget documents, and roles of legislature and executive; enhanced timeliness of budget presentation and publication of audited annual financial statements.
  - Budget documents include forecasts of main macroeconomic variables, medium-term revenue and expenditure projections, and budget year gross revenue and expenditure plans for budgetary central government (BCG) and 13 extra-budgetary units; they set out main policy objectives and summarize past performance.
  - A dedicated website is actively updated with online information on budgets, budget releases, revenue and expenditure for local governments, and semi-annual performance reports for central government.
  - Debt sustainability and debt strategy reports assess risks around government stock of debt and provide projections under alternative economic scenarios; other reports provide information on contingent liabilities (court claims, guarantees, PPP commitments).

### Executive Summary — Main Shortfalls and Quantified Gaps
- Overall scoring: Uganda meets at least good or advanced practice in 13 of the 36 dimensions of the first three pillars of the Fiscal Transparency Code; 23 of the 36 dimensions are scored as basic or not met.
- Coverage gaps:
  - Budget and semi-annual budget execution reports cover about 77 percent of public sector expenditure, excluding full revenues and expenditure of around 63 central government extra-budgetary units and 32 public corporations.
- Unreported liabilities:
  - Government’s future pension obligation under the civil servant pension scheme has not been disclosed and is estimated to be around 22 percent of GDP.
- Tax expenditure coverage:
  - Published list of tax exemptions does not cover a complete range of tax expenditures.
- In-year budget changes and control:
  - Expenditure reductions and reallocations have averaged over 6 percent of total expenditure and have not required prior approval of Parliament; a complete summary and explanation of changes has not been made public until late in the fiscal year.
- Public investment management:
  - Public Investment Plan does not clearly state lifetime costs of projects or summarize planned expenditure over the medium term.
- Fiscal risk reporting:
  - Information on macroeconomic and specific fiscal risks is published but scattered; a summary fiscal risk statement was published for the first time in the year of the evaluation.
  - Important risks not covered include sustainability of the civil service pension scheme and management of public assets and liabilities.
  - No budgetary provision for contingencies is yet in place.

### Emerging Fiscal Challenges
- Oil revenues:
  - From 2020, new revenues from oil are expected, estimated at up to 3 percent of GDP at peak production.
  - Natural resource revenues are volatile and exhaustible, posing significant fiscal management challenges.
- East African Monetary Union (EAMU):
  - Uganda is a signatory of the EAMU Protocol targeting a single currency by 2024.
  - Protocol and guidelines require additional fiscal reporting: regular assessments of fiscal outlook against convergence criteria and an annual fiscal risk statement; adherence to fiscal deficit and debt ceilings in the three years ahead of 2024.
- Infrastructure plans:
  - Government plans a program of large infrastructure projects using PPPs and external loans; such projects can be sources of fiscal risks that require careful management.

### Priority Recommendations (numbered identifiers preserved)
- Enhance coverage and comparability of budget documents and fiscal reports:
  - Expand data collection for extra-budgetary units and local governments to develop fiscal reporting on a general government basis in line with East African Community (EAC) requirements. (1.1)
  - Publish comprehensive reports on tax expenditures and the annual financial statements. (1.2)
  - Incorporate balance sheets into fiscal reporting, and progressively expand their coverage to include liabilities, such as actuarially estimated public pension liabilities, and nonfinancial assets. (1.3)
- Enhance integrity of fiscal reports:
  - Publish reconciled fiscal data to enhance comparability of annual financial statements with budget outturns and fiscal statistics. (1.4)
- Improve transparency and control of investment projects:
  - Include estimates of total project costs in budget documents with projected expenditures over the medium-term expenditure framework and ensure all major projects are subject to a feasibility study including a cost benefit analysis that is published. (2.1)
- Publish and report on fiscal objectives:
  - Publish the Charter for Fiscal Responsibility and regularly report on: (i) the impact of proposed changes in revenue and expenditure; (ii) the measures to meet the fiscal policy objectives; and (iii) the progress against these objectives. (2.2)
- Provide clear and timely information on in-year changes to budget plans:
  - Provide a summary of in-year changes to expenditure and revenue plans by budget unit (vote) shortly after they have been agreed, and incorporate the information in the subsequent semi-annual execution report. (2.3)
- Improve management of fiscal risks:
  - Enhance the fiscal risk statement by including probabilistic forecasts of fiscal outcomes; more comprehensive reporting of specific fiscal risks; analysis of long-term fiscal projections for the next 30–50 years using demographic, macroeconomic, and fiscal assumptions, including oil revenue; and government contractual obligations under existing PPPs over the lifetime of the projects. (3.1)
  - Implement the PFMA (2015) by providing a contingency in the budget. (3.2)
  - Regularly report estimates of the value of oil resources under different scenarios for price, start date for extraction and extraction rate, and the position of and utilization from the Petroleum Fund. (3.3)
  - Publish consolidated reports on financial performance and position of public corporations and local governments. (3.4)

### Implementation and Ongoing Reforms
- Ministry of Finance working on producing fiscal statistics on a general government basis with support from East AFRITAC.
- Ministry working on its first Charter of Fiscal Responsibility, due within three months of the new Parliament’s first sitting.
- Newly established unit for public investment and public-private partnerships developing processes to ensure only growth-enhancing projects are included in the Public Investment Plan and the MTEF.

---

### Fiscal Reporting — Coverage and Integrity (Section 1)
- Assessment scope:
  - Evaluates fiscal statistics, financial statements, and in-year and end-of-year budget-execution reports for coverage, recording of assets/liabilities and flows, timeliness, classification by international standards, comparability/reconciliation, and independent audit/scrutiny.
- Positive features:
  - Semiannual and annual budget performance reports describe outturns of revenue, expenditure, and financing by economic and administrative categories; provide detailed information on nonfinancial performance by budget entities.
  - Semiannual reports published with flows and stocks of debt.
  - Office of the Auditor General audits public sector entities and audit reports published within six months of fiscal year end.
  - Annual Consolidated Financial Statement for the BCG published as part of the Annual Audit Report.
  - Monthly finance statistics published for the BCG and annually for local governments following GFSM 2014.
- Transparency and publication issues:
  - Ministry of Finance’s budget transparency website publishes outturn data by budget unit (vote) quarterly, but not consolidated and reconciled with published statistics.
  - Quarterly Report on Expenditure Limits for budgetary units does not track progressive releases for the year against the approved budget.
  - Budget performance reports do not track in-year revisions and are produced semiannually with a time lag of three months.
- Coverage limitations:
  - Fiscal reports regularly produced cover only the BCG and local government; statistics for these are not consolidated.
  - None of the fiscal reports provide complete information on fiscal operations of extra-budgetary units and public corporations.
  - Accountant General prepared a summary statement of performance of public corporations and state enterprises in 2014/15, but it was not published.

### Institutional coverage (Not Met) — Entity counts and coverage rates
- Public Sector (I + II): 523 entities
- General Government (I + II): 491 entities
- Central Government total: 185 entities
  - Budgetary central government: 122
  - Extra-budgetary units: 63
- Local Government: 306 entities
- Social Security: 0 (NSSF classified as a public corporation)
- Public Corporation: 32 entities
- Wider public sector includes the central bank (Bank of Uganda) and 31 other public corporations.
- Current coverage of fiscal reports:
  - 95.7 percent of the central government
  - 99.2 percent of the general government
  - about 81.4 percent of the public sector expenditures
- GDP used: expenditure basis at market prices, for FY 2014/15, 74,565 bn UGX.

### Public sector consolidated accounts (FY 2014–15 summary accounts, percent of GDP) — selected figures
- Revenue (Consol. Public Sector): 18.6
  - BCG: 14.5; EBUs: 1.5; Local Gov.: 3.3; General Gov.: 14.7; Public Corp.: 3.7; Central Bank: 0.2
- Expenditure (Consol. Public Sector): 20.5
  - BCG: 16.7; EBUs: 1.5; Local Gov.: 3.2; General Gov.: 16.8; Public Corp.: 3.2; Central Bank: 0.4
- Balance (Consol. Public Sector): -1.9
  - BCG: -2.1; General Gov.: -2.1; Public Corp.: 0.5; Central Bank: -0.2
- Assets (Consol. Public Sector total): 121.5
  - BCG: 99.8; General Gov.: 104.6; Public Corp.: 15.0; Central Bank: 17.1
  - Nonfinancial assets (Public Sector): 98.5
  - Financial assets (Public Sector): 22.9
- Liabilities (Public Sector): 77.7
  - BCG: 60.1; General Gov.: 60.5; Public Corp.: 15.0; Central Bank: 17.5
- Net worth (Public Sector): 43.7
- Effect of expanding coverage:
  - Combined BCG and local governments deficit around 2.1 percent of GDP; full public sector deficit declines to 1.9 percent of GDP due to consolidation.
  - BCG and local governments account for 60.5 percent of GDP in liabilities; entire public sector liabilities rise to 77.7 percent of GDP.
  - Public sector assets equal 121.8 percent of GDP, producing net worth of 48.3 percent of GDP for the public sector (expanded coverage figures presented elsewhere).

### Coverage of stocks — main gaps and estimates (Basic)
- Pension liabilities:
  - Actuarial-based estimates of civil service pension liabilities excluded from BCG balance sheets.
  - Pension liabilities estimated at 21.8 percent of GDP (present value of future public pension liabilities estimated at UGX 16 trillion, 22 percent of GDP).
- Nonfinancial assets:
  - Fixed assets, inventories, non-produced assets, and valuables not fully reported.
  - Fixed assets estimated for BCG and local government at about 26 percent of GDP (simplified perpetual inventory method).
  - Subsoil assets (oil and natural gas) estimated at about 55 percent of GDP (BCG 54.7).
- PPP-related assets and liabilities:
  - PPP liabilities estimated at about 6.6 percent of GDP.
- Public corporations:
  - Account for about 32 percent of the Government of Uganda’s assets and liabilities on an unconsolidated basis (derived from balance sheets of 16 largest public corporations).

