## 1ugaea2022001

## Source details

**Canonical URL:** [1ugaea2022001](https://www.imf.org/-/media/files/publications/cr/2022/english/1ugaea2022001.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2022/english/1ugaea2022001.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2022/english/1ugaea2022001.pdf.json)

---

### Executive summary and program status
- IMF Executive Board approved a 36-month arrangement under the Extended Credit Facility (ECF) in an amount equivalent to 200 percent of quota.
- Program objectives: support recovery from the COVID-19 crisis, boost growth potential, and contribute to the SDGs.
- Program performance:
  - Broadly satisfactory.
  - All end-September QPC and ITs were met except the IT on tax revenues.
  - All quantitative performance criteria were met.
  - All but three structural benchmarks for 2021 were completed; the three incomplete SBs (beneficial ownership registry; upgrade of the national social registry; introduction of a sanction regime for unauthorized spending) were reset for end-June 2022.
- Authorities’ requests:
  - Modify QPCs for March 2022 on the primary balance to reflect the slowdown and fiscal response to the second COVID-19 wave.
  - Modify QPCs on net claims on the government by the central bank to reflect tighter financing conditions.
  - Modify PV ceiling of new external borrowing because of delays.
  - Higher net international reserves target to demonstrate commitment given riskier external financing composition.
- Main risks: further COVID-19 waves and rising security challenges; moderate public debt and access to concessional financing provide some space.

### Recent economic developments and social impact
- Growth and activity:
  - Real GDP Growth (%) by fiscal year: 2019/20 Act. 2.9; 2020/21 Act. 3.4; 2021/22 Proj. 3.8; 2022/23 Proj. 6.0.
  - FY20/21 growth 3.4 percent, about half pre-COVID level; partial lockdown June–July 2021 slowed recovery.
- Social and education impact:
  - Schools closed for 83 weeks between March 2020 and January 2022.
  - Near-term funding gap for public schools estimated at USh 162 billion (presented as Total 161.7 UShs. bn in breakdown).
  - Education fiscal items (UShs. bn): Promotion of Community-Led Learning (CLL) 78.7; Revision of the school curriculum 2.4; Review of assessment systems 2.0; Re-orientation of tutors and lecturers 3.4; Strengthening COVID-19 surveillance system in schools 72.2; Promotion of safe learning 3.0; Total 161.7.
  - June 2021 social indicators: poverty ratio worsened, formal employment fell, subsistence agriculture increased, private savings declined, child labor rose, schools remained closed.

### Fiscal stance, debt, and public finance indicators
- Key central government fiscal indicators (percent of GDP):
  - Revenue (% GDP): 2019/20 Act. 13.2; 2020/21 Act. 14.4; 2021/22 Proj. 14.8; 2022/23 Proj. 14.6.
  - Expenditure (% GDP): 2019/20 Act. 20.3; 2020/21 Act. 23.7; 2021/22 Proj. 22.2; 2022/23 Proj. 19.3.
  - Primary Balance (% GDP): 2019/20 Act. -5.0; 2020/21 Act. -6.7; 2021/22 Proj. -4.4; 2022/23 Proj. -1.8.
  - Fiscal Balance (% GDP): 2019/20 Act. -7.1; 2020/21 Act. -9.4; 2021/22 Proj. -7.5; 2022/23 Proj. -4.7.
  - Public Debt (% GDP): 2019/20 Act. 41.9; 2020/21 Act. 49.1; 2021/22 Proj. 52.9; 2022/23 Proj. 53.1.
- FY20/21 fiscal results (percent of GDP, ECF Request vs Actual):
  - Total revenue and grants: 14.6 (ECF) and 14.4 (Actual).
  - Revenue: 13.1 (ECF) and 13.4 (Actual).
  - Tax: 12.1 (ECF) and 12.4 (Actual).
  - Expenditures and net lending: 24.5 (ECF) and 23.7 (Actual).
  - Overall balance: -9.9 (ECF) and -9.4 (Actual).
  - Financing: 9.9 (ECF) and 9.0 (Actual).
  - Domestic financing (net): 4.1 (ECF) and 4.6 (Actual).
  - Debt: 50.2 (ECF) and 49.1 (Actual) percent of GDP.
- Policy direction and recommendations:
  - Return to programmed fiscal consolidation to keep debt sustainable and create space for private sector credit.
  - Enhance domestic revenue mobilization, rationalize non-priority spending, shift spending towards priority social areas.
  - Improve budget preparation (fewer supplementary budgets), strengthen cash and arrears management.
  - Create fiscal space for priority social areas and security needs approved in the supplementary budget.
- Program adjustments:
  - FY21/22 slight relaxation of fiscal deficit necessary to mitigate second wave and higher security tensions; agreed deficit target kept at 7.5 percent of GDP (one percent of GDP higher than at ECF approval).

### Monetary, external, and financial sector stance
- Monetary and credit indicators:
  - Broad Money (% change): 2019/20 Act. 23.2; 2020/21 Act. 8.5; 2021/22 Proj. 9.1; 2022/23 Proj. 11.5.
  - Credit to Private Sector (% change): 2019/20 Act. 8.8; 2020/21 Act. 8.3; 2021/22 Proj. 12.0; 2022/23 Proj. 13.5.
  - Policy Rate, EOP (%): 2019/20 Act. 7.0; 2020/21 Act. 6.5; 2021/22 Proj. 6.5.
- Inflation and exchange:
  - Headline Inflation - average (%): 2019/20 Act. 2.3; 2020/21 Act. 2.5; 2021/22 Proj. 3.5; 2022/23 Proj. 4.6.
  - Core Inflation - average (%): 2019/20 Act. 2.2; 2020/21 Act. 3.5; 2021/22 Proj. 3.0; 2022/23 Proj. 4.4.
  - Current Account (% GDP): 2019/20 Act. -6.7; 2020/21 Act. -10.2; 2021/22 Proj. -8.0; 2022/23 Proj. -8.8.
  - Reserves (months of next year's imports): 2019/20 Act. 3.9; 2020/21 Act. 4.2; 2021/22 Proj. 3.8; 2022/23 Proj. 3.3.
  - External Debt (% GDP): 2019/20 Act. 28.6; 2020/21 Act. 31.7; 2021/22 Proj. 34.1; 2022/23 Proj. 34.1.
- Financial sector stability:
  - Banking system well-capitalized; NPLs increased to 5.4 percent of total loans in September 2021.
  - About 40 percent of banking sector loans (around Ush 7.4 trillion) benefited from at least one form of relief/restructuring.
  - Staff guidance: further monetary accommodation as fiscal support is removed, remain data dependent, greater exchange rate flexibility, limit FX interventions to smoothing volatility, accelerate governance and inclusion reforms.

### Projections, outlook, and reserves
- Growth and core projections:
  - Baseline assumes reforms restore pre-pandemic trend of around 6 percent.
  - Growth for FY21/22 expected to average 3.8 percent.
  - Selected Real GDP growth sequence (Text Table): 6.3, 6.4, 2.9, 3.4, 3.8, 6.0, 6.5, 6.7, 7.1, 7.0.
  - Core inflation path (percent): 2.7, 3.4, 2.2, 3.5, 3.0, 4.4, 5.0, 5.0, 5.0, 5.0.
  - Public debt (percent of GDP) projected path: 34.8, 35.6, 41.9, 49.1, 52.9, 53.1, 52.1, 50.8, 48.8, 45.6.
- Reserves and external capacity:
  - Gross international reserves (US$ billions): 3.5, 3.6, 3.5, 3.9, 4.4, 4.8, 4.8, 6.4, 8.1, 9.2 (selected years).
  - IMF repurchases and charges peak at 2.2 percent of exports of goods and services and 8.4 percent of reserves in 2029.
  - Staff view: maintain reserve cover at 4 months of imports during program, increase to 4.5 months once oil production starts.

### Social assistance and program beneficiaries
- Named programs and coverage/status:
  - Northern Uganda Social Action Fund (NUSAF): 3,000,000 beneficiaries; negotiations ongoing with World Bank.
  - Urban Labor - Intensive Public Works Program: 637,000 beneficiaries; targeted launch date 2022.
  - Senior Citizen Grant (SAGE) expansion: 350,000 beneficiaries; arrears USh36.7 billion accumulated in FY20/21.
  - Emyooga: 3,814,200 beneficiaries; financed with USh100 billion seed capital; implemented by Microfinance Support Center Ltd.

### Tax measures, spending cuts, and financing adjustments (FY21/22)
- Tax and DRM measures (selected USh/bn and percent of GDP as presented):
  - Total measures: 1,255 (Billions of USh) and 0.8 (Percent of GDP) / 1,118 and 0.7 (Percent of GDP).
  - Tax policy items include: Increase excise duty on petrol and diesel 193 (Billions of USh) 0.1 (Percent of GDP); Harmonised excise on airtime/data 600 (Billions of USh) 0.0 (Percent of GDP); Reduce depreciation rates for automobiles 300 (Billions of USh) 0.0 (Percent of GDP); Export levy on refined gold 300 (Billions of USh) 0.0 (Percent of GDP).
  - Tax administration measures total 795 (Billions of USh) 0.5 (Percent of GDP).
- Spending cuts and financing composition:
  - Total spending cuts across budgetary votes: 2,175 (Billions of USh) 1.3 (Percent of GDP).
    - Workshops and travel: 203 (Billions of USh) 0.1 (Percent of GDP).
    - Rehabilitation of Malaba-Kampala Railway Line: 155 (Billions of USh) 0.1 (Percent of GDP).
    - Kiira Motors funding: 71 (Billions of USh) 0.0 (Percent of GDP).
    - Renovation of National Stadium: 34 (Billions of USh) 0.0 (Percent of GDP).
  - Lower execution of externally financed capital expenditures: 673 (Billions of USh) 0.4 (Percent of GDP).
  - Total (other table): 3,608 (Billions of USh) 2.2 (Percent of GDP).
- Use of SDRs:
  - Authorities decided to use half the SDR allocation (about $250 million) to finance FY21/22 deficit; prioritized for education, health and water and sanitation projects; detailed spending plan and quarterly monitoring report finalized.

### Debt sustainability, realism, and oil preparation
- DSA and realism tool findings:
  - Risk of debt distress: moderate.
  - Under baseline, public debt-to-GDP peaks near 53.1 percent in FY22/23 and converges below 50 percent by FY25/26.
  - Reform scenario (IMF DIGNAR-19 model) components:
    1. Raise private investment from 16.9 percent of GDP to 19.4 percent of GDP over five years.
    2. Public investment efficiency increases from 42 percent to 58 percent.
    3. Government spending composition: unproductive expenditures decrease by 0.8 percentage points of GDP per year; productive expenditures increase by 0.7 percentage points of GDP per year.
    4. Tax collection efficiency raises government revenues by 0.5 percent of GDP per year.
  - Simulated impact: combined effect yields medium-term increase in non-oil real GDP growth of 1.8 percentage points; combined effects lift non-oil growth potential to almost 6.5 percent in the medium term.
  - Under reform scenario Uganda reaches Middle-Income Status by FY2026/27; income per capita rises from US$812 in FY20/21 to US$1180 in FY26/27.
  - No reform scenario delays Middle-Income Status by three fiscal years.
- Oil sector preparations and fiscal implications:
  - Some oil-related infrastructure costs must be budgeted upfront; government unable to negotiate IOCl-financed infrastructure in exchange for oil proceeds.
  - Fiscal anchor: aim to return debt below 50 percent of GDP; halving fiscal deficit by FY23/24 front-loaded with higher deficits in FY21/22 and FY22/23 to accommodate oil preparation capital expenditures.
  - Recommend focusing on non-oil primary balance as operational fiscal target when oil production starts.

### Structural benchmarks, governance, AML/CFT, and PFM reforms
- PFM reforms (four pillars):
  - Improve budget preparation: submit all foreseeable expenditures; limit supplementary budgets to “unabsorbable, unforeseen, and unavoidable”.
  - Strengthen cash management: extend TSA to ten extra-budgetary entities; monthly cash flow forecasting; aggregate borrowing plan.
  - Clearance/prevention of domestic arrears: increased provisions for arrears clearance; quarterly reporting on unpaid invoices; elevate sanctions for unauthorized spending.
  - Improve budget transparency: publish fiscal risks and medium-term fiscal framework in line with GFSM2014 by May 2022 (SB).
- Governance and AML/CFT:
  - Publish beneficial ownership information for COVID-19 procurement contracts and expand to all procurement.
  - Strengthen asset declaration regime and judicial integrity; IGG reforms and Leadership Code Tribunal operationalized.
  - AML/CFT: accelerate National AML/CFT Strategy and FATF “grey list” action plan; establish centralized registry of beneficial ownership (June 2022 SB); strengthen BoU AML/CFT supervisory capacity (October 2022 SB).
- Audit findings on COVID-19 expenditures:
  - About Ush 2.4 trillion dedicated to COVID-19 interventions; mix of uses included reserves support (Ush 700 billion), UDB recapitalization (Ush 500 billion), MSC on-lending (Ush 260 billion), Ministry of Health Ush 250 billion for vaccines and medical supplies.
  - Auditor General recommendations: better communication of intentions before disbursement; ensure approved funds disbursed; timely settling of arrears; detail outputs and planned activities.

### Risk Assessment Matrix (RAM) — key risks and policy responses
- High short-term risks:
  - Outbreaks of lethal COVID-19 variants — Policy response: prioritize vaccination, strengthen social safety net, extend fiscal/monetary support, credible medium-term fiscal path.
  - Intensification of security risks — Policy response: reprioritize fiscal spending within security envelope, maintain macro stability, strengthen AML/CFT, international intelligence cooperation.
  - Delayed implementation of social support measures — Policy response: improve public spending quality, strengthen social safety net.
  - Lack of commitment to fiscal reforms — Policy response: improve public spending quality, define operational debt ceiling, binding expenditure envelope.
- Medium-term risks:
  - Natural disasters/climate shocks — Policy response: build fiscal and external buffers, scale adaptation infrastructure.
  - Tighter global financial conditions and external shocks — Policy response: ease monetary policy if appropriate, maintain FX reserves and capital buffers, credible fiscal path.

### Program monitoring, conditionality, and reporting requirements
- QPCs and ITs include floors on primary budget balance and NIR, ceilings on net claims on government by BoU, ceilings on external arrears and PV of new external public debt, and consultation mechanism on core CPI bands.
- Reporting requirements and data submissions:
  - BoU: weekly to quarterly submissions on FX operations, reserves, MFS, balance sheets, and program performance (various reporting lags specified).
  - MoFPED: monthly, quarterly, semi-annual submissions on central government accounts, arrears, external debt, contingent liabilities, guarantees, donor disbursements, privatization receipts, and updated national accounts.
- Adjustors:
  - NIR and primary balance floors adjusted for budget support, BoU recapitalization, externally financed projects, DSSI relief, and SDRs per Schedules A–D.
- Continuous monitoring: authorities to report any new external arrears and new external loans contracted or guaranteed immediately to IMF staff.

_International Monetary Fund — Uganda: Staff Report for the 2021 Article IV Consultation and First Review under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria (February 23, 2022)._

### 6.5 percent) to accommodate new demands on security and social sectors approved in the

### 1ugaea2022001 - 6.5 percent) to accommodate new demands on security and social sectors approved in the

### Executive summary and program status
- Context and program scope:
  - The IMF’s Executive Board approved a 36-month arrangement under the Extended Credit Facility (ECF) in an amount equivalent to 200 percent of quota.
  - Full implementation of the ECF-supported program aims to support recovery from the COVID-19 crisis and boost growth potential, contributing to the SDGs over the long run.
- Program performance:
  - Program performance has been broadly satisfactory despite a challenging environment.
  - All end-September QPC and ITs were met, with the exception of the IT on tax revenues.
  - All quantitative performance criteria were met, and all but three structural benchmarks for 2021 were completed.
  - The benchmarks not completed (beneficial ownership registry, upgrade of the national social registry, introduction of a sanction regime for unauthorized spending) were reset for end-June 2022 to allow for inter-agency consultations and legislative and technical requirements.
- Requests by authorities:
  - Modification of the QPCs for March 2022 on the primary balance to reflect the slowdown of the economy and the fiscal response to the second wave of the pandemic.
  - Modification of QPCs on net claims on the government by the central bank to reflect tighter financing conditions and higher financing need.
  - Modification on the PV of new external borrowing because of delays in some loans.
  - Higher net international reserves to demonstrate continued commitment to maintaining an adequate external buffer given a riskier composition of external financing.
- Main risks:
  - Further waves of COVID-19 and rising security challenges.
  - Uganda’s moderate level of public debt and continued access to concessional financing provide space to still achieve program objectives.

### Recent economic developments and social impact
- Growth and activity:
  - Real GDP Growth (%) by fiscal year: 2019/20 Act. 2.9; 2020/21 Act. 3.4; 2021/22 Proj. 3.8; 2022/23 Proj. 6.0.
  - Economic activity is gradually recovering: growth in FY20/21 was 3.4 percent, about half its pre-COVID level.
  - The partial lockdown of June-July 2021 initially slowed the recovery; momentum was gaining as leading indicators showed strengthening activity, including employment rising for the first time in six months.
- Social scarring and education:
  - The social impact of the pandemic is profound, with deep scars on human capital potentially persisting over the medium term.
  - Box 1: Between March 2020 and January 2022, schools were closed for 83 weeks, the longest period in the world.
  - As of December 2021, the near-term funding gap for public schools is estimated at USh 162 billion (presented as Total 161.7 UShs. bn in the breakdown).
  - Noted social indicators: by June 2021, poverty ratio worsened, formal employment fell, subsistence agriculture increased, private savings declined, child labor rose, and schools remained closed.
  - Specific education-focused fiscal items (UShs. bn): Promotion of Community-Led Learning (CLL) 78.7; Revision of the school curriculum 2.4; Review of the current formative and summative assessment systems 2.0; Re-orientation of tutors and lecturers 3.4; Strengthening COVID-19 surveillance system in schools 72.2; Promotion of safe learning 3.0; Total 161.7.

### Fiscal, debt, and public finance indicators and policy direction
- Key central government fiscal indicators (percent of GDP):
  - Revenue (% GDP): 2019/20 Act. 13.2; 2020/21 Act. 14.4; 2021/22 Proj. 14.8; 2022/23 Proj. 14.6.
  - Expenditure (% GDP): 2019/20 Act. 20.3; 2020/21 Act. 23.7; 2021/22 Proj. 22.2; 2022/23 Proj. 19.3.
  - Primary Balance (% GDP): 2019/20 Act. -5.0; 2020/21 Act. -6.7; 2021/22 Proj. -4.4; 2022/23 Proj. -1.8.
  - Fiscal Balance (% GDP): 2019/20 Act. -7.1; 2020/21 Act. -9.4; 2021/22 Proj. -7.5; 2022/23 Proj. -4.7.
  - Public Debt (% GDP): 2019/20 Act. 41.9; 2020/21 Act. 49.1; 2021/22 Proj. 52.9; 2022/23 Proj. 53.1.
- Policy direction and recommendations (summary of Executive Board Acting Chair Mr. Bo Li’s statement):
  - Returning to the programmed fiscal consolidation path remains essential to keep debt sustainable while creating more space for private sector credit.
  - Enhanced domestic revenue mobilization, rationalization of non-priority spending, and shifting the composition of spending towards priority social areas will help achieve fiscal objectives and address Uganda’s large development needs.
  - Improve budget preparation—including through fewer supplementary budgets—and strengthen cash and arrears management.
  - Allocative emphasis: create fiscal space for priority social areas and security needs approved in the supplementary budget.
- Program adjustments and practical fiscal considerations:
  - The slight relaxation of the fiscal deficit in fiscal year 2021/22 relative to the programmed target was necessary to mitigate the impact of the pandemic’s second wave and address higher security tensions.

### Monetary, external, and financial sector stance
- Monetary and credit indicators:
  - Broad Money (% change): 2019/20 Act. 23.2; 2020/21 Act. 8.5; 2021/22 Proj. 9.1; 2022/23 Proj. 11.5.
  - Credit to Private Sector (% change): 2019/20 Act. 8.8; 2020/21 Act. 8.3; 2021/22 Proj. 12.0; 2022/23 Proj. 13.5.
  - Policy Rate, EOP (%): 2019/20 Act. 7.0; 2020/21 Act. 6.5; 2021/22 Proj. 6.5; 2022/23 Proj. ...
- External sector and reserves:
  - Current Account (% GDP): 2019/20 Act. -6.7; 2020/21 Act. -10.2; 2021/22 Proj. -8.0; 2022/23 Proj. -8.8.
  - Reserves (in months of next year's imports): 2019/20 Act. 3.9; 2020/21 Act. 4.2; 2021/22 Proj. 3.8; 2022/23 Proj. 3.3.
  - External Debt (% GDP): 2019/20 Act. 28.6; 2020/21 Act. 31.7; 2021/22 Proj. 34.1; 2022/23 Proj. 34.1.
- Financial sector stability and policy guidance:
  - The banking system is well-capitalized and financial stability risks should continue to be minimized.
  - Further monetary policy accommodation is needed as fiscal support is removed, but uncertain external conditions call for monetary policy to remain data dependent.
  - Greater exchange rate flexibility is needed to preserve external buffers, with foreign exchange interventions limited to smoothing excessive exchange rate fluctuations.
  - Accelerate reforms to limit pandemic scars, including governance reforms (regular audits of COVID-19 expenditures, publication of beneficial owners’ information, enhanced scrutiny of politically exposed persons), financial inclusion, climate adaptation policies, and improved trade integration.

### Projections and outlook highlights
- Price indicators (Headline and Core Inflation averages):
  - Headline Inflation - average (%): 2019/20 Act. 2.3; 2020/21 Act. 2.5; 2021/22 Proj. 3.5; 2022/23 Proj. 4.6.
  - Core Inflation - average (%): 2019/20 Act. 2.2; 2020/21 Act. 3.5; 2021/22 Proj. 3.0; 2022/23 Proj. 4.4.
- Exchange rate:
  - REER (% change): 2019/20 Act. 2.3; 2020/21 Act. 1.3; 2021/22 Proj. ...; 2022/23 Proj. ...
- Staff note on reforms and implementation:
  - Accelerating the momentum on structural reforms is essential to limit pandemic scars and help move Uganda towards its goal of middle-income status.
  - Progress on governance reforms should be sustained; accelerating financial inclusion, fostering climate adaptation policies and improving trade integration are essential for a faster-growing greener economy.

*Source: Uganda—Staff Report for the 2021 Article IV Consultation and First Review under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria (February 23, 2022).*

### 5.      Inflation remains well below the BoU’s target of 5 percent.  Figures from the new

### 1ugaea2022001 - 5.      Inflation remains well below the BoU’s target of 5 percent.  Figures from the new

### Inflation and monetary policy
- Core inflation is about 2.5 percent and has been significantly below the BoU’s 5 percent target since May 2017.
- Headline inflation remained below 3 percent over the same period despite rises in food, energy, and transportation prices.
- Since June 2021 the Monetary Policy Committee has kept the policy rate unchanged at 6.5 percent, described as broadly in line with a neutral rate.
- The neutral rate is defined as the real rate that, in the absence of temporary disturbances, is consistent with output at potential and price stability.

### External developments and reserves
- The current account deficit widened to 10.2 percent of GDP in FY20/21, driven by a broad-based increase in imports, weak tourism receipts, and an overvalued currency.
- Financing composition for FY20/21:
  - Budget support and project loans were main sources.
  - Off-shore investors’ holdings of government bonds accounted for 15 percent of net financing for the period.
- Exchange rate and reserves:
  - The Ugandan shilling appreciated by 3.5 percent in 2021 (y-o-y).
  - Gross external reserves, including the recent SDR allocation, increased to $4.4 billion (4.2 months of imports) in December 2021.
  - BoU FX operations included sales of $306 million in October 2021 and a $140 million FX purchase in January 2022.
  - BoU subsequently purchased $141 million in January (text also states $140 million FX purchase in January 2022) to strengthen reserves and aim for the 4-month reserve target objective set for March 2022.

### Financial sector and banking sector risks
- Banking sector strengths:
  - Most banks are well capitalized, maintain high liquidity buffers, and show growing profitability.
- Credit and forbearance:
  - Private sector credit growth rose by 9.2 percent year-on-year in September 2021, up from 8.1 percent the previous year.
  - About 40 percent of banking sector loans (around Ush 7.4 trillion) have benefited from at least one form of relief/restructuring.
  - NPLs increased to 5.4 percent of total loans in September 2021; could increase further as credit relief measures have expired for most sectors.
- Stress tests indicate most banks have sufficient capital to absorb higher levels of loan loss.
- Gross international reserves metrics:
  - Reserves measured in months of next year's imports increased to 4.2 months (excluding oil investment related imports and associated external financing).

