## 1ugaea2019001 - 6.3 percent in FY18/19, though slow rainfalls and regional tensions are a risk to the outlook. ## Source details **Canonical URL:** [1ugaea2019001 - 6.3 percent in FY18/19, though slow rainfalls and regional tensions are a risk to the outlook.](https://www.imf.org/-/media/files/publications/cr/2019/1ugaea2019001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1ugaea2019001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1ugaea2019001.pdf.json) --- ### Overview and growth outlook - Real GDP growth: 6.3 percent in FY18/19. - Medium-term growth: could range from 6 to 7 percent if infrastructure and oil sector investments proceed as planned. - Per-capita growth projection: 3 to 4 percent over the next five years if investments proceed as planned. - Main downside risks: unfavorable weather conditions, domestic and regional political tensions, and further delays in the start of oil production. ### Macroeconomic policy stance and recent developments - Fiscal policy - Investment reached 8.9 percent of GDP in FY17/18 and is envisaged to increase further in the following two years. - Public debt grew to 41.3 percent of GDP at end-FY17/18. - One in five Ugandan shillings collected in revenue will be spent on interest in FY19/20. - Monetary policy and inflation - Headline inflation: 3 percent year-on-year in March. - Core inflation: 4.6 percent year-on-year in March. - Bank of Uganda policy: accommodative stance despite a 100 bps policy rate increase in October 2018 that ended the previous easing cycle. - Inflation projection: projected to converge to Bank of Uganda’s 5 percent target over the next 1½ years, mainly driven by food prices and fiscal spending. - Directors: inflation targeting continues to serve Uganda well; monetary policy could remain supportive for now; build reserves opportunistically under a flexible exchange rate; strengthen BoU’s financial position via recapitalization and expenditure measures. - External sector and reserves - Gross international reserves: $3.4 billion (4.2 months of next year’s imports) at end-February. - Current account deficit widened to 6.1 percent of GDP in FY17/18. ### Vulnerabilities, risks, and outlook risks - Debt and fiscal vulnerabilities - Uganda remains at low risk of debt distress, though debt metrics have deteriorated. - Directors cautioned that some investment projects may not generate envisaged returns and interest payments are rising. - Directors called to keep debt below 50 percent of GDP in nominal terms over the medium term. - Authorities intend to develop a fiscal rule to manage future oil revenues; Directors encouraged considering an interim debt ceiling to guide fiscal policy. - Political, regional, and climate risks - Regional security situation and the political and security situation in the run-up to the 2021 general elections are downside risks. - Slow rainfalls and regional tensions explicitly cited as risks to the outlook. - Financial sector and governance risks - Bank supervision and regulation generally sound; need more favorable business environment and greater access to finance to support private-sector-led growth. - Improvements welcomed in AML/CFT compliance; accession to the Extractive Industries Transparency Initiative begun. - Need further efforts to strengthen governance and reduce corruption, including addressing weak implementation of the legal framework. ### Executive Board assessment and policy recommendations - Executive Directors commended Uganda’s macroeconomic performance and development gains, including halving its poverty rate. - Key policy recommendations: - Adopt an effective fiscal anchor and strengthen the budget process to become more binding for fiscal outcomes; consider setting a debt ceiling of 50 percent of GDP supported by an overall fiscal deficit target; develop a fiscal rule for managing oil revenues. - Finalize and implement with the FY19/20 budget the Domestic Revenue Mobilization Strategy aimed at raising ½ percent of GDP annually over five years. - Support human capital development and make growth more inclusive by improving the efficiency of public services and providing adequate budget allocations for social sectors. - Maintain inflation targeting and flexible exchange rate regimes; continue purchasing reserves opportunistically as a buffer against heightened external vulnerabilities. - Strengthen implementation and institutions of the governance and anti-corruption framework; ensure AML/CFT regime is brought in line with international standards. ### Fiscal developments FY17/18–FY19/20 and public investment - FY17/18 - Fiscal deficit widened to 5 percent of GDP. - Infrastructure investments increased by 1 percent of GDP despite chronic under-execution of externally-financed projects. - Revenue collection increased by 0.4 percent of GDP, short of the authorities’ objective of ½ percent of GDP. - Public debt increased by 4 percentage points to 41 percent of GDP. - Domestic arrears increased by Ush 230 billion and stood at Ush 3.14 trillion at end-FY2017/18 (around 3 percent of GDP). - FY18/19 and FY19/20 outlook - FY18/19 growth projected at 6.3 percent; inflation expected to accelerate over the next 12–18 months, converging to BoU’s 5 percent core inflation target. - FY18/19 deficit expected to widen; authorities project deficit of 5.4 percent of GDP reflecting increased current and capital spending. - Planned supplementary budget adds 0.8 percent of GDP in spending and requires additional domestic borrowing. - FY19/20 staff projection: deficit to widen to 7.2 percent of GDP and public debt to reach 45.7 percent of GDP. - Capital spending allowed to increase to 12.1 percent of GDP in staff projections (including Karuma hydropower plant, a regional airport, oil-related projects, and Uganda Air purchases). ### Uganda’s nascent oil sector (Box summary) - Estimated recoverable oil reserves: approximately 1.7 billion barrels. - Oil production projected to begin in 2023 and last for over 25 years. - Government expects to receive between ½ percent to 4 percent of GDP in oil-related revenue per year during production. - Project components and estimated costs: - Upstream development costs: US$10 billion. - Pipeline: construction costs estimated at US$8 billion; 1/3 of production exported via pipeline to Tanga (Tanzania); IGA concluded with Tanzania; HGAs being finalized. - Refinery: estimated construction cost US$3-4 billion; remaining 2/3 processed domestically. - Government/UNOC stakes: estimated financial contribution of US$725 million; some equity decisions pending. - Authorities committed to road infrastructure with estimated cost of US$1 billion. - Fiscal regime: combination of royalties, production sharing, corporate income tax (30 percent rate), and dividends; pipeline IGA establishes special fiscal regime (ten-year tax holiday and concessions). ### Fiscal framework, budget process, and public investment management - Charter for Fiscal Responsibility targets: public debt below 50 percent of GDP (NPV) and fiscal deficit of 3 percent of GDP or less by FY20/21. - Targets have not steered fiscal policy effectively; debt projected to peak at 50.7 percent in FY21/22. - Staff suggestion: adopt an interim debt ceiling of 50 percent of GDP in nominal terms. - Budget process weaknesses: lack of effective top-down guidance; use of supplementary budgets late in fiscal year has macro-financial implications; poor preparation/implementation of public investment projects. - Reforms underway: - Enhanced guidelines for costing of investment projects. - Compiling an inventory of planned investment projects. - Adopted a domestic arrears strategy in 2018; monitoring of arrears still lags. - IMF CD supports these reforms. - Recommendation: include high-level summary with binding quantitative budget targets and specific costed measures to achieve expenditure constraints. ### Revenue measures and domestic revenue mobilization (authorities’ proposed FY19/20 measures; potential yields in percent of GDP) - Revenue Administration measures: - Introduction of electronic fiscal devices: 0.14 - Introduction of digital tax stamps: 0.12 - Improving the rental income tax collection: 0.14 - Measures to reduce tax fraud: 0.09 - Other measures: 0.12 - Tax Policy measures (revise/clarify tax provisions, reduce exemptions): 0.09 - Note: 1/ Based on the list of measures approved by cabinet. ### Debt sustainability and public debt risks - Debt-carrying capacity raised to strong from medium (Composite Indicator CI = 3.11; threshold = 3.05). - Uganda remains at low risk of external debt distress; overall risk of debt distress: Low. - Public gross nominal debt (percent of GDP, selected sequence): 38.0; 41.3; 42.2; 45.7; 49.0; 50.7; 50.4; 49.7. - Key DSA projections and assumptions: - Baseline assumes infrastructure investments yield envisaged growth dividend; revenue collection improves by ½ percent of GDP per year; oil exports commence in 2023. - PV of PPG external debt-to-GDP ratio peaks at 25.9 percent (threshold: 55 percent). - Total debt service expected to average around 41 percent of government revenue until oil revenues ensue. - Stress test results: - Combined contingent liability shock could push PV of total public debt-to-GDP ratio to a maximum of 54 percent in FY2020/21–FY2022/23, exceeding the government’s ceiling of 50 percent. - Growth shock could push PV of total public debt-to-GDP ratio to 50 percent in FY2023/24. - Policy imperatives: raise tax revenues, reduce tax expenditures, rein in current spending, strengthen budget process, monitor contingent liabilities. ### External sector, reserves, and balance of payments - Current account balance (incl. grants, percent of GDP) selected series: -3.7; -6.1; -7.2; -8.9; -9.6; -8.9; -7.0; -4.7. - Exports (goods and services, percent of GDP) selected: 19.0; 19.5; 19.3; 19.1; 19.1; 19.0; 19.0; 20.5. - Imports (goods and services, percent of GDP) selected: 25.9; 28.7; 29.6; 30.5; 30.5; 29.2; 27.0; 26.2. - Gross international reserves (US$ billions, selected): 3.4; 3.2; 3.3; 3.5; 3.7; 4.0; 4.2; 4.6. - Reserves adequacy: reserves equivalent to 4.1 months of next year’s imports described as a sound buffer and above IMF’s metrics; BoU plans to build reserves opportunistically. ### Monetary and financial sector developments - Bank of Uganda policy rate (selected entries): 10.0; 9.0; 10.0 (latest available data as of April 16, 2019). - BoU raised policy rate by 100 bps in October 2018 and maintained it thereafter; staff believes BoU can keep policy rate on hold in the near future. - Financial soundness indicators (September 2018): banks well capitalized, liquid, and profitable; six small banks continue to run losses but shareholders injected capital as needed. - Private sector credit: low at 12 percent of GDP. - Financial inclusion: access to financial services around 85 percent of Ugandans including mobile money; five-year financial inclusion strategy being implemented. - Recommendations: strengthen bank supervision, financial reporting, internal controls and governance; improve ELA and bank resolution frameworks; complete legal steps to put mobile money sector under BoU regulatory authority; implement FATF recommendations for virtual assets oversight. ### Governance, anti-corruption, and AML/CFT - Governance weaknesses: fiscal transparency, management of public investment projects, revenue collection, regulatory framework for business, rule of law, AML/CFT. - Legal framework: Anti-Corruption Act, Penal Code, Inspectorate of Government Act (2002), Public Finance Management Act (2015), Anti-Money Laundering Act, Leadership Code Act 2002, Code of Conduct and Ethics. - Institutional framework: