## cr17293

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### Executive Summary
- Background and mission
  - Mission dates: January 5–16, 2015.
  - Activity code: 15STU53.
  - Objective: provide technical assistance (TA) to the Bank of Uganda (BOU) to improve financial transactions and balance sheet accounts by institutional sectors following the System of National Accounts 2008 (2008 SNA).
  - Support: conducted with support from the AFRITAC East and in consultation with the African Department.
  - Main engagements: review of existing quarterly flow of funds (FOF) accounts; outreach workshop for data-providing agencies and potential BOU users; bilateral discussions with departments and external agencies to identify data sources and agree templates and sector/instrument breakdowns.

- Key findings
  - Templates for Minimum and Encouraged Set of Internationally Comparable Sectoral Accounts and Balance Sheets (Templates) provided basis for discussions and agreement on minimum sector and financial instrument breakdowns.
  - Development of experimental financial transactions and sector balance sheets in the near future possible using existing and identified data sources.
  - Development of final accounts consistent with nonfinancial accounts likely to take two to three more years and depends on obtaining additional source data, especially for nonfinancial corporations.
  - Institutional arrangements
    - No current agreement between BOU and UBOS on division of work for compilation of sectoral accounts and balance sheets.
    - UBOS indicated no objection if BOU assumes responsibility for quarterly sectoral financial transactions and balance sheets; UBOS agreed to collaborate on nonfinancial accounts for general government and financial corporation sectors.
  - Staffing and capacity
    - Real Sector Division (RSD) staffing: a Division Head and eight staff members.
    - Two RSD staff currently work on the quarterly FOF and other tasks.
    - Current staff resources and capacity in the RSD are not commensurate with the work required for full implementation of 2008 SNA sectoral financial accounts and balance sheets.
    - Director of the Statistics Department (SD) agreed to allocate additional staff through reallocation within the SD.

- Recommendations (summary)
  - Adopt a holistic integrated sectoral accounts framework following the 2008 SNA.
  - Review existing MOU with the Uganda Revenue Authority (URA) to ensure regular provision of data on nonfinancial corporations.
  - Collaborate with Uganda Bureau of Statistics (UBOS) to agree arrangements for compilation of current and capital accounts to ensure consistency between financial and nonfinancial accounts.
  - Improve staff capacity: provide TA, training, and additional staff with knowledge of sectoral accounts frameworks.
  - Establish collaboration agreements with key data providers to specify data requirements, frequency, timeliness, and transmission arrangements.

- Benchmark actions and verifiable outcomes (selected)
  - Experimental annual sectoral stocks and transactions of financial assets and liabilities
    - Verifiable indicator: Annual data compiled from 2014.
    - Completion date: December 2015.
  - Experimental quarterly sectoral stocks and transactions
    - Verifiable indicator: Quarterly data compiled from 2015 Q1.
    - Completion date: December 2015.
  - Annual current and capital accounts for General Government sector
    - Verifiable indicator: Annual data compiled from 2014.
    - Completion date: June 2016.
  - Annual current and capital accounts for the BOU and deposit-taking corporations
    - Verifiable indicator: Annual data compiled from 2014.
    - Completion date: June 2015.
  - Annual current and capital accounts for collective investment schemes, insurance and pension funds
    - Verifiable indicator: Annual data compiled from 2015.
    - Completion date: June 2016.
  - Annual current and capital accounts for other financial corporations (except insurance and pension funds)
    - Verifiable indicator: Annual data compiled from 2015.
    - Completion date: June 2016.
  - Annual current and capital accounts for nonfinancial corporations
    - Verifiable indicator: Annual data compiled from 2012.
    - Completion date: 2017.
  - Collaboration and data transmission arrangements to be established with IRAU, URBRA, URA, CMA, MOFPED, OAG and Privatization Unit, FMD (Central Depository) — many with Completion date: June 2015.
  - Staffing allocation: Additional staff to be allocated through reallocation in SD. Completion year: 2015.
  - Final dissemination target
    - Annual and quarterly sectoral stocks and transactions consistent with nonfinancial accounts to be compiled and disseminated through BOU website.
    - Verifiable indicators: Annual and quarterly data disseminated regularly; sources and methods made available.
    - Target date: 2017/18.

- Risks and assumptions
  - Collaboration and support from stakeholders (MOFPED, IRAU, URBRA, URA, CMA, etc.) necessary.
  - Support and cooperation of MOFPED necessary for general government data.
  - Enhanced coordination within BOU departments necessary.
  - Additional staff with sufficient knowledge of sectoral accounts frameworks needed.
  - TA, training, and improved capacity will be needed.

### Capacity constraints and immediate recommendations
- Finding: Capacity of existing staff in understanding the 2008 SNA framework on sectoral accounts and balance sheets requires improvement.
- Rationale: Needs to be addressed immediately so compilation can be implemented efficiently per agreed work plan.
- Recommendations
  - Retain existing staff and increase staff strength of the RSD for compiling financial transactions and balance sheets efficiently.
  - Collaborate with UBOS in compilation of nonfinancial accounts for general government and financial corporation sectors.
  - Take necessary steps for capacity development of RSD staff on the 2008 SNA framework.

### Building the integrated sectoral accounts approach — overview
- Current practice and gaps
  - RSD started compiling financial transactions (FOF accounts) by institutional sectors in 2012 using data from GFS, balance of payments, MFS and the Statistical Abstract published by UBOS.
  - These accounts are compiled on a quarterly basis one month after the end of the quarter.
  - Coverage does not follow 2008 SNA: scope limited to general government, banking system, rest of the resident sectors and rest of the world; assets and liabilities presented as domestic and foreign financing with no instrument detail per 2008 SNA.
- Mission assessment and priority
  - Suggested developing quarterly financial transactions and balance sheets following 2008 SNA using integrated sectoral accounts framework.
  - Initial priority: minimum breakdown of sectors and financial instruments as per the template on sectoral financial stocks and flows.
  - Assessment of sources by institutional sector and methods provided; balancing principles explained elsewhere in the source.

### III.1 Nonfinancial Corporations (NFCs) — data sources, gaps, recommendations
- Structure and data availability
  - NFCs: few public and large number of private corporations in Uganda.
  - No comprehensive direct data source providing regular information on financial balance sheets and transactions for whole NFC sector.
  - Private capital survey by the SD: quarterly, but only for enterprises with counterparts in the rest of the world (ROW).
  - Counterpart data exist from some domestic sectors (GG and FCs).
  - MOFPED compiled income/expense/investment/net acquisition/net incurrence for around 25 public NFCs based on financial statements; results published in Statistical Abstract with lag of more than two years.
  - OAG does not collect financial data of public NFCs regularly but plans to collect quarterly financial information in future; requested BOU convey specific requirements officially.
  - URA (Statistics Division) receives profit and loss, investment in nonfinancial assets, financial assets and liabilities for NFCs annually via an online reporting system; data available with time-lag of around 10–12 months after end of financial year.
- Data quality issues
  - Mapping of financial reports to assets/liabilities in reporting forms not carried out properly; nonfinancial assets, income, and expense reported more systematically than financial assets/liabilities.
  - Example: different liabilities clubbed together and presented as a single item, other accounts payable.
- URA cooperation
  - URA will provide data for NFCs representing 90 percent of total assets of all NFCs, initially for four years (2010–13) after an official request from the BOU.
  - URA agreed to improve quality of data reported by NFCs based on BOU feedback.
- Short-term methodological approach
  - In absence of comprehensive direct data, use counterparty information and micro databases for estimating:
    - deposits (commercial banks, SACCOs, MFIs),
    - securities (FMD data and IIP),
    - equity and investment fund shares (CMA data and IIP),
    - insurance technical reserves (IRAU data),
    - liabilities in securities/loans (CMA data and IIP, commercial banks, SACCOs, MFIs, GFS data for loans to public corporations).
  - Short-term improvements: use direct financial data from URA, especially for unlisted share liabilities and other accounts payable/receivable.
- Recommendations
  - Develop financial transactions and balance sheets for NFCs using identified counterpart data.
  - Improve estimates of unlisted share liabilities and other accounts payable/receivable in the short-term using URA financial reports.