### Fiscal outcomes, financing, and public debt
- FY20/21 fiscal results:
  - Fiscal deficit came in smaller than expected due to positive tax revenue surprises, lower execution of public investment projects, and postponed cash payments of some expenditure commitments to FY21/22.
  - FY20/21 Text Table (percent of GDP): Total revenue and grants 14.6 (ECF Request) and 14.4 (Actual); Revenue 13.1 (ECF) and 13.4 (Actual); Tax 12.1 (ECF) and 12.4 (Actual); Nontax 1.1 (ECF) and 1.0 (Actual); Grants 1.5 (ECF) and 0.9 (Actual).
  - Expenditures and net lending: 24.5 (ECF) and 23.7 (Actual).
  - Overall balance: -9.9 (ECF) and -9.4 (Actual).
  - Financing: 9.9 (ECF) and 9.0 (Actual); External financing (net) 5.7 (ECF) and 4.4 (Actual); Disbursements 6.6 (ECF) and 5.0 (Actual); Budget support 3.6 (ECF) and 2.2 (Actual); Project 3.0 (ECF) and 2.8 (Actual); Amortizations 0.8 (ECF) and 0.6 (Actual).
  - Domestic financing (net) 4.1 (ECF) and 4.6 (Actual); Bank of Uganda -0.7 (ECF) and 0.1 (Actual); Commercial banks 3.0 (ECF) and 1.5 (Actual); Nonbank financing 1.9 (ECF) and 3.0 (Actual).
  - Debt: 50.2 (ECF) and 49.1 (Actual) percent of GDP.
- Financing shortfalls and BoU advances:
  - Delays in disbursement of external loans (African Export-Import Bank and African Development Bank) contributed to non-repayment of BoU advances (around 2 percent of GDP) that had been provided for redemption of Treasury securities.
  - Non-bank financing was almost 60 percent higher than programmed as offshore investors’ holdings of Treasury securities more than doubled.
- Public debt and yields:
  - Public debt-to-GDP ratio contained at 49.1 percent (including outstanding advances to the BoU), below the ECF-supported program projection of 50.2 percent.
  - Government bond yields have recently declined significantly across all maturities.

### Program performance and structural benchmarks
- Program performance (end-September QPC and ITs):
  - All end-September QPC and ITs were met except one.
  - The IT on tax revenues was not met.
  - The QPC on the primary balance was met by a large margin due to low execution on some spending.
  - Floors on repayment of domestic arrears, support to vulnerable households, and social spending were met.
  - Ceilings on net claims on the government by the central bank and the PV of newly contracted public and publicly guaranteed external debt were met by a large margin.
  - End-September QPC floor on net international reserves (NIR) was met; end-December indicative NIR target was missed due to large portfolio outflows in October 2021 and subsequent BoU FX sales.
- Structural benchmarks (SBs) and prior actions (PAs):
  - Implementation advanced after earlier delays. The framework for tracking COVID-19 spending (SB end-August) was adopted on time.
  - One SB was met; nine SBs were not met; six of those nine were subsequently completed.
  - Completed items include: signature of the Service Level Agreement (SLA) between MoFPED and the BoU and its addendum; publication of project selection criteria and public investment projects ready for inclusion in the annual budget; regulation on enhanced due diligence for domestic politically exposed persons; publication of the FY 20/21 tax expenditure statement and adoption of the tax expenditure framework; quarterly report on unpaid invoices.
  - Three SBs remained incomplete: beneficial ownership registry; upgrade of the national social registry; introduction of a sanction regime for unauthorized spending. Authorities requested test dates be reset to end-June 2022 for these SBs.

### Social assistance and program beneficiaries
- Named programs and coverage/status:
  - Northern Uganda Social Action Fund (NUSAF): 3,000,000 beneficiaries; negotiations ongoing with World Bank.
  - Urban Labor - Intensive Public Works Program: 637,000 beneficiaries; targeted launch date is 2022.
  - Senior Citizen Grant (SAGE) coverage expansion: 350,000 beneficiaries; expansion of coverage and plans to resolve arrears of USh36.7 billion accumulated in FY20/21.
  - Emyooga (President's Wealth and Job Creation Initiative): 3,814,200 beneficiaries; financed by the Ministry of Finance with USh100 billion seed capital and implemented by the Microfinance Support Center Ltd.

### Macroeconomic outlook and risks
- Near-term and medium-term growth projections:
  - Growth for FY21/22 expected to average 3.8 percent, incorporating a rebound in H2 following more rapid vaccine rollout, lifting of the curfew, and reopening of schools.
  - Baseline medium-term projections assume reform package implementation restoring pre-pandemic growth trend of around 6 percent.
  - Real GDP growth projections (selected fiscal years): 6.3, 6.4, 2.9, 3.4, 3.8, 6.0, 6.5, 6.7, 7.1, 7.0 (sequence shown in Text Table).
  - Core inflation, average (percent) projected path: 2.7, 3.4, 2.2, 3.5, 3.0, 4.4, 5.0, 5.0, 5.0, 5.0.
  - Credit to non-government sector (percent growth): 10.8, 13.6, 8.8, 8.3, 12.0, 13.5, 14.0, 14.1, 15.0, 15.4.
  - Public debt (percent of GDP) projected path: 34.8, 35.6, 41.9, 49.1, 52.9, 53.1, 52.1, 50.8, 48.8, 45.6.
  - Current account balance (percent of GDP): -5.3, -7.0, -6.7, -10.2, -8.0, -6.6, -5.1, -4.9, -5.2, -4.0.
  - Gross International Reserves (months of imports) path: 4.2, 4.2, 4.0, 4.1, 4.4, 4.6, 5.2.
- Risks (tilted to the downside):
  - COVID-19: Only 23 percent of the target population (about half of Ugandans) fully vaccinated as of end-January; exposure to additional COVID-19 waves.
  - External environment risks: slowdown in the global recovery, further tightening of global financial conditions, higher oil prices — could lead to lower-than-expected external financing.
  - Climate shocks: increased frequency and intensity could undermine agricultural activity, increasing poverty and food insecurity.
  - Social/security tensions could affect confidence.
  - Domestic risk: slower-than-expected reform implementation could lead to slower growth and worse fiscal and balance of payment outcomes.
- Authorities’ views:
  - Short-term growth support from reopening and removal of lockdown restrictions, releasing pent-up demand.
  - Medium-term growth to be sustained by reform implementation and increased productivity in agriculture and manufacturing.
  - Authorities’ FY25/26 growth rate projection is 7.5 percent, higher than staff’s, mainly due to higher oil production assumptions.
  - Authorities agree risks are tilted to the downside and emphasize uncertainty around the outlook.

### Reform gains, scenarios, and implications for Middle-Income Status
- Reform scenario (IMF DIGNAR-19 model) components:
  1. Governance and product market reforms to raise private investment from observed 16.9 percent of GDP to 19.4 percent of GDP over five years.
  2. Public investment efficiency to increase gradually from 42 percent to 58 percent.
  3. Government spending composition change: unproductive expenditures decrease on average by 0.8 percentage points of GDP per year until FY25/26; productive expenditures increase on average by 0.7 percentage points of GDP per year.
  4. Tax collection efficiency increased through widening of the tax base, raising government revenues by 0.5 percent of GDP per year.
- Simulated impacts:
  - Combined effect yields a medium-term increase in non-oil real GDP growth of 1.8 percentage points.
  - Growth dividends materialize: almost ½ percentage point at one-year horizon and larger by three-year horizon.
  - In the first year, governance and product market reforms account for most potential output gain; subsequently fiscal reforms account for at least half of the increase.
  - Combined effects lift non-oil growth potential to almost 6.5 percent in the medium term, offsetting COVID-19 scarring.
- Middle-Income Status implications:
  - Under the reform scenario, Uganda would reach Middle-Income Status by FY2026/27.
  - Using U.N. population growth projections and the World Bank’s Atlas Method, income per capita would increase from US$812 in FY20/21 to US$1180 in FY26/27.
  - In the no reform scenario, achievement of Middle-Income Status would be delayed by three fiscal years.

*IMF staff summary of Uganda: selected sections from the supplied chapter.*

### Box 2. Figure 2. Gross National Income

### Box 2. Figure 2. Gross National Income

### Governance, product market, and public investment efficiency effects (Figure)
- Figure vertical axis ranges: -0.2, 0, 0.2, 0.4, 0.6, 0.8, 1, 1.2, 1.4, 1.6, 1.8, 2.
- Time series shown: 2021/22, 2022/23, 2023/24, 2024/25, 2025/26.
- Components displayed: Governance and product market, Public investment efficiency, Tax collection efficiency, Increase in productive spending, Decrease in unproductive spending, Total.
- Note: Reform effects are estimated with the IMF DIGNAR-19 model.
- Sources: Ugandan authorities and IMF staff estimates.

### Addressing COVID-19 needs and fiscal space for priority spending
- The second wave of the pandemic, lockdown impact, and security tensions created new financing needs; without offsetting measures, the FY21/22 fiscal deficit would have increased by 3.4 percent of GDP (MEFP¶20).
- Revenue shortfall in the first four months of FY21/22: almost Ush700 billion (0.4 percent of GDP), driven by lower contributions from large taxpayers, and sales of fuel products and consumption goods.
- Annual shortfall contained at USh924 billion (0.6 percent of GDP) due to DRM measures and the reopening of the economy in January 2022.
- Unpaid invoices from FY20/21: 0.4 percent of GDP (including social spending 0.05 percent of GDP and security spending 0.02 percent of GDP).
- A supplementary budget approved in November 2021 allocated additional spending of USh3.8 trillion (2.4 percent of GDP).
  - This led to 0.5 percent of GDP higher security spending than originally programmed.
  - Social spending increased by 0.4 percent of GDP to accommodate vaccine procurement, including a World Bank grant of US$117 million for about 17.7 million doses (covering about 26.4 percent of the overall population).
- To accommodate additional spending needs, staff and authorities agreed to relax the FY21/22 fiscal deficit by a full percentage point of GDP.
- Authorities implemented spending cuts of about 2.3 percent of GDP to partially offset deficit widening measures.
  - Main measures included eliminating workshops and travel, a 40 percent reduction in non-priority spending of unprotected budgetary votes, non-implementation of some supplementary budget items, and lower-than-expected execution of externally financed projects.
- The agreed deficit target was kept at 7.5 percent of GDP (one percent of GDP higher than at the approval of the ECF-supported program).

### Tax measures and revenue mobilization (FY21/22)
- Total measures: 1,255 (Billions of USh) and 0.8 (Percent of GDP) / 1,118 and 0.7 (Percent of GDP) — (table headings show two columns but preserved values as presented).
- Tax policy: 461 (Billions of USh) 0.3 (Percent of GDP) / 670 and 0.2 (Percent of GDP).
  - Increase excise duty on petrol and diesel: 193 (Billions of USh) 0.1 (Percent of GDP) / 800 and 0.1 (Percent of GDP).
  - Introduce a harmonised excise duty rate on airtime, VAS and internet data: 600 (Billions of USh) 0.0 (Percent of GDP) / 600 and 0.0 (Percent of GDP).
  - Reduce depreciation rates for automobiles: 300 (Billions of USh) 0.0 (Percent of GDP) / 220 and 0.0 (Percent of GDP).
  - Impose export levy on refined gold and other gold exports: 300 (Billions of USh) 0.0 (Percent of GDP) / 30 and 0.0 (Percent of GDP).
  - Other: 147 (Billions of USh) 0.1 (Percent of GDP) / 103 and 0.1 (Percent of GDP).
- Tax administration: 795 (Billions of USh) 0.5 (Percent of GDP) / 751 and 0.5 (Percent of GDP).
  - Arrears management: 196 (Billions of USh) 0.1 (Percent of GDP) / 500 and 0.3 (Percent of GDP).
  - Science-facilitated audits (e.g., input-output analysis, enhanced forensic lab): 95 (Billions of USh) 0.1 (Percent of GDP) / 0 and 0.0 (Percent of GDP).
  - Data and information sharing: 85 (Billions of USh) 0.1 (Percent of GDP) / 100 and 0.0 (Percent of GDP).
  - Leverage technology (e.g., use of drones, enhanced eTAX): 75 (Billions of USh) 0.0 (Percent of GDP) / 240 and 0.0 (Percent of GDP).
  - Agents managements, enhanced licensing requirements: 60 (Billions of USh) 0.0 (Percent of GDP) / 300 and 0.0 (Percent of GDP).
  - Other: 285 (Billions of USh) 0.2 (Percent of GDP) / 187 and 0.1 (Percent of GDP).
- Source for table: MoFPED, URA, IMF staff calculations.

### Spending cuts and financing composition (FY21/22)
- Total spending cuts across budgetary votes: 2,175 (Billions of USh) 1.3 (Percent of GDP).
  - Workshops and travel: 203 (Billions of USh) 0.1 (Percent of GDP).
  - Rehabilitation of the Malaba-Kampala Railway Line: 155 (Billions of USh) 0.1 (Percent of GDP).
  - Funding for Kiira Motors: 71 (Billions of USh) 0.0 (Percent of GDP).
  - Renovation of the National Stadium: 34 (Billions of USh) 0.0 (Percent of GDP).
- Lower execution of externally financed capital expenditures: 673 (Billions of USh) 0.4 (Percent of GDP).
- Lower funding of budgetary votes: 759 (Billions of USh) 0.4 (Percent of GDP).
- Total (other table): 3,608 (Billions of USh) 2.2 (Percent of GDP).

### Use of SDRs and central bank financing
- Authorities decided to use half the SDR allocation (about $250 million) to finance the FY21/22 deficit.
- SDR use prioritized for education, health and water and sanitation projects, including to facilitate school reopening.
- Detailed spending plan for SDR use finalized; quarterly special monitoring report tracks budget execution.
- Bank of Uganda (BoU) financing to the government (Text Table, Percent of GDP):
  - Net financing: FY21/22 0.4; FY22/23 -0.7; FY23/24 -0.6.
  - Deposit withdrawal: 0.6, 0.0, 0.0.
  - Petroleum fund withdrawal: 0.1, 0.0, 0.0.
  - BoU advances: -0.3, -0.7, -0.6.
  - Memo item: Outstanding BoU advances: 1.6, 0.7, 0.0.
- Notwithstanding strong foreign investor participation in the local currency bond market and higher-than-planned external commercial financing, financing constraints do not allow full repayment of BoU advances in FY21/22; repayment expected over the next two years.

### Contingency planning and authorities' views
- If downside risks materialize, non-priority investment projects will be reduced by freezing new project commitments or delaying projects not yet started or financed.
- If security risks increase further, staff urges covering associated spending through reprioritization within the current security spending envelope.
- Authorities emphasize commitment to fiscal consolidation, implementation of politically difficult DRM measures, extensive cuts in non-priority spending, and use of SDR allocation to replace more expensive commercial borrowing.
- Authorities contend the supplementary budget was necessary for incompressible priorities related to COVID-19 and security; they stress increases in security spending were needed to respond to recent bombings and operations in the DRC.

### Preserving debt sustainability and preparing for oil
- Fiscal consolidation while safeguarding social spending is essential to return debt below the 50 percent of GDP anchor in the Chart of Fiscal Responsibility (CFR) (Annex IV).
- The halving of the fiscal deficit by FY23/24 will remain front loaded; the pace of adjustment aligned with the program but with a higher deficit level in FY21/22 and FY22/23 to accommodate higher capital expenditures related to oil preparation.
- Debt-to-GDP will initially peak at 53.1 percent of GDP in FY22/23, remain mostly below levels envisaged at program approval and the median level in Sub-Saharan Africa, and converge below the 50 percent of GDP target by FY25/26.
- Authorities informed staff they were unable to negotiate for International Oil Companies to pay for needed infrastructure investments in the next three years in exchange for a share of oil-related proceeds; consequently, some costs (construction of oil jetty, equity participation in oil pipeline, etc.) must be budgeted upfront.

### Medium-term fiscal consolidation and DRMS implementation
- DRMS implementation: Following revenue gains of 0.7 percent of GDP in FY21/22, this will lead to an increase in tax revenues by at least 0.5 percent of GDP annually over the medium term through tax policy and administration measures that are regularly reviewed and updated.
- As part of the DRMS, the newly adopted tax expenditure framework—developed with help from World Bank TA—will establish a tax rationalization plan that identifies savings of at least [text continues in source].

*Sources: Ugandan authorities and IMF staff estimates*

### 0.1 percent of GDP in FY22/23 and at least 0.2 percent of GDP thereafter (new SB).  The regular

### 1ugaea2022001 - 0.1 percent of GDP in FY22/23 and at least 0.2 percent of GDP thereafter (new SB).  The regular

### Fiscal consolidation, spending composition, and tax expenditures
- Tax expenditure publication: "0.1 percent of GDP in FY22/23 and at least 0.2 percent of GDP thereafter (new SB)."  The regular publication of the tax expenditure since FY 19/20 is improving transparency and continues to illustrate the potential for large savings.
- Planned reduction of primary spending: "A reduction of primary spending of 2.7 percent of GDP is expected in FY22/23," including:
  - phasing-off of time-bound increases in spending linked to COVID-19: "0.4 percent of GDP"
  - decline in security spending: "1.3 percent of GDP"
- Budget composition priorities:
  - increase priority education and health spending
  - accommodate new oil investment commitments
  - social spending targeted to increase over the medium term by "0.7 percent of GDP"
- Social protection measures to support vulnerable households:
  - implementation of the fourth Northern Uganda Social Action Fund (NUSAF 4) in the next fiscal year and expansion to the eastern region
  - launch of the Urban Labor-Intensive Public Works Program
  - expansion of the Senior Citizen Grant’s coverage by reducing eligibility age from "the current 80 years to 75 years" (MEFP¶28)

### Key fiscal figures (Text Table: Uganda: Fiscal Operations, FY2021/22-FY2023/24)
- Total revenue and grants: "14.7 14.8 14.9 14.6 15.3 15.1"
- Revenue: "13.8 13.6 14.4 14.1 14.9 14.8"
- Tax: "12.9 12.9 13.4 13.4 13.9 13.9"
- Nontax: "1.0 0.8 1.0 0.8 1.0 0.9"
- Grants: "0.9 1.1 0.5 0.5 0.4 0.4"
- Expenditures and net lending: "21.2 22.2 18.6 19.3 18.8 18.7"
- Primary current expenditures: "9.1 9.6 8.5 8.1 8.5 8.1"
- Interest expenditures: "3.1 3.1 2.8 2.9 2.6 2.8"
- Development expenditures: "8.7 9.0 7.1 8.1 7.6 7.6"
  - External: "4.0 3.6 3.5 3.7 4.1 3.0"
  - Domestic: "4.7 5.4 3.6 4.4 3.5 4.6"
  - o/w: Oil-related investment: "0.0 0.5 0.0 0.7 0.0 0.5"
- Net lending and investment: "0.1 0.1 0.0 0.0 0.0 0.0"
- Other spending (arrears clearance): "0.2 0.4 0.2 0.2 0.1 0.1"
- Overall balance: "-6.4 -7.5 -3.7 -4.7 -3.5 -3.5"
- Overall balance excl. oil-related investment: "-6.4 -7.0 -3.7 -4.0 -3.5 -3.1"
- Primary balance: "-3.4 -4.4 -0.9 -1.8 -0.9 -0.7"
- Primary balance excl. oil-related investment: "-3.4 -3.9 -0.9 -1.0 -0.9 -0.2"
- Memorandum items:
  - Social spending: "3.6 4.0 3.4 3.5 3.5 3.6"
  - Security spending: "2.2 2.7 1.4 1.4 1.3 1.4"

### Debt sustainability and debt management
- Risk of debt distress: "remains moderate."  
- DSA findings: external debt burden and public debt indicators would remain below their respective thresholds and benchmarks under the baseline scenario; stress tests indicate breaches of the thresholds and the benchmark, indicating a moderate risk of overall and external debt distress.
- Program constraints: Staff analysis warns that a greater shift toward non-concessional loans would increase the risk of debt distress; hence the program includes a limit on the PV of new public and publicly guaranteed external debt.
- Debt management strengthening: improve transparency by publishing disaggregated data on state-owned enterprise debt and contingent liabilities (MEFP¶31).

### Public financial management (PFM) reforms
- Four pillars of PFM reform (MEFP¶29):
  - Improvement of the budget preparation process:
    - ministries to submit all foreseeable expenditures during preparation of FY22/23 budget
    - supplementary budgets limited to “unabsorbable, unforeseen, and unavoidable” expenditure (per law)
  - Strengthening cash management:
    - extend Treasury Single Account (TSA) to ten extra-budgetary entities and pursue integration of remaining ones
    - monthly cash flow forecasting improving; all agencies expected to report spending projections by end-March 2022
    - prepare aggregate borrowing plan to coordinate cash and debt management
  - Clearance of domestic arrears and prevention of accumulation:
    - increased provisions for arrears clearance in FY21/22
    - reporting mechanism modified to produce quarterly reports on unpaid invoices (PA)
    - implementable actions from the June 2021 domestic arrears strategy, including automatic confirmation of fund availability and elevating sanctions for unauthorized spending to PFM regulations (SB)
  - Improving budget transparency:
    - report on risks in the FY22/23 budget and publish the medium-term fiscal framework in line with the GFSM2014 by May 2022 (SB)

### Oil sector accountability
- Need to strengthen accountability mechanisms as oil sector develops (MEFP¶30).
- Fiscal rule in the CFR: establish the non-oil primary balance as the operational fiscal target over the medium term.
- PFM Act amendment: would allow the Uganda National Oil Company (UNOC) to retain a portion of proceeds from sale of petroleum to meet public financial obligations in the Tariff and Transportation Agreement, the Production Sharing Agreements, and the Joint Operating Agreements.
- Staff recommendation: put in place appropriate accountability mechanisms on the portion retained by UNOC and ensure proper scrutiny of its cost recovery arrangements.

### Monetary and exchange rate policy
- Monetary stance and inflation:
  - Core inflation: "consistently remained close to the lower end of the inflation target and is projected to continue undershooting the BoU’s 5 percent medium-term inflation target."
  - Staff view: "A more accommodative monetary policy stance is needed to return inflation to target while supporting economic activity." More accommodation—through further policy rate cuts—would support activity as liquidity measures are removed and the fiscal deficit is halved over the next two years.
- Policy coordination and data-dependence:
  - BoU should closely monitor price developments and keep monetary policy data dependent.
  - Be ready to adjust stance if forward-looking inflation persists above target given rising international energy prices and external normalization.
- Central bank independence and governance:
  - Governance principles to the BoU Amendment Act submitted to Cabinet in January 2022 (end-December 2021 SB); adoption by Parliament planned by September 2022 (new SB).
- Exchange rate flexibility:
  - Recommendation for greater exchange rate flexibility to absorb external shocks and preserve external buffers.
  - FX interventions should be limited to smoothing large fluctuations and maintaining adequate reserve buffers.
  - Non-resident holdings represent "a quarter of all foreign exchange reserves."
  - Staff assessment: external position assessed to be weaker than implied by fundamentals and desirable policy settings—reinforcing need for exchange rate flexibility, fiscal consolidation and structural reforms to boost growth.

### Banking sector, lending rates, and monetary transmission (Box 3)
- Longstanding high lending rates: lending interest rates averaging "around 20 percent" since the early 1990s.
- Contributors to high spreads:
  - high operational costs (largest contributor, accounting for "around 60 percent of the interest rate spread since 2008")
  - high loan loss provision
  - banks' preference for high-yield government bonds
  - oligopoly market structure
- Operational costs detail:
  - personal expense accounts for "40 percent of total non-interest cost"
  - cost-to-income ratio increased from "71.9 percent in the end of 2019 to 75 percent in December 2020"
- Monetary transmission estimates:
  - "a 1 percentage point change in the policy rate is found to be associated with a 14 basis points change in the lending rate, albeit not significant, in the short run and 43 basis points in the long run."
- Recent policy action:
  - BoU reduced policy rates by "an additional 250 basis points to 6.5 percent"

_International Monetary Fund — Uganda: Selected fiscal, debt, monetary, and PFM findings and policy recommendations (excerpts)._

### Box 3. Sticky Lending Rates and Monetary Policy Transmission (concluded)

### Box 3. Sticky Lending Rates and Monetary Policy Transmission (concluded)

### Monetary policy transmission and lending rates
- Lowering lending rates may thus initially require larger cuts in the policy rate.
- The effectiveness of such cuts would be improved by a continued reduction of fiscal dominance, which helps alleviate the crowding out effect of government debt on private sector credit.
- Ongoing moves towards digitalization—which could increase costs in the short-term through IT investments—and deeper capital markets would contribute over the long term in reducing operational costs and strengthening the transmission channel.

