## EXECUTIVE SUMMARY

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### Context and impact of COVID-19
- Authorities introduced a four-month lockdown after the first COVID-19 case in March 2020, keeping infection and fatality rates low but causing large economic and social costs.
- Real GDP growth halved to 3 percent in FY2019/20 (a contraction of 1.1 percent for CY 2020).
- Per capita GDP growth remains below pre-pandemic levels; poverty gains have been reversed and fiscal balances have deteriorated.
- Survey and simulation findings:
  - Employment levels fell to 70 percent of the population.
  - By February 2021, 40 percent of wage earners and family farms were still seeing a decline in incomes.
  - The crisis impacted incomes of 61 percent of the population.
  - Poverty is to rise by 7.5 percent nationally, with larger effects in Kampala and other urban areas.
  - Impact on inequality small; Gini coefficient rises only fractionally but higher impacts in Kampala and urban areas.
- Recent increase in COVID-19 positivity rates highlights continued uncertainty.

### Program objectives and modalities
- Authorities requested a three-year Extended Credit Facility (ECF) arrangement to support short-term COVID-19 response and sustain post-crisis recovery through private sector development.
- Staff proposal:
  - 36-month ECF, with access at 200 percent of quota (SDR 722 million), with semi-annual reviews.
  - Arrangement expected—through catalytic effect—to help meet balance of payment needs estimated at about $2 billion.
- Uganda’s risk of debt distress assessed as moderate; capacity to repay the Fund adequate.

### Program policies
- Fiscal, monetary, and structural policies designed to:
  - Protect livelihoods and support the recovery, subject to the government’s financing constraints.
  - Keep debt on a sustainable path and limit private sector crowding out through fiscal consolidation.
  - Improve budget composition towards higher social expenditures—supported by strengthened spending efficiency and public financial management reforms.
  - Strengthen the monetary policy and financial sector framework.
  - Implement an ambitious governance agenda to generate more inclusive growth while safeguarding public resources.

### Recent developments (growth, inflation, external sector, and financial conditions)
- Growth and activity:
  - After three quarters of zero or negative year-on-year growth in 2020, the economy grew by 1.6 percent in Q4 2020 driven by agriculture (particularly coffee) while services continued to contract.
  - High-frequency indicators in early 2021 point to strengthening activity but not enough to reduce poverty and high unemployment.
- Inflation and monetary policy:
  - Headline inflation rose to 4.1 percent year-on-year in March 2021 on rising food and energy prices.
  - Core inflation was at 5.3 percent, broadly in line with the Bank of Uganda’s target of 5 percent.
  - With a negative output gap and contained inflation, the Bank of Uganda cut the policy rate in April and June 2020 by a cumulative 200 bps to 7 percent.
  - Lending rates have remained sticky despite monetary easing.
- Financial markets and private credit:
  - Private sector credit (net of exchange rate valuation gains) grew by 8.7 percent in 2020, down from 12.9 percent a year earlier.
  - Share of private sector loans in commercial banks’ total assets declined from 48 percent in March 2020 to 41 percent in March 2021.
  - Share of government debt in banks’ assets increased from 20 to 25 percent over the same period; government bonds represented 50 percent of year-on-year growth in banks’ commercial assets.
  - Credit restructuring reached 21.3 percent of all loans at end-March 2021—of which about 29 percent are at risk of default.
  - Non-performing loans increased to 5.4 percent of total loans.
  - Bank solvency ratios average 22.2 percent; BoU stress tests indicate adequate buffers even if NPLs doubled from current levels, though smaller banks could face strains.
- External sector and reserves:
  - Current account deficit narrowed by 0.9 percentage points to 5.8 percent of GDP in FY19/20 but widened again in the first half of FY20/21.
  - Remittances remained 30 percent below the level recorded in 2019H2.
  - International reserves increased to US$3.9 billion in December 2020 but fell to US$3.6 billion in April 2021 (about 4.2 months of next year’s imports).
  - The shilling remained broadly stable with a bias towards appreciation; BoU FX interventions remain limited.
- Fiscal developments and financing:
  - Tax revenue contracted in FY19/20 while expenditure rose to support health care, SMEs and the vulnerable.
  - Fiscal deficit widened to 7.1 percent of GDP in FY19/20 and public debt ratio increased by almost 6 percentage points to 41.1 percent.
  - During the first nine months of FY20/21, the fiscal deficit reached 6.4 percent of GDP.
  - Financing increasingly relied on non-concessional sources:
    - BoU loans accounted for 1.4 percent of GDP (offset by a 1 percent of GDP increase in deposits).
    - Net financing from commercial banks, nonbanks and offshore investors was 3.4 percent of GDP during the first nine months of FY20/21.
    - A syndicated loan of $650 million (1.6 percent of GDP) is to be disbursed in June 2021.
  - New BoU liquidity support and credit relief measures remain in effect until end-September 2021.

### Outlook and risks
- Growth projections:
  - Gradual economic recovery expected with growth in the 3.3-4.3 percent range over the next two years.
  - Growth expected to transition to 6-7 percent in the medium term, driven by a fuller recovery in international demand and private investments, including those generated by the Final Investment Decision on oil that will allow for first production in FY24/25.
- Inflation target:
  - Monetary authorities targeting core inflation of 5 percent throughout the program.
- Key downside risks include: resurgence of COVID-19, climate disasters, and financing shocks that could affect growth and debt dynamics.

### Current account outlook and external projections
- Current account (excluding oil related flows) expected to improve from recent record highs of 9.2 percent of GDP in FY20/21 to about 6 percent of GDP by FY23/24.
- Exports, tourism and remittance receipts projected to recover gradually.
- Reserve cover objective: keep reserves over next year’s imports excluding oil related financing and investment imports at 4, rising to the East Africa Community target of 4.5 in the outer years.
- Selected macro projections and indicators (as presented):
  - Real GDP growth (percent): 2019/20 Act. 3.0; 2020/21 3.3; 2021/22 4.3; 2022/23 6.4; 2023/24 7.0; 2024/25 7.2; 2025/26 7.0.
  - Headline inflation (percent, period average): 2019/20 4.1; 2020/21 5.2; 2021/22 5.0; 2022/23 5.0; 2023/24 5.0; 2024/25 5.0; 2025/26 5.0.
  - Private sector credit (percent): 2019/20 8.8; 2020/21 9.0; 2021/22 18.3; 2022/23 17.7; 2023/24 16.9; 2024/25 17.0; 2025/26 18.1.
  - Current account balance (in percent)1/: 2019/20 -5.8; 2020/21 -9.2; 2021/22 -8.1; 2022/23 -6.3; 2023/24 -6.2; 2024/25 -5.8; 2025/26 -5.0.
  - Reserves (in months of imports)1/: 2019/20 4.4; 2020/21 4.0; 2021/22 4.0; 2022/23 4.0; 2023/24 4.1; 2024/25 4.2; 2025/26 4.5.
  - 1/ Excluding oil project financing and investment related imports.

### Fiscal policy: near-term framework and FY21/22 targets
- FY20/21 fiscal deficit expected to widen to 9.9 percent of GDP due to COVID-19 revenue shortfalls, higher security outlays, limited interest savings from DSSI, and a one-off capital investment related to Uganda’s National Oil Company (0.3 percent of GDP), bringing public debt slightly above the authorities’ 50 percent of GDP target.
- FY21/22 budget targets a 6.4 percent of GDP deficit (prior action), a 3.5 percent of GDP improvement over the previous year, and debt contained at 53.5 percent of GDP.
- FY21/22 budget protects health and social spending — including $122 million (0.3 percent of GDP) in vaccine costs to help complete vaccination of 40 percent of the population by June 2022.
- Adjustment strategy in FY21/22 relies on:
  - Revenue measures of 0.8 percent of GDP, driven by: (i) tax policy measures starting July 1, 2021 (removing some exemptions and increasing fuel excises); and (ii) tax administration efforts to collect arrears, increase registered taxpayers, and enhance tax audits and investigations.
  - Decline in primary spending by 3.6 percent of GDP through 0.7 percent of GDP in current spending cuts and reduced capital expenditures by 1.7 percent of GDP (including around 1 percent from security).
  - Savings from non-recurrence of one-off items (BoU recapitalization and on-lending to Uganda Development Bank) partially offset by declining grants (0.4 percent of GDP) and increasing interest expenditures (0.3 percent of GDP).
- Contingent actions: additional spending cuts using prioritization criteria and additional base-broadening tax measures identified in the Domestic Revenue Mobilization Strategy (DRMS) if downside risks materialize.

### Fiscal operations (selected Jul-Mar percent of GDP)
- Total revenue and grants: FY20/21 10.7; FY21/22 14.6; FY21/22 (Proj.) 14.7.
- Revenue: FY20/21 9.7; FY21/22 13.1; FY21/22 (Proj.) 13.8.
- Tax: FY20/21 9.0; FY21/22 12.1; FY21/22 (Proj.) 12.9.
- Grants: FY20/21 1.0; FY21/22 1.5; FY21/22 (Proj.) 0.9 (o/w: vaccine FY20/21 0.00; FY21/22 0.3; FY21/22 (Proj.) 0.0).
- Expenditures and net lending: FY20/21 17.2; FY21/22 24.5; FY21/22 (Proj.) 21.2.
- Primary current expenditures: FY20/21 7.1; FY21/22 9.8; FY21/22 (Proj.) 9.1 (o/w: vaccine FY20/21 0.00; FY21/22 0.4; FY21/22 (Proj.) 0.3).
- Interest expenditures: FY20/21 2.1; FY21/22 2.8; FY21/22 (Proj.) 3.1.
- Development expenditures: FY20/21 7.1; FY21/22 10.4; FY21/22 (Proj.) 8.7 (External FY20/21 2.6; FY21/22 3.7; FY21/22 (Proj.) 4.0; Domestic FY20/21 4.6; FY21/22 6.7; FY21/22 (Proj.) 4.7).
- Overall balance: Jul-Mar FY20/21 -6.5; FY21/22 -9.9; FY21/22 (Proj.) -6.4.
- Primary balance: Jul-Mar FY20/21 -4.4; FY21/22 -7.1; FY21/22 (Proj.) -3.4.
- Financing: Jul-Mar FY20/21 6.3; FY21/22 9.2; FY21/22 (Proj.) 5.8.
  - External financing (net): Jul-Mar FY20/21 2.4; FY21/22 5.1; FY21/22 (Proj.) 4.1.
  - Domestic financing (net): Jul-Mar FY20/21 3.9; FY21/22 4.1; FY21/22 (Proj.) 1.7.
- Financing gap: Jul-Mar FY20/21 -0.2; FY21/22 -0.7; FY21/22 (Proj.) -0.6.
- Prospective ECF: Jul-Mar FY20/21 0.7; FY21/22 0.6.
- Debt: FY20/21 50.2; FY21/22 53.5.

### Social assistance and spending composition
- Social assistance programs spending is 0.8 percent of GDP, lower than comparators.
- Social assistance programs cover about 76 percent of the poorest 20 percent, but only 1.5 percent of social assistance benefits go to the poor in Uganda (compared to 11.4 percent in EAC and 14.8 percent in LIDCs).
- Authorities aim to increase access for more vulnerable households in four existing major programs.
- Medium-term objective: increase the share of expenditure on education, health and social development from 21.5 percent of total expenditures (excluding external financing) during the pre-COVID-19 period to 24.0 percent in FY23/24, raising it by 0.7 percent of GDP over the period to 3.5 percent of GDP.
- Security spending would revert to its historical share—i.e., 2 percentage points of GDP lower than the FY20/21 peak.
- Program will target higher priority social spending of about 0.6 percent of GDP during the program and launch a unified national registry of all social assistance programs (structural benchmark).

### Measures to improve fiscal management and debt sustainability
- Implement the DRMS (prior action) to increase revenues by at least 0.5 percent of GDP a year through tax policy and administration measures; DRMS revenue gain is a floor with more measures identified.
- Adopt a new tax expenditure framework (structural benchmark) to create a repository of tax expenditures and institutionalize quantification and cost-benefit analysis.
- Improve spending efficiency via medium-term fiscal envelope forecasts and better capital expenditure budgeting; finalize project selection criteria (end-September SB).
- Limit domestic arrears accumulation:
  - Publication of the international audit (prior action) detailed a large stock of arrears now being repaid.
  - Adopt mechanisms in the newly adopted strategy (prior action, Annex V).
  - Adapt Financial Management Information system to track unpaid invoices quarterly (end-November SB); strengthen commitment controls (end–November SB).
- Strengthen public financial management:
  - Extend Treasury Single Account to extra-budgetary units; move to monthly cash flow forecasting; publish a statement of fiscal risks in the FY22/23 budget; move to GFSM 2014 by May 2022 (SB).

### Debt outlook and constraints
- Risk of debt distress increased to moderate.
- DSA indicates external debt burden and public debt indicators would remain moderate despite lowered debt-carrying capacity; stress tests indicate breaches of thresholds and benchmark.
- Greater shift towards non-concessional loans would increase risk; program includes a limit on the PV of new public and publicly guaranteed external debt.
- Authorities prioritize reducing debt-to-GDP ratio below 50 percent to lower interest payments to revenue ratio and avoid crowding out essential expenditures; plans include a new CFR for oil revenues and improved debt management (lengthening maturities and enhancing transparency).
- Credit outstanding to the Fund projected to peak in 2024 at $1,519 million (or 300 percent of quota) and then decline beginning in 2026.
- Obligations to the Fund projected to peak at 0.4 percent of GDP and 4.2 percent of reserves in 2029.

### Monetary and exchange rate policy
- BoU’s accommodative monetary stance appropriate given negative output gap and uneven recovery; excess liquidity and lower policy rate remain consistent with BoU’s medium-term inflation target.
- Newly rebased CPI points to lower inflation and indicates potential room for additional rate cuts, though monetary policy transmission is reduced by higher domestic bond yields and sticky lending rates.
- Staff supports timely repayment of BoU advances by end of each fiscal year and a Service Level Agreement between BoU and Ministry of Finance (end-July SB).
- Amendments to the BoU Act (end-December 2021 SB) include dynamic recapitalization, safeguards for institutional autonomy, and clarification on limits for advances to the government.

### Exchange rate and reserves
- Exchange rate use as a shock absorber remains appropriate.
- Despite recent appreciation against the US dollar, the exchange rate has remained broadly stable in real effective terms and is estimated to be moderately overvalued.
- Authorities’ FX interventions limited to smoothing excess volatility; recent FX purchases have not fully offset appreciation pressures from large portfolio inflows and record coffee exports.
- Strengthening of reserve buffers came at a time of rising refinancing risks as portfolio inflows are more vulnerable to sudden stops.

### Financial sector stability and supervision
- Extension of loan restructurings being carefully monitored while prudential thresholds are strengthened; 29 percent of loan restructurings at risk of default.
- BOU committed to not relaxing loan classification and provisioning rules; any extension of restructurings beyond September 2021 should be targeted to viable firms and temporary.
- Planned implementation of systemic and countercyclical buffers in December 2021 should be carefully assessed; early implementation of the Conservative Capital Buffer (CCB) could discourage bank lending.
- Staff recommends using capital buffers to absorb losses and support bank credit until pandemic uncertainties dissipate; supervisors should use stress testing and diagnostic tools; internal capital planning (ICAAP) due from all banks.
- Progress on addressing weaknesses from Crane bank failure: strengthened on-site risk-based supervision, financial reporting, internal controls and governance; enhanced resolution framework with new guidelines, creation of a resolution unit, and adoption of a new emergency liquidity framework.
- Staff recommends formal inclusion of UDB under BoU’s supervision.

### Governance, transparency, and anti-corruption measures
- Accountability for COVID-19 Funds:
  - Authorities published COVID-19 cash releases and the list of associated procurement contracts.
  - Procurement template for beneficial ownership information set up for new COVID-19 spending and to be used progressively for other contracts.
  - Fund TA helping design a reporting system for COVID-19-related spending; new tracking mechanism (end-August SB) to prepare quarterly reports.
  - Authorities studying FY19/20 independent COVID-19 audit and plan measures to address emergency procurement weaknesses.
- Asset declaration (AD) regime:
  - Leadership Code amendments adopted; plan to monitor implementation via regular publication of statistics on granting public access and enforcement actions.
  - Authorities considering further revisions toward international standards; automatic online AD publication considered problematic on security grounds.
- AML/CFT and beneficial ownership:
  - Implement national AML/CFT strategy and FATF action plan to address ML/TF risks and FATF “gray listing” of Uganda in February 2020.
  - Adopt regulation to apply enhanced due diligence measures for domestic politically exposed persons (end-September SB).
  - Develop risk-based AML/CFT supervision; create centralized beneficial ownership registry via Companies Act amendments (November 2021 SB).

### Structural reforms, private sector development and inclusion
- Structural reforms focus on generating more inclusive growth by enhancing private sector and human capital development.
- Employment requirement: create at least 600,000 jobs a year to maintain current employment levels.
- Reduce cost of doing business: one-stop center for business registration and licensing; improve contract enforcement; remove non-tariff barriers and harmonize standards.
- Financial inclusion and payments systems:
  - Implement National Financial Inclusion Strategy; mobile money users and regulated accounts increased.
  - National Payment Systems Act enacted; new payment licenses issued; strengthen BoU supervisory role.
  - Policy priorities: develop movable collateral for lending and expand credit bureau coverage.

### Program modalities, monitoring, financing and safeguards
- Program monitoring: semi-annual reviews with QPCs and ITs; QPCs include primary fiscal balance, net claims on government by the central bank, net international reserves, non-accumulation of external payment arrears.
- Structural Benchmarks focus on fiscal sustainability, revenue mobilization and governance; prior actions critical for near-term adjustment completed.
- External financing needed to sustain reserves at 4 months of import cover during the program estimated at about US$2 billion.
- Expected coverage:
  - Fund access at 200 percent of quota, about $1 billion; disbursements frontloaded in first year; subsequent disbursements evenly distributed.
  - High-access trigger of outstanding Fund credit of 225 percent of quota would be exceeded during the program.
  - Financing during FY21/22 expected from concessional IMF, other multilateral/bilateral donors, and external commercial sources.
- Use of Fund resources: expected to be on-lent by BoU to Ministry of Finance for budget support; MoU to govern on-lending procedures.
- Safeguards:
  - Updated safeguards assessment finalized March 2021: BoU maintains well-established safeguards in external and internal audit arrangements and sound financial reporting.
  - BoU Act amendments (end-December SB) expected to strengthen BoU autonomy and governance.
  - Adoption of MoF/BoU SLA to provide stronger safeguards on provision of credit to government.
- Capacity development aligned with program priorities: virtual assistance on revenue mobilization, public financial management, banking supervision and governance, payments systems and central bank communication.

### ECF access, phasing, and key financing numbers
- Prospective ECF total access: "722.00" Millions of SDR; "200.0" Percent of Quota. Uganda's quota is SDR "361" million.
- Proposed phasing (Millions of SDR / Percent of Quota):
  - June 28, 2021 — Approval of the arrangement — "180.50" — "50.0"
  - December 28, 2021 — Completion of the first review — "90.25" — "25.0"
  - June 28, 2022 — Completion of the second review — "90.25" — "25.0"
  - December 28, 2022 — Completion of the third review — "90.25" — "25.0"
  - June 28, 2023 — Completion of the fourth review — "90.25" — "25.0"
  - December 28, 2023 — Completion of the fifth review — "90.25" — "25.0"
  - June 14, 2024 — Completion of the sixth (final) review — "90.25" — "25.0"
  - Total: "722.00" Millions of SDR — "200.0" Percent of Quota.
- External financing requirements (US$ millions selected): "2019/20 2,816; 2020/21 3,553; 2021/22 3,409; 2022/23 4,165; 2023/24 5,934; 2024/25 7,140; 2025/26 7,743"

### Risk assessment and contingency planning
- Outlook highly uncertain with risks tilted downward (Annex III).
- Main short-term downside risks:
  - Resurgence of lockdown measures linked to rising COVID-19 positivity rates.
  - Weaker recovery in the international economy.
  - Rise in Uganda’s international risk rating.
  - Reversal in governance reforms.
  - Increased social and political tensions.
  - Delayed implementation of fiscal reform agenda.
- Additional downside risks: slow execution of public investment projects, continued uncertainty about timing of oil investments, droughts/floods.
- Contingency measures envisaged to safeguard program objectives if risks materialize, including additional spending cuts and base-broadening tax measures from DRMS.