### Estimated public sector balance sheet (percent of GDP) — selected totals
- Assets (total public sector): 121.8
  - Nonfinancial assets (public sector): 98.5
  - Financial assets (public sector): 23.3
- Liabilities (total public sector): 77.7
  - Reported in financial statistics (subtotal): 45.8 percent of GDP
  - Not reported in financial statistics (subtotal): 32.8 percent of GDP
    - Pension liabilities: 21.8 percent of GDP
    - PPP liabilities: 6.6 percent of GDP
    - Equity adjustments: 4.4 percent of GDP
- Net financial worth (public sector): -54.4
- Net worth (public sector): 44.1
- Net worth, excluding equity (public sector): 48.3
- Remark: Without BCG fixed, PPP, subsoil assets, and local government fixed assets, nonfinancial assets for the public sector would fall from 92.7 percent to 6.6 percent of GDP; total public sector assets would fall from 121.8 percent to 34.5 percent of GDP. Exclusion of BCG and Bank of Uganda pension liabilities would reduce total liabilities from 77.7 percent to 44.9 percent of GDP.

### Coverage of flows (Basic) and cash-to-accrual adjustment
- Fiscal reports cover cash revenue, expenditures, and financing on a modified cash basis.
- Transfers to extra-budgetary units, local governments, and projects outside IFMS recorded as expenditure when funds disbursed; transfers estimated at about 4.6 percent of GDP for FY 2014/15.
- Other economic flows (holding gains/losses or changes in volume of assets and liabilities) not fully recorded.
- Cash-to-accrual adjustment (June 2015):
  - Cash fiscal balance: -1,602.5 billion UGX; -2.1 percent of GDP
  - Arrears—Ministries: 393.8 billion UGX; 0.5 percent of GDP
  - Arrears—Agencies: 472.6 billion UGX; 0.6 percent of GDP
  - Arrears—Pensions: 216.7 billion UGX; 0.3 percent of GDP
  - Accrual fiscal balance: -2,687.9 billion UGX; -3.6 percent of GDP
- Incorporating arrears would raise the FY 2014/15 deficit from 2.1 percent of GDP to 3.6 percent of GDP.

### Coverage of tax expenditures (Not Met) — key figures
- Published annual report to Parliament covers only tax exemptions issued by the Ministry of Finance, forming only 2.5 percent of the total estimated tax expenditures in 2014/15.
- URA produces an internal Report on Revenue Foregone Due to Tax Exemptions/Incentives that is more comprehensive but not published.
- Annual value of revenue foregone from tax exemptions estimated at 1.2 percent of GDP for FY 2014/15.
- Table 7 — Value of Tax Expenditures (Billion UGX) — total and share of GDP:
  - 2011/12 Total: 1,112.2; Share of GDP (%) 1.9
  - 2012/13 Total: 1,111.5; Share of GDP (%) 1.7
  - 2013/14 Total: 1,279.3; Share of GDP (%) 1.9
  - 2014/15 Total: 883.4; Share of GDP (%) 1.2
  - Published portion (o/w Published) small (e.g., 2014/15: 22.6 billion UGX published).

---

### Fiscal Forecasting and Budget Credibility (Sections 31 & 51) — Key Findings
- Uganda performs relatively well in producing annual and medium-term revenue projections compared to regional peers, but significant weaknesses undermine budget credibility.
- Variations between approved budgets and outturns on expenditure side significant due to frequent reallocations and supplementary budgets.
- Unapproved expenditure and accumulation of expenditure arrears point to weaknesses in expenditure planning and costing.
- Government forecasts presented without independent evaluation; changes/updates to forecasts not documented; effects of new policies on public finances not discussed/published.
- Weaknesses in project appraisal, documentation, and implementation impair credibility of multi-annual investment commitments.

### A. Comprehensiveness — selected points
- Budget unity: Good — domestic revenues, expenditures, and financing of central and local government entities budgeted and authorized by Parliament on a gross basis; own revenues contribute only 2 percent of total revenues.
- Macroeconomic forecasts: Good — Budget Framework Paper describes broad assumptions; real GDP forecasts for the budget year have average forecast error of 1 percentage point over 2000–10; trends reversed since FY 2011/12 toward over forecasting; growth forecasts around 7 percent target while growth averaged 4.1 percent.
- Medium-term budget framework: Good — three-year fiscal projections; revenue forecast errors averaged 1.1, 1.0, and 4.6 percentage points for budget and two outer years (FY 2000/01–FY 2012/13); expenditure forecast errors larger at 2.7, 9.4, and 10 percentage points.
- Investment projects: Not Met — Public Investment Plan does not reflect total obligations for multi-annual investment; top-down MTEF ceilings drive project budgeting; example Karuma Hydroelectric Power Project (Project 1183):
  - Public Investment Plan (UGX Bn.): Budget Year 1,044; Budget Year + 1 1,011; Budget Year + 2 1,037
  - Outturn (UGX Bn.): Budget Year 0.5; Budget Year + 1 32.3; Budget Year + 2 459.0
  - Difference (UGX Bn.): (1,043.50); (978.27); (577.66)
  - Difference (Percentage Points): (208,620); (3,032); (126)
- Decline in open and competitive procurement: value of open and competitive tenders fell from 88 percent to 50 percent in FY 2014/15.

### B. Orderliness and Timeliness
- Fiscal legislation: Good — PFMA defines timetable and key content; other laws include National Audit Act 2008; Public Procurement and Disposal of Assets Act 2011; Local Government Act (Amended); UBOS Act 1998; PPP Act 2015.
- Timeliness of budget documents: Advanced — improvements since PFMA 2015; 2015/16 annual budget presented April 1 and approved May 29, 2015; publication dates for key documents met or exceeded statutory deadlines for FY 2016/17 (examples provided).

### C. Policy Orientation and Participation
- Fiscal policy objectives: Basic — numerical objectives published (target for annual growth of domestic revenue collection: 0.5 percent; target to reduce overall balance to -3.4 percent of GDP by FY 2020/21; target to limit debt to within 50 percent of GDP over same period); Charter of Fiscal Responsibility submission expected mid-2016.
- Performance information: Good — targets and performance presented by vote function and output; Biannual Budget Performance Report and Government Performance Report reported and discussed at biannual Cabinet reviews.
- Public participation: Good — budget calendar for consultation; Know Your Budget website and Citizen’s Budget; Open budget index score: Uganda 62 (global average 45; Kenya 48).

### D. Credibility Issues — independent evaluation and supplementary budgets
- Independent evaluation: Not Met — no formal independent analysis of government forecasts; National Planning Authority produces an independent forecast used more as an ideal scenario; Parliamentary Budget Office plays ex-post role only.
- Supplementary budgets: Basic — law limits additional expenditure to 3 percent of approved budget (notify Parliament within four months); historical record: 12 out of last 15 supplementary budgets exceeded 3 percent limit and implemented without ex-ante parliamentary approval; supplementary budgets averaged 6.4 percent of budgeted spending (or 5 percent excluding FY 2010/11 outlier).
- Forecast reconciliation: Not Met — budget documentation does not explain differences between successive vintages of forecasts; recommendation to publish forecast reconciliations that break down differences by major expenditure categories.

### Specific recommendations (forecasting and budget credibility)
- Include estimates of total project costs with projected expenditures over the MTEF and ensure all major projects subject to feasibility study and published cost benefit analysis. (2.1)
- Publish the Charter of Fiscal Responsibility and regularly report on impacts of proposed changes, measures to meet targets, and progress via Budget Performance Report. (2.2)
- Provide a summary of in-year changes to expenditure and revenue plans by budget unit shortly after agreement, and incorporate in semi-annual budget execution report. (2.3)
- Estimate, explain, and publish main factors driving changes between successive fiscal forecasts and set out lessons for future forecasts. (2.4)

