## 1ugaea2023001 - 180.5 million, about US$240 million. ## Source details **Canonical URL:** [1ugaea2023001 - 180.5 million, about US$240 million.](https://www.imf.org/-/media/files/publications/cr/2023/english/1ugaea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1ugaea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1ugaea2023001.pdf.json) --- ### Executive Board decision and disbursement - Executive Board concluded the combined second and third reviews under the ECF Arrangement for Uganda on January 17, 2023. - A waiver granted for nonobservance of a performance criterion on the stock of net international reserves of the Bank of Uganda. - Completion of the combined 2nd and 3rd reviews allowed an immediate disbursement equivalent to SDR 180.5 million, about US$240 million, bringing aggregate disbursement-to-date to US$625 million. - The ECF Arrangement for Uganda totals SDR 722 million (200 percent of quota) or about US$1billion and was approved on June 28, 2021. ### Program objectives and structural reforms - Program aims: - Support the near-term response to the COVID-19 pandemic. - Boost more inclusive private sector-led long-term growth. - Create fiscal space for priority social spending. - Preserve debt sustainability. - Strengthen governance. - Enhance monetary and financial sector frameworks. - Structural reforms highlighted: - Amend regulations to include beneficially owned assets in asset declarations. - Publish information on compliance with the Leadership Code Act and access applications to declarations. - Amend law to establish a central registry for beneficial ownership information of legal entities; implementing regulations to allow timely access expected. - Adopt a tax expenditure rationalization plan to streamline the system and mobilize tax revenue. ### Recent macroeconomic developments and outlook - Growth and inflation projections and revisions: - Real GDP growth projected at 5.3 percent in FY 22/23 (revised down from 6 percent at the 1st review in March 2022). - Headline inflation expected to rise to 8.3 percent (marked up from 4.6 percent at the 1st review). - Recent indicators: - Real GDP grew by 4.7 percent in FY21/22. - Headline y-o-y inflation reached 10.6 percent in November 2022; food and energy prices increased by 27.8 percent and 12.2 percent, respectively. - Core inflation registered at 8.8 percent in November 2022, above the BoU target of 5 percent. - The BoU increased the central bank policy rate to 10 percent in October 2022, from 6.5 percent in May. - Drivers of revisions and risks: - Revisions reflect impact of the war in Ukraine, tighter external financial conditions, drought, and rising domestic borrowing costs. - Risks: higher imported inflation, lower external demand, climate change, public health outlook (including Ebola outbreak). ### Fiscal and debt outlook — selected indicators (from Table 1) - Real GDP Growth (%): FY2020/21 3.5; FY2021/22 4.7; FY2022/23 5.3; FY2023/24 6.0 - Headline Inflation - average (%): FY2020/21 2.5; FY2021/22 3.4; FY2022/23 8.3; FY2023/24 7.2 - Core Inflation - average (%): FY2020/21 3.5; FY2021/22 3.2; FY2022/23 7.5; FY2023/24 6.8 - Revenue and Grants (% of GDP): FY2020/21 14.3; FY2021/22 14.1; FY2022/23 15.1; FY2023/24 15.5 - Expenditure (% of GDP): FY2020/21 23.7; FY2021/22 21.5; FY2022/23 20.2; FY2023/24 19.0 - Primary Balance (% of GDP): FY2020/21 -6.7; FY2021/22 -4.3; FY2022/23 -1.8; FY2023/24 -0.3 - Fiscal Balance (% of GDP): FY2020/21 -9.4; FY2021/22 -7.4; FY2022/23 -5.1; FY2023/24 -3.5 - Public Debt (% of GDP): FY2020/21 49.0; FY2021/22 50.6; FY2022/23 50.9; FY2023/24 49.6 - Current Account Balance (% of GDP): FY2020/21 -9.5; FY2021/22 -7.9; FY2022/23 -9.2; FY2023/24 -10.7 - Reserves (months of next year's imports): FY2020/21 4.9; FY2021/22 3.7; FY2022/23 3.0; FY2023/24 3.1 - External Public Debt (% of GDP): FY2020/21 31.6; FY2021/22 31.3; FY2022/23 31.9; FY2023/24 32.4 ### Policy assessment and recommendations - Macroeconomic policy: - Maintain tight macro policies and continued exchange rate flexibility to strengthen external buffers. - Fiscal consolidation and monetary tightening to align domestic absorption with domestic production, reduce the current account deficit, and contain the decline in reserves. - Fiscal priorities: - Return to programmed fiscal consolidation path and reserve cover to keep debt sustainable. - Enhance domestic revenue mobilization by eliminating inefficient tax exemptions and rationalizing non-priority spending. - Shift spending composition toward priority social areas; Parish Development Model (PDM) noted as welcome. - Monetary and financial sector: - Monetary policy should continue to tighten to achieve the core inflation target. - Maintain exchange rate flexibility; limit FX interventions to smoothing excessive fluctuations. - Continue improvements in Bank of Uganda’s autonomy and governance framework. - Structural reforms and governance: - Accelerate reforms to enhance domestic revenue mobilization, strengthen governance and transparency, strengthen the anti-corruption framework and the AML/CFT regime, advance financial inclusion, and implement climate adaptation measures. - Continued resolute and timely implementation of structural reforms, including anticorruption and governance measures, is key for program success. ### Program performance, requests, and adjustments - Program performance: - Most QPCs and ITs for March, June and September 2022 were met; all but one QPC were met. - Six of the twelve structural benchmarks due between March and December 2022 have been completed; one structural benchmark on asset declaration was converted into a prior action and met. - Authorities' requests and modifications: - Modify December 2022 ITs: floors on primary budget balance, NIR, support to vulnerable households, social spending, tax revenues, repayment of outstanding domestic arrears, and ceiling on net claims on government by central bank. - Increase IT floor on tax revenues reflecting stronger expected revenue performance. - Temporarily lower NIR floor reflecting tighter global financial conditions and waive nonobservance of the September QPC on net international reserves. - Rephase access to facilitate disbursement before month-end in future reviews. - Increase floor for repayment of outstanding domestic arrears due to faster repayment. ### Current account, reserves, and exchange rate dynamics - Current account: - Deficit improved since mid-2021 but remains high due to stronger government and private sector oil imports and higher interest payments; partly offset by higher exports of goods (excluding non-monetary gold) and services. - Reserves: - Declined to US$4.1 billion in June from US$4.5 billion in March. - Subsequent decline to US$3.7 billion (or 3.6 months of import cover) in September. - Exchange rate: - The shilling depreciated 9 percent vis-à-vis the US dollar between end-February and end-July. - The shilling gained about 3½ percent at end-November from end-July. - BoU interventions to smooth excess volatility contributed to reserve drawdowns. ### Financial inflows, private credit, and banking sector metrics - Portfolio inflows weakened since 2022Q2; FDI and other investment flows subdued. - Commercial bank credit to the non-bank private sector contracted by 0.9 