*Source: EXECUTIVE SUMMARY (1ugaea2021001) — International Monetary Fund, June 15, 2021.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and impact of COVID-19
- The authorities introduced a four-month lockdown after the first COVID-19 case in March 2020, keeping infection and fatality rates low but causing large economic and social costs.
- Real GDP growth halved to 3 percent in FY2019/20 (a contraction of 1.1 percent for CY 2020).
- Per capita GDP growth remains below pre-pandemic levels; poverty gains have been reversed and fiscal balances have deteriorated.
- A survey by UBOS and a simulation study found:
  - Employment levels fell to 70 percent of the population.
  - By February 2021, 40 percent of wage earners and family farms were still seeing a decline in incomes.
  - The crisis impacted incomes of 61 percent of the population.
  - Poverty is to rise by 7.5 percent nationally, with a more than proportional effect in Kampala and other urban areas.
  - The impact on inequality would be small, with the Gini coefficient rising only fractionally but higher impacts in Kampala and urban areas.
- A recent increase in COVID-19 positivity rates highlights continued uncertainty.

### Program objectives and modalities
- Authorities requested a three-year Extended Credit Facility (ECF) arrangement to support the short-term COVID-19 response and sustain post-crisis recovery through private sector development.
- Staff proposes a 36-month ECF, with access at 200 percent of quota (SDR 722 million), with semi-annual reviews.
- The ECF arrangement—including through its catalytical effect—is expected to help meet balance of payment needs estimated at about $2 billion.
- Uganda’s risk of debt distress is assessed as moderate and its capacity to repay the Fund is adequate.

### Program policies
- Fiscal, monetary, and structural policies are designed to:
  - Protect livelihoods and support the recovery, subject to the government’s financing constraints.
  - Keep debt on a sustainable path and limit private sector crowding out through fiscal consolidation.
  - Improve budget composition towards higher social expenditures—supported by strengthened spending efficiency and public financial management reforms.
  - Strengthen the monetary policy and financial sector framework.
  - Implement an ambitious governance agenda to generate more inclusive growth while safeguarding public resources.

### Staff views and program risks
- The Letter of Intent and Memorandum of Economic and Financial Policies demonstrate program ownership and appropriate policies to reach authorities’ goals.
- The environment is highly uncertain with substantial risks to growth and financing from: resurgence of COVID-19, climate disasters, and other shocks.
- Contingency measures are envisaged to safeguard program objectives if risks materialize.
- Document dated June 15, 2021.

### Recent developments (growth, inflation, external sector, and financial conditions)
- Growth and activity:
  - After three quarters of zero or negative year-on-year growth in 2020, the economy grew by 1.6 percent in Q4 2020, driven by agriculture (particularly coffee) while services continued to contract.
  - High-frequency indicators in early 2021 point to strengthening activity but not enough to reduce poverty and high unemployment.
- Inflation and monetary policy:
  - Headline inflation rose to 4.1 percent year-on-year in March 2021 on rising food and energy prices.
  - Core inflation was at 5.3 percent, broadly in line with the Bank of Uganda’s target of 5 percent.
  - With a negative output gap and contained inflation, the Bank of Uganda cut the policy rate in April and June 2020 by a cumulative 200 bps to 7 percent.
  - Lending rates have remained sticky despite monetary easing.
- Financial markets and private credit:
  - Private sector credit (net of exchange rate valuation gains) grew by 8.7 percent in 2020, down from 12.9 percent a year earlier.
  - Share of private sector loans in commercial banks’ total assets declined from 48 percent in March 2020 to 41 percent in March 2021.
  - Share of government debt in banks’ assets increased from 20 to 25 percent over the same period; government bonds represented 50 percent of year-on-year growth in banks’ commercial assets.
  - Credit restructuring reached 21.3 percent of all loans at end-March 2021—of which about 29 percent are at risk of default.
  - Non-performing loans increased to 5.4 percent of total loans.
  - Bank solvency ratios average 22.2 percent; BoU stress tests indicate adequate buffers even if NPLs doubled from current levels, though smaller banks could face strains.
- External sector and reserves:
  - Current account deficit narrowed by 0.9 percentage points to 5.8 percent of GDP in FY19/20 but widened again in the first half of FY20/21.
  - Remittances remained 30 percent below the level recorded in 2019H2.
  - International reserves increased to US$3.9 billion in December 2020 but fell to US$3.6 billion in April 2021 (about 4.2 months of next year’s imports).
  - The shilling remained broadly stable with a bias towards appreciation; BoU FX interventions remain limited.
- Fiscal developments and financing:
  - Tax revenue contracted in FY19/20 while expenditure rose to support health care, SMEs and the vulnerable.
  - Fiscal deficit widened to 7.1 percent of GDP in FY19/20 and public debt ratio increased by almost 6 percentage points to 41.1 percent.
  - During the first nine months of FY20/21, the fiscal deficit reached 6.4 percent of GDP.
  - Financing increasingly relied on non-concessional sources:
    - BoU loans accounted for 1.4 percent of GDP (offset by a 1 percent of GDP increase in deposits).
    - Net financing from commercial banks, nonbanks and offshore investors was 3.4 percent of GDP during the first nine months of FY20/21.
    - A syndicated loan of $650 million (1.6 percent of GDP) is to be disbursed in June 2021.
  - New BoU liquidity support and credit relief measures remain in effect until end-September 2021.

### Outlook and risks
- Growth projections:
  - A gradual economic recovery is expected with growth in the 3.3-4.3 percent range over the next two years.
  - Growth is expected to transition to 6-7 percent in the medium term, driven by a fuller recovery in international demand and private investments, including those generated by the Final Investment Decision on oil that will allow for first production in FY24/25.
- Inflation target:
  - Monetary authorities are targeting core inflation of 5 percent throughout the program.
- Key downside risks include: resurgence of COVID-19, climate disasters, and financing shocks that could affect growth and debt dynamics.

*Source: EXECUTIVE SUMMARY (1ugaea2021001) — International Monetary Fund, June 15, 2021.*

### 9.      The current account deficit is

### 9.      The current account deficit is

### Current account outlook
- The current account deficit (excluding oil related flows) is expected to improve from recent record highs of 9.2 percent of GDP in FY20/21 to about 6 percent of GDP by FY23/24.
- Exports, tourism and remittance receipts are projected to recover gradually.
- On the financing side, FDI inflows and other private capital flows remain moderate in the short term but will strengthen in the medium term as the global recovery picks up.
- Program targets and financing aim to keep reserve cover—defined as reserves over next year’s imports excluding oil related financing and investment imports—at 4, rising to the East Africa Community target of 4.5 in the outer years.

### Key macro projections and indicators (selected)
- Real GDP growth (percent): 2019/20 Act. 3.0; 2020/21 3.3; 2021/22 4.3; 2022/23 6.4; 2023/24 7.0; 2024/25 7.2; 2025/26 7.0.
- Headline inflation (percent, period average): 2019/20 4.1; 2020/21 5.2; 2021/22 5.0; 2022/23 5.0; 2023/24 5.0; 2024/25 5.0; 2025/26 5.0.
- Private sector credit (percent): 2019/20 8.8; 2020/21 9.0; 2021/22 18.3; 2022/23 17.7; 2023/24 16.9; 2024/25 17.0; 2025/26 18.1.
- Current account balance (in percent)1/: 2019/20 -5.8; 2020/21 -9.2; 2021/22 -8.1; 2022/23 -6.3; 2023/24 -6.2; 2024/25 -5.8; 2025/26 -5.0.
- Reserves (in months of imports)1/: 2019/20 4.4; 2020/21 4.0; 2021/22 4.0; 2022/23 4.0; 2023/24 4.1; 2024/25 4.2; 2025/26 4.5.

1/ Excluding oil project financing and investment related imports.

### Outlook and risks
- The outlook remains highly uncertain, with risks tilted downward (Annex III).
- Main short-term downside risks include:
  - A resurgence of lockdown measures linked to rising COVID-19 positivity rates.
  - A weaker recovery in the international economy.
  - A rise in Uganda’s international risk rating.
  - A reversal in governance reforms.
  - Increased social and political tensions.
  - Delayed implementation of the fiscal reform agenda.
- Additional downside risks: slow execution of public investment projects, continued uncertainty about the timing of oil investments, and droughts/floods.
- Upside scenarios: faster pandemic recovery, higher grants, or effective vaccine distribution.

### Key elements of a Fund-supported program
- Authorities’ reform agenda (Letter of Intent and MEFP) aims to support the COVID-19 response and accelerate inclusive growth.
- Program priorities:
  - Return to fiscal consolidation and improved public investment management to reduce financing constraints and preserve debt sustainability while allowing higher priority social outlays.
  - Enhanced monetary and financial sector framework to accompany structural reforms, including strengthening governance and public sector accountability.

### Fiscal policy: near-term framework and FY21/22 targets
- FY20/21 fiscal deficit is expected to widen to 9.9 percent of GDP due to COVID-19 revenue shortfalls, higher security outlays, limited interest savings from DSSI, and a one-off capital investment related to Uganda’s National Oil Company (0.3 percent of GDP), bringing public debt slightly above the authorities’ 50 percent of GDP target.
- FY21/22 budget targets a 6.4 percent of GDP deficit (prior action), a 3.5 percent of GDP improvement over the previous year, and debt contained at 53.5 percent of GDP.
- FY21/22 budget protects health and social spending — including $122 million (0.3 percent of GDP) in vaccine costs to help complete vaccination of 40 percent of the population by June 2022.
- Adjustment strategy in FY21/22 relies on:
  - Revenue measures of 0.8 percent of GDP, driven by: (i) tax policy measures starting July 1, 2021 (removing some exemptions and increasing fuel excises); and (ii) tax administration efforts to collect arrears, increase registered taxpayers, and enhance tax audits and investigations.
  - Decline in primary spending by 3.6 percent of GDP through 0.7 percent of GDP in current spending cuts and reduced capital expenditures by 1.7 percent of GDP (including around 1 percent from security).
  - Savings from non-recurrence of one-off items (BoU recapitalization and on-lending to Uganda Development Bank) partially offset by declining grants (0.4 percent of GDP) and increasing interest expenditures (0.3 percent of GDP).
- Contingent actions: additional spending cuts using prioritization criteria and additional base-broadening tax measures identified in the Domestic Revenue Mobilization Strategy (DRMS) if downside risks materialize.

### Fiscal operations (Jul-Mar, percent of GDP)
- Total revenue and grants: FY20/21 10.7; FY21/22 14.6; FY21/22 (Proj.) 14.7.
- Revenue: FY20/21 9.7; FY21/22 13.1; FY21/22 (Proj.) 13.8.
- Tax: FY20/21 9.0; FY21/22 12.1; FY21/22 (Proj.) 12.9.
- Nontax: FY20/21 0.7; FY21/22 1.1; FY21/22 (Proj.) 1.0.
- Grants: FY20/21 1.0; FY21/22 1.5; FY21/22 (Proj.) 0.9 (o/w: vaccine FY20/21 0.00; FY21/22 0.3; FY21/22 (Proj.) 0.0).
- Expenditures and net lending: FY20/21 17.2; FY21/22 24.5; FY21/22 (Proj.) 21.2.
- Primary current expenditures: FY20/21 7.1; FY21/22 9.8; FY21/22 (Proj.) 9.1 (o/w: vaccine FY20/21 0.00; FY21/22 0.4; FY21/22 (Proj.) 0.3).
- Interest expenditures: FY20/21 2.1; FY21/22 2.8; FY21/22 (Proj.) 3.1.
- Development expenditures: FY20/21 7.1; FY21/22 10.4; FY21/22 (Proj.) 8.7 (External FY20/21 2.6; FY21/22 3.7; FY21/22 (Proj.) 4.0; Domestic FY20/21 4.6; FY21/22 6.7; FY21/22 (Proj.) 4.7).
- Net lending and investment: FY20/21 0.4; FY21/22 1.0; FY21/22 (Proj.) 0.1.
- Other spending (arrears clearance): FY20/21 0.5; FY21/22 0.5; FY21/22 (Proj.) 0.2.
- Overall balance: Jul-Mar FY20/21 -6.5; FY21/22 -9.9; FY21/22 (Proj.) -6.4.
- Primary balance: Jul-Mar FY20/21 -4.4; FY21/22 -7.1; FY21/22 (Proj.) -3.4.
- Financing: Jul-Mar FY20/21 6.3; FY21/22 9.2; FY21/22 (Proj.) 5.8.
  - External financing (net): Jul-Mar FY20/21 2.4; FY21/22 5.1; FY21/22 (Proj.) 4.1.
    - Disbursements: Jul-Mar FY20/21 2.9; FY21/22 5.9; FY21/22 (Proj.) 5.0.
    - Budget support: Jul-Mar FY20/21 0.9; FY21/22 2.9; FY21/22 (Proj.) 1.8.
    - Project: Jul-Mar FY20/21 2.0; FY21/22 3.0; FY21/22 (Proj.) 3.2.
    - Amortizations: Jul-Mar FY20/21 0.5; FY21/22 0.8; FY21/22 (Proj.) 0.9.
  - Domestic financing (net): Jul-Mar FY20/21 3.9; FY21/22 4.1; FY21/22 (Proj.) 1.7.
    - Bank of Uganda: Jul-Mar FY20/21 0.4; FY21/22 -0.7; FY21/22 (Proj.) 0.1.
    - Commercial banks: Jul-Mar FY20/21 1.5; FY21/22 3.0; FY21/22 (Proj.) 0.8.
    - Nonbank financing: Jul-Mar FY20/21 2.0; FY21/22 1.9; FY21/22 (Proj.) 0.8.
- Financing gap: Jul-Mar FY20/21 -0.2; FY21/22 -0.7; FY21/22 (Proj.) -0.6.
- Prospective ECF: Jul-Mar FY20/21 0.7; FY21/22 0.6.
- Debt: FY20/21 50.2; FY21/22 53.5.

### Social assistance and spending composition
- Uganda’s spending on social assistance programs is 0.8 percent of GDP, lower than comparators.
- Social assistance programs cover about 76 percent of the poorest 20 percent of the population, but only 1.5 percent of social assistance benefits go to the poor in Uganda (compared to 11.4 percent in EAC and 14.8 percent in LIDCs).
- Authorities are working to increase access for more vulnerable households in four existing major social assistance programs.
- Medium-term objective: increase the share of expenditure on education, health and social development from 21.5 percent of total expenditures (excluding external financing) during the pre-COVID-19 period to 24.0 percent in FY23/24, raising it by 0.7 percent of GDP over the period to 3.5 percent of GDP.
- Security spending would revert to its historical share—i.e., 2 percentage points of GDP lower than the FY20/21 peak.

### Measures to improve fiscal management and debt sustainability
- Implement the DRMS (prior action) to increase revenues by at least 0.5 percent of GDP a year through tax policy and administration measures; DRMS revenue gain is a floor with more measures identified.
- Adopt a new tax expenditure framework (structural benchmark) to create a repository of tax expenditures and institutionalize quantification and cost-benefit analysis.
- Improve spending efficiency via medium-term fiscal envelope forecasts and better capital expenditure budgeting; finalize project selection criteria (end-September SB).
- Limit domestic arrears accumulation: publication of the international audit (prior action) detailed a large stock of arrears now being repaid; adopt mechanisms in the newly adopted strategy (prior action, Annex V); adapt Financial Management Information system to track unpaid invoices quarterly (end-November SB); strengthen commitment controls (end–November SB).
- Strengthen public financial management: extend Treasury Single Account to extra-budgetary units; move to monthly cash flow forecasting; publish a statement of fiscal risks in the FY22/23 budget; move to GFSM 2014 by May 2022 (SB).

### Debt outlook and constraints
- The risk of debt distress has increased to moderate.
- DSA indicates external debt burden and public debt indicators would remain moderate despite lowered debt-carrying capacity; stress tests indicate breaches of thresholds and benchmark.
- A greater shift towards non-concessional loans would increase risk; program includes a limit on the PV of new public and publicly guaranteed external debt.
- Authorities prioritize reducing debt-to-GDP ratio below 50 percent to lower interest payments to revenue ratio and avoid crowding out essential expenditures; plans include a new CFR for oil revenues and improved debt management (lengthening maturities and enhancing transparency).

### Monetary and exchange rate policy
- BOU’s accommodative monetary stance is appropriate given the negative output gap and uneven recovery; excess liquidity and lower policy rate remain consistent with the BoU’s medium-term inflation target.
- The newly rebased CPI points to lower inflation (MEFP¶5 & 23) and indicates potential room for additional rate cuts, though monetary policy transmission is reduced by higher domestic bond yields and sticky lending rates.
- The monetary policy consultations clause remains a key pillar of the program.
- Staff supports timely repayment of BoU advances by end of each fiscal year and a Service Level Agreement between BoU and Ministry of Finance (end-July SB).
- Amendments to the BoU Act (end-December 2021 SB) include dynamic recapitalization, safeguards for institutional autonomy, and clarification on limits for advances to the government.

### Exchange rate and reserves
- Use of the exchange rate as a shock absorber remains appropriate.
- Despite recent appreciation against the US dollar, the exchange rate has remained broadly stable in real effective terms and is estimated to be moderately overvalued (Annex VI).
- Authorities’ FX interventions are limited to smoothing excess volatility; recent FX purchases have not fully offset appreciation pressures from large portfolio inflows and record coffee exports.
- Strengthening of reserve buffers came at a time of rising refinancing risks as portfolio inflows are more vulnerable to sudden stops.

### Financial sector stability and supervision
- Extension of loan restructurings is being carefully monitored while prudential thresholds are strengthened (MEFP,¶27-28); with 29 percent of loan restructurings at risk of default.
- BOU remains committed to not relaxing loan classification and provisioning rules; any extension of restructurings beyond September 2021 should be targeted to viable firms and temporary.
- Planned implementation of systemic and countercyclical buffers in December 2021 (MEFP,¶26) should be carefully assessed; early implementation of the Conservative Capital Buffer (CCB) could discourage bank lending.
- Staff recommends using capital buffers to absorb losses and support bank credit until pandemic uncertainties dissipate; banking supervisors should use stress testing and diagnostic tools; internal capital planning (ICAAP) due from all banks (MEFP, ¶27).
- Progress on addressing weaknesses from Crane bank failure: strengthened on-site risk-based supervision, financial reporting, internal controls and governance (MEFP ¶27); enhanced resolution framework with new guidelines, creation of a resolution unit, and adoption of a new emergency liquidity framework.
- Staff recommends formal inclusion of UDB under BoU’s supervision.

*Sources: Ugandan authorities and IMF staff estimates and projections.*

### 27.      The authorities reiterated their commitment to continue reducing financial sector

### 1ugaea2021001 - 27.      The authorities reiterated their commitment to continue reducing financial sector

### Financial sector stability
- Authorities committed to continue reducing financial sector stability risks.
- Progress reported on regulatory oversight of systemic banks and stress testing operations.
- Move towards Basel II by January 2022, including asking DSIBs to hold additional capital buffers—will help mitigate risks but authorities remain flexible on reassessing the implementation date of the CCB regulations after credit relief measures expire (MEFP, ¶26-27).
- IMF resident expert technical assistance on banking supervision and World Bank TA on the resolution framework are being utilized.
- Staff recommendations:
  - Continue close monitoring of restructured loans.
  - Strict adherence to prudential and accounting requirements.
  - Consider flexible use of capital buffers until COVID-19 uncertainties dissipate.
  - Any new loan restructuring extension should be temporary and targeted.
  - Modernize and revamp banking resolution and emergency liquidity assistance frameworks.

### Structural reforms and growth
- Program horizon structural reforms focus on generating more inclusive growth by enhancing private sector and human capital development.
- Reversing the decline in private investment since the global financial crisis is essential.
- Employment requirement: Uganda’s growing population will require creating at least 600,000 jobs a year to maintain current levels of employment.

### Public and private investment (contextual indicators)
- Chart headings and sources provided: "Public and Private Investment (Nominal, percent of GDP)" — Sources: IMF WEO and IMF staff estimates.

### Governance, transparency, and accountability
- Strengthening governance reforms is essential to reduce costs of doing business and boost private sector development.
- Key pillars:
  - Accountability for the use of COVID-19 Funds (MEFP, ¶29, table 10):
    - Authorities published COVID-19 cash releases and the list of associated procurement contracts.
    - Procurement template allowing for beneficial ownership information set up for new COVID-19 spending and to be used progressively for other contracts.
    - Fund TA is helping design a reporting system for COVID-19-related spending; a new tracking mechanism (end-August SB) will help prepare quarterly reports on COVID-19 spending.
    - Authorities are studying the FY19/20 independent COVID-19 audit and plan measures to address use of emergency procurement procedures, including possible sanctions for funds used for unintended purposes (including arrears) and other weaknesses identified.
  - Strengthening anti-corruption legal framework:
    - First priority: appoint the Inspector-General of Government using a strengthened and formal selection process (MEFP, ¶32).
    - Consider introducing a selection commission with international experts and transparent evaluation of integrity, professional qualities and skills.
    - Extend electronic case management to all courts to improve transparency and efficiency of the judiciary.
  - Improving accountability of high-level officials by strengthening the asset declaration (AD) regime (MEFP, ¶30, Annex VIII):
    - Leadership Code amendments adopted to address deficiencies.
    - Plan to monitor implementation via regular publication of statistics on granting public access and enforcement actions for AD requirement breaches.
    - Authorities considering further revisions toward international standards; automatic online AD publication is considered problematic on security grounds.
    - Authorities should intensify scrutiny of high-level officials’ wealth, leveraging the AD and the illicit enrichment offense.