### D. Safeguarding Financial Sector Stability
- Capital buffers continue rising as pandemic relief measures are unwinding (MEFP¶35).
  - Banks’ capital buffers are being strengthened through increased provisioning (17.7 percent y-o-y over the past year), dividend distribution restrictions, and introduction of systemic risk buffers for Domestic Systematically Important Banks (DSIBs) and capital conservation buffers.
  - Banks’ internal capital adequacy assessment process (ICAAP) was conducted in October 2021 in line with Basel II guidelines.
  - Staff recommended that the authorities maintain some flexibility in the use of capital buffers to avoid prematurely hurting the economic recovery given pandemic uncertainties.
  - Staff supports the authorities’ commitment to proper loan classification rule and appropriate monitoring of restructured loans, particularly for the education and hospitality sector, where relief measures were extended for another year.
- Strengthening the supervisory framework remains a priority (MEFP¶36-37).
  - Continue shift to risk-based supervision.
  - Strengthen stress testing capacity—including through a full-fledged scenario as the economy implements IFRS9—and monitor corporate and households’ balance sheets.
- Structural and resolution reforms following the Crane bank failure (Annex VI).
  - New corporate governance guidelines coming into force in January 2022.
  - Authorities plan implementing regulations ensuring fit and proper test criteria for bank owners (new SB).
  - Operationalization of the new Resolution Policy Framework earlier this year, including detailed processes for pre- and post-intervention and the operationalization of the Resolution Unit, to strengthen financial stability.
- Source: IMF Staff calculations

### Authorities’ Views on financial sector measures
- Authorities pursue a multi-faceted reform agenda to reduce financial sector vulnerabilities while mitigating credit risks after expiry of credit relief measures.
- On mandated increases in capital buffers, authorities consider them necessary with IFRS 9 implementation and note the BoU provided sufficient transition time.
- They attribute the subdued pickup in private sector credit to commercial banks’ risk aversion rather than capital increase requirements.
- BoU considers its strengthening supervisory framework—supported by Fund TA—as having appropriate tools to monitor risks.
- Corporate governance reforms and new banking laws (Banking Act, resolution framework) are expected to prevent weaknesses/loopholes that caused past bank failures.

### E. Structural Reforms – Raising Medium-Term Growth Potential and Accelerating Structural Transformation
- Structural reforms are key for unlocking post-pandemic growth potential and creating jobs.
  - Policies needed to boost education and health spending, and provide better access to water and electricity.
  - Reforms needed to remove constraints to doing business and achieve the Sustainable Development Goals (SDGs).
  - Authorities’ National Development Plan (NDPIII) will emphasize governance, financial inclusion, trade, and climate change.

### Governance and anti-corruption measures
- Good governance is required for a dynamic and sustained post-pandemic recovery (MEFP¶39-44, Annex VII).
  - Tackle high-level corruption and safeguard anti-corruption bodies and judiciary from undue influence and external interference.
  - Enhanced due diligence measures, including source of wealth and funds checks, have been applied to all domestic politically exposed persons, their family members, and close associates (PA).
- Four main pillars of governance agenda and recent actions:
  - Greater accountability on the use of COVID-19 spending.
    - FY19/20 audit published; commitment to full transparency with FY20/21 full-year audit (PA, Box 4).
    - Mechanism for collecting and publishing beneficial ownership of companies awarded COVID-19-related procurement implemented (PA) starting with procurement contracts of January 2022.
    - Beneficial ownership collection extended to all procurement contracts.
    - Secretary to the Treasury to issue a memorandum addressing corrective actions to remedy gaps raised by the FY20/21 audit (June 2022 SB).
  - Strengthening accountability of high-level officials.
    - Vacancies of the Inspector General of Government (IGG) and deputies filled; Leadership Code Tribunal operationalized.
    - Implementation of the newly amended Leadership Code Act will be monitored, including publication statistics on requests for asset declarations (AD) granted/rejected and on enforcement and adjudication of breaches.
    - Amendment of the AD regulations by the IGG will lower barriers to public access to ADs and require asset declaration of spouses and children, as well as those owned beneficially (March 2022 SB).
  - Strengthening of AML/CFT regime (MEFP¶42, Annex VII).
    - Accelerate implementation of the National AML/CFT Strategy and the FATF “grey list” action plan, including establishing a centralized registry of beneficial ownership (June 2022 SB).
    - Strengthen BoU’s AML/CFT supervisory capacity by developing and implementing a risk-based approach, including a sectoral risk assessment, updated inspection manual, and a dedicated AML/CFT supervisory process (October 2022 SB).
  - Implementation and enforcement of the anti-corruption legal framework (Annex VII).
    - Judicial integrity and transparency should be promoted, including extension of comprehensive electronic case management tools to all courts.

### Box 4. Audit of COVID-19-Related Expenditures in FY 2020/21 — key findings and figures
- Resources ring-fenced in the FY20/21 budget for COVID-19 interventions:
  - About 2.4 trillion shilling dedicated to addressing needs arising from the COVID-19 pandemic, of which about a third was used to settle domestic arrears.
  - As agreed under the Rapid Credit Facility (RCF):
    - about Ush 700 billion went to support international reserves,
    - about Ush 500 billion to recapitalize Uganda’s Development Bank (UDB),
    - another Ush 260 billion was dedicated from the budget to the Microfinance Support Center (MSC) to support on-lending through rural cooperatives (SACCOs),
    - the Ministry of Health received about Ush 250 billion for procurement of vaccines, medical supplies, intensive care equipment and for medical staff allowances.
- Audit findings on UDB disbursements and use:
  - Under execution of expenditures mostly attributed to the UDB while other irregularities were found for other institutions.
  - Of the funds released to the UDB:
    - more than half was placed in commercial banks, with only 44 percent “used” for intended purposes.
    - Of the resources used, 18 percent were on-lent and only about 26 percent disbursed to sectors indicated by Parliament.
    - Operational obstacles, phased implementation of projects, and the need to comply with high liquidity requirements were main reasons for delayed disbursements.
  - Funds disbursed to the MSC and on-lent to SACCOs under the EMYOOGA initiative suffered from inadequate documentation, low uptake of grants, default on loans and, to a smaller extent, embezzlement.
  - Due to the emergency, procurement under the Ministry of Health did not follow standard procedures rigorously and encountered obstacles including delays in obtaining vaccines due to global shortage.
- Extracted tabulated figures as in the audit:
  - Total531.8100.00
  - P laced in commercial banks297.255.9
  - Utilized234.644.1
  - On-lending95.017.9
  - Financial institutions65.012.2
  - SACCO capital30.05.6
  - Sectors139.626.3
  - Agro industrialization42.88.0
  - Manufacturing69.013.0
  - Primary agriculture27.85.2
- Auditor General Recommendations — four priority areas:
  - (i) clear communication by Ministry of Finance to implementing agencies about intentions of given initiatives before funds are disbursed;
  - (ii) ensuring that all the approved funds are disbursed to avoid partial implementation of programs;
  - (iii) timely settling all arrears;
  - (iv) detailing outputs and planned activities to facilitate follow up, performance management and reporting.

### Financial inclusion, trade integration, and climate adaptation
- Financial inclusion and digital payments:
  - Pandemic doubled the value of mobile money transactions over one year and extensive awareness campaigns increased e-payments.
  - Authorities’ financial inclusion strategy to be updated later this year, with priority on strengthening regulations for payment system operators and enhancing SME financing.
  - Modernization of financial infrastructure to enlarge credit bureau coverage by consolidating credit and transaction data from all lenders, enabling data sharing among financial institutions, mobile money companies, agent banking and Credit Reference Bureau, and developing effective credit scoring using traditional and alternative data.
- Trade integration:
  - Further enhancement of trade integration will help spur growth (MEFP¶46).
  - Recent non-tariff barriers introduced during the pandemic to protect strategic industries should be phased out once the crisis has passed.
  - Uganda’s commitments to the AfCFTA will require removing non-tariff barriers and harmonizing standards with trading partners.
- Climate adaptation:
  - Authorities estimate climate change damage in agriculture, water, infrastructure, and energy sectors could collectively amount to US$273-437 billion (2.8-4.5% of cumulative prospected GDP) between 2010 and 2050.
  - Droughts and floods have affected the largest number of people; scaling up adaptation would reduce economic losses.
  - Priority short-term areas aligned with NDPIII:
    - (i) strengthening water catchment ability;
    - (ii) increasing forest coverage from 14 percent to 21 percent by 2030.
  - Staff simulations (see SIP) show building adaptation infrastructure can reduce by two thirds the GDP losses at the trough triggered by a disruptive disaster and almost halve the resulting fiscal gap.

### Authorities’ Views on structural reforms and climate actions
- Authorities agree that transformative structural reforms are essential to lift growth and create employment.
- They view governance as a pre-requisite for private sector development and highlight progress on asset declaration and procurement beneficial ownership work.
- They emphasize commitment to ensuring disbursed funds are used for intended purposes through regular audits.
- They note industrial sectoral policies are needed to promote exports of high value-added products and remain committed to deeper regional trade integration in EAC and AfCFTA.
- They argue that climate adaptation policies need aggressive pursuit and that higher donor grants are needed to ensure adequate financing.

### Program modalities, capacity building, and financing
- Adjustments to ITs/QPCs and targets reflect changing environment and pandemic spending (Table 1, MEFP).
  - Slowdown in growth and extra spending necessitate downward revision in primary balance and tax revenues program targets in December 2021 and March and June 2022.
  - Target on social spending revised upward for additional pandemic-related commitments.
  - Clearance of domestic arrears will be higher in FY21/22 than originally programmed.
  - Revisions in the NCG target reflect deposit drawdown, partial BoU advances repayment, and the use of SDR allocation.
  - Increased ceiling on the PV of newly contracted external public and publicly guaranteed debt driven by postponement of a few external loans from FY20/21.
- New PAs and SBs reinforce program goals (Tables 2a, 2b and 2c, MEFP), focusing on:
  - (i) completing macro-critical reform priorities and SBs on SLA between MoFPED and BoU, quarterly report on unpaid invoices, regulation for enhanced due diligence for domestic politically-exposed persons;
  - (ii) ensuring RCF governance commitments, e.g., publication of beneficial ownership for COVID-19-related procurement contracts;
  - (iii) identifying measures to achieve revised FY21/22 deficit target.
  - Additional SBs to enhance governance and financial inclusion with timing through October 2022 and August–September 2022 for specific regulatory and legislative measures.
- Financing and capacity to repay Fund:
  - The program is fully financed. Since the program request, delayed funding expected for FY20/21 has been disbursed, WB funding on vaccines is now largely a grant, while new commercial syndicated loans are expected.
  - Use of the SDR allocation will contribute to closing the financing gap in FY21/22.
  - There are firm commitments for the first 12 months, and good prospects for financing for the remainder of the arrangement.
  - Uganda retains an adequate capacity to repay the Fund (Table 10).
    - The total amount of Fund outstanding credit would peak at SDR1,083 million, or 300 percent of quota in 2024, equivalent to around 3 percent of GDP, 17.8 percent of exports of goods and services and

*Source: IMF Staff calculations*

### 38.4 percent of gross international reserves. IMF repurchases and charges peak at 2.2 percent of

### 1ugaea2022001 - 38.4 percent of gross international reserves. IMF repurchases and charges peak at 2.2 percent of

### External position and capacity to repay
- IMF repurchases and charges peak at 2.2 percent of exports of goods and services and 8.4 percent of reserves in 2029.
- Gross international reserves:
  - In US$ billions: 3.5, 3.6, 3.5, 3.9, 4.4, 4.8, 4.8, 6.4, 8.1, 9.2 (reported across 2021–2030 memoranda).
  - In months of next year's imports of goods and services: 3.9, 4.2, 3.8, 3.3, 3.2, 3.4, 3.4, 3.4 (various years).
- Even if COVID-19 or other sudden-stop or security-tension risks materialize (leading to a more gradual recovery, lower government revenue and slower reserve accumulation), Uganda’s capacity to repay would remain adequate given its strong track record of servicing debt.

### External financing and balance of payments (selected figures)
- Financing needs (Millions of US$): 3,553; 4,312; 3,409; 3,322; 4,165; 4,104; 5,934; 5,654 (table excerpt).
- Current account deficit (Millions of US$): 3,585; 4,132; 3,376; 3,536; 3,821; 4,194; 5,427; 5,196 (table excerpt).
- Reserve accumulation (+=increase) (Millions of US$): -321; 803; 33; -214; 344; -905; 074; 58 (table excerpt).
- Financing sources (Millions of US$): 2,701; 2,824; 3,031; 3,308; 3,909; 3,850; 5,702; 5,400 (table excerpt).
- Prospective ECF: 257; 253; 257; 253; 257; 253; 257; 253 (table excerpt).
- Table 4a (Millions of US$):
  - Current account: -2,504; -4,132; -3,536; -4,194; -5,196; -6,796; -7,391; -7,147 (2019/20–2026/27).
  - Trade balance: -2,417; -3,065; -2,966; -3,831; -4,728; -5,992; -5,373; -4,066.
  - Exports, f.o.b.: 3,800; 5,276; 5,554; 6,091; 6,514; 6,957; 8,171; 9,729.
  - Imports, f.o.b.: 6,217; 8,341; 8,520; 9,922; 11,242; 12,949; 13,545; 13,795.
  - Financial account: -1,623; -2,656; -3,017; -3,714; -5,283; -7,202; -7,737; -7,083.
  - Direct investment (net): -967; -847; -1,119; -2,384; -3,945; -5,386; -5,776; -5,411.

### Fiscal position, debt, and financing
- Program performance: all quantitative performance criteria were met; most structural reforms completed with delays.
- Fiscal consolidation and revenue:
  - Recommendation to pursue broad-based revenue and expenditure measures consistent with a 50 percent of GDP debt anchor.
  - DRMS implementation expected to create revenues of at least 0.5 percent of GDP a year via tax policy and administration reforms.
- Central government fiscal figures (selected, percent of GDP and levels):
  - Total revenue and grants (percent of GDP): 13.2; 14.6; 14.4; 14.7; 14.8; 14.9; 14.6; 15.3; 15.1; 15.7; 17.5; 19.1 (multi-year table).
  - Expenditure (percent of GDP): 20.3; 24.5; 23.7; 21.2; 22.2; 18.6; 19.3; 18.8; 18.7; 19.3; 20.4; 20.5.
  - Overall balance (percent of GDP): -7.1; -9.9; -9.4; -6.4; -7.5; -3.7; -4.7; -3.5; -3.5; -3.5; -3.0; -1.4.
- Public gross debt (percent of GDP): 41.9; 50.2; 49.1; 53.5; 52.9; 53.0; 53.1; 52.0; 52.1; 50.8; 48.8; 45.6 (table).
- Debt composition (FY20/21):
  - Total debt (Millions of US$): 20,425.6.
  - External debt (Millions of US$): 13,178.4 (64.5 percent of total).
  - Domestic debt (Millions of US$): 7,247.2 (35.5 percent of total).
  - Multilateral creditors: 7,745.4 (37.9 percent of external).
  - Bilateral creditors: 3,539.9 (17.3 percent of external).
  - Commercial creditors: 1,102.9 (5.4 percent of external).
- Decomposition of external borrowing and debt service shown in Table 9 (FY2020/21–FY2022/23).

### Monetary and financial sector developments
- Monetary policy stance:
  - Monetary policy easing recommended while remaining data dependent; inflation subdued and expected to remain below target for some time.
  - BoU policy rate: 7.0 (Dec-2021 noted in table; series across years).
- Banking sector:
  - Banks remain well capitalized and liquid; regulatory capital to risk-weighted assets and liquidity ratios reported across periods (e.g., regulatory capital to risk-weighted assets series shows high levels like 22.9, 23.6, ... down to 24.1).
  - NPLs (percent of total loans): 6.0; 5.3; 4.8; ... Sep-2021 latest: NPLs 5.4 percent (table note: NPLs: Sep-2021).
  - Asset quality: NPLs by sector show electricity and water accounting for the largest share of NPLs.
  - Private sector credit growth remains low but slowly picking up, mainly driven by FX denominated credit.
- Monetary aggregates (selected):
  - M3 (Money and quasi-money, Ush. billions): 30,067; 32,620; 35,591; 39,681; 45,539; 51,236; 57,782; 64,943.
  - Credit to the private sector (annual percentage change): 8.8; 8.3; 12.0; 13.5; 14.0; 14.1; 15.0; 15.4.
  - Base money (Ush. billions): 8,808; 9,451; 10,296; 11,254; 12,526; 13,854; 15,613; 17,609.

### Risks, vulnerabilities, and program safeguards
- Key risks:
  - Further waves of COVID-19; social unrest or security challenges; delayed fiscal measure implementation and social spending; higher frequency/severity of natural disasters; tighter global financing conditions.
- Mitigating factors:
  - Uganda’s moderate public debt level and continued access to concessional financing provide space to address shocks.
  - Safeguards: Principles amending the BoU Act submitted to Cabinet clarify safeguards on credit provision to the government; risk management framework revised to ensure independent review by the BoU risk and compliance department; reporting and control of currency operations strengthened; review and approval of currency masterplan and market study initiated.
- Financial governance and structural reform priorities:
  - Strengthen revenue mobilization, public financial management, banking supervision and governance, payment systems and central bank communications.
  - Continue governance measures: audits of COVID-19 expenditures, publication of beneficial owners’ information for COVID-19 contracts, enhanced scrutiny of politically exposed persons, more effective AML/CFT framework, improved accountability of high-level officials.
  - Seek concessional financing and enhance debt management framework to reduce vulnerabilities.
  - Preserve and increase social spending and improve budget preparation, arrears and cash management.

### Staff appraisal and program support
- Staff supports authorities’ request to relax the FY21/22 budget target to mitigate second COVID-19 wave impacts and new security challenges.
- Staff supports requests for completion of the First Review and modification of PCs, ITs and SBs under the ECF arrangement.
- Next Article IV consultation expected within 24 months.

*Source: Ugandan authorities and IMF staff estimates and projections (extracted from 1ugaea2022001).*

### Annex I. Status of Key Recommendations for the

### 1ugaea2022001 - Annex I. Status of Key Recommendations for the

### Annex I — Status of Key Recommendations (2019 Article IV Consultation)
- Fiscal
  - Recommendation: Adoption of an interim debt ceiling of 50 percent of GDP in nominal terms
  - Status:
    - The Charter of Fiscal Responsibility defines the debt ceiling in PV terms, but the government’s publicly stated debt ceiling is 50 percent of GDP in nominal terms.
  - Recommendation: Additional measures to keep public debt below the ceiling of 50 percent of GDP
  - Status:
    - Given the impact of the COVID-19 shock, debt is projected to exceed 50 percent of GDP in FY21/22. The DRMS and the unwinding of crisis measures, however, will lead to a gradual decline in the debt-to-GDP ratio over the medium term.
  - Recommendation: Adoption of the 5-year DRMS
  - Status:
    - The DRMS was adopted (prior action under the ECF) stating a 0.5 percent of GDP minimum revenue requirement. However, an update may be needed given the economic impact of the COVID-19 second wave.
  - Recommendation: Reversal of the decline in spending on education and health, and increased effectiveness of such spending
  - Status:
    - While that has deteriorated in FY 20/21, the authorities are targeting over the medium term a shift in the composition of spending towards social expenditures.

- Monetary and Exchange Rate
  - Recommendation: Policy rate on hold in the near future
  - Status:
    - The policy rate was reduced in October 2019, given subdued inflation. This was followed by further rate cuts in 2020 and 2021 in response to COVID-19. The policy stance has been broadly appropriate. The BoU also provided liquidity support in response to the pandemic.
  - Recommendation: Prompt recapitalization of BoU in the FY19/20 budget
  - Status:
    - The government recapitalized the BoU (USh482 billion) in FY20/21.

- Financial
  - Recommendation: Strengthening of supervision and bank resolution
  - Status:
    - The authorities reiterated their commitment to move towards Basel II by January 2022, and there has also been progress in addressing weaknesses identified following the failure of Crane bank in 2016.
  - Recommendation: Less reliance on regulatory forbearance
  - Status:
    - The COVID-19 shock triggered extensive financial sector policy response, including loan restructurings, and deferred dividend and bonus payments.

- Governance and Corruption
  - Recommendation: Improvement in the effectiveness of anti-corruption institutions, and strengthening of public finance and AML/CFT regime
  - Status:
    - There has been some progress with the adoption of the National AML/CFT strategy, operationalization of the AML/CFT dedicated unit and procedure manual. Anti-corruption efforts were strengthened by the nomination of the new Inspector General of Government and adoption of amendments to the Leadership Code.
    - More needs to be done on improving the accountability of high-level official by strengthening the asset declaration regime and strengthening the anti-corruption legal framework.

*Italic line for source attribution provided separately by the pipeline.*

### Annex II — Recent Changes in the Oil Sector Regulatory Framework
- Three laws recently adopted by Parliament (modifying the regulatory framework for the oil sector):
  - Income Tax Amendment Law
    - Provisions:
      - A windfall tax, to be paid on an annual basis, if the international oil price equals US$75 per barrel or more on any day of the year.
      - A limitation of deductions on petroleum operations by capping the allowable deduction per year to the cost recovery limit stipulated in the Production Sharing Agreements (PSAs).
  - Public Finance Management Amendment Law
    - Changes:
      - Allows the Uganda National Oil Company (UNOC) to retain part of the proceeds from the sale of oil, for UNOC’s own cost recovery.
      - Changes the operation of the Petroleum Fund: oil revenue accruing to government will be deposited in the Petroleum Fund on a net basis after UNOC has retained its portion rather than on a gross basis.
    - Identified weaknesses:
      - Accountability mechanisms on the portion retained by UNOC are not spelled out.
      - Part of the oil proceeds will be retained without being appropriated in the budget.
      - Failure to scrutinize UNOC’s cost recovery arrangements might lead to the budget receiving a smaller part of oil revenue.
      - There might be pressures, including political, to undertake quasi-fiscal activities through UNOC.
  - East African Crude Oil Pipeline (EACOP) Law
    - Objectives and measures:
      - Provide for the tariff regime applicable to the project during the different phases of operation.
      - Enable the government and UNOC to pay the transportation tariff in kind.
      - Ensure the EACOP project obtains the required authorizations in a timely manner.
      - Grant and protect the land rights of the project including with the acquisition of land.
      - Ensure access to electricity by the project.
      - Enable the fiscal regime for the project based on the incentives granted by the governments of Uganda and Tanzania.
      - Define the force majeure events applicable to the project in cases of failure or delay in performance of obligations.
      - Provide for decommissioning of the project after cessation of activities.

*Italic line for source attribution provided separately by the pipeline.*

### Annex III — Risk Assessment Matrix (RAM)
- Overview:
  - The RAM presents events that could materially alter the baseline path and staff subjective likelihood assessments (“low” <10 percent, “medium” 10–30 percent, “high” 30–50 percent). “Short term” = within 1 year; “medium term” = within 3 years.