---

### Fiscal Risks — Disclosure, Analysis, and Specific Risks (Sections 51, 69, 88)
- General findings:
  - Government published a fiscal risk statement describing and quantifying macroeconomic and debt refinancing risks; coverage limited.
  - Various reports analyze macroeconomic and specific fiscal risks (guarantees, litigation claims, PPP contingent liabilities); information is scattered.
  - Gaps vs the Fiscal Transparency Code: Not met for analysis of long-term sustainability including pension and other long-term liabilities; Not met for sufficient budget allocation for contingencies.
- Macroeconomic risks: Good — sensitivity analysis present; debt sustainability and Medium-Term Debt Strategy quantify refinancing, interest rate, and FX risks; projected debt dynamics: planned scaling-up of public investment expected to raise debt to GDP ratio to 41 percent in net present value in FY 2020/21 (below 50 percent EAMU limit but probabilistic projections show downside risks).
- Specific fiscal risks (Basic) — reported but scattered; several large fiscal risks not disclosed regularly:
  - Size of selected fiscal risks (UGX, Billions; Percent of GDP; Date Reported):
    - Government loan guarantees: 450; 0.6; Dec. 2015
    - Eligible deposits not covered by value of deposit protection fund: 448; 0.6; Dec. 2015
    - Pending court cases: 4,312; 5.8; June 2015
    - Private-Public Partnership: 5,130; 6.8; Dec. 2015
    - Unfunded future pension liabilities: 16,170; 22; (Date not provided)
    - Uninsured deposits at privately-owned financial institutions: 14,530; 19.5; Dec. 2015
      - o/w Uninsured mobile money (“Escrow”) deposits: 200; 0.3; Dec. 2015
    - Public corporation liabilities (exc. NSSF and Bank of Uganda): 3,600; 4.8; June 2015
    - Bank of Uganda liabilities: 9,300; 12.5; June 2015
    - National Social Security Fund liabilities: 5,200; 7; June 2015
    - Public sector equity holdings and loans: 6,800; 9.2; June 2015
  - Note: Unreported specific fiscal risks represent 66 percent of GDP (Table 18 importance assessment).
- Long-term sustainability: Not Met — long-term debt projections published for 20 years but pension and other long-term liabilities not assessed/published; debt expected to rise sharply until 2021 then decline conditional on lower public deficits and realization of growth benefits.
- Public sector pensions (Section 69):
  - Pension spending expected to increase from 2–3 percent of spending to 6 percent in 2060 due to expansion of government sector.
  - Present value of future public pension liabilities estimated at UGX 16 trillion (22 percent of GDP).
  - No reporting on sustainability of the current scheme.
- Budgetary contingencies: Not Met — legal provisions for Contingencies Fund exist (retain 3 percent of budget for unforeseen/unavoidable expenditure and 0.5 percent for natural disasters; PFMA amendment Nov. 2015 limited resources of the Fund to 0.5 percent for natural disasters); FY 2015/16 allocation provided but reallocated; FY 2016/17: no contingency allocation in proposed and approved budget.
- Assets and liability management (Basic):
  - Borrowing authorized by law; Public Debt Management Framework 2013 sets strategy including a debt ceiling and limit on non-concessional borrowing.
  - About half of domestic debt stock (12 percent of GDP) has maturity of less than a year due to steep yield curve.
  - Debt service-to-revenue ratio projected to reach 41 percent in FY 2019/20.
  - Financial public sector assets (FY 2014/15): BOG loans and equity UGX 5,400 billion (7.3 percent of GDP); loans from BOG to central government UGX 900 billion (1.2 percent of GDP); Treasury securities held by financial public corporation UGX 3,900 billion (5.2 percent of GDP); loans/equity participation in private sector UGX 6,800 billion (9.2 percent of GDP).
  - No comprehensive portfolio and risk management for public sector assets/liabilities; recommendation for consolidated public sector balance sheet.
- Guarantees and PPPs (Basic):
  - Face value reported loan guarantees: 0.6 percent of GDP as at Dec. 2015; no new guarantees in last five years.
  - Ongoing PPP project value: 5,130 billion UGX (6.8 percent of GDP); cumulative contingent liabilities (2016–19): 525 billion UGX (0.7 percent of GDP).
  - Projects in pipeline for next four years worth UGX 11.6 trillion (15 percent of GDP).
- Financial sector (Good):
  - Bank of Uganda publishes financial stability and supervision reports; stress tests and quarterly indicators regular.
  - Banking indicators — selected Uganda figures: Regulatory Capital to Risk Weighted Assets 21.0; Nonperforming Loans to Total Loans 5.1; Provisions to Nonperforming Loans 41.6; Return on Assets 3.6.
  - Deposit protection: Escrow deposits UGX 200 bn (0.3 percent of GDP) not covered; in major banking crisis with blanket government guarantee fiscal costs could reach 20 percent of GDP.
  - Table 17 (Coverage of Deposit Insurance Schemes) — Uganda:
    - Deposits: 20.5 (Percent of GDP)
    - Eligible deposits: 1.0
    - Deposits covered by current market value of deposit insurance fund: 0.4
    - Deposits not covered because of insufficient funds in insurance scheme: 0.6
    - Non-eligible (uninsured) deposits: 19.5
- Natural resources (Basic):
  - Up to 1.7 billion barrels of recoverable oil reserves discovered; production unlikely before 2020.
  - At peak production, oil could account for seven percent of Uganda’s GDP and bring revenues of three percent of GDP to the government.
  - Mineral sector production estimate: UGX 170 billion annually (0.2 percent of GDP); fiscal revenue from minerals in FY 2014/15: UGX 6 billion (less than 0.5 percent of government revenue).
  - PFMA establishes Petroleum Fund at Bank of Uganda; restricts use to finance infrastructure and development projects through the Consolidated Fund and acquisition of foreign currency denominated assets through the Petroleum Revenue Investment Reserve.
- Environmental risks (Basic): qualitative discussions present; legal contingency allocation for natural disasters: 0.5 percent of budget but actual allocation minimal: UGX 7 billion (-0.05 percent of the budget in FY 2015/16).
- Sub-national governments (Basic): local governments execute about 14 percent of the annual national budget; consolidated annual financial statements of local government sector not produced despite legal requirement.
- Public corporations (Basic): transfers disclosed in budget; consolidated information not available; submission of financial statements to Accountant General uneven and delayed; public corporations largely profitable.

### Table 18 — Summary Assessment of Fiscal Risk Reporting (selected assessments)
- Uganda meets at least basic practice in ten out of 12 dimensions.
- Recommended actions:
  - Improve Fiscal Risk Statement with probabilistic forecasts; comprehensive reporting drawing on other reports; long-term fiscal projections for next 30–50 years including oil revenue; government contractual obligations under existing PPPs over project lifetimes. (3.1)
  - Implement PFMA (2015) by providing a contingency in the budget. (3.2)
  - Regularly report estimates of value of oil resources under different scenarios and report on position/utilization of the Petroleum Fund. (3.3)
  - Publish consolidated reports on financial performance and position of public corporations and local governments. (3.4)

---

### Conclusions — Summary of Priority Actions
- Expand institutional coverage of fiscal reporting to general government (extra-budgetary units, local governments, public corporations).
- Publish comprehensive tax expenditure reports and make URA estimates publicly available.
- Incorporate balance sheets into fiscal reporting, including actuarially estimated public pension liabilities, fixed and subsoil assets, PPP assets/liabilities.
- Publish reconciled fiscal data and forecast reconciliations showing causes of deviations.
- Strengthen project appraisal, procurement transparency, and publish feasibility studies and cost benefit analyses for major investment projects.
- Establish independent evaluation of macroeconomic and fiscal forecasts (e.g., independent fiscal council or stronger Parliamentary Budget Office role).
- Improve fiscal risk reporting: probabilistic scenarios, long-term sustainability analysis (30–50 years), contingency budgeting, consolidated reporting for public corporations and local governments, and transparent reporting of oil revenue scenarios and Petroleum Fund operations.

*Source: IMF Fiscal Transparency Evaluation mission report (evaluation completed May 2016).*

### PREFACE _________________________________________________________________________________________ 5

### PREFACE

### Mission and Purpose
- A Fiscal Transparency Evaluation (FTE) mission from the IMF’s Fiscal Affairs Department visited Kampala from April 27–May 10, 2016.
- The mission was led by Suzanne Flynn and included Kubai Khasiani, Fazeer Sheik Rahim, Brooks Robinson, and Amitabh Tripathi from AFRITAC East, and Imran Aziz from AFRITAC South.
- A preparatory mission comprising Fazeer Sheik Rahim, Brooks Robinson, and Paul Seeds took place over March 21 to 24, 2016.
- Objective: evaluate Uganda’s fiscal reporting, fiscal forecasting and budgeting, and fiscal risk analysis and management against the 2014 IMF Fiscal Transparency Code.
- The evaluation is part of a fiscal surveillance action plan agreed between the East African Community Secretariat and partner states ahead of the target date for regional monetary union of 2024.

### Basis, Scope, and Limitations
- Evaluation is based on information available at the time it was completed in May 2016.
- Findings and recommendations are the views and advice of the IMF mission team and do not necessarily reflect the government of the Republic of Uganda.
- Unless otherwise specified, data in the report are estimates made by the IMF mission team and are not official government estimates.

### Stakeholder Engagement
- Meetings held at the Ministry of Finance with the Permanent Secretary/Secretary to the Treasury and staff from Economic Affairs, Budget, Cash and Debt Management Directorates, and the Accountant General’s Office.
- External meetings included: Auditor General, Parliamentary Budget Office, Uganda Revenue Authority, Uganda Bureau of Statistics, Bank of Uganda (BoU), National Planning Authority, Ministry of Energy and Minerals, Ministry of Local Government, Office of the Prime Minister, Economic Policy Research Centre, Electricity Regulatory Authority, civil society (Civil Society Budget Advocacy Group), and donor partners in Uganda.
- Acknowledgements: Mr. Obadia Turinawe for organizing meetings; IMF Uganda office staff (Clara Mira, Caroline Akishule, Winifred Bisamaza); Rohini Ray (FAD Research Assistant) for data compilation and cross-country comparisons.

### Executive Summary — Key Strengths
- Recent reforms have added important elements of fiscal transparency:
  - Public Finance Management Act 2015 (PFMA) specifies budget calendar, main contents of budget documents, and roles of legislature and executive; enhanced timeliness of budget presentation and publication of audited annual financial statements.
  - Budget documents include forecasts of main macroeconomic variables, medium-term revenue and expenditure projections, and budget year gross revenue and expenditure plans for budgetary central government (BCG) and 13 extra-budgetary units; they set out main policy objectives and summarize past performance.
  - A dedicated website is actively updated with online information on budgets, budget releases, revenue and expenditure for local governments, and semi-annual performance reports for central government.
  - Debt sustainability and debt strategy reports assess risks around government stock of debt and provide projections under alternative economic scenarios; other reports provide information on contingent liabilities (court claims, guarantees, PPP commitments).

### Executive Summary — Main Shortfalls and Quantified Gaps
- Overall scoring: Uganda meets at least good or advanced practice in 13 of the 36 dimensions of the first three pillars of the Fiscal Transparency Code; 23 of the 36 dimensions are scored as basic or not met.
- Coverage gaps:
  - Budget and semi-annual budget execution reports cover about 77 percent of public sector expenditure, excluding full revenues and expenditure of around 63 central government extra-budgetary units and 32 public corporations.
- Unreported liabilities:
  - Government’s future pension obligation under the civil servant pension scheme has not been disclosed and is estimated to be around 22 percent of GDP.
- Tax expenditure coverage:
  - The list of tax exemptions does not cover a complete range of tax expenditures.
- In-year budget changes and control:
  - Expenditure reductions and reallocations have averaged over 6 percent of total expenditure and have not required prior approval of Parliament; a complete summary and explanation of changes has not been made public until late in the fiscal year.
- Public investment management:
  - Public Investment Plan does not clearly state lifetime costs of projects or summarize planned expenditure over the medium term.
- Fiscal risk reporting:
  - Information on macroeconomic and specific fiscal risks is published but scattered; a summary fiscal risk statement was published for the first time in the year of the evaluation.
  - Important risks not covered include sustainability of the civil service pension scheme and management of public assets and liabilities.
  - No budgetary provision for contingencies is yet in place.

### Emerging Fiscal Challenges
- Oil revenues:
  - From 2020, new revenues from oil are expected, estimated at up to 3 percent of GDP at peak production.
  - Natural resource revenues are volatile and exhaustible, posing significant fiscal management challenges.
- East African Monetary Union (EAMU):
  - Uganda is a signatory of the EAMU Protocol targeting a single currency by 2024.
  - Protocol and guidelines require additional fiscal reporting: regular assessments of fiscal outlook against convergence criteria and an annual fiscal risk statement; adherence to fiscal deficit and debt ceilings in the three years ahead of 2024.
- Infrastructure plans:
  - Government plans a program of large infrastructure projects using PPPs and external loans; such projects can be sources of fiscal risks that require careful management.