### FY19/20 — Summary Results of the independent COVID-19 Audit (UGX billion and Percent)
- Total 284.0
- of which:
  - Emergency procurement procedures 143.8   50.6
  - Recipients unverifiable 55.8   19.6
  - Unspent funds 6.7   2.4
  - Amount unaccounted for 1.4   0.5
  - Funds used for unintended purposes 10.6   3.7
- Project execution:
  - activities with work plans 99.0
  - activities quantified 94.5
  - activities fully implemented 88.8

### AML/CFT and beneficial ownership
- Strengthening AML/CFT measures to support anti-corruption efforts is a priority.
- Key policies include implementing the national AML/CFT strategy and the FATF action plan to address ML/TF risks and the impact of FATF’s “gray listing” of Uganda in February 2020.
- Authorities intend to:
  - Adopt a regulation to apply enhanced due diligence measures for domestic politically exposed persons (end-September SB).
  - Develop risk-based AML/CFT supervision of the financial sector.
  - Ensure timely access to accurate basic and beneficial ownership information for legal entities by creating a centralized registry through amendments of the Companies Act (November 2021 SB).

### Financial inclusion and payments systems
- Greater financial inclusion is expected to promote more inclusive growth (MEFP ¶36).
- Implementation of the National Financial Inclusion Strategy increased mobile money users and regulated accounts, including during the pandemic.
- Enactment of the National Payment Systems Act led to new payment licenses and strengthened BoU supervisory role to protect consumers and minimize cyber risks.
- Policy priorities: develop movable collateral for lending and expand credit bureau coverage to enhance credit growth.
- Chart heading noted: "Mobile Money Transactions (Value, billions of USh)" — Sources: BoU and IMF staff calculations.

### Reducing costs of doing business and trade facilitation
- Later program priorities:
  - Establish a one-stop center for business registration and licensing.
  - Improve contract enforcement.
  - Remove non-tariff barriers and harmonize standards in line with EAC obligations and the African Continental Free Trade Area.

### Statistics and data improvements
- Strengthen statistics for policy making by improving data collection for extra budgetary units and local governments and producing GFS for nonfinancial and financial public corporations.

### Program modalities and monitoring
- Program monitoring based on semi-annual reviews (MEFP, Tables 1 and 2).
- Quantitative performance criteria (PCs) set for the third and first quarter of the year; indicative targets (ITs) for the second and fourth quarters.
- QPCs will be on:
  - the primary fiscal balance;
  - net claims on the government by the central bank;
  - net international reserves;
  - non-accumulation of external payment arrears.
- ITs would monitor tax revenue, preserve critical social spending, and ensure a minimum repayment of arrears.
- A PC will be set on the PV of new public and publicly guaranteed debt, reflecting Uganda’s moderate risk of debt distress.
- Fiscal program targets will continue to be based on GFSM 1986 classification.
- Structural Benchmarks (MEFP, Table 2) focus on fiscal sustainability, revenue mobilization and governance; prior actions critical for near-term adjustment have been completed.

### Financing needs, access, and use of resources
- External financing needed to sustain reserves at 4 months of import cover during the program is estimated at about US$2 billion.
- Expected coverage:
  - Access from the Fund expected at 200 percent of quota, or about $1 billion. Disbursements frontloaded in the first year; subsequent disbursements evenly distributed.
  - High-access trigger of outstanding Fund credit of 225 percent of quota would be exceeded during the program.
- Financing during FY21/22 expected from concessional financing from the IMF, other multilateral/bilateral donors, and external commercial sources (Tables 9a & 9b).
- Firm financing commitments exist for the next 12 months with good prospects beyond that.
- Staff encourages continued efforts to seek donor grants and IFIs’ concessional lending.
- Authorities making best efforts to secure relief from the DSSI, with an extension to end-December 2021 being sought.
- Use of Fund resources: expected to be on-lent by the BoU to the Ministry of Finance for budget support; a MoU will govern on-lending procedures.
- Capacity development aligned with program priorities, including virtual assistance focused on revenue mobilization, public financial management, banking supervision and governance, payments systems and central bank communication.

### SDR allocation
- Proposed global SDR allocation of US$650 billion, if approved, is estimated to lead to a US$493 million allocation for Uganda.
- Allocation captured under the program through an adjustor on the NIR target; would primarily be used to increase reserves and allow Uganda to meet the EAC target of 4.5 months of imports earlier.
- If budget financing fails to materialize or financing costs are more expensive, the ECF first review could assess using some of the allocation to meet the financing gap without undermining program objectives (MEFP, ¶40).

### Safeguards and BoU governance
- Updated safeguards assessment finalized in March 2021:
  - BoU maintains well-established safeguards in external and internal audit arrangements and sound financial reporting.
  - New BoU Act amendments (end-December SB) expected to strengthen BoU autonomy and governance, including hierarchy of objectives and strengthened appointment/dismissal processes.
  - Adoption of MoF/BoU SLA should provide stronger safeguards on provision of credit to government.
  - BoU committed to strengthening foreign reserves management (MEFP, ¶23) and reduce risks to currency operations.
- Staff view: implementation of safeguards recommendations will help strengthen BoU independence and minimize risks of fiscal dominance.

### Capacity to repay the Fund and debt dynamics
- Credit outstanding projected to peak in 2024 at $1,519 million (or 300 percent of quota) and then decline beginning in 2026.
- Obligations to the Fund projected to peak at 0.4 percent of GDP and 4.2 percent of reserves in 2029.
- Risks to servicing debt to be mitigated by:
  - fiscal consolidation from FY21/22 onwards;
  - likelihood of continued access to concessional financing (particularly for projects);
  - Uganda’s moderate public debt level;
  - strong track record of servicing debts to the Fund and other creditors.

### Staff appraisal — outlook, risks, and policy priorities
- Impact of COVID-19:
  - Uganda severely impacted by the pandemic; economy gradually recovering, but per capita GDP growth remains below pre-pandemic levels; poverty alleviation gains reversed; fiscal balances deteriorated; external buffer pressures remain high.
- Outlook:
  - Predicated on recovery from the pandemic; growth will gradually recover, inflation contained, current account deficit will slowly narrow supported by recovery in external demand and private investment.
  - Risks remain high: weaker external demand recovery, resurgence of lockdowns, delayed reform implementation, increased frequency of floods/droughts.
- ECF-arrangement supports authorities’ NDP priorities, focusing on maintaining public debt sustainability while improving spending composition and creating space for private investment.
- Fiscal policy recommendations:
  - Fiscal consolidation combined with pro-growth and inclusive spending composition to reduce financing constraints and meet development needs.
  - Implementation of domestic revenue mobilization strategy expected to create at least 0.5 percent of GDP in revenue a year.
  - Preserve and increase social spending through higher budget allocation, reduced non-priority expenditure, and strengthened public investment management.
  - Better arrears management and strengthened cash management reforms to support fiscal consolidation.
- Debt management recommendation:
  - Seek concessional financing and continue efforts for DSSI relief given increased vulnerabilities.
- Monetary policy:
  - Monetary policy accommodation remains appropriate due to large negative output gap.
  - Policy stance should be reevaluated if inflation or inflation expectations fall outside the target range.
  - Continue use of the exchange rate as a shock absorber; limit FX interventions to smoothing large exchange rate fluctuations.
- Governance and inclusion:
  - Advance governance reform agenda and financial sector inclusion to foster private sector development.
  - Continue publishing information on COVID-19 funds and act on independent audit findings.
  - Faster enhancement of AML/CFT effectiveness, including monitoring politically exposed persons, and strengthened accountability of high-level officials.
  - Foster faster financial inclusion via wider credit coverage and collateral reforms.

_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1ugaea2021001.pdf_

### 48.      Based on the protracted balance of payment needs and strong policy commitments,

### 1ugaea2021001 - 48.      Based on the protracted balance of payment needs and strong policy commitments,

### Program support and IMF staff recommendation
- Staff supports the authorities’ request for a 36-month arrangement under the ECF.
- Prospective ECF total access: "722.00" Millions of SDR; "200.0" Percent of Quota.  
  - Uganda's quota is SDR "361" million.

### COVID-19 impact and public-health metrics
- Uganda implemented a very stringent lockdown that has been gradually eased, producing an initial sharp decline followed by a slow and volatile recovery in mobility (sources: Google COVID-19 Community Mobility Trends; Oxford COVID-19 Government Response Tracker).
- COVID-19 case dynamics: sharp increase in the second half of 2020, some flattening, then a recent resurgence; testing has been high in international comparison, while the positivity rate has increased recently (Our World in Data).
- Testing and positivity trend (as of June 3, 2021):
  - Charted series include "No. Tested" and "Positivity Rate" with 7 per. Mov. Avg. series; positivity rate series labeled with percent scale 0%–25%.

### Real sector developments
- Pandemic effect on growth:
  - "The pandemic has halved growth in 2019/20, affecting industry and services."
  - "A timid recovery has started in some sectors after a sharp contraction."
- GDP and inflation projections (table formatting preserved as listed):
  - Real GDP: "6.3 6.4 3.0 3.3 4.3 6.4 7.0 7.2 7.0"
  - Non-Oil real GDP: "6.3 6.4 3.0 3.3 4.3 6.4 7.0 6.2 6.1"
  - GDP deflator: "4.4 3.0 2.7 2.8 4.8 4.6 4.6 4.6 4.9"
  - Headline inflation (period average): "3.4 3.1 3.0 4.7 5.0 5.0 5.0 5.0 5.0"
  - Core inflation (period average): "2.8 3.7 3.1 5.7 5.0 5.0 5.0 5.0 5.0"
  - Terms of trade ("–" = deterioration): "-1.6 3.9 4.1 3.1 1.9 0.1 -0.6 -1.0 -1.1"

### External sector developments
- Current account and financing:
  - Current account balance (percent of GDP): "-5.3 -6.7 -5.8 -9.2 -8.2 -8.6 -11.3 -13.2 -11.8"
  - Contributions to the current account: decline in imports of goods drove narrowing in FY19/20; lower returns on FDI reduced primary income inflows.
  - Financial account: financed by loan disbursements to government as well as FDI inflows; portfolio inflows to government contributed to a recent appreciation of the Shilling and an increase in REER.
- External buffers:
  - Gross international reserves (US$ billions): "3.1 3.2 3.9 3.8 3.8 4.2 4.7 4.9 5.6"
  - Reserve cover (months of next year's imports): "3.8 4.3 4.4 4.0 3.6 3.3 3.2 3.3 3.5"
  - Gross international reserves excluding oil project financing and investment related imports (US$ billions): "3.8 3.8 4.2 4.7 4.8 5.4"
- External debt composition and trends:
  - Public external debt (percent of GDP) increased in projections: external debt series in public gross debt row: "24.4 24.1 28.6 33.7 36.9 37.5 38.2 36.8 35.4" (Table 1 representation).

### Fiscal developments and financing
- Revenue and expenditure (percent of GDP series, Table 1 and Table 2b):
  - Total revenue and grants: "12.7 13.5 13.2 14.6 14.7 14.9 15.3 15.9 17.4"
  - Revenue: "12.0 12.6 12.4 13.1 13.8 14.4 14.9 15.5 17.1"
  - Tax (percent of GDP): "11.4 12.0 11.3 11.9 12.7 13.2 13.7 14.2 14.7"
  - Expenditure: "16.8 18.4 20.3 24.5 21.2 18.6 18.8 19.7 20.3"
  - Development expenditures (percent of GDP): "6.3 7.6 8.6 10.4 8.7 7.1 7.6 7.9 8.4"
  - Overall balance (percent of GDP): "-4.1 -4.9 -7.1 -9.9 -6.4 -3.7 -3.5 -3.8 -3.0"
  - Primary balance (percent of GDP): "-2.2 -3.0 -5.0 -7.1 -3.4 -0.9 -0.9 -1.3 -0.4"
- Fiscal response to COVID-19:
  - Tax revenues declined due to lower activity and new mitigation measures; grants declined slightly.
  - Fiscal support measures increased spending; development expenditure mainly financed domestically.
  - Wider overall fiscal deficit mostly financed through external borrowing which increased public debt (public gross debt percent of GDP series: "34.8 35.2 40.8 50.2 53.5 53.0 52.0 50.2 47.4" per Table 1).
- Central government fiscal operations (selected levels, Table 2a, Billions of Ugandan Shillings):
  - Total revenue and grants (2020/21 actual): "15,281"; projected series includes "17,839 18,442 21,659 23,882 26,836 30,880 35,937 44,077"
  - Expenditures and net lending (2020/21 actual): "20,202"; projected series includes "24,268 28,401 36,304 34,281 33,549 37,895 44,556 51,612"
  - Overall balance (2020/21 actual): "-4,920" (billions Ush)

### Monetary and financial sector developments
- Monetary policy stance:
  - Bank of Uganda policy rate (latest available data note): policy rate shown as "9.0 10.0 7.0 7.0" (Table 1 presentation; latest available data: March-2021).
  - To support recovery, monetary policy has remained accommodative with the policy rate at its lowest.
- Money and credit (Table 3, selected series in billions of Ugandan Shillings):
  - Money and quasi-money (M3): "22,750 24,412 30,067 34,483 37,690 42,042 47,150 53,017 59,620"
  - Broad money (M3) annual percentage changes/memorandum: "12.8 7.3 23.2 14.7 9.3 11.5 12.2 12.4 12.5"
  - Credit to non-government sector (annual percent change): "10.8 13.6 8.8 10.6 15.2 14.8 13.6 13.5 13.5"
- Banking sector condition (Table 5, March 2017–March 2021):
  - Regulatory capital to risk-weighted assets: series ending in Mar-21 "23.8"
  - NPLs to total gross loans (Mar-21): "5.4" (deteriorated sharply during the pandemic; provisioning picked up).
  - Banks remain well capitalized with comfortable liquidity buffers; excess liquidity rose in 2020, with a recent decline as BoU increased use of mopping up instruments.

### Financial-sector performance and private-credit dynamics
- Bank earnings and deposits:
  - Banks’ earnings have declined since the pandemic.
  - Forex deposit growth has surpassed that of shilling deposits; overall deposit growth is coming down.
- Private sector credit growth:
  - Remains low and is slowly picking up, mainly driven by FX denominated credit.
  - Private sector credit growth is driven by manufacturing, agriculture, transport, construction sectors, while trade remains weak.
- Market indicators:
  - Stock market gains show small signs of economic recovery.
  - Foreign exchange loans remain below regulatory limits.

### ECF access, phasing, and financing tables
- Proposed access and phasing under the ECF Arrangement (Table 6):
  - Availability Date / Condition / Millions of SDR / Percent of Quota:
    - June 28, 2021 — Approval of the arrangement — "180.50" — "50.0"
    - December 28, 2021 — Completion of the first review — "90.25" — "25.0"
    - June 28, 2022 — Completion of the second review — "90.25" — "25.0"
    - December 28, 2022 — Completion of the third review — "90.25" — "25.0"
    - June 28, 2023 — Completion of the fourth review — "90.25" — "25.0"
    - December 28, 2023 — Completion of the fifth review — "90.25" — "25.0"
    - June 14, 2024 — Completion of the sixth (final) review — "90.25" — "25.0"
  - Total: "722.00" Millions of SDR — "200.0" Percent of Quota.
- External financing requirements and prospective financing (Table 7 and Table 4a):
  - Financing needs (selected years, US$ millions): "2019/20 2,816; 2020/21 3,553; 2021/22 3,409; 2022/23 4,165; 2023/24 5,934; 2024/25 7,140; 2025/26 7,743"
  - Financing gap and prospective ECF: prospective financing entries of "257" repeated across relevant projection years until the program closes, eliminating residual financing gap in projections where ECF is provided.

### Indicators of capacity to repay the IMF (table highlights)
- Total IMF obligations based on existing and prospective credit (selected summary lines):
  - Total IMF obligations in millions of SDRs (projected series): "0.0 0.1 0.1 0.1 36.2 90.3 135.5 171.6 207.7 180.6"
  - Total IMF obligations in millions of U.S. dollars (projected series): "0.0 0.1 0.1 0.1 50.8 126.9 190.3 241.0 291.7 253.7"
  - In percent of GDP (projected series): "0.0 0.0 0.0 0.0 0.1 0.2 0.3 0.3 0.4 0.3"
  - IMF credit outstanding (end-of-period), in millions of SDRs (projected): "631.88 812.39 992.8 1,083.0 1,046.99 956.78 821.36 649.84 442.22 261.7"
  - In percent of IMF quota (projected): "175.0 225.0 275.0 300.0 290.0 265.0 227.5 180.0 122.5 72.5"

### Projected external borrowing program (selected composition)
- Projected external borrowing program (Table 9b, July 1, 2021 to June 30, 2022):
  - By sources of debt financing (USD million, percent):
    - By sources total "100 100" scaled to "867.2 100"
    - Concessional debt: "240.0 24.1" (multilateral "240.0 24.1")
    - Non-concessional debt: "770.0 76.9" (semi-concessional "116.1 12.1"; commercial terms "653.9 65.3")
  - By Creditor Type (USD million, percent): multilateral "356.1 35.2"; other "653.9 65.3"
  - Uses of debt financing (USD million, percent): Infrastructure "84.1 8.4"; Budget Financing "925.8 92.6" (note the table displays program-year breakdowns and PPG external aggregates for 2021).

### Governance, transparency and safeguards (RCF follow-up)
- RCF commitments and status (Table 10):
  - Publish COVID-19 expenditure for Q4 FY19/20 and cash releases for Q1 & Q2 FY20-21 — FY19/20 audit reports on FY19/20 spending and all cash releases on COVID-19 are published.
  - Publish procurement contracts and winning bidders for Q4 of FY19/20 and Q1 & Q2 FY20-21 — procurement reports by Ministry are available; procurement forms have been amended to collect and publish beneficial ownership information for COVID-19 procurement going forward.
  - Complete and publish independent audit of COVID-19 spending for FY2019/20 — audit completed.
  - Complete a special independent audit of at least the first three quarters of FY20/21 — audit completed on June 14th; to be published after presentation to Parliament in FY21/22.

*Source: Ugandan authorities and IMF staff estimates and projections (content unit: 1ugaea2021001 - 48.      Based on the protracted balance of payment needs and strong policy commitments, PDF chapter).*

### Annex I. The Uganda National Development Plan (NDP III)

### Annex I. The Uganda National Development Plan (NDP III)

### Strategic objectives and targets
- Increase households’ incomes and improve quality of life under a strategy of sustainable industrialization for inclusive growth, employment, and sustainable wealth creation by fostering private sector development.
- Accelerate growth to 7 percent.
- Reduce poverty from 21 to 15 percent.
- Halve youth unemployment to 6.6 percent by creating 520,000 new jobs a year.

### Sectoral strategies and pillars for implementation
- Macroeconomic stability:
  - Fiscal deficit achieving the 3 percent of GDP East Africa Community (EAC) target by FY24/25 and anchored on a 50 percent NPV debt-to -GDP ceiling.
  - Price stability by maintaining core inflation within the target band of 5 percent +/- 3 percent.
  - A competitive exchange rate with reserve target of 4.5 months import cover (in line with objective set by the EAC).
- Domestic revenue mobilization:
  - Increase the revenue-to -GDP ratio to at least the sub-Saharan average of 15 percent through more efficient and effective tax administration, compliance enforcement and tax evasion reduction strategies.
- Prudent debt management:
  - Mobilize other sources of financing through infrastructure bonds, diaspora remittances, and secondary markets.
  - Maximize concessional financing, prioritize projects with high economic returns, limit contingent liabilities by developing guidelines for borrowing by state-owned enterprises.
  - Limit domestic borrowing as a source of net financing to avoid crowding out the private sector.
- Financial sector development:
  - Improve access to finance through expanded delivery channels, financial literacy programs, and a short-term development credit window for MSMEs.
  - Deepen and widen capital markets; strengthen legal and regulatory frameworks for private equity and venture capital; build private sector capacity to access green financing.
  - Strengthen regulatory and supervisory capacity to enhance financial consumer protection and prevent and mitigate ML/FT risks.
- Strengthening governance:
  - Reduce corruption as measured by the corruption perception index from 35 to 25 percent.
  - Priorities: automate institutional management (e-governance); strengthen commercial justice institutions; streamline judicial operations to reduce commercial case backlog; strengthen Parliamentary oversight; enforce compliance with accountability rules; develop and implement an asset recovery framework; mainstream TAAC in all MDA programs and budgets.
- Greater public sector efficiency and effectiveness:
  - Continue investment in public infrastructure while balancing with social sector spending.
  - Enhance efficiency in public investments by strengthening the Public Investment Management (PIM) system across identification, preparation, appraisal, implementation and evaluation of projects.
  - Utilize program-based budgeting.
  - Key projects: transport infrastructure; construction of refinery and crude oil pipeline; power production and distribution; construction of industrial parks; provision of water for production. Most spending on infrastructure is expected in FY2021/22, driven by construction of the oil-related infrastructure.
- Increasing social protection coverage:
  - Prioritize merging, modification and/or expansion of existing social protection programs (such as SAGE) before designing new programs; focus on direct and indirect income support and provision of social care services.
- Improving access and quality of social services:
  - Strengthen quality and relevance of education to bridge skills gaps with economic requirements.
  - Restructure health services to focus more on disease prevention using a multi-sectoral approach.
- Removing constraints to private sector growth:
  - Address non-financial factors (power, transport, ICT) that raise business costs.
  - Strengthen incubation centers for SMEs, establish one-stop center for business registration and licensing.
  - Rationalize and harmonize standards, institutions, and policies at local and regional level.
  - Review legal and regulatory frameworks to remove restrictive legislation and fast track pending bills.
  - Streamline bureaucratic red tape, reduce duplications and speed up clearances for business operations.