- Key risks, likelihood/time horizon, expected impact, and policy response:
  - Outbreaks of lethal and highly contagious Covid-19 variants
    - Likelihood/Time Horizon: High / Short term
    - Expected impact: High. Rapidly increasing hospitalization and deaths force lockdowns and increased uncertainty. Demand for contact-intensive sector would contract further. Firms face prolonged increase in production costs and supply shortages. Pandemic-prompted protectionist actions would disrupt trade.
    - Policy response:
      - Prioritize vaccine roll out and scale up other public health measures, such as testing.
      - Strengthen social safety net.
      - Use all available policy space by extending fiscal and monetary support.
      - Formulate credible medium-term fiscal path to support investor confidence.
  - Intensification of security risks
    - Likelihood/Time Horizon: High / Short to Medium Term
    - Expected impact: High. Deterioration of security in Uganda and key trading partners would have widespread adverse effects.
    - Policy response:
      - Reprioritize fiscal spending within the security envelope to protect livelihoods.
      - Other macro policies should gear towards maintaining stability and investor confidence.
      - Strengthen and robustly implement AML/CFT framework to help prevent, detect, and disrupt the financing of terrorism.
      - Enhance cooperation with international community on intelligence.
  - Widespread social discontent and political instability (withdrawal of pandemic-related support)
    - Likelihood/Time Horizon: Medium / Short term
    - Expected impact: High. Economic activity disrupted; institutional weakening; weakened investor confidence.
    - Policy response:
      - Intensify social safety net measures.
      - Formulate credible medium-term fiscal path to support investor confidence.
  - 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.
  - 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.
  - Natural disasters related to climate change
    - Likelihood/Time Horizon: Medium / Medium/Long-term
    - Expected impact: High. Lower growth, increase in poverty levels, worsened public debt sustainability.
    - Policy response:
      - Improve economic resilience to shocks; build fiscal and external buffers.
  - De-anchoring of inflation expectations in the U.S. and/or advanced European economies
    - Likelihood/Time Horizon: Medium / Short Term
    - Expected impact: Low. Would reduce capital inflows with negative impact on the banking and public sector as well as credit growth. Higher domestic borrowing costs.
    - Policy response:
      - Ease monetary policy.
      - Maintain strong FX reserves and capital buffer in the financial sector.
      - Formulate credible medium-term fiscal path to support investor confidence.
  - Global information infrastructure failure
    - Likelihood/Time Horizon: Medium / Short to Medium Term
    - Expected impact: Low. Would disrupt economic activities, put at risk financial stability, but financial sector remains small.
    - Policy response:
      - Step up efforts to strengthen cyber security.
      - Preemptively, carry out regular testing of the resilience of computer systems and address vulnerabilities.

*Italic line for source attribution provided separately by the pipeline.*

### Annex IV — Fiscal Anchor
- Context and rules:
  - Uganda’s fiscal framework includes EAC convergence criteria and the national Charter for Fiscal Responsibility (CFR).
  - EAC criteria:
    - Ceiling of 3 percent of GDP for the overall deficit.
    - Debt ceiling of 50 percent of GDP on a net present value basis.
  - CFR provides for, by FY 2025/26:
    - Reduce total public debt in nominal terms to below 50 percent of GDP.
    - Gradually adjust the overall fiscal balance including grants to a deficit not exceeding 3 percent of non-oil GDP.
    - Transfer a maximum of oil revenue worth 0.8 percent of the preceding year’s estimated non-oil GDP outturn to the Consolidated Fund for budget operations, and the balance to the Petroleum Revenue Investment Reserve.
  - The CFR defines escape clauses for natural disasters and severe economic shocks; activation requires publication of a report showing adjustments needed to return to the rule.

- Assessment of ceilings and anchors:
  - The 2017 DSF benchmark for PV of total public debt: 35, 55, and 70 percent for weak, medium, and strong debt-carrying capacity respectively.
  - Uganda assessed as medium capacity → benchmark of 55 percent broadly in line with EAC ceiling of 50 percent PV.
  - National ceiling of 50 percent of GDP in nominal terms is broadly equivalent to a ceiling of 40 percent of GDP in PV terms given concessionality; provides buffers against risks to EAC compliance.

- Short-term outlook and probability considerations:
  - Public debt is expected to exceed the national ceiling in the short term due to the fiscal response to COVID-19 and the economic slowdown; non-negligible likelihood of breaching the EAC ceiling.
  - Use of a debt anchor below the fiscal rule ceiling could reduce probability of breaches:
    - Example anchors and associated probability of breaching limits:
      - A debt anchor of 37 percent of GDP is estimated to be consistent with a probability of 10 percent of breaching the EAC debt ceiling.
      - A debt anchor of 27 percent would keep the probability of breaching the national debt ceiling at 10 percent.
    - Table of probabilities (Probability of breaching the limit):
      - EAC debt limit of ~62 percent of GDP: 10% = 37.1, 25% = 43.1, 50% = 48.8
      - National debt limit of 50 percent of GDP: 10% = 27.2, 25% = 31.7, 50% = 37.4

- Operational target on overall balance:
  - The debt-stabilizing overall balance is estimated at around 4.5 percent of GDP over the medium term; the threshold of 3 percent of GDP will help ensure a declining debt path.
  - Medium-term expectations:
    - Fiscal consolidation under the ECF and start of oil production expected to lead to gradual convergence of nominal debt-to-GDP to below 40 percent of GDP in the long run.
    - Oil revenues are expected to peak at 2.7 percent of GDP in the medium term before declining.
    - Non-oil fiscal dynamics: Although the overall fiscal deficit would converge towards 3 percent of GDP, the non-oil fiscal deficit is expected to be around 3.5 percent of GDP (non-oil primary deficit of around 2 percent of GDP); delays in oil production start would raise risks to compliance with the national 3 percent overall deficit ceiling.
  - Recommendation:
    - As oil production starts, focus on the non-oil primary balance (NOPB) as the operational target to delink expenditures from volatile oil revenues and limit procyclicality.
  - International evidence: More than 80 percent of the 70 countries with an explicit rule on public debt also impose constraints on the overall fiscal balance, or the NOPB in the case of oil-rich countries.

*Italic line for source attribution provided separately by the pipeline.*

### Annex V — External Sector Assessment (summary)
- Overall assessment:
  - The external position of Uganda in 2021 was weaker than the level implied by fundamentals and desirable policies.
  - The preliminary assessment is subject to greater uncertainty due to the severity of the COVID-19 pandemic.
  - The current level of gross international reserves, aided by the SDR allocation, is assessed to be adequate.

- Potential policy responses:
  - Allow greater exchange rate flexibility to cushion the economy from external shocks and reduce external imbalances.
  - The Bank of Uganda should pursue greater exchange rate flexibility and only intervene in case of extreme market distress.
  - Maintain an adequate level of reserves given the riskier composition of external financing.
  - Preserve fiscal and debt sustainability, and improve export diversification and product quality to help maintain investor confidence and improve external competitiveness over the medium term.

- Foreign assets and liabilities — position and trajectory:
  - Background:
    - NIIP expected to improve to -58.8 percent of GDP in 2021 from -59.1 percent in 2020. This modest improvement mainly reflects the government’s foreign investment in the oil pipeline project.
    - About half of external assets were held by the Bank of Uganda as reserve assets; remaining share consists of deposits and debt securities.
    - Majority of external liabilities were foreign direct investment (around 50 percent) and concessional loans from multilateral and bilateral sources.
    - Between 2015 and 2021, the NIIP has declined by 11.2 percentage points, reflecting a negative CA contribution of 43 percentage points partly offset by valuation effect.
    - The BoU has taken steps to enhance reserves management practices, including the recently approved Strategic Asset Allocation (MEFP¶34).
  - Assessment:
    - The sustainability of the NIIP is not an immediate concern.
    - Since 2008, valuation gains have offset about 40 percent of the effect of CA flows on the NIIP, partly reflecting CA measurement issues.
    - Debt sustainability analysis suggests Uganda faces a moderate risk of debt distress partly driven by lower debt carrying capacity.
  - Key statistics (2021, % GDP):
    - NIIP: -58.8
    - Gross Assets: 21.0
    - Debt Assets: 3.0
    - Gross Liab.: 79.9
    - Debt Liab.: 9.5
  - Current Account:
    - Background note: The CA deficit is expected to narrow to 8.2 percent of GDP in CY2021 from a record low of [text truncated in source].

*Italic line for source attribution provided separately by the pipeline.*

### 9.3 percent in CY2020. The improvement reflects mostly an improvement in coffee and tourism exports.

### 1ugaea2022001 - 9.3 percent in CY2020. The improvement reflects mostly an improvement in coffee and tourism exports.

### Current Account (CA) and Saving-Investment Dynamics
- CA deficit improved to 9.3 percent in CY2020; improvement reflects mostly an improvement in coffee and tourism exports.
- CA remains well below its historical average as government imports remain elevated and external demand improves only gradually.
- From a saving-investment perspective, the current account deficit is mainly driven by the public sector.
- Outlook and drivers:
  - CA will be shaped by further improvements in global demand and imports related to capital investment in oil projects.
  - Oil exports, first expected in 2025, would pick up significantly in subsequent years providing further support to narrow the current account.
- Model assessments for 2021:
  - EBA-lite CA model estimates a CA gap of -3.5 percent in 2021.
  - Cyclically adjusted CA balance: -8.5 percent of GDP.
  - CA norm (from model): -5.0 percent of GDP.
  - Staff assesses the CA in 2021 to be weaker than the level consistent with fundamentals.

### Real Effective Exchange Rate (REER) and Valuation Assessment
- Background movements:
  - Shilling appreciated by 0.1 percent in real terms and by 4.9 percent in nominal effective terms in November 2021 relative to its average level in 2020.
  - Appreciation partly driven by large foreign investors’ inflows into the government bond market and BoU FX interventions.
- Model-based REER gaps for 2021:
  - EBA-lite CA model implies a REER overvaluation gap of 23.1 percent.
  - External sustainability (ES) approach implies a REER overvaluation gap of 47.9 percent.
  - EBA-lite REER model suggests an undervaluation of 7.5 percent.
- Staff view:
  - More weight should be assigned to the CA model as the REER model assigns too much weight to demographic factors, leading to poor goodness-of-fit for Uganda.
  - Considering the two more relevant models, the record high CA deficit, and the trend appreciation over the past three years, on balance staff assesses the REER to be overvalued.

### Capital and Financial Accounts: Flows, Vulnerabilities, and Outlook
- Financing composition in 2021 (net terms):
  - Net FDI inflows: 2.4 percent of GDP.
  - Project and budget loan disbursements (multilateral and bilateral): 4.1 percent of GDP.
- Portfolio flows and holdings:
  - In the first three quarters of 2021, portfolio inflows remained very strong due to relatively attractive yields on government securities.
  - Foreign investors’ holdings of Ugandan government bonds remained large at $843 million at end-December.
- Assessment and risks:
  - 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.
  - Interest differential between Uganda and US government bond has declined in recent months.
- Outlook:
  - FDI inflows are expected to pick up driven by improved business conditions and investment related to the oil refineries.

### FX Intervention, Reserves, and Reserve Guidance
- Exchange rate and reserve movements:
  - In September (year not explicitly restated), shilling appreciated by 4.5 percent y.o.y. against the US dollar.
  - Over the same period, BoU accumulated $450 million in reserves.
  - Since early October, renewed depreciation pressure led BoU to sell $305.5 million of foreign reserves in October ($106.6 million more than the intervention in March 2020).
  - In December, the BoU sold another $75 million of reserves.
  - Result: shilling restored to the past appreciation trend after interventions.
- Staff recommendation and reserve adequacy:
  - Bank of Uganda should pursue greater exchange rate flexibility, limiting foreign exchange sales to cases of extreme market distress.
  - IMF’s reserve adequacy metric for credit-constrained economies indicates adequate reserves should account for cost of carrying reserves, probability of a large shock event, and cost of a sudden stop.
  - Guided by this framework, staff views a reserve coverage ratio of 4 months of imports as currently appropriate given a higher cost of holding reserves due to partial sterilization and a riskier and larger external financing profile.
  - September reserve level is slightly above the 4-month threshold, but large current account deficits are expected to put pressure on reserves going forward.
  - BoU should continue efforts to build reserves to ensure reserve cover does not fall below the 4-month threshold.

### Financial Sector Structure and Developments
- System structure and size:
  - Banking sector accounts for around 83 percent of total assets.
  - As of end-June 2021, 25 commercial banks accounted for 95.5 percent of the banking sector’s assets amounting to USh41.7 trillion.
- Market concentration:
  - Five Domestic Systemically Important Banks (DSIBs) jointly account for 70 percent of industry profits and 61 percent of total assets as of June 2021.
  - Stanbic Bank’s assets increased by 29 percent, pushing its market share to 22.5 percent.
  - Herfindahl-Hirschman index (HHI) for commercial banks’ assets exhibits high concentration and an upward trend since December 2018.
- Profitability and capital buffers:
  - Commercial banks’ aggregate after-tax net profits increased by 27.4 percent for the year ended December 2021.
  - Regulatory capital to risk-weighted assets: 23.7 percent as of end Dec-2021.
  - Authorities plan to move towards Basel III by introducing new buffers and increasing capital requirements; estimated that 10 out of the 25 banks would require a capital injection to meet new capital requirements.
- Liquidity and funding:
  - By end-December 2021:
    - Industry aggregate liquidity coverage ratio: 252.6 percent.
    - Liquid assets-to-deposit ratio: 48.0 percent.
  - Ratios well above minimum requirements of 100 percent and 20 percent respectively.
  - Customer deposits increased by 9 percent y-o-y in June 2021; more than 50 percent of deposits were demand deposits remunerated at around 1.5 percent.
  - Despite ample liquidity, lending rates remained high and responded slowly to monetary easing.
- Asset composition and private credit:
  - Over 5 years to September 2021:
    - Commercial banks’ exposure to government debt and loans increased from 21.9 percent to 28.3 percent.
    - Share of private sector credit to commercial banks’ total assets dropped from 47.8 percent to 40.9 percent.
  - Private sector credit growth subdued at 5.9 percent year-on-year in December 2021—mostly reflecting a rise in personal loans.
  - Credit demand and supply increased since last June until end of last year but both declined in 2021.
- Asset quality and restructured loans:
  - NPLs rose to 6 percent of total loans in 2020, declining to 5.3 percent in December 2021.
  - Stock of restructured loans amounted to Ush 3.6 trillion (or 20 percent of total loans) as of end September 2021.
  - Provisioning increased to represent 46.5 percent of commercial banks’ NPLs by September 2021.
- Stress test scenarios and results (BoU, September 2021):
  - Scenario 1: all restructured loans 1–89 days past due (Ush.1.1 trillion) become NPLs by December 2021 and existing NPLs are downgraded.
  - Scenario 2: Scenario 1 combined with 25 percent of the performing restructured loans (Ush. 619.3 billion) deteriorates to NPLs between December 2021 and March 2022.
  - Test results:
    - Aggregate core capital adequacy ratio (CAR) would decline to 19.5 percent and aggregate NPL ratio would rise to 12.7 percent as of March 2022.
    - Nine of 25 SFIs, which account for 7.4 percent of the industry’s asset base, would be in breach of the minimum CAR requirement.
    - SFIs are little impacted by a foreign exchange shock; BoU’s limit on banks’ net open position in foreign exchange appears to support resilience to a 100 percent depreciation scenario.
- Regulatory reforms and capital requirements (Basel III implementation):
  - Financial Institutions (capital Buffers and Leverage Ratio) Regulations gazetted in December 2020.
  - Capital Conservation Buffer (CCB) of 2.5 percent took effect from January 1, 2022.
  - Proposed minimum paid-up capital:
    - Commercial banks: USh.150 billion.
    - Credit institutions: USh.25 billion.
    - MDIs: USh.10 billion.
  - By December 2021, expected that only 10 out of 25 commercial banks (including all DSIBs); 2 out of 5 credit institutions; and 3 out of 4 MDIs would meet the proposed minimum capital requirements from current paid-up ordinary share capital, share premium, and allowable conversion of prior years’ retained earnings.
  - SFIs not meeting proposed requirements will have a phase-in period of 2 to 3 years and may merge, downgrade license tier, or prepare for orderly exit.

*IMF staff summary based on the provided Uganda chapter content.*

### Annex VII. Anti-Money Laundering and Anti-Corruption

### Annex VII. Anti-Money Laundering and Anti-Corruption

### A. Anti-Corruption — findings and challenges
- Governance, corruption, and money laundering issues are fundamental challenges to Uganda’s development and may impact macro-critical outcomes.
- Legal and institutional frameworks are broadly in place, but implementation is weak and enforcement needs to be strengthened.
- The main corruption offences are criminalized, but important legislative gaps remain in the tracing and identification of proceeds and instrumentalities of crime.
- Various specialized anti-corruption institutions have been established, but authorities note low effectiveness due to insufficient capacity, low level of independence, and corruption vulnerabilities.
- The National Development Plan identifies weak adherence to the rule of law and corruption in the judicial system as major governance challenges that contribute to perceptions of impunity, particularly for high-level officials.
- Lack of commitment to sanction corrupt officials and inadequate capacity of anti-corruption institutions have hampered investigation and prosecution of high-level cases.
- Reported corruption investigations have increased:
  - High-profile corruption cases investigated increased from 4 in 2016 to 53 in 2020.
  - Other corruption cases investigated increased from 600 to 3 477 over the same period.
- The Office of the Director of Public Prosecutions prosecuted 45 corruption cases in 2019/2020, obtaining 31 convictions, 10 acquittals and 4 dismissals.
- A review of the Inspectorate of Government Strategic Plan showed only 46 percent of all 2019/2020 indicators achieved, including 40 percent of recommendations on investigation and prosecution of corruption cases implemented.
- The number of corruption cases closed due to insufficient evidence has risen, indicating weak investigative capacity of anti-corruption agencies.
- The value of assets recovered by the Inspectorate of Government in 2019/2020 was 2.8 billion shillings (approximately 800 000 U.S. dollars), which remains comparatively low given the identified risk level.
- Financial investigators and prosecutors have not sufficiently pursued parallel financial investigations for proceeds-generating crimes, partly due to limited capacity.
- The judiciary lacks technical skills to adjudicate cases that include financial investigations into the proceeds of crime.
- The Inspectorate of Government’s asset recovery unit has issued operating procedures for asset recovery promoting financial profiling and parallel financial investigations — a positive step.
- Considering expected oil revenue flows, transparency in the extractive sector is warranted; oil extraction poses tax evasion and corruption risks and can exacerbate development challenges.
- Uganda has joined the Extractive Industries Transparency Initiative (EITI) and intends to issue the first EITI report in 2022.
- Disclosure of contracts and licenses for exploration or production of oil, gas, and minerals (e.g. gold) and disclosure of beneficial owners of corporate entities awarded these contracts and licenses are needed to mitigate corruption risks.
- Complementary steps include collection and publication of beneficial ownership information of companies awarded procurement contracts, reducing red tape and bureaucratic discretion, and digitalization of some public services.

### A. Anti-Corruption — policy recommendations and reforms
- Safeguard anti-corruption agencies from undue influence and external interference by:
  - Formalizing the appointment of anti-corruption agencies’ top management through a more balanced and transparent selection process with procedures to assess reputation, relevant specific skills, and professional qualities of candidates.
  - Reconsidering duplication of law enforcement agencies’ mandates, particularly between the Inspectorate of Government and the Department of Public Prosecution, to reduce duplication of work and conflicts of prosecutorial jurisdiction.
  - Strengthening the operational independence of the Financial Intelligence Authority (FIA). Current governance arrangements (FIA Board powers to direct the Executive Director on operational policies, appoint/remove/suspend staff, and recommend the Executive Director’s dismissal to the Minister) pose risks to FIA operational independence.
  - Creating a direct interface between law enforcement agencies and national databases (e.g., Uganda Registration Services Bureau, Uganda Revenue Authority, Immigration and Police) to strengthen crime detection and investigation and reduce delays.
  - Developing guidelines to outline types of cases that cannot be settled voluntarily at the investigation stage and should be passed to the judiciary, thereby limiting wide discretion in voluntary settlement of anti-corruption investigations.
- Strengthen the asset declaration (AD) regime:
  - Address deficiencies to enhance enforcement and accountability of high-level officials.
  - Allow online public access to the existing electronic AD system to support preventive measures for politically-exposed persons (PEPs), enable detection of discrepancies between declared assets and economic activity, and facilitate reporting of suspicious transactions and foreign law enforcement action.
  - Allow disclosure, use and publication of information from ADs in the public interest to facilitate transparency and civil society scrutiny.
  - Leverage the AD regime to scrutinize unexplained wealth and investigate illicit enrichment, which accounts for few successful prosecutions to date, and has potential for recovery of corruption proceeds.
- Improve asset confiscation and recovery efforts:
  - Increase financial profiling and asset tracing in high-profile cases.
  - Build capacity for parallel financial investigations and strengthen judiciary technical skills to adjudicate cases involving proceeds of crime.

### B. Anti-Money Laundering / Combating the Financing of Terrorism (AML/CFT) — findings
- The AML/CFT regime is insufficient to mitigate substantial risks of laundering proceeds of crime, including corruption offences, which are a main money laundering (ML) threat in Uganda.
- The national ML/TF risk assessment identified that crimes generating the most proceeds are corruption, fraud, tax crimes, and counterfeiting of goods.
- Uganda is exposed to foreign TF risks and ML risks from smuggling, wildlife crimes and illegal mining, drug, and human trafficking.
- Uganda has progressed in aligning AML/CFT legal and regulatory framework with Financial Action Task Force (FATF) standards in recent years, but overall effectiveness remains low.
- Uganda was “grey listed” by the FATF in February 2020 and is on the European Union list of high-risk third countries.
- Widespread corruption hinders integrity and independence of AML/CFT stakeholders and contributes to a small number of ML cases being investigated and prosecuted relative to identified risks.
- Weak ML/TF controls are unable to meaningfully reduce ML/TF risks in Uganda.

### B. AML/CFT — reforms, capacity building and sector vulnerabilities
- Steps taken:
  - The Uganda AML/CFT Taskforce adopted a National AML/CFT Strategy in September 2020 with six objectives to: i) address deficiencies included in FATF’s “grey listing” action plan; ii) enhance compliance with FATF Recommendations; and iii) strengthen AML/CFT legal and regulatory frameworks.
  - Various supervisory authorities have taken steps to develop AML/CFT regulatory and supervisory capacity.
  - The Bank of Uganda conducted an AML/CFT risk assessment of the banking sector and provided guidance to supervised entities on conducting entity risk assessments.
  - Authorities conducted and published a risk assessment of legal persons and arrangements and have taken steps to increase the diversity of suspicious transaction reports filed with the Financial Intelligence Authority.
- Gaps and next steps:
  - Progress in implementing the “grey listing” action plan is weak and authorities need to accelerate reforms to address ML/TF risks, including from abroad, to limit negative impacts of “grey listing” on investments, remittance costs, correspondent banking relationships, and foreign borrowing costs.
  - The financial sector is vulnerable:
    - All ongoing ML investigations involve use of banks’ products or services.
    - The National Risk Assessment concluded banks face medium-high ML/TF risk and money transfer and foreign exchange services face high ML/TF risk.
    - Widespread cash use and a large informal economy pose significant AML/CFT challenges.
  - Authorities introduced enhanced due diligence measures for all domestic PEPs to address ML risks from corruption.
  - With forthcoming Fund technical assistance (TA), authorities plan to develop and implement risk-based supervision tools for the financial sector, including:
    - A sectoral risk assessment.
    - Tools for offsite monitoring.
    - Updating the inspection manual.
    - Introducing a dedicated AML/CFT supervisory process.
  - Bank of Uganda plans to establish an AML/CFT unit to centralize AML/CFT supervisory functions, promoting consistent treatment of ML/TF risks and more effective risk-based supervision.
  - ML/TF risks from the rapidly growing mobile money sector should be assessed and incorporated into BoU risk-based supervision; mobile money could mitigate ML/TF risk relative to cash but must be assessed.
  - Efforts to increase financial inclusion can provide opportunities to reduce reliance on cash, mitigate ML/TF risks, and lower transaction costs.
- Beneficial ownership:
  - Access to accurate beneficial ownership information is fundamental for detection and investigation of crimes, tracing and confiscation of proceeds, asset declaration accuracy, extractive industry transparency, reduction of procurement corruption vulnerabilities, and PEP due diligence.
  - Uganda Registration Services Bureau is developing amendments to the Companies Act to establish a centralized registry of beneficial ownership for all companies registered in Uganda to complement the existing registry of legal/basic ownership information.
  - Amendments should include dissuasive sanctions for submission of inaccurate beneficial ownership information.
  - Authorities are considering whether the beneficial ownership registry should be open to the public, which would be a strong transparency measure to assist low-capacity public sector agencies in verification and detection of potential fraud, embezzlement, corruption, and other crimes.