Auditor General, Internal Auditor General, PPDA, FIA, IG, Directorate for Ethics and Integrity, Anti-Corruption Division of the High Court, new anti-corruption unit under the Office of the President (established December 2018). - Implementation challenges and indicators: - 88 percent: share of respondents considering corruption a main concern (2017 National Governance, Peace, and Security Survey). - 26: Uganda’s score on Transparency International’s Corruption Perception Index 2017 (scale 0–100). - 57.1: Uganda’s overall Ease of Doing score in the World Bank 2019 Ease of Doing Business report. - Recommendations: - Strengthen implementation capacity of accountability institutions, improve fiscal transparency and PFM, extend Treasury Single Account coverage, systematize tax exemption processes, and bring AML/CFT framework fully in line with FATF standard. ### Key quantitative indicators (selected exact values from source) - Real GDP (annual percent change): 2016/17: 3.9; 2017/18: 6.1; 2018/19: 6.3; 2019/20: 6.3; 2020/21: 6.2; 2021/22: 6.1; 2022/23: 6.0; 2023/24: 6.6. - GDP deflator (annual percent change): 6.3; 3.3; 3.0; 4.2; 5.2; 5.2; 4.9; 4.9. - CPI (period average): 5.7; 3.4; 3.2; 4.0; 4.8; 5.0; 5.0; 5.0. - Core inflation (end of period): 5.1; 2.7; 3.9; 4.8; 4.9; 5.0; 5.0; 5.0. - M3/GDP (percent): 21.7; 22.4; 23.1; 23.6; 24.1; 24.8; 25.3; 26.0. - Credit to non-government sector (annual percent change): 5.7; 10.5; 13.6; 11.2; 10.2; 13.7; 13.0; 10.4. - Bank of Uganda policy rate: 10.0; 9.0; 10.0. - Revenue and grants (percent of GDP): 15.2; 15.3; 16.1; 17.6; 17.5; 17.6; 17.9; 19.0. - Expenditure (percent of GDP): 19.0; 20.1; 21.5; 24.8; 24.9; 23.6; 21.9; 22.5. - Capital expenditure (percent of GDP): 7.8; 8.9; 9.6; 12.1; 11.9; 10.8; 9.3; 9.5. - Overall balance (percent of GDP): -3.5; -5.0; -5.4; -7.2; -7.4; -6.0; -4.0; -3.6. - Public gross nominal debt (percent of GDP): 38.0; 41.3; 42.2; 45.7; 49.0; 50.7; 50.4; 49.7. - Investment (percent of GDP): 24.4; 25.8; 26.9; 29.5; 29.8; 29.0; 27.0; 26.9. - Current account balance (incl. grants, percent of GDP): -3.7; -6.1; -7.2; -8.9; -9.6; -8.9; -7.0; -4.7. - Gross international reserves (in billions of US$): 3.4; 3.2; 3.3; 3.5; 3.7; 4.0; 4.2; 4.6. - Gross international reserves (in months of next year imports): 5.2; 4.5; 4.1; 4.0; 4.0; 4.2; 4.3; 4.6. - GDP at current market prices (Ush. billion): 91,718; 100,531; 110,048; 121,892; 136,159; 151,942; 168,955; 188,940. - GDP per capita (Nominal US$): 704; 724; 742; 784; 840; 888; 935; 991. - Population (million): 36.9; 37.8. *Source: Uganda—Staff Report for the 2019 Article IV Consultation (April 16, 2019).* ### 6.3 percent in FY18/19, though slow rainfalls and regional tensions are a risk to the outlook. ### 1ugaea2019001 - 6.3 percent in FY18/19, though slow rainfalls and regional tensions are a risk to the outlook. ### Overview and Growth Outlook - Real GDP growth: 6.3 percent in FY18/19; growth could range from 6 to 7 percent over the medium term if infrastructure and oil sector investments proceed as planned. - Per-capita growth projection: 3 to 4 percent over the next five years if investments proceed as planned. - Main downside risks: unfavorable weather conditions, domestic and regional political tensions, and further delays in the start of oil production. ### Macroeconomic Policy Stance and Developments - Fiscal policy - Investment reached 8.9 percent of GDP in FY17/18 and is envisaged to increase further in the following two years. - Public debt grew to 41.3 percent of GDP at end-FY17/18. - One in five Ugandan shillings collected in revenue will be spent on interest in FY19/20. - Monetary policy and inflation - Headline inflation: 3 percent year-on-year in March. - Core inflation: 4.6 percent year-on-year in March. - Bank of Uganda policy: accommodative stance despite a 100 bps policy rate increase last October that ended the previous easing cycle. - Inflation projection: projected to converge to Bank of Uganda’s 5 percent target over the next 1½ years, mainly driven by food prices and fiscal spending. - Directors agreed that inflation targeting continues to serve Uganda well and that monetary policy could remain supportive for now. - Directors agreed on building reserves opportunistically under a flexible exchange rate regime and urged strengthening the Bank of Uganda’s financial position through recapitalization and expenditure measures. - External sector and reserves - Gross international reserves: $3.4 billion (4.2 months of next year’s imports) at end-February. - Current account deficit widened to 6.1 percent of GDP in FY17/18 (noted as somewhat weaker than desirable). ### Vulnerabilities and Risks - Debt and fiscal vulnerabilities - Uganda remains at low risk of debt distress, though debt metrics have deteriorated. - Directors cautioned that debt metrics had weakened, some investment projects may not generate the envisaged return, and interest payments are rising. - Directors called on authorities to keep debt below 50 percent of GDP in nominal terms over the medium term to safeguard the favorable debt sustainability rating. - Directors welcomed the authorities’ intention to develop a fiscal rule to manage future oil revenues and encouraged considering an interim debt ceiling to guide fiscal policy. - Political and regional risks - Regional security situation and the political and security situation in the run-up to the 2021 general elections are downside risks. - Slow rainfalls and regional tensions explicitly cited as risks to the outlook. - Financial sector and governance - Directors concurred that bank supervision and regulation are generally sound but stressed the importance of a more favorable business environment and greater access to finance for private-sector-led growth. - Directors welcomed improvements in AML/CFT compliance and the decision to begin accession to the Extractive Industries Transparency Initiative, while calling for further efforts to strengthen governance and reduce corruption, including addressing weak implementation of the legal framework. ### Executive Board Assessment and Policy Recommendations - Executive Directors commended Uganda’s macroeconomic performance and development gains, including halving its poverty rate. - Key Policy Recommendations (as stated) - Adopt an effective fiscal anchor and strengthen the budget process to become more binding for fiscal outcomes. Consider setting a debt ceiling of 50 percent of GDP supported by an overall fiscal deficit target, while developing a fiscal rule for managing oil revenues. - Finalize and implement with the FY19/20 budget the Domestic Revenue Mobilization Strategy aimed at raising ½ percent of GDP annually over five years. - Support human capital development and make growth more inclusive by improving the efficiency of public services and providing adequate budget allocations for social sectors. - Maintain inflation targeting and flexible exchange rate regimes. Continue purchasing reserves opportunistically as a buffer against heightened external vulnerabilities. - Strengthen implementation and institutions of the governance and anti-corruption framework. Ensure that the Anti-Money Laundering / Countering the Financing of Terrorism regime is brought in line with international standards. ### Key Quantitative Indicators (selected series, exact values from source) - Real GDP (annual percent change): 2016/17: 3.9; 2017/18: 6.1; 2018/19: 6.3; 2019/20: 6.3; 2020/21: 6.2; 2021/22: 6.1; 2022/23: 6.0; 2023/24: 6.6. - GDP deflator (annual percent change): 6.3; 3.3; 3.0; 4.2; 5.2; 5.2; 4.9; 4.9. - CPI (period average): 5.7; 3.4; 3.2; 4.0; 4.8; 5.0; 5.0; 5.0. - Core inflation (end of period): 5.1; 2.7; 3.9; 4.8; 4.9; 5.0; 5.0; 5.0. - M3/GDP (percent): 21.7; 22.4; 23.1; 23.6; 24.1; 24.8; 25.3; 26.0. - Credit to non-government sector (annual percent change): 5.7; 10.5; 13.6; 11.2; 10.2; 13.7; 13.0; 10.4. - Bank of Uganda policy rate: 10.0; 9.0; 10.0 (latest available data as of April 16, 2019). - Revenue and grants (percent of GDP): 15.2; 15.3; 16.1; 17.6; 17.5; 17.6; 17.9; 19.0. - Expenditure (percent of GDP): 19.0; 20.1; 21.5; 24.8; 24.9; 23.6; 21.9; 22.5. - Capital expenditure (percent of GDP): 7.8; 8.9; 9.6; 12.1; 11.9; 10.8; 9.3; 9.5. - Overall balance (percent of GDP): -3.5; -5.0; -5.4; -7.2; -7.4; -6.0; -4.0; -3.6. - Public gross nominal debt (percent of GDP): 38.0; 41.3; 42.2; 45.7; 49.0; 50.7; 50.4; 49.7. - Investment (percent of GDP): 24.4; 25.8; 26.9; 29.5; 29.8; 29.0; 27.0; 26.9. - Current account balance (incl. grants, percent of GDP): -3.7; -6.1; -7.2; -8.9; -9.6; -8.9; -7.0; -4.7. - Exports (goods and services, percent of GDP): 19.0; 19.5; 19.3; 19.1; 19.1; 19.0; 19.0; 20.5. - Imports (goods and services, percent of GDP): 25.9; 28.7; 29.6; 30.5; 30.5; 29.2; 27.0; 26.2. - Gross international reserves (in billions of US$): 3.4; 3.2; 3.3; 3.5; 3.7; 4.0; 4.2; 4.6. - Gross international reserves (in months of next year imports): 5.2; 4.5; 4.1; 4.0; 4.0; 4.2; 4.3; 4.6. - GDP at current market prices (Ush. billion): 91,718; 100,531; 110,048; 121,892; 136,159; 151,942; 168,955; 188,940. - GDP per capita (Nominal US$): 704; 724; 742; 784; 840; 888; 935; 991. - Population (million): 36.9; 37.8 (latest available data as of April 16, 2019). *Source: Uganda—Staff Report for the 2019 Article IV Consultation (April 16, 2019).* ### 5. The fiscal deficit widened to 5 percent of GDP in FY17/18, driven by public ### 5. The fiscal deficit widened to 5 percent of GDP in FY17/18, driven by public ### Fiscal developments in FY17/18 - Fiscal deficit widened to 5 percent of GDP. - Infrastructure investments increased by 1 percent of GDP, despite chronic under-execution of externally-financed projects. - Current expenditure exceeded the original budget. - Revenue collection increased by 0.4 percent of GDP, short of the authorities’ objective of ½ percent of GDP. - External financing came mostly from concessional and non-concessional sources for public investment projects. - Public debt increased by 4 percentage points to 41 percent of GDP. ### External sector and reserves - Current account deficit increased to 6.1 percent of GDP in FY17/18. - Imports of goods and services grew by 17 percent—largely on account of capital goods related to the infrastructure projects. - Exports grew by 9 percent. - Uganda has a diversified export base with predominantly regional export destinations. - In FY18/19, the current account deficit is expected to widen to 7.2 percent of GDP, mostly due to increased imports of capital goods for public investment projects, oil projects, and FDI. - International reserves stood at US3.2 billion at end-FY17/18—a decline by US$210 million—and are expected to remain stable at 4 months of imports in FY18/19. ### Social indicators and poverty - Uganda ranks 125 out of 156 countries in the UN Sustainable Development Goals index. - Positive developments: reductions in child and maternal mortality rates; literacy and numeracy improved until 2010. - Negative/stagnant developments: literacy and numeracy have stagnated since 2010; primary education completion rates have declined. - Poverty reduction stalled in the four years to the 2016/17 household survey after two decades of gains. - About 70 percent of the population depends on agriculture, which registered negative per-capita growth over the same period. - Women, the youth, and workers with limited skills struggle to find permanent employment in the formal sector. ### Policy discussions, outlook, and risks - 2019 Article IV consultation focused on making growth more inclusive, improving spending quality and composition, limiting debt vulnerabilities, and continuing domestic revenue