percent year-on-year in September 2022 (compared to growth of 7.1 percent in December 2021). - Non-performing loan (NPL) ratio: 5.2 percent (September 2022). - Core capital adequacy ratio: 22.9 percent (September 2022). - Banking system remains well-capitalized; liquidity buffers have declined and require monitoring. ### Implementing high-quality fiscal support while preserving debt sustainability and preparing for oil - FY22/23 fiscal stance: - Overall fiscal balance target will widen by 0.4 percent of GDP relative to 1st review to accommodate PDM, higher interest payments and higher wages. - FY22/23 primary balance expected unchanged from 1st review in percent of GDP (-1.8 percent). - Parish Development Model (PDM): - Targets subsistence households (around 39 percent of the total) via SACCOs and public infrastructure. - Funds disbursed to more than 50 percent of SACCOs (around 8,251 out of a total 10,594). - Budgetary impact: 0.5 percent of GDP per year over four years. - Other fiscal changes relative to 1st review: - Interest expenditures higher by 0.5 percent of GDP. - Public sector wages higher by 0.7 percent of GDP (66 percent of wage increase absorbed by human capital programs). - Additional hydropower project and higher domestic arrears clearance (0.2 and 0.1 percent of GDP, respectively). - Financing: - Small increase in fiscal deficit (from 4.7 to 5.1 percent of GDP) to be financed mostly by additional external borrowing from commercial banks (US$440 million). - Additional sources: higher domestic revenues from updated fees, increased grant share of investment financing, SDR use and ECF disbursements. - Contingency: - If downside risks materialize, non-priority investment projects could be reduced via temporary freeze on new project commitments or delaying projects not yet started or financed. - Medium-term revenue strategy: - Full implementation of Domestic Revenue Mobilization Strategy (DRMS) expected to increase tax revenue by 0.5 percent of GDP per year. - Debt-to-GDP ratio expected to peak at 50.9 percent of GDP in FY22/23 and decline below 50 percent by FY23/24. - Priority: rationalize tax expenditures on direct income (personal and corporate), VAT and excise tax expenditures. ### Public financial management reforms — three pillars - A. Improving the budget preparation process: - Ministries to submit all foreseeable expenditures; limit supplementary budgets to unforeseeable unexpected shocks. - B. Reducing outstanding domestic arrears and preventing accumulation: - Clearance of domestic arrears prioritized in FY22/23 and over the medium term. - Publish decisions arising from investigations that led to sanctions for the period starting from FY20/21, with clear penalties for officers responsible for unauthorized spending commitments (proposed SB, June 2023). - Capacity development to record multiyear commitments for capital expenditure. - C. Strengthening cash management and PIM: - Transition to program-based budgeting and operationalize an online module for reporting spending projections. - Prepare an aggregate borrowing plan that considers the Government’s consolidated cash position within and outside the TSA. - IMF technical assistance provided to strengthen financial oversight and fiscal risk reporting of state corporations. ### Debt sustainability and risk of debt distress - Uganda’s risk of debt distress: moderate (MEFP, ¶28). - DSA indicates external debt burden and public debt indicators remain below thresholds under baseline; stress tests lead to breaches, indicating moderate risk. - Composition of externally financed capital expenditures shifted slightly towards grants compared with the 1st review. - Authorities intend to borrow from external commercial banks in FY22/23; PV of newly contracted external public and publicly guaranteed debt in line with 1st review target. ### Financial sector stability and reforms - Asset quality, provisioning, capitalization: - Share of outstanding Credit Relief Measure (CRM) loans declined from 30.2 percent in September 2020 to 9.9 percent in August 2022. - If all performing past-due CRM loans move to NPLs and CBR is raised to 12 percent by March 2023, aggregate NPL ratio would rise from 5.2 percent to 9.7 percent; all banks except 4 would remain resilient. - Foreign currency exposure and liquidity: - Foreign currency loans: 32.7 percent of total loans. - FX loan-to-deposit ratio: around 59.5 percent (regulatory ceiling 80 percent). - Cash reserve requirement raised by 2 percentage points to 10 percent in June. - Liquidity coverage ratio (LCR): decreased from 285.5 percent in September 2021 to 169.5 percent in September 2022. - BoU stress test: consolidated LCR would decline to 149.1 percent and 5 banks will breach minimum LCR if liquidity buffers decline by 10.7 percent. - Monitoring and priority actions: - Timely monitoring of credit risk of restructured loans; regular stress tests; monitor banks’ loan classification to ensure alignment with IFRS 9. - Financial sector reform implementation: - Regulations defining fit and proper test criteria for bank shareholders issued (SB, September 2022). - BoU developing AML/CFT risk-based supervision tools (SB, October 2022); rollout for FX bureaus and money remitters expected by May 2023 (proposed SB). - BoU to adopt cybersecurity guidelines and issue new corporate governance regulations (proposed SB, December 2023). - BoU Board Committee to agree on ownership structure for Credit Registration Bureau data consolidated at Central Data Hub (proposed SB, October 2023). ### Governance, anti-corruption, and transparency measures - Publish tax expenditures and procurement contracts with information on beneficial owners. - Continue quarterly compilation and publication of unpaid invoices. - Publication of decisions from investigations into unauthorized spending leading to sanctions starting from FY20/21 (proposed SB, June 2023). - Prior action completed: publication on the Inspectorate of Government’s website of specified asset declaration compliance and access application statistics (Table 2a prior action). - Companies’ Act amended in September 2022 to define beneficial owners and establish centralized beneficial ownership register; draft regulations for timely access expected to be gazetted by March 2023 (proposed reprogrammed SB). - Directorate for Ethics and Integrity to publish assessment report against NACS indicators and annual 2022 report on corruption prevalence (proposed SB, November 2023). ### Financing status, capacity to repay IMF, and safeguards - Program is fully financed; new commercial syndicated loans are expected and planned use of half of the August 2021 SDR allocation in FY22/23 will help close the fiscal financing gap. - Firm commitments for first 12 months; good prospects for remainder of arrangement. - Capacity to repay the Fund (Table 9): - Total Fund outstanding credit would peak at SDR1,083 million, or 300 percent of quota in 2024, equivalent to 2.9 percent of GDP, 19.6 percent of exports of goods and services and 53.4 percent of gross international reserves. - Repayments to the IMF expected to peak at 2.2 percent of exports of goods and services and 4.5 percent of reserves in 2029. - Safeguards and BoU governance reforms: - Work continues on implementing 2021 