*Source: Annex VII. Anti-Money Laundering and Anti-Corruption (1ugaea2022001).*

### 1. The Ugandan government continues to react swiftly and decisively to protect the

### 1. The Ugandan government continues to react swiftly and decisively to protect the

### Health response and vaccination
- Implemented a 42-day partial lockdown in June-July 2021 (less stringent than the four months lockdown during the first wave) to mitigate the second COVID-19 wave.
- Complementary measures: vaccination program, curfew restrictions, and school closures.
- Vaccination progress: "13 million persons vaccinated with at least one dose by end-January 2022."
- Vaccination target: "to fully vaccinate 22 million adults in 2022" to avoid future lockdowns after full reopening in January 2022.

### Social protection and emergency support
- Emergency COVID-19 cash transfers mobilized in August 2021 to support "497,000 people" at "Ush 100,000 – about $28 for each vulnerable household."
- Beneficiaries composition: "48 percent of whom are women."
- Bank of Uganda extended credit relief measures for the education and hospitality sectors from October 1, 2021 by one year to "September 30, 2022."

### Alignment with national development and external support
- The MEFP supports the National Development Plan (NDPIII), updated to prioritize protecting livelihoods and supporting recovery.
- The MEFP describes policies and measures for 2021-24 under a three-year ECF arrangement.
- Continued reliance on development partners for "financial and technical" support, including vaccine supply and deployment.

### Economic activity and indicators
- Growth in FY20/21: "remained at about half its pre-COVID-19 pace."
- Leading indicators pointing to recovery: Purchasing Manager’s Index and Composite Index of Economic Activity indicating "employment rising for the first time in six months."
- Core inflation (rebased CPI): "picking from 2.1 percent y-o-y in October 2021 to 2.3 percent y-o-y in Jan 2022."
- Headline inflation: "remained below 3 percent" during same period despite increases in food, energy and transportation prices.

### External sector and reserves
- Current account deficit in FY20/21: "10.2 percent of GDP."
- Non-resident portfolio inflows in FY20/21: "$364.3 million."
- Non-resident holdings of government bonds by November 2021: "about $806.2 million."
- Exchange rate: "shilling appreciated by 4.4 percent year-on-year at end-January 2022."
- BOU net purchase of reserves in January 2022: "$141.4 million."
- Gross international reserves: increased to "$4.2 billion (4.4 months of imports) in January 2022" from "$3.9 billion at end-June 2020."
- Reserves objective during program: "keep reserves at 4 months of import cover (defined as months of next year’s imports of goods and services excluding oil project financing and investment related imports) during the program, before increasing to the East Africa Community target of 4.5 months once oil production starts in 2024/25."

### Monetary policy and credit
- Policy rate reductions: from March 2020 to June 2021 lowered three times by a cumulative "250 bps to 6.5 percent."
- Policy rate unchanged in August, October, and December 2021.
- Private sector credit growth: "picked up slightly to 9.3 percent in October (y-o-y)."

### Fiscal outcomes and financing
- Fiscal deficit deterioration in FY20/21 was "less than initially programmed" with better-than-expected performance of "about 0.5 percent of GDP" due to:
  - tax arrears collection: "about 0.3 percent of GDP";
  - lower public investment execution: "0.2 percent of GDP";
  - postponed payments (ministries unable to spend cash releases): "0.4 percent of GDP."
- External financing shortfalls due to delayed disbursements from African Export-Import Bank ("1 percent of GDP") and African Development Bank ("0.1 percent of GDP").
- Delays contributed to postponed repayment of BOU advances used for redemption of Treasury securities ("around 2 percent of GDP") by June 2021.
- Debt-to-GDP ratio: "49.1 percent (including outstanding advances to the BOU)," below projected "50.2 percent."
- Risk of debt distress: "moderate" per latest Debt Sustainability Analysis.

### Banking sector soundness and vulnerabilities
- NPL ratio for commercial banks: "declined to 5.3 percent in December 2021 (from a peak of 6.0 percent in June 2020)."
- Total capital ratio average over year to December 2021: "22.3 percent" (minimum prudential requirement: "10 percent").
- Liquidity coverage ratio average over year to December 2021: "244.7 percent" (minimum prudential requirement: "100 percent").
- Stock of restructured loans as of end December 2021: "Ush 3.1 trillion (or 16.7 percent of total loans)." (Peaked at "31.2 percent of total loans in June 2020.")
- SFIs’ provisions rose "by 17.7 percent compared with a year ago."

### Program performance (quantitative and indicative targets)
- "All end-September quantitative performance criteria were met while one indicative target was missed."
- Met: primary deficit ceiling, non-concessional borrowing limit (in June and September), net international reserves floor on both test dates, repayment of past arrears was "overshot in September."
- Missed or deviated indicators and corrective actions:
  - Net claims on government: missed in June; only direct BOU advances repaid; QPC met in September.
  - Tax revenues: met in June; missed in September by "Ush 359 billion (0.2 percent of GDP)." Causes: second wave, partial lockdown, lower activity. Expect partial recovery in second half.
  - Priority social spending: cash releases exceeded indicative target but low absorption meant IT floor for end-June 2021 was missed; floor met in September due to first quarter FY21/22 payments. Floor on support to vulnerable households met by "a large margin in September."
  - Repayment of domestic arrears: floor not met in June 2021 due to low absorption capacity delaying disbursement.

### Structural reforms and implementation delays
- Difficulties delayed implementation of structural benchmarks (SB); the COVID-19 spending tracking framework was adopted by end-August as programmed.
- Amendments to the BOU Act submitted to Cabinet in January 2022 (SB, end-December 2021, prior action); expected to be adopted by Parliament by "September 2022."
- Implementation status as of February 18, 2022: all remaining benchmarks implemented with delay; requests to reset timelines for three SBs due to legislative, technical and legal requirements.
- Specific SBs and delays:
  - SLA between MoFPED and BOU signed with delay; governs repayment of advances for past debt redemptions for next two years and addendum broadens definition of advances from "FY 23/24" (SB end-July, prior action).
  - Public investment prioritization framework adopted on time; publication of project pipeline delayed to "January 17, 2022" (SB end-September).
  - Upgrade of unified registry of social assistance programs delayed; request resetting deadline to "end-June 2022" due to IT, data migration, and legal/data protection challenges.
  - Regulation requiring enhanced due diligence for domestic politically exposed persons adopted with delay on "January 14, 2022" (SB end-September).
  - Tax expenditure framework finalized and second annual tax expenditure statement published with delay on "January 11, 2022" (SB end-October).
  - Plan to elevate treasury instruction on sanctions for unauthorized spending commitments into a regulation; request resetting SB to "June 2022."
  - Quarterly report on unpaid invoices published with delay; further FMIS configuration pending (SB, end-November, prior action).
  - Amendments to Company Act to establish a beneficial ownership registry require Parliamentary adoption; request resetting November 2021 SB to "end-June 2022."

### Governance commitments and transparency actions
- Extended special independent audit for COVID-19 spending to full FY20/21 on time; audit was "published on February 15, 2022" after Parliament presentation in early January (prior action).
- Prepared a comprehensive report of COVID-19 spending for FY20/21 and cash releases for first two quarters of FY21/22.
- New procurement template adopted; circular issued on "December 15" instructing accounting officers to collect beneficial ownership information for all contracts.
- Published a list of COVID-19 procurement contracts including names of winning bidders and their beneficial owners (prior action).

### Macroeconomic outlook and projections
- FY21/22 growth revised down from "4.3 to 3.8 percent" due to the second COVID-19 wave and lockdown.
- Baseline expects strong rebound after full reopening in January 2022, with pickup in manufacturing, services, and construction.
- Medium-term annual growth: expected "above 6 percent" with government investment in oil-related infrastructure, energy, transport, recovery in manufacturing, construction, external demand, and reforms.
- Oil sector developments: recent agreement on oil pipeline between Total, CNOOC, and governments of Uganda and Tanzania, and parliamentary approval of three bills regulating the oil sector; decisive steps towards final investment decision in "February 2022."
- Inflation projection: "core inflation reaching the mid-point inflation target of 5 percent by FY23/24," driven by higher aggregate demand, accommodative monetary policy and greater exchange rate flexibility.
- Current account deficit outlook: expected to narrow gradually to "about 5 percent of GDP (excluding imports related to oil project financing and investment related imports) in FY24/25."
- Reserve cover strategy: maintain at "4 months of import cover" during the program and increase to "4.5 months" once oil production starts in "2024/25."

### Risks to the outlook
- Downside risks: less benign external environment (global slowdown, tighter global financial conditions); slower reform implementation; resurgence of lockdowns due to new variants; higher credit risk; intensified social and security risks; slow execution of public investment projects; delays in oil investments; increased frequency and intensity of climate shocks (droughts, floods) affecting agriculture, poverty, and food insecurity.
- Upside scenarios: faster vaccine rollout and higher donor financing boosting economic activity.

### Economic policy priorities and reorientation
- NDPIII reprioritized to focus on near-term support to economic activity and health.
- Key policy focus areas:
  - Business activity and financial inclusion: business recovery fund for SMEs and better use of developmental finance through UDB.
  - Restoring population well-being: vaccination and sustainable reopening of education.
  - Maintenance and availability of productive infrastructure: e-government, e-procurement, e-learning and roads.
  - Fast-tracking industrialization and manufacturing: value addition and operationalization of industrial parks.
  - Improving public sector efficiency: rationalization and implementation of the Parish Development Model to accelerate wealth and job creation and improve service delivery at parish level.

*IMF staff summary based on Memorandum of Economic and Financial Policies and related annexes.*

### 19. We plan to vaccinate 22 million Ugandans by end-2022 despite deployment obstacles.

### 19. We plan to vaccinate 22 million Ugandans by end-2022 despite deployment obstacles.

### Vaccination progress and objectives
- Goal: vaccinate 22 million people (49.6 percent of the population) by end-2022.
- Priority groups: 4.5 million essential workers (health staff, police, military, and education staff) and elderly — all vaccinated by January 2022.
- Deployment to date: more than 13 million vaccines deployed using government funds and donations.
- Recent financing and expected coverage:
  - World Bank grant: US$ 117 million to procure about 17.7 million doses of vaccines (covers about 26.4 percent of the overall population).
  - Additional World Bank funding: US$ 20.2 million for deployment interventions.
  - Total World Bank financing for vaccine acquisition and deployment: US$ 137 million.
  - Remaining acquisition funding gap: $27.6 million, to be filled through additional donations.
- Operational need: ramp up deployment efforts in the short-term so that procured vaccines can be used quickly.

### Fiscal policy adjustments and short-term fiscal balance (FY21/22)
- Fiscal stance revised to accommodate the second pandemic-related lockdown and unexpected events.
- Fiscal deficit (cash basis) expected to reach 7.5 percent of GDP in June 2022, about 1.1 percent of GDP higher than programmed.
- Contributors to higher deficit:
  - Revenue shortfalls: 0.6 percent of GDP. Recorded almost Ush700 billion shortfall in first four months of FY21/22; annual shortfall expected to be USh 924 billion.
  - Unpaid invoices from FY20/21: 0.4 percent of GDP (including social spending 0.05 percent of GDP and security spending 0.02 percent of GDP).
  - Supplementary budget approved in November 2021: additional spending of Ush 3.8 trillion (2.4 percent of GDP).
  - Spending cuts partially offset increase: 2.3 percent of GDP (elimination of workshops and travel, 40 percent across-the-board reduction in non-priority spending of unprotected votes, non-implementation of some supplementary items, and lower execution of externally financed projects).
- Social and security spending changes:
  - Social spending increased by 0.3 percent of GDP relative to ECF target for FY21/22.
  - Security spending is 0.4 percent of GDP higher.

### Financing measures and central bank advances
- Financing plan to cover higher financing need:
  - Additional domestic borrowing from banks and nonbanks (including non-resident portfolio investors).
  - Disbursement of AfDB and Afriexim Bank loans originally planned for FY20/21.
  - Use of deposits.
- Bank of Uganda (BOU) advances:
  - Repayment this year: Ush 533 billion.
  - Remaining outstanding amount: Ush 2.5 trillion, to be repaid over a two-year period starting in FY22/23 at market rates.
  - New BOU advances capped at 10 percent of current year’s revenue going forward (in line with the new proposed Banking Act).

### Use of SDR allocation
- Decision: use half the SDR allocation (about $250 million) to finance priority social spending.
- Intended uses: education, health and water and sanitation projects, including facilitating school reopening.
- Governance: a detailed spending plan finalized (MEFP Table 3) and a special monitoring report to be produced quarterly to track budget execution.

### Medium-term fiscal policy and debt sustainability
- Commitment to fiscal consolidation to keep debt sustainable and avoid deterioration in debt distress risk.
- Fiscal path and projections:
  - Fiscal deficit projected to halve over two years to FY23/24, to 3.5 percent of GDP.
  - Debt-to-GDP ratio will temporarily increase above 50 percent of GDP before converging below 50 percent of GDP by FY25/26.
  - Medium-term target: fiscal deficit declines to the 3 percent of GDP target set in the Charter of Fiscal Responsibility (CFR) Law adopted in January 2022.

### Fiscal consolidation strategy (revenue mobilization and spending prioritization)
- Main elements:
  - Implementation of the DRM Strategy:
    - Expected yields: 0.7 percent of GDP in FY21/22 and 0.5 percent of GDP on average per year over the medium term.
    - Reforms: enhance income tax system, improve excise duty regime, strengthen VAT productivity (including reducing exemptions and reviewing VAT registration threshold).
    - Tax expenditure rationalization: identify at least 0.1 percent of GDP in tax exemptions that can be rationalized in FY 2022/23 and at least 0.2 percent of GDP in subsequent years.
  - Reduction of non-priority spending:
    - Continue cost-saving measures and align spending with NDPIII priorities.
    - Cut projects not appraised or not selected under new project selection criteria or lacking identified funding.
    - IMF technical assistance sought for a public investment management assessment (expected in first half of 2022).

- Contingency measures:
  - If downside risks or financing shortfalls materialize, cut non-priority spending, consider a temporary freeze on new project commitments, delay projects that have not started or lack financing, and deploy contingency revenue measures from the DRMS.

### Targeted social spending and programs
- Programmatic increases and initiatives:
  - Targeted higher priority social spending of about 0.7 percent of GDP to reverse decline in public education and health spending and boost social assistance programs.
  - Expand national identification database and unified national registry of social assistance programs to support beneficiary targeting.
  - Northern Uganda Social Action Fund (NUSAF):
    - NUSAF 3 ended June 2021 (targeted 2,983,000 beneficiaries).
    - Successor NUSAF 4 considered by Cabinet; first disbursement expected in second quarter of FY22/23.
  - Urban Labor-Intensive Public Works program:
    - Target: 637,000 beneficiaries in urban and flood-affected areas across 16 flood-prone districts and 13 urban centers.
    - Pilot planned in 2022 using $300,000 funding from ILO.
  - Senior Citizens Grant (SAGE):
    - Rolled out to all districts for beneficiaries aged 80 and above.
    - Beneficiaries scaled from 150,000 in FY19/20 to 350,000 in FY20/21.
    - Plan to lower age eligibility to age 70 and above (cabinet paper forthcoming).
    - Accumulated arrears during FY20/21: Ush 36.07 billion to be addressed in next year’s budget.
  - Emyooga (presidential initiative):
    - Targets wealth and job creation for vulnerable groups; targets 18 specialized enterprises; members under youth category not to exceed 35 years.
    - Administration: Ministry of Finance; implementation through Microfinance Support Center Ltd.
    - Disbursements: Ush 390 billion disbursed since inception in FY2019/20.
    - Coverage: supported 205,710 out of 250,000 targeted beneficiaries in creating SACCOs; extended credit to 5,903 of 6,275 registered Emyooga SACCOs.
    - Credit deployed by SACCOs: Ush 176.52 billion to 42,820 member associations.
    - Supplementary savings from associations: Ush 55.5 billion.

### Strengthening public financial management (PFM) — four main axes
- Improve budget preparation:
  - Ensure ministries submit all foreseeable, costed expenditures.
  - Aim to avoid supplementary budgets except for unforeseeable shocks; any new supplementary budgets to be costed with financing sources and debt impact assessed in consultation with IMF staff.
- Reduce outstanding domestic arrears and prevent new accumulation:
  - Published international E&Y audit of domestic arrears (May 2021): stock averaged about 3.2 percent of GDP since FY16/17.
  - Increased budget provisions for arrears clearance in FY21/22 and continued prioritization in subsequent years.
  - Measures include:
    - Implementing domestic arrears strategy published in June 2021.
    - Strengthening commitment controls: issuing system-generated purchase requisitions; elevating sanctions for unauthorized spending to PFM regulations planned for June 2022; rigorous implementation and publication of sanctions by June 2022.
    - Automatic confirmation of fund availability before incurring commitments and automatic registration of invoices in FMIS expenditure commitment module.
    - Quarterly reporting of unpaid government financial obligations recorded in FMIS; first such report produced in January 2022 with aim of no unpaid bills in FMIS after 90 days.
    - Ring-fencing budget provisions allocated to clearing domestic arrears and reporting implementation through entities’ quarterly budget execution reports.
- Strengthen cash management reforms:
  - IMF technical assistance sought to operationalize monthly and quarterly cash flow forecasts by end-FY2021/22.
  - Reforms underway:
    - Extend the Treasury Single Account (TSA) to extra-budgetary units and other agencies: converted 10 extra-budgetary entities into votes and included them in the TSA at beginning of FY21/22; 73 remaining units prepared for progressive inclusion.
    - Engage donors on disbursing externally funded projects through the TSA.
    - Issue a circular rolling out an online module for ministries, departments and agencies to report spending projections to inform cashflow forecasting; capture remaining entities starting March 2022 after module testing.
    - Prepare aggregate borrowing plan that accounts for consolidated government 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.
- Enhance budget transparency:
  - Publish a statement of fiscal risks in the budget framework paper for FY22/23 listing contingent liabilities and reporting budget risks.
  - Following Auditor General report on FY19/20, Secretary to Treasury to report publicly to Parliament by end-June 2022 on steps taken to strengthen expenditure processes.
  - Strengthen macro fiscal reporting by preparing and publishing the medium-term fiscal framework in line with the Government Finance Statistics Manual of 2014 (GFSM2014) (SB, May 2022).

### Oil revenue management
- Medium-term fiscal plan includes adoption of a fiscal rule for managing oil revenues:
  - CFR prepared, discussed in Parliament, expected to be adopted soon (July 2022 SB).
  - Fiscal rule: establish the non-oil primary balance as the operational fiscal target when oil comes into production to prevent pro-cyclical spending.
  - CFR provisions include: corrective actions if numerical targets 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.
- Parliamentary amendment to PFM Act:
  - Allows Uganda National Oil Company (UNOC) to retain a portion of proceeds from sale of petroleum accruing from the Government’s State participating interest in production-sharing agreements to meet Government’s and UNOC’s financial obligations in the Tariff and Transportation Agreement, the Production Sharing Agreements, and the Joint Operating Agreements.
  - For these obligations, NOC shall present budget estimates to Parliament and, upon approval, use the retained proceeds.

_International Monetary Fund — Uganda: Excerpt from Chapter on Vaccination Plans, Fiscal Policy, and Medium-Term Fiscal Strategy._

### 31. Our debt management framework remains appropriate. Over the past decade, we have

### 31. Our debt management framework remains appropriate.

### Debt management and financing strategy
- Enhanced debt transparency over the past decade through improved fiscal reporting and publication of debt data and debt management information.
- Recent reform of primary dealership has led to higher investor participation in the domestic Treasury security market.
- Planned transparency and communication enhancements:
  - Publish data on state-owned enterprise debt and contingent liabilities by June 2022.
  - Publish additional communications to improve transparency.
- Plans to broaden scope of potential creditors and financing sources:
  - Introduce a public investment financing strategy.
  - Create expression of interest guidelines.
  - Set up a mobile money platform for retail investors to purchase Treasury securities.
- These measures support the commitment to seek additional donor financing during the remainder of the program under the ECF.
- Medium-term financing composition:
  - Large infrastructure projects (e.g., railway lines) will lead to a slight shift in composition of financing towards non-concessional loans.
- Medium-Term Debt Management Strategy objectives to be followed, including increasing the maturity of domestic debt.
- Effort to seek additional grants from donors or additional concessional lending from other IFIs beyond currently committed amounts.
- Debt status statement:
  - "Debt is projected to remain sustainable and is currently at a moderate risk of debt distress."

### Monetary and exchange rate policies
- Bank of Uganda (BOU) commitment:
  - Remain committed to achieving the inflation target over the medium term.
  - Reduced fiscal dominance expected to improve effectiveness of the policy rate instrument.
- Issues affecting monetary transmission:
  - Elevated domestic public borrowing has contributed to keeping lending rates high as banks increased holdings of government securities.
  - Direct advances to central government have contributed to excess liquidity in the banking system, resulting in costly actions to keep interbank market rates aligned with the policy rate.
- Program fiscal adjustment expected to enhance monetary policy transmission and effectiveness.
- BOU policy actions and commitments:
  - Continue monitoring inflation developments closely and stand ready to adjust the policy rate in both directions as needed:
    - "A further reduction in the policy rate may be needed if the expected acceleration in inflation fails to materialize."
    - "A hike may be necessary if core inflation is set to increase above the upper band inflation target (5+/-3 percent) in an 18-month horizon."
    - The inflation consultations clause will remain a key pillar of the program.
  - Continue building Forecasting and Policy Analysis System (FPAS) capacity, including development of nowcasting tools and strengthening external communication (including through IMF TA).
  - Continue fine tuning liquidity forecasting and strengthening market intelligence to guide open market operation tools; main instruments include repurchase agreements (repos), BOU Act, recapitalization securities.
  - Limit direct BOU financing of fiscal operations:
    - Advances provided for treasury redemption will be repaid by the end of the ECF-supported program in June 2024.
    - From January 2022 onwards, all advances provided by the BOU will be governed by the within-year limits of 10 percent of current year domestic revenue.
    - Clarified rules on advances via adoption of a SLA and an addendum between the BOU and MoFPED (prior action) to:
      - Ensure the government account at BOU has sufficient funds for servicing government debt through the BOU.
      - Include appropriate safeguards—including market interest rates (as prescribed in the BOU Act)—for within-year credit provision.
      - Clarify modalities for the repayment of outstanding advances.
- Legal and reform timetable:
  - New amendments to the BOU Act were forwarded to the Minister of Finance for submission to Cabinet in November 2021 and submitted to Cabinet in January 2022 (end-December 2021 SB).
  - Proposed amendments include dynamic recapitalization, strengthened safeguards for institutional autonomy, clarified limits for advances to government, and strengthened BOU governance and transparency.
  - Adoption by Parliament is planned by September 2022 (new SB).
- Exchange rate stance:
  - Shilling has remained broadly stable but is expected to depreciate gradually to the equilibrium level.
  - Foreign exchange interventions intended to smooth excess volatility; continued allowance of exchange rate flexibility to help correct external imbalances and adjust to shocks.
  - Non-resident holdings of government bonds constitute a quarter of international reserves and a sudden reversal could lead to a drawdown in reserves.
  - Review of the bank’s Foreign Exchange Reserves Management Policy to commence in Q1 2022 to ensure best international practices.
  - BOU’s Foreign Exchange Reserves Management Policy Committee approved a revised Strategic Asset Allocation.