### III.2 Financial Corporations — sector composition and subsector assessments
- Sub-sectors in Uganda
  - i) Bank of Uganda (central bank)
  - ii) Deposit-taking corporations except the central bank (DTCs) — Commercial banks, credit institutions, MFIs, and SACCOs
  - iii) Other financial corporations (OFCs) — Insurance companies, pension funds (NSSF and private), CIS, financial auxiliaries, OFCs not elsewhere classified

- III.2.1 Central bank (BOU)
  - Data availability and suitability
    - BOU prepares monthly balance sheet data with sufficient instrument detail.
    - Counterpart data exist for positions of ODCs deposits and loans with BOU and holdings of GOU debt securities.
    - Assets/liabilities denominated in Ugandan shillings; BOU does not revalue holdings of debt securities to market price; differences in positions as proxy for (net) transactions is appropriate.
    - 2008 SNA recommends debt securities recorded at market price for balance sheet purposes.
    - FMD maintains records of all GOU debt securities at cost value, nominal value, and current market price; end of quarter market price could be obtained for BOU internal use.
  - Repos treatment
    - BOU repos/reverse repos with DTCs regarded as collateralized loans per 2008 SNA.
  - International reserves and counterpart consistency
    - BOU produces monthly statement on transactions and holdings of international reserves by instrument; included in BOP and IIP and should be used as part of ROW liabilities.
    - Counterpart values for deposits, reserve assets, and GOU debt securities should be identical across BOU and counterparts, SD should check timing differences.
  - Recommendations
    - Use data from 1SR form for central bank sector for financial transactions and balance sheet; for reserve asset transactions use transactions data provided by BOU’s Chief Accountant’s Office to the ESSD.
    - For balance sheet, use 1SR supplemented by market prices for holdings of GOU debt securities where possible.

- III.2.2 Commercial banks
  - Data sources and coverage
    - Commercial banks report balance sheet data on form 2SR monthly to BOU; included in IMF STA Standardized Reporting Forms.
    - Data comprehensive for commercial banks but not for other DTCs (SACCOs, MFIs).
    - Bank data provide instrument detail by institutional sector counterparty, enabling derivation of other sectors’ deposit assets and loan liabilities with commercial banks.
    - Holdings of GOU debt securities identified separately; holders by sector of DTCs’ debt securities on issue are reported.
  - Transactions estimation and adjustments
    - Differences between closing and opening balances generally provide good proxy for transactions.
    - Three instances requiring adjustments set out in Annex II (not reproduced here).
    - Other economic flows (e.g., exchange rate losses) important and should be considered.
  - Recommendations
    - Use 2SR data for construction of financial transactions and balance sheet for commercial banks.
    - Derive transactions as differences in balances, adjust for exchange rate changes for foreign currency assets (separately by currency) and for market-valued assets.
    - Add back write-offs from profit and loss statements to differences in balance sheets to derive banks’ financial transactions in loans; allocate write-offs to institutional sectors in proportion to total assets outstanding.
    - Confront GOU debt securities data from FMD with banks’ reported data by institutional sector and adjust for consistency.
    - Value holdings of equities of unlisted enterprises using own funds at book value; listed equities reported at market price for balance sheets and transactions at transaction price if possible.

- III.2.3 MFIs and SACCOs
  - Current coverage and plans
    - MSDDD obtains balance sheet data from three MFIs deemed deposit-taking; exploring expanding coverage with TA from MFS mission of STA.
    - BOU collecting balance sheet data (limited instrument detail, no counterpart info) from about 160 SACCOs representing about 70 percent of total deposits of the industry; data not yet disseminated and no universe estimate produced.
    - MFS mission recommended adding counterpart information and estimating universe estimates for all SACCOs; once implemented, these data could improve DTCs and counterparties by instrument.
  - Recommendation
    - BOU obtain balance sheet data on SACCOs and MFIs in line with MFS mission recommendations and use those data to improve financial transactions and balance sheets for DTCs.

- III.2.4 CISs and financial auxiliaries
  - Institutional context and market structure
    - CMA responsibilities include issuance of bonds on USE, regulation of CIS, MFIs not regulated by BOU, fund managers, financial advisors, financial administrators.
    - Very little activity in non-GOU bonds; no corporations ready for privatization currently (some expected in next two years).
    - Only eight enterprises listed on USE.
    - Only two CISs in Uganda; closed-end funds not listed on USE; financial statements submitted quarterly and annually.
    - CISs not permitted to invest outside EAC currently.
    - CMA agreed to cooperate with BOU; Annex III lists proposed items to collect.
    - Financial auxiliaries report quarterly and annually to CMA; balance sheets likely small.
  - Recommendations
    - BOU obtain balance sheet data, with counterpart institutional sector, on CIS for inclusion in sectoral financial transactions and balance sheets. Use CMA market-price data in balance sheets but remove price changes for construction of sub-sector transactions where possible.
    - Obtain from CMA data on non-GOU debt security issues and equity issues during the period and outstanding values at market price for counterpart construction.

- III.2.5 Insurance corporations
  - Regulatory reporting and coverage
    - IRAU regulates 21 nonlife insurers, 8 life insurers, and 1 reinsurance company.
    - IRAU receives unaudited financial statements quarterly and audited statements annually.
  - Data detail and limitations
    - Balance sheet information approximates instrument breakdown of 2008 SNA.
    - Some counterpart institutional sector data on asset side; counterpart data on liability side more limited.
    - Technical reserves not identified by counterparty; for life insurance assume counterparts are households.
  - IRAU cooperation
    - IRAU willing to modify reporting requirements to accommodate BOU needs; requires three to four months’ notice for changes to report forms.
  - Recommendation
    - BOU obtain from IRAU balance sheet data, by counterpart institutional sector, of insurance companies and use those data in construction of financial transactions and balance sheets for insurance sub-sector.

### Pension funds (URBRA, NSSF, Public Service, Parliamentary Pension Fund)
- Findings and context
  - Mission met CEO of URBRA to discuss reporting under new legislation.
  - Retirement Benefits Regulatory Authority Act passed in 2011 aims to liberalize pensions sector.
  - Workforce and coverage
    - Workforce of about 13.4 million persons.
    - Fewer than 1 million have retirement plans.
    - Coverage includes 350,000 public servants and 500,000 private sector employees who contribute to NSSF.
  - If Retirement Benefits Sector Liberalization Bill enacted in 2015, several hundred schemes expected to be licensed in next few years.
  - Pension funds required to report unaudited financial statements quarterly and audited statements annually.
    - Lag of one month for quarterly returns and three months for annual.
  - Under URBRA Act
    - Pension funds proscribed from certain activity: not permitted to lend (existing loans allowed to run off); prohibited from using financial derivatives.
    - NSSF will no longer have monopoly; NSSF should be classified as a financial corporation and included with other pension funds.
    - Public Service Pension Scheme currently defined benefits, non-contributory, with no funds set aside; payments from current revenue of GOU. Intended future employees will have defined contributions and a fund will be set up and licensed by URBRA.
    - Parliamentary Pension Fund separate, has investments, required to report to URBRA.
  - Reporting arrangements
    - CEO suggested BOU provide URBRA with information required for FOF and SBSs to be included in standard reporting forms (not finalized).
- Recommendation
  - BOU obtain from URBRA balance sheet data, by counterpart institutional sector, of pension funds and use those data in construction of financial transactions and balance sheets for pension sub-sector.