*Italic source: Annex I. The Uganda National Development Plan (NDP III) — content unit 1ugaea2021001*

---

### Annex II. COVID-19 Policy Response

### Fiscal response: allocations, financing, and measures
- FY19/20 supplementary budgets and reallocations increased spending for critical sectors and vulnerable groups by about US$300 million (0.8 percent of GDP), of which around US$90 million (0.2 percent of GDP) is estimated to have been executed.
- In FY20/21, tax measures contributed to a revenue shortfall of close to US$70 million (0.2 percent of GDP).
- Through the budget and two supplementary budgets, US$600 million (1.5 percent of GDP) were allocated for additional COVID-19 related outlays in FY20/21.
- Vaccine support:
  - FY20/21: around US$139 million (0.4 percent of GDP).
  - FY21/22: around US$122 million (0.3 percent of GDP).
- Fiscal support measures included:
  - Additional funding to the health sector (medical equipment, masks, test kits, vaccines).
  - Support to households (food to the vulnerable, funding for agriculture inputs and supporting entities).
  - Employment support (e.g., EMYOOGA initiative).
  - Support to firms (waived interest on tax arrears, deferred PAYE and corporate income tax payments, expedited VAT refunds).
  - Expansion of labor-intensive public works programs.
  - Acceleration of development of industrial parks.
  - Clearance of arrears.
  - Import substitution and export promotion via funding to Uganda Development Bank and recapitalizing Uganda Development Cooperation.
- External and contingency financing:
  - US$1.3 million from Contingency Fund in FY2019/20 for Ministry of Health Preparedness and Response Plan.
  - May 6, 2020: US$491.5 million emergency financing from the IMF under the Rapid Credit Facility; 30 percent provided as budget support.
  - June 29: US$300 million World Bank budget support under Uganda COVID-19 Economic Crisis and Recovery Development Policy Financing.
  - Part of vaccination costs expected to be financed by COVAX.
  - Spending reallocations also financed COVID-19-related spending.

### Monetary and macro-financial response
- Bank of Uganda (BoU) actions:
  - Maintained policy rate at 7 percent in February 2021, following two consecutive 100 basis points reductions in April and June, 2020.
  - Committed to providing liquidity support for up to one year to supervised financial institutions in need.
  - Waived limitations on restructuring of credit facilities for at-risk financial institutions.
  - Worked with mobile money providers and commercial banks to reduce charges on mobile money and digital payment transactions.
  - Directed all Supervised Financial Institutions (SFIs) to defer dividend payments and bonuses for at least 90 days effective March 2020.
  - Purchased Treasury Bonds held by microfinance deposit taking institutions and credit institutions to ease liquidity pressures.
  - Granted exceptional permission to SFIs to restructure loans on a case-by-case basis.
  - Measures were in place until March 2021 and extended for another 6 months starting April 1, 2021.

*Italic source: Annex II. COVID-19 Policy Response — content unit 1ugaea2021001*

---

### Annex III. Risk Assessment Matrix (RAM)

- Purpose: Shows events that could materially alter the baseline path; likelihood classifications: “low” (<10 percent), “medium” (10–30 percent), “high” (30–50 percent). “Short term” = within 1 year; “medium term” = within 3 years.

### Pandemic-related risk
- Risk: Unexpected shifts in the COVID-19 pandemic.
  - Likelihood/Time Horizon: Medium / Short to Medium term.
  - Expected impact:
    - High. Demand for contact-intensive sectors would contract further; firms face prolonged production cost increases and supply shortages; pandemic-prompted protectionist actions would disrupt trade.
    - Medium. Lower global growth would widen current account deficit via reduced tourism, trade, and FDI and portfolio inflows.
  - Policy response:
    - Scale up public health measures, such as large-scale systemic testing.
    - Strengthen social safety net.
    - Use all available policy space by extending fiscal and monetary support.
    - Accelerate structural reforms and formulate credible medium-term fiscal path to support investor confidence.

### Potential domestic risks
- Risk: Widespread social discontent and political instability (elections context).
  - Likelihood/Time Horizon: High / Short term.
  - Expected impact:
    - High. Economic activity disruption; weakened policy-making and institutions; reduced business and foreign investor confidence affecting investment.
  - Policy response:
    - Intensify social safety net measures.
    - Formulate credible medium-term fiscal path to support investor confidence.
- Risk: Delayed implementation of social support measures.
  - Likelihood/Time Horizon: High / Short to Medium Term.
  - Expected impact:
    - High. Would push more households into poverty.
  - Policy response:
    - Improve the quality of public spending.
    - Strengthen social safety net.
- Risk: Lack of commitment to fiscal reforms, including revenue mobilization and public sector efficiency.
  - Likelihood/Time Horizon: High / Short to Medium Term.
  - Expected impact:
    - 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.
- Risk: Higher frequency and severity of natural disasters related to climate change.
  - Likelihood/Time Horizon: Medium / Medium/Long-term.
  - Expected impact:
    - High. Lower growth, increased poverty, worsened public debt sustainability.
  - Policy response:
    - Improve economic resilience to shocks; build fiscal and external buffers.

### Potential external risks
- Risk: Accelerating de-globalization.
  - Likelihood/Time Horizon: Medium / Short to Medium Term.
  - Expected impact:
    - Medium. Adverse impact on exports, FDI and portfolio inflows.
  - Policy response:
    - Maintain exchange rate flexibility.
    - Accelerate reforms to enhance competitiveness.
    - Move forward with trade integration in the East African Community.
- Risk: Sharp rise in global risk premia (risk-off event).
  - Likelihood/Time Horizon: Medium / Short Term.
  - Expected impact:
    - Low. Reduced capital inflows, negative impact on banking sector and credit growth; higher domestic borrowing costs.
  - Policy response:
    - Ease monetary policy.
    - Maintain strong FX reserves and capital buffer in the financial sector.
- Risk: Oversupply and volatility in the oil market.
  - Likelihood/Time Horizon: Medium / Short to Medium Term.
  - Expected impact:
    - Medium. Delay start of oil production and weaken public debt metrics.
  - Policy response:
    - Focus on revenue mobilization and refrain from tax exemptions.
    - Rein in current non-priority spending and rephase investment.
- Risk: Intensification of security risks in Africa.
  - Likelihood/Time Horizon: High / Short to Medium Term.
  - Expected impact:
    - High. Deterioration in South Sudan and DRC would affect exports; spread of instability to Uganda would have widespread adverse effects.
  - Policy response:
    - Exchange rate flexibility; rebuild fiscal and external buffers.
    - Promote diversification of trading markets.
- Risk: Cyber-attacks on critical financial systems.
  - Likelihood/Time Horizon: Medium / Short to Medium Term.
  - Expected impact:
    - Low. Would disrupt economic activities, put financial stability at risk though financial sector remains small.
  - Policy response:
    - Step up efforts to strengthen cyber security.
    - Preemptively carry out regular testing of resilience of computer systems to cyberattacks and address vulnerabilities.

*Italic source: Annex III. Risk Assessment Matrix — content unit 1ugaea2021001*

---

### Annex IV. Lending and COVID-19 Interventions by Uganda Development Bank (UDB)

### Mandate and strategic alignment
- UDB: government-owned financial institution founded in 1972; strategic plan revised for 2020-24 to align with NDP III supporting goals: (i) reducing poverty while protecting the natural environment, (ii) building a sustainable food system, (iii) promoting sustainable industrialization.
- Main sectors receiving UDB credit: agriculture, industry, tourism and education (technical and vocational training).

### Capital, staffing, and disbursements (selected figures)
- Capital and reserves (Ush. billion) / Capital and reserve (Percent of GDP) / Number of Staff:
  - 2018: 254 / 0.20 / 59
  - 2019: 348 / 0.25 / 67
  - 2020: 911 / 0.64 / 88
  - Source: UDB Annual Report 2020.
- UDB’s capital and reserves were boosted three times during 2020 more than doubling its balance sheet.
- Staffing increased from 59 in 2018 to 103 people in 2021.
- Disbursements increased by around 32 percent from 183.9 billion shilling in 2019 to 242 billion shilling in 2020.
- Industry and agriculture accounted for 79 percent of total disbursements in 2020.

### COVID-19 relief measures and lending terms
- Restructured loans amounting to Ush 51 billion (4.7 percent of total assets).
- Deferred interest payments amounting to 172 billion shilling (about 15.8 percent of total assets) for up to 18 months.
- Relief measures targeted distressed customers, notably tourism, freeing liquidity for enterprises.
- Loan application processes simplified and digitalized; strategic partnership with Post Bank to leverage branch network.
- Typical lending terms:
  - Average maturity: 9-year, up to 15 years.
  - Grace period: up to 3 years.
  - Interest rate charged: 10-12 percent.
  - Geographical concentration: 60 percent of loans extended to businesses in Kampala and the Northern Uganda region.
- 2020 allocations: UGX 24 billion to support SMEs operating in industry.
- Socio-economic outcomes:
  - Projects funded in 2020 created over 24 thousand jobs and lifted more than 5 thousand people out of poverty (UDB annual report).
- Governance and strategy:
  - UDB profits are entirely on-lent and accounts audited by KPMG.
  - Working towards green finance accreditation, establishing green financing fund, expanding lending to remote areas, financing women, youth and SMEs.

### Performance challenges
- NPLs: coming down from 20 percent to 13 percent in 2020, including restructured loans.
- Margins on lending rates are elevated.
- Cost income ratio (without impairment) for a branchless institution: 45.5 percent on average during 2015-2020.

*Italic source: Annex IV. Lending and COVID-19 Interventions by Uganda Development Bank — content unit 1ugaea2021001*

---

### Annex V. Domestic Arrears

### Economic consequences of expenditure arrears
- Arrears distort the fiscal deficit and can be used to circumvent fiscal targets.
- Arrears undermine budget credibility, increase cost of service delivery as suppliers price-in delayed payments, damage suppliers’ financial health, worsen credit quality, erode investor confidence and potentially undermine macroeconomic stability.

### Evolution of verified expenditure arrears
- Verified expenditure arrears for budgetary central government more than doubled over five years:
  - 2015: 1.4 trillion Ugandan shillings (1.4 percent of GDP).
  - 2019: 3.6 trillion shillings (2.6 percent of GDP).
- Arrears are present in key sectors such as agro-processing, agriculture and manufacturing.
- Cause: overall weak management of domestic arrears, where Uganda ranks poorly.

### PEFA comparison and indicator
- EAC — Comparison of PEFA scores on expenditure arrears:
  - Kenya: C+
  - Rwanda: C+
  - Burundi: D+
  - South Sudan: D+
  - Tanzania: D
  - Uganda: D+

*Italic source: Annex V. Domestic Arrears — content unit 1ugaea2021001*

### 3. The recently

### 3. The recently

### Arrears strategy: design and priorities
- Objective: address key shortcomings to prevent arrears accumulation; reflects key messages from recent IMF TA.
- Key priorities:
  - Strengthen the reporting of expenditure arrears through quarterly reports.
    - Set up a system to capture all unpaid government financial obligations undertaken through the authorities Financial Management Information System (FMIS), and gradually broaden coverage to entities outside the FMIS.
    - Quarterly report will monitor any domestic arrears accumulation, which will have to account for overdue payments within the year (definition currently used in Uganda define arrears as commitments outstanding at the end of the financial year).
  - Address the causes of expenditure arrears in Uganda.
    - Causes linked to widespread weaknesses in the PFM system and poor budget planning, manifested through numerous supplementary budgets and frequent virements to compensate for initial poor project costing and inadequate prioritization.
    - Measures: eliminate overcommitment in multi-year projects, automated registration of invoices, stronger sanction regime to reduce unauthorized commitments.
  - Provide for sufficient budget allocations for the payment of expenditure arrears.
    - Past allocations have been insufficient due to lack of ring-fencing.
    - The current MTFF provides for clearance of the current stock over the next three years—with allocations ring-fenced under the program through an indicative target.

### External Sector Assessment — overall and policy response
- Overall assessment:
  - The external position of Uganda in 2020 was moderately weaker than the level implied by fundamentals and desirable policies.
  - Assessment is preliminary and subject to a greater margin of uncertainty given the severity of the COVID-19 pandemic.
  - Current level of gross international reserves is assessed to be adequate but would be below the desired reserve cover level in the absence of a Fund program.
- Potential policy responses:
  - Pursue exchange rate flexibility to cushion the economy from external shocks.
  - Bank of Uganda should pursue exchange rate flexibility and only intervene in case of extreme market distress.
  - Preserve fiscal and debt sustainability; improve export diversification and product quality to maintain investor confidence and improve external competitiveness.

### Foreign assets and liabilities: position and trajectory
- Background and trends:
  - NIIP deteriorated to 59 percent of GDP in 2020 from -53 percent in 2019 reflecting the current account dynamics.
  - Majority of external liabilities: foreign direct investment (at around 40 percent) and concessional loans from multilateral and bilateral sources (at around 30 percent).
  - About half of external assets was held by the Bank of Uganda as reserve assets; remaining share consisted of deposits and debt securities.
  - Between 2015 and 2020, the NIIP has declined by 17.7 percentage points, reflecting a negative CA contribution of 33.8 percentage points partly offset by valuation effect.
- Assessment:
  - Despite some deterioration, sustainability of the NIIP is not an immediate concern.
  - Since 2008, valuation gains have offset about 25 percent of the effect of CA flows on the NIIP, partly reflecting CA measurement issues and depreciation of the shilling.
  - Debt sustainability analysis suggests Uganda faces a moderate risk of debt distress.
- 2020 stock indicators (percent of GDP):
  - NIIP: -58.9
  - Gross Assets: 21.7
  - Debt Assets: 3.2
  - Gross Liab.: 80.7
  - Debt Liab.: 10.4

### Current account: developments and assessment
- Background:
  - CA deficit widened to 8.7 percent of GDP in 2020 (from 5.7 percent in 2019).
  - Widening reflects mostly weaker trade balance where tourism receipts dropped by 2.7 percent of GDP.
  - Secondary income remained broadly unchanged from 2019 supported by robust NGO inflows partially offsetting the decline in remittances.
  - Current account deficit expected to narrow moderately in 2021 as external conditions and commodity prices lead to higher exports.
  - CA driven mainly by the public sector from the saving-investment perspective.
  - Future drivers: improvements in global demand and imports related to capital investment in oil projects; oil exports first expected in 2025 and would pick up significantly in subsequent years.
- Assessment and model estimates:
  - EBA-lite CA model estimates a CA gap of -2.2 percent in 2020 with a cyclically adjusted CA balance of -9.4 percent compared with a CA norm of -7.3 percent of GDP.
  - Staff assesses the CA in 2020 to be moderately weaker than the level consistent with fundamentals.
- Uganda: Model estimates for 2020 (In percent of GDP and related figures shown in source):
  - CA-Actual -9.1
  - Cyclical contributions (from model) (-) 0.1
  - COVID-19 adjustor (+) 1/0.6
  - Natural disasters and conflicts (-) 0.8
  - Adjusted CA -9.4
  - CA Norm (from model) 2/ -7.3
  - Adjustments to the norm (+) 0.0
  - Adjusted CA Norm -7.3
  - CA Gap -2.2 1.2  o/w Relative policy gap 2.2
  - Elasticity -0.14
  - REER Gap (in percent) 3/ 15.3 -8.2
  - Notes from model table:
    - 1/ Additional cyclical adjustment to account for the temporary impact of the pandemic on oil balances (-0.5 percent of GDP), on tourism (2 percent of GDP), and on remittance (0.1 percent of

### Real exchange rate (REER): background and assessment
- Background:
  - Shilling was unchanged in real effective terms in 2021Q1 relative to its average level in 2020 and has appreciated by 1½ percent since 2016.
  - Appreciation partly reflects inflation differential against Uganda’s trading partners.
  - In nominal effective terms, the shilling remained broadly stable despite deterioration in the current account deficit and the recently held elections.
- Assessment:
  - EBA-lite CA gap assessment implies an REER overvaluation gap of 15.3 percent in 2020.
  - EBA-lite IREER model suggests an undervaluation of 8.2 percent while the REER is broadly in line with the average over the last ten years.
  - Overall, on balance, staff assesses the REER to be moderately overvalued.
  - REER assessment subject to greater margin of uncertainty due to the global pandemic and general elections in early 2021.

### Capital and financial accounts: flows and policy implications
- Background:
  - In net terms, the CA was mainly financed in 2020 by:
    - Net FDI inflows of 2.2 percent of GDP (a 1.1 percentage points decline compared with 2019).
    - Doubling of project and budget loan disbursements to 6.4 percent of GDP as multilateral and bilateral sources stepped up support.
  - Since 2020Q4, portfolio inflows have picked up strongly driven by relatively attractive yields on government securities.
- Assessment:
  - Increase in portfolio inflows has made the financial account more vulnerable to refinancing risks and is likely to decline as the gap between yields on Uganda government bonds and foreign securities narrows.
  - FDI inflows expected to pick up with improved business conditions and oil-refinery related investment.

### FX intervention and reserves level
- Background and developments:
  - Ugandan Shilling depreciated against the US dollar by 6.4 percent on March 24, 2020 relative to the previous month amid global volatility.
  - Bank of Uganda intervened by selling about US$200 million of foreign exchange; subsequently the shilling appreciated and stabilized at around the average-2019 level.
  - Since beginning of 2021, the shilling has appreciated by 4.2 percent in May against the US dollar.
  - Central bank accumulated US$280 million reserves in this period.
  - Gross international reserves have fallen by about US$150 million since end-2020 to US$3.7bn at end-May, covering about 4 months of next year’s imports of goods and services (excluding oil related investment projects).
- Assessment and recommended stance:
  - Bank of Uganda should maintain flexible exchange rate regime and only intervene in case of extreme market distress.
  - Recent reserve accumulation helped contain appreciation pressure and should continue given increasing refinancing risk.
  - IMF reserve adequacy metric for credit-constrained economies indicates an adequate reserve range of 3.1 – 5.7 months of imports depending on the cost of holding reserves.
  - Level of reserves in 2021Q1 exceeds the standard rule of thumb (3 months of import coverage, 20 percent of board money and 100 percent of short-term external debt at remaining maturity) but is within the adequate range indicated by the metric.
  - Going forward, reserve coverage ratio expected to improve as current account gradually recovers.
  - Policy recommendation: reserve cover—defined as reserves as a share of next year’s imports excluding oil project financing and related imports—should be maintained at 4 at the minimum and gradually converge to 4.5 months of imports as set out in the EAC convergency criterion over the medium term.

### Strengthening the Asset Declaration (AD) regime
- Legal and institutional status:
  - ADs are established as public information; legal framework recently reinforced via amendments to the Leadership Code.
  - Amendments allow sanctions for non-submission and submitting a false AD (confiscating undeclared or excess property, imposing fines, issuing warnings/dismissal).
  - Effective implementation largely pending; remaining legal gaps need to be filled.
- Identified weaknesses and recommended reforms:
  - Less barriers to AD access:
    - Current access limited to individual requests (public and law enforcement) with obligation not to disclose contents and to indicate assets potentially not included.
    - Inspectorate of Government has wide discretion to reject requests (e.g., if AD may be “used in bad faith”), reportedly invoked often, and collects a fee of approximately USD 55 for a request.
    - These barriers inhibit transparency and effective detection/investigation of corruption.
    - Uganda’s electronic system for collection of ADs allows streamlined online publication, aligning with best international practices.
  - Stronger sanctions:
    - Current value of confiscated assets and number of dismissed officials for AD breaches is insignificant.
    - Recent amendments and operationalization of the Leadership Code Tribunal are steps forward but sanctions are not dissuasive.
    - Recommendation to strengthen by introducing criminal liability, including possible imprisonment, for most egregious breaches (e.g., not declaring high-value assets).
  - Broader AD coverage:
    - Requirement to declare assets, incomes and liabilities of officials’ children, spouses and dependents and assets owned beneficially need strengthening.
    - Requirement to declare assets of children and spouses was eliminated by Parliament in 2017, creating a loophole.
    - Recent amendments expanded definition of “interest” in assets to be declared; depending on implementation, additional specific legal provisions may be needed.
  - Better focus on high officials:
    - Recent amendments extended AD requirement to all public officers, increasing annual number of submitted declarations approximately twentyfold, diluting focus on high-level officials.