### Financial sector policies and supervision
- Capital buffers and prudential measures:
  - Implementation of a systemic risk buffer for Domestic Systemically Important Banks (DSIBs), capital conservation buffer (just calibrated), and leverage ratio will take effect on January 1, 2022.
  - Counter-cyclical buffer framework approved by the Financial Stability Committee on November 30, 2021, and ratified by the Board on December 22, 2021.
  - Plans underway to increase the minimum paid up capital for SFIs; a Statutory Instrument expected to be gazetted by June 2022, including provision giving SFIs up to June 2024 to meet new minimum capital requirements.
  - IFRS9 implementation requires higher loan loss provisions from loan origination.
  - Reviewing banks’ ICAAPs, prepared by October 2021 in line with Basel II guidelines, to verify capital adequacy for the next 12 months.
  - Policy of strengthening capital buffers by restricting dividend distribution continues.
- Supervisory and governance reforms (addressing Crane Bank failures):
  - Adopt new governance guidelines: reviewed existing governance regulation and guidelines; new guidance expected to come into force in March 2022; implementing regulations expected by September 2022 to define fit and proper test criteria (new SB).
  - Move towards continuous risk-based supervision with a risk-based matrix and manual undergoing approvals and trial run; implementation scheduled for June 2022.
  - Plan to integrate Uganda Development Bank under BOU’s supervision.
  - Operationalize the new Resolution Policy Framework approved in June 2021; Resolution Manual finalized and operationalization of the Resolution Unit expected by June 2022.
  - Amend the Financial Institutions Act; legal drafting to start January 2022 with adoption expected in June 2022, including expansion of the deposit protection scheme’s role and mandate.
- Bank oversight and resilience measures:
  - Credit relief measures expired in September 2021 (except education and hospitality sectors extended by one more year); risks from NPLs likely to rise.
  - Maintain COVID-19 Liquidity Assistance Program (CLAP); Emergency Liquidity Assistance (ELA) design finalized and to become effective by March 2022 to address systemic/idiosyncratic liquidity stress.
  - Encourage banks to proactively increase provisioning; SFIs’ provisions rose by 17.7 percent over the past year.
  - Continue strict loan classification rules (no relaxation except existing measures).
  - Strengthen stress testing capabilities:
    - Bottom-up stress testing framework and roadmap approved August 2021; scenarios shared with banks in December 2021.
    - Stress tests involving DSIBs expected to be completed by April 2022.
    - Augment framework with a fully-fledged macro financial scenario including multiple shocks and IFRS9 implementation; apply to all banks through regulatory stress tests by BOU by September 2022.
  - Scrutinize corporate and household balance sheets to gauge credit and concentration risks and evaluate foreign exchange risks.
  - Review and strengthen systemic risk surveillance framework using dashboard indicators covering financial markets, financial institutions, payment systems and real economy; build indices including resilience index, banking pressure index, stress index, and vulnerability index.

### Structural reforms: objectives and governance
- Structural reform agenda focuses on higher and more inclusive growth by facilitating private sector activity and enhancing human capital.
- Priority to reverse decline in private investment under NDPIII through governance reforms, reducing cost of doing business, and fostering financial inclusion.

Governance: anti-corruption, transparency, and accountability
- Beneficial ownership and procurement transparency:
  - Fully operationalized mechanism for collection and publication of beneficial ownership information for companies awarded COVID-19 procurement contracts (prior action and IMF’s RCF program commitment).
  - Expanding collection of beneficial ownership information to all public procurement contracts.
  - IMF technical assistance used to design a system for the Budget Monitoring and Accountability Unit to track and report COVID-19-related expenditures (end-August SB).
- Audit of COVID-19 spending:
  - Full audit of FY 20/21 completed, submitted to Parliament in early January and published on February 15, 2022 (Prior action).
  - Audit identified shortcomings on use of emergency procedures and on intended purpose.
  - Plans to study findings and implement Auditor General recommendations, including reinforcing expenditure controls and emergency procurement procedures.
  - Plan to issue a Treasury Memorandum explaining how weaknesses raised by the FY 20/21 audit of COVID-19 spending will be addressed (SB June 2022).
- Asset declaration regime and enforcement:
  - Filled vacancies of the office of the Inspector General of Government (IGG) and deputies and operationalized the Leadership Code Tribunal.
  - Monitor implementation of amended Leadership Code Act, including publishing statistics on requests for asset declarations (AD) granted/rejected and on enforcement and adjudication of breaches.
  - IGG will amend AD regulations and forms to lower barriers to public access to ADs, clarify requirement to declare assets of spouses, children and assets owned beneficially, and strengthen liability for AD requirement breaches (SB, March 2022).
  - Continue work to address remaining weaknesses to align AD regime with international best practices and use AD regime to detect and investigate corruption offences, including illicit enrichment.
- AML/CFT improvements and FATF "grey list" action plan:
  - Adopted National AML/CFT Strategy; accelerate implementation.
  - Amended AML/CFT regulations to apply enhanced due diligence measures, including source of wealth and funds checks, to all domestic politically exposed persons, their family members, and close associates (prior action).
  - BOU to issue guidance on implementation.
  - Priority actions:
    - Establish a registry of beneficial ownership via Companies Act amendments to prevent abuse of legal entities (June 2022 SB).
    - Strengthen AML/CFT supervisory capacity at BOU:
      - BOU has started thematic inspections with dedicated staff on AML issues.
      - With IMF TA, BOU will develop and implement a risk-based approach to AML/CFT supervision including sectoral risk assessment, offsite monitoring tools, updated inspection manual, and dedicated AML/CFT supervisory process (October 2022, SB).
- Anti-corruption legal framework:
  - Commit to safeguard anti-corruption bodies from undue influence and strengthen capacity.
  - Develop by December 2022 guidelines on voluntary settlement of anti-corruption investigations for all relevant law enforcement agencies, outlining cases that cannot be settled voluntarily and should be passed to the judiciary.
  - Promote integrity and transparency in the judiciary and introduce comprehensive electronic case management tools in all courts.
- Extractive industries transparency:
  - Uganda joined the Extractive Industries Transparency Initiative (EITI).
  - Stand ready to disclose contracts and licenses for oil and gas production and beneficial owners of corporate entities that hold legal interest.
  - First EITI report containing the relevant disclosures will be finalized and submitted in 2022.

### Reducing the cost of doing business
- Government actions to relax constraints on private sector activity once pandemic impact eases:
  - One-stop shop for permitting and registration requirements for new businesses, accessible physically and online.
  - Envisaged actions consistent with NDPIII priorities:
    - Address non-financial factors (power, transport, ICT) that lead to high costs of doing business.
    - Strengthen the system of SME incubation centers to support growth of SMEs 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.
    - Further streamline bureaucratic red tape, reduce duplications and speed up clearances for business operations.

_International Monetary Fund — Uganda: Selected Sections (content unit 31 and related monetary, financial, and structural reform sections)._

### 46. Our development plan recognizes that an open and transparent trade regime is key to

### 1ugaea2022001 - 46. Our development plan recognizes that an open and transparent trade regime is key to

### Trade openness and trade-policy measures
- Development plan emphasizes an open and transparent trade regime as key to fostering dynamic economic growth.
- Investments in transport infrastructure cited: Standard Gauge Railway and roads to support trade links with neighboring countries.
- Implementation of Uganda’s commitments to the African Continental Free Trade Area (AfCFTA) will require:
  - Finding solutions to deal with the challenge of non-tariff barriers in all member countries.
  - Harmonizing standards with trading partners.
- Measures introduced to protect strategic industries during COVID-19 (basic manufactures, food processing and pharmaceuticals) will be:
  - Time-bound.
  - Designed to support a trade regime promoting dynamic and inclusive growth consistent with WTO, EAC, COMESA, and AfCFTA provisions.

### Fostering financial inclusion — progress, priorities, and measures
- Progress and statistics:
  - Number of registered users rose to 31 million in December 2021, up from 27 million in 2019.
  - Rise in mobile money users and regulated accounts, supported by a rising number of mobile money agents and awareness campaigns on e-payments during the pandemic.
- Strategy and timelines:
  - Current national financial inclusion strategy expires in September 2022.
  - Development of a new strategy to take effect from October 2022 is in initial stages.
- Key priorities under the financial inclusion strategy:
  - Strengthening regulations:
    - National Payment System (NPS) Act passed in August 2020.
    - Three regulations gazetted on March 5, 2021: NPS Regulations, NPS Sandbox Regulations, and NPS Agent Regulations.
    - Thirteen (13) institutions had received Payment Service Provider (PSP) / Payment System Operator (PSO) Licences by December 31, 2021.
    - One entity successfully tested Quick Response Technology under the Regulatory Sandbox and was licensed as a PSP/PSO.
    - Twenty other applications for licenses are under evaluation.
  - Enhancing SME financing:
    - Establishment of the Small Businesses Recovery Fund modeled on the Agriculture Credit Facility.
    - Seed capital of Ush 100 billion from Government to encourage SFIs to extend credit to small and medium enterprises affected by COVID-19.
  - Modernizing financial infrastructure:
    - Two priorities: (i) allowing financial institutions to start accepting movable collateral for lending (Uganda Registration Services Bureau put in place requisite regulations); (ii) submitting draft amendments to the Credit Reference Bureau to the MoFPED for no objection, with regulations expected to be gazetted by March 2022.
    - 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 (new SB).
  - Promoting microfinance:
    - Bank of Uganda (BOU), under guidance of the Cabinet Secretariat, completed the Regulatory Impact Assessment for the Amendments to the Microfinance Deposit Taking Institutions Act, 2003 in June 2021 and submitted the report to MoFPED.
    - Microfinance Deposit Taking Institutions (Amendment) Bill expected to be tabled before Parliament in 2022.
  - Cyber risk protection:
    - Ongoing assessment of banks’ business continuity plans and cyber security measures.
    - Adherence to new risk management policies, auditing ICT infrastructure, and regular vulnerability and penetration tests.

### Climate change and adaptation policies
- Commitment: enhancing the economy’s resilience to climate change; Uganda is prone to natural disasters exacerbated by climate change.
- Estimated climate change damage:
  - US$273-437 billion (2.8-4.5 percent of cumulative prospected GDP) between 2010 and 2050 (Ministry of Water and Environment estimate).
- Examples: Karamoja region experiences intense floods followed by prolonged droughts.
- Main priority areas and actions:
  - Strengthening water catchment ability:
    - Climate finance and donor grants are theoretically available for water catchment and wetlands preservation but difficult to obtain due to cumbersome application processes and high standards for bankable projects.
    - Commitment to seek technical assistance from multilateral organizations to increase capacity.
  - Increase forest coverage:
    - Target to increase forest coverage from 14 percent to 21 percent by 2030.
    - COVID-19 pandemic caused a budget cut of 40 percent to the Ministry of Water and Environment, affecting project execution and enforcement; government committed to allocating adequate resources as the economy recovers.

### Other program modalities — governance, safeguards, and statistics
- Fund safeguards and central bank governance:
  - Committed to implementing key policy requirements of the Fund’s safeguards assessment.
  - BOU Act principles submitted to Cabinet clarify safeguards for provision of credit to the government.
  - Risk management framework revised to ensure independent review by the risk and compliance department.
  - Reporting and control of currency operations strengthened; review of periodic currency reports by the Board continues.
  - Work underway to review and approve the currency masterplan and a market study initiated for currency costs analysis.
- Strengthening statistics and data systems:
  - Government will support UBOS to improve timeliness and accuracy of national accounts and Government Finance Statistics.
  - Goal: migrate from the Enhanced General Data Dissemination System to the Special Data Dissemination Standard.
  - Priorities: developing institutional sector accounts, higher frequency GDP indicators, rebasing CPI, PPI and IPI.
  - UBOS to continue High Frequency Phone Survey to monitor COVID-19 impact and the Uganda National Household Survey as key socioeconomic data sources.

### Program monitoring, reviews, and quantitative/structural frameworks
- Program reviews and test dates:
  - Second and third reviews scheduled to be completed on or after June 28, 2022, and December 28, 2022, respectively.
  - Based on test dates for periodic performance criteria of end-March 2022 and September 2022, respectively.
- Documentation and monitoring:
  - The program’s semi-annual quantitative performance criteria and structural benchmarks are listed in Tables 1, 2a, 2b and 2c.
  - Definitions of key concepts and indicators and reporting requirements are set out in the accompanying Technical Memorandum of Understanding.
- Quantitative and indicative targets (as compiled in tables):
  - Tables include targets and actuals for items such as:
    - Primary budget balance of the central government (expressed in billions of USh).
    - Net claims on the government by the central bank (ceiling).
    - Stock of net international reserves (floor, in millions of US$).
    - Continuous PCs: stock of external payment arrears (ceiling); PV of newly contracted external public and publicly guaranteed debt (ceiling, millions of US$).
    - Core inflation target and inner/outer bands.
    - Indicative targets including support to vulnerable households (floor, billions of USh), social spending (floor, billions of USh), tax revenues (floor, in billions of USh), and repayment of outstanding domestic arrears (floor, in billions of USh).
  - Note: Targets are cumulative flows for specified periods (e.g., from July 1, 2020 to end-June 2021; from July 1, 2021 to end-September, end-December 2021, end-March 2022 and end-June 2022; and from July 1, 2022 to end-September 2022 and end-December 2022).

### Structural benchmarks, prior actions, and timelines
- Prior actions for first review (selected status updates and dates):
  - Finalize service level agreement (SLA) between MoFPED and BOU to regularize availability of funds for debt servicing and introduce safeguards in credit provision:
    - Initial deadline July 2021. Status: SB/Prior Action PA Met. SLA signed in January 2022 and addendum signed on February 18, 2022.
  - Specify expenditure and revenue measures to reach FY 21/22 fiscal target while preserving priority social spending: Prior Action PA Met.
  - Publish the quarterly report on unpaid invoices:
    - Initial deadline November 2021. SB/Prior Action PA Met. Publication done on February 15, 2022, by MoFPED.
  - Adoption through the Financial Intelligence Authority of a regulation requiring enhanced due diligence for domestic PEPs:
    - Initial deadline September 2021. SB/Prior Action PA Met on February 15, 2022.
  - Publication of beneficial ownership (BO) of companies awarded COVID-19-related procurement contracts:
    - Prior Action PA Met. Circular on BO sent to all agencies; report published on February 15, 2022.
  - Publish the special COVID-19 expenditure audit for FY 20/21:
    - Prior Action PA Met. Audit prepared in January 2022 and published on February 15, 2022.
- Original structural benchmarks at ECF approval (selected items and status):
  - Several measures originally with deadlines in 2021 were Not Met or Reset and later completed in early 2022 (examples include SLA, project-selection pipeline publication, BoU Act amendments principles shared with Cabinet in January 2022).
- New structural benchmarks (deadlines in 2022, selected):
  - Adoption of IGG regulations to lower barriers to AD access and enforce declaration of assets of spouses and children: March 2022.
  - Prepare a unified registry of all social assistance programs: June 2022 (reset from September 2021).
  - Establish legal and regulatory mechanisms for timely access to beneficial ownership information: June 2022 (reset from November 2021).
  - Publish regulation introducing strict sanction regime for officers responsible for unauthorized spending commitments: June 2022 (reset from November 2021).
  - Issue treasury memoranda addressing weaknesses raised by the FY 20/21 audit: June 2022.
  - Adopt a tax exemption rationalization plan identifying at least 0.1 percent of GDP in savings in FY 22/23 and 0.2 percent in subsequent years: June 2022.
  - Adoption by Parliament of the Charter for Fiscal Responsibility setting floors/ceilings for oil revenue transfers: July 2022.
  - Expand Credit Bureau Coverage by adopting amendments to the credit reference bureau: August 2022.
  - Parliamentary adoption of BoU Act amendments to strengthen governance and autonomy: September 2022.
  - Issue implementing Regulations by September 2022 to define fit and proper criteria for bank shareholders.
  - Development and implementation of tools for risk-based AML/CFT supervision of the financial sector: October 2022.

### Selected budgetary and program uses (SDR/sectoral allocations excerpt)
- Table excerpt (Millions of US$) — Selected allocations:
  - Total: 250
  - Health: 54
    - Supply of ARVs: 13
    - Supply of essential medicines and health supplies: 11
    - Inpatient services: 7
  - Education and sports: 169
    - Allowances for Government-sponsored students, teaching, training & assessment, research and innovation, community outreach services and university operations: 44
    - Catering for education capitation for UPE, USE, tertiary institutions, inspection and SOPs (including KCCA): 32
    - Assessment of examinations for candidates that will sit for UCE and UACE after the reopening of institutions: 16
    - Operational expenses including inspection, monitoring, supervision, rent and staff facilitation: 14
    - Reconstruction and completion projects at law school and university perimeter wall at Makerere University: 9
    - Completion of examination storage facility in Kyambogo and related items: 7
    - Development of secondary, including rehabilitation of traditional schools: 6
    - Students' Loan Scheme: 6
  - Water and sanitation: 27
    - Construction of 17 medium and large solar powered systems in subcounties with the lowest safe water coverage; payment of retentions for Nyarwodo GFS, Lirima GFS: 6

_This summary is based solely on the provided content from 1ugaea2022001 - 46. Our development plan recognizes that an open and transparent trade regime is key to_

### 1. This memorandum defines the quarterly performance criteria and indicative targets

### 1ugaea2022001 - 1. This memorandum defines the quarterly performance criteria and indicative targets

### Program exchange rates (end-December 2021)
- US dollar (US$) 1.0000
- Australian Dollar/US$ 1.3774
- Canadian Dollar/US$ 1.2777
- Euro/US$ 0.8835
- British pound/US$ 0.7407
- US$/Japanese yen 0.0087
- US$/Rwandan franc 0.0010
- SDR/US$ 0.7145
- For currencies not listed, the cross-exchange rates to the U.S. dollar at end-December 2021 will be applied.
- Stock of all foreign assets and liabilities will be converted into U.S. dollars at each test date using these cross-exchange rates and then converted into Uganda shillings using the program U.S. dollar–Uganda shilling exchange rate for end-December 2021, unless otherwise indicated.

### Floor on Primary Budget Balance of the Central Government
- QPC defined as the overall budget balance of the central government excluding net interest payments on public debt.
- Overall budget balance (from below the line) equals:
  - a) Net external financing (NEF): 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 (covered under NDF).
  - b) Net domestic financing (NDF), defined on a cash basis as the sum of:
    - change in net claims on the central government by the banking system (difference between claims on the central government and liabilities to the central government, of the central bank and other depository corporations);
    - 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).
- NDF calculated based on 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 measured using external financing (net) provided in the monthly government finance statistics, based on reconciled donor disbursement figures from DMFAS and AMS.
- Primary balance target timing and status:
  - floor on 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.
  - Floors on primary budget balance for end-September 2021 and end-March 2022 are quantitative performance criteria under the ECF program.
  - Floors for end-June, 2021, end-December, 2021 and end-June 2022 are indicative targets.

### Ceiling on Net Claims on the Government by the Central Bank — Background on Temporary Advances
- The GoU may receive temporary advances from the Bank of Uganda (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; Act requires full repayment within the respective fiscal year.
- 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.

### Ceiling on Net Claims on the Government by the Central Bank — Purpose, Definition, and Measurement
- Purpose: monitor balance of temporary advances and ensure prompt repayment; reduce risk of bypassing treasury securities issuance, monetization of deficits, and inflationary pressures; monitor extended repayment schedule.
- Net claims on government by the BoU defined as difference between claims on central government and liabilities to central government, excluding:
  - deposits in administered funds (including petroleum funds, agriculture credit facility and development finance scheme projects),
  - project accounts (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 based on monetary authority balance sheets in DCS:
  - a) Net claims = gross claims by BoU on central government minus gross liabilities by BoU to central government.
  - b) Plus: Deposits in Administered Funds (gross deposits held by BoU), e.g., Agricultural Credit Facility.
  - c) Plus: Deposits in the Petroleum Fund (both UGX and USD accounts).
  - d) Plus: Government Project Deposits (donor project funds administered by BoU).
  - Minus: Recapitalization Securities (subtract only recap securities; securities used for monetary purposes are netted out).

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

### Ceiling on External Arrears Incurred or Guaranteed by the Public Sector
- Debt definition follows point 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board decisions cited).
- Debt understood as a current liability created under a contractual arrangement through provision of assets or services requiring future payments; forms include loans, suppliers' credits, and leases (present value of lease payments at inception excluding operation/maintenance payments).
- 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 payments arrears is zero; limit observed continuously and applies to change in stock of overdue payments on debt contracted or guaranteed by public sector from their level at end-June 2021.
- External debt payment arrears consist of external debt service obligations as reported by BoU Statistics Department and Accountant General’s office, excluding arrears on obligations subject to rescheduling, disputed debt service obligations and HIPC-related external arrears to Iraq and Nigeria.
- Government will immediately report to IMF staff any new external arrears it accumulates (continuous PC monitored continuously).

### Ceiling on the Present Value of Newly Contracted External Public and Publicly Guaranteed Debt
- Debt definition and public sector coverage per paragraph 8(a) of the Guidelines and includes central government, state government, local government, social security funds, the central bank, nonfinancial public enterprises and other official entities.
- Guarantee arises from explicit legal or contractual obligation of public sector to service a debt owed by a third-party debtor.
- A debt is considered contracted when all conditions for its entrance into effect have been met, including government approval; credit lines with no predetermined disbursement schedules or multiple disbursements are considered contracting of debt.
- 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.
- Concessionality: debt is concessional if it includes a grant element of at least 35 percent.
  - Grant element = (nominal value − present value) / nominal value, expressed as percentage of nominal value.
  - PV at contracting calculated by discounting future debt service payments using unified discount rate of 5 percent.
  - For debts with grant element ≤ 0, PV set equal to nominal value.
- Variable-rate debt PV calculation:
  - Use program reference rate plus fixed spread (in basis points) specified in contract.
  - Program reference rate for six-month USD SOFR is 0.04 percent and will remain fixed for the duration of the program.
  - Spread of six-month Euro EURIBOR over six-month USD SOFR is -56 basis points.
  - Spread of six-month JPY OIS over six-month USD SOFR is -8 basis points.
  - Spread of six-month GBP SONIA over six-month USD SOFR is 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 the nearest 50 bps) will be added.
- Performance criterion (ceiling) applies to PV of external debt newly contracted or guaranteed by the public sector for which value has not yet been received; includes private debt with official guarantees.
- Quantitative target excludes normal import-related commercial debt with maturity < 1 year, rescheduling agreements, and IMF disbursements.
- Government will immediately report to IMF staff any new external loans it contracts or guarantees, stating loan conditions (continuous PC monitored continuously).

### Consultation Mechanism on Inflation
- Quarterly consultation bands apply to the twelve-month average rate of consumer price inflation measured by the core consumer price index (CCPI) published by UBOS, as specified in the QPC table.
- Observed CCPI inflation for end-March 2022 and end-September 2022 will be subject to the consultation mechanism; CCPI inflation for end-June 2022 and end-December 2022 will be indicative targets.
- If observed average CCPI inflation for a test date linked to an ECF program review (end-March 2022 for second review; end-September 2022 for third review) falls outside the outer band specified in the QPC table:
  - Authorities will 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 until the consultation with the Executive Board has taken place if average CCPI inflation has moved outside the outer band as of the test date linked to such review.
- BoU will report to the public reasons for any breach of outer bands and its policy response.
- BoU will discuss with Fund staff when observed average CCPI inflation falls outside the inner band, as specified for March 2022 and September 2022 in the QPC table.

### Direct Support Programs to Vulnerable Households (Indicative floor)
- Indicative floor applies to total social assistance spending supporting vulnerable households.
- Included programs: Northern Uganda Social Action Fund (NUSAF), Senior Citizens Grant (SCG), Urban Labor Intensive Public Works (LIPW), Social Assistance Grants for Empowerment (SAGE), and EMYOOGA Initiative.
- Compliance verified based on data on quarterly releases of social assistance spending for March and September, and actuals for June and December, as published in quarterly budget execution reports.

### Social Spending (Floor)
- Floor on total social spending covering all spending in health, education, and social development (excluding external financing).
- Social spending monitored on the basis of the monthly government finance statistics.

### Tax Revenues (Floor)
- Floor on tax revenue of central government measured cumulatively from the beginning of the fiscal year in July.
- Tax revenue defined as sum of direct domestic taxes, indirect domestic taxes, and international trade taxes per Government of Uganda revenue classification.

### Floor on Repayment of Outstanding Domestic Arrears (IT)
- (Section heading included in source; specific definition, measurement, or numeric targets not provided in the extracted text.)

*Memorandum defining quarterly performance criteria and indicative targets for the financial program supported by the IMF Three-Year Extended Credit Facility (ECF) over the period June 30, 2021—June 30, 2024.*

### 32. A floor applies to repayment of outstanding domestic arrears of the central government as

### 32. A floor applies to repayment of outstanding domestic arrears of the central government as an indicative target

### Domestic arrears floor (target design and timing)
- The target is a floor on the 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.
- The floor applies to repayment of outstanding domestic arrears of the central government as an indicative target.

### Definition of unpaid bill and domestic arrears
- An unpaid bill is defined as any verified outstanding payment owed by any entity that forms part of the central government votes for the following: utilities, rent, employee costs, other recurrent, court awards, compensation, contributions to international organizations, development, taxes, and other deductions.
- Domestic arrears are the total stock of unpaid bills at the end of the year as reported in the annual audit report of the Auditor General.

### Adjustors — overview
- The NIR and the 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
- The Uganda shilling equivalent of projected budget support (grants and loans) on a cumulative basis from the beginning of the relevant quarter is presented under Schedule A.
- The floor on the 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) the projected amounts.
- Any downward adjustment to the floor on the stock of NIR will be capped by 10 percent of the revised targeted amount set out in Schedule A.
- The 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) the projected amounts.