### General Government Sector (GGS)
- Structure and data
  - GGS consists of central government, local governments (LG), and extra budgetary units (EBUs).
  - EBUs include universities, educational and research institutions, councils, commissions, semi-autonomous agencies.
  - LGs: districts, municipal councils and town councils.
- Data availability and processing
  - MOFPED compiles financial flows and stocks for central government with annual/quarterly frequency following 2008 SNA instrument classification with counterparty info for total resident and ROW sectors.
    - Flows derived as difference between opening and closing positions and thus include other economic flows.
    - Transactions data on debt securities and loans from ROW need adjustment for revaluation changes.
    - FMD agreed to provide transactions data of central government debt securities; fiscal statistics division of SD agreed to provide transactions data on loans from ROW on quarterly basis.
    - External debt database provides value of debt outstanding with ROW at exchange rate on date of balance sheet.
    - Valuation of stocks of unlisted shares suggested using own funds book value method per 2008 SNA.
  - LGs
    - Data (revenue, expense, net acquisition of nonfinancial/financial assets, net incurrence of liabilities) available annually.
    - Grants from central government account for around 95 percent of LG revenues; financial assets/liabilities minimal.
  - EBUs
    - MOFPED compiled annual data of EBUs following 2001 GFS framework; not aggregated mainly due to differences in reporting periods.
  - For LGs and EBUs, latest annual data could be used to estimate quarterly financial assets/liabilities for GGS in subsequent years.
- Recommendations
  - Collaborate with MOFPED to agree on annual/quarterly financial flows and stocks data and transmission arrangements.
  - Collect transactions data on loans from the ROW on quarterly basis from FSD.
  - Agree with FMD on collection of transactions data of central government debt securities on quarterly basis.

### Households and NPISHs
- Findings and approach
  - Financial transactions and balance sheets based on counterpart data of other sectors.
  - Counterparty information and micro databases could develop estimates of:
    - deposits (commercial banks, SACCOs, MFIs),
    - debt securities (CMA and FMD),
    - equities and investment fund shares (CMA and ROW),
    - insurance technical reserves and pension entitlements (IRAU/URBRA),
    - loan liabilities (commercial banks, SACCOs, MFIs).
  - Further improvements by including loans of GGS/public-private corporations to employees, money lenders loans to households, unlisted equity held by households.
- Recommendations
  - Develop financial transactions and balance sheets for households and NPISHs combined using identified counterpart data.
  - Improve estimates of loan liabilities and unlisted equity assets of households.

### Rest of the World (ROW)
- Findings and context
  - Data for ROW provided by financial account of balance of payments statistics and IIP statistics.
  - BOP and IIP presented from domestic economy point of view; for ROW data presented from ROW point of view.
  - BOP/IIP primary classification by functional categories: direct investment, portfolio investment, financial derivatives, other investment, reserve assets; instrument detail within those categories.
  - For ROW in financial transactions and balance sheet, instrument breakdown required (functional categories less important), possible for all except direct investment (instrument detail two-way split between equity and debt).
  - Private Capital Flows Survey provides instrument detail for direct investment.
  - BOP and IIP prepared in US dollars; financial transactions and balance sheet in Ugandan shillings.
    - ESSD should provide information in Ugandan shillings, using average rate of change for transactions and end of period rate of exchange for the IIP.
  - External debt data for GGS and public sector corporations prepared in FSD record transactions at transaction exchange rate and end of period rate.
  - When ESSD constructs IIP at end of period positions, presentation for ROW should ensure external debt data from FSD and ESSD are consistent.
  - Mission provided RSD staff with data availability matrix for development (Annex V).
- Recommendations
  - ESSD provide RSD with BOP data and IIP data by instrument, in Ugandan shillings.
  - When ESSD adopts end of period prices and exchange rates for IIP, provide RSD with these data and revised back data and Other Changes in Financial Assets and Liabilities Account, in Ugandan shillings.

### Balancing principles in the Integrated Sectoral Accounts Approach
- Three balancing principles: horizontal balancing, stock/flow balancing, vertical balancing — ensure internal consistency and help identify gaps/errors.

- Horizontal balancing
  - Principle: Sum of all transactions (positions) of each financial instrument must equal sum of all transactions (positions) of equivalent liability.
  - Examples/implications
    - Deposits: single source (DTCs) so assets should equal liabilities.
    - Equities: multiple data sources; residual sector may be needed to reconcile discrepancies.
    - Illustration: If holders report total transactions of 50 and total estimate of issues is 40, residual sector has net sales of 10. If reported asset outstanding is 500 and reported liability is 600, residual sector would have holding of 100. If reported assets exceed liabilities causing a negative residual, liability value is too low or asset acquisition too high.
  - Recommendation: Ensure horizontal consistency of financial instruments when developing sectoral financial transactions and balance sheets.

- Stock/Flow balancing
  - Principle: Closing balance = opening balance + transactions + other changes (e.g., exchange rate or price changes).
  - Examples
    - Instrument with opening balance 1000 and closing balance 1100: sum of transactions and other changes should equal 100.
    - Loans example: opening balance 500, 50 new loans (transactions), 10 loans written off (other changes), closing balance 540; transactions recorded as 50.
    - Foreign currency debt example: GOU foreign loan of USD1000, opening exchange rate 2,500 Ugandan shillings/USD → opening value 2,500,000; closing rate 2,750 → closing value 2,750,000; no transactions but value rose by 250,000 attributable to exchange rate changes; accounted in “Other Changes in Assets and Liabilities Account.”
  - Recommendation: Reconcile differences between value changes in balances and transactions (adjust for exchange rate changes, write-offs, transaction vs market prices) through an “Other Changes in Assets and Liabilities Account.”

- Current and capital accounts / Vertical consistency
  - Findings
    - UBOS produces output, intermediate consumption and value added by activity, GDP, GNI, final consumption expenditure of government and households, gross capital formation, etc.
    - Base year of national accounts revised to 2009/10 following 2008 SNA.
    - HFCE still derived as residual; UBOS plans to develop independent HFCE estimates during 2015.
    - Current and capital accounts by institutional sectors are not compiled at present.
    - Vertical consistency can be achieved with effort for GGS and FCs; remaining resident sectors could be done initially combined.
    - Sufficient information readily available for GG and some FC sub-sectors (central bank and commercial banks) for quarterly compilation of current and capital accounts from their balance sheets.
    - Compilation of nonfinancial accounts priority: GG and some FC sub-sectors; extend to CIS, insurance, pension funds in short-term and NFCs in medium term depending on availability of profit and loss and nonfinancial asset investment data.

### 14. Priority recommendations on accounts compilation and FSTD data requirements
- Priority compilation recommendations
  - From vertical consistency perspective, compilation of current and capital accounts for GG and FCs shall be given priority.
  - Collaborate with UBOS and agree arrangements for compilation of current and capital accounts for GG and FC (central bank and DTCs) sectors on quarterly basis.
  - Compile current and capital accounts for CIS, insurance and pension fund sub-sectors of FCs on quarterly basis in the short-term.

- Data requirement of Financial Stability Department (FSTD) — requested indicators
  - Households: debt to GDP ratio, assets to GDP ratio, debt service and principal payments to income, saving to income ratio, debt to gross disposable income.
  - Corporations: debt to equity, return to equity, earnings to interest and principal expenses, net foreign exchange exposure to equity, current assets to current liabilities.

- Mission observations on NFCs data for FSTD
  - Many required data for FSTD are in real economy (nonfinancial accounts) for NFCs and households and are not expected to be produced consistently for at least two to three years.
  - URA financial statements could be a source but require further development and processing.
  - Possible to obtain good quality aggregates of NFCs’ profit and loss, cash flow, and balance sheets from URA if focused on enterprises representing about 90 percent of total assets of the sector (likely in the hundreds).

- Specific recommendation to BOU
  - Review existing MOU with URA and ensure data on NFCs are obtained regularly for development of consistent nonfinancial accounts and FSTD indicators.