mobilization. - Discussions emphasized safeguarding Bank of Uganda (BoU) independence and effectiveness, including recapitalization and improving its profits and loss position. - Macroeconomic outlook and FY18/19 stance: - FY18/19 growth projected at 6.3 percent, with manufacturing, services and construction expanding while the base effect in agriculture fades. - Inflation expected to accelerate over the next 12-18 months, driven by food prices and fiscal spending, converging to BoU’s 5 percent core inflation target. - Fiscal expansion reflects further increases in investment; monetary policy remains accommodative. - A further loosening could contribute to external vulnerabilities. - Medium-term prospects: - Over the next 5 years, growth could reach up to 7 percent if infrastructure and oil sector investments proceed as planned. - Key oil sector decisions expected in the second half of 2019 that would unlock public and private sector investment. - These investments would raise the budget deficit, public debt, and the current account deficit until oil production commences. - Risks (tilted to the downside): - Domestic: delays in oil production start, security concerns, political tensions, revenue shortfalls, higher spending ahead of 2021 elections, weather and climate change, inadequate donor financing for refugee aid. - External/region: border tensions with Rwanda, potential spread of Ebola from neighboring countries, improved regional security (South Sudan and DRC) could be upside for exports. - Global: rising trade tensions could weigh on growth and pressure the shilling. ### Uganda’s nascent oil sector (summary of Box 2) - Estimated recoverable oil reserves: approximately 1.7 billion barrels, the fourth largest in Sub-Saharan Africa. - Oil production projected to begin in 2023 and last for over 25 years. - Government expects to receive between ½ percent to 4 percent of GDP in oil-related revenue per year during production. - Petroleum Regulatory Authority oversees the oil sector; the Public Financial Management Act of 2015 requires all oil revenue to be deposited in a Petroleum Fund. - Project components and estimated costs: - Upstream oil extraction: joint venture (Total, Tullow, CNOOC, UNOC). Estimated development costs: US$10 billion. - Pipeline: 1/3 of production exported via pipeline to the port of Tanga (Tanzania). Construction costs estimated at US$8 billion. Uganda and Tanzania concluded an Inter Government Agreement (IGA). Host government agreements (HGAs) being finalized. - Refinery: remaining 2/3 processed domestically at a refinery (first in the region), including for export. Estimated construction cost: US$3-4 billion. Built and operated by a consortium of U.S. and Italian companies. - Government/UNOC stakes in all three parts with an estimated financial contribution of US$725 million; some key equity decisions pending. - Authorities committed to building necessary road infrastructure with an estimated cost of US$1 billion. - Fiscal regime: - Regulated by Production Sharing Agreements (PSAs) and the Income Tax Act. - Combination of royalties, production sharing linked to production volumes above cost recovery, corporate income tax (30 percent rate), and dividends for government stakes. - Private partners fully cover development costs and recuperate government’s share via carried interest. - 2017 IGA establishes special fiscal regime for the pipeline: ten-year tax holiday and concessions on VAT and withholding tax for pipeline operation; HGAs will define tax treatment and pipeline tariff. - No special tax regime for the refinery currently being considered. ### Fiscal policy framework and anchor - Charter for Fiscal Responsibility targets: public debt below 50 percent of GDP in net present value and fiscal deficit of 3 percent of GDP or less by FY20/21. - Charter targets have not steered fiscal policy effectively: - 2013 debt target peak: 31 percent of GDP. - 2016 debt target peak: 44 percent of GDP. - Current projection: debt to peak at 50.7 percent in FY21/22, despite investment falling short of plans. - Authorities intend to adopt a fiscal rule for managing oil revenues; IMF providing CD. - Staff suggestion: adopt an interim debt ceiling of 50 percent of GDP in nominal terms to contain spending pressures by setting a concrete, monitorable target. - Authorities preparing a five-year Domestic Revenue Mobilization Strategy with IMF CD, expected to include tax policy reforms (rationalization of exemptions) and tax administration reforms. - Authorities committed to finalizing and implementing the strategy but did not see the need to adopt an additional debt ceiling beyond the Charter. ### Budget process, public investment management, and recent reforms - Budget process has not provided effective top-down guidance; fiscal outcomes deviate significantly from original budgets due to higher current spending and poor preparation/implementation of public investment projects. - Use of supplementary budgets late in the fiscal year has macro-financial implications for borrowing costs and contributed to domestic arrears and non-performing loans. - Key public investment planning concerns: - Cost estimate of required oil roads revised up by a factor of three. - Power sector investment planning excludes some necessary transmission lines. - Business plan for Uganda Air assumes capacity utilization above competitors to achieve profitability. - Authorities’ reforms: - Enhanced guidelines for costing of investment projects. - Compiling an inventory of planned investment projects. - Adopted a domestic arrears strategy in 2018; monitoring of arrears still occurs with significant lags. - IMF CD supports these reforms. - Budget document recommendations: - Include a high-level summary with binding quantitative budget targets. - Include specific and costed measures to achieve any targeted expenditure constraint. ### Fiscal volatility, interest rates, and recent fiscal actions (Box 4 and developments) - At end-FY17/18, a supplementary budget raised current expenditure by 0.7 percent of GDP, requiring additional domestic financing of 0.5 percent of GDP. - The large issuance surprised the market and led to jumps in yields, raising government borrowing costs and putting upward pressure on lending rates that are benchmarked on government securities. ### Expenditure composition and inclusive growth - Authorities prioritize infrastructure as the most pressing growth bottleneck affecting agriculture, industrialization, and tourism. - Given low revenue collection, difficult choices and prioritization are required; once large infrastructure projects are completed, resources could become available for social sectors. - On-budget health and education spending is complemented by development partner support. - Labor market programs for youth and women and income support for the elderly (SAGE) show positive results despite limited funding. - Cross-country evidence: investment in human capital is as imperative as physical infrastructure to raise agricultural productivity and enable employment shifts to manufacturing and services. - Recommendation: reverse declining budget allocations for education and health and enhance the effectiveness of this spending. ### Fiscal outlook FY18/19 and FY19/20 budget projections - FY18/19: - Deficit expected to widen; authorities project a deficit of 5.4 percent of GDP reflecting increased current and capital spending. - Planned supplementary budget adds 0.8 percent of GDP in spending (including Uganda Air plane purchases and security needs) and requires additional domestic borrowing. - Tax revenue projected to increase by 0.4 percent of GDP, below the target of ½ percent of GDP. - A revised 0.5 percent tax on withdrawals (mobile money transactions) is likely to disproportionately hit the rural poor. - A tax on popular social media apps could impact sentiment in the digital economy. - FY19/20 budget (staff projections based on Budget Framework Paper and discussions): - Staff projects the deficit to widen to 7.2 percent of GDP and public debt to reach 45.7 percent of GDP. - Budget seeks improved revenue collection by at least ½ percent of GDP; specific measures not finalized. - Current expenditure to be contained to 12 percent of GDP (authorities acknowledge difficulty). - Capital spending allowed to increase to 12.1 percent of GDP, including Karuma hydropower plant, a regional airport, oil-related projects, and purchase of additional planes for Uganda Air. - Authorities intend allocations for domestic arrears clearance and recapitalizing BoU. - Projected deficit conditional on revenue gains and containing spending pressures; still implies debt would exceed proposed ceiling of 50 percent of GDP in FY2021/22. - Staff recommends additional measures (e.g., rephasing public investment) to keep public debt below the ceiling. ### Authorities’ proposed revenue measures for FY19/20 (potential yields, in percent of GDP) - Revenue Administration: - Introduction of electronic fiscal devices: 0.14 - Introduction of digital tax stamps: 0.12 - Improving the rental income tax collection: 0.14 - Measures to reduce tax fraud: 0.09 - Other measures: 0.12 - Tax Policy: - Measures to revise and clarify existing tax provisions aiming at improving tax compliance, expanding tax base, reducing exemptions and other tax incentives: 0.09 - Note: 1/ Based on the list of measures approved by cabinet. ### Debt sustainability and fiscal space - Uganda remains at low risk of debt distress but significant vulnerabilities exist. - Debt carrying capacity raised to strong from medium. - Debt burden indicators remain below indicative thresholds but have increased compared to the previous DSA. - Assessment assumptions: - (i) infrastructure investments yield envisaged growth dividend; - (ii) revenue collection improves by ½ percent of GDP per year over next five years; - (iii) oil exports commence in 2023; - (iv) infrastructure investment reduced once current projects are completed. - Uncertainties (spending pressures, contingent liabilities, growth shocks) could push public debt above the Charter ceiling of 50 percent of GDP (in net present value terms). - Authorities agree with DSA results and expect the 2019–24 Public Debt Management Framework to help keep debt at sustainable levels. *Source: IMF staff report content (1ugaea2019001).