safeguards assessment recommendations. - Revised principles amending the BoU Act (SB, October 2023) will address autonomy concerns and limit provision of credit to government through various channels. - BoU Board resolved only independent Board members shall sit on the central bank’s audit committee; currency masterplan approved and being implemented. ### Major risks and mitigation (Annex I RAM — selected) - Major domestic risks (likelihood / impact / policy response): - Local Ebola or Covid-19 outbreaks — Medium / High — prioritize vaccine rollout, strengthen social safety net, extend fiscal and monetary support. - Intensification of security risks — High / High — reprioritize fiscal spending within security envelope, maintain stability and investor confidence. - Social unrest from rising inflation and declining incomes — Low / High — intensify social safety nets, formulate credible medium-term fiscal path. - Slow progress on fiscal reforms and FATF action plan — Medium / High-to-Medium — accelerate reforms and ensure coordination. - Natural disasters related to climate change — Medium / High — build fiscal and external buffers, improve resilience. - Major external risks: - De-anchoring of inflation expectations and stagflation — Medium / Medium — tighten monetary policy, consider temporary FXI for smoothing. - Intensifying spillovers from war in Ukraine — High / Medium — adjust monetary policy, provide targeted fiscal support. - Commodity price shocks and abrupt global slowdown — High/Medium and Medium/High respectively — targeted fiscal support, allow automatic stabilizers. ### Program monitoring, reporting, and performance criteria (selected) - Semi-annual QPCs, continuous PCs, ITs and SBs defined in MEFP and TMU; test dates aligned with reviews (e.g., March 2022, September 2022, March 2023, September 2023). - Selected QPC/IT outcomes: - End-Mar QPCs: all met. - End-Jun: all but two ITs met (BoU net credit to government IT not met; social spending IT not met). - End-Sept: QPC on reserves floor not met; other QPCs largely met; tax revenues IT missed by 2 percent in September. - Structural benchmarks: - Six of 12 SBs with deadlines between March and October 2022 completed (five with delay). - Several SBs reprogrammed (timely access to beneficial ownership information, treasury memoranda addressing FY20/21 audit weaknesses, BoU act amendments, AML/CFT tools). - New SBs proposed to reinforce program goals (PDM tracking module, ITAS procurement plan, corporate governance regulations, publication of sanctions decisions). ### Conclusion — outlook, program support, and conditionalities - Outlook: - Recovery continues but faces headwinds from Ebola outbreak, spillovers from Ukraine, and tighter external financial conditions. - Growth risks tilted to downside; inflation could be higher than projected. - Staff appraisal and support: - Staff supports completion of Combined Second and Third Review, waiver of nonobservance of end-September PC on NIR, modification of ITs and SBs, and rephasing of access. - Emphasis on revenue-based fiscal consolidation, securing concessional financing, tight monetary policy, exchange rate flexibility, and continued structural reform momentum. - Authorities’ commitments: - Continue medium-term fiscal consolidation while providing targeted support (PDM) and protecting social spending. - Expedite completion of FATF action plan items to exit the grey list and strengthen governance measures. *Source: IMF staff report — Uganda: Second and Third Reviews Under the Extended Credit Facility Arrangement, Requests for a Waiver of Nonobservance of Performance Criterion, and Rephasing of Access (December 20, 2022 / Press summary dated January 17, 2023).* ### 180.5 million, about US$240 million. ### 1ugaea2023001 - 180.5 million, about US$240 million. ### Executive Board decision and disbursement - The Executive Board concluded the combined second and third reviews under the ECF Arrangement for Uganda on January 17, 2023. - A waiver was granted for nonobservance of a performance criterion on the stock of net international reserves of the Bank of Uganda. - Completion of the combined 2nd and 3rd reviews allowed an immediate disbursement equivalent to SDR 180.5 million, about US$240 million, bringing aggregate disbursement-to-date to US$625 million. - The ECF Arrangement for Uganda totals SDR 722 million (200 percent of quota) or about US$1billion and was approved on June 28, 2021. ### Program objectives and reforms - The ECF-supported program aims to: - Support the near-term response to the COVID-19 pandemic. - Boost more inclusive private sector-led long-term growth. - Create fiscal space for priority social spending. - Preserve debt sustainability. - Strengthen governance. - Enhance monetary and financial sector frameworks. - Structural reforms highlighted: - Amend regulations to include beneficially owned assets in asset declarations. - Publish information on compliance with the Leadership Code Act and access applications to declarations. - Amend law to establish a central registry for beneficial ownership information of legal entities, with regulations to allow timely access forthcoming. - Adopt a tax expenditure rationalization plan to streamline the system and mobilize tax revenue. ### Recent macroeconomic developments and outlook - Growth and inflation projections and revisions: - Real GDP growth projected at 5.3 percent in FY 22/23 (revised down from 6 percent at the 1st review in March 2022). - Headline inflation expected to rise to 8.3 percent (marked up from 4.6 percent at the 1st review). - Drivers of revisions and risks: - Revisions reflect impact of the war in Ukraine, tighter external financial conditions, drought, and rising domestic borrowing costs. - Risks remain elevated, including higher imported inflation, lower external demand, climate change, and public health outlook (including Ebola outbreak). - Recent indicators: - Real GDP grew by 4.7 percent in FY21/22. - Headline y-o-y inflation reached 10.6 percent in November 2022; food and energy prices increased by 27.8 percent and 12.2 percent, respectively. - Core inflation registered at 8.8 percent in November 2022, above the BoU target of 5 percent. - The BoU increased the central bank policy rate to 10 percent in October 2022, from 6.5 percent in May. ### Fiscal and debt outlook (selected indicators) - From Table 1: Uganda: Selected Economic Indicators, FY2020/21-FY2023/24 - Real GDP Growth (%): FY2020/21 3.5; FY2021/22 4.7; FY2022/23 5.3; FY2023/24 6.0 - Headline Inflation - average (%): FY2020/21 2.5; FY2021/22 3.4; FY2022/23 8.3; FY2023/24 7.2 - Core Inflation - average (%): FY2020/21 3.5; FY2021/22 3.2; FY2022/23 7.5; FY2023/24 6.8 - Revenue and Grants (% of GDP): FY2020/21 14.3; FY2021/22 14.1; FY2022/23 15.1; FY2023/24 15.5 - Expenditure (% of GDP): FY2020/21 23.7; FY2021/22 21.5; FY2022/23 20.2; FY2023/24 19.0 - Primary Balance (% of GDP): FY2020/21 -6.7; FY2021/22 -4.3; FY2022/23 -1.8; FY2023/24 -0.3 - Fiscal Balance (% of GDP): FY2020/21 -9.4; FY2021/22 -7.4; FY2022/23 -5.1; FY2023/24 -3.5 - Public Debt (% of GDP): FY2020/21 49.0; FY2021/22 50.6; FY2022/23 50.9; FY2023/24 49.6 - Broad money (% change): FY2020/21 8.5; FY2021/22 10.0; FY2022/23 14.5; FY2023/24 12.6 - Credit to Private Sector (% change): FY2020/21 