### Practical guidance on deriving transactions from positions (preserved numerical examples and procedures)
- Foreign currency denominated items
  - When balances reported in Ugandan shillings but denominated in foreign currency, remove revaluation changes by converting balances to original currency, taking first differences there, then reconverting to Ugandan shillings using the average rate for the period.
  - Numerical example
    - Opening asset: $100. Opening exchange rate: 2500 Ugandan shillings per US dollar. Closing exchange rate: 2550.
    - No transactions: opening reported as 250,000 shillings; closing reported as 255,000 shillings; first difference 5,000 shillings is not a transaction.
    - If transaction of $20 so closing balance $120: closing in UGX = 120 * 2550 = 306,000. First difference = 306,000 minus 250,000 = 56,000 shillings.
    - To determine transaction component: convert opening and closing to US dollars ($100 and $120), first difference $20, reconvert using average rate ((2500+2550)/2 = 2525) giving transaction of 50,500 Ugandan shillings (2525 * 20), not 56,000.
  - If items denominated in several foreign currencies, obtain amounts by currency or approximation to improve quality.
  - Note on exchange rate choice: use actual transaction rate if known; otherwise use average rate for period with preference daily > weekly > monthly > quarterly.

- Market price valuations
  - Long-term debt securities: revaluation relevant only where instrument not held to maturity.
  - Equity instruments: valuation mismatches can occur between issuer and asset holder practices; may create residual sector distortions; short-term resolution may not be possible.

- Write-offs
  - Charges of loan losses to outstanding loan balances are not transactions and should be excluded from FOF.
  - Form 2SR provides balances of loans gross of loan loss provisions; actual charges to income for loans written off should be added back to closing loan balances when calculating transactions.
  - Numerical example
    - Beginning loan balance 1000 and end 1200; charge of 50 to loans written off; transactions = 1200 minus 1000 plus 50 = 250.
  - For sectoral balance sheets, outstanding loan balances should be net of loans written off during period and charged to outstanding balance; loan loss provisions ignored.
  - Differences between transactions data and changes in balance sheet positions should be recorded in “Other Changes in Assets and Liabilities Account.”

### Data requests (selected, preserved wording)
- From within the BOU
  - The FMD
    - i) Primary and secondary market transactions, by counterpart institutional sector of buyer/seller, in GOU debt securities during the period and ii) End of period outstanding value of GOU debt securities on issue, at nominal and market price, by counterpart institutional sector of holder.
  - The SD
    - ESSD: quarterly balance of payments data by instrument by institutional sector and quarterly international investment positions by instrument by institutional sector.
    - MS & DD: i) Commercial banks’ 2SRs (showing instruments by institutional sector): opening and closing balances for the quarter and ii) SACCOs and MFIs (showing instruments by institutional sector): opening and closing balances for the quarter). Data should be grossed up to universe estimate (using ratio between total deposits of sample to total for all SACCOs and total assets of sample to total for all microfinance companies).
    - FSD: i) Central government fiscal statement by quarter (or sum of monthly data), showing the budgetary information on current and financial account activity; ii) external debt outstanding of GGS at end of period, in Uganda shillings and original currency; and iii) external borrowings and repayments of GGS during period, using rate of exchange on transaction date, in Ugandan shillings and original currency.
- Outside the BOU
  - The CMA
    - i) The balance sheets of CIS, showing assets by instruments, by institutional sector of issuer; ii) all shares issued during the period for listing on the USE; and iii) all bond securities (other than those issued by the GOU) issued during the period, by issuer, and amounts.
  - URBRA
    - Income/expense and balance sheet data of pension funds.
  - IRAU
    - Income/expense and balance sheet data of insurance companies.
  - URA
    - Financial statements (income statement, balance sheet, cash flow statement) for enterprises representing 90 percent of total assets of all nonfinancial corporations, with a value for total assets for all nonfinancial corporations for fiscal year-ending in most recent year (and every year thereafter).
  - UBOS
    - Current and capital accounts by institutional sector, annually from 2014 onwards, and quarterly current and capital accounts by institutional sector as soon as they become available in 2017 (or earlier).

*Source: cr17293*

### Executive Summary ......................................................................................................

### Executive Summary

### Background and mission
- Mission dates: January 5–16, 2015.
- Activity code: 15STU53.
- Objective: provide technical assistance (TA) to the Bank of Uganda (BOU) to improve financial transactions and balance sheet accounts by institutional sectors following the System of National Accounts 2008 (2008 SNA).
- Support: conducted with support from the AFRITAC East and in consultation with the African Department.
- Main engagements: review of existing quarterly flow of funds (FOF) accounts; outreach workshop for data-providing agencies and potential BOU users; bilateral discussions with departments and external agencies to identify data sources and agree templates and sector/instrument breakdowns.

### Key findings
- The Templates for Minimum and Encouraged Set of Internationally Comparable Sectoral Accounts and Balance Sheets (Templates) provided the basis for discussions and agreement on minimum sector and financial instrument breakdowns.
- Development of experimental financial transactions and sector balance sheets in the near future is possible using existing and identified data sources.
- Development of final accounts consistent with nonfinancial accounts will likely take two to three more years and depends on obtaining additional source data, especially for nonfinancial corporations.
- Institutional arrangements:
  - No current agreement between BOU and UBOS on division of work for compilation of sectoral accounts and balance sheets.
  - UBOS indicated no objection if BOU assumes responsibility for quarterly sectoral financial transactions and balance sheets; UBOS agreed to collaborate on nonfinancial accounts for general government and financial corporation sectors.
- Staffing and capacity:
  - Real Sector Division (RSD) staffing: a Division Head and eight staff members.
  - Two RSD staff currently work on the quarterly FOF and other tasks.
  - Current staff resources and capacity in the RSD are not commensurate with the work required for full implementation of 2008 SNA sectoral financial accounts and balance sheets.
  - Director of the Statistics Department (SD) agreed to allocate additional staff through reallocation within the SD.

### Recommendations and institutional actions
- Adopt a holistic integrated sectoral accounts framework following the 2008 SNA to highlight interconnectedness of the four main sectors of the Ugandan economy.
- Review the existing memorandum of understanding (MOU) with the Uganda Revenue Authority (URA) to ensure regular provision of data on nonfinancial corporations for consistent nonfinancial accounts and Financial Stability Department (FSTD) indicators.
- Collaborate with Uganda Bureau of Statistics (UBOS) to agree arrangements for compilation of current and capital accounts for different institutional sectors to ensure consistency between financial and nonfinancial accounts.
- Improve staff capacity: provide technical assistance, training, and additional staff with sufficient knowledge of sectoral accounts frameworks.
- Establish collaboration agreements with key data providers to specify data requirements, frequency, timeliness, and transmission arrangements.

### Benchmark actions and verifiable outcomes (selected items with exact dates/indicators)
- Experimental annual sectoral stocks and transactions of financial assets and liabilities:
  - Verifiable indicator: Annual data compiled from 2014.
  - Completion date: December 2015.
  - Assumptions: Use existing data and many other data sources identified during the mission; active collaboration with different stakeholders needed.
- Experimental quarterly sectoral stocks and transactions:
  - Verifiable indicator: Quarterly data compiled from 2015 Q1.
  - Completion date: December 2015.
  - Assumptions: Use existing data and many other data sources identified during the mission; active collaboration with different stakeholders needed.
- Annual current and capital accounts for General Government sector:
  - Verifiable indicator: Annual data compiled from 2014.
  - Completion date: June 2016.
  - Assumptions: Ongoing collaboration with UBOS, MOFPED, and FSD is necessary.
- Annual current and capital accounts for the BOU and deposit-taking corporations:
  - Verifiable indicator: Annual data compiled from 2014.
  - Completion date: June 2015.
  - Assumptions: Ongoing collaboration with UBOS is necessary.
- Annual current and capital accounts for collective investment schemes, insurance and pension funds:
  - Verifiable indicator: Annual data compiled from 2015.
  - Completion date: June 2016.
  - Assumptions: Ongoing collaboration with UBOS and URBRA is necessary.
- Annual current and capital accounts for other financial corporations (except insurance and pension funds):
  - Verifiable indicator: Annual data compiled from 2015.
  - Completion date: June 2016.
  - Assumptions: Ongoing collaboration with UBOS is necessary.
- Annual current and capital accounts for nonfinancial corporations:
  - Verifiable indicator: Annual data compiled from 2012.
  - Completion date: 2017.
  - Assumptions: Ongoing collaboration with UBOS and URA is necessary.
- Collaboration and data transmission arrangements to be established with:
  - IRAU for insurance companies: IRAU will collect data from insurance companies and regularly transmit data to BOU according to specifications. Completion date: June 2015.
  - URBRA for pension funds: URBRA will collect data from pension funds and regularly transmit data to BOU according to specifications. Completion date: June 2015.
  - URA for financial reports of nonfinancial corporations: URA will collect data from NFCs and regularly transmit data to BOU. Completion date: June 2015.
  - CMA for quarterly data on stocks and transactions on corporate bonds and equities and financial reports of CIS: CMA regularly transmits the required data. Completion date: June 2015.
  - MOFPED for annual/quarterly data on government sector and transmission arrangements: MOFPED regularly transmits data according to specifications. Completion date: June 2015.
  - Office of Accountant General (OAG) and Privatization Unit for public nonfinancial corporations: OAG and Privatization Unit regularly transmit data according to specifications. Completion date: June 2015.
  - FMD (Central Depository) for government securities stocks and transactions: FMD transmits data according to specifications. Completion date: June 2015.
- Staffing allocation:
  - Additional staff members are to be allocated to work on this project through reallocation of staff/work in the SD. Completion year: 2015.
- Final dissemination target:
  - Annual and quarterly sectoral stocks and transactions of financial assets and liabilities that are consistent with the nonfinancial accounts are to be compiled and disseminated through the website of BOU (including source data and methodologies).
  - Verifiable indicators: Annual and quarterly data are disseminated regularly; sources and methods of compilation are made available on the website of the BOU.
  - Target date: 2017/18.