### Priority Recommendations (text identifiers preserved)
- Enhance coverage and comparability of budget documents and fiscal reports:
  - Expand data collection for extra-budgetary units and local governments to develop fiscal reporting on a general government basis in line with East African Community (EAC) requirements. (1.1)
  - Publish comprehensive reports on tax expenditures and the annual financial statements. (1.2)
  - Incorporate balance sheets into fiscal reporting, and progressively expand their coverage to include liabilities, such as actuarially estimated public pension liabilities, and nonfinancial assets. (1.3)
- Enhance integrity of fiscal reports:
  - Publish reconciled fiscal data to enhance comparability of annual financial statements with budget outturns and fiscal statistics. (1.4)
- Improve transparency and control of investment projects:
  - Include estimates of total project costs in budget documents with projected expenditures over the medium-term expenditure framework and ensure all major projects are subject to a feasibility study including a cost benefit analysis that is published. (2.1)
- Publish and report on fiscal objectives:
  - Publish the Charter for Fiscal Responsibility and regularly report on: (i) the impact of proposed changes in revenue and expenditure; (ii) the measures to meet the fiscal policy objectives; and (iii) the progress against these objectives. (2.2)
- Provide clear and timely information on in-year changes to budget plans:
  - Provide a summary of in-year changes to expenditure and revenue plans by budget unit (vote) shortly after they have been agreed, and incorporate the information in the subsequent semi-annual execution report. (2.3)
- Improve management of fiscal risks:
  - Enhance the fiscal risk statement by including probabilistic forecasts of fiscal outcomes; more comprehensive reporting of specific fiscal risks; analysis of long-term fiscal projections for the next 30–50 years using demographic, macroeconomic, and fiscal assumptions, including oil revenue; and government contractual obligations under existing PPPs over the lifetime of the projects. (3.1)
  - Implement the PFMA (2015) by providing a contingency in the budget. (3.2)
  - Regularly report estimates of the value of oil resources under different scenarios for price, start date for extraction and extraction rate, and the position of and utilization from the Petroleum Fund. (3.3)
  - Publish consolidated reports on financial performance and position of public corporations and local governments. (3.4)

### Implementation and Ongoing Reforms
- Ministry of Finance is working on producing fiscal statistics on a general government basis with support from East AFRITAC.
- Ministry is working on its first Charter of Fiscal Responsibility, due within three months of the new Parliament’s first sitting, to set out medium-term fiscal objectives and related reporting requirements.
- A newly established unit for public investment and public-private partnerships is developing processes to ensure only growth-enhancing projects are included in the Public Investment Plan and the medium-term expenditure framework.

### Assessment Structure and Focus
- The main report assesses Uganda’s practices against the IMF Fiscal Transparency Code across three pillars: fiscal reporting; fiscal forecasting and budgeting; and fiscal risks.
- Each section assesses compliance with the Code and the importance of shortcomings for Uganda’s circumstances (see Table 1: Summary Assessment Against the Fiscal Transparency Code).

*Source: IMF Fiscal Transparency Evaluation mission report (evaluation completed May 2016).*

### 1.      This section assesses the quality of fiscal reports against the principles of the Fiscal

### 1.      This section assesses the quality of fiscal reports against the principles of the Fiscal

### Assessment scope
- Evaluates whether fiscal statistics, financial statements, and in-year and end-of-year budget-execution reports:
  - Cover all institutional units engaged in fiscal activity for the entire public sector;
  - Record all assets and liabilities and all revenue, expenditure, financing, and other economic flows;
  - Are published in a frequent and timely manner;
  - Are classified according to international standards;
  - Are comparable with each other and reconcile different balances;
  - Are prepared by an independent agency (in case of statistics) or are scrutinized by an independent auditor (in case of accounts).

### Positive features of Uganda’s fiscal reports
- Semiannual and annual budget performance reports describe and assess outturns of revenue, expenditure, and financing by economic and administrative categories, and provide detailed information on nonfinancial performance by budget entities.
- Semiannual reports are published with flows and stocks of debt.
- The Office of the Auditor General audits entities of the public sector and the audit reports are published within six months of the end of the fiscal year.
- The Annual Consolidated Financial Statement for the BCG is published as part of the Annual Audit Report.
- Monthly finance statistics are published for the BCG and annually for local governments following the IMF’s Government Finance Statistics Manual 2014 (GFSM 2014) standard.

### Transparency and publication practices (findings)
- The Ministry of Finance’s budget transparency website publishes outturn data by budget unit (vote) on a quarterly basis, but the data is not consolidated and reconciled with the published statistics.
- The Quarterly Report on Expenditure Limits for budgetary units does not track progressive releases for the year against the approved budget.
- Budget performance reports:
  - Contain detailed information on financial and nonfinancial performance.
  - Do not track in-year revisions to the budget.
  - Are produced semiannually with a time lag of three months and do not enable monitoring of budget execution in-year.

### Coverage limitations (enumerated findings)
- Regularly produced fiscal reports cover only the BCG and local government.
- Fiscal statistics are produced separately for the BCG and for local government, but the statistics are not consolidated.
- None of the fiscal reports provide complete information on the fiscal operations of extra-budgetary units and public corporations.
- The Accountant General prepared a summary statement of performance of public corporations and state enterprises in 2014/15, but this was not published.

### Institutional coverage (Not Met)
- The public sector is estimated to consist of 523 separate entities (Table 3).
  - Public Sector (I + II): 523 entities
  - General Government (I + II): 491 entities
  - Central Government total: 185 entities
    - Budgetary central government: 122
    - Extra-budgetary units: 63
  - Local Government: 306 entities
  - Social Security: 0
  - Public Corporation: 32 entities
- Uganda does not have a social security fund as the NSSF is a provident fund and is classified as a public corporation.
- The wider public sector includes the central bank (Bank of Uganda) and 31 other public corporations.
- Current coverage of fiscal reports:
  - 95.7 percent of the central government
  - 99.2 percent of the general government
  - about 81.4 percent of the public sector expenditures
- Efforts underway to expand coverage of financial statements to include extra-budgetary units, local governments, public corporations, and state enterprises to meet PFMA 2015 and EAC/EMU reporting requirements.

### Public sector consolidated accounts (FY 2014–15 summary accounts, percent of GDP)
- Table 4: Summary Accounts of the Public Sector, 2014–15 (Percent of GDP)
  - Revenue: BCG 14.5; EBUs 1.5; Local Gov. 3.3; Consol. General Gov. -4.6; General Gov. 14.7; Public Corp. 3.7; Central Bank 0.2; Consol. Public Sector 18.6
  - Expenditure: BCG 16.7; EBUs 1.5; Local Gov. 3.2; Consol. General Gov. -4.6; General Gov. 16.8; Public Corp. 3.2; Central Bank 0.4; Consol. Public Sector 20.5
  - Balance: BCG -2.1; EBUs 0.0; Local Gov. 0.1; Consol. General Gov. 0.0; General Gov. -2.1; Public Corp. 0.5; Central Bank -0.2; Consol. Public Sector -1.9
  - Assets: BCG 99.8; EBUs 2.7; Local Gov. 2.1; Consol. General Gov. 0.0; General Gov. 104.6; Public Corp. 15.0; Central Bank 17.1; Consol. Public Sector -15.2; Consol. Public Sector total 121.5
    - Nonfinancial assets: BCG 90.2; EBUs 0.5; Local Gov. 1.9; Consol. General Gov. 0.0; General Gov. 92.7; Public Corp. 5.5; Central Bank 0.3; Consol. Public Sector 0.0; Public Sector 98.5
    - Financial assets: BCG 9.6; EBUs 2.2; Local Gov. 0.2; Consol. General Gov. 0.0; General Gov. 11.9; Public Corp. 9.5; Central Bank 16.8; Consol. Public Sector -15.2; Public Sector 22.9
  - Liabilities: BCG 60.1; EBUs 0.4; Local Gov. 0.0; Consol. General Gov. 0.0; General Gov. 60.5; Public Corp. 15.0; Central Bank 17.5; Consol. Public Sector -15.2; Public Sector 77.7
  - Net financial worth: BCG -50.6; EBUs 1.8; Local Gov. 0.2; Consol. General Gov. 0.0; General Gov. -48.6; Public Corp. -5.5; Central Bank -0.7; Consol. Public Sector 0.0; Public Sector -54.8
  - Net worth: BCG 39.7; EBUs 2.3; Local Gov. 2.1; Consol. General Gov. 0.0; General Gov. 44.1; Public Corp. 0.0; Central Bank -0.4; Consol. Public Sector 0.0; Public Sector 43.7
  - Net worth excluding equity: BCG 34.5; EBUs 2.1; Local Gov. 2.1; Consol. General Gov. 0.0; General Gov. 38.8; Public Corp. 4.9; Central Bank 4.6; Consol. Public Sector 0.0; Public Sector 48.3
- Notes:
  - The BCG, extra-budgetary units, and local governments accounted for 16.8 percent of the 20.5 percent of spending in Uganda’s economy as measured by GDP.
  - GDP used: expenditure basis at market prices, for FY 2014/15, 74,565 bn UGX.

### Effect of expanding coverage (interpretation)
- Expanding institutional coverage to the full public sector:
  - Reduces the measured deficit: combined BCG and local governments deficit around 2.1 percent of GDP; full public sector deficit declines to 1.9 percent of GDP due to consolidation.
  - Increases measured liabilities: BCG and local governments account for 60.5 percent of GDP in liabilities; entire public sector liabilities rise to 77.7 percent of GDP.
  - Public sector assets equal 121.8 percent of GDP, producing net worth of 48.3 percent of GDP for the public sector.