* ### 22. Fiscal space is assessed to be at risk (Annex 2). Uganda’s external position is weaker ### 22. Fiscal space is assessed to be at risk (Annex 2). Uganda’s external position is weaker ### Fiscal space and public debt risk - Interest payments are projected to take up to 20 percent of revenue in FY19/20, a level typically only associated with countries at high risk of distress or in debt distress. - Tax cuts and exemptions would run counter to the need to improve Uganda’s revenue collection. - Given limited administrative capacity, it would be challenging to increase spending further in an effective manner. - The government relies on project financing and domestic issuance, constraining the scope for ad hoc additional borrowing. - Staff suggests the FY19/20 budget should target a lower deficit than the authorities have to keep debt below 50 percent of GDP over the medium term. - Staff suggests considering a debt ceiling of 50 percent of GDP in the near-term. - Continued progress on domestic revenue mobilization—½ percent of GDP per year—is a pillar of debt sustainability. - The budget should include an allocation for domestic arrears repayments and BoU recapitalization; a well communicated domestic issuance plan would help contain debt service costs and also lending rates. ### Monetary policy, BoU financial position, and central bank actions - BoU raised its policy rate by 100 bps in October 2018 and has appropriately maintained it since then. - Given the current inflation outlook, staff believes that BoU can keep the policy rate on hold in the near future. - BoU’s financial position is affected by low income due to the low global interest rates, necessary high costs to mop up excess liquidity in support of the monetary policy objective, rising operating expenditures, and the Crane Bank resolution costs. - The authorities agree that a prompt recapitalization in the FY19/20 budget would ensure that the central bank can continue pursuing its operations efficiently. - Finalization of the pending Memorandum of Understanding between BoU and the Ministry of Finance, Planning, and Economic Development and a review of the bank’s cost structure would be welcome. - Staff recommends improving BoU’s income position, including by the government paying for services rendered, and reducing operational costs. ### External position and reserve adequacy - Uganda’s external position is weaker than the level implied by fundamentals and desirable policies. - The current account deficit is expected to widen further during the preparation phase for oil production. - International reserves are equivalent to 4.1 months of next year’s imports, described as a sound buffer and above IMF’s metrics and the rule of thumb. - The flexible exchange rate regime continues to serve Uganda well. - BoU appropriately plans to build reserves opportunistically and maintain this reserve coverage. ### Financial sector stability and financial inclusion - Banks are well capitalized, liquid, and profitable according to financial soundness indicators for September 2018. - Six small banks continue to run losses, but shareholders have injected capital as needed. - BoU’s latest stress tests found that the system can withstand shocks but pointed to rising concentration risks and vulnerabilities to liquidity shocks. - Private sector credit remains low at 12 percent of GDP. - The stock market has only 9 listings of domestic companies. - The two credit bureaus have started to reduce information asymmetry and facilitate access to financing. - A law to allow movable assets as collateral has been passed, but legal uncertainty over property rights and lengthy proceedings to recover collateral continue to weigh on banks’ credit risks. - BoU should continue strengthening bank supervision, financial reporting, internal controls and governance; forthcoming IMF CD will assist BoU to further enhance bank supervision. - Emergency liquidity assistance and bank resolution frameworks should be improved; draft amendments to the BoU Act introducing an ELA legal framework are pending. - Access to financial services is around 85 percent of Ugandans, including through mobile money; a five-year financial inclusion strategy is being implemented. - The authorities should complete legal steps to put the mobile money sector under BoU’s regulatory and supervisory authority. - Cryptocurrencies are unregulated with low uptake to date; authorities should implement relevant FATF recommendations, including oversight of virtual assets service providers for AML/CFT compliance. ### Governance, anti-corruption, and AML/CFT - Uganda has the main elements of a legal framework to address corruption, but implementation needs to be strengthened. - Strengthening public finance management, fiscal transparency, and management of public investment projects would reduce vulnerabilities to corruption. - Authorities have started accession to the Extractive Industries Transparency Initiative. - Uganda has achieved important progress in addressing deficiencies in technical compliance with the AML/CFT standards, but serious issues identified in the 2015-16 assessment still remain. - Authorities should continue work to align their AML/CFT regime with international standards and are committed to applying to the Egmont Group of Financial Intelligence Units. ### Staff appraisal — key recommendations and priorities - Maintain macroeconomic stability while creating the necessary 600,000 plus new jobs per year and advancing poverty reduction and shared prosperity. - Adopt a clear fiscal anchor: consider a debt ceiling of 50 percent of GDP and implement a fiscal rule for managing oil revenues before production starts to insulate spending from oil revenue volatility. - Make the annual budget top-down and more binding; rephase investment plans where needed to target a lower deficit and keep debt below 50 percent of GDP. - Continue domestic revenue mobilization—½ percent of GDP per year. - Improve public investment management and ensure effective budget allocations to social sectors to support inclusive growth. - Maintain inflation targeting; BoU can likely hold the policy rate in the near future given current projections. - Address BoU’s deficit via recapitalization, MoU finalization with the Ministry of Finance, and cost structure review. - Continue opportunistic reserve accumulation while maintaining a flexible exchange rate regime. - Strengthen banking supervision, financial reporting, governance, stress testing, ELA and bank resolution frameworks. - Strengthen governance and anti-corruption institutions; continue improving public finance and AML/CFT regimes. *Source: IMF staff assessment as presented in the provided document excerpt.* ### 43. It is proposed that the next Article IV consultation takes place on the standard ### 1ugaea2019001 - 43. It is proposed that the next Article IV consultation takes place on the standard ### Real sector developments - Strong growth continues to be driven by agriculture and services, with a recent pick-up in industry. - Construction and manufacturing have garnered momentum and business sentiment remains positive. - Real GDP (selected entries, percent): 3.9, 6.1, 6.3, 6.3, 6.2, 6.1, 6.0, 6.6 (as shown in Table 1 sequence). - GDP deflator (selected entries): 6.3, 3.3, 3.0, 4.2, 5.2, 5.2, 4.9, 4.9. - Headline inflation (period average) (selected entries): 5.7, 3.4, 3.2, 4.0, 4.8, 5.0, 5.0, 5.0. - Core inflation (period average) (selected entries): 5.1, 2.7, 3.9, 4.8, 4.9, 5.0, 5.0, 5.0. - Exchange rate notes: After a stable period, the shilling has been volatile in 2018, and has appreciated in recent months, with some appreciation in real effective terms. ### External sector developments - The current account deficit has widened in FY17/18, driven mainly by higher imports of goods and services and lower current transfers. - Portfolio and other investment outflows have weakened the capital and financial account. - Foreign investors’ participation in government securities has declined due to lower yields. - Public external debt continues to rise to finance infrastructure investments; private external debt is stable. - Reserves buffer declined but remains at comfortable levels. - Current account balance (including grants) (selected, percent of GDP): -3.7, -6.1, -7.2, -8.9, -9.6, -8.9, -7.0, -4.7 (Table 1 / Table 4). - Gross international reserves (US$ billions, selected): 3.0, 3.4, 3.2, 3.3, 3.5, 3.7, 4.0, 4.2, 4.6. - Exports, f.o.b. (US$ millions, selected): 2,688; 3,274; 3,537; 3,768; 4,087; 4,549; 4,953; 5,372; 6,555 (Table 4). - Imports, f.o.b. (US$ millions, selected): 4,692; 4,768; 5,619; 6,101; 6,866; 7,593; 7,966; 7,986; 8,372 (Table 4). - Of which: oil imports (US$ millions, selected): 646; 694; 911; 1,002; 998; 1,050; 1,098; 1,154; 1,259 (Table 4). - Current account balance (excluding grants) (percent of GDP, selected): -3.9, -6.3, -8.1, -9.7, -10.3, -9.4, -7.4, -5.0. ### Fiscal developments and public debt - Domestic revenue continues to gradually increase; grants have been declining recently. - Outcomes deviated from the budget due to under-executed public investment and higher recurrent spending. - Public investment has increased, suggesting improved implementation capacity. - Higher investment spending contributed to widening the overall deficit; public debt, particularly external debt, has increased accordingly. - Central government fiscal aggregates (selected percent of GDP, Table 2b): Total revenue and grants: 14.4, 15.2, 15.2, 15.3, 16.1, 17.6, 17.5. Expenditure: 18.8, 20.1, 19.0, 20.1, 21.5, 24.8, 24.9. - Overall balance (percent of GDP, selected): -4.4, -5.3, -3.5, -5.0, -5.4, -7.2, -7.4. - Excluding grants overall balance (percent of GDP, selected): -6.0, -3.9, -6.3, -8.1, -9.7, -10.3, -9.4 (Table 1 / Table 4). - Public gross debt (percent of GDP, selected): 38.0, 41.3, 42.2, 45.7, 49.0, 50.7, 50.4, 49.7. - External public debt (percent of GDP, selected): 24.3, 27.8, 27.7, 29.9, 32.2, 33.9, 33.8, 33.5. - Domestic public debt (percent of GDP, selected): 13.7, 13.5, 14.5, 15.7, 16.8, 16.8, 16.5, 16.2. ### Education and health spending and outcomes - Spending per student is below LIC average while education outcomes are poor. - Health spending per capita is relatively low and several countries with similar or lower spending achieve better results. - Government education spending (spending per student, PPP$) and healthy expectancy vs total health expenditure per capita (PPP$) are depicted; comparative countries listed include Uganda, Tanzania, Kenya, Burundi, EAC average, LIDCs. ### Monetary developments - For the first time since 2015, the policy rate was raised by 100 bps in October 2018. - T-bill rates have increased with financing pressures and the policy rate. - Lending rates have responded to the increase in the policy rate. - Spread between FX and Shilling rates stayed stable. - Excess reserves have slightly increased again; BoU mopped up the additional excess liquidity. - Bank of Uganda policy rate (Table 1 entries): 10.0, 9.0, 10.0 (selected). - Broad money (M3) growth rates (selected): 13.6, 12.7, 13.2, 13.1, 14.1, 14.9, 13.2, 15.0. - Credit to non-government sector growth (selected): 5.7, 10.5, 13.6, 11.2, 10.2, 13.7, 13.0, 10.4. - M3/GDP (percent, selected): 21.7, 22.4, 23.1, 23.6, 24.1, 24.8, 25.3, 26.0. ### Financial sector developments - The banking sector remains well capitalized. - Liquidity has declined but remains comfortable. - Overall asset quality has improved; agriculture lending accounts for the largest share of NPLs. - Share of NPLs in FX loans has declined relative to that of shilling loans. - Share of insider loans has decreased, while exposure to big loans has increased. - Banking sector indicators (Table 5, selected): - Regulatory capital to risk-weighted assets (percent, selected): 23.2, 21.2, 19.7, 21.0, 21.8, 21.7, 22.5, 19.8, 22.9, 23.6, 23.8, 23.2. - NPLs to total gross loans (percent, selected): 4.2, 4.0, 3.9, 5.3, 6.9, 8.3, 7.7, 10.5, 6.3, 6.2, 7.2, 5.6. - Return on assets (percent, selected): 2.5, 2.8, 2.7, 2.6, 2.8, 2.2, 2.5, 1.3, 1.4, 1.7, 1.5, 2.7. - Return on equity (percent, selected): 15.6, 17.7, 17.2, 16.0, 16.8, 13.8, 14.9, 8.3, 8.3, 10.2, 8.7, 16.4. - Net interest margin (percent, selected): 11.0, 10.9, 11.0, 11.3, 11.6, 11.9, 12.3, 12.8, 12.7, 12.3, 11.8, 11.6. - Liquid assets to total deposits (percent, selected): 44.2, 46.4, 46.0, 46.4, 42.5, 43.4, 45.4, 51.5, 48.8, 50.1, 48.3, 54.6. ### Other financial sector developments - After a period of improvement, banks profitability has been stable. - Banks keep their forex loans within the regulatory norms. - Shilling deposit growth has declined while forex deposit growth has turned positive again. - Private credit is growing, driven by shilling loans; construction and trade also drive private credit growth. - Stock market performance has been declining driven by cross-listed shares, while local shares have been stable. ### Key macro-fiscal and monetary statistics (selected exact figures) - GDP at current market prices (Ush. billion, selected): 91,718; 100,531; 110,048; 121,892; 136,159; 151,942; 168,955; 188,940. - US$ million GDP (selected): 26.0; 27.5. - GDP per capita (Nominal US$) (selected): 704; 724; 742; 784; 840; 888; 935; 991. - Population (million) (selected): 36.9; 37.8. - Current account (US$ millions, Table 4 selected): -1,362; -956; -1,683; -2,118; -2,825; -3,386; -3,410; -2,903; -2,115. - Overall balance (US$ millions, Table 4 selected): 101; 42; 1; -210; 125; 187; 149; 268; 250; 440. - Gross international reserves (US$ billions, Table 4): 3.0; 3.4; 3.2; 3.3; 3.5; 3.7; 4.0; 4.2; 4.6. *Source: Ugandan authorities and IMF staff calculations and estimates (content unit: 1ugaea2019001).