### Risks and assumptions
- Collaboration and support from stakeholders (MOFPED, IRAU, URBRA, URA, CMA, etc.) is necessary for developing annual/quarterly stocks and transactions of financial assets and liabilities.
- Support and cooperation of MOFPED is necessary for collecting annual/quarterly data for the general government sector.
- Enhanced coordination with different departments of the BOU is necessary.
- Additional staff with sufficient knowledge of sectoral accounts frameworks will be needed.
- Technical assistance, training, and improved capacity will be needed.

*Source: cr17293 - Executive Summary*

### 9.      The mission noted that the capacity of the existing staff in terms of their

### cr17293 - 9.      The mission noted that the capacity of the existing staff in terms of their

### Capacity constraints and immediate recommendations
- Finding: The capacity of the existing staff in terms of their understanding of the 2008 SNA framework on sectoral accounts and balance sheets requires improvement.
- Rationale: This needs to be addressed in the immediate future so that the compilation of financial transactions and balance sheets can be implemented efficiently, as per the agreed work plan.
- Recommendations:
  - As agreed with the mission, retain the existing staff and also increase staff strength of the RSD for compiling the financial transactions and balance sheets efficiently, as needed.
  - Collaborate with UBOS in the compilation of nonfinancial accounts for the general government and financial corporation sectors.
  - Take necessary steps for capacity development of the RSD staff on the 2008 SNA framework.

### Building the integrated sectoral accounts approach in Uganda — overview
- Finding: The RSD started compiling the financial transactions (FOF accounts) by institutional sectors in 2012 using data from GFS, balance of payments, MFS and the Statistical Abstract published by UBOS.
- Current compilation cadence: These accounts are compiled on a quarterly basis one month after the end of the quarter.
- Coverage gap: The coverage of institutional sectors and financial instruments does not follow the 2008 SNA. Scope is limited to general government, banking system, rest of the resident sectors and the rest of the world. Assets and liabilities are presented in terms of domestic and foreign financing with no instrument details as per the 2008 SNA.
- Mission assessment:
  - Suggested developing financial transactions and balance sheets on a quarterly basis following the 2008 SNA using an integrated sectoral accounts framework to highlight interconnectedness of the four main sectors and to develop statistics consistently.
  - Initial priority: minimum breakdown of sectors and financial instruments as per the template on sectoral financial stocks and flows.
  - This section assesses sources available by institutional sectors and methods; section IV (in source) explains balancing principles.

### III.1 Nonfinancial Corporations (NFCs) — data sources, gaps, and recommendations
- Structure and data availability:
  - NFCs consist of a few public and a large number of private corporations in Uganda.
  - No comprehensive direct data source provides regular information on financial balance sheets and transactions for the whole NFC sector.
  - Private capital survey by the SD: quarterly, but only for enterprises with counterparts in the rest of the world (ROW).
  - Counterpart data exist from some domestic sectors (GG and FCs).
  - MOFPED has compiled income, expense, investment in nonfinancial assets, net acquisition of financial assets and incurrence of liabilities for around 25 public NFCs based on financial statements; results published in the Statistical Abstract of the MOFPED with a lag of more than two years.
  - OAG does not collect financial data of public NFCs regularly but plans to collect quarterly financial information in future; requested BOU to convey specific requirements officially.
  - URA (Statistics Division) receives profit and loss, investment in nonfinancial assets, financial assets and liabilities for NFCs annually via an online reporting system; data available with a time-lag of around 10–12 months after the end of a financial year.
- Data quality issues:
  - Mapping of financial reports information to assets/liabilities in reporting forms is not carried out properly and requires improvement.
  - Nonfinancial assets, income, and expense are reported more systematically than financial assets/liabilities.
  - Example: different liabilities (loans, debt securities, other accounts payable, etc.) were clubbed together and presented as a single item, other accounts payable.
- URA cooperation:
  - URA will provide the data for NFCs representing 90 percent of total assets of all NFCs, initially for four years (2010–13) after an official request is received from the BOU.
  - URA agreed to improve the quality of the data reported by NFCs based on feedback from BOU.
- Short-term methodological approach:
  - In absence of comprehensive direct data, use counterparty information and micro databases of instruments for developing estimates of assets in deposits (commercial banks, SACCOs, MFIs), securities (FMD data and IIP), equity and investment fund shares (CMA data and IIP), insurance technical reserves (IRAU data) and liabilities in securities (CMA data and IIP) / loans (commercial banks, SACCOs, MFIs, GFS data for loans to public corporations).
  - Short-term improvements: use direct financial data from the URA, especially for estimating unlisted share liabilities and other accounts payable/receivable.
  - Future missions could provide further guidance.
- Recommendations:
  - Develop financial transactions and balance sheets for NFCs using the counterpart data identified.
  - Improve the estimates of unlisted share liabilities and other accounts payable/receivable in the short-term using the financial reports data from the URA.

### III.2 Financial Corporations — sector composition and subsector assessments
- Sub-sectors in Uganda:
  - i) Bank of Uganda (central bank)
  - ii) Deposit-taking corporations except the central bank (DTCs) — Commercial banks, credit institutions, MFIs, and SACCOs
  - iii) Other financial corporations (OFCs) — Insurance companies, pension funds (National Social Security Fund and private pension funds), collective investment schemes (CIS), financial auxiliaries, and OFCs not elsewhere classified.

#### III.2.1 Central bank (BOU)
- Data availability and suitability:
  - BOU prepares its balance sheet data monthly and the instrument detail is sufficient for financial account and balance sheet purposes.
  - Counterpart data exist for positions of ODCs deposits and loans with the BOU and holdings of GOU debt securities (Treasury bills and Treasury bonds).
  - These assets and liabilities are denominated in Ugandan shillings and the BOU does not revalue its holdings of debt securities to market price; taking differences in positions as a proxy for (net) transactions is appropriate.
  - 2008 SNA recommendation: debt securities recommended to be recorded at market price for balance sheet purposes.
  - FMD maintains records of all GOU debt securities at cost value, nominal value, and at current market price; value of outstanding GOU debt securities at end of quarter could be obtained from FMD for use in sectoral balance sheet, at least initially for internal use within the BOU.
- Repos treatment:
  - BOU undertakes repos and reverse repos with DTCs as part of monetary policy; following the 2008 SNA, these are regarded as collateralized loans, not as outright sale and repurchase of the instrument.
- International reserves and counterpart consistency:
  - BOU produces a monthly statement on transactions in, and holdings of, international reserves by instrument; these data are included in the balance of payments and the IIP and should be used as part of ROW liabilities.
  - BOU will have assets/liabilities with GOU and ROW which should be consistent with counterpart information; BOU is the data source for counterpart values for deposits, reserve assets, and GOU debt securities, so counterpart values should be identical, but SD should check for timing differences.
  - Conclusion: information available for the central bank sub-sector is complete, including some from-whom-to-whom data.
- Recommendations:
  - The BOU use the data from the 1SR form in the preparation of the central bank sector for the financial transactions and balance sheet. However, for transactions in reserve assets (and other assets and liabilities denominated in foreign currency), the BOU use the transactions data provided by the BOU’s Chief Accountant’s Office to the ESSD.
  - For the balance sheet of the central bank, use the information from 1SR, supplemented, wherever possible, by the use of market prices for its holdings of GOU debt securities.