### Coverage of stocks (Basic)
- Reported and available stock data:
  - Fiscal reports reflect the stock of currency and deposit assets and of all relevant debt instruments for the BCG.
  - Government cash balances and other financial assets are available in the consolidated financial statements and Bank of Uganda reports.
  - Debt data are published semi-annually in the Debt Statistical Bulletin.
  - Annual financial statements provide consolidated flow and stock information for budget units.
- Main current gaps (enumerated):
  - Pension liabilities:
    - Actuarial-based estimates of civil service pension liabilities are excluded from BCG balance sheets.
    - Pension liabilities are estimated at 21.8 percent of GDP.
  - Nonfinancial assets:
    - Fixed assets, inventories, non-produced assets, and valuables are not fully reported.
    - Fixed assets were estimated for budgetary central and local government at about 26 percent of GDP (via simplified perpetual inventory method).
    - Subsoil assets (oil and natural gas) were estimated at about 55 percent of GDP.
  - PPP-related assets and liabilities:
    - PPP liabilities are estimated at about 6.6 percent of GDP.
    - Further analysis of individual PPP contracts is needed to assess contingent liabilities.
  - Public corporations:
    - Account for about 32 percent of the Government of Uganda’s assets and liabilities on an unconsolidated basis.
    - This is not reflected in fiscal reports and was derived from balance sheets of 16 of the largest public corporations.

### Estimated public sector balance sheet (Table 5, percent of GDP)
- Assets (total): BCG 99.8; EBUs 2.7; Local Gov. 2.1; Consol. General Gov. 0.0; General Gov. 104.6; Public Corp. 15.0; Central Bank 17.5; Consol. Public Sector -15.2; Public Sector 121.8
  - Nonfinancial assets: BCG 90.2; EBUs 0.5; Local Gov. 1.9; General Gov. 92.7; Public Corp. 5.5; Public Sector 98.5
    - Fixed assets not reported: BCG 24.0; Local Gov. 1.9; Consolidated fixed assets 26.0
    - Subsoil assets not reported: BCG 54.7; Consolidated subsoil assets 54.7
    - PPP assets: 6.6 percent of GDP
  - Financial assets: BCG 9.6; EBUs 2.2; Local Gov. 0.2; General Gov. 11.9; Public Corp. 9.5; Central Bank 17.2; Public Sector 23.3
    - Currency and deposits: BCG 2.1; Local Gov. 0.1; General Gov. 2.3; Public Corp. 1.0; Central Bank 8.4; Public Sector 9.6
    - Loans: BCG 2.1; EBUs 0.4; General Gov. 2.5; Public Corp. 0.7; Central Bank 1.2; Public Sector 2.1
    - Equity: BCG 5.2; EBUs 0.2; General Gov. 5.4; Public Corp. 1.6; Central Bank 5.2; Public Sector 7.1
- Liabilities (total): BCG 60.1; EBUs 0.4; Local Gov. 0.0; General Gov. 60.5; Public Corp. 15.0; Central Bank 17.5; Public Sector 77.7
  - Reported in financial statistics (subtotal): 45.8 percent of GDP
    - Debt securities: 9.5 (BCG) and 3.9 (Public Sector)
    - Loans: 20.3 (BCG) and 19.6 (Public Sector)
    - IPSIG: 0.3 (BCG) and 7.2 (Public Sector)
  - Not reported in financial statistics (subtotal): 32.8 percent of GDP
    - Pension liabilities: 21.8 percent of GDP
    - PPP liabilities: 6.6 percent of GDP
    - Equity adjustments: 4.4 percent of GDP
- Net financial worth: BCG -50.6; EBUs 1.8; Local Gov. 0.2; General Gov. -48.6; Public Corp. -5.5; Central Bank -0.3; Public Sector -54.4
- Net worth: BCG 39.7; EBUs 2.3; Local Gov. 2.1; General Gov. 44.1; Public Sector 44.1
- Net worth, excluding equity: BCG 34.5; EBUs 2.1; Local Gov. 2.1; General Gov. 38.8; Public Corp. 4.9; Central Bank 4.6; Public Sector 48.3
- Remark: Without BCG fixed, PPP, subsoil assets, and local government fixed assets, nonfinancial assets for the public sector would fall from 92.7 percent to 6.6 percent of GDP; total public sector assets would fall from 121.8 percent to 34.5 percent of GDP. Exclusion of BCG and Bank of Uganda pension liabilities would reduce total liabilities from 77.7 percent to 44.9 percent of GDP.

### Coverage of flows (Basic)
- Fiscal reports cover cash revenue, expenditures, and financing on a modified cash basis.
- Revenue includes tax and nontax revenue, but does not include local government own-source revenue (not sizeable).
- BCG transfers to extra-budgetary units, local governments, and projects outside IFMS are recorded as expenditure when funds are disbursed; transfers to these entities were estimated at about 4.6 percent of GDP for FY 2014/15.
- Other economic flows (holding gains/losses or changes in the volume of assets and liabilities) are not fully recorded.
- Certain accrual-based flows are omitted and could affect the fiscal balance significantly.

### Cash-to-accrual adjustment (impact of payment arrears)
- Table 6: Cash to Accrual Adjustment, June 2015
  - Cash fiscal balance: -1,602.5 billion UGX; -2.1 percent of GDP
  - Accrued expenditures:
    - Arrears - Ministries: 393.8 billion UGX; 0.5 percent of GDP
    - Arrears - Agencies: 472.6 billion UGX; 0.6 percent of GDP
    - Arrears - Pensions: 216.7 billion UGX; 0.3 percent of GDP
    - Arrears - Other: 2.3 billion UGX; 0.0 percent of GDP
  - Accrual fiscal balance: -2,687.9 billion UGX; -3.6 percent of GDP
- Incorporating arrears would raise the FY 2014/15 deficit from 2.1 percent of GDP to 3.6 percent of GDP.

### Coverage of tax expenditures
- Coverage of tax expenditures: Not Met.

*Source: cr17130 - 1.      This section assesses the quality of fiscal reports against the principles of the Fiscal (PDF).*

### 13.      Published reports on tax exemptions covers only a small proportion of total

### 13.      Published reports on tax exemptions covers only a small proportion of total

### Coverage and publication of tax expenditure reports
- Published annual report submitted to Parliament and on the Ministry of Finance website covers only the tax exemptions issued by the Ministry of Finance.
- These exemptions form only 2.5 percent of the total estimated tax expenditures in 2014/15.
- The Uganda Revenue Authority (URA) produces annually, for internal circulation, a Report on Revenue Foregone Due to Tax Exemptions/Incentives that is more comprehensive and provides estimates by sector and policy area; however, this report is not published.
- The annual value of revenue foregone from tax exemptions is estimated at 1.2 percent of GDP for FY 2014/15.

### Table 7 — Uganda: Value of Tax Expenditures (Billion UGX)
- 2011/12: Exempted Income 70.5; Value Added Tax 607.5; International Trade 434.2; Total 1112.2; o/w Published 11.6; Share of total revenue (%) 17.9; Share of GDP (%) 1.9
- 2012/13: Exempted Income 142.6; Value Added Tax 398; International Trade 570.8; Total 1111.5; o/w Published 9; Share of total revenue (%) 15.5; Share of GDP (%) 1.7
- 2013/14: Exempted Income 150.6; Value Added Tax 544.5; International Trade 584.2; Total 1279.3; o/w Published 16.5; Share of total revenue (%) 15.9; Share of GDP (%) 1.9
- 2014/15: Exempted Income 101.9; Value Added Tax 115; International Trade 666.4; Total 883.4; o/w Published 22.6; Share of total revenue (%) 9.1; Share of GDP (%) 1.2

### Legal requirements and implications for transparency
- Article 152 (2) of the Constitution requires periodic submission of reports on tax expenditures to the Parliament.
- The PFMA 2015 defines the frequency of reporting and requires quarterly reports on tax exemptions to be submitted to Parliament.
- The URA annual report provides a broader basis for meeting this requirement.
- Publishing more comprehensive tax expenditure reports will enhance transparency and improve understanding of tax incentive schemes and their impact on the Ugandan economy.

### Frequency and timeliness of fiscal reporting (extracts relevant to tax expenditure publication context)
- In-year fiscal reports: Ministry of Finance publishes monthly fiscal statistics for the BCG within four to six weeks of the reporting period.
- Semi-Annual Budget Performance Report published with a lag of around one quarter; quarterly budget execution data for each budget unit published with a lag of six to eight weeks (not consolidated).
- Ministry of Finance has started publishing semiannually a new Debt Statistical Bulletin; there are plans to accelerate to quarterly publishing.

### Quality, internal consistency, and reconciliation issues relevant to reporting integrity
- Fiscal reports include reconciliations between fiscal balance and financing; an “errors and omissions” item is used to account for differences.
- Estimates suggest that from FY 2012/13 to 2014/15, these discrepancies averaged about 0.19 percent of GDP.
- Stock-flow adjustment averaged -0.2 percent of GDP for FY 2012/13 to FY 2014/15, explained by:
  - Net acquisition of financial assets: -1.7 percent of GDP
  - Revaluation of the debt: 3.0 percent of GDP
  - Statistical discrepancy: -1.5 percent of GDP
- The statistical discrepancy is significant and should be investigated and explained.
- Revisions to fiscal statistics are not reported or explained; over the last five years, average annual revisions to the fiscal balance were only 0.05 percent of GDP.
- No revisions are provided for the data submitted to the IMF’s Government Finance Statistics Yearbook (GFSY).

### Conclusions on fiscal reporting coverage and integrity (summary excerpts)
- Uganda meets at least basic practice in nine of the twelve principles of the Fiscal Transparency Code for fiscal reporting.
- Advanced practice is met for timeliness of annual financial statements.
- Good practice for frequency of in-year reporting, classification of information, statistical integrity, and external audit.
- Areas needing improvement: coverage of institutions and tax expenditures; reporting of stocks (including nonfinancial assets and pension liabilities); publishing reconciliations between stocks and flows; improving comparability of statistics across fiscal reports.