* ### Annex I. Risk Assessment Matrix (RAM) ### Annex I. Risk Assessment Matrix (RAM) ### Potential Domestic Risks - Weak implementation of public investment combined with tax revenue shortfalls, for example in the context of the 2021 elections - Likelihood / Time Horizon: High / Short to Medium Term - Expected Impact on Economy: High. Would lower growth dividend and increase risk of debt distress - Policy Response: - Improve the quality of public spending - Define operational debt ceiling with annual budget deficit and a binding expenditure envelope - Follow-up to the parliamentary report undermines BoU’s independence and effectiveness - Likelihood / Time Horizon: High / Medium/LongTerm - Expected Impact on Economy: High. Compromise inflation targeting regime and effective bank supervision. Loss of macro stability and potential for bank failures. - Policy Response: - Draw on IMF TA to design reforms - Clear political statement in support of BoU and immediate correction of false information in the public domain - Lower growth from regional insecurity or adverse weather shocks - Likelihood / Time Horizon: High / Medium/Long-term - Expected Impact on Economy: High. Lower growth, increase in poverty levels, worsened public debt sustainability - Policy Response: - Improve economic resilience to shocks, build fiscal and external buffers - Further delays in the start of oil production - Likelihood / Time Horizon: High / Medium to Long Term - Expected Impact on Economy: Medium. Would reduce growth and further weaken public debt metrics. - Policy Response: - Focus on revenue mobilization and refrain from tax exemptions - Rein in current spending and rephase investment ### Potential External Risks - Rising protectionism and retreat from multilateralism - Likelihood / Time Horizon: High / Short to Medium Term - Expected Impact on Economy: Medium. Would adversely impact exports foreign direct investment and portfolio inflows. - Policy Response: - Maintain exchange rate flexibility. - Accelerate reforms to enhance competitiveness. - Move forward with trade integration in the East African Community and on the continent. - Sharp tightening of global financial conditions (Tighter global financial conditions; Sustained rise in risk premium) - Likelihood / Time Horizon: Low / Short Term (Tighter global financial conditions); Medium / Short Term (Sustained rise in risk premium) - Expected Impact on Economy: Low. Would reduce capital inflows—negative affect on the banking sector and credit growth due to already low portfolio investment in government securities; higher domestic borrowing costs; and reduced imports. - Policy Response: - Address bottlenecks in the banking sector and further strengthen financial sector supervision; - Improve macroeconomic fundamentals and business environment. - Weaker-than-expected global growth - Likelihood / Time Horizon: Medium / Short to Medium Term - Expected Impact on Economy: Medium. Would lower growth and widen current account deficit through reduced tourism, trade, and foreign direct investment and portfolio inflows. Could impact availability of Chinese project financing. - Policy Response: - Maintain exchange rate flexibility; - Accelerate reforms to address structural weakness affecting competitiveness. - Intensification of security risks in Africa - Likelihood / Time Horizon: High / Short to Medium Term - Expected Impact on Economy: High. Deterioration of security situation in South Sudan and DRC, key trading partners, would directly affect exports. Spread of instability to Uganda would have widespread adverse effects on the economy. - Policy Response: - Maintain exchange rate flexibility; - Promote diversification of trading markets. - Cyber-attacks - Likelihood / Time Horizon: Medium / Short to Medium Term - Expected Impact on Economy: Low. Would disrupt economic activities, put at risk financial stability, but financial sector remains small. - Policy Response: - Step up efforts to strengthen cyber security ### RAM methodology note - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). - The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). - The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term” and “medium term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively. *Source: Annex I. Risk Assessment Matrix (RAM), IMF staff.* ### Annex IV. Governance and Corruption in Uganda ### Annex IV. Governance and Corruption in Uganda ### Overview - Governance and corruption issues are macro-relevant in Uganda, potentially impacting fiscal and growth outcomes. - Main areas of governance weakness: fiscal transparency (coverage and adequacy of budget reports), management of public investment projects, revenue collection, regulatory framework for doing business and trade facilitation, the rule of law, and the Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT). - Weak implementation of the legal framework can give rise to corruption. ### Legal Anti‑Corruption Framework - Core laws and instruments: - Anti-Corruption Act - Penal Code - Inspectorate of Government Act (2002) - Public Finance Management Act (2015) - Anti-Money Laundering Act - Leadership Code Act 2002 (LCA) - Code of Conduct and Ethics - Key legal features: - Anti-Corruption Act criminalizes bribery, diversion of property by a public official, trading in influence, and outlines powers of the Inspector General of Government and the Director of Public Prosecutions, and provisions on jurisdiction, restraint and confiscation. - Penal Code criminalizes embezzlement, causing financial loss, abuse of office and fraud. - LCA establishes obligations for high-level officials to declare assets and functions of the Inspectorate of Government. - Uganda is a signatory to both the UN and AU conventions against corruption. ### Institutional Anti‑Corruption Framework - Principal agencies and functions: - Directorate of Criminal Investigation and Crime Intelligence: detection and investigation of crimes. - Offices of Auditor General (OAG) and Internal Auditor General (OIAG); Public Procurement and Disposal of Asset Authority (PPDA). - Financial Intelligence Authority (FIA): coordinating AML/CFT issues, receiving and analyzing suspicious transaction reports and other information from reporting agencies. - Parliamentary accountability committees: Public Accounts Committee, Committee on Commissions, Statutory Authorities, and State Enterprises, and Local Government Public Accounts Committee—scrutinize OAG audit findings and may recommend action. - Bank of Uganda: AML/CFT supervision of banks, money or value transfer services, forex bureaus and mobile money service providers. - Inspectorate of Government (IG): responsible for offences under the Anti-Corruption Act; Department of Public Prosecution institutes criminal litigation. - Directorate for Ethics and Integrity: development of legislation, policies and strategies to improve accountability and reduce corruption. - Anti-Corruption Division of the High Court: adjudicates corruption-related cases. - New anti-corruption unit under the Office of the President (established December 2018): receives and follows up on corruption complaints and manages an anonymous corruption hotline. ### Implementation Challenges and Evidence - Public perceptions and indicators: - 88 percent of respondents consider corruption as a main concern (2017 National Governance, Peace, and Security Survey). - Transparency International’s Corruption Perception Index 2017: Uganda received a score of 26 (on a scale of 0 to 100, 0 being the most corrupt). - The Worldwide Governance Indicator assessing control of corruption has recently worsened, while other indicators remained low. - Operational weaknesses: - Accountability institutions lack effectiveness and have limited capacity to initiate investigations based on audit findings, verify asset/liabilities declarations, or transmit information to law enforcement. - Administrative sanctions regime is inefficient; in criminal cases most convicted persons avoid prison by paying a fine. - Illicit asset recovery rate is very low. - Ineffectiveness of accountability institutions reflects broader ineffectiveness of government institutions. - Programs and reviews: - 5-year program Strengthening Uganda’s Anti-Corruption Response Technical Advisory Facility (SUGAR) launched in 2016 (supported by DfID); inception report highlights major implementation challenges. - Review of implementation of the UN Convention against Corruption identified legal gaps: strengthening tracing and identification of proceeds and instrumentalities of crime; definition of public official to include foreign public officials; embezzlement/misappropriation provisions to cover private funds entrusted to a public official and embezzlement for benefit of another person/entity; disqualification sanctions for persons employed by state-owned enterprises; legal provisions on rescission of tainted concessions. ### Fiscal Governance and Public Financial Management (PFM) - Reforms and progress: - Public Finance Management Act adopted in 2015. - Treasury Single Account initially covering central government has been put in place; work underway to include local governments and donor projects. - Membership accession in the Extractive Industries Transparency Initiative has started. - Remaining weaknesses: - Fiscal transparency remains weak: budget documentation contains limited analysis on national fiscal objectives and targets; explanations to budget revisions are not published. - Strategic focus of existing budget documents should be strengthened by publishing a clear annual fiscal anchor to underpin parliamentary oversight and make the executive more accountable. - The only operational anchor at present is the EAC’s fiscal deficit target of 3 percent of GDP which is not binding until 2020/21. - Revenue administration: - Authorities focus on strengthening human resource framework to conduct internal investigations and inspections and to utilize personnel disciplinary procedures. - Expanding role of senior management to address corrupt practices and strengthening administrative processes, including taxpayer complaints procedure. - Use of tax exemptions may create vulnerabilities to corruption; process may lack systematism and transparency. Authorities argue exemptions aim to attract private investments. ### Business Environment, Banking Sector, and AML/CFT - Business environment: - World Bank 2019 Ease of Doing Business: Uganda’s overall Ease of Doing score is 57.1 (out of 100). - Specific challenges: access to electricity, getting credit, registering property, dealing with construction permits, enforcing contracts. - On most indicators Uganda trails regional peers. - Banking sector governance: - Corporate governance can be further strengthened; Bank of Uganda should step up enforcement of findings on weaknesses in banks’ internal audit, controls and compliance. - AML/CFT: - Uganda underwent an ESAAMLG assessment against