- Text Table. Uganda. Schedule A: Budget Support 1/ (USh billions)
  - Budget support grants627
  - 750009152917791030
  - Budget support loans5,2883,3221201169921,5343,2122,4103,8994,361080
  - 1/ Cumulative flows from July 1, 2020 to June 30, 2021; from July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022; and from July 1, 2022 to September 30, 2022, and December 31, 2022.
  - Target
  - 2021
  - End-DecEnd-MarEnd-Jun
  - 2022
  - End-JunEnd-Sept
  - End-SepEnd-Dec
  - Target
  - OutturnTargetOutturnECF targetRev. target
  - ECF target
  - Rev. target
  - ECF target
  - Rev. target

### Adjustor related to recapitalization of the Bank of Uganda
- The 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.

- Text Table. Uganda. Schedule B: Recapitalization of the Bank of Uganda 1/ (USh billions)
  - Recapitalization of BoU48248200
  - 00000000
  - 1/ Cumulative flows from July 1, 2020 to June 30, 2021; from July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022; and from July 1, 2022 to September 30, 2022, and December 31, 2022.
  - Target
  - 20212022
  - End-JunEnd-SeptEnd-DecEnd-MarEnd-Jun

### Adjustor related to externally financed projects
- 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 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.

*Source: 1ugaea2022001 - 32. A floor applies to repayment of outstanding domestic arrears of the central government as (PDF).*

### 39. The floor on spending under direct support programs to vulnerable households will be

### 1ugaea2022001 - 39. The floor on spending under direct support programs to vulnerable households will be

### Adjustment rule for the spending floor
- 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.

### Key program monitoring tables and schedules (as presented)
- Schedule E: Direct Support to Vulnerable Households Under NASUF, Urban LIPW and SCG (USh billions) — cumulative flows are reported for the periods: July 1, 2020 to June 30, 2021; July 1, 2021 to September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022; and July 1, 2022 to September 30, 2022, and December 31, 2022.
- Schedule C: External Financing Tied to Projects (USh billions) — cumulative flows reported for the same periodization as above.
- Schedule D: DSSI Relief (US$ millions) — cumulative flows reported for the same periodization as above.

### Reporting and data submission requirements (selected items and exact lags)
- Bank of Uganda submissions:
  - 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: 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.

- Ministry of Finance submissions:
  - Summary of central government accounts (revenues on cash basis; expenditures recorded when checks are issued except specified items): Monthly, 4 weeks.
  - Summary of the stock of arrears (or unpaid bills) by government entities: 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.

### Data quality, standards, and statistical context (selected findings and exact figures)
- Exchange rate: As of end-December 2021, the official exchange rate was USh. 3544.41 per U.S. dollar.
- Data adequacy: Overall data provision is broadly adequate for surveillance purposes, although some shortcomings remain.
- Consumer Price Index: The CPI series of June 2014 was replaced in August 2021 by an updated CPI series using expenditure weights derived from the 2016/2017 National Household Survey and COICOP 2018.
- Monetary and Financial Statistics: Uganda has been submitting MFS data to STA in standardized report forms (SRFs) since 2009.
- Data publication platform: Uganda implemented the e-GDDS recommendations in November 2016 and is publishing all fifteen data categories recommended under the e-GDDS using the Open Data Platform (ODP).

### Debt sustainability assessment and macro-fiscal outlook (selected findings and exact phrasing)
- The authorities responded to the COVID-19 shock with fiscal support measures leading to a temporary widening of the fiscal deficit and an increase in public debt.
- Given the planned unwinding of crisis measures and implementation of fiscal consolidation, Uganda’s public debt continues to be sustainable in the medium term.
- In line with the previous DSA prepared in June 2021, Uganda has a moderate risk of external and overall public debt distress, with limited space to absorb shocks.
- All external PPG debt and total public debt burden trajectories remain below their respective indicative thresholds and benchmarks over the medium term under the baseline scenario.
- Stress tests highlight breaches of external debt burden thresholds and the public debt benchmark, especially in relation to export shocks.
- Specifically, given that a median shock could lead to a breach for the external debt service indicators, Uganda has limited space to absorb shocks.
- Key risks include a slower recovery from Covid-19, environmental shocks, tighter global financial conditions, delayed reform implementation, further delays in oil exports, and a shift to non-concessional loans.
- Uganda’s Composite Indicator, which is estimated at 2.99, signals a medium debt-carrying capacity based on the October 2021 WEO and CPIA 2020.
- Development challenge identified: replace a growth model based on debt-financed public spending emphasizing infrastructure with one where the private sector leads economic growth, supported by the state through investments in human capital and targeted regulations to promote green and inclusive growth that reduces inequality and ensures sustainability.

*Source: IMF staff report excerpts and tables as presented in the supplied PDF content.*

### 1.      Public and publicly guaranteed (PPG) external and domestic debt covers debt contracted

### 1ugaea2022001 - 1.      Public and publicly guaranteed (PPG) external and domestic debt covers debt contracted

### Coverage of public and publicly guaranteed (PPG) debt and contingent liability shock parameters
- PPG debt covers debt contracted and guaranteed by:
  - central government X
  - state and local government X
  - social security fund X
  - central bank (borrowed on behalf of the government) X
  - guarantees (to other entities in the public and private sector, including to SOEs) X
- Data sources and limitations:
  - Ministry of Finance, Planning and Economic Development publishes quarterly Debt Statistical Bulletins covering PPG debt with domestic and external debt information.
  - Bank of Uganda (BoU) provides data on locally issued government debt held by non-residents enabling a residency-based analysis.
  - Debt data do not cover several elements of general government debt including extra budgetary funds and non-guaranteed debt issued by state-owned enterprises (SOE). SOEs issue debt only in the domestic market.
- Contingent liabilities included in stress test and parameter values:
  - disputed arrears to Tanzania: US$58 million or 0.1 percent of GDP
  - estimates of non-guaranteed SOE debt: 9.1 percent of GDP
  - default PPP shock: 35 percent of PPP stock (implying 1.7 percent of GDP)
  - default financial markets shock (minimum starting value): 5 percent of GDP
  - Total contingent liability shock (in percent of GDP): 15.9

### Public debt levels, trends, and composition (nominal and present value)
- Public debt increased to 49.1 percent of GDP in nominal terms at end-FY2020/21.
- Increase over the past two years: almost fourteen percentage points, primarily driven by external borrowing.
- External public debt outstanding (residency basis): US$13.2 billion or 31.7 percent of GDP.
- Domestic debt: about US$7.2 billion or 17.4 percent of GDP.
- Present value of total public sector debt at end-FY2020/21: 41.1 percent of GDP.

### External public debt terms, creditor composition, and recent shifts
- Concessionality and creditor shares:
  - Highly concessional loans (IMF, IDA, ADF) account for half of the external debt portfolio.
  - Semi-concessional and non-concessional shares have been increasing in recent years.
  - Export-Import Bank of China accounts for 20 percent of external public debt outstanding at end-FY2020/21 (as Eximbank of China: 2,590; listed as 19.7 percent in Text Table).
  - Commercial loans constitute around 8 percent of external public debt, mostly owed to Trade Development Bank (TDB), Standard Bank of South Africa (SBSA), and Standard Chartered.
  - Local-currency government securities held by offshore investors doubled share in external public debt to 6 percent in FY2020/21.
- Creditor breakdown (external public debt total US$13,178, with percent shares shown in Text Table 3):
  - Bilateral: 3,540 (26.9 percent)
  - Multilateral: 7,745 (58.8 percent)
  - Commercial creditors: 1,103 (8.4 percent)
  - Local currency debt held by offshore investors: 761 (5.8 percent)
  - Publicly guaranteed external debt: 290 (2.0 percent)

### Domestic public debt structure and market developments
- Domestic public debt (residency based) dominated by medium-to-long-term securities:
  - T-bonds constituted around three-fourths of Treasury securities at end-FY2020/21.
  - T-bonds mostly held by non-banks (close to 70 percent).
  - T-bills predominantly held by banks (more than 80 percent).
- Outstanding advances to the Bank of Uganda contributed 2 percent of GDP to domestic debt at end-FY2020/21.
- T-bond yields declined by 100-200 basis points in FY2020/21.

### Macroeconomic framework, forecasts, and fiscal assumptions underlying the DSA
- Baseline scenario aligned with the Staff Report for the 2022 Article IV Consultation and First Review Under the Extended Credit Facility.
- Real GDP growth:
  - Growth forecast for FY2021/22 revised downward from 4.3 percent (previous DSA) to 3.8 percent due to resurgence in COVID-19 cases and partial lockdown in June-July 2021.
  - Medium-term projection: return to annual 6-7 percent growth pre-COVID-19, driven by productivity gains, public spending composition, governance and product market reforms, recovery in tourism, and Final Investment Decision (FID) in the oil sector supporting investment ahead of oil production in FY2024/25.
  - Long-term supports: infrastructure improvements, agricultural productivity gains, agro-processing development, and demographic transition (declining fertility rate and growing working-age population).
- Inflation:
  - Projected headline inflation of 3.5 percent in FY2021/22.
  - Inflation projected to be in line with BoU’s 5 percent target over the medium term.
- Oil revenue projections:
  - Budget revenues from oil (net of oil-related expenditures) expected to start in FY2024/25.
  - Oil revenues peak at around 2.7 percent of GDP in FY2027/28 before gradually declining.
  - Institutional and legislative arrangements established: Uganda Petroleum Fund, The Consolidated Fund, Petroleum Investment Fund; Income Tax Amendment Bill, Public Finance Management Bill, and East African Crude Oil Pipeline Bill referenced as supporting framework.
- Primary fiscal deficit:
  - Projected to narrow in FY2021/22 due to Domestic Revenue Mobilization Strategy (DRMS) implementation and decline in unproductive/poorly executed capital expenditures, and non-recurrence of one-off items (recapitalization of BoU and on-lending to Uganda Development Bank).
  - Current deficit target for FY21/22: 7.5 percent of GDP (exceeds previously approved ECF target of 6.4 percent of GDP).
  - DRMS projected to raise tax revenues by 0.5 percent of GDP per annum; Tax Expenditure Framework finalized and approved; tax expenditure leakages estimated at about 5.2 percent of GDP in FY20/21.
- Current account and external sector:
  - Current account deficit expected to narrow slightly in FY2021/22 and improve over the medium term excluding oil-related investments.
  - FDI inflows expected to increase, largely driven by oil-related projects and AfCFTA rollout.
  - Gross official reserves (excluding oil project financing and investment-related imports) expected to gradually rise over the medium term, with a temporary decline in FY2022/23.
- Financing mix and assumptions:
  - BoU advances assumed fully repaid by FY2023/24, shifting debt composition from central bank advances to other domestic debt.
  - Domestic borrowing costs expected to be lower than under previous DSA due to recent decrease in local currency yields.
  - Domestic financing assumed to maintain constant share of T-bonds covering two-thirds of domestic financing and T-bills.
  - Under the ECF-supported program, a limit on the present value of new external and publicly guaranteed external debt to limit accumulation and reliance on non-concessional external financing.
  - Over the long term, financing assumed to shift gradually from domestic to external and less concessional debt.
- IDA financing:
  - Estimated average disbursement over next five fiscal years: about US$ 750 million per year.
  - About 80 percent delivered through project financing; remainder through Program for Results (P4Rs) and no budget support operations planned.

### Key fiscal and debt figures (as reported)
- Total public debt (end FY2020/21): 20,425.6 (in millions of US$), 100.0 percent total debt, 49.1 percent of GDP
- External debt (end FY2020/21): 13,178.4 (64.5 percent of total debt), 31.7 percent of GDP
- Domestic debt (end FY2020/21): 7,247.2 (35.5 percent of total debt), 17.4 percent of GDP
- Nominal GDP (FY2020/21): 40,636 (millions of US$)
- Selected creditor amounts (FY2020/21, in millions of US$ and percent shares where shown):
  - IMF: 772.6 (3.8 percent of total)
  - World Bank/IDA: 4,381.6 (21.5 percent of total; IDA listed separately as part of multilateral)
  - ADF: 1,448 (11.0 percent of external public debt in Text Table 3 context)
  - EXIM Bank of China: 2,589.6 (19.7 percent of external public debt)
  - Commercial creditors: 1,102.9 (8.4 percent)
  - Local currency debt held by non-residents: 761.3 (3.7 percent of total debt; 5.8 percent of external public debt)
- Domestic debt instruments (end-FY2020/21):
  - T-Bills: 1,514.4 (7.4 percent of total debt; 3.6 percent of GDP)
  - Bonds: 4,880.1 (23.9 percent of total debt; 11.7 percent of GDP)
  - BoU advances: 852.7 (4.2 percent of total debt; 2.0 percent of GDP)

*Source: Uganda authorities, IMF staff calculation.*

### 6.      The realism tool outputs compare the proj ection s to cros s-country experiences and to

### 1ugaea2022001 - 6.      The realism tool outputs compare the projections to cross-country experiences and to

### Realism tool outputs and projection comparisons
- Small differences between past and projected debt-creating flows, with contributions of past debt-creating flows remaining relatively the same for the projection period.
- Unexpected changes in external debt are above the median of the distribution across low-income countries; unexpected changes in public debt are outside the interquartile range, reflecting:
  - A large recent increase in debt against the backdrop of the Covid-19 crisis.
  - A projected decrease on the back of fiscal consolidation.
- 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 outlook supported by:
  - Recovery in international demand and private investments.
  - Improved spending efficiency, including stronger public investment management under IMF-supported program reforms.
- Investment outlook:
  - Investment is expected to increase, with private investment broadly offsetting a temporary decline in public investment.
  - Relative to the last DSA, private investment has been revised slightly downward.

### Debt-carrying capacity and classification
- Uganda’s debt-carrying capacity: Medium (unchanged from previous DSA).
- Composite indicator (CI) and thresholds:
  - Latest CI: 2.99.
  - Threshold values: 2.69 (medium/weak boundary) and 3.05 (medium/strong boundary).
  - CI calculation based on a 10-year average (5 years historical and 5 years projection).
- The CI determines:
  - Four external debt indicative thresholds.
  - The total public debt benchmark.

### External debt sustainability (baseline and indicators)
- Baseline assessment: Evolution of external government debt suggests a sustainable path.
- Solvency and liquidity indicators remain below indicative thresholds over the projection horizon.
- Key indicators and comparative thresholds:
  - PV of PPG external debt-to-GDP ratio peaks at 25.1 percent (threshold: 40 percent).
  - PV of debt-to-exports ratio reaches 152.9 percent before gradually declining towards 130 percent (threshold: 180 percent).
  - Debt service-to-revenue ratio peaks at 17.5 percent (threshold: 18 percent) before declining gradually.
  - Debt service-to-exports ratio reaches 14.5 percent in FY21/22 (indicative threshold: 15 percent).
- Stress tests and scenarios:
  - PV of PPG debt-to-GDP ratio remains under threshold even under stress tests; the combined shock is the most extreme.
  - PV of debt-to-exports, debt service-to-revenue, and debt service-to-exports breach their respective thresholds under several stress tests.
  - For PV debt-to-exports and debt service-to-exports, the most extreme shock is a shock to exports, with long-lasting breaches.
  - Both indicators breach thresholds under the combined shock and the combined contingent liability shock; debt service-to-exports has two temporary breaches under shock to other flows.

### Public debt sustainability (baseline, trajectory, and stress tests)
- Baseline trajectory: Total public debt-to-GDP shows a declining path.
  - PV of public debt-to-GDP ratio peaks at 44.1 percent in FY2021/22.
  - PV of public debt-to-GDP ratio declines towards 26 percent by FY2031/32 as oil export receipts ensue.
  - Indicative benchmark for countries with medium debt-carrying capacity: 55 percent.
  - Nominal public debt-to-GDP expected to rise above 50 percent over the next four years before gradual long-run decline.
- Debt burden indicators supported by:
  - Implementation of the DRMS.
  - Oil-related revenue inflows from 2024/25 onward.
- Stress-test outcomes when domestic debt is included:
  - Adding domestic debt does not elevate overall risk of debt distress under most shocks.
  - Most extreme stress test: combined contingent liabilities shock.
    - Under this shock the PV of total public debt-to-GDP ratio rises above the benchmark of 55 percent and above the Charter of Fiscal Responsibility ceiling of 50 percent of GDP.
    - PV of total public debt-to-revenue ratio rises to around 390 percent under the contingent liabilities shock.
    - Debt service-to-revenue peaks at 72 percent under the combined contingent liabilities shock.
  - Debt burden indicator remains below benchmark under all other shocks.

### Conclusions and risks
- Overall risk assessment:
  - 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 under the ECF-supported program scenario, but stress tests indicate breaches.
  - Although PV of debt-to-GDP indicates substantial space to absorb shocks without being downgraded to high risk, PV of debt-to-exports, debt service-to-revenues, and debt service-to-exports are close enough to thresholds that a median shock would lead to a breach.
- Downside risks to the debt outlook:
  - Resurgence of domestic and external lockdown measures linked to another wave of Covid-19.
  - Uncertainty around the external outlook.
  - Increased frequency of natural disasters due to climate change.
  - Slower-than-expected implementation of reforms.
  - Any further delay in oil production.
  - Shift in composition of financing towards non-concessional loans.
  - Potentially limited capacity of commercial banks to increase purchase of government securities given increasing weight of those securities in bank balance sheets.
- Upside possibility:
  - Faster-than-expected recovery from the pandemic and higher donor financing would help.

### Policy recommendations and mitigants to debt risks
- Implementing the DRMS:
  - Key tax policy reforms, including rationalization of exemptions and tax administration strengthening to improve compliance.
- Strengthening overall public financial management (PFM):
  - Avoid arrears and the use of supplementary budgets.
  - Use the published international audit of domestic arrears and the domestic arrears strategy to clear arrears and prevent accumulation.
  - Extend Treasury Single Account coverage to extra-budgetary entities and externally funded projects.
  - Improve accuracy of monthly cash flow forecasting and prepare an aggregate borrowing plan considering the government’s consolidated cash position.
  - Operationalize monthly and quarterly cash flow forecasting.
  - Authorities committed in the Memorandum of Economic and Financial Policies to aim to avoid supplementary budgets; if necessary, ensure they are limited to unforeseeable unexpected shocks, costed, with financing sources identified and debt impact assessed.
- Improving spending efficiency and public investment management (PIM):
  - Use medium-term fiscal envelope forecasts for better project prioritization and capital expenditure budgeting.
  - Apply recently published project selection criteria to identify priority projects.
  - Address PIM shortcomings by reducing overcommitment in multi-year projects and reducing or eliminating emergency procurement procedures; foster open and competitive bidding and avoid direct procurement channels.
- Strengthening debt management:
  - Continue to ensure financing needs and payment obligations are met at lowest possible cost over medium to long run, consistent with prudent risk-taking.
  - Improve communication and coordination across government agencies on new borrowing plans.
- Improving debt transparency:
  - Enhance fiscal reporting and publication of explicit and implicit debt and debt management information.
  - Publish a statement of fiscal risks in the budget framework paper listing contingent liabilities and reporting on budget risks.
  - Extend coverage to potential debt collateralization in the public sector and improve communication to support better understanding and management of risks.
- Broadening scope of potential creditors:
  - Finalize public investment financing strategy (advanced draft form) and expression of interest guidelines.
  - Set up a mobile money platform for retail investors to purchase Treasury securities.
- Closely monitoring contingent liabilities:
  - Continue progress on collecting data on state-owned enterprises’ debt.
  - Step up efforts to estimate, disclose, manage, contain, and shorten publication lag on contingent liabilities, especially in financial sector, state-owned enterprises, and PPPs.
  - Disaggregated data on state-owned enterprise debt and contingent liabilities planned to be published by June 2022.
- Implementing Performance and Policy Actions (PPAs):
  - First set of PPAs to be formulated in FY21/22 and applied in FY22/23, covering debt sustainability, debt management, and fiscal sustainability to incentivize reduction of debt vulnerabilities.
- Enhancing governance frameworks:
  - Safeguard quality and effectiveness of public investment and other government spending.
  - Maintain sound asset-liability management and avoid premature reliance on uncertain future oil-related flows.

*Source: IMF staff projections and analysis as presented in the provided content.*

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

### 1ugaea2022001 - 15.      The authorities agreed with the assessment of the risk of debt distress. They also  emp hasized

### Authorities' assessment and policy objective
- 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 (in nominal terms) over the medium term.
- The authorities plan to achieve this reduction through a combination of:
  - implementing the DRMS; and
  - unwinding the crisis measures introduced in response to Covid-19.

### External Debt Sustainability Framework — baseline findings (FY2018/19–2031/32)
- External debt (nominal) historical and projected levels (in percent of GDP):
  - 2018/19: 37.1
  - 2019/20: 41.5
  - 2020/21: 44.8
  - 2021/22: 46.9
  - 2022/23: 46.6
  - 2023/24: 46.5
  - 2024/25: 46.1
  - 2025/26: 45.7
  - 2026/27: 43.8
  - 2027/28: 37.9
  - 2028/29: 34.5
  - 2029/30: 43.2
  - 2031/32: (table entry shows) 34.5 and 43.2 (as presented)
- PPG (public and publicly guaranteed) external debt (percent of GDP):
  - 2018/19: 24.2
  - 2019/20: 28.6
  - 2020/21: 31.7
  - 2021/22: 34.1
  - 2022/23: 34.1
  - 2023/24: 34.0
  - 2024/25: 33.5
  - 2025/26: 33.2
  - 2026/27: 31.6
  - 2027/28: 27.5
  - 2028/29: 21.0
  - 2029/30: 31.7
- Change in external debt (percent of GDP): 1.2, 4.4, 3.3, 2.1, -0.3, -0.1, -0.4, -0.4, -1.9, -0.9 (historical and projection sequence as shown).
- Identified net debt-creating flows (percent of GDP): 1.1, 1.8, 5.0, 3.9, 1.2, -0.4, -0.4, -0.4, -0.3, -0.4, 0.1, -0.3 (as tabulated).
- Non-interest current account deficit (percent of GDP): 6.3, 5.9, 9.2, 6.9, 7.7, 9.0, 11.0, 10.9, 9.6, 7.8, 6.4, 8.4 (timeline values as shown).
- Exports (percent of GDP): 18.2, 14.6, 16.3, 16.4, 16.6, 16.6, 16.5, 17.3, 18.5, 15.3 (selected years as presented).
- Imports (percent of GDP): 19.3, 16.5, 20.5, 19.4, 20.7, 21.5, 22.8, 21.9, 20.4, 15.8 (selected years as presented).
- Net current transfers (negative = inflow, percent of GDP): -5.0, -4.8, -4.2, -4.3, -3.9, -3.9, -3.9, -3.7, -3.6, 0.0, -5.3, -3.4 (values as shown).
- Net FDI (negative = inflow, percent of GDP): -3.4, -2.6, -2.1, -2.5, -5.0, -7.6, -9.5, -9.3, -8.0, -6.8, -3.4, -7.1 (timeline as shown).
- Endogenous debt dynamics (percent of GDP): -1.7, -1.6, -2.1, -0.4, -1.6, -1.8, -1.8, -1.9, -2.0, -1.4 (values as presented).
  - Contribution from nominal interest rate: 0.7, 0.7, 0.9, 1.2, 1.0, 1.0, 1.0, 1.0, 1.0, 0.7.
  - Contribution from real GDP growth: -2.2, -1.0, -1.3, -1.6, -2.6, -2.8, -2.9, -3.0, -2.9, -2.1.
  - Contribution from price and exchange rate changes: -0.3, -1.2, -1.8 (historical entries; projections show ellipses in table).
- Residual (percent of GDP): 0.1, 2.6, -1.7, -1.8, -1.5, 0.3, -0.1, 0.0, -1.5, -0.5, 0.6, -0.3 (as shown).
- Sustainability indicators:
  - PV of PPG external debt-to-GDP ratio (percent): 24.2, 25.1, 24.6, 23.9, 23.6, 23.2, 22.0, 19.9 (selected years).
  - PV of PPG external debt-to-exports ratio (percent): 148.2, 152.9, 147.8, 144.0, 143.1, 134.1, 119.3, 129.8 (timeline values as shown).
  - PPG debt service-to-exports ratio (percent): 16.6, 23.7, 9.5, 14.5, 13.4, 13.5, 13.1, 14.4, 13.0, 11.7 (as tabulated).
  - PPG debt service-to-revenue ratio (percent): 23.9, 27.9, 11.6, 17.5, 15.7, 15.2, 14.0, 14.4, 12.7, 10.0 (as tabulated).
  - Gross external financing need (Million of U.S. dollars): 2,619; 3,121; 5,196; 4,927; 4,131; 3,794; 3,791; 4,437; 4,663; 4,527 (selected years).
- Key macroeconomic assumptions (selected):
  - Real GDP growth (percent): 6.4, 2.9, 3.4, 3.8, 6.0, 6.5, 6.7, 7.1, 7.0, 5.7, 3.6, 6.2 (as listed).
  - GDP deflator in US dollar terms (change in percent): 0.7, 3.5, 4.5, 4.4, 2.5, 2.5, 1.7, 2.1, 1.8, 1.5, 9.6, 2.5 (entries as shown).
  - Effective interest rate (percent): 2.2, 2.0, 2.4, 2.8, 2.4, 2.3, 2.4, 2.5, 2.4, 1.8, 2.0, 2.5 (as presented).
  - Growth of exports of G&S (US dollar terms, percent): 15.6, -14.7, 21.1, 9.0, 10.1, 9.0, 7.8, 14.7, 16.4, 2.4, 6.3, 11.2.
  - Growth of imports of G&S (US dollar terms, percent): 21.6, -9.0, 34.2, 2.1, 16.5, 13.3, 15.2, 4.6, 1.9, 3.5, 6.8, 8.9.
  - Grant element of new public sector borrowing (percent): 23.1, 35.4, 33.0, 31.3, 29.4, 30.2, 30.0, 30.4 (as shown).
  - Government revenues (excluding grants, percent of GDP): 12.6, 12.4, 13.4, 13.6, 14.1, 14.8, 15.4, 17.2, 19.0, 18.0, 12.6, 15.7 (table entries).
  - Aid flows (Million of US dollars): -1,576; -1,570; -2,007; 1,335; 1,354; 1,049; 872; 748; 678; 944 (as tabulated).
  - Grant-equivalent financing (percent of GDP): 2.5, 2.0, 1.6, 1.5, 1.5, 1.0, 1.0, 1.7, 30.0, 30.4 (entries include ellipses and numeric values as in table).
  - Nominal GDP (Million of US dollars): 35,290; 37,596; 40,636; 44,030; 47,858; 52,220; 56,681; 61,972; 67,500; 97,288 (selected years).
  - Nominal dollar GDP growth (percent): 7.2, 6.5, 8.1, 8.4, 8.7, 9.1, 8.5, 9.3, 8.9, 7.3, 13.5, 8.8 (as shown).
- Memorandum items:
  - PV of external debt (percent of GDP): 37.3, 37.9, 37.1, 36.4, 36.1, 35.7, 34.2, 30.2 (selected years).
  - PV of external debt (percent of exports): 228.4, 230.7, 223.4, 219.2, 219.3, 206.3, 185.0, 197.2 (as listed).
  - Total external debt service-to-exports ratio: 25.2, 33.8, 34.6, 40.5, 35.4, 35.3, 31.7, 32.3, 28.6, 23.9 (values as shown).
  - PV of PPG external debt (Million of US dollars): 9,830; 11,045; 11,756; 12,480; 13,366; 14,371; 14,877; 19,337 (selected years).
  - (PVt-PVt-1)/GDPt-1 (percent): 3.0, 1.6, 1.5, 1.7, 1.8, 0.8, 1.2 (as shown).
  - Non-interest current account deficit that stabilizes debt ratio (percent): 5.1, 1.5, 6.0, 4.7, 8.0, 9.1, 11.4, 11.3, 11.5, 8.8 (table entries).
- Sources for the external DSA: Country authorities; and staff estimates and projections.
- Notes (as in table): 1/ Includes both public and private sector external debt. 3/ Includes exceptional financing... 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing... 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages... 2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt.