8.3; FY2021/22 11.0; FY2022/23 8.3; FY2023/24 12.8 - Current Account Balance (% of GDP): FY2020/21 -9.5; FY2021/22 -7.9; FY2022/23 -9.2; FY2023/24 -10.7 - Reserves (in months of next year's imports): FY2020/21 4.9; FY2021/22 3.7; FY2022/23 3.0; FY2023/24 3.1 - External Public Debt (% of GDP): FY2020/21 31.6; FY2021/22 31.3; FY2022/23 31.9; FY2023/24 32.4 - REER (% change): FY2020/21 0.6; FY2021/22 3.7 ### Policy assessment and recommendations - Macroeconomic policy: - Tight macro policies and continued exchange rate flexibility are recommended to strengthen external buffers. - Fiscal consolidation and monetary tightening are essential to align domestic absorption with domestic production, reduce the current account deficit, and contain the decline in reserves. - Fiscal policy priorities: - Return to the programmed fiscal consolidation path and reserve cover to keep debt sustainable and maintain external buffers. - Enhance domestic revenue mobilization by eliminating inefficient tax exemptions and rationalizing non-priority spending. - Shift spending composition toward priority social areas. - The Parish Development Model introduction was noted as a welcome development. - Monetary and financial sector: - Monetary policy should continue to tighten to achieve the core inflation target. - Continued exchange rate flexibility is needed, with foreign exchange interventions limited to smoothing excessive fluctuations. - Continued improvements in Bank of Uganda’s autonomy and governance framework are important. - Banking system is well-capitalized; financial stability risks should continue to be minimized. - Structural reforms and governance: - Accelerate reforms to enhance domestic revenue mobilization, strengthen governance and transparency, strengthen the anti-corruption framework and the AML/CFT regime, advance financial inclusion, and implement climate adaptation measures. - Continued resolute and timely implementation of structural reforms, including anticorruption and governance measures, is key for program success. ### Program performance, requests, and adjustments - Program performance: - Most quantitative performance criteria and indicative targets for March, June and September 2022 were met; all but one QPC were met. - Six of the twelve structural benchmarks due between March and December 2022 have been completed; one structural benchmark on asset declaration was converted into a prior action and met. - Authorities' requests and modifications: - Requests to modify December 2022 indicative targets: floors on the primary budget balance, NIR, support to vulnerable households, social spending, tax revenues, repayment of outstanding domestic arrears, and ceiling on net claims on government by the central bank. - Request to increase IT floor on tax revenues reflecting stronger expected revenue performance. - Request to temporarily lower the NIR floor reflecting tighter global financial conditions and to waive nonobservance of the September QPC on net international reserves due to the temporary deviation. - Request to rephase access to facilitate disbursement before the end of the month in future reviews. - Request to increase floor for repayment of outstanding domestic arrears due to faster repayment. ### Risks and vulnerabilities - Main risks to the program: - Ebola outbreak. - Rising security challenges. - Further spillovers from the war in Ukraine. - Mitigating factors: - Uganda’s moderate level of public debt and continued access to concessional financing provide space to achieve program objectives. - Other noted risks: - Higher imported inflation, lower external demand, climate change, and public health outlook could worsen the outlook. - Tighter global financial conditions have contributed to temporary reserve pressure. *Source: IMF staff report — Uganda: Second and Third Reviews Under the Extended Credit Facility Arrangement, Requests for a Waiver of Nonobservance of Performance Criterion, and Rephasing of Access (December 20, 2022 / Press summary dated January 17, 2023).* ### 6. The current account deficit remains high, while inflows have weakened since 2022Q2. ### 6. The current account deficit remains high, while inflows have weakened since 2022Q2. ### Current account balance, reserves, and exchange rate - Current account deficit has improved since mid-2021 but remains high due to stronger government and private sector oil imports and higher interest payments, partly offset by higher exports of goods (excluding non-monetary gold) and services. - Reserves: - Declined to US$4.1 billion in June from US$ 4.5 billion in March. - Subsequent decline to US$3.7 billion (or 3.6 months of import cover) in September. - Gross International Reserves (months of next year's imports of goods and services) shown historically between 2.5 and 5.5 (chart scale). - Exchange rate and interventions: - The shilling depreciated 9 percent vis-à-vis the US dollar between end-February and end-July. - The shilling gained about 3½ percent at end-November from end-July. - BoU interventions to smooth excess volatility contributed to reserve drawdowns. ### Financial inflows and market signals - Portfolio inflows have weakened since 2022Q2. - Foreign direct and other investment flows have been subdued. - Offshore investor behavior and yields: - Text figure indicates Real yield differential (UGA vs. US, in percent) and Offshore investor holding of govt. securities (in mil USD) movements across 2016–2022. - FX intervention sales show variation alongside volatility (VIX) and targeted purchases/sales (BoU data). ### Financial account and reserves change (Text Figure 5) - Financial Account (Net) components (USD million) across 2018 Q1–2022 Q2 include: - Direct Investment - Portfolio Investment - Other Investment - Change in Gross FX Reserves - CA Balance - Net flows turned negative in several quarters, contributing to reserve reduction. ### Private sector credit and banking sector metrics - Real terms: commercial bank credit to the non-bank private sector contracted by 0.9 percent year-on-year in September 2022 (compared to growth of 7.1 percent in December 2021). - Drivers of subdued private credit growth: crowding out from government borrowing and risk aversion of financial institutions. - Expectations: credit demand to remain subdued due to rising borrowing costs (policy rate increases), higher cost of imported goods from currency depreciation, and reduced purchasing power of customers. - Non-performing loan (NPL) ratio: 5.2 percent (September 2022). - Core capital adequacy ratio: 22.9 percent (September 2022). ### Fiscal outcomes and public debt - FY21/22 overall fiscal deficit: 7.4 percent of GDP (below 1st review target of 7.5 percent). - Drivers for FY21/22 outturn: higher-than-expected tax revenues in final quarter and under-execution of capital spending due to lower-than-expected external financing; offset grants shortfall and higher interest and other spending. - Public debt at end-FY21/22: 50.8 percent of GDP (including BoU advances); lower than projected at 1st program review mainly due to higher nominal GDP. - Q1 FY22/23 performance: - Non-interest expenditure under-executed and amounted to 12 percent of yearly target (against 26 percent in same quarter of FY21/22). - Tax revenues and grants were 