the 2012 FATF AML/CFT standard (report published April 2016): identified deficiencies in legal framework and low level of effectiveness for all outcomes. - Progress has been made addressing technical compliance issues identified in the 2016 ESAAMLG report. - Authorities completed and disseminated the ML/TF national risk assessment. - Recommendations: bring AML/CFT framework fully in line with the FATF standard; improve effectiveness of implementation; strengthen AML measures supporting anti‑corruption (measures related to domestic politically exposed persons, strengthening asset declarations, and transparency of companies and trusts). ### Key Statistics and Exact Figures - 88 percent: share of respondents considering corruption a main concern (2017 National Governance, Peace, and Security Survey). - 26: Uganda’s score on Transparency International’s Corruption Perception Index 2017 (scale 0–100). - 57.1: Uganda’s overall Ease of Doing score (out of 100) in the World Bank 2019 Ease of Doing Business report. - 3 percent of GDP: EAC fiscal deficit target; not binding until 2020/21. - December 2018: establishment of a new anti-corruption unit under the Office of the President. - 2016: launch of the 5-year SUGAR program. - April 2016: publication of ESAAMLG assessment report against the 2012 FATF AML/CFT standard. ### Policy Implications and Recommendations - Strengthen implementation capacity of accountability institutions: - Build capacity to initiate investigations from audit findings, verify asset/liabilities declarations, and transmit information to law enforcement. - Improve the effectiveness of administrative sanctions and criminal enforcement to reduce impunity (address use of fines to avoid prison, improve illicit asset recovery). - Enhance fiscal transparency and budget credibility: - Publish clear annual fiscal anchor and explanations to budget revisions. - Extend Treasury Single Account coverage to local governments and donor projects. - Improve revenue administration integrity: - Strengthen internal investigations, inspections, personnel disciplinary procedures, and taxpayer complaints procedures. - Review and systematize tax exemption processes to reduce corruption vulnerabilities. - Strengthen business environment and financial sector governance: - Address constraints in electricity, credit, property registration, construction permitting, and contract enforcement. - Bank of Uganda to enforce improvements in banks’ internal audit, controls and compliance. - Align and strengthen AML/CFT measures: - Bring AML/CFT framework fully in line with the FATF standard and improve effectiveness. - Strengthen measures related to domestic politically exposed persons, asset declarations, and transparency of companies and trusts. *Source: Annex IV. Governance and Corruption in Uganda — IMF staff report (from the provided PDF content).* ### 2009. Starting June 2016, BOU has expanded the coverage of other depository corporations to include ### 1ugaea2019001 - 2009. Starting June 2016, BOU has expanded the coverage of other depository corporations to include ### Financial sector surveillance - Bank of Uganda (BOU) expanded coverage of other depository corporations starting June 2016 to include deposit taking savings and credit cooperative societies (SACCOs) and compiled SRF-4SR covering other financial corporations. - BOU reports all 12 core financial soundness indicators (FSIs) and a few of the encouraged FSIs for deposit takers. - All FSIs are reported quarterly for posting on the IMF’s FSI website. - A Financial Sector Stability Review mission took place in February 2018. ### External Sector Statistics (ESS) - BOU compiles quarterly balance of payments and international investment position (IIP) statistics based on BPM6. - Oldest BPM6-based quarterly balance of payments: Q1-2001. - Oldest BPM6-based quarterly IIP: Q1-1999. - Monthly informal cross border trade surveys are conducted to estimate informal trade. - Development priorities identified: - Continue developing source data for services, specifically travel (under EAC/DFID Balance of Payments Module 2). - Improve measurement of merchanting and construction services, and address intra-EAC trade discrepancies. - Separate balance of payments transactions from other flows (revaluations and other volume changes) to improve measurement of BoP flows and IIP stocks. - Reduce the size of the errors and omissions term of the Balance of Payments and align projected financing gap with changes of reserves in the cash flow table. ### Data Standards and Quality - Uganda implemented the e-GDDS recommendations in November 2016. - Uganda is publishing all the fifteen data categories recommended under the e-GDDS on its National Summary Data Page and is on track to becoming an SDDS subscriber. ### Reporting to STA - Uganda reports government finance statistics (GFS) data according to the GFSM 2014 framework for the GFS Yearbook. - Uganda does not report any high frequency data for inclusion in the International Financial Statistics (IFS). ### Common Indicators Required for Surveillance (selected entries; latest observation and reporting frequency) - Exchange Rates: Date of Latest Observation March 1, 2019; Date Received March 6, 2019; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D. - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation January 2019; Date Received February 2019; Frequency M/M/M. - Reserve/Base Money: January 2019; February 2019; M/M/M. - Broad Money: January 2019; February 2019; M/M/M. - Central Bank Balance Sheet: January 2019; February 2019; M/M/M. - Consolidated Balance Sheet of the Banking System: January 2019; February 2019; M/M/M. - Interest Rates: January 2019; February 2019; Data frequency D; Reporting M; Publication M. - Consumer Price Index: February 2019; March 2019; M/M/M. - Revenue, Expenditure, Balance and Composition of Financing - Central Government: January 2019; February 2019; M/M/M. - Stocks of Central Government and Central Government-Guaranteed Debt FY2017/18: February 2019; A/A/A. - External Current Account Balance: Q3 2018; January 2019; Q/Q/Q. - Exports and Imports of Goods: January 2019; March 2019; M/M/M. - GDP/GNP: Q1 FY2018/19; January 2019; Q/Q/Q. - Gross External Debt FY2017/18: February 2019; A/A/A. - International Investment Position Q3 2018: January 2019; Q/Q/Q. Notes: - D = Daily; W = Weekly; M = Monthly; Q = Quarterly; A = Annually; NA = irregular/not available. - Reserve assets include assets pledged or otherwise encumbered as well as net derivative positions. - Interest rates include both market-based and officially-determined rates. - International Investment Position includes external gross financial asset and liability positions vis-à-vis nonresidents. ### Debt Sustainability Analysis (DSA) — key findings and projections - Debt-carrying capacity updated to “strong” in the revised Low-Income Country Debt Sustainability Framework (LIC DSF). - Composite Indicator (CI) = 3.11; threshold = 3.05. - Risk ratings: - Risk of external debt distress: Low. - Overall risk of debt distress: Low. - Despite higher-than-anticipated debt burden trajectories versus last DSA, all external debt and total public debt burden trajectories remain below respective indicative thresholds under baseline and stress tests. - Total debt service expected to average around 41 percent of government revenue until oil revenues ensue. - Key policy imperatives: - Raise tax revenues, reduce tax expenditures, and rein in current spending. - Strengthen budget process so budget targets become more binding. - Improve public spending efficiency and public debt management. - Comprehensive monitoring of fiscal risks. - Risks: - Political pressures for higher current spending. - New ad-hoc tax exemptions compounding already low tax revenues. - Delays in oil exports beyond FY2023/24 could result in liquidity pressures, especially if more non-concessional borrowing materializes. ### Public debt coverage and composition - Public and publicly guaranteed (PPG) external and domestic debt covers central government, state and local government, social security fund, and central bank. - Data limitations: - Debt data does not cover several elements of general government debt including extra budgetary funds and non-guaranteed debt issued by state-owned enterprises (SOEs), though SOEs issue debt only in the domestic market. - Authorities committed to strengthening oversight and monitoring to broaden public debt coverage. - Estimates and specific amounts: - Estimate of SOE debt used in analysis: 9.1 percent of GDP (based on a preliminary report). - Default PPP shock used: 2.8 percent of GDP (noted elsewhere as 35 percent of the PPP stock = 2.78 percent of GDP). - Domestic arrears: increased by Ush 230 billion and stood at Ush 3.14 trillion as of end-FY2017/18, which is around 3 percent of GDP. - Authorities engaged external auditor (Ernst & Young) to verify arrears. - Definition of external/domestic debt: Residency-based. - Is there a material difference between residency- and currency-based criteria? Yes. ### Background and recent macroeconomic developments - Growth and inflation: - Average real GDP growth declined from close to 8 percent (five years to FY2011/12) to 5 percent (FY2013/14 to FY2017/18). - Inflation decelerated to around 5 percent on average since spike in FY2011/12 of close to 21 percent. - Current account and trade: - Current account deficit averaged 6 percent of GDP over past six years. - Current account deficit declined from 8.7 percent of GDP in FY2011/12 to around 3.7 percent in FY2016/17, widened to 6.1 percent in FY2017/18. - Exports of goods and services: US$3.8 billion in FY2010/11 to US$5.4 billion in FY2017/18. - Imports: US$6.8 billion in FY2010/11 to US$7.9 billion in FY2017/18. - Trade deficit: 9.2 percent of GDP in FY2017/18. - Real exchange rate: - Depreciated cumulatively by around 25 percent over past five years. - Larger depreciation in FY2014/15 of around 27 percent. - Oil sector and related investment: - Uganda expected to start extracting and exporting oil in FY2023/24; reserves expected to last for 25 years. - Fiscal oil revenues estimated in the range of ½ to 4 percent of GDP per annum during this period (based on Brent price of US$60 in constant 2018 prices). - Pipeline to Tanga in Tanzania estimated to cost around US$8 billion. - Domestic oil refinery investment estimated at US$3-4 billion (planned as PPP with a consortium). - PPPs give rise to contingent liabilities; estimates pending negotiation outcomes. - Additional oil-related investments: road infrastructure, an international airport, storage facilities. - Public investment program: - Government scaling up public investment to prepare for oil exports and longer-term growth, though implementation has been slow. - Forecast disbursements for externally financed projects concentrated in Works & Transport, Energy & Mineral Development, and Water & Environment. - Karuma and Isimba dams largely completed and set to start producing electricity in 2019 or next. - Other planned projects: access roads to oil wells, pipeline to Tanga, domestic refinery, international airport in Kabaale, transmission lines, Lubowa hospital. - Emphasis on need for strong project selection and implementation frameworks and parallel investment in human capital. - Fiscal position: - Primary deficits averaged 2.4 percent of GDP over the past five years. - Tax revenue collection strengthened on average by 0.4 percent of GDP yearly over recent years. - Authorities target annual improvement in tax revenues by ½ percent of GDP and preparing a 5-year domestic revenue mobilization strategy. - Capital spending focus continues but has been below budget due to co-financing, land issues, and absorption/procurement capacity. ### Public debt levels and creditors (selected figures) - Public debt: - Public debt reached 41.3 percent of GDP at end-FY2017/18 (US$11.3 billion). - In present value terms, total public sector debt = 31.3 percent of GDP. - Two-thirds of outstanding public debt owed to external creditors: US$7.9 billion (residency basis). - Domestic debt: about US$3.5 billion. - Roughly three-fourths of domestic debt in Treasury Bonds; remainder in short-term Treasury Bills. - External debt concessionality and creditors: - Highly concessional loans from IDA and ADF account for 58.8 percent of the external loan portfolio. - Semi-concessional component has been rising due to sizable borrowing from China since FY2015/16. - Karuma, Isimba dams and Kampala–Entebbe Expressway financed largely by EXIM Bank of China; these account for three-fourths of semi-concessional financing. - China EXIM Bank accounts for 23.4 percent of the external loan portfolio. - Other creditors include JBIC, JICA, EIB, AFD, IFAD, OPEC Fund, PTA, BADEA, commercial banks (e.g., Commerzbank, Standard Chartered), and multilaterals (ADB, IDA, ADF). - Specific creditor table highlights (as of end-FY2017/18): - Total external debt stock (selected): 7,202 million US$ (100.0%). - Bilateral: 2,239 million US$ (31.1%); EXIM Bank of China: 1,688 million US$ (23.4%). - Multilateral: 4,914 million US$ (68.2%); IDA: 3,055 million US$ (42.4%); ADF: 1,182 million US$ (16.4%). *Source: IMF and Uganda authorities (IMF staff report for the 2019 Article IV consultation and DSA materials).