### Key recommendations (as stated)
- Expand data collection for extra-budgetary units and local governments to develop fiscal reporting on a general government basis in line with EAC requirements. (1.1)
- Publish comprehensive reports on tax expenditures and the annual financial statements on the Ministry of Finance website. (1.2)
- Incorporate balance sheet data into fiscal reporting, and progressively expand coverage to include missing assets and liabilities, such as actuarially estimated public pension liabilities, and nonfinancial assets. (1.3)
- Reconcile fiscal data to enhance comparability of annual financial statements with budget outturns and fiscal statistics. (1.4)

*Source: Uganda Revenue Authority and staff calculations; Ministry of Finance; Office of Auditor General (excerpts from the provided IMF chapter).*

### 31.      There is room to improve the credibility of fiscal forecasting and the budget

### 31.      There is room to improve the credibility of fiscal forecasting and the budget planning process

### Key findings (summary)
- Uganda performs relatively well in producing annual and medium-term revenue projections compared to regional peers, but significant weaknesses undermine overall budget credibility.
- Variations between approved budgets and outturns on the expenditure side are significant due to frequent budget reallocations and supplementary budgets.
- Unapproved expenditure and the accumulation of expenditure arrears point to weaknesses in expenditure planning and costing.
- Government forecasts are presented without any independent evaluation; changes and updates to previous forecasts are not documented; the effect of new policies on public finances are not discussed or published.
- Weaknesses in project appraisal, documentation, and implementation impair credibility of multi-annual investment commitments despite PFMA provisions for parliamentary approval.

### A. Comprehensiveness
- Budget unity (Good)
  - Domestic revenues, expenditures, and financing of central and local government entities are budgeted and authorized by Parliament on a gross basis.
  - Own revenues contribute only 2 percent of total revenues most of which is in the annual budget.
  - Off-budget donor funding for projects is reported at an aggregate level for the budget year and forecast for the medium term; Annex VII of the Budget Framework Paper is decreasing from 4.3 percent of the overall budget in FY 2014/15 to a projected low of 1.8 percent in FY 2016/17.
- Macroeconomic forecasts (Good)
  - Budget Framework Paper describes broad assumptions and outlook for GDP growth, inflation, fiscal policy, monetary policy, and external trade but these are not broken down by component or sectoral growth drivers.
  - Real GDP forecasts for the budget year have been less accurate when compared with peers due to under forecasting: the average forecast error for the budget year is high at 1 percentage point over a 10-year period (2000–10).
  - Trends in forecast errors have reversed since FY 2011/12, with over forecasting becoming more prominent.
  - Forecasts have remained around the target level of 7 percent but growth has averaged 4.1 percent over the period.
- Medium-term budget framework (Good)
  - The medium-term budget framework provides three-year fiscal projections and includes outturns of two preceding years, the annual budget, and medium-term projections.
  - Uganda’s revenue forecast errors averaged 1.1, 1.0, and 4.6 percentage points for the budget and two subsequent outer years for the period FY 2000/01 to FY 2012/13.
  - Expenditure forecast errors are larger and reflect significant variations between multi-year projections and annual outturns, amounting to 2.7, 9.4, and 10 percentage points for the budget and two outer years.
  - Reallocations have shifted resources from social and economic sectors to public administration, security, and justice sectors, with average deviations of 4 percent over the period examined.
- Investment projects (Not met)
  - The Public Investment Plan does not accurately reflect total obligations for multi-annual investment; top-down MTEF ceilings dictate project budgeting and multi-year projections neither constitute total obligations nor are consistent with annual outturns.
  - Karuma Hydroelectric Power Project (Project 1183) medium-term planned spending versus outturn:
    - In Public Investment Plan (UGX Bn.): Budget Year 1,044; Budget Year + 1 1,011; Budget Year + 2 1,037
    - Outturn (UGX Bn.): Budget Year 0.5; Budget Year + 1 32.3; Budget Year + 2 459.0
    - Difference (UGX Bn.): (1,043.50); (978.27); (577.66)
    - Difference (Percentage Points): (208,620); (3,032); (126)
  - Figure 9 shows variances in the Public Investment Plan for selected projects (2012/13–2014/15) with large over- and under-forecasts; funding to Karuma experienced variances of up to over 1000 percent over the medium term.
  - Decline in open and competitive procurement: value of open and competitive tenders as a percentage of all procurements dropped from 88 percent to 50 percent in FY 2014/15 (Public Procurement and Disposals Authority report).
  - Government does not provide central guidelines on project selection and appraisal; feasibility studies are commonly carried out for major projects but donor-funded project feasibility studies are not published. Ministry of Finance is developing appraisal guidelines with support from the World Bank.

### B. Orderliness
- Fiscal legislation (Good)
  - PFMA defines timetable for budget preparation and approval and key content requirements; other guiding laws include: National Audit Act, 2008; Public Procurement and Disposal of Assets Act, 2011; Local Government Act (Amended); Uganda Bureau of Statistics Act, 1998; Public-Private Partnership Act, 2015.
  - Legal framework does not clearly define the powers of Parliament to amend the proposed budget; Article 155(4) provides for committee review but PFMA and Parliamentary Rules of Procedure 2012 are not specific on the extent of parliamentary discretion.
- Timeliness of budget documents (Advanced)
  - Timeliness has significantly improved since PFMA 2015: 2015/16 annual budget presented April 1 and approved May 29, 2015.
  - Publication practices: budget documents published on the Ministry of Finance website and the Know Your Budget website at presentation to Parliament.
  - Table 11: Publication of Budget Documentation v. Statutory Deadlines, FY 2016/17
    - National Budget Framework Paper: Statutory deadline for submission December 31; Date delivered December 15, 2015; Statutory timeline for approval February 1; Date approved January 6, 2016; Date published January 6, 2015; Date effective July 1, 2016
    - Ministerial Policy Statement: Statutory deadline March 15; Date delivered March 15, 2015; Statutory timeline for approval May 30, 2016; Date approved May 3, 2016
    - Annual Budget: Statutory deadline April 1; Date delivered April 1, 2016

### C. Policy orientation
- Fiscal policy objectives (Basic)
  - Numerical objectives published in national budget documents:
    - Target for annual growth of domestic revenue collection: 0.5 percent
    - Target to reduce the overall balance to -3.4 percent of GDP by FY 2020/21
    - Target to limit debt to within 50 percent of GDP over the same period (consistent with the Public Debt Management Framework)
  - These targets lack the precision and biannual reporting required by the Charter of Fiscal Responsibility. Submission of the Charter to Parliament, per PFMA (Section 5), was expected in mid-2016.
  - Section 18 of the PFMA requires biannual reporting on how macroeconomic and fiscal performance may affect compliance with Charter objectives; this analysis is currently missing in the Budget Performance Report.
- Performance information (Good)
  - Budget documentation presents targets and performance against outputs by vote function and output; sector-level outcome indicators are included in the National Budget Framework Paper.
  - Biannual Budget Performance Report (Ministry of Finance) and Government Performance Report (Office of the Prime Minister) report on performance and are discussed at biannual Cabinet reviews.
  - Ministry of Finance has a monitoring unit that triangulates performance information with field visits to major investment projects and decentralized services.
  - Program budgeting planned: introduction of program-based structure for FY 2017/18 to distill high-level strategic outcomes and strengthen linkages to the National Development Plan.
- Public participation (Good)
  - Budget calendar provides platform for consultation with public and civil society during strategic budget phase; formalizing feedback and public deliberation would increase public involvement.
  - “Know Your Budget” website and Citizen’s Budget support public participation and transparency; Citizen’s Budget is designed to be accessible and to highlight major revenue measures and sector spending priorities.
  - Open budget index scoring: Uganda 62 (well above the global average 45 and regional peer Kenya 48).
  - Plans to publish the Citizen’s Budget alongside Approved Estimates and to include budget implications for different demographic groups will improve transparency.

### D. Credibility issues (summary and observations)
- Independent evaluation (Not Met)
  - Government forecasts are presented without independent evaluation.
  - Changes and updates to previous forecasts are not documented; the effect of new policies on public finances are not discussed or published.
- Expenditure credibility
  - Significant variations between multi-year projections and annual outturns; multi-year budgets have tended to be optimistic, suggesting projections are guided by medium-term fiscal targets rather than bottom-up expenditure needs.
  - Reallocations and deviations in sectoral shares (average deviation of 4 percent from social/economic to public administration/security/justice) reduce predictability of spending.
- Project-level credibility
  - Public Investment Plan underestimates or misstates total obligations for multi-annual investments; large forecast errors illustrated by Karuma project variances and Figure 9 project variances.
  - Procurement integrity concerns: open competition procurement value fell from 88 percent to 50 percent in FY 2014/15.
  - Lack of central guidelines on project appraisal and selection; donor-funded feasibility studies often unpublished.

_Source: Ministry of Finance; Approved Budget Estimates; Public Investment Plan; Budget Performance Reports; Public Procurement and Disposals Authority; National Budget Framework Papers._

### 51.      Uganda’s economic and fiscal forecasts are not currently subjected to independent

### 51.      Uganda’s economic and fiscal forecasts are not currently subjected to independent

### Independent evaluation of macroeconomic and fiscal forecasts
- Current practice:
  - Deliberations take place between Bureau of Statistics, the Central Bank, and the Ministry of Finance, and forecasts are discussed with the IMF through the Policy Support Instrument (PSI).
  - Budget documents do not include a formal independent analysis of the government’s forecast to test underlying assumptions or verify credibility.
  - The National Planning Authority produces an independent forecast, which serves as an ideal scenario for growth and sectoral allocations rather than a viable check of the forecasts.
  - The Parliamentary Budget Office plays an ex-post role in scrutinizing budget decisions, but does not produce an ex-ante independent evaluation.
- Recommendation and rationale:
  - Supporting the establishment of independent evaluations of the government’s macroeconomic and fiscal forecasts may help reduce errors identified in recent years.
  - This role can be fulfilled by an independent fiscal council, such as a Parliamentary Budget Office, as is the case in South Africa and Kenya.
  - There is scope for similar arrangements in Uganda, particularly with academic institutions such as the Economic Policy Research Centre.
  - Recent IMF research has shown that forecast bias tends to decline in countries that have set up independent fiscal institutions.
  - An interim step would be to publish comparisons with the forecasts of reputable international and regional institutions.

### Supplementary budget (Basic)
- Legal framework and practice:
  - The law limits additional expenditure to three percent of the approved budget subject to notifying Parliament within four months.
  - The Minister is obliged to seek prior parliamentary approval for any additional expenditure above this 3 percent limit.
  - The Constitution allows for a supplementary budget where there is no appropriation or for monies expended for any purpose in excess of the appropriation.
  - Supplementary budget requirements have been continually met through the suppression of approved expenditures considered less critical, with investment projects being the main casualty.
- Historical record:
  - 12 out of the last 15 supplementary budgets have exceeded the 3 percent limit and have been implemented without ex-ante parliamentary approval.
  - Since FY 2000/01, supplementary budgets have exceeded 3 percent, with the exception of three financial years.
  - Over this period supplementary budgets have averaged 6.4 percent of budgeted spending (or 5 percent excluding the outlier in FY 2010/11).