### Status of recommendations to address failure of private banks (resolution policy)
- Table summary (current practice vs proposed enhancements) — key items where proposed enhancements indicated as "Yes" while current practice often "No" or "Partial":
  - Full compliance with FIA, 2004, MDI Act, 2003: Current Practice Yes; Proposed Enhancements Yes.
  - Detailed responsibilities/TORs of Statutory Manager, Liquidation team and other resolution stakeholders: Current Practice No; Proposed Enhancements Yes.
  - Pre-Vetting of Statutory Managers: Current Practice No; Proposed Enhancements Yes.
  - Guidelines for closing financial institutions: Current Practice No; Proposed Enhancements Yes.
  - Methodology for choosing appropriate resolution strategy: Current Practice No; Proposed Enhancements Yes.
  - Dedicated Resolution Unit/Team: Current Practice No; Proposed Enhancements Yes.
  - Reports on Status of SFIs under Resolution – Up-to-date compilation, management and reporting of financials: Current Practice No; Proposed Enhancements Yes.
  - Resolvability assessments. Recovery and resolution plans for DSIBs: Current Practice Partial; Proposed Enhancements Yes.
  - Decision Grid for Activating Resolution: Current Practice No; Proposed Enhancements Yes.
  - Expand bank resolution Tools and funding e.g. bridge bank, asset management vehicle, bail in: (Proposed Enhancement listed; current practice not indicated as Yes).
  - Detailed guidelines for Cooperation with DPF: Current Practice No; Proposed Enhancements Yes.
  - Transparency and Accountability: Current Practice No; Proposed Enhancements Yes.
  - Information sharing and cross border cooperation on resolution with other jurisdictions (FSB Key Attribute 7): (Included as item).
  - Strategic Resolution Planning: Current Practice No; Proposed Enhancements Yes.
  - Procedures for Voluntary Liquidation: Current Practice Yes; Proposed Enhancements Yes (with detailed procedures).

### Capacity development strategy and TA coordination
- Achievements and priorities:
  - Extensive TA agenda implemented with satisfactory outcomes overall.
  - Fund TA contributed to improvement in revenue administration and sustained increase in tax collection.
  - Public finance management strengthened, including establishment of a Treasury Single Account.
  - Traction on monetary policy formulation and bank supervision has picked up with assistance of a resident expert.
  - Statistics improvements: rebased GDP estimates and forthcoming transition to GFSM 2014.
- ECF-supported program opportunity:
  - Boost implementation of National Development Plan (NDPIII) through intensified TA.
  - Short-term priorities adjusted to respond to COVID-19 challenges; business continuity plans upgraded in Uganda Revenue Administration.
  - Fund assisting authorities develop framework to track COVID-19 expenditures and report transparently.
  - Priorities in line with NDPIII: domestic revenue mobilization strategy, natural resource management, public financial management (notably procurement), banking supervision, payment systems, central bank communication and financial integrity (AML/CFT).
  - TA absorption capacity is good despite challenges from virtual environment.
- Coordination with development partners:
  - Numerous partners active (World Bank, African Development Bank, European Union, UNICEF, UNDP, USAID, DIFID, others).
  - Close cooperation and coordination of TA delivery essential to avoid overlaps, explore synergies and deliver consistent advice without overburdening authorities’ absorptive capacity.

### Letter of Intent — program request and policy commitments (summary)
- Context and objectives:
  - Request IMF assistance for economic reform program to support Uganda’s economy amid COVID-19 and enable sustainable medium-term recovery.
  - COVID-19 hit economy hard: growth fell to less-than half its previous long-term average; inflation rising; strict lockdown measures and disrupted supply/demand chains.
  - Poverty gains reversed; estimated that 61 percent of Uganda suffered severe income losses.
- Program focus:
  - Near-term: fiscal and monetary policy to protect livelihoods and support activity, subject to financing constraints.
  - Medium-term: safeguard macroeconomic stability, maintain public debt on sustainable path, enhance domestic revenue mobilization, prioritize efficient spending, strengthen reserve buffers, improve inflation targeting framework, support financial sector stability.
  - Structural reforms: strengthen governance, expand social safety nets, boost human capital and private sector development, reduce costs of finance, reduce government domestic arrears.
- Financing request:
  - Request for new three-year arrangement under the Extended Credit Facility (ECF) covering 2021-24, amount of SDR 722 million (200 percent of Uganda’s quota) to be disbursed in 7 tranches.
  - Program to be monitored through semiannual reviews (first test end-September 2021; second test date end-March 2022) with quantitative criteria and structural benchmarks as detailed in MEFP and TMU.
- Commitments:
  - Not to introduce nor intensify exchange restrictions; not to introduce or modify multiple import restrictions for balance of payments reasons; not to conclude bilateral payment agreements inconsistent with Article VIII of Fund’s Articles of Agreement.
  - Provide timely information necessary for monitoring economic developments and program implementation.
  - Continue to seek concessional lending from other IFIs.
  - Government intends to make public the IMF staff report accompanying the ECF request and authorizes IMF to publish the report and attachments once the IMF Executive Board approves the arrangement.

*Source: 1ugaea2021001 - 3. The recently (PDF chapter/section).*

### 1.      Uganda has acted swiftly and decisively to contain the COVID-19 pandemic, with one

### 1.      Uganda has acted swiftly and decisively to contain the COVID-19 pandemic, with one

### COVID-19 impact and policy response
- Implemented one of the most stringent lockdown regimes in the region, including a domestic lockdown that lasted over four months and border closures, which helped limit COVID-19 cases but hit the economy hard.
- Government fiscal support and measures:
  - Two supplementary budgets and budget reallocation in FY19/20 increased spending for critical sectors and vulnerable groups by about US$300 million (0.8 percent of GDP), of which around US$90 million (0.2 percent of GDP) is estimated to have been executed.
  - In FY20/21, tax measures in response to COVID-19 contributed to the revenue shortfall by close to US$70 million (0.2 percent of GDP).
  - Through the budget and two supplementary budgets, US$600 million (1.5 percent of GDP) were allocated for additional COVID-19 related outlays.
  - Vaccine support: around US$139 million (0.4 percent of GDP) in FY20/21 and around US$122 million (0.3 percent of GDP) in FY21/22.
- Specific fiscal support measures (percent of GDP where provided):
  - Additional funding to the health sector (0.6 percent of GDP)
  - Support to households (0.2 percent of GDP)
  - Employment support through EMYOOGA (0.3 percent of GDP)
  - Support to firms via tax measures and expedited VAT refunds (0.1 percent of GDP)
  - Expansion of labor-intensive public works programs (0.1 percent of GDP)
  - Acceleration of industrial parks development (0.2 percent of GDP)
  - Clearance of arrears (0.1 percent of GDP)
  - Support to Uganda’s Development Bank and recapitalizing Uganda Development Cooperation (0.5 percent of GDP)

### Economic and social developments (Key findings)
- Real GDP and sectoral impacts:
  - Services and manufacturing fell by 8.8 and 5.5 percent respectively year-on-year in 2020-Q2.
  - Average growth in FY19/20 fell to 3 percent yoy.
  - CY2020 economy expected to have contracted by 1 percent (from 7.5 percent growth in CY 2019).
- Employment and poverty:
  - Unemployment returned to pre-COVID level of about 10 percent after peaking during lockdown.
  - National poverty headcount ratio expected to have risen from 21 percent in 2019 to 26 percent in 2020.
- Inflation and CPI:
  - Headline and core inflation peaked at 4.5 and 6.3 percent respectively in October 2020.
  - Inflation fell back to around 4 and 5 percent respectively in April 2021.
  - UBOS rebased the CPI from 2009/10 to 2016/17 base year in April 2021; the rebased CPI reflects lower inflation and will be used in the macroeconomic framework and program monitoring.
- External sector and reserves:
  - Current account deficit about 10 percent of GDP in 2020H2, deteriorated from FY19/20 level of 5.9 percent of GDP.
  - Remittances remain 31 percent below the level in 2019H2.
  - Net portfolio inflows to general government reached a record high of US$150 million in 2020Q4.
  - Gross international reserves: US$3.9 billion at end-December 2020; declined to US$3.7 billion in mid-May.
  - Shilling appreciated by 3.6 percent against the dollar by mid-May (reflecting strong portfolio inflows).
- Monetary and financial sector:
  - Central Bank Rate (CBR) cut twice in April and in June by a cumulative 200 bps to 7 percent.
  - Private sector credit growth decelerated to 7 percent year-on-year in March 2021 (7.5 percent excluding capitalized interest).
  - 21.3 percent of total loans were under restructuring at end-March 2021, of which 29 percent were past due by at least one instalment.
  - NPLs at current levels 5.4 percent of total loans.
  - Solvency ratios averaged 22.2 percent at end-March 2021.
  - BoU stress tests (end-March 2021 data) indicate banking system has adequate capital and liquidity buffers even if NPLs were to double from current levels; however smaller banks could face liquidity, capital and profitability issues.

### Macroeconomic outlook and risks
- Growth projections:
  - FY20/21 growth projected at 3.3 percent.
  - Medium-term: annual growth expected to return above 6 percent driven by government investment in oil-related infrastructure, energy, and transport, plus recovery in manufacturing, construction and external demand.
  - First oil production expected by FY24/25 contingent on a final investment decision; growth could top 7 percent with oil development (recent agreement between Total and governments of Uganda and Tanzania is a decisive step towards FID in second half of 2021).
- Inflation outlook:
  - Projected to remain within the IT band in the near term; core inflation may hover above mid-point target of 5 percent in the near term.
- External financing and reserves needs:
  - Current account deficit expected to remain large at 7.9 percent of GDP in FY21/22.
  - Imports of investment goods associated with the oil project expected to weigh on the current account from FY22/23.
  - Reserves expected to decline from 4.1 months of import cover at end-December 2020 to an average of about 3 months of import cover between FY21/22 and FY25/26.
  - Program financing aims to keep reserve cover at 4 months of import cover before increasing to EAC target of 4.5 months once oil production starts.
- Downside risks:
  - Weaker external demand
  - Delayed implementation of fiscal support measures
  - Resurgence of lockdown measures linked to higher COVID-19 positivity rates
  - Enhanced credit risk
  - Increasing social and domestic political tensions
  - Slow execution of public investment projects and uncertainty about timing of oil investments
  - Increased frequency of droughts/floods undermining agricultural activity and increasing rural poverty
- Upside scenario:
  - Faster than expected pandemic recovery and higher donor financing.

### Economic policies and fiscal strategy
- Program objective:
  - Three-year economic program to support near-term recovery from COVID-19 and accelerate inclusive growth under NDP III for 2021-2024, with IMF support under a three-year ECF arrangement.
  - Near-term: rely on fiscal and monetary policy to protect livelihoods and support recovery within financing constraints.
  - Medium-term: revenue-based fiscal consolidation to ensure fiscal sustainability and reduce government debt burden, with improvements in public investment management and PFM reforms; composition of spending to tilt towards social spending and other NDPIII priorities.
- FY20/21 fiscal outcomes:
  - Expenditures related to COVID-19 and other priorities ~1.6 percent of GDP.
  - Tax revenue shortfall ~1.8 percent of GDP.
  - Security spending remained almost 1 percent of GDP.
  - FY20/21 deficit expected to reach 9.9 percent of GDP.
  - Domestic revenue mobilization measures added 0.2 percent of GDP in FY20/21.
- Financing and monetary constraint:
  - FY20/21 financing gap to be filled by additional domestic borrowing from banks and nonbanks, and a planned syndicated loan of $650 million.
  - Government committed to repay BoU advances (Ush 2.7 trillion by end-April 2021) within the fiscal year.
  - New central bank financing will be capped under the program at 10 percent of current year’s revenue and will be zero by the end of the fiscal year.
- Medium-term fiscal target and measures:
  - Anchor: reduce nominal debt-to-GDP ratio to below 50 percent by program end, despite temporary peak at 53.5 percent of GDP in FY21/22.
  - Target to reduce overall fiscal deficit to 6.4 percent of GDP in FY21/22 and gradually towards 3 percent of GDP medium-term target guided by Uganda’s Charter of Fiscal Responsibility (CFR).
  - FY21/22 budget measures (Prior Action) include:
    - Revenue measures of 0.8 percent of GDP via Domestic Revenue Mobilization Strategy (DRMS); targeted revenue gains of 0.8 percent of GDP in FY21/22 and 0.5 percent of GDP on average per year over the medium term.
    - Plans to streamline tax expenditures (3.6 percent of GDP in FY2019/20); adoption of a tax expenditure framework and annual tax statement by October 2021 (structural benchmark), including a separate section on COVID-19 related tax expenditure.
    - Reduction in non-priority current spending (0.7 percent of GDP) and capital expenditures (1.7 percent of GDP) in FY21/22.
    - Non-recurrence of one-off items: recapitalization of BoU (0.3 percent of GDP) and on-lending to Uganda Development Bank (0.3 percent of GDP) in FY20/21 will not recur in FY21/22.
    - Decline in security spending by around 1 percent of GDP in FY21/22 to create room for higher social spending (including vaccination of another 20 percent of the population).
- Contingency and corrective actions:
  - If downside risks materialize or financing assurances do not materialize, government will cut spending further, including non-priority and investment projects, to safeguard fiscal goals.
  - Consider temporary freeze on new project commitments and reprioritization of resources away from infrastructure projects with long delays or low returns; emergency COVID-19 projects will be ring-fenced.
  - Contingency revenue measures identified in DRMS will be considered.

*Memorandum of Economic and Financial Policies (MEFP) for the period 2021-2024.*

### 19.      The program will also target higher priority social spending of about 0.6 percent of

### 1ugaea2021001 - 19.      The program will also target higher priority social spending of about 0.6 percent of

### Social spending and targeted programs
- Target higher priority social spending of about 0.6 percent of GDP during the program.
- Objective: reverse historical decline in public education and health spending and create additional space to expand social assistance programs.
- Institutional reform: launch a unified national registry of all social assistance programs (structural benchmark).
- Monitoring: two indicative target floors:
  - one on general social spending (excluding external financing);
  - a more specific one to allow scaling up existing programs to support vulnerable households and expand coverage through specific programs:
    - Northern Uganda Social Action Fund (NUSAF):
      - NUSAF 3 ending in June, 2021.
      - NUSAF 3 had targeted 2,983,000 beneficiaries.
      - Discussions with the World Bank on a successor program to expand geographical scope to the eastern region and increase number of target beneficiaries.
    - Urban Labor-Intensive Public Works program:
      - To be launched in 2021.
      - Targets 637,000 beneficiaries.
      - Will address impact of COVID-19 pandemics amongst poor and vulnerable households in urban and flood-affected areas in 16 flood-prone districts and 13 urban centers.
    - Senior Citizens Grant (SAGE):
      - Supports beneficiaries aged 70 and above.
      - Scale up beneficiaries from 150,000 during FY19/20 to 350,000 in FY20/21.
      - Plan to expand coverage over the next few years.
    - Emyooga:
      - Presidential initiative aimed at wealth and job creation for vulnerable groups including women, youth, and persons with disabilities.
      - All economically active Ugandans aged 18 and above can benefit; youth category members should not exceed 35 years of age.
      - Targets 18 specialized enterprises.
      - Financed by the Ministry of Finance with Ush100 billion seed capital.
      - Implemented by the Microfinance Support Center Ltd.

### Strengthening public financial management (four main axes)
- Improving spending efficiency:
  - NDPIII identifies public investment management as a key area for improvement.
  - Adopt medium-term fiscal envelope forecasts to better prioritize capital projects.
  - Publish multi-year public investment plans in line with the medium-term budget framework.
  - Exercise rigorous public investment portfolio oversight.
  - Publish project selection criteria and a pipeline of projects ready for inclusion in the annual budget (end-September 2021 structural benchmark).
- Reducing domestic arrears and preventing new accumulation:
  - Published in May 2021 the international E&Y audit of domestic arrears (prior action), which showed the stock has averaged about 3.2 percent of GDP since FY16/17.
  - Increased budget provisions for clearance of domestic arrears in FY20/21 and will continue to prioritize and repay them.
  - Introduced prepayments for utilities and commitment controls.
  - Measures to prevent further arrears accumulation:
    - Designed a new domestic arrears strategy finalized and published by the Ministry of Finance (prior action).
    - Strengthening commitment controls:
      - Started issuing system generated purchase requisitions to prevent expenditure arrears.
      - Plan to seek IMF TA to help identify gaps in existing PFM regulations and enable strengthening of sanction regime for officers responsible for unauthorized spending commitments, with personal penalties (end-November 2021 Structural benchmark).
      - Automatic confirmation of fund availability before incurring expenditure commitments and automatic registration of invoices in the expenditure commitment module of the financial management information system.
    - Plan to monitor through quarterly reports unpaid government financial obligations recorded in FMIS, with IMF TA to set a system and first quarterly report by end-November 2021 (end-November Structural benchmark). Aim for convergence towards no unpaid bills in IFMIS after 90 days.
    - Ring-fence budget provisions allocated to clearing domestic arrears; implementation to be reported through institutions’ budget execution quarterly report.
- Strengthening cash management reforms:
  - Extend the Treasury Single Account to extra-budgetary units.
  - Engage donors on disbursing externally funded projects through the TSA.
  - Improve accuracy of monthly cashflow forecasting; issue a circular by December 2021 for rolling out an online template to all ministries, departments and agencies starting with FY2021/22 to report spending projections to inform cashflow forecasting.
  - Integrate cash and debt management via an aggregate borrowing plan accounting for consolidated cash position in and outside the TSA.
  - Reconcile central government deposits in commercial banks reported in monetary surveys with records of government bank accounts held outside the TSA monthly.
  - Seek IMF technical assistance to operationalize monthly and quarterly cash flow forecasting by end-FY2021/22.
- Enhancing budget transparency:
  - Publish a statement of fiscal risks in the budget framework paper for FY22/23 listing contingent liabilities and reporting on budget risks.
  - Following Auditor General report on expenditures, weaknesses will be presented to the Secretary to Treasury who will report in a public document to Parliament by March 2022 on steps taken to strengthen the process.
  - Prepare and publish the medium-term fiscal framework in line with GFSM2014 (Structural benchmark, May 2022).

### Fiscal rule and debt management
- With final investment decision for Uganda’s oil sector approaching, adopt a fiscal rule for managing oil revenues implemented through the Charter of Fiscal Responsibility (CFR).
- Fiscal rule will aim at establishing the non-oil primary balance (NOPB) as the operational target when oil comes into production to prevent pro-cyclical spending.
- CFR provisions to include:
  - corrective actions if numerical limits or targets are breached;
  - escape clauses;
  - transitional arrangements to bring debt and fiscal deficit to levels prescribed by the fiscal rule;
  - institutional arrangements to monitor and enforce the rule.
- Debt management framework:
  - Enhanced debt transparency over past decade including publication of debt data and debt management information.
  - Aim to further enhance transparency by making state-owned enterprise debt publicly available.
  - Medium-Term Debt Management Strategy goals: scale back domestic financing and increase maturity of domestic debt.
  - Continue to seek additional grants from donors or additional concessional lending from other IFIs beyond amounts currently committed.
  - Debt is projected to remain sustainable at a moderate risk of debt distress.

### Monetary and exchange rate policies
- Monetary policy framework remains appropriate but its effectiveness reduced by fiscal dominance.
- Contributing factors: high banks’ risk aversion, higher domestic public borrowing and rising domestic bond yields keeping lending rates high.
- Program measures:
  - Proposed fiscal adjustment and higher reliance on external financing to enhance monetary policy transmission and effectiveness.
  - Bank of Uganda will:
    - Continue monitoring inflation closely and stand ready to adjust policy stance if forward looking (core) inflation looks set to increase above the upper band inflation target (5+/-3 percent) in an 18-month horizon. The inflation consultations clause remains a key pillar of the program.
    - Continue fine tuning liquidity forecasting.
    - Rely on repurchase Repos, Depos and recapitalization securities as main instruments for managing liquidity at different maturities.
    - FX swaps added in July 2020 to manage structural liquidity for up to one year.
    - Limit direct BoU financing of fiscal operations:
      - Ensure within-year limits of advances are adhered to and all advances repaid by end of fiscal year.
      - Clarify existing rules on advances by adopting a service level agreement between BoU and Ministry of Finance (end-July SB) to ensure sufficient funds for servicing government debt through the BoU and include appropriate safeguards—including penalty interest rates (as prescribed in the BoU Act)—for within-year credit provision.
- Central bank independence:
  - Recapitalized BoU by providing Ush 482 billion in government securities in July 2020.
  - New amendments to the BoU Act to be approved by Cabinet (end-December 2021 Structural Benchmark) to include dynamic recapitalization, strengthen safeguards for institutional autonomy, clarify limits for advances to the government, and strengthen BOU governance and transparency framework.