* ### 9. Public domestic debt (residency based) stood at 12.6 percent of GDP at end of ### 1ugaea2019001 - 9. Public domestic debt (residency based) stood at 12.6 percent of GDP at end of ### Public domestic debt and residency - Public domestic debt (residency based) stood at 12.6 percent of GDP at end of FY2017/18, and is expected to remain broadly unchanged in FY2018/19. - Total public domestic debt in local currency amounts to 13.5 percent of GDP. - On average, nonresidents held about 9 percent of total treasury bills and treasury bonds over the period of FY2012/13 to FY17/18. - As of June 2018, nonresidents held about 7 percent of total government securities as investments became less attractive due to lower yields. - Foreign investors shifted into currency swaps even as they did not completely move out of Uganda. - Using the residency-based methodology, government securities held by nonresidents are treated as external debt in the DSA. ### Macroeconomic framework and baseline assumptions (medium- and long-term) - Real GDP growth: - Growth mainly driven by higher oil-related FDI and public infrastructure investment. - Uganda’s national development plan pillars: (i) modernization of the agriculture sector (accounts for about 2/3 of employment and more than half of today’s exports); (ii) development of the tourism sector, minerals and petroleum; (iii) development and maintenance of strategic infrastructure and human capital; (iv) improvement of the business environment through better governance and fight against corruption. - Medium term growth rate is projected between 6 to 7 percent. - GDP deflator: - Core inflation projected to remain within a band of +/- 2 percentage points around the BoU’s 5 percent target. - Oil revenue projections: - Oil production from the current projects is expected to start in FY 2023/2 4 and last for 25 years. - The government expects to receive between ½ percent to 4 percent of GDP in oil related revenue per year during this period. - Primary fiscal deficit: - Projected to remain high due to large capital spending on infrastructure projects. - Note: baseline projections assume an under execution of 70 percent for externally-financed development spending; domestically financed public investment execution rate has been 100 percent. - Public debt: - Projected to decline starting from 2022/2 3 once large infrastructure projects are completed and oil receipts raise government revenues. - External current account deficit: - Projected to widen to 9.6 percent of GDP over the next few years due to rising import demand for oil sector development and public investment. - FDI inflows: - Expected to continue to increase with investments on oil related projects before oil exports start; later assume FDI outflows using oil revenue in the long term. - Gross official reserves: - Expected to gradually rise over the medium term, covering around 4.2 months of imports. ### External debt sustainability (baseline and stress tests) - Baseline solvency and liquidity indicators remain well below indicative thresholds over the projection horizon. - PV of PPG external debt-to-GDP ratio peaks at 25.9 percent (threshold: 55 percent). - PV of debt-to-exports ratio reaches 134.7 percent (threshold: 240 percent). - Debt service-to-revenue ratio rises to 11.3 percent in FY2022/23 (about half the level at which the threshold is set). - Denominator for debt service-to-revenue assumed to rise from 15.3 percent in FY2017/18 to 17.9 percent of GDP in FY2022/23. - Debt service-to-exports ratio peaks at 10.3 percent (below threshold for countries with strong debt-carrying capacity). - Stress tests and scenarios: - All extreme stress tests remain below respective indicative thresholds. - Most extreme shock for PV of debt-to-GDP is combined contingent liability shock; for debt service-to-revenue is depreciation shock. - Contingent liability shock assumes realization of SOE’s debt of 9.1 percent of GDP and a PPP stock of 2.8 percent of GDP. - Historical scenario shows deterioration across indicators but is disregarded for DSA due to not accounting for structural break from oil production. - Risks highlighted: - Uncertainty around timing of oil export receipts (could be realized much later than expected), which would weaken denominators of PV of debt-to-exports and debt service-to-exports and increase gross financing needs. - Oil price shocks pose risk, but projected oil exports account for 10 to 20 percent of total exports; under an oil price shock debt indicators would remain below thresholds. - Scaling-up of investment and increased semi-concessional and commercial borrowing leads to vulnerabilities. - Other potential risks include investments financed with semi- or non-concessional loans not captured in framework (e.g., nationalizing electricity transmission system in 2025 requiring new government borrowing). ### Public debt sustainability (including domestic debt) - Baseline public debt trajectories: - PV of public debt-to-GDP ratio reaches around 39.3 percent in FY2023/24, and declines to 29.9 percent by FY2028/29 as oil export receipts ensue (indicative benchmark: 70 percent for countries with strong debt-carrying capacity). - Nominal public debt-to-GDP projected to reach 50.7 percent in FY2021/22. - Debt service-to-revenue ratio slowly declines to 37.6 percent after five years. - Domestic debt characteristics and risks: - Average term to maturity (ATM) of domestic debt: 3.7 years. - High average nominal interest rate on domestic debt: over 15 percent. - Low budget revenue base (even in SSA context). - These imply high rollover risks and pronounced interest rate risks. - Policy actions suggested: stronger revenue mobilization and extension of average domestic debt maturities over the medium term. - Stress tests including domestic debt: - Most extreme stress test is combined contingent liability shock simulating a contingent liability shock on the order of 17 percent of GDP (liabilities from SOE’s debt, PPP, and financial market liabilities). - Under this shock, PV of total public debt-to-GDP ratio rises to a maximum of 54 percent in FY2020/21 to FY2022/23 (exceeds government’s publicly stated ceiling of 50 percent of GDP). - Growth shock scenario (lower real output growth) pushes PV of total public debt-to-GDP ratio to a maximum of 50 percent in FY2023/24. - PV of total public debt-to-revenue ratio rises close to 300 percent under most extreme contingent liabilities shock scenario. - Most extreme shock to public debt service is combined contingent liability shock; debt service-to-revenue rises to 65 percent. - Key drivers of deviation risk: - Deviations from fiscal plans and budget execution shortfalls. - Loss of fiscal anchor; budget process not providing sufficient top-down guidance. - Risks amplified by uncertainties around oil production timing and magnitude. ### Conclusions on debt distress risk - Despite increased debt vulnerability, Uganda’s risk of external debt distress remains low. - Rapid rise in external and public debt intended to finance scaled-up public investment. - Domestic risks: weaknesses in public investment management, political pressures for higher current spending, new ad-hoc tax exemptions, weak implementation of tax-enhancing measures. - Delays in oil exports beyond FY2023/24 could create liquidity pressures given current heavy borrowing for oil sector infrastructure. - Other risks: significant delays in public investment execution, weather-related shocks, pest infestations, external demand shocks, declines in oil prices, worsened terms of trade, and exchange rate risks with normalization of US interest rate. ### Policy recommendations to mitigate debt risks - Adopt fiscal anchor and make budget binding: - Set an operational debt ceiling of 50 percent of GDP in nominal terms to determine annual budget deficit and define a binding expenditure envelope. - Establish clear quantitative budget targets and commit to top-down resource allocation. - Strengthen public investment management: - Apply prudence to project identification and financing terms. - Focus on high-return projects aligned with development priorities and rely more on concessional loans. - Reduce volatility in domestic borrowing to avoid crowding out private sector credit. - Adopt and implement Domestic Resource Mobilization (DRM) strategy: - Increase revenue mobilization and maximize impact of limited domestic resources. - Strategy to include tax policy reforms (including rationalization of exemptions) and tax administration reforms to improve compliance. - Strengthen debt management (interest cost, exchange rate risk, maturities): - Ensure financing needs and payment obligations met at lowest possible cost consistent with prudent risk. - Consider interest rate, exchange rate, refinancing, liquidity, credit, and operational risks. - Priority to refinancing risk and domestic debt market development with limited access to foreign capital markets. - Strengthen overall public financial management (PFM) and avoid arrears: - Strengthen public procurement and PFM compliance. - Implement Uganda PFM Reform Strategy (FY18/19–FY22/23) to ensure commitments reflected in budgets and rein in excessive current spending. - Implement arrears management strategy including recognition, ageing, liquidation and reporting. - Closely monitor contingent liabilities: - Estimate, disclose, manage, and contain contingent liabilities, particularly in financial sector, state-owned enterprises, and PPPs. - Enhance governance frameworks: - Safeguard quality and effectiveness of public investment and government spending. - Prioritize sound asset-liability management and avoid premature reliance on uncertain future oil flows. *Source: Uganda authorities; IMF and WB staff estimates (excerpts from IMF DSA text).