### Public Sector Debt Sustainability Framework — baseline findings (FY2018/19–2031/32)
- Public sector debt (percent of GDP):
  - 2018/19: 35.6
  - 2019/20: 41.9
  - 2020/21: 49.1
  - 2021/22: 52.9
  - 2022/23: 53.1
  - 2023/24: 52.1
  - 2024/25: 50.8
  - 2025/26: 48.8
  - 2026/27: 45.6
  - 2027/28: 33.1
  - 2028/29: 31.0
  - 2029/30: 45.5
  - 2031/32: 45.5 (as presented)
- Of which: external debt (percent of GDP) — matches PPG external debt series in external DSA: 24.2, 28.6, 31.7, 34.1, 34.1, 34.0, 33.5, 33.2, 31.6, 27.5, 21.0, 31.7 (as shown).
- Change in public sector debt (percent of GDP): 0.8, 6.3, 7.2, 3.8, 0.1, -0.9, -1.4, -1.9, -3.2, -1.4 (values as presented).
- Identified debt-creating flows (percent of GDP): 0.9, 5.0, 5.0, 4.4, 0.3, -0.7, -1.1, -1.5, -2.8, -1.3, 1.4, -1.1 (as tabulated).
- Primary deficit (percent of GDP): 3.0, 5.0, 6.7, 4.4, 1.8, 0.7, 0.8, 0.3, -1.0, 0.0, 3.0, 0.3 (entries as shown).
- Revenue and grants (percent of GDP): 13.6, 13.2, 14.4, 14.6, 15.1, 15.7, 17.5, 19.1, 18.2, 13.8, 17.2 (table rows).
- Primary (noninterest) expenditure (percent of GDP): 16.5, 18.2, 21.1, 19.1, 16.4, 15.8, 16.5, 17.8, 18.1, 18.2, 16.8, 17.5.
- Automatic debt dynamics (percent of GDP): -2.1, 0.0, -1.7, 0.8, -1.5, -1.4, -1.9, -1.8, -1.8, -1.3 (as shown).
  - Contribution from interest rate/growth differential: -0.8, 0.1, -0.4, -0.2, -1.7, -1.8, -1.8, -1.9, -1.9, -1.4.
  - Contribution from average real interest rate (percent): 1.3, 1.2, 1.0, 1.6, 1.3, 1.5, 1.5, 1.5, 1.3, 0.4.
  - Contribution from real GDP growth (percent): -2.1, -1.0, -1.4, -1.8, -3.0, -3.2, -3.3, -3.3, -3.2, -1.9.
  - Contribution from real exchange rate depreciation (percent): -1.3, -0.2, -1.3 (historical entries; projections show ellipses).
- Other identified debt-creating flows and privatization receipts: entries largely 0.0 across years; recognition of contingent liabilities shows 0.1 in one historical year and 0.0 elsewhere.
- Residual: -0.1, 1.2, 2.2, -0.6, -0.1, -0.2, -0.3, -0.4, -0.4, -0.1, 0.7, -0.3.
- Sustainability indicators:
  - PV of public debt-to-GDP ratio (percent): 41.1, 44.1, 43.7, 42.5, 42.5, 41.1, 39.2, 36.3, 33.4, 30.9, 28.4, 26.8, 25.7 (selected entries as presented).
  - PV of public debt-to-revenue and grants ratio: ... 286.0, 299.4, 299.4, 280.9, 261.6, 224.5, 189.8, 173.9, 161.7, 150.6, 145.1, 141.4 (table sequence as shown).
  - Debt service-to-revenue and grants ratio (percent): 52.5, 45.5, 42.9, 62.4, 56.7, 54.0, 42.7, 37.2, 33.6, 26.9, 28.9, 29.4, 26.7, 21.9 (entries as shown).
  - Gross financing need (percent of GDP): 8.2, 9.3, 12.8, 12.9, 10.0, 8.9, 7.5, 6.8, 5.4, 4.0 (selected years).
- Key macro-fiscal assumptions (selected):
  - Real GDP growth (percent): 6.4, 2.9, 3.4, 3.8, 6.0, 6.5, 6.7, 7.1, 7.0, 5.7, 3.6, 6.1.
  - Average nominal interest rate on external debt (percent): 1.9, 1.7, 2.1, 3.2, 2.5, 2.5, 2.6, 2.7, 2.5, 1.6, 1.6, 2.3.
  - Average real interest rate on domestic debt (percent): 12.7, 9.4, 8.2, 10.2, 8.3, 6.4, 6.5, 6.5, 6.4, 1.5, 7.3 (as shown).
  - Real exchange rate depreciation (percent, + indicates depreciation): -5.3, -0.7, -4.5, ............ -5.3... (table entries include ellipses).
  - Inflation rate (GDP deflator, percent): 2.6, 3.1, 2.5, 2.8, 4.0, 5.3, 5.2, 5.1, 5.0, 4.6, 14.1, 4.6.
  - Growth of real primary spending (deflated by GDP deflator, percent): 18.1, 13.6, 19.4, -5.8, -9.2, 3.0, 11.3, 15.3, 9.2, 6.2, 2.9, 4.8.
  - Primary deficit that stabilizes the debt-to-GDP ratio (percent): 2.1, -1.2, -0.5, 0.5, 1.6, 1.6, 2.2, 2.2, 2.2, 1.4, 0.1, 1.7.
  - PV of contingent liabilities (not included in public sector debt): 0.0, 0.2, 0.5, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0 (table entries).
- Sources for the public DSA: Country authorities; and staff estimates and projections.
- Notes (as in table): 1/ Coverage of debt: The central, state, and local governments plus social security, central bank, government-guaranteed debt. Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA... 3/ Debt service is defined as the sum of interest and amortization... 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages...  

### Sensitivity analysis and stress tests — key outcomes
- Table 3 (Public and PPG external debt sensitivity, FY2021/22–2031/32) — PV of PPG external debt-to-GDP baseline and scenarios:
  - Baseline PV of debt-to-GDP (percent): 25.1 (2021/22); 24.6; 23.9; 23.6; 23.2; 22.0; 21.4; 21.0; 20.5; 20.1; 19.9 (timeline as presented).
  - Alternative scenarios and bound tests produce higher or lower PV and ratio outcomes; selected bound test results (examples):
    - B1. Real GDP growth — PV-to-GDP series includes values such as 25.1, 26.7, 28.5, 28.1, 27.6, 26.3, 25.6, 25.1, 24.4, 24.0, 23.7.
    - B6. One-time 30 percent nominal depreciation — PV-to-GDP series includes values such as 25.1, 30.6, 26.7, 26.5, 26.1, 24.8, 24.2, 23.8, 23.4, 23.1, 23.0.
  - Thresholds used in sensitivity analysis: PV of debt-to-GDP threshold = 40; PV of debt-to-exports threshold = 100; Debt service-to-exports and debt service-to-revenue thresholds = 15, 15, 15, etc. (as table headers show).
- Debt service-to-exports and debt service-to-revenue sensitivity (selected baseline and scenario results):
  - Baseline debt service-to-exports (percent): 14.5, 13.4, 13.5, 13.1, 14.4, 13.0, 11.0, 11.5, 12.6, 12.4, 11.7 (as table entries).
  - Baseline debt service-to-revenue (percent): 17.5, 15.7, 15.2, 14.0, 14.4, 12.7, 10.3, 10.6, 11.3, 10.8, 10.0 (table entries).
- Table 4 (Public debt sensitivity, FY2021/22–2031/32) — PV of debt-to-GDP and other public debt indicators under alternative shocks:
  - Baseline public debt (percent of GDP): 44.1, 43.7, 42.5, 41.1, 39.2, 36.3, 33.4, 30.9, 28.4, 26.8, 25.7.
  - Alternative scenarios and stress tests can raise public debt above the public debt benchmark (55 percent) in some stress outcomes; bound tests show wide ranges (selected outcomes shown in table).
  - Baseline PV of debt-to-revenue ratio values: 298.8, 299.4, 280.9, 261.6, 224.5, 189.8, 173.9, 161.7, 150.6, 145.1, 141.4 (as presented).
  - Baseline debt service-to-revenue ratio (percent): 62.4, 56.7, 54.0, 42.7, 37.2, 33.6, 26.9, 28.9, 29.4, 26.7, 21.9.
- Figures and tailored tests:
  - Figure 1 & Figure 2 present indicators of public and PPG external debt under alternative scenarios and identify most extreme shocks by indicator (e.g., One-time depreciation, Exports shock, Combination).
  - Tailored tests include Combined contingent liabilities, Natural disasters (n.a.), Commodity price shocks (n.a.), Market Financing (n.a.) with customization notes.
  - Borrowing assumptions for stress tests assume additional financing needs are covered by PPG external MLT debt; default terms of marginal debt are based on baseline 10-year projections.
  - Thresholds and calibration notes: the most extreme stress test is the test that yields the highest ratio in or before 2032; commodity price shock magnitudes are based on IMF research department outlook.

### Drivers of debt dynamics and realism tools
- Figure 3 (Drivers of Debt Dynamics) highlights contributions to debt changes from:
  - Primary deficit, real interest rate, real GDP growth, change in current account + FDI, price and exchange rate changes, other debt-creating flows, and residuals.
- Figure 4 (Realism Tools) displays:
  - Fiscal adjustment paths and possible real GDP growth under different fiscal multipliers (Multiplier = 0.2, 0.4, 0.6, 0.8).
  - Historical and projected public and private investment rates and contribution of government capital to growth.
  - Distribution of 3-year adjustment in primary balance across Fund-supported LIC programs, and projected 3-year adjustment for the current DSA.
- Figure 5 (Qualification of the Moderate Category, 2021–2031) presents classification thresholds and shows that various indicators (PV debt/GDP, PV debt/exports, debt service/revenue, debt service/exports) are used to qualify the "Moderate" risk category over time.

### Key policy implications and recommendations (as implied by content)
- Reduce public debt to below 50 percent of GDP (nominal) over the medium term.
- Implement the DRMS to strengthen debt management.
- Unwind crisis measures introduced in response to Covid-19 to lower debt-creating flows and stabilize debt dynamics.
- Monitor vulnerabilities highlighted by stress tests, especially shocks from real GDP growth, terms of trade/exports, and one-time nominal depreciation scenarios that increase debt ratios or debt-service pressures.

*Statement by Ms. Mannathoko, Executive Director and Ms. Basutli Advisor to the Executive Director on Uganda — Executive Board Meeting March 9, 2022*

### Introduction

### 1ugaea2022001 - Introduction

### Overview
- Authorities appreciate constructive engagement during the recent Article IV consultations and first review under the Extended Credit Facility (ECF) arrangement.
- The authorities’ economic reform program is guided by the Third National Development Plan (NDP III) 2020/21 -2024/25.
- NDP III aims to: stimulate private sector led growth; facilitate business activity and financial inclusion; restore welfare through broadened vaccination, sustainable re-opening of schools, and infrastructure provision including roads and digital means such as e-government, e-procurement and e-learning; and accelerate industrialization and value-added manufacturing.
- The ECF program complements NDP III by supporting macroeconomic policy implementation and adjustment to the pandemic shock while preserving macroeconomic stability and positioning the economy for recovery.
- Progress in transparency of public spending:
  - Fully operationalized mechanism for collecting and publishing beneficial ownership information of companies awarded COVID-19 related contracts, starting in January.
  - Expanded collection of beneficial ownership information in all procurement contracts.
  - Published full year COVID spending audit for FY 20/21 in February and will issue a memorandum addressing corrective actions.
- Authorities acknowledge Fund technical assistance instrumental in designing the system to track COVID-19 spending regardless of source of financing.
- Request for Executive Directors’ support for completion of the first review under the ECF arrangement and request for modification of performance criteria.

### Recent Economic Developments and Outlook
- Growth:
  - Uganda suffered a 3.5 percentage point loss in growth in 2019/20 due to the pandemic.
  - Growth was 2.9 percent in 2019/20 and 3.4 percent in 2020/21, well below pre-pandemic levels of over 6 percent.
  - Projected to reach 3.8 percent in 2021/22 and recover in the medium term to around 6-7 percent as global demand recovers and new energy projects come on stream.
- Vaccination:
  - Authorities committed to vaccinating 22 million people (49.6 percent of the total population) by the end of 2022.
  - Procurement covers target including World Bank financing (covering just over half of the target population) and donations.
  - Budgeted US$20.2 million of the World Bank grant for deployment interventions.
  - 13.5 million doses administered by end February; about 5.9 percent of the total population fully vaccinated compared to just under 1 percent five months earlier in September 2021.
- Inflation:
  - Headline inflation below 3 percent in 2021 despite increases in food, energy and utility prices.
  - Annual inflation fell to 2.7 percent in January 2022 from 2.9 percent in December 2021.
  - Inflation may rise towards the 5 percent target in the medium term given global uncertainty, energy and food price increases, and recovery in demand.
- External sector and reserves:
  - Current account deficit deteriorated from 5.9 percent of GDP in FY19/20 to 10.2 percent of GDP in FY20/21, the highest on record.
  - International reserves reached 4.2 months of import cover in FY20/21, up from 3.9 months in FY19/20, aided by the SDR allocation; still lower than the EAC target of 4.5 months.
  - Future current account dynamics likely shaped by improvements in global demand and higher imports related to capital investment in oil projects.

### Program Performance
- All end-September quantitative performance criteria and almost all indicative targets were met, with a comfortable margin on the primary balance.
- One indicative target (tax revenues) was missed in September due to pandemic-induced revenue shortfalls.
- Structural benchmarks (SBs):
  - Seven of ten SBs completed, albeit with delay.
  - The structural benchmark on the framework for tracking COVID-19 spending adopted by end-August in line with the program.
  - Amendments to the Bank of Uganda Act submitted to Cabinet in January 2022 and expected to be adopted by Parliament by September 2022.
  - Five of the benchmarks not met in 2021 have now been implemented.
  - Three remaining SBs require timeline resetting due to factors beyond authorities’ control.
  - Authorities working to meet benchmarks on the beneficial ownership registry, upgrade of the national social registry, and introduction of a sanction regime for unauthorized spending by a new end-June 2022 deadline.

### Macroeconomic Policies
- Authorities remain focused on macroeconomic stability and will pursue growth-friendly fiscal consolidation and governance-enhancing reforms to foster public sector efficiency.
- Debt:
  - Debt-to-GDP ratio at 49.1 percent, below levels initially projected for the review period.
  - Given planned unwinding of crisis measures and implementation of fiscal consolidation, public debt considered sustainable in the medium term.
- Structural reforms to include strengthening governance framework, financial sector development and inclusion, and attention to climate change and adaptation.

### Fiscal Performance and Policy
- FY20/21 fiscal deficit deteriorated less than expected under the program, with better-than-expected performance of about 0.5 percent of GDP.
  - Contributing factors: stepped up tax administration yielded tax arrears collection of about 0.3 percent of GDP; lower execution of public investment projects; deferred ministry spending.
- Authorities expect tax administration and policy reforms to yield 0.7 percent of GDP in FY21/22 and 0.5 percent of GDP on average per year over the medium term.
- Tax policy intentions:
  - Enhance the income tax system, improve the excise duty regime, strengthen VAT productivity, reduce exemptions, and review the registration threshold.
  - Increase taxpayer registration, enhance voluntary compliance, and strengthen arrears management.
- Spending priorities and measures:
  - Streamline expenditures; prioritize public education and health spending; boost social assistance.
  - Earmarked half of the SDR allocation for education and health and water and sanitation projects.
  - If warranted, rationalize non-priority spending as part of contingency planning.
- Monetary financing constraint:
  - Effective January 2022, all Bank of Uganda advances will be governed by within-year limits of 10 percent of current year domestic revenue.
- Medium-term PFM and debt transparency:
  - Strengthen public financial management, reduce stock of domestic arrears and prevent new accumulation, strengthen cash management reforms, extend the Treasury Single Account to extra-budgetary units and other agencies, and gradually improve monthly cashflow forecasting accuracy.
  - Advance plans to adopt a fiscal rule for managing oil revenues as part of the medium-term fiscal plan.
  - Commitment to the Medium-Term Debt Strategy; aim to publish data on SOE debt and contingent liabilities by June 2022.

### Monetary and Exchange Rate Policies
- Bank of Uganda (BoU) maintained an accommodative monetary policy stance; despite rate cuts, inflation remained well below target.
- SIP analysis found Uganda’s neutral rate of interest had declined since 2015, implying cuts left interest rates above the neutral rate and unable to achieve a de facto accommodative stance.
- Staff conclusion: a continued accommodative stance is warranted to help bring inflation back up to the target level.
- Authorities will maintain accommodative stance but must monitor inflationary pressures given global uncertainty from the Russia-Ukraine crisis; monetary policy to remain data driven.
- BoU actions:
  - Continue improving forecasting tools and strengthen communication.
  - Limit direct financing of fiscal operations in line with program requirements.
  - Maintain the COVID-19 Liquidity Assistance Program until economic situation normalizes.
- BoU Act amendments:
  - Envisaged amendments include dynamic recapitalization, strengthening safeguards for institutional autonomy, clarifying limits for advances to the government, and strengthening governance and transparency.
  - Law submitted to Cabinet in January 2022; expected Parliament approval in September 2022.
- Foreign exchange policy:
  - Continue to limit foreign exchange interventions to smoothing out excess volatility.
  - Commence a review of the Foreign Exchange Reserves Management Policy to align with international best practice and revise Strategic Asset Allocation.
  - Staff providing technical assistance for adjustment of monetary and exchange rate regime in anticipation of large LNG export receipts in a few years.

### Financial Sector Policies
- Banking sector remains profitable, well-capitalized and resilient; some vulnerabilities remain a concern.
- NPL ratio around 5.4 percent.
- Credit relief extended only to the two hardest-hit sectors, education and hospitality, to September 2022.
- Measures to safeguard financial stability include:
  - Strengthening supervisory framework through a shift to risk-based supervision and enhanced stress testing.
  - Continued monitoring of household and corporate credit.
  - Operationalized the Resolution Policy Framework and measures for orderly resolution of banks.
  - Strengthening capital buffers: implementation of a systemic risk buffer for Domestic Systemically Important Banks, a capital conservation buffer and leverage ratio effective January 1, 2022.
  - Counter-cyclical buffer framework ratified by the BoU Board in December 2021.
- Authorities emphasize pressing ahead with measures given IFRS9 provisioning requirements and uncertainty around economic recovery.
- AML/CFT:
  - Intend to strengthen AML/CFT framework, expedite implementation of the National AML/CFT Strategy and the grey list action plan.
  - Amended regulations to apply due diligence to politically exposed persons and their family members and close associates.
  - Establishment of a beneficial ownership registry and enhancing BoU’s AML/CFT supervisory capacity are key priorities.

### Structural Reforms
- Ambitious reform agenda guided by NDP III to generate higher and more inclusive private sector-led growth and advances in human capital with a goal of attaining middle-income status by 2040 and achieving the sustainable development goals.
- Priorities include governance reforms, reducing cost of doing business, addressing infrastructure-related issues, strengthening SME incubation, improving land administration, and reducing red tape.
- One-stop shop for permits and business registration is operational and accessible physically and online.
- Asset declaration and anti-corruption:
  - Improvements in the asset declaration regime, including appointment of the Inspector General of Government and deputies, and operationalizing the Leadership Code Tribunal.
  - Continued focus on implementation and enforcement of the anti-corruption legal framework.
  - As a member of the Extractive Industries Transparency Initiative, Uganda committed to disclosing contracts and licenses for oil and gas production and beneficial owners of corporate entities holding legal interests; first report on such disclosures expected in 2022.

### Climate Change and Environment
- SIP on climate change priorities endorsed; urgent policy actions in line with NDP III include:
  - Developing flood risk zoning, upgrading and enforcing development restrictions, and standards for construction and maintenance to improve resilience to floods.
  - Revamping government support to reforestation programs to enhance soil resilience and contribute to emission reduction through carbon sequestration.
  - Improving water mapping and monitoring, and water conservation measures (e.g., price differentiation and groundwater protection) to increase drought resilience.
  - Scaling up capacity to access donor funds critical to meet ambitious adaptation plans.
- Priority actions: focus on water catchment and increasing forest coverage from 14 percent to an envisaged 21 percent by 2030, in line with NDP III aspirations.

### Conclusion and Authorities’ Position
- Authorities remain committed to the program’s objectives as key to maintaining macroeconomic stability, durably exiting from the COVID-19 crisis, and supporting sustainable growth and an inclusive recovery.
- Authorities look forward to the support of Executive Directors for the completion of the Article IV consultation and the first ECF review.

*Source: 1ugaea2022001 - Introduction*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1ugaea2022001.pdf_