### Financial sector policies and stability measures
- Shilling has remained broadly stable and is estimated to be moderately overvalued.
- Foreign exchange interventions will continue to smooth excess volatility; maintain exchange rate flexibility to adjust to shocks and preserve foreign exchange buffers.
- Developed guidelines for managing foreign reserve portfolio internally to reduce placements with commercial banks and minimize deposits not redeemable at short notice; guidelines to be shared with the World Bank Treasury team for advice.
- Financial sector stability actions:
  - Adopted Financial Institutions (Capital Buffers and Leverage Ratio) Regulations 2020 at end-December 2020 introducing:
    - capital conservation buffer (CCB);
    - systemic risk buffer;
    - countercyclical capital buffer (CCyB);
    - leverage ratio.
  - One-year grace period ending in December 2021 for compliance.
  - Required Domestic Systemically Important Banks (DSIBs) to hold additional capital buffers in the range of 0-3.5 percent.
  - BOU Board approved the DSIBs framework in February 2021; changes came into effect in April 2021.
- Additional measures:
  - Defer dividend distribution on a case-by-case basis when asset quality deteriorates beyond prudential thresholds.
  - Ensure loan classification and provisioning rules are not relaxed; continue strict adherence to prudential and accounting requirements.
  - Bank of Uganda will:
    - Enhance bank oversight including monthly monitoring of restructured loans and NPLs, reassessment of provisioning adequacy.
    - Ensure six-month extension of credit relief measures to September 2021 remains temporary and targeted.
    - Continue integrated stress testing framework expansion; bottom up stress testing expected effective in August 2021.
    - Transition towards Basel II and Basel III:
      - Good progress towards effective implementation of Basel II by January 2022.
      - Monitor compliance with Financial Institutions (Capital Buffers and Leverage Ratio) Regulations 2020 capital buffer requirements to ensure all financial institutions meet new standards by December 2021.
      - Present to BoU Management in August 2021 the framework to guide calibration of countercyclical buffers, to come into effect by December 2021.
      - Instruct financial institutions to conduct by October 2021 an internal capital adequacy assessment (ICAAP).
      - Review implementation date after expiration of credit relief measures to avoid discouraging bank lending.
    - Strengthen bank supervision by upgrading from annual to continuous risk-based supervision and review the risk-based supervision manual by October 2021.
    - Enhance the resolution framework with measures aligned to FSSR recommendations and COSASE probe findings:
      - Require all DSIBs to submit recovery plans to BoU supervision department.
      - Policy Framework Resolving Problem Institutions (PFRPI) prepared; Financial Stability Committee approval on May 14, 2021; BoU Board approval expected by end-June 2021.
      - Create a resolution unit within the Financial Stability Department by end-December 2021 to oversee implementation.
      - Resolution manual finalized and expected effective in September 2021.
      - With World Bank TA, propose amendments to the Financial Institutions Act (FIA) to BoU Management by September 2021 to address recovery planning and expand role of deposit protection scheme.
      - Emergency Liquidity Assistance (ELA) framework approved by Financial Stability Committee end February 2021, adopted by BoU Board in April 2021, expected operational by September 2021; BoU Act amendments to enshrine ELA in law.
    - Modernize financial market infrastructure and protect against cyber risks:
      - Issued directives in July 2020 and October 2020 to enhance banks’ risk management frameworks for cyber and operational risks.
      - Enacted National Payment Systems (NPS) Act in August 2020; implementation started in April 2021.
      - BoU to assess banks’ business continuity plans and cyber security measures, audit ICT infrastructure, and conduct vulnerability and penetration tests.

*Source: Excerpt from UGANDA — INTERNATIONAL MONETARY FUND (content unit: 1ugaea2021001).*

### 28.       Our structural reform agenda focuses on generating higher and more inclusive

### Our structural reform agenda focuses on generating higher and more inclusive 

### Governance
- Objective: Strengthen governance to foster inclusive economic growth and unlock private sector activity.
- IMF RCF program commitments on COVID-19 spending and related governance measures: fully implemented as a first step.
- Tools and actions implemented or underway:
  - A system designed with IMF technical assistance for the Budget Monitoring and Accountability Unit (BMAU) to track and report COVID-19-related expenditures irrespective of the source of financing (end-August structural benchmark).
  - Published a comprehensive report of COVID-19 spending for FY19/20 and cash releases for the first two quarters of FY20/21.
  - Published a list of procurement contracts above Ush500 million for works, and above Ush200 million for goods and services, including names of winning bidders.
  - Procurement forms amended (with Fund technical assistance) to collect and publish beneficial ownership information of recipients of new COVID-19 related contracts.
  - Conducted and published an independent audit of COVID-19 spending for FY2019/20 by May 2021. Key audit findings:
    - Some shortcomings in procurement procedures used for COVID-19 expenditures, aligned with the legal framework for emergency situations.
    - A relatively small share of funds allocated to the fight against COVID-19 were not used on time.
    - A limited part of funds was used for unintended purposes.
    - Some distributed food items did not pass quality checks partly due to logistical limitations.
  - Plan to study audit findings and implement Auditor General recommendations, including reinforcing expenditure controls and emergency procedures.
  - Completed a special independent audit for COVID-19 spending between end-June 2020 to end-March 2021 by June 2021; publication expected by September 2021 after presentation to parliament.
- Asset declaration (AD) regime improvements and possible measures:
  - Leadership Code amended to address deficiencies; implementation to be monitored.
  - Potential measures to align AD with international best practices may include:
    - Publication of asset declarations of high-level officials.
    - Declaring assets and incomes of spouses, children and dependents and assets owned beneficially.
    - Introducing criminal liability for breaches of AD obligations, including imprisonment for submission of false declarations.
  - Use AD regime to intensify scrutiny of high-level officials’ wealth and to detect and investigate corruption offences, including illicit enrichment.
- Anti–money laundering/combating the financing of terrorism (AML/CFT):
  - Adopted a National AML/CFT Strategy to address FATF “grey list” action plan deficiencies.
  - Amendments to the Companies Act to prevent abuse of legal entities and ensure timely access to accurate beneficial ownership information (November 2021 structural benchmark).
  - Priority actions:
    - Strengthen AML/CFT supervisory capacity at the BoU: operationalize the AML/CFT dedicated division approved by the FSCB in May 2021; team identified and to be operationalized by December 2021. Priorities include a risk-based approach to financial sector AML supervision, offsite monitoring tools, inspections, and an AML/CFT supervisory process and procedure manual.
    - Adopt a regulation (by FIA and Minister of Finance) to require financial institutions to identify domestic politically exposed persons and apply enhanced due diligence measures (September 2021 structural benchmark). A BoU guidance on implementation will be issued.
- Anti-corruption measures:
  - Safeguard anti-corruption bodies from undue influence and strengthen capacity.
  - Adopt terms of reference for an improved selection process of the Inspector General of Government; aim to appoint in September 2021.
  - Develop guidelines on voluntary settlements of anti-corruption investigations; outline cases that cannot be settled voluntarily at investigation stage.
  - Promote integrity and transparency in the judiciary; introduce comprehensive electronic case management tools in all courts.
- Extractive sector transparency:
  - Uganda joined the Extractive Industries Transparency Initiative (EITI).
  - Commitments include readiness to disclose contracts and licenses for oil & gas production and beneficial owners of corporate entities with legal interest.
  - First EITI report containing relevant disclosures to be finalized and submitted in 2022.

### Reducing the Cost of Doing Business
- Objective: Relax constraints on private sector initiative and growth, consistent with NDPIII priorities.
- Actions and reforms:
  - Unite permitting and registration requirements for new businesses in a one-stop shop accessible physically and online.
  - Address non-financial cost drivers: power, transport, ICT.
  - Strengthen SME incubation centers to support SME growth in strategic areas.
  - Improve land administration, including extending coverage of the immovable property registry.
  - Rationalize and harmonize standards, institutions, and policies at local and regional levels.
  - Streamline bureaucratic red tape, reduce duplications, and speed up clearances for business operations.
- Trade and infrastructure:
  - Invest in transport infrastructure (Standard Gauge Railway and roads) to support trade links with neighboring countries.
  - Improve transport interconnectivity to the East Africa Community (EAC) through Northern and Central Corridor transport projects.
  - Implement Uganda’s commitments to the African Continental Free Trade Area (AfCFTA) by removing non-tariff barriers and harmonizing standards.
  - Ensure COVID-19 protective measures for strategic industries are time-bound and phased out once crisis passes to align with WTO, EAC, COMESA, and AfCFTA provisions.

### Fostering Financial Inclusion
- Implementation of the National Financial Inclusion Strategy (NFIS) is ongoing; further progress envisaged under the program.
- Trends and capacity:
  - Mobile money users and the number of regulated accounts are rising.
  - Number of active agents rose to 11,671 at end-September 2020, up from 9,370 in June 2019.
  - Ongoing update of the financial literacy strategy to expand delivery channels and improve access to finance.
- Key NFIS planks and actions:
  - Strengthening regulations:
    - After the NPS Act (August 2020), three regulations were gazetted on March 5, 2021: NPS Regulations, NPS Sandbox Regulations, and NPS Agent Regulations.
    - Three applicants each received a payment system operator license and a payment service provider license; one entity approved to operate under the regulatory sandbox.
    - Fifteen other applications for licenses are under evaluation.
  - Enhancing SME financing:
    - Set up a short-term development credit window for SMEs.
    - Deepen and widen capital markets by strengthening legal and regulatory frameworks for private equity and venture capital and by building private sector capacity to access green financing.
  - Modernizing financial infrastructure:
    - Allow financial institutions to accept movable collateral for lending: URSB implemented requisite regulations in 2020 and established a computerized system to track collateral.
    - Submit draft amendments to the Credit Reference Bureau to the Ministry of Finance for no objection; regulations expected to be gazetted by December 2021. Aim to expand coverage of who can submit data to all providers of credit and link credit information to the National identity number and national ID database.

### Other Program Modalities
- Fund safeguards and central bank governance:
  - Committed to implementing key policy requirements of the Fund’s safeguards assessment.
  - Expect changes to the BOU Act to strengthen BoU’s autonomy.
  - Operational control gaps in currency operations and reserve management are being addressed.
- Statistics and data improvements:
  - Strengthen UBOS support to improve timeliness and accuracy of national accounts and Government Finance Statistics (GFS).
  - Aim to migrate from e-GDDS to SDDS.
  - Priorities include developing institutional sector accounts, higher frequency GDP indicators, and rebasing CPI, PPI and IPI.
- Program monitoring and reviews:
  - Program evaluated on quantitative performance criteria and structural benchmarks and semi-annual reviews.
  - Definitions and reporting requirements set out in the Technical Memorandum of Understanding (TMU).
  - First and second reviews scheduled on or after December 28, 2021 and June 28, 2022, respectively, based on test dates end-September 2021 and end-March 2022.
- SDR allocation:
  - Proposed SDR allocation to primarily increase reserve cover towards the EAC target of 4.5 months of imports of goods and services earlier than anticipated.
  - An adjustor (see TMU) to capture the impact of the new allocation on the reserve target.
  - If expected budget financing fails to materialize or financing costs become more expensive, SDR allocation could be used to meet the financing gap as long as it remains aligned with program objectives.

### Quantitative Targets, Benchmarks, and Key Numbers
- Labor market pressure: roughly 600,000 new entrants into the labor market per year.
- Active mobile money agents: 11,671 at end-September 2020; 9,370 in June 2019.
- Selected Table 1 program targets and indicators (as presented):
  - Primary budget balance of the central government (- = deficit; floor, in billions of USh): 1/ -6,490 -10,532 -2,093 -3,327 -4,247 -5,453
  - Net claims on the government by the central bank (ceiling): 1/ 180 -1,415 2,200 1,000 300 0
  - Stock of net international reserves (floor, in millions of US$): 2/ 3,099 3,028 3,060 2,885 2,917 2,797
  - PV of newly contracted external public and publicly guaranteed debt (ceiling, millions of US$): 3/ 867 1,286 1,286 1,286 1,286
  - Support to vulnerable households (floor, billions of USh): 1/ 60 117 199 292
  - Social spending (floor, billions of USh): 1/ 3,509 5,216 1,466 2,986 4,391 5,895
  - Tax revenues (floor, in billions of USh): 1/ 13,305 17,873 4,615 10,364 15,452 20,837
  - Repayment of outstanding domestic arrears (floor, in billions of USh): 1/ 668 805 100 200 300 400
- Program exchange rates (end-May 2021) from Text Table 1:
  - US dollar (US$) 1.0000
  - Australian Dollar/US$ 1.2930
  - Canadian Dollar/US$ 1.2064
  - Euro/US$ 0.8177
  - British pound/US$ 0.7039
  - US$/Japanese yen 0.0091
  - US$/Rwandan franc 0.0010
  - SDR/US$ 0.6922

*IMF document excerpt: 1ugaea2021001 - Our structural reform agenda focuses on generating higher and more inclusive*

### 2. The quantitative performance criterion (QPC) on the floor on the primary budget balance is

### 1ugaea2021001 - 2. The quantitative performance criterion (QPC) on the floor on the primary budget balance is

### Definition of the QPC on the floor on the primary budget balance
- Defined as the overall budget balance of the central government excluding net interest payments on public debt.
- The overall budget balance (from below the line) is the sum of:
  - Net external financing (NEF): the sum of the difference between disbursements and amortization of any loans (including budget support loans and project loans, both concessional and non-concessional), international-bonds, and any other forms of liabilities by the central government to nonresidents, excluding nonresidents’ holdings of domestically-issued government securities (which are covered under NDF).
  - Net domestic financing (NDF): defined on a cash basis as the sum of:
    - The change in net claims on the central government by the banking system, defined as the difference between claims on the central government and liabilities to the central government, of the central bank and other depository corporations.
    - The change in net claims on the central government of domestic nonbank institutions and households, including treasury bills, bonds or other government securities held by the nonbank public.
    - Net proceeds from sales of non-financial assets including privatization receipts (data to be provided by the authorities).

### Measurement and data sources
- NDF will be calculated based on data from balance sheets of the monetary authority and other depository corporations and government liabilities to nonbank institutions and households as per the Depository Corporations Survey (DCS).
- Changes in NEF will be measured using external financing (net) provided in the monthly government finance statistics, based on reconciled donor disbursement figures obtained by the central bank and by the Ministry of Finance, Planning, and Economic Development (MoFPED) through the Debt Management and Financial Analysis System (DMFAS) and Aid Management System (AMS).

### Targets and timing for the primary balance floor
- The primary balance target is a floor on cumulative flows for the periods:
  - July 1, 2020 to June 30, 2021, and
  - July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022.
- Classification of targets:
  - Floors on primary budget balance for end-September 2021 and end-March 2022: quantitative performance criteria (QPC) under the ECF program.
  - Floors for end-June 2021, end-December 2021 and end-June 2022: indicative targets.

### Ceiling on Net Claims on the Government by the Bank of Uganda (BoU)
- Background:
  - GoU may receive temporary advances from the BoU to cover temporary deficiencies of recurrent revenue of up to 10 percent of recurrent revenues over the fiscal year, per Amendments to the 2015 PFM Act. The Act requires full repayment within the respective fiscal year.
  - The GoU committed to repay the total outstanding advance during the remainder of FY20/21 with no further advances to be requested.
  - GoU expects to temporarily draw on advances from the BoU in the first quarter of FY21/22 and to fully repay the advances over the subsequent three quarters.
- Purpose:
  - The QPC ceiling on net claims on the government by the central bank is to define and monitor temporary advances and ensure prompt repayment, reducing the likelihood of monetization of fiscal deficits.
- Definition for monitoring:
  - Net claims on the government by the BoU = difference between claims on central government and liabilities to central government, excluding:
    - deposits in administered funds (including the petroleum funds, agriculture credit facility and development finance scheme projects),
    - project accounts (both donor and government funded) with the central bank,
    - net recapitalization securities (recapitalization securities provided to the central bank less those used for monetary policy purposes).
- Calculation data source: balance sheets of the monetary authorities as per the DCS.

### Floor on Net International Reserves (NIR) of the Bank of Uganda
- Definition for program monitoring:
  - NIR of the BoU = reserve assets of the BoU net of short-term external liabilities of the BoU.
  - Reserve assets: external assets readily available to, and controlled by, the BoU; exclude pledged or otherwise encumbered external assets, including assets used as collateral or guarantees for third-party liabilities.
  - Short-term external liabilities: liabilities to nonresidents, original maturities less than one year, contracted by the BoU and include outstanding IMF purchases and loans.
- Measurement:
  - Reserve assets and short-term liabilities at end of each test period will be calculated in U.S. dollars by converting the stock from their original currency at program exchange rates as set out in Table 1 (in source).
  - NIR limit for each test date: a floor on the NIR stock at the end of each test period.
- Classification of NIR floors:
  - NIR floors for March 2021 and September 2021: quantitative performance criteria under the ECF.
  - Floors for June 2021 and December 2021: indicative targets.

### Ceiling on External Arrears Incurred or Guaranteed by the Public Sector
- Definition of debt for the limit: as set out in point 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 6230-(79/140), as amended by Decision No. 15688-(14/107), effective June 30, 2015); includes commitments contracted or guaranteed for which value has not been received.
- Debt understood as a current (not contingent) liability created under a contractual arrangement through provision of value (assets or services) requiring future payments to discharge principal and/or interest.
- Forms of debt include: loans, suppliers' credits, and leases (present value at inception).
- Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are included.
- Ceiling on accumulation of new external payment arrears:
  - The ceiling is zero.
  - Applies continuously to change in stock of overdue payments on debt contracted or guaranteed by the public sector from their level at end-June 2021.
  - External debt payment arrears are external debt service obligations (reported by the Statistics Department of the BoU, the Accountant General’s office of the Ministry of Finance, Planning and Economic development) not paid when due as specified in contractual agreements.
  - Excludes arrears on obligations subject to rescheduling, disputed debt service obligations and the HIPC-related external arrears to Iraq and Nigeria.
  - Government must immediately report to IMF staff any new external arrears it accumulates.

### Ceiling on the Present Value of Newly Contracted External Public and Publicly Guaranteed Debt
- Definition and coverage:
  - Debt definition: paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 15688-(14/107), effective June 30, 2015).
  - Public sector comprises central government, state government, local government, social security funds, the central bank, nonfinancial public enterprises and other official sector entities.
  - Guarantee arises from any explicit legal or contractual obligation of the public sector to service a debt owed by a third-party debtor.
  - Contracting is when all conditions for entrance into effect have been met, including government approval; credit lines with no predetermined disbursement schedules or multiple disbursements are considered contracting.
- External debt: any debt contracted or guaranteed by the public sector on both concessional and non-concessional terms with non-residents, excluding nonresidents’ holdings of domestically-issued government securities (covered under NDF).
- Concessionality:
  - A debt is concessional if it includes a grant element of at least 35 percent.
  - Grant element calculation: difference between the present value (PV) of debt and its nominal value, expressed as a percentage of the nominal value.
  - PV at contracting: discounting future stream of payments of debt service due on the debt.
  - For debts with grant element equal or below zero, PV = nominal value.
  - Discount rate: unified discount rate of 5 percent set forth in Executive Board Decision No. 15248-(13/97).
- Variable-rate debt PV calculations:
  - For variable interest in the form benchmark + fixed spread, PV uses a program reference rate + fixed spread (in basis points) from the contract.
  - Program reference rate for the six-month USD SOFR is 0.04 percent and will remain fixed for the duration of the program.
  - Spreads:
    - six-month EURIBOR over six-month USD SOFR: -56 basis points.
    - six-month JPY OIS over six-month USD SOFR: -8 basis points.
    - six-month GBP SONIA over six-month USD SOFR: 1 basis point.
    - For currencies other than Euro, JPY, and GBP, the spread over six-month USD SOFR is 15 basis points.
  - Where variable rate is linked to a benchmark other than six-month USD SOFR, a spread reflecting the difference between the benchmark rate and the six-month USD LIBOR (rounded to nearest 50 bps) will be added.
- A performance criterion (ceiling) applies to the present value of external debt newly contracted or guaranteed by the public sector.
  - Applies to debt contracted or guaranteed for which value has not yet been received, including private debt for which official guarantees have been extended.
  - Does not apply to normal import-related commercial debt with maturity < one year, rescheduling agreements, and IMF disbursements.
  - For this continuous PC, the government will immediately report to IMF staff any new external loans it contracts or guarantees, stating the loan conditions.