### Forecast reconciliation (Not Met)
- Documentation gaps:
  - Budget documentation does not explain the differences between successive vintages of forecast information.
  - The Annual Budget Performance Report and Uganda Revenue Authority Bulletin provide some provisional reasons for deviations, but do not sufficiently explain whether differences were due to policy changes, new macroeconomic forecast determinants, or other factors such as one-off demands (for example, election spending).
- Recent variances:
  - Expenditure forecast errors (illustrative):
    - Fluctuated from a 28 percent underestimation in 2010/11 to a 13 percent and 10 percent overestimation in FY 2012/13 and 2013/14 respectively.
  - Domestic revenue forecast errors:
    - Ranged approximately between 3 percent and -6 percent over the same period.
  - Regional comparison:
    - Uganda’s domestic revenue forecast was more accurate than Kenya and Tanzania for the budget year and the first outer year.
- Recommendation:
  - Publish forecast reconciliations that break down differences between year-ahead forecasts and outturns by major expenditure categories and examine causes (economic forecast errors, policy changes, technical adjustments, or other factors) to inform future forecasts.

### Conclusions and policy recommendations
- Overall assessment:
  - Uganda scores well in budget unity, publication of forecasts and underlying assumptions, fiscal legislation, timeliness and inclusion of performance information, and public participation.
  - Weaknesses: multi-year commitments and cost benefit analyses for major investment projects are not published; openness and competitiveness of tendering process weakened; no independent evaluation of macroeconomic or fiscal forecasts; no explanation of differences between successive forecasts.
- Expectations with new PFM law:
  - New PFM law has enhanced performance under the Code; full implementation should improve transparency and scores, including publication and reporting against fiscal objectives in the Charter of Fiscal Responsibility and publication of multi-year commitments.
- Specific recommendations:
  - Include estimates of total project costs with projected expenditures over the medium-term expenditure framework in budget documents and ensure that all major projects are subject to a feasibility study including a published cost benefit analysis. (2.1)
  - Publish the Charter of Fiscal Responsibility and regularly report on: (i) the impact of proposed changes in revenue and expenditure; (ii) a clearer elaboration of the measures to meet the targets; and (iii) better reporting on the progress against targets through the Budget Performance Report. (2.2)
  - Provide a summary of in-year changes to expenditure and revenue plans by budget unit shortly after they have been agreed, and incorporate the information in the subsequent semi-annual budget execution report. (2.3)
  - Estimate, explain, and publish in budget documents the main factors, including new policy decisions, driving the changes between successive fiscal forecasts, setting out lessons for future forecasts. (2.4)

### Fiscal risks — disclosure, analysis, and key specific risks
- General findings:
  - Government has published a fiscal risk statement describing and quantifying macroeconomic and debt refinancing risks; coverage is limited but represents an effort toward transparency.
  - Various reports provide analysis of macroeconomic and specific fiscal risks (guarantees, litigation claims, contingent liabilities from PPPs).
  - Bank of Uganda publishes analysis on financial sector risks and deposit protection fund position.
  - Revenue from sale of mineral and oil resources and known reserves are regularly disclosed; environmental risks are discussed.
  - Information is scattered and could be summarized in the fiscal risk statement.
- Gaps versus the Fiscal Transparency Code:
  - Not met: Analysis of long-term sustainability of public finances including pension and other long-term liabilities is not published.
  - Not met: Insufficient budget allocation for contingencies in recent budgets, contravening PFMA 2015 and basic practice under the Code.
- Macroeconomic risks (Good):
  - Budget document contains sensitivity analysis of macroeconomic and fiscal scenarios.
  - The annual Debt Sustainability Analysis follows IMF-World Bank framework and considers lower growth, exchange rate depreciation, and higher fiscal deficit impacts.
  - Medium-Term Debt Strategy quantifies refinancing, interest rate, and foreign exchange risks.
  - Fiscal Risk Statement in the Budget Framework Paper for FY 2016/17 discusses factors leading to deviations from baseline macroeconomic projections.
  - Projected debt dynamics:
    - Planned scaling-up of public investment is expected to raise the debt to GDP ratio to 41 percent in net present value in FY 2020/21.
    - This is below the 50 percent debt limit set in the East African Monetary Union Protocol, which partner states are expected to maintain after 2021.
    - Probabilistic projections show some downside risks to breaching this limit.
- Specific fiscal risks (Basic):
  - Government reports on some specific risks: financing and execution risks of future investment projects; government loan guarantees; contingent liabilities from ongoing PPPs; value of legal claims and government guarantees in Consolidated Financial Statements.
  - Several large fiscal risks are not disclosed regularly: arrears, future pension liabilities, public corporation liabilities, public sector asset holdings, and support to the banking system.
- Size of selected specific fiscal risks (UGX, Billions; Percent of GDP; Date Reported):
  - Government loan guarantees: 450; 0.6; Dec. 2015
  - Eligible deposits not covered by value of deposit protection fund: 448; 0.6; Dec. 2015
  - Pending court cases: 4,312; 5.8; June 2015
  - Private-Public Partnership: 5,130; 6.8; Dec. 2015
  - Unfunded future pension liabilities: 16,170; 22; (Date reported not provided in table)
  - Uninsured deposits at privately-owned financial institutions: 14,530; 19.5; Dec. 2015
    - o/w Uninsured mobile money (“Escrow”) deposits: 200; 0.3; Dec. 2015
  - Public corporation liabilities (exc. NSSF and Bank of Uganda): 3,600; 4.8; June 2015
  - Bank of Uganda liabilities: 9,300; 12.5; June 2015
  - National Social Security Fund liabilities: 5,200; 7; June 2015
  - Public sector equity holdings and loans: 6,800; 9.2; June 2015
  - (Notes: sources include Report on Public Debt, Guarantees and Other Financial Liabilities and Grants; Consolidated Annual Financial Statements 2014/15; World Bank Report; and other referenced sections.)
- Long-term sustainability (Not Met):
  - Government publishes debt projections for the next 20 years; latest debt sustainability report suggests Uganda remains at low risk of debt distress.
  - Strong depreciation of the shilling has raised the debt burden since the preceding analysis.
  - Debt is expected to rise sharply until 2021 but to decline to sustainable levels thereafter, conditional on lower public deficits and realization of growth benefits from current infrastructure spending.

*IMF Country Report / assessment excerpts as provided in source content.*

### 69.      Public sector pensions are paid as an expense from the budget and there is no

### 69.      Public sector pensions are paid as an expense from the budget and there is no

### Public sector pensions and fiscal exposure
- Pension spending is expected to increase from 2–3 percent of spending to 6 percent in 2060, as a result of the expansion of the government sector.
- Present value of future public pension liabilities is estimated at UGX 16 trillion (22 percent of GDP).
- There is no reporting on the sustainability of the current scheme.

### Demographics and potential pressures on public spending
- Old age dependency ratio is likely to remain low in the foreseeable future.
- Population growth rate: 3.3 percent annually (compared to an average of 2.7 in sub-Saharan Africa).
- As Uganda graduates into middle-income status, the share of education and health in government spending is expected to increase (Figure 15).

### Budgetary contingencies (Not Met)
- Constitution and PFMA provide for a Contingencies Fund: retain three percent of the budget for unforeseen and unavoidable expenditure and half a percent of the budget to respond to natural disasters.
- PFMA amendment (November 2015) limited resources of the Fund to half a percent of the budget for natural disasters.
- FY 2015/16: allocation for contingencies was provided in the budget but reallocated during the year.
- FY 2016/17: no contingency allocation in both the proposed and approved budget.

### Assets and liability management (Basic)
- Borrowing authorized by law; Public Debt Management Framework of 2013 sets broad strategy including a debt ceiling and a limit on non-concessional borrowing.
- Annual Medium-Term Debt Strategy assesses refinancing, interest rate, and exchange rate risks.
- About half of domestic debt stock (12 percent of GDP) has maturity of less than a year due to steep yield curve.
- Debt service-to-revenue ratio projected to reach 41 percent in FY 2019/20.
- Domestic arrears grew after FY 2014/15 clearance; arrears accumulated by local governments likely small but not reported regularly.
- Financial public sector assets (FY 2014/15):
  - Stock of BOG loans to public and private entities and equity participation in public corporations: UGX 5,400 billion (7.3 percent of GDP).
  - Loans from the Bank of Uganda to central government: UGX 900 billion (1.2 percent of GDP).
  - Treasury securities held by financial public corporation (mainly NSSF): UGX 3,900 billion (5.2 percent of GDP).
  - Loans and equity participation in the private sector (public sector as whole): UGX 6,800 billion (9.2 percent of GDP).
- No comprehensive portfolio and risk management for public sector assets and liabilities; a consolidated public sector balance sheet recommended.
- Newly established cash and debt management directorate in the Ministry of Finance expected to manage both assets and liabilities.

### Guarantees (Basic)
- Report on Public Debt, Guarantees, and Grants publishes list of loan guarantees.
- No new guarantees issued in last five years; apparent policy to phase out guarantees.
- Face value of reported loan guarantees: 0.6 percent of GDP as at December 2015.
- Last called guarantee: UGX 14 billion (US $5.5 million) in FY 2012/13.
- Estimated guarantees embedded in PPP contracts (if called) amount to 0.7 percent of GDP for 2016–19.