21 percent of amount targeted for the entire financial year (close to 22 percent in Q1 FY21/22), leading to a primary fiscal surplus well in excess of the September QPC floor. ### Program performance (QPCs, ITs, and SBs) - Most QPCs and ITs met for end-March, end-June, and end-September test dates. - All end-March quantitative performance criteria met; all but one indicative target met (tax revenues IT missed). - End-June: all but two indicative targets met; IT on BoU net credit to government not met; IT on social spending not met. - September: QPCs on primary balance and net credit to government met by a large margin; QPC on reserves floor not met. - ITs on support to vulnerable households and repayment of outstanding domestic arrears met; ITs on social spending and tax revenues not met (tax revenues missed by 2 percent). - Structural Benchmarks (SBs) progress: - Six of 12 SBs with deadlines between March and October 2022 completed (five with delay). - CFR adopted by Parliament ahead of deadline (SB, July 2022). - GFSM2014 framework, tax exemption rationalization plan, unified registry of social assistance programs, expansion of credit bureau coverage, and implementing regulations for the Financial Institutions Act were completed after deadlines. - SB to lower barriers to access asset declarations (March 2022) not met; authorities completed a new prior action on asset declaration framework. - Legal/regulatory mechanisms for beneficial ownership information (September 2022) not met; regulation expected in Q1 2023. - SB on strict sanctions regime for unauthorized spending (June 2022) deemed not feasible; proposed new SB (June 2023) to focus on enforcement via publication of sanctions decisions starting FY 2020/21. - Authorities requested reprogramming of remaining four SBs for more time. ### Macroeconomic outlook and risks - Revised real GDP growth: - FY22/23: 5.3 percent (from 6 percent at 1st review). - FY23/24: 6 percent (from 6.5 percent at 1st review). - Medium-term: assumed return to pre-pandemic trend of 6-7 percent. - Inflation: - Headline inflation expected to average 8.3 percent in FY22/23 and decelerate towards 5 percent over the medium term. - Core inflation projected at 7.5 percent in FY22/23, converging to 5 percent target over medium term. - Risks tilted to the downside: - Erosion of consumer purchasing power and higher borrowing costs could reduce domestic demand. - Further rebalancing of offshore investors away from frontier exposures could negatively impact the shilling and sentiment; reserve cover ratio at lowest since FY2011/12. - Social unrest from higher living costs. - Stronger tightening of global financial conditions could weigh on financial sector stability; FX credit accounts for around 30 percent of bank loans. - Potential security and health shocks (Ebola, COVID-19 resurgence—only half of target population fully vaccinated). - Climate vulnerability due to mostly rain-fed agriculture. - Upside risks: - Positive impact from Parish Development Model (PDM). - As a net food exporter, potential benefit from higher regional export receipts. ### Policy discussions and recommendations - Policy objectives: mitigate consequences of tighter external financial conditions and elevated commodity prices while creating conditions for inclusive, private-sector-led growth. - Fiscal policy: - Remain on a steep consolidation path but a slightly more accommodative stance in FY22/23 relative to 1st review warranted to accommodate PDM rollout. - Preserve debt sustainability while creating space for social spending. - Monetary policy: - Tightening monetary policy to ensure inflation returns to target in medium term. - Continued exchange rate flexibility to reinforce fiscal and monetary tightening and rein in current account deficit by aligning domestic absorption with production. - Structural priorities: - Advance reforms to improve governance and reduce corruption vulnerabilities. - Raise potential growth through reforms and efficient government spending. ### Implementing high-quality fiscal support while preserving debt sustainability and preparing for oil - FY22/23 fiscal stance: - Overall fiscal balance target will widen by 0.4 percent of GDP relative to 1st review to accommodate PDM, higher interest payments and higher wages. - FY22/23 primary balance expected unchanged from 1st review in percent of GDP (-1.8 percent). - Parish Development Model (PDM): - Aimed at supporting subsistence households (around 39 percent of the total) via SACCOs and public infrastructure. - Funds disbursed to more than 50 percent of SACCOs (around 8,251 out of a total 10,594). - Budgetary impact: 0.5 percent of GDP per year over four years. - Implementation risks (SACCO registration, governance/monitoring) to be mitigated via a module to track fund access and drawdown (proposed new SB, June 2023). - Other fiscal changes relative to 1st review: - Interest expenditures higher by 0.5 percent of GDP. - Public sector wages higher by 0.7 percent of GDP (66 percent of wage increase absorbed by human capital programs). - Additional hydropower project and higher domestic arrears clearance (0.2 and 0.1 percent of GDP, respectively) to contribute positively to growth. - Financing: - Small increase in fiscal deficit (from 4.7 to 5.1 percent of GDP) to be financed mostly by additional external borrowing from commercial banks (US$440 million). - Additional financing sources: higher domestic revenues from updated fees, increased grant share of investment financing, SDR use and ECF disbursements. - Repayment of BoU advances will rectify Service Level Agreement breach in FY21/22 and allow full compliance in FY22/23. - Contingency: - If downside risks materialize, non-priority investment projects could be reduced via temporary freeze on new project commitments or delaying projects not yet started or financed. - Medium-term revenue strategy: - Revenue-based fiscal consolidation essential to return debt below 50 percent of GDP. - Full implementation of Domestic Revenue Mobilization Strategy (DRMS), including tax administration measures and tax exemption rationalizations, expected to increase tax revenue by 0.5 percent of GDP per year. - Debt-to-GDP ratio expected to peak at 50.9 percent of GDP in FY22/23 and decline below 50 percent by FY23/24. - Priority recommended: rationalize tax expenditures on direct income (personal and corporate income taxes) and the most costly/inefficient VAT and excise tax expenditures. *Source: IMF staff and Uganda authorities (excerpts from 1ugaea2023001).