### Consultation Mechanism on Inflation
- Quarterly consultation bands specified for the twelve-month average rate of consumer price inflation as measured by the core consumer price index (CCPI) published by UBOS are in the QPC table (in source).
- Observed CCPI inflation for end-September 2021 and end-March 2022: subject to the consultation mechanism.
- CCPI inflation for end-June 2021, end-December 2021 and end-June 2022: indicative targets.
- If observed average CCPI inflation for a test date linked to an ECF program review (end-September 2021 or end-March 2022) falls outside the outer band:
  - Authorities must complete a consultation with the Executive Board of the Fund on proposed policy response before requesting completion of the review.
  - Authorities cannot request completion of a review under the ECF program if average CCPI inflation has moved outside the outer band as of the test date linked to the review until consultation with the Executive Board has taken place.
  - BoU will report publicly the reasons for any breach of the outer bands and its policy response.
  - BoU will conduct discussions with Fund staff when observed average CCPI inflation falls outside the inner band (specified for September-2021 and March 2022 in QPC table).

### Direct Support Programs to Vulnerable Households and Social Spending
- Indicative floor on total social assistance spending to support vulnerable households includes spending through:
  - Northern Uganda Social Action Fund (NUSAF),
  - Senior Citizens Grant (SCG),
  - Urban Labor Intensive Public Works (LIPW),
  - Social Assistance Grants for Empowerment (SAGE),
  - EMYOOGA Initiative.
- Compliance verification:
  - Verified on basis of data on quarterly releases of social assistance spending for March and September, and actual for June and December, as published in quarterly budget execution reports.
- Floor on total social spending:
  - Includes all spending in health, education, and social development (excluding external financing).
  - Monitored on the basis of the monthly government finance statistics.

### Tax Revenue and Repayment of Domestic Arrears (Indicative Target)
- Tax revenue floor:
  - Applies on tax revenue of central government measured cumulatively from beginning of fiscal year in July.
  - Tax revenue defined as sum of direct domestic taxes, indirect domestic taxes, and international trade taxes, per Government of Uganda’s revenue classification.
- Floor on repayment of outstanding domestic arrears (IT):
  - Applies as an indicative target: floor on cumulative gross repayment from July 1, 2020 to June 30, 2021, and from July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022, and June 30, 2022.
  - Unpaid bill defined as any verified outstanding payment owed by any entity that forms part of the central government votes for: utilities, rent, employee costs, other recurrent, court awards, compensation, contributions to international organizations, development, taxes, and other deductions.
  - Domestic arrears: total stock of unpaid bills at the end of the year as reported in the annual audit report of the Auditor General.

### Adjustors affecting NIR and primary balance targets
- NIR and primary balance targets are based on program assumptions regarding:
  1. budget support;
  2. recapitalization of the BoU;
  3. external financing tied to projects;
  4. DSSI relief; and
  5. the proposed SDR allocation.

- Adjustor related to Budget Support:
  - Uganda shilling equivalent of projected budget support (grants and loans) on a cumulative basis from beginning of relevant quarter is presented under Schedule A.
  - Floor on stock of NIR of the BoU will be adjusted upward (downward) by the amount by which budget support, grants and loans exceeds (falls short of) projected amounts.
  - Any downward adjustment to the floor on the stock of NIR will be capped by 10 percent of the amount set out in Schedule A.
  - Floor on the primary budget balance of the central government will be adjusted upward (downward) by the amount by which budget support grants exceeds (falls short of) projected amounts.

- Adjustor related to Recapitalization of the Bank of Uganda:
  - Floor on primary budget balance of the central government will be adjusted downward (upward) by the amount by which the recapitalization of the BoU exceeds (falls short of) the projected amounts as set out in Schedule B.

- Schedule A: Budget Support (USh billions) — Cumulative flows from July 1, 2020 to June 30, 2021, and from July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022.
  - 2021 End-Jun 62700
  - 2021 End-Sept 5277
  - 2021 End-Dec 0
  - 2022 End-Mar 0
  - 2022 End-Jun 0
  - (Also listed under Schedule A: Budget support loans)
    - 2021 End-Jun 5,288
    - 2021 End-Sept 1209
    - 2021 End-Dec 923,212? 3,899
    - Note: the source displays a sequence "5,2881209923,2123,899" under "Budget support loans" which should be interpreted only as presented in the source.

- Schedule B: Recapitalization of the Bank of Uganda (USh billions) — Cumulative flows from July 1, 2020 to June 30, 2021, and from July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022.
  - 2021 End-Jun 48200
  - 2021 End-Sept 0
  - 2021 End-Dec 0
  - 2022 End-Mar 0
  - 2022 End-Jun 0

*Source: IMF staff report text from 1ugaea2021001 - 2. The quantitative performance criterion (QPC) on the floor on the primary budget balance is*

### 33. The floor on primary budget balance of the central government will be adjusted upward

### 33. The floor on primary budget balance of the central government will be adjusted upward

### Adjustors to program floors and ceilings
- Primary budget balance adjustor:
  - "The floor on primary budget balance of the central government will be adjusted upward (downward) by the amount by which (both concessional and non-concessional) external financing tied to projects falls short of (exceeds) the projected amounts as set out in Schedule C."
  - "Any downward adjustment will be capped by 10 percent of the amounts set out in Schedule C."
- Adjustor related to the DSSI relief:
  - "The floor on the stock of NIR of the BoU will be adjusted upward (downward) by the amount by which the DSSI relief exceeds (falls short of) the projected amounts as set out in Schedule D."
- Adjustor related to direct support programs to vulnerable households:
  - "The floor on spending under direct support programs to vulnerable households will be adjusted upward (downward) by the amount by which spending under NUSAF and SCG exceeds (falls short of) the projected amounts as set out in Schedule E."
- Adjustor related to the proposed SDR allocation:
  - "The floor on the stock of NIR of the BoU is expected to adjust upward by the same amount of the proposed SDR allocation."

### Schedule C: External Financing Tied to Projects (USh billions) — cumulative flows 1/
- Reporting dates: End-Jun, End-Sept, End-Dec, End-Mar, End-Jun (2021–2022).
- Project loans row (values aligned to the reporting dates):
  - Project loans 4,450 1,234 2,821 3,776 5,152
- Note 1/: "Cumulative flows from July 1, 2020 to June 30, 2021, and from July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022."

### Schedule D: DSSI Relief (US$ millions) — cumulative flows 1/
- Reporting dates: End-Jun, End-Sept, End-Dec, End-Mar, End-Jun (2021–2022).
- DSSI relief row (values aligned to the reporting dates):
  - DSSI relief 0 10 7 12 11 21
- Note 1/: "Cumulative flows from July 1, 2020 to June 30, 2021, and from July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022."

### Schedule E: Direct Support to Vulnerable Households Under NUSAF, Urban LIPW and SCG (USh billions) — cumulative flows 1/
- Reporting dates: End-Jun, End-Sept, End-Dec, End-Mar, End-Jun (2021–2022).
- Project grants row (values aligned to the reporting dates):
  - Project grants 0 0 2 9 7 2
- Note 1/: "Cumulative flows from July 1, 2020 to June 30, 2021, and from July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022."

### Monitoring and reporting requirements (summary)
- Submission protocol:
  - "The Government of Uganda will submit information to IMF staff with the frequency and submission time lags as indicated in Table 1. The quality and timeliness of the data submission will be tracked and reported by the IMF staff. The information should be mailed electronically to AFRUGA@imf.org."
- Selected reporting items and timelines (reporting institution, report/table, frequency, submission lag):
  - I. Bank of Uganda
    - Operations in the foreign exchange market and the level of BoU’s international reserves — Weekly — 5 working days
    - Private sector credit growth by shilling and forex, and excess reserves of commercial banks — Monthly — 5 working days
    - Disaggregated consumer price index — Monthly — 2 weeks
    - Balance sheet of the BoU, consolidated accounts of the commercial banks, and depository corporations’ survey — Monthly — 4 weeks
    - Monthly balances of net foreign assets, net domestic assets, and base money of the BoU — Monthly — 4 weeks
    - Details on the government position at the central bank including deposits broken down by i) government project accounts (both donor and government funded), and ii) administered funds (including the petroleum funds, agriculture credit facility and development finance scheme projects). Detailed information about the recording of the recapitalization of the central bank, and government securities that are used for monetary purposes. — Monthly — 4 weeks
    - Monthly foreign exchange cash flow table of BoU. — Quarterly — 4 weeks
    - Summary of (i) monthly commodity and direction of trade statistics; — Quarterly — 6 weeks
    - Standard off-site bank supervision indicators for deposit money banks. — Quarterly — 4 weeks
    - Summary table of preliminary program performance comparing actual outcome with adjusted program targets for (i) net claims on central government by the central bank; (ii) new nonconcessional external borrowing; and (iii) net international reserves. — Quarterly — 4 weeks
    - Currency composition of the BoU’s international reserves at end of each quarter. — Quarterly — 6 weeks
  - II. Ministry of Finance
    - Summary of central government accounts. Revenues shall be recorded on a cash basis, with a breakdown including infrastructure levy. Expenditures shall be recorded when checks are issued, except for domestic and external debt-service payments, cash transfers to districts & missions abroad, and externally funded development expenditures. Expenditures on domestic interest will be recorded on an accrual basis and external debt service will be recorded on a commitment basis (i.e., when payment is due). — Monthly — 4 weeks
    - Summary of the stock of arrears (or unpaid bills) by government entities contained in the central government votes as reported by the Accountant General and signed by the PS/ST. — Semi-annually — 3 months
    - Disbursements, principal and interest, flows of debt rescheduling and debt cancellation, arrears, and committed undisbursed balances—by creditor category. — Quarterly — 6 weeks
    - Summary of stock of external debt, external arrears, and committed undisbursed loan balances by creditor. — Quarterly — 6 weeks
    - Summary of contingent liabilities of the central government and the BoU. ... — Annual — 6 weeks
    - Provision of all government guarantees — Quarterly — 6 weeks
    - Detailed monthly central government account of disbursed budget support and project grants and loans (less change in the stock of project accounts held at the BoU and commercial banks), and external debt service due and paid. — Quarterly — 4 weeks
    - Privatization receipts — Quarterly — 4 weeks
    - Detailed central government account of disbursed donor project support grants and loans. — Monthly — 6 weeks
    - Statement on new external loans contracted or guaranteed by the central government and the BoU during the period according to loan agreements. Parliament resolutions on any new loans. — Quarterly — 6 weeks
    - Statement of (i) cash balances held in project accounts at commercial banks; (ii) total value (measured at issue price) of outstanding government securities from the Central Depository System (CDS); and (iii) the stock of government securities (measured at issue price) held by commercial banks from the CDS. — Quarterly — 6 weeks
    - Updated national accounts statistics (real and nominal) according to UBOS and medium-term projections. — Quarterly — 12 weeks

### Public debt coverage and recent debt developments — key figures
- Public debt coverage: "Public and publicly guaranteed (PPG) external and domestic debt covers debt contracted and guaranteed by the central government, state and local government, social security fund, and central bank."
- Public debt levels and composition:
  - "Public debt has been increasing, reaching 40.8 percent of GDP at the end of FY2019/20."
  - External debt (residency basis): "US$10.7 billion or 28.6 percent of GDP."
  - Domestic debt: "about US$4.6 billion (12.3 percent of GDP)."
  - Present value (PV) of total public sector debt: "33.2 percent of GDP at the end of FY2019/20."
- External debt concessionality and creditor composition:
  - "Highly concessional loans from the IMF, the International Development Association (IDA) and the African Development Fund (ADF) account for half of the external debt portfolio."
  - "The share of semi-concessional and non-concessional debt has been increasing in recent years."
  - Export-Import Bank of China: "reaching 22 percent of external public debt outstanding at the end of FY2019/20."
  - Commercial loans: "constitute 7 percent of external public debt."
  - Local-currency government securities held by offshore investors: "close to 3 percent of external public debt."
- Text Table 2: Composition of external debt (Millions of U.S. dollars, as of end-FY2019/20) — selected entries
  - Total 10,702 100.0%
  - Bilateral 3,203 29.9%
  - EXIM BANK OF CHINA 2,362 22.1%
  - Multilateral 6,421 60.0%
  - IDA 3,601 33.6%
  - IMF 498 4.6%
  - Commercial banks or other financial institutions 748 7.0%
  - Publicly guaranteed external debt 290 3.0%
  - Local currency debt held by offshore investors 302 2.8%

### Contingent liability shock parameters (used in stress test)
- Other elements of the general government not captured in 1.0 percent of GDP: 0.1
- SoE's debt (guaranteed and not guaranteed by the government) 2 percent of GDP: 9.1
- PPP shock: 35 percent of PPP stock implying 1.7 percent of GDP
- Financial market (a minimum starting value of 5 percent of GDP): 5 percent of GDP
- Total (in percent of GDP): 16.0

### Background: macro and medium-term assumptions and risks
- Key macro assumptions and projections:
  - Vaccination and health: "900,000 vaccines were received to cater for the most vulnerable groups (i.e., health workers, security personnel, and ages above 50 years)."
  - "Over US$120 million budgeted for purchases and administration of vaccines in FY21/22."
  - Real GDP growth:
    - "Growth is expected at 3.3 percent in FY2020/21, half a percentage point below the projection in the RCF."
    - "Over the medium term, growth is projected to return to above 6-7 percent."
  - Inflation: "projected to be in line with the BoU’s 5 percent target over the medium term."
  - Oil revenue and timing:
    - "The Final Investment Decision was taken in April 2021 improving the likelihood of oil production in FY2024/25."
    - "Budget revenue net of oil-related expenditures is expected to peak at around 2 percent of GDP in FY2027/28 before gradually declining over the long term."
  - Primary fiscal deficit:
    - "The primary fiscal deficit is projected to widen in FY2020/21 partly on the back of COVID-19-related spending."
    - "In FY21/22, the large improvement is expected to be driven by the implementation of the DRMS, a decline in both current and capital spending, including thanks to the unwinding of crisis measures, as well as the non-recurrence of one-off items such as the recapitalization of the Bank of Uganda and the on-lending to the Uganda Development Bank."
    - "After FY21/22, the cyclical improvement, the implementation of the DRMS, and the elimination of crisis measures will lead to a further improvement in the primary balance, notwithstanding a temporary deterioration associated with some large investment projects in FY24/25."
  - Debt Service Suspension Initiative assumptions:
    - "External debt service of US$4 million and US$121 is assumed to be rescheduled from FY2020/21 to the period between FY2022/23 and FY2026/27, and from FY2021/22 to the period between FY2023/24 and FY2027/28, respectively, under the Debt Service Suspension Initiative."
  - Current account: "The import-driven widening of the current account deficit in FY2020/21 will be offset by recovering tourism and remittance receipts from FY2021/22 onward."
  - FDI inflows: "expected to continue to increase, more so than projected under the RCF, largely driven by investments in oil-related projects."
  - Gross official reserves: "expected to gradually rise over the medium term, on the back of an increase in FDI, the recovery of tourism, and the start of oil production."
  - Financing mix: "Under the program, the limit on the present value of new external and publicly guaranteed external debt aims to both limit the accumulation of debt and prevent a heavy reliance on non-concessional external financing. Over the long term, financing is assumed to shift gradually towards less concessional debt."
- Risks highlighted:
  - "Key risks include a slower-than-expected recovery from COVID-19, an increased frequency of climate disasters, higher current spending jeopardizing the consolidation in expenditures, incomplete implementation of the Domestic Revenue Mobilization Strategy (DRMS), slow execution of investment projects, further delays, beyond 2025, in oil exports coming on stream, a shift in the composition of financing towards non-concessional loans, and a potential decline in the capacity and appetite of commercial banks to provide financing."

*Source: IMF and IDA staff report content as provided in the PDF chapter.*

### 6.      The realism tool outputs compared the projections to cross-country experiences and to

### 6.      The realism tool outputs compared the projections to cross-country experiences and to

### Key findings from projections and comparisons
- Small differences between past and projected debt creating flows; contributions of past debt creating flows remain relatively the same for the projection period.
- Unexpected changes in public debt are near the median of the distribution across low-income countries.
- Smaller increase in average total public debt over the five-year projection horizon is accounted for by the unwinding of crisis measures and the fiscal consolidation under the ECF arrangement.
- Investment is expected to increase, with private investment offsetting a temporary decline in public investment.
- Relative to the last DSA, private investment has been revised upward, primarily due to higher estimated investments in the oil sector.
- The improvement in the primary balance over the next 3-years is in the top quartile of the distribution, reflecting:
  - cyclical improvement in tax revenues,
  - unwinding of temporary crisis measures,
  - adjustment following the fiscal policy response to COVID-19, including the implementation of the DRMS.
- Growth is expected to accelerate during the same period given recovery from the COVID-19 shock, supported by recovery in international demand, private investments, and improved spending efficiency (including stronger public investment management).

### Country classification and composite indicator
- Uganda’s debt-carrying capacity is classified as medium, a downgrade from strong.
- The composite indicator (CI) score is 2.95.
- CI lies between thresholds of 2.69 and 3.05 corresponding to medium and strong capacity, respectively.
- Downgrade from “strong” is mostly driven by lower global growth, followed by lower reserves and reduced growth in Uganda.
- As a result, the four external indicative thresholds and the total public debt benchmark have been adjusted downward.

### External debt sustainability (baseline and stress)
- Under the baseline, external government debt suggests a sustainable path.
- Solvency and liquidity indicators remain below their indicative thresholds over the projection horizon.
- PV of PPG external debt-to-GDP ratio peaks at 27.5 percent (threshold: 40 percent).
- PV of debt-to-exports ratio reaches 160.8 percent before gradually declining below 150 percent over the medium term (threshold: 180 percent).
- Liquidity indicators:
  - debt service-to-revenue ratio peaks at 15.4 percent (threshold: 18 percent).
  - debt service-to-exports ratio peaks at 14.9 percent in FY29/30 (threshold: 15 percent) — close to a one-off breach.
- Weak export base is a potential vulnerability as debt-to-exports and debt service-to-exports trend upward after the first two years of oil production.
- Stress tests and alternative scenarios indicate a moderate risk of debt distress:
  - PV of PPG debt-to-GDP and debt-service-to-revenue ratios remain under thresholds under most stress tests (except a short-lived breach in 2022/23 for the latter).
  - PV of debt-to-exports and debt service-to-exports breach thresholds under several stress tests.
  - Most extreme shocks for these export-related indicators are export shocks; combined shock and combined contingent liability shock also lead to breaches.

### Public debt sustainability (baseline and stress)
- Total public debt-to-GDP trajectory under the baseline shows a declining path.
- PV of public debt-to-GDP ratio peaks at 43.7 percent in FY2021/22, before declining towards 30 percent by FY2030/31.
- Indicative benchmark for countries with medium debt-carrying capacity: 55 percent.
- Despite nominal public debt-to-GDP rising above 50 percent over the next few years, the trajectory is expected to decline gradually over the medium-and long-run.
- PV of debt-to-revenue ratio and debt service-to-revenue ratio expected to decline over the medium term, supported by DRMS implementation and oil-related revenue inflows from 2024/25 onward.
- Stress tests adding domestic debt:
  - Most extreme stress test for PV of debt-to-GDP is the contingent liability shock.
  - Even under the contingent liability shock, PV of total public debt-to-GDP rises only slightly and temporarily above the benchmark of 55 percent and the Charter of Fiscal Responsibility ceiling of 50 percent of GDP.
  - PV of total public debt-to-revenue ratio rises to slightly below 390 percent under the most extreme contingent liabilities scenario.
  - Debt service-to-revenue peaks at 70 percent under the combined contingent liability shock.

### Conclusions and risks
- Uganda’s risk of external and overall public debt distress is moderate, with limited space to absorb shocks.
- External debt burden indicators and total public debt remain below respective thresholds and benchmark throughout the projection horizon under the program scenario, but stress tests indicate breaches.
- PV of debt-to-GDP and debt service-to-revenue ratios indicate some space to absorb shocks without being downgraded to high risk of debt distress.
- PV of debt-to-exports and debt service-to-exports are close enough to their thresholds that a median shock would lead to a breach.
- Risks to the debt outlook are tilted to the downside. Key risks include:
  - resurgence of domestic and external lockdown measures linked to another wave of COVID-19,
  - uncertainty around execution of public investment projects,
  - any further delay in oil production,
  - increased frequency of natural disasters due to climate change,
  - political pressures for higher current spending,
  - poor prioritization of spending,
  - insufficient implementation of the DRMS,
  - shift in financing composition towards non-concessional loans.
- Upside: faster than expected recovery from the pandemic and higher donor financing would help.