#### III.2.2 Commercial banks
- Data sources and coverage:
  - Commercial bank sub-sector of DTCs reports balance sheet data on form 2SR to the BOU under the Banking Survey (monthly) and included in the Standardized Reporting Forms to IMF’s STA.
  - Data are comprehensive for commercial banks but not for other DTCs such as SACCOs and MFIs.
  - Bank data provide considerable instrument detail by institutional sector counterparty, especially for deposits and loans — enabling derivation of other sectors’ deposit assets and loan liabilities with commercial banks.
  - Holdings of GOU debt securities (short-term and long-term) are identified separately and holdings of other sectors’ debt securities are identified by individual sector; holders by sector of the DTCs’ debt securities on issue are reported.
- Transactions estimation:
  - For the most part, differences between closing and opening balances provide a good proxy for transactions.
  - Three instances requiring adjustments are set out in Annex II (in source).
  - Data on other economic flows (e.g., exchange rate losses) are important and should be considered.
- Recommendations:
  - The BOU use the data from 2SR for the construction of the financial transactions and balance sheet data for commercial banks (as part of the DTCs sub-sector).
  - Use differences of financial assets and liabilities to derive commercial banks’ financial transactions while making adjustments for exchange rate changes for assets denominated in foreign currency (separately for different foreign currencies) and that are valued at market prices.
  - Add back write-offs of loan assets (reported on banks’ profit and loss statements) to differences in balance sheets to derive banks’ financial transactions in loans. As write-offs are not reported by institutional sector, allocate write-offs to institutional sector in proportion of the total assets outstanding.
  - Confront data on GOU debt securities provided by FMD, by institutional sector, with those reported by commercial banks, and adjust banks’ reported data if differences arise to ensure consistency.
  - Value holdings of equities of unlisted enterprises following the own funds at book value approach. Holdings of listed enterprises should be reported at market price for inclusion in balance sheets but transactions should be recorded at transaction price, if possible.

#### III.2.3 MFIs and SACCOs
- Current coverage and plans:
  - MSDDD obtains balance sheet data from the three MFIs deemed to be deposit-taking. MSDDD is exploring expanding coverage to other MFIs with TA from the MFS mission of STA.
  - BOU is collecting balance sheet data (limited instrument detail and no counterpart information) from about 160 SACCOS that represent about 70 percent of the total deposits of the industry. These data are not yet disseminated and no universe estimate has been produced to date.
  - The MFS mission (see footnote) recommended adding counterpart information and estimating universe estimates for all SACCOs; once implemented, these data could improve financial transactions and balance sheets for DTCs and counterparties by instrument.
- Footnote detail:
  - The MFS mission of STA visited the BOU during January 12–22, 2015. This mission provided TA in expanding the coverage of DTCs in the SRFs 2SR and 4SR.
- Recommendation:
  - The BOU obtain balance sheet data on SACCOs and MFIs in line with the recommendations of the MFS mission conducted concurrently with this mission and use those data for improving the financial transactions and balance sheets for DTCs.

#### III.2.4 CISs and financial auxiliaries
- Institutional context:
  - CMA’s responsibilities include issuance of bonds on the Uganda Securities Exchange (USE), regulation of CIS, MFIs not regulated by the BOU, fund managers, financial advisors, and financial administrators.
- Market structure and data:
  - Very little activity in non-Government of Uganda bonds; no corporations ready for privatization currently (some expected in next two years).
  - Only eight enterprises currently listed on the USE.
  - Only two CISs in Uganda; they are closed-end funds but are not listed on the USE. Financial statements are submitted quarterly and annually.
  - CISs currently not permitted to invest outside the East African Community (EAC); if restriction lifted, such investments should be reported by instrument category separately.
  - CMA agreed to cooperate with the BOU to provide necessary information; Annex III in source lists proposed items to collect.
  - Financial auxiliaries report financial statements quarterly and annually to CMA; their balance sheets are likely small as they act as agents, not principals.
- Recommendations:
  - The BOU obtain balance sheet data, with counterpart institutional sector of instruments, on CIS for inclusion in sectoral financial transactions and balance sheets. Where CMA reports data at market price, use those in balance sheets but remove price changes (where possible) for construction of sub-sector financial transactions.
  - The BOU obtain from the CMA data on non-GOU debt security issues and any equity issues (of listed entities) during the period (if any) and data on outstanding value of non-GOU debt securities on issue and equities at market price. Use the first set for construction of counterpart institutional sectors’ financial transactions and the second for counterpart institutional sectors’ balance sheets.

#### III.2.5 Insurance corporations
- Regulatory reporting and coverage:
  - IRAU regulates 21 nonlife insurers, 8 life insurers, and 1 reinsurance company.
  - IRAU receives unaudited financial statements quarterly and audited statements annually.
- Data detail and limitations:
  - Balance sheet information approximates instrument breakdown of the 2008 SNA.
  - Some counterpart institutional sector data are provided on the asset side (e.g., debt securities to be reported for GOU, fixed deposits at ODCs, other long-term assets specified), but counterpart data on the liability side are more limited (only identified counterpart is bank loans).
  - Technical reserves are not identified by counterparty; for life insurance it can be assumed that counterparts are households.
- IRAU cooperation:
  - IRAU indicated willingness to modify reporting requirements to accommodate BOU’s needs and indicated it would require three to four months’ notice for incorporating changes to report forms.

*Source: cr17293 - 9.      The mission noted that the capacity of the existing staff in terms of their (PDF chapter/section).*

### 7. Recommendation:

### 7. Recommendation:

### Insurance companies (IRAU)
- Recommendation:
  - The BOU obtain from the IRAU balance sheet data, by counterpart institutional sector, of insurance companies, and use those data in the construction of the financial transactions and balance sheets for the insurance sub-sector.

### Pension funds (URBRA, NSSF, Public service, Parliamentary Pension Fund)
- Findings and context:
  - The mission and the SD met the CEO of the Uganda Retirement Benefits Regulatory Authority (URBRA) to discuss reporting requirements under the new legislation.
  - Under the Retirement Benefits Regulatory Authority Act, passed in 2011, the GOU aims to liberalize the pensions sector.
  - Workforce and coverage:
    - Workforce of about 13.4 million persons.
    - Fewer than 1 million have retirement plans.
    - Coverage includes 350,000 public servants and 500,000 private sector employees who contribute (along with their employers) to the National Social Security Fund (NSSF).
  - If the Retirement Benefits Sector Liberalization Bill is enacted in 2015, it is expected that several hundred schemes will be licensed over the course of the next few years.
  - Pension funds are required to report unaudited financial statements quarterly and audited statements annually.
    - Lag of one month for the quarterly returns and three months for the annual.
    - The information requested for the quarterly returns is the same as that for the annual.
  - Under the URBRA Act:
    - Pension funds are proscribed from certain activity: they are not permitted to lend (existing loans made under earlier legislation will be allowed to run their course but no new loans will be allowed).
    - Pension funds are prohibited from using financial derivatives.
    - The NSSF will no longer have a monopoly of investment for social security purposes; employees and employers will be able to choose where they place their contributions.
      - Because it no longer has a monopoly, NSSF should be classified as a financial corporation and be included with other pension funds.
    - The Public Service Pension Scheme is currently defined benefits, non-contributory plan, with no funds set aside; payments are made from current revenue of the GOU.
      - Intended that future public service employees will have a defined contributions pension and there will be a fund set up to manage contributions; once established, the fund will be licensed by URBRA and data reported should be included with provision of data to the BOU.
    - The Parliamentary Pension Fund is separate, has investments of its own, and will be required to report to URBRA in the same manner as other pension funds; these data should be included with the provision of data to the BOU.
  - Reporting arrangements:
    - The CEO suggested that the BOU provide the URBRA with the information required for the FOF and the SBSs and these could be included in the standard reporting forms (these have not yet been finalized).