* ### 20. Reforms to strengthen public financial management will continue in three pillars ### 20. Reforms to strengthen public financial management will continue in three pillars ### A. Strengthening public financial management (three pillars) - Improving the budget preparation process: - Ministries to submit for the budget all foreseeable expenditures. - Avoidance of supplementary budgets; supplementary budgets to be limited to unforeseeable unexpected shocks. - Reducing outstanding stock of domestic arrears and preventing accumulation: - Clearance of domestic arrears prioritized in FY22/23 and over the medium term. - Publication of decisions arising from investigations that led to sanctions for the period starting from FY20/21, with clear penalties for officers responsible for unauthorized spending commitments, and actions taken to enforce compliance (proposed new SB, June 2023). - Capacity development to record multiyear commitments for capital expenditure to help reduce arrears from overdue capital payments. - Strengthening cash management: - Transition to program-based budgeting. - Operationalization of an online module for all ministries, departments, and agencies for reporting of spending projections. - Preparation of an aggregate borrowing plan that considers the Government’s consolidated cash position within and outside the TSA. - IMF training provided to strengthen financial oversight and fiscal risk reporting of state corporations. ### B. Debt sustainability and risk of debt distress - Uganda’s risk of debt distress: moderate (MEFP, ¶28). - Projections and assessments: - Debt Sustainability Analysis from the 1st review indicates external debt burden and public debt indicators remain below respective thresholds and benchmarks under the baseline. - Stress tests lead to breaches of thresholds and benchmarks, indicating moderate risk of overall and external debt distress. - Composition of externally financed capital expenditures shifted slightly towards grants compared with the 1st review. - Authorities indicated intention to borrow from external commercial banks in FY22/23; present value of newly contracted external public and publicly guaranteed debt is line with the target set at the 1st program review. - Given the increase in nominal GDP, the medium-term path of the debt-to-GDP ratio has shifted downward relative to the first review. ### C. Controlling inflation - Monetary policy stance: - Policy rate increased by 3.5 percentage points between May and October 2022. - Core inflation has risen above the target band of +/-3 percent around the 5 percent target. - Inflation expected to decline gradually throughout 2023 due to moderation of global commodity prices, improved domestic harvests, and monetary tightening. - Risks tilted to the upside: potential further global commodity price shocks, adverse weather conditions, and persistent increases in intermediate input prices. - Recommendation: BoU to tighten stance further (lifting the real policy rate above the current level of around 3 percent and beyond staff’s estimate of around 4.5 percent neutral rate, as warranted by evolving conditions) to guide inflation back to the target in the medium term. ### D. Improving monetary transmission - Identified impediments: - Structural factors: market concentration, high cost of doing business, inefficient bankruptcy procedures, crowding out effect of government borrowing. - Capital market weaknesses: low level of initial public offers and low liquidity. - Investor behavior: NSSF follows a ‘buy and hold’ strategy; mutual funds invest around 1~2 percent of their assets in the equity market. - Policy recommendations: - Implement the Master Plan for the Capital Market. - Promote investor education to invigorate market activity. - Encourage more companies to list on the stock market. - Create an enabling environment for private equity funds to catalyze growth of equity finance. - Continue reforms to deepen financial markets and reduce government crowding out. ### E. Preserving external buffers - Recent trends and targets: - Reserve cover fell to 3.6 months of imports in September, close to the lowest level over the past 10 years. - NIR floor of 4 months of next year’s imports (excluding oil investment related financing and imports) should be restored over the next eighteen months. - Elevated government imports: about ¼ of FX reserves in FY22/23. - High government FX debt service: about ¼ of FX reserves in FY22/23. - Target: gradual buildup of reserves to US$4.6bn (4 months of import cover) by end-FY23/24. - Policy measures: - BoU to continue FX purchases (as done in November and early December) amid shilling appreciation. - Avoid FX sales to support the currency except in instances of disorderly market conditions that jeopardize financial stability. - Secure further concessional financing to limit reliance on commercial borrowing and contain debt service costs. - Strengthen project implementation capacity to accelerate activation of underutilized World Bank concessional loans. - Fiscal consolidation with strong front-loaded revenue mobilization and reconfiguration of expenditures to protect vital infrastructure and social spending; exchange rate flexibility to reinforce adjustment. ### F. Financial sector stability and reforms - Asset quality, provisioning, and capitalization: - Banks have sufficient capital buffers; continued write-offs of bad loans to strengthen asset quality. - All COVID-19 support measures expired at end-September 2022. - Share of outstanding Credit Relief Measure (CRM) loans to gross loans declined from a peak of 30.2 percent in September 2020 to 9.9 percent in August 2022. - If all performing past-due CRM loans move to NPLs and CBR is raised to 12 percent by March 2023, aggregate NPL ratio would rise from 5.2 percent to 9.7 percent; all banks except 4 would remain resilient to this shock. - Foreign currency exposure and liquidity: - Foreign currency loans account for 32.7 percent of total loans. - FX loan-to-deposit ratio around 59.5 percent, below regulatory ceiling of 80 percent. - Cash reserve requirement raised by 2 percentage points to 10 percent in June. - Liquidity coverage ratio (LCR) decreased from 285.5 percent in September 2021 to 169.5 percent in September 2022. - BoU stress test: consolidated LCR would decline to 149.1 percent and 5 banks will breach minimum LCR if liquidity buffers decline by 10.7 percent. - BoU’s standing lending facility remains available to any bank facing short-term liquidity strain. - Impact of monetary tightening on credit: - Most loans are on variable rates; rising lending rates expected to increase debt burden on borrowers. - Stress test: if BoU increases CBR to 12 percent while banks implement IFRS9 provisioning and write off bad loans at current rate, aggregate NPL ratio would rise from 5.2 percent to 5.7 percent, core capital adequacy ratio would remain at about 21 percent, and all banks except two would be resilient. - Monitoring and priority actions: - Pay close attention to financial sector exposures to inflation, tightening of global financial conditions, increasing borrowing costs and capital outflows. - Timely monitoring of credit risk of restructured loans associated with COVID-19 measures. - Implement regular stress tests and monitoring of banks’ loan classification to ensure alignment with IFRS 9. ### G. Financial sector reform implementation - Progress and planned actions: - Regulations to the Financial Institutions Act defining fit and proper test criteria for bank shareholders issued (SB, September 2022). - BoU developing and implementing tools for AML/CFT risk-based supervision (SB, October 2022); implementation advanced for banking sector; tools for foreign exchange bureaus and money remittance sectors expected to be completed by May 2023 (proposed reprogrammed SB). - BoU to adopt cybersecurity guidelines for financial services and issue new corporate governance regulations (proposed new SB, December 2023). - BoU Board Committee to agree on