### Public-private partnerships (Basic)
- PPP Act 2015 establishes legal and institutional framework: high-level PPP committee and PPP unit at the Ministry of Finance.
- Public Debt, Guarantees, and Grants report contains estimates of contingent liabilities over 2016–19 for seven ongoing PPP projects but does not explain government obligations or cover project lifetimes.
- Heavy reliance on PPPs to fund infrastructure; electricity access: 18 percent of the population in Uganda vs. 35 percent in sub-Saharan Africa.
- Power generation projects shown in table 3.3 generate about 80 percent of electricity in Uganda.
- Value of ongoing PPP projects (electricity and others): 6.8 percent of GDP with associated contingent liability of 0.7 percent of GDP for the next five years.
- Projects in pipeline for next four years: toll roads, an oil refinery, and 17 renewable energy projects, worth UGX 11.6 trillion (15 percent of GDP) in total.
- Table 15 (ongoing PPPs, UGX, billions) — aggregated:
  - Project Value (total): 5,130
  - Cumulative contingent liabilities (2016–19): 525
  - Percent of GDP: Project Value 6.8; Contingent liabilities 0.7

### Financial sector (Good)
- Bank of Uganda publishes annual financial stability and bank supervision reports; regular stress tests and quarterly financial soundness indicators.
- Banks have maintained capital above regulatory requirements and made adequate provisioning for nonperforming loans.
- Risks: trend towards bank concentration and dollarization of lending and borrowing.
- Indicators of Banking Sector Stability (Percent) — selected:
  - Uganda: Regulatory Capital to Risk Weighted Assets 21.0; Nonperforming Loans to Total Loans 5.1; Provisions to Nonperforming Loans 41.6; Return on Assets 3.6.
  - Comparative country figures provided (Kenya, Mauritius, Mozambique, Rwanda, South Africa, Tanzania) in Table 16.
- Deposit protection:
  - Two separate mandatory funds protect deposits at commercial banks/credit institutions (99 percent of deposits) and microfinance institutions (1 percent).
  - Coverage ratios exceed 40 percent of the value of eligible deposits.
  - Escrow deposits by mobile network operators not covered; current value UGX 200 bn (0.3 percent of GDP).
  - In a major banking crisis with a blanket government guarantee covering all deposits, fiscal costs could reach 20 percent of GDP (Table 17).
- Table 17 (Coverage of Deposit Insurance Schemes in the EAC, Percent of GDP) — Uganda figures:
  - Deposits: 20.5
  - Eligible deposits: 1.0
  - Deposits covered by current market value of deposit insurance fund: 0.4
  - Deposits not covered because of insufficient funds in insurance scheme: 0.6
  - Non-eligible (uninsured) deposits: 19.5

### Natural resources (Basic)
- Nontax mineral and oil revenues and estimates of reserves are reported; Ministry of Energy and Mineral Development publishes Annual Statistical Abstract with mineral and oil revenues and reserve estimates.
- Uganda is not a member of the Extractive Industries Transparency Initiative.
- Mineral sector production estimate: UGX 170 billion annually (0.2 percent of GDP).
- Fiscal revenue from minerals in FY 2014/15: UGX 6 billion (less than 0.5 percent of government revenue).
- Two mining projects at development stage: Kilembe copper mine and Sukulu phosphate and steel.
- Up to 1.7 billion barrels of recoverable oil reserves discovered; production unlikely to start before 2020.
- During peak extraction, oil production could account for seven percent of Uganda’s GDP and bring revenues of three percent of GDP to the government (Figure 18).
- PFMA establishes a Petroleum Fund held at the Bank of Uganda; restricts use to finance infrastructure and development projects through the Consolidated Fund and acquisition of foreign currency denominated assets through the Petroleum Revenue Investment Reserve.

### Environmental risks (Basic)
- Ministry of Water and Environment report identifies floods, landslides, and droughts as major risks and quantifies likely economic impacts of more frequent floods and droughts related to climate change.
- National Policy for Disaster Preparedness and Management (2010) sets up a Disaster Management Unit at the Office of the Prime Minister.
- Legal contingency allocation for natural disasters: 0.5 percent of the budget, but actual allocation minimal: UGX 7 billion (-0.05 percent of the budget in FY 2015/16).
- Projected economic loss related to natural disasters not particularly high for Uganda (Figure 19) but could rise due to:
  - Rapid population growth and urbanization.
  - Demand for water expected to increase tenfold by 2050.
  - Environmental degradation (loss of biodiversity in Lake Victoria, deforestation).
  - Risks from prolonged fight against terrorism and increased number of refugees.

### Sub-national governments (Basic)
- Government publishes information on fiscal operations of local governments, but no balance sheet.
- Aggregate grants and their use are in a monthly statement of BCG operations; annual statement of operations for local government (GFSM 2014) usually published but FY 2014/15 statement not yet published.
- Local governments submit financial statements to the Auditor General; consolidated audit report produced.
- Proportion of unqualified opinions of local government audits improved to 91 percent in FY 2014/15 from 37 percent in FY 2012/13.
- No consolidated annual financial statements of the local government sector despite legal requirement.
- Borrowing by local governments requires approval of the Minister of Finance; in practice they do not borrow. Last published audit report indicates expenditure beyond own revenues and grants by incurring arrears; extent unknown.
- Local governments execute about 14 percent of the annual national budget.

### Public corporations (Basic)
- Transfers to public corporations disclosed in the budget; no consolidated information available.
- Submission of financial statements to the Accountant General is uneven and often delayed; individual financial statements audited by the Auditor General.
- Public corporations are largely profitable (Figure 21).
- Bank of Uganda recapitalization:
  - Recapitalization since 2012 via issue of treasury bonds and bills reached a cumulative 1.1 percent of GDP in FY 2015/16.
  - Further issues amounting to 0.6 percent of GDP expected up to FY 2018/19.

_Document: cr17130 - 69.      Public sector pensions are paid as an expense from the budget and there is no_

### 88.      Table 18 summarizes the assessment of Uganda’s practices against those of the

### Table 18. Summary Assessment of Uganda’s Fiscal Risk Reporting

### Overall findings
- Uganda meets at least the standard of basic practice in ten out of the 12 dimensions.
- The analysis, disclosure, and management of fiscal risks and fiscal coordination within the public sector can be improved by:
  - More comprehensive disclosure of specific fiscal risks in the budget documents.
  - Providing consolidated reports on the position and performance of local governments and public corporations.
  - Integrating the management of fiscal risks in the budget process through realistic allocations to the Contingencies Fund.
  - Strengthening transparency around oil revenue as oil prospects take shape through improved reporting of oil reserves, revenue projections under various scenarios, and the position and utilization of the Petroleum Fund.

### Recommended actions (as presented)
- Improving the Fiscal Risk Statement by including:
  - Probabilistic forecasts of fiscal outcomes;
  - More comprehensive reporting of specific fiscal risks drawing from various other government reports;
  - Analysis of the long-term fiscal projections for the next 30–50 years using various demographic, macroeconomic and fiscal assumptions, including oil revenue; and
  - Government contractual obligations under existing PPPs over the lifetime of the projects. (3.1)
- Implement the PFMA (2015) by providing a contingency in the budget. (3.2)
- Ensure regular reporting of the estimates of the value of oil resources under different scenarios for price, start date for extraction and extraction rate, and report on the position and utilization from the Petroleum Fund. (3.3)
- Publish consolidated reports on financial performance and position of public corporations and local governments. (3.4)

### Key assessments and importance by dimension (from Table 18)
- 3.1.1 Macroeconomic Risks
  - Assessment: Good: Budget documentation contains sensitivity analysis to macro-fiscal shocks.
  - Importance: Medium: Debt is expected to be close to pre-HIPC levels in 2021.
- 3.1.2 Specific Fiscal Risks
  - Assessment: Basic: Some fiscal risks are reported but information is scattered.
  - Importance: High: Unreported specific fiscal risks represent 66 percent of GDP.
- 3.1.3 Long-Term Fiscal Sustainability
  - Assessment: Not Met: Debt sustainability analysis covers 20-year span but pension and other long term liabilities are not assessed and published.
  - Importance: Medium: Significant pension liabilities resulting from a generous public pension system.
- 3.2.1 Budgetary Contingencies
  - Assessment: Not Met: Legislation provides for Contingencies Fund for natural disasters, and sets access and reporting rules. In practice, this has not been implemented.
  - Importance: Medium: Use of contingency funds for non-priority spending hampers the response to emergency or unexpected in-year developments.
- 3.2.2 Asset and Liability Management
  - Assessment: Basic: Risks to debt portfolio are analyzed and published. Little analysis of risks around wider assets (equity in public corporations) and liabilities (arrears).
  - Importance: Medium: Refinancing risk of domestic debt. Public sector financial assets 23% of GDP; non-financial assets of 92% of GDP.
- 3.2.3 Guarantees
  - Assessment: Basic: Loan guarantees are published. No ceiling on guarantees yet––ceiling to be set in forthcoming Charter for Fiscal Responsibility as per provisions of PFMA 2015.
  - Importance: Low: The stock of guarantees is low and no new guarantees have been issued recently.
- 3.2.4 Public-Private Partnerships
  - Assessment: Basic: Estimates of contingent liabilities are reported but do not cover the full horizon of PPP contracts. The contractual obligations of the government are not published.
  - Importance: High: Heavy reliance on PPPs for electricity generation. Several large projects are in the pipeline (projected spending amounting to 15 percent of GDP). (3.1)
- 3.2.5 Financial Sector Exposure
  - Assessment: Good: Regular assessments of the financial sector and results of bank stress tests are published. No assessment of wider financial sector.
  - Importance: Medium: Low risk of bank distress but increased dollarization and financial innovations pose new risks.
- 3.2.6 Natural Resources
  - Assessment: Basic: Revenue and estimated reserves of oil and minerals published, but no estimates under different price scenarios.
  - Importance: High: Potentially important fiscal revenue from oil in the future (3 percent of GDP at peak production). (3.3)
- 3.2.7 Environmental Risks
  - Assessment: Basic: Report contains qualitative discussions of main sources of environmental risks.
  - Importance: Medium: Currently low but rising cost of natural disasters and environmental degradation.
- 3.3.1 Subnational Governments
  - Assessment: Basic: Consolidated information on local government operations and monthly transfers from central government published. Local government cannot borrow without authorization but may resort to arrears.
  - Importance: Medium: Local governments execute 14% of the budget and have accumulated arrears. (3.4)
- 3.3.2 Public Corporations
  - Assessment: Basic: Transfers to public corporations are disclosed but there is no reporting of the financial performance of the sector.
  - Importance: Medium: Public corporations are largely profitable, but the Bank of Uganda has needed recapitalization. (3.4)

*Fiscal Affairs Department, International Monetary Fund*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17130.pdf_