- Recommendation:
  - The BOU obtain from the URBRA balance sheet data, by counterpart institutional sector, of pension funds, and use those data in the construction of the financial transactions and balance sheets for the pension sub-sector.

### General Government Sector (GGS)
- Findings and context:
  - GGS consists of central government, local governments (LG), and extra budgetary units (EBUs).
  - EBUs mainly include universities, other educational institutions, research institutions, councils, commissions and various other semi-autonomous agencies.
  - LGs comprise districts, municipal councils and town councils.
  - The MOFPED compiles financial flows and stocks for the central government with annual/quarterly frequency following the 2008 SNA financial instrument classification with counterparty information for total resident and ROW sectors.
    - The flows are derived as the difference between opening and closing positions and thus include other economic flows.
    - For transactions data on debt securities and loans from the ROW, flows data need to be adjusted for changes due to revaluation in respect of these financial instruments.
    - The FMD agreed to provide transactions data of central government debt securities and the fiscal statistics division of the SD agreed to provide transactions data on loans from the ROW on quarterly basis, which could be directly used in the development of financial accounts.
    - The external debt database can provide the value of debt outstanding with the ROW on the exchange rate as on the date of balance sheet.
    - Valuation of stocks of unlisted shares: mission suggests valuation using own funds book value following one of the methods permitted in the 2008 SNA.
  - Regarding LGs:
    - Data (revenue, expense, net acquisition of nonfinancial/financial assets and net incurrence of liabilities) are available with annual frequency.
    - Grants from the central government account for around 95 percent of revenues of LGs and their acquisition of financial assets/incurrence of liabilities is minimal.
  - MOFPED has compiled annual data of EBUs on revenue/expense/net acquisition of nonfinancial/financial assets/net incurrence of liabilities following the 2001 GFS framework; these data are not aggregated mainly due to differences in reporting periods.
  - For LGs and EBUs financial assets/liabilities are not significant; latest available annual data could be used to estimate quarterly financial asset/liabilities for the GGS in subsequent years.

- Recommendations:
  - Collaborate with the MOFPED to agree on annual/quarterly financial flows and stocks data on government sector and transmission arrangements.
  - Collect transactions data on loans from the ROW on quarterly basis from the FSD.
  - Agree with the FMD on the collection of transactions data of central government debt securities on a quarterly basis.

### Household and NPISHs sectors
- Findings and context:
  - Financial transactions and balance sheets for these sectors will be based on counterpart data of other sectors.
  - Counterparty information and micro databases of instruments could be used for developing estimates of:
    - Assets in deposits (commercial banks, SACOS, MFIs)
    - Debt securities (CMA and FMD)
    - Equities and investment fund shares (CMA and ROW)
    - Insurance technical reserves and pension entitlements (IRAU/URBRA)
    - Loan liabilities (commercial banks, SACOS, MFIs)
  - Further improvements could be made by including:
    - Loans of GGS, public/private corporations to their employees
    - Money lenders loans to households
    - Unlisted equity held by households

- Recommendations:
  - Develop financial transactions and balance sheets for the household and NPISHs sectors combined using the counterpart data identified.
  - Improve the estimates of loan liabilities and unlisted equity assets of households to bring overall improvement in the sectoral financial transactions and balance sheets.

### Rest of the World (ROW)
- Findings and context:
  - Data for the ROW are provided by the financial account of the balance of payments statistics and the IIP statistics.
  - Balance of payments and IIP data are presented from the point of view of the domestic economy, whereas for the ROW the data are presented from the point of view of the ROW.
  - In the financial account of the balance of payments and the IIP, primary classification is on functional categories: direct investment, portfolio investment, financial derivatives, other investment, and reserve assets.
    - Instrument detail is found within those functional categories.
    - For the financial transactions and balance sheet of ROW, functional categories are not important; information should be provided with the instrument breakdown.
    - This is possible for all functional categories except direct investment (instrument detail is a two-way split between equity and debt instruments).
    - The Private Capital Flows Survey conducted by the ESSD of the SD provides instrument detail for direct investment.
    - For compilers, the link between financial asset classification of the 2008 SNA and functional categories of the Balance of Payments and International Investment Position Manual, Sixth edition (BPM) is provided in Annex IV.
  - The balance of payments and the IIP are prepared in US dollars; the financial transactions and balance sheet in Ugandan shillings.
    - ESSD should be asked to provide information in Ugandan shillings, using the average rate of change for transactions and the end of period rate of exchange for the IIP.
  - External debt data for GGS and public sector corporations are prepared in the FSD; these data record transactions at the rate of exchange at the time of the transaction as well as the rate of exchange at the end of the period.
  - When ESSD moves towards constructing the IIP at end of period positions, presentation of data for ROW should ensure external debt data from the FSD and those from the ESSD are consistent.
  - The mission provided RSD staff with a data availability matrix for development of financial transactions and balance sheets (Annex V).

- Recommendations:
  - The ESSD provide RSD with the balance of payments data and the IIP data by instrument, in Ugandan shillings.
  - In due course, when the ESSD has adopted end of period prices and exchange rates for the IIP, it provides RSD with these data and revised back data to the point where these valuation principles have been adopted, as well as the Other Changes in Financial Assets and Liabilities Account, in Ugandan shillings.

### Balancing principles in the Integrated Sectoral Accounts Approach
- Overview:
  - Three balancing principles: horizontal balancing, stock/flow balancing, and vertical balancing. These ensure internal consistency and help identify gaps and errors.

- Horizontal balancing:
  - Principle: Sum of all transactions (positions) of each financial instrument must equal the sum of all transactions (positions) of the equivalent liability.
  - Examples and implications:
    - Deposits: single source (DTCs) so assets should equal liabilities when entered.
    - Equities: multiple data sources (DTCs, insurance companies, pension funds; liabilities from Private Capital Flows Survey, financial sub-sectors reporting to BOU, IRAU, CMA, URBRA). A residual sector may be needed to reconcile discrepancies.
    - Illustration: If holders report total transactions of 50 and total estimate of issues is 40, residual sector has net sales of 10. If reported asset outstanding is 500 and reported liability is 600, residual sector would have holding of 100. If reported assets exceed liabilities causing a negative residual, then liability value is too low or asset acquisition too high.
  - Recommendation:
    - Ensure horizontal consistency of different financial instruments in the development of sectoral financial transactions and balance sheets.

- Stock/Flow balancing:
  - Principle: Closing balance = opening balance + transactions + other changes (e.g., exchange rate or price changes).
  - Examples:
    - For an instrument with opening balance 1000 and closing balance 1100, sum of transactions and other changes should equal 100.
    - Loans example: opening balance 500, 50 new loans (transactions), 10 loans written off (other changes), closing balance 540; transactions recorded as 50.
    - Foreign currency debt example: GOU foreign loan of USD1000, opening exchange rate 2,500 Ugandan shillings/USD → opening value 2,500,000; closing rate 2,750 → closing value 2,750,000; no transactions but value rose by 250,000 attributable to exchange rate changes; accounted in “Other Changes in Assets and Liabilities Account.”
  - Recommendation:
    - The BOU reconcile differences between the value of changes in balances outstanding with the transactions (for example, by adjusting for exchange rate changes, for write-off of loans by DTCs, for transaction value versus market prices) through the construction of an “Other Changes in Assets and Liabilities Account” so that the sum of the opening balance, transactions and any “other changes” equals the closing balance for each of the instruments in the 2008 SNA framework.