ownership structure for Credit Registration Bureau data consolidated at the Central Data Hub to facilitate use for credit scoring and macroprudential indicators (proposed new SB, October 2023). ### H. Structural reforms: governance and private sector development - Priorities aligned with NDP III (MEFP, ¶34-44): - Mainstream transparency and PFM reforms: - Publish tax expenditures and procurement contracts with information of beneficial owners. - Continue quarterly compilation and publication of unpaid invoices. - MoFPED to publish decisions from investigations into unauthorized spending that led to sanctions starting from FY20/21 (proposed new SB, June 2023). - Strengthen anti-corruption framework: - Prior action: publication of statistics of timely submission of declarations by senior public officials and applications to access declarations; names of leaders found in breach of asset declaration requirements by the Leadership Code Tribunal (MEFP, ¶35). - Inspectorate of Government to publish annual information; Leadership Code Tribunal to publish sanctions as adjudication completes (TMU, ¶39-40). - Directorate for Ethics and Integrity to publish periodic assessment report against NACS indicators and the annual 2022 report on prevalence of corruption and national anticorruption efforts (proposed new SB, November 2023; MEFP ¶35). - Accelerate AML/CFT regime strengthening: - Companies’ Act amended in September 2022 to define beneficial owners, require companies to maintain beneficial ownership information, and establish a centralized beneficial ownership register. - Draft regulations for timely access to beneficial ownership information under stakeholder consultation (SB, June 2022), expected to be gazetted by March 2023 (proposed reprogrammed SB). - Advance financial inclusion: - Establish the National Switch and Central Data Hub, enhance digital financial literacy, and expand agent banking network. - Foster climate adaptation: - Budget for implementation of the disaster risk management plan approved by Cabinet and for projects to strengthen water catchment ability and increase forest coverage. ### I. Program modalities and other issues - Proposed revisions to December 2022 ITs (MEFP): - Modifications requested for floors on the primary budget balance, NIR, support to vulnerable households, social spending, tax revenues, repayment of outstanding domestic arrears, and the ceiling on net claims on the government by the central bank. - Nominal increase in primary fiscal deficit target in FY22/23 and change in within-year spending distribution necessitate downward revision of December 2022 IT on the primary budget balance floor. - Upward revision of projected tax revenues in first half of FY22/23 allows raising the floor on tax revenues for the December 2022 IT. - Ceiling on net claims on government by central bank revised down slightly to accommodate within-year cashflow management of BoU advances to the government. - December 2022 IT on NIR floor proposed to be adjusted: gross reserves allowed to decline from 4 months of imports to 3.6 months at end-FY22/23, with objective of restoring 4-month floor by end-FY23/24. - Faster repayment of outstanding domestic arrears in FY22/23 warrants increasing the December 2022 IT on the corresponding floor. - Authorities requested increase in December 2022 IT floor on support to vulnerable households and a decline in the December 2022 IT floor on social spending. - Rephasing of disbursement availability dates: - Requested changes to availability dates for disbursements linked to the 4th, 5th, and 6th reviews to June 1, 2023; December 1, 2023; and June 1, 2024 (from June 28, 2023; December 28, 2023; and June 14, 2024). - Structural benchmarks (SBs): - Missed: March 2022 SB on measures to lower barriers to access to asset declarations. - New prior action set for combined 2nd and 3rd review (MEFP, Table 2a). - Four SBs proposed for reprogramming: timely access to beneficial ownership information (March 2023 from September 2022); issue treasury memoranda addressing FY20/21 audit weaknesses (May 2023 from June 2022); amendments of the BoU act (October 2023 from September 2022); development and implementation of tools for risk-based AML/CFT supervision (May 2023 from October 2022). - New SBs proposed to reinforce program goals, including: - Improving targeting and efficiency of social spending through tracking of PDM fund use (SB, June 2023). - Identifying post-COVID-19 re-enrollment and teacher allocations across schools (SB, December 2023). - Domestic revenue mobilization via design of a medium-term ICT strategy and procurement plan for a new Integrated Tax Administration System (SB, May 2023). - Issuing a resolution on ownership structure for Central Data Hub data as prerequisite for use of Credit Registration Bureau data (SB, June 2023). - Adopting new corporate governance regulation aligned with Basel Committee principles (SB, December 2023). - Strengthening governance through publication of periodic assessment report and the annual 2022 report on corruption prevalence and anti-corruption efforts (SB, May 2023). - Publishing decisions from investigations into unauthorized spending that led to sanctions starting from FY20/21 (SB, June 2023). *Source: 1ugaea2023001 - 20. Reforms to strengthen public financial management will continue in three pillars* ### 32. The program is fully financed. New commercial syndicated loans are expected and the ### 1ugaea2023001 - 32. The program is fully financed. New commercial syndicated loans are expected and the ### Financing status and prospects - The program is fully financed. New commercial syndicated loans are expected and the planned use of half of the August 2021 SDR allocation in FY22/23 will contribute to closing the fiscal financing gap. - There are firm commitments for the first 12 months, and good prospects for financing for the remainder of the arrangement. - Staff encouraged the authorities to persevere in seeking grants and concessional loans. ### Capacity to repay the Fund (Table 9) - Uganda retains an adequate capacity to repay the Fund. - The total amount of Fund outstanding credit would peak at SDR1,083 million, or 300 percent of quota in 2024, equivalent to 2.9 percent of GDP, 19.6 percent of exports of goods and services and 53.4 percent of gross international reserves. - Repayments to the IMF are expected to peak at 2.2 percent of exports of goods and services and 4.5 percent of reserves in 2029. - Considering the strong track record of servicing debt and Uganda’s moderate level of public debt and continued access to concessional financing, risks to Uganda's capacity to repay would remain moderate even if the downside risks discussed in Annex I were to materialize. ### External financing and macro table highlights (Text Table 6) - Financing needs and related items (Millions of US$) are presented for FY2020/21 through FY2023/24 in the source table. (See original table for the full series of figures.) - Sources include World Bank, AfDB, commercial bank borrowing, and ECF, with noted BOP financing gaps and reserve accumulation movements. ### Safeguards and Bank of Uganda (BoU) governance reforms - Work continues on implementing the 2021 safeguards assessment recommendations (MEFP ¶16). - The revised