* ### 21. The authorities broadly agree with the results of this DSA and the overall conclusion of a ### 21. The authorities broadly agree with the results of this DSA and the overall conclusion of a ### Authorities' assessment and commitments - The authorities broadly agree with the results of this DSA and the overall conclusion of a low risk of external debt distress. - They regularly carry out their own debt sustainability analyses and pay very close attention to maintaining a low risk of debt distress. - Commitments: - Ensure debt sustainability through long-term prudent debt management, as outlined in their Medium Term Debt Management Framework. - Carefully prioritize infrastructure projects and ensure financing of the projects preserves debt sustainability. - Closely monitor significant vulnerabilities from growing public debt and contingent liabilities risks, and stand ready to adjust policies as needed to safeguard debt sustainability. - Continue to engage with IDA/IMF staff on debt management issues and to address debt vulnerabilities by building policy credibility and deepening the markets. ### Key findings and risk assessment - Overall DSA conclusion: low risk of external debt distress. - Recognized vulnerabilities: - Growing public debt. - Contingent liabilities risks. - Monitoring and response: authorities intend to closely monitor developments and adjust policies as needed. ### Selected quantitative indicators and projections (as reported) - PV of PPG external debt-to-GDP ratio (sequence reported in Table 1): ......14.8, 16.9, 19.7, 22.5, 25.1, 25.6, 25.9, 23.4 - Baseline PV of debt-to-GDP ratio (from sensitivity/projections reported): 16.9, 19.7, 22.5, 25.1, 25.6, 25.9, 25.5, 25.0, 24.5, 24.2, 23.4 - Public sector debt (Table 2 sequence reported): 41.3, 42.2, 45.7, 49.0, 50.7, 50.4, 48.9, 36.6, 29.4, 45.8 - PV of public debt-to-GDP ratio (Table 2 sequence reported): 28.2, 30.3, 34.1, 37.7, 39.9, 40.2, 39.3, 29.9 - Debt service and export ratios (selected baseline values reported in Table 1): - PPG debt service-to-exports ratio (baseline series excerpt): 13.5, 14.4, 8.5, 7.0, 6.4, 7.0, 8.3, 10.3, 9.8, 9.2 - PPG debt service-to-revenue ratio (baseline series excerpt): 18.9, 19.3, 11.4, 9.0, 7.7, 8.2, 9.5, 11.3, 11.0, 11.3 - Gross external financing need (Million of U.S. dollars, Table 1 series excerpt): 1727.2, 1345.9, 1941.5, 2155.8, 2591.4, 3111.6, 3259.3, 3263.1, 3457.2, 6326.5, 14381.3 - Real GDP growth (key series in Table 1): 4.8, 3.9, 6.1, 6.3, 6.3, 6.2, 6.1, 6.0, 6.6, 6.1, 6.4, 6.2 - Government revenues (excluding grants, in percent of GDP, Table 1 excerpt): 13.8, 14.1, 14.5, 15.0, 16.0, 16.3, 16.7, 17.2, 18.3, 20.1, 12.7, 16.6 ### Policy implications and recommendations (from authorities' statement) - Maintain long-term prudent debt management consistent with the Medium Term Debt Management Framework. - Prioritize infrastructure projects carefully and ensure financing preserves debt sustainability. - Strengthen monitoring of contingent liabilities and public debt developments, with readiness to adjust policies as needed. - Continue engagement with IDA/IMF staff to address debt management issues, build policy credibility, and deepen markets. *Statement by Mr. Mahlinza, Executive Director for Uganda and Ms. Gasasira-Manzi, Senior Advisor to the Executive Director May 1, 2019* ### Introduction ### Introduction ### Overview - Authorities value Fund engagement and welcome staff’s objective assessment of Uganda’s macroeconomic policies and challenges. - The Ugandan economy shows strong performance underpinned by sound macroeconomic policies but requires more effort to make further progress on poverty reduction and achieve the Sustainable Development Goals (SDGs). - Authorities are implementing the second National Development Plan (NDP II 2015/16 -2019/20) to strengthen competitiveness, sustainable wealth creation, employment, and inclusive growth. ### Recent Economic Developments and Outlook - Real GDP growth: - Accelerated from 3.9 percent in FY2016/17 to 6.1 percent in FY2017/18. - Expected at 6 - 6.5 percent in FY2018/19, with growth close to potential. - Growth drivers: - Increased private sector activity, significant services-sector growth, and recovery in agriculture due to good weather and government interventions. - Support from improved agricultural production, strong pick up in private investment and consumption, and public investment related to future oil production. - External sector: - Current account deficit increased to 6.1 percent of GDP in FY2017/18, largely due to increased imports of capital goods for infrastructure and private investment. - International reserves stood at 4.5 months of future imports of goods and services as at end March 2019. - Inflation: - Annual headline inflation 6-month average of 3.1 percent in first half of FY2018/19 versus 2.1 percent in last half of FY2017/18. - Annual core inflation 3.3 percent average in first half of FY2018/19 versus 1.6 percent in last half of FY2017/18. - March 2019: annual headline inflation 3 percent (unchanged from February 2019); core inflation rose from 3.7 percent in February 2019 to 4.6 percent in March 2019, approaching the BOU’s medium-term target of 5 percent. - Low headline inflation reflects declining food, energy, fuel and utilities prices. - Monetary policy stance: - At its April 2019 meeting, the Monetary Policy Committee (MPC) concluded the current policy stance remained appropriate and kept the Central Bank Rate (CBR) on hold. ### Policy Priorities and Reforms - Overall priorities: - Maintain stable macroeconomic conditions necessary for sustainable and inclusive growth. - Prioritize higher public investment outcomes, improve efficiency in public investment, strengthen domestic revenue mobilization, maintain low and stable inflation, and create opportunities for private sector development and job creation. - Supported by a 5-year medium-term budget themed ‘Industrialization for Job Creation and Shared Prosperity’. - Fiscal policy — Revenue measures: - Strengthen revenue administration capacity, improve transparency and accountability, and enhance taxpayer services, education and information. - Finalizing medium-term Domestic Revenue Mobilization Strategy (DRMS) aiming to increase revenue by 2.5 percent of GDP over five years. - Domestic revenue collections for first two quarters of FY2018/19 exceeded set targets due to income taxes, increased import volumes and improved taxpayer compliance. - In FY2019/20, authorities expect higher tax revenues through measures including property tax and the use of digital tax stamps. - Fiscal policy — Expenditure and debt: - Public expenditure expected to be largely driven by development spending on public infrastructure with high growth pay-offs; completion of on-going infrastructure projects (e.g., hydropower projects in FY2019/20) expected to gradually narrow the overall deficit toward the East African Monetary Union convergence criterion of 3 percent. - Plan to protect priority social spending and, with development partners, improve social outcomes. - Total public debt stock stood at 41 percent of GDP as at end June 2018; likely to rise as more debt is incurred for infrastructure but expected to decline in the medium term as NDP II investments are completed. - A medium-term debt strategy (MTDS) has been developed in line with the Public Financial Management (PFM) Act. - Authorities plan to keep debt below or as close as possible to the 50 percent of GDP target under the Charter of Fiscal Responsibility (CFR). - Additional measures: improve export earnings, improve sequencing and execution of projects for timely returns, increase domestic revenues and reduce reliance on debt. - Public financial management and arrears: - Improved guidelines for planning and costing public investment projects introduced; execution rate of infrastructure projects improved. - Progress on management of domestic arrears: a domestic arrears’ strategy developed and verification of outstanding arrears by an external audit firm undertaken with a view to clear them. - Authorities have started the ascension process to the Extractive Industries Transparency Initiative (EITI). ### Monetary and Financial Sector Policies - Inflation targeting framework has been successful in keeping inflation low and stable, consistent with the BOU’s medium-term inflation target of 5 percent. - BOU committed to maintaining a flexible exchange rate regime. - Banking sector: - Performance strengthened in 2018, with recovery in credit growth and improved asset quality. - Non-performing loans (NPLs) ratio declined from 5.6 percent at the end of 2017 to 3.4 percent at the end 2018. - IFRS 9 came into effect in January 2018; new financial institutions capital adequacy regulations took effect in September 2018. - BOU strengthened prudential oversight and regulations to preserve financial stability. - Financial inclusion: - Around 15 percent of the population still has no access to financial services. - The 2017-2022 National Financial Inclusion Strategy aims to develop credit infrastructure and promote formal savings, investment and insurance instruments. - Financial innovation growing through agent banking, mobile money banking, and Islamic banking. - National Payments System Bill, including enhancements to mobile money regulations, is in the process of being enacted. - Progress made on implementing some recommendations of the 2018 Financial Sector Stability Review (FSSR); implementation of other recommendations awaits legislative approval. - BOU efforts include developing financial consumer protection guidelines and undertaking financial literacy campaigns. ### Structural Reforms and Jobs - Structural reform strategy: - Enhance private sector development, promote human capital development, strengthen public sector investment, improve governance, and sustain security. - Address constraints faced by the private sector, develop industrial parks, complete key infrastructure projects, and enhance services sector contribution with a focus on tourism and ICT. - Unemployment and labor initiatives: - Unemployment remains a major challenge given a fast-growing youthful population. - Government designing programs targeting youth and women, including the development of a youth fund and industrialization programs for job creation. - Skilling and provision of relevant education programs remain a priority. - Five industrial parks already in operation, creating job opportunities and increased use of local raw materials. - Infrastructure projects: - Isimba dam power project commissioned in March 2019. - Karuma dam power project set to be completed at the end of 2019. - These two projects expected to increase power generation capacity by 783MW. - Other projects include Kampala-Entebbe express highway, major roads and bridges, expansion of Entebbe International Airport. - National airline expected to become operational in June 2019, starting with regional flights to enhance connectivity and support growth in tourism, minerals, and oil and gas sectors. - Governance and AML/CFT: - Authorities committed to strengthening governance and anti-corruption initiatives. - Advancing work to align the AML/CFT regime with international standards following Uganda’s removal from FATF’s grey list in 2017. ### Conclusion - Authorities remain committed to maintaining macroeconomic stability to support inclusive and sustainable growth. - Authorities appreciate the Fund’s policy support and capacity building in strengthening the fiscal framework, effective management of oil revenues, tax policy and revenue administration, public financial and investment management, inflation targeting framework, and financial supervision and regulation. - Authorities look forward to further engagement with the Fund. *Source: Introduction (1ugaea2019001).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1ugaea2019001.pdf_