- Current, Capital accounts, and Vertical Consistency:
  - Findings:
    - UBOS produces output, intermediate consumption and value added by economic activity, gross domestic product, gross national income, final consumption expenditure of government and households, gross capital formation, etc.
    - Base year of national accounts revised to 2009/10 following the 2008 SNA.
    - Household final consumption expenditure (HFCE) is still derived as a residual and includes any errors and omissions in other expenditure components and GDP by economic activity.
    - UBOS plans to develop independent estimates of HFCE during 2015.
    - At present, current and capital accounts by institutional sectors are not compiled.
      - Vertical consistency (same figures for net lending/borrowing from nonfinancial and financial accounts) can be achieved with effort for GGS and FCs; for remaining resident sectors (households, NPISHs, NFCs) this could be done initially in combined form.
    - Sufficient information is readily available for GG and some sub-sectors of financial corporations (central bank and commercial banks) for compilation of current and capital accounts on quarterly basis from their balance sheets.
    - Compilation of nonfinancial accounts for these sectors could be taken up on priority in collaboration with UBOS.
    - Work could be extended to CIS, insurance and pension fund sub-sectors of financial corporations in the short-term and NFCs in the medium term depending on availability of financial reports data on profit and loss accounts, and investment in nonfinancial assets.

- No additional explicit recommendation line beyond the above balancing recommendations appeared in this section.

*cr17293 - 7. Recommendation:*

### 14. Recommendations:

### 14. Recommendations:

### Priority recommendations on accounts compilation
- From the vertical consistency perspective, compilation of current and capital accounts for the GG and FCs shall be given priority.
- Collaborate with UBOS and agree on arrangements for compilation of current and capital accounts for the GG and FC (central bank and DTCs) sectors on quarterly basis.
- Compile the current and capital accounts for CIS, insurance and pension fund sub-sectors of FCs on quarterly basis in the short-term.

### Data requirement of Financial Stability Department (FSTD) — requested indicators
- The FSTD requested the SD to develop the following financial soundness indicators for households and corporations with TA from the mission.
  - Households: debt to GDP ratio, assets to GDP ratio, debt service and principal payments to income, saving to income ratio, debt to gross disposable income.
  - Corporations: debt to equity, return to equity, earnings to interest and principal expenses, net foreign exchange exposure to equity, current assets to current liabilities.

### Mission observations on data availability and suggested approach for NFCs
- Many of the data needed by FSTD to assess financial stability are in the real economy (nonfinancial accounts) for NFCs and the household sectors and are not expected to be produced by UBOS and SD as part of the development of financial accounts that are consistent with the nonfinancial accounts for at least two to three years.
- Financial statements’ data of NFCs from the URA could be a possible source, but these data and their processing require further development and improvement before they can be used with confidence.
- It may be possible to obtain reasonably good quality aggregates of NFCs’ profit and loss statement, cash flow statements, and balance sheets from URA financial statements if the exercise were concentrated on those very large enterprises that represent about 90 percent of total assets of the sector.
  - Such enterprises are likely to be counted in the hundreds, rather than the thousands, making addressing data quality issues much more manageable.

### Specific recommendation to the Bank of Uganda (BOU)
- The mission recommended to the BOU to review the existing MOU with the URA and ensure that the data on NFCs are obtained regularly for the development of consistent nonfinancial accounts for this sector and financial indicators requested by the FSTD.

### Practical guidance on deriving transactions from positions (key examples and procedures)
- Foreign currency denominated items
  - When balances are reported in Ugandan shillings but denominated in foreign currency, remove revaluation changes between opening and closing positions by converting balances to original currency, taking first differences there, then reconverting to Ugandan shillings using the average rate for the period.
  - Numerical example preserved exactly:
    - Opening asset: $100. Opening exchange rate: 2500 Ugandan shillings per US dollar. Closing exchange rate: 2550.
    - No transactions: opening reported as 250,000 shillings; closing reported as 255,000 shillings; first difference 5,000 shillings is not a transaction.
    - If there was a transaction of $20 so closing balance is $120: closing in UGX = 120 * 2550 = 306,000. First difference between closing and opening balances = 56,000 shillings (306,000 minus 250,000).
    - To determine transaction component: convert opening and closing to US dollars ($100 and $120), first difference $20, reconvert using average rate ((2500+2550)/2 = 2525) giving transaction of 50,500 Ugandan shillings (2525 * 20), not 56,000.
  - If assets/liabilities are denominated in several foreign currencies, obtain amounts by currency or at least an approximation to improve quality of derived transactions.
  - Note on exchange rate choice: If the actual rate of exchange for the transaction is known, it should be used; otherwise use the average rate for the period, with shorter periods preferred (daily > weekly > monthly > quarterly).

- Market price valuations
  - Long-term debt securities: revaluation relevant only where instrument is not intended to be held to maturity. If most debt securities are held to maturity and recorded at purchase price, first differences between closing and opening balances may provide a reasonable proxy for transactions.
  - Equity instruments: valuation mismatches can occur between issuer and asset holder practices (issuer may record shareholders’ funds including revaluations and retained earnings; asset holder may record at acquisition price until sale). This can create mismatches and distortions (for example, residual sector households). Short-term resolution may not be possible given shortage of alternative data sources for equity investments; compilers and users should be aware of this shortcoming.

- Write-offs
  - Charges of loan losses to outstanding loan balances are not transactions and should be excluded from the FOF. Form 2SR provides balances of loans gross of loan loss provisions, which are shown separately. Actual charges to income for loans written off during the period are included in profit and loss statements and should be added back to closing loan balances when calculating transactions.
  - Numerical example preserved exactly:
    - Beginning loan balance 1000 and end 1200; charge of 50 to loans written off; transactions = 1200 minus 1000 plus 50 = 250.
  - For sectoral balance sheets, outstanding loan balances should be net of loans written off during the period and charged to the outstanding balance, but loan loss provisions should be ignored.
  - Differences arising between transactions data and changes in balance sheet positions should be recorded in the “Other Changes in Assets and Liabilities Account” (when constructed).

### Data requests (selected, preserved wording)
- From within the BOU
  - The FMD
    - i) Primary and secondary market transactions, by counterpart institutional sector of buyer/seller, in GOU debt securities during the period and ii) End of period outstanding value of GOU debt securities on issue, at nominal and market price, by counterpart institutional sector of holder.
  - The SD
    - ESSD: quarterly balance of payments data by instrument by institutional sector and quarterly international investment positions by instrument by institutional sector.
    - MS & DD: i) Commercial banks’ 2SRs (showing instruments by institutional sector): opening and closing balances for the quarter and ii) SACCOs and MFIs (showing instruments by institutional sector): opening and closing balances for the quarter). Data should be grossed up to universe estimate (using ratio between total deposits of sample to total for all SACCOs and total assets of sample to total for all microfinance companies).
    - FSD: i) Central government fiscal statement by quarter (or sum of monthly data), showing the budgetary information on current and financial account activity; ii) external debt outstanding of GGS at end of period, in Uganda shillings and original currency; and iii) external borrowings and repayments of GGS during period, using rate of exchange on transaction date, in Ugandan shillings and original currency.

- Outside the BOU
  - The CMA
    - i) The balance sheets of CIS, showing assets by instruments, by institutional sector of issuer; ii) all shares issued during the period for listing on the USE; and iii) all bond securities (other than those issued by the GOU) issued during the period, by issuer, and amounts.
  - URBRA
    - Income/expense and balance sheet data of pension funds.
  - IRAU
    - Income/expense and balance sheet data of insurance companies.
  - URA
    - Financial statements (income statement, balance sheet, cash flow statement) for enterprises representing 90 percent of total assets of all nonfinancial corporations, with a value for total assets for all nonfinancial corporations for fiscal year-ending in most recent year (and every year thereafter).
  - UBOS
    - Current and capital accounts by institutional sector, annually from 2014 onwards, and quarterly current and capital accounts by institutional sector as soon as they become available in 2017 (or earlier).

*Source: cr17293 - 14. Recommendations*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17293.pdf_