### Policy recommendations to mitigate debt risks
- Implement the DRMS; expected measures include tax policy reforms (rationalization of exemptions) and tax administration reforms to improve compliance.
- Strengthen overall public financial management (PFM), including efforts to avoid arrears:
  - Finalize international audit of domestic arrears (structural benchmark) to define a clear time-bound repayment plan of past arrears by FY23/24.
  - Extend the Treasury Single Account to extra-budgetary units and externally funded projects.
  - Update cashflow forecasts monthly as per international good practice.
- Improve spending efficiency and public investment management:
  - Use medium-term fiscal envelope forecasts for better project prioritization and capital expenditure budgeting.
  - Publish and adhere to clearly defined selection criteria to avoid adding unplanned projects to the budget.
  - Exercise rigorous public investment portfolio oversight.
- Strengthen debt management consistent with the medium-term debt strategy to meet financing needs at the lowest possible cost over the medium to long run, with prudent risk-taking; improve communication and coordination across government agencies on new borrowing plans.
- Improve debt transparency further, including more data on state-owned enterprise debt and better communication.
- Closely monitor contingent liabilities:
  - Estimate, disclose, manage, and contain contingent liabilities, especially in the financial sector, state-owned enterprises (including potential inclusion in government finance statistics), and PPPs.
- Enhance governance frameworks to safeguard quality and effectiveness of public investment and other government spending; avoid premature reliance on uncertain future oil-related flows; maintain sound asset-liability management.

*Source: IMF staff projections.*

### 15.      The authorities agreed with the assessment of the risk of debt distress. They also emphasized

### 1ugaea2021001 - 15.      The authorities agreed with the assessment of the risk of debt distress. They also emphasized

### Authorities' assessment and strategy
- The authorities agreed with the assessment of the risk of debt distress.
- The authorities emphasized the importance of reducing public debt to below 50 percent of GDP over the medium term through:
  - Implementation of the DRMS.
  - Unwinding of crisis measures introduced in response to COVID-19.

### External Debt Sustainability — Baseline projections (Table 1 key figures)
- External debt (nominal) (in percent of GDP):
  - 2017/18: 38.3
  - 2018/19: 38.4
  - 2019/20: 42.9
  - 2020/21: 48.2
  - 2021/22: 51.5
  - 2022/23: 52.0
  - 2023/24: 52.7
  - 2024/25: 51.1
  - 2025/26: 49.2
  - 2030/31: 47.8
- PPG external debt (in percent of GDP):
  - 2017/18: 24.4
  - 2018/19: 24.1
  - 2019/20: 28.6
  - 2020/21: 33.7
  - 2021/22: 36.9
  - 2022/23: 37.5
  - 2023/24: 38.2
  - 2024/25: 36.8
  - 2025/26: 35.4
  - 2030/31: 34.8
- Change in external debt (percent of GDP):
  - 2017/18: 2.6
  - 2018/19: 0.1
  - 2019/20: 4.5
  - 2020/21: 5.3
  - 2021/22: 3.3
  - 2022/23: 0.5
  - 2023/24: 0.7
  - 2024/25: -1.5
  - 2025/26: -1.9
  - 2030/31: -0.8
- Identified net debt-creating flows (percent of GDP):
  - 2017/18: 0.1
  - 2018/19: 0.6
  - 2019/20: 1.1
  - 2020/21: 5.8
  - 2021/22: 3.9
  - 2022/23: 0.3
  - 2023/24: 0.2
  - 2024/25: 0.1
  - 2025/26: -0.5
  - 2030/31: 1.3
- Non-interest current account deficit (percent of GDP):
  - 2017/18: 4.5
  - 2018/19: 6.0
  - 2019/20: 5.1
  - 2020/21: 8.3
  - 2021/22: 7.3
  - 2022/23: 7.6
  - 2023/24: 10.4
  - 2024/25: 12.3
  - 2025/26: 9.2
  - 2030/31: 7.8
- Exports and imports (percent of GDP):
  - Exports 2020/21: 15.4; 2021/22: 17.2; 2022/23: 17.2; 2023/24: 17.3; 2024/25: 16.8; 2025/26: 16.9; 2030/31: 14.7
  - Imports 2020/21: 19.3; 2021/22: 20.0; 2022/23: 20.7; 2023/24: 23.5; 2024/25: 24.4; 2025/26: 21.8; 2030/31: 16.8
- Net FDI (negative = inflow) (percent of GDP):
  - 2017/18: -2.8
  - 2018/19: -3.4
  - 2019/20: -2.6
  - 2020/21: -2.0
  - 2021/22: -2.3
  - 2022/23: -5.3
  - 2023/24: -7.8
  - 2024/25: -9.7
  - 2025/26: -9.2
  - 2030/31: -5.5
- PV of PPG external debt-to-GDP ratio (selected years):
  - 2021/22: 24.3
  - 2022/23: 26.7
  - 2023/24: 27.0
  - 2024/25: 27.5
  - 2025/26: 27.0
  - 2030/31: 22.8
- PV of PPG external debt-to-exports ratio (selected years):
  - 2021/22: 140.6
  - 2022/23: 157.7
  - 2023/24: 155.1
  - 2024/25: 157.2
  - 2025/26: 158.4
  - 2030/31: 155.8
- PPG debt service-to-exports ratio (selected years):
  - 2020/21: 8.2
  - 2021/22: 12.3
  - 2022/23: 10.5
  - 2023/24: 12.9
  - 2024/25: 12.3
  - 2030/31: 13.9
- Gross external financing need (Million of U.S. dollars) (selected years):
  - 2017/18: 1,769
  - 2018/19: 2,523
  - 2019/20: 2,818
  - 2020/21: 4,785
  - 2021/22: 4,510
  - 2022/23: 3,686
  - 2023/24: 4,159
  - 2024/25: 4,380
  - 2025/26: 4,479
  - 2030/31: 7,309
- Key macro assumptions (selected):
  - Real GDP growth (in percent): 2017/18: 6.3; 2018/19: 6.4; 2019/20: 3.0; 2020/21: 3.3; 2021/22: 4.3; 2022/23: 6.4; 2023/24: 7.0; 2024/25: 7.2; 2025/26: 7.0; 2030/31: 5.9
  - Effective interest rate (percent): 2017/18: 2.1; 2018/19: 2.1; 2019/20: 2.0; 2020/21: 2.3; 2021/22: 2.1; 2022/23: 2.1; 2023/24: 2.0; 2024/25: 2.0; 2025/26: 5.8; 2030/31: 2.7
  - Grant element of new public sector borrowing (percent): 2022/23: 26.1; 2023/24: 27.8; 2024/25: 31.6; 2025/26: 31.6; 2026/27: 28.9; 2027/28: 28.7; 2028/29: 28.7; 2030/31: 29.1
  - Government revenues (excluding grants, percent of GDP): 2017/18: 12.0; 2018/19: 12.6; 2019/20: 12.4; 2020/21: 13.1; 2021/22: 13.8; 2022/23: 14.4; 2023/24: 14.9; 2024/25: 15.5; 2025/26: 17.1; 2030/31: 17.5
- Nominal GDP (Million of US dollars) (selected years):
  - 2017/18: 32,912
  - 2018/19: 35,432
  - 2019/20: 37,600
  - 2020/21: 39,052
  - 2021/22: 41,197
  - 2022/23: 44,266
  - 2023/24: 47,887
  - 2024/25: 52,780
  - 2025/26: 59,358
  - 2030/31: 91,715

### Public Sector Debt — Baseline projections (Table 2 key figures)
- Public sector debt (percent of GDP):
  - 2017/18: 34.8
  - 2018/19: 35.2
  - 2019/20: 40.8
  - 2020/21: 50.2
  - 2021/22: 53.5
  - 2022/23: 53.0
  - 2023/24: 52.0
  - 2024/25: 50.2
  - 2025/26: 47.4
  - 2030/31: 47.2
- Change in public sector debt (percent of GDP):
  - 2017/18: 3.5
  - 2018/19: 0.4
  - 2019/20: 5.7
  - 2020/21: 9.4
  - 2021/22: 3.3
  - 2022/23: -0.5
  - 2023/24: -1.0
  - 2024/25: -1.7
  - 2025/26: -2.9
- Identified debt-creating flows (percent of GDP) (selected):
  - Primary deficit: 2017/18: 2.2; 2018/19: 3.0; 2019/20: 5.0; 2020/21: 7.1; 2021/22: 3.4; 2022/23: 0.9; 2023/24: 0.9; 2024/25: 1.3; 2025/26: 0.4; 2030/31: 1.3
  - Revenue and grants (percent of GDP): 2017/18: 12.7; 2018/19: 13.5; 2019/20: 13.2; 2020/21: 14.6; 2021/22: 14.7; 2022/23: 14.4; 2023/24: 14.9; 2024/25: 15.3; 2025/26: 15.9; 2030/31: 16.5
  - Primary (noninterest) expenditure (percent of GDP): 2017/18: 14.9; 2018/19: 16.5; 2019/20: 18.2; 2020/21: 21.7; 2021/22: 18.1; 2022/23: 15.8; 2023/24: 16.2; 2024/25: 17.2; 2025/26: 17.8; 2030/31: 17.9
- PV of public debt-to-GDP ratio (selected years):
  - 2021/22: 33.2
  - 2022/23: 41.2
  - 2023/24: 43.7
  - 2024/25: 43.0
  - 2025/26: 41.7
  - 2030/31: 30.0
- PV of public debt-to-revenue and grants ratio (selected years):
  - 2021/22: 251.6
  - 2022/23: 282.0
  - 2023/24: 296.8
  - 2024/25: 288.8
  - 2025/26: 272.6
  - 2030/31: 169.4
- Debt service-to-revenue and grants ratio (selected years):
  - 2021/22: 59.3
  - 2022/23: 49.0
  - 2023/24: 46.1
  - 2024/25: 55.7
  - 2025/26: 55.9
  - 2030/31: 24.1
- Gross financing need (percent of GDP) (selected years):
  - 2020/21: 11.1
  - 2021/22: 16.2
  - 2022/23: 11.6
  - 2023/24: 8.6
  - 2024/25: 7.1
  - 2030/31: 5.0
- Key macro and fiscal assumptions (selected):
  - Real GDP growth (in percent): see External Debt section.
  - Average nominal interest rate on external debt (in percent): 2017/18: 2.0; 2018/19: 1.9; 2019/20: 1.8; 2020/21: 2.8; 2021/22: 2.7; 2022/23: 2.5; 2023/24: 2.5; 2024/25: 2.3; 2025/26: 2.1; 2030/31: 2.2
  - Inflation rate (GDP deflator, in percent): 2017/18: 4.4; 2018/19: 3.0; 2019/20: 2.7; 2020/21: 2.8; 2021/22: 4.8; 2022/23: 4.6; 2023/24: 4.6; 2024/25: 4.6; 2025/26: 4.9; 2030/31: 4.3
  - Primary deficit that stabilizes the debt-to-GDP ratio (percent of GDP) (selected years): 2017/18: -1.3; 2018/19: 2.6; 2019/20: -0.6; 2020/21: -2.3; 2021/22: 0.0; 2022/23: 1.4; 2023/24: 1.9; 2024/25: 3.0; 2025/26: 3.3; 2030/31: 1.5

### Sensitivity Analysis and Stress Tests (Tables 3 and 4; Figures)
- Baseline PV of PPG external debt-to-GDP ratio (selected):
  - 2020/21: 24.3
  - 2021/22: 26.7
  - 2022/23: 27.0
  - 2023/24: 27.5
  - 2024/25: 27.0
  - 2030/31: 22.8
- Bound tests and tailored tests show impacts on PV of debt-to-GDP, PV debt-to-exports, debt service ratios under shocks including:
  - B1. Real GDP growth shock.
  - B2. Primary balance shock.
  - B3. Exports shock.
  - B4. Other flows (official and private transfers and FDI).
  - B6. One-time 30 percent nominal depreciation.
  - C1. Combined contingent liabilities.
- Selected stress-test outcomes (examples from Table 3):
  - B6. One-time 30 percent nominal depreciation raises PV of PPG external debt-to-GDP to 33.5 in 2021/22 (from baseline 26.7).
  - C1. Combined contingent liabilities raise PV of PPG external debt-to-GDP to 33.8 in 2021/22.
- Thresholds used in tests:
  - PV of debt-to-exports ratio threshold: 180 (percent).
  - Debt service-to-exports ratio threshold: 40 (percent).
  - Debt service-to-revenue ratio threshold: 40 (percent).
  - PV of debt-to-GDP threshold: 40 (percent) for external DSA; public DSA uses a 55/60/60 benchmark structure (figures reported in tables and figures).
- Public debt sensitivity (Table 4 selected):
  - Baseline public debt (percent of GDP): 2020/21: 41.2; 2021/22: 43.7; 2022/23: 43.0; 2023/24: 41.7; 2024/25: 40.4; 2025/26: 38.0; 2030/31: 30.0
  - Public debt benchmark cited: 55 (percent) across projection years shown.
  - Tailored test C1 (Combined contingent liabilities) raises PV of debt-to-revenue ratio and Debt Service-to-Revenue ratio substantially (figures shown in tables and figures).
- Figures summarize:
  - Drivers of debt dynamics highlighting contributions from primary deficit, real interest rate, real GDP growth, price and exchange rate changes, and other debt-creating flows.
  - Realism tools illustrate fiscal adjustment paths, possible growth paths under different fiscal multipliers, and contributions of government and private investment to GDP growth.

*Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1ugaea2021001.pdf*

### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the

### 1ugaea2021001 - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the

### COVID-19 developments and containment measures
- COVID-19 positivity rate increased to 10 percent at end-May and rose to 17.5 percent (June).
- Vaccination coverage: 2 percent of the population vaccinated; 900,000 doses administered.
- President Museveni extended a partial lockdown on June 18 to a full lockdown for 42 days (announced June 18).
- June 23, 2021 containment measures (selected):
  - Mobility restrictions: only vehicles of registered tourists/emergency/security/essential workers allowed to move; cargo truck drivers tested at land-border crossings; non-cargo cross-border movement suspended except licensed tourist vehicles; food market vendors and factory workers stay overnight; curfew extended to 7 pm - 5:30 am.
  - Closures: all schools and educational institutions; places of worship, bars, sports and other mass events; Kikuubo and other business centers; burials restricted to the core family.
  - Fully functioning sectors: Agriculture, industry, manufacturing, tourism, medical services, security, utilities, cargo transport, and goods distribution.

### Health system, vaccines, and audit findings
- Hospitals reporting shortages of oxygen and capacity.
- COVID-19-related expenditure audit for first three quarters of FY20/21 covered Ush 2.4 trillion (1.6 percent of GDP); donor financing represents 75 percent of that amount.
- Audit preliminary findings: some funds not used on time (including those channeled through Uganda Development Bank); some funds used for unintended purposes; part of acquired health equipment remained uninstalled due to lack of appropriate hospital infrastructure.
- Vaccine receipts and plans:
  - Reported received doses: 1.1 million vaccine doses for a population of 45 million (one dose for 2.4% of population or two doses for 1.2% of population).
  - National vaccine deployment plan aims to vaccinate 49.6 percent of the total population.
  - Budget support allocated for vaccines: US$139 million in FY2020/21 and US$122 million in FY 2021/22.

### Economic impact and outlook
- Infections: daily infection rates rose 17-fold to over 1700 in June (compared to less than 100 last month).
- Deaths so far are 8 percent of those infected.
- FY2020/21 and growth:
  - FY 2020/21 real GDP estimated by Uganda Bureau of Statistics to have grown by 3.3 percent (owing mainly to strong household consumption).
  - GDP expected to grow by around 3-4 percent in 2021/22.
  - Medium-term growth expected around 6-7 percent as international demand and private investment recover.
- Inflation:
  - Headline and core inflation fell to around 4 percent and 5 percent respectively in April 2021, from peaks of 4.5 percent and 6.3 percent in October 2020.
  - Newly rebased measures used in program: headline inflation at 1.9 percent and core inflation at 3.1 percent in May 2021.
  - Core inflation is expected to remain within the 5 percent target for the duration of the program.
- External accounts and reserves:
  - Current account deficit: from 5.9 percent of GDP in FY19/20 to an estimated 9.2 percent of GDP in FY20/21.
  - International reserves: declined from 4.4 months import cover in FY19/20 to 4.0 months in FY20/21 (below the EAC target of 4.5 months).
  - Remittances and tourism receipts remain subdued.

### Monetary policy and central bank actions
- Bank of Uganda (BoU) monetary policy:
  - June 16 MPC cut policy rate by 50 basis points to 6.5 percent (lowest historical level under the inflation targeting framework).
  - April and June 2020 cumulative Central Bank Rate reduction: 200 basis points.
- Staff supports an accommodative monetary stance given downside risks to inflation from the lockdown, negative output gap, and economic uncertainties.
- BoU actions and intentions:
  - Continue accommodative stance and maintain price stability in line with the 5 percent core inflation target.
  - Fine-tune liquidity forecasting and use liquidity management tools such as repos and FX swaps.
  - Limit direct financing of fiscal operations in line with program requirements.
  - Following July 2020 recapitalization, authorities intend to further recapitalize BoU and strengthen safeguards for institutional autonomy.
  - Cabinet expected to approve amended central bank law in December 2021.
- Exchange rate policy: authorities committed to exchange rate flexibility and limit FX interventions to smoothing excess volatility.

### Fiscal policy, revenue, and public debt
- ECF program objectives:
  - Support recovery from COVID-19 and accelerate inclusive growth and sustainable development aligned with NDP III.
  - Maintain public debt on a sustainable path while improving spending composition and providing space for private investment.
- Domestic revenue mobilization strategy:
  - Adopted and implemented starting FY21/22.
  - Expected to add at least 0.5 percent of GDP in revenue a year in the medium term, with even higher revenue gains in FY21/22.
  - Measures include removal of some exemptions, increases in excise duties on fuel, collection of arrears, broadening tax base, and enhancing tax audits and investigations.
- Spending priorities and targets:
  - Medium-term shift to higher share for education, health and social development; roll back security spending to normal levels.
  - Authorities will target debt levels of 50 percent of GDP (codified in the authorities’ Charter of Fiscal Responsibility).
- Near-term fiscal stance: contain widening fiscal deficits with pro-poor fiscal consolidation; use ECF to help close financing gap and free up resources for priority social spending.
- Contingency measures identified include reprioritizing non-essential capital projects to address revenue shortfalls and higher health spending.

### Financial sector and supervisory measures
- Financial system: remains liquid and well-capitalized; stress tests show banks resilient to capital risk.
- Regulatory measures:
  - 2020 Financial Institutions Regulations introduced capital buffers; Domestic Systemically Important Banks encouraged to hold additional capital.
  - Measures to ensure adherence to loan classification and provisioning rules, prudential and accounting requirements.
  - Plans to transition to Basel II and III, strengthen bank supervision, enhance resolution framework, modernize financial market infrastructure, and guard against cyber risks.
- Additional measures: dividend and bonus payment deferment by all Supervised Financial Institutions (SFIs); liquidity support and purchases of Treasury Bonds held by microfinance deposit taking and credit institutions to ease liquidity pressures; SFIs could restructure loans as needed.
- AML/CFT: plan to strengthen framework and work with FATF towards full implementation of grey list action plan; adoption of the National AML/CFT Strategy.

### Structural reforms, governance, and anticorruption
- Structural reform agenda aims to strengthen governance, foster private sector activity, and enhance human capital.
- Transparency and accountability actions taken:
  - Published independent audit report on expenditure arrears and the first annual tax expenditure statement for FY2019/20.
  - Created a system for tracking COVID-19 spending with Fund technical assistance.
  - Published a comprehensive COVID-19 spending report for FY2019/20, a list of procurement contracts, and conducted/published an independent audit of COVID-19 spending.
  - Committed to improve asset declaration regime during the program.
- Anti-corruption commitments:
  - Prioritizing implementation and enforcement of anti-corruption legal framework.
  - Joined Extractive Industries Transparency Initiative (EITI) and committed to disclose contracts and licenses for oil and gas production and beneficial owners of corporate entities that hold legal interests.
  - Plan to establish legal and regulatory mechanisms for timely access to accurate beneficial ownership information.
- Pro-business reforms: reduce legal and administrative impediments to doing business; increase the value of manufactured exports in total exports; improve access to electricity for processing and manufacturing; and improve ICT access, quality and coverage.

### Program request, governance commitment, and concluding authorities’ statement
- Authorities seek Directors’ support for an arrangement amounting to SDR722 million under the Extended Credit Facility (ECF).
- ECF expected to catalyze additional donor support for vaccination and pandemic response, buttress reforms for inclusive growth and sustainable development, and back measures to bolster governance, transparency and accountability.
- Authorities emphasize reform track record and commitment to prior actions and appropriate policies to meet program goals.
- Immediate priority: secure vaccines and ensure rapid rollout; authorities stress access to vaccines is critical given new variants and rapid escalation in infections.
- Authorities’ medium- and long-term vision: maintain macroeconomic stability, support sustainable growth and inclusive recovery, and transition to higher middle-income status by 2040.

*Sources: Country authorities; and staff estimates and projections.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1ugaea2021001.pdf_