principles amending the BoU Act (SB, October 2023) will be resubmitted to Cabinet and will address concerns on autonomy, specifically establishing a limit on the provision of credit to the government through various channels. - These principles will be incorporated into a draft amendment Bill for submission to Parliament. - Pending legal amendments: - The BoU Board has resolved that only independent Board members shall sit at the central bank’s audit committee, and the committee’s charter will be revised accordingly. - The currency masterplan has been approved and is being implemented to strengthen currency operations. - The BoU Board receives a half year currency operations report. - Work is underway to reduce the cost of currency in circulation and review the foreign reserves investment policy. ### Program risks and mitigation measures - Main risks: further waves of COVID-19; a resurgence of Ebola cases; social unrest or security challenges; delayed implementation of fiscal measures and social spending; higher frequency and severity of natural disasters. - Mitigation: Uganda’s moderate level of public debt provides space to address risks and continue program implementation. ### Data provision and capacity development - Data provision is broadly adequate for surveillance and program monitoring. - Further progress is needed in statistics, particularly fiscal and real sectors. - Capacity development priorities are aligned with program objectives: revenue mobilization, public financial management, banking supervision and governance, payment systems and central bank communications. ### Staff appraisal — outlook, risks, and policy guidance Findings on the outlook and risks: - The economic recovery continues but faces headwinds from an Ebola outbreak, spillovers from the war in Ukraine, and tightening of external financial conditions, which have slowed recovery from the Covid-19 shock and could worsen socio-economic indicators and increase scarring risk. - Risks to growth are on the downside, while inflation could turn out higher than projected. Key risks include a larger-than-expected impact of spillovers from the war in Ukraine, tighter global financial conditions, an intensification of the Ebola outbreak, a new Covid-19 wave, and delayed reform implementation. Materialization of these risks could drag growth below and drive inflation above the baseline forecast. Program performance and adjustments: - Most QPCs and ITs were met in March, June, and September 2022, but structural reform implementation has been slower-than-expected due to inter-agency coordination delays and legal/legislative constraints. - Staff supports the authorities’ request for a small increase in the fiscal deficit target for FY 22/23 to provide support to vulnerable households and introduce cost-of-living adjustments in the public sector. The revised target balances fiscal consolidation with near-term support. - The temporary deviation of the reserve cover is considered appropriate given tighter global financial conditions. - Authorities’ commitment to medium-term fiscal consolidation and the 4-month reserve cover remains essential to achieving program objectives. Policy recommendations — fiscal: - Revenue-based fiscal consolidation is crucial to keep debt sustainable over the medium term while creating space for social spending. - Full implementation of the DRMS and strong front-loaded revenue mobilization, including rationalization of tax expenditures, will help maintain the debt-to-GDP ratio on a declining path and allow an increase in social spending over the medium term. - Adoption of the tax exemption rationalization plan is highlighted: 0.1 percent of GDP saving in FY 22/23 and 0.2 percent thereafter. - MoFPED should identify areas for repealing tax exemptions, outline intended yields, and establish a clear timeline for implementation. - Uganda’s debt remains sustainable, with a moderate risk of debt distress. Policy recommendations — monetary and external: - Monetary policy should continue to tighten to achieve the core inflation target; the BoU will need to tighten the monetary policy stance further in a data-dependent manner to guide inflation back to the target over the medium term. - Tight macro policies and exchange rate flexibility will help strengthen external buffers. Continued fiscal consolidation (including reducing government imports) and monetary tightening are essential to align domestic absorption with domestic production, reduce the current account deficit, and contain the decline in reserves. - If global financial conditions tighten more than anticipated and external commercial borrowing becomes excessively costly, authorities should be ready to tighten the fiscal stance further. - Exchange rate flexibility is essential to preserve buffers; FX sales to support the currency should be avoided except in disorderly market conditions that jeopardize financial stability. - Securing further concessional financing will reduce reliance on external commercial borrowing and limit debt service costs. Strengthening implementation capacity and structural reform momentum would help accelerate activation of underutilized World Bank concessional loans. Policy recommendations — financial stability and structural reforms: - Financial stability risks should be minimized: the banking sector remains well capitalized though liquidity has declined; the limit on financial institutions’ net open position in foreign currency has been lowered; safeguarding financial stability and strengthening the supervisory framework remain paramount. - Structural reforms to unlock growth potential require more proactive efforts. Priorities: enhancing domestic revenue mobilization, strengthening the anti-corruption framework and the AML/CFT regime, advancing financial inclusion, and climate adaptation measures. - Improve transparency of asset declaration implementation, including sanctions enforcement for violations, and make implementation progress of the National Anti-Corruption Strategy publicly available to strengthen effectiveness and public accountability. - Staff encourages authorities to expedite measures to complete the remaining items under their action plan as agreed with FATF to exit the grey list. ### Safeguards assessment implementation - Implementation of the safeguards assessment recommendations, including the proposed BoU Amendment Act and the new risk management framework, will help protect central bank autonomy and reinforce the credibility of the inflation-targeting monetary policy framework. ### IMF approvals and waivers - Staff supports the authorities’ requests for completion of the Combined Second and Third Review, waiver of nonobservance of the end-September PC on net international reserves, modification of ITs and SBs, and the rephasing of access under the ECF arrangement. *Source: IMF staff report content provided in the supplied document.* ### conclusion of the 1 ### conclusion of the 1 ### Macroeconomic outlook and inflation - Real GDP: 3.5; 3.8; 4.7; 6.0; 5.3; 6.5; 6.0; 6.6; 7.1; 7.0 (series as presented). - Non-Oil real GDP: 3.5; 3.8; 4.7; 6.0; 5.3; 6.5; 6.0; 6.2; 6.1; 6.0. - GDP deflator: 2.5; 2.8; 4.8; 4.0; 7.6; 5.3; 6.7; 5.3; 5.1; 5.0. - Headline inflation (period average): 2.5; 3.5; 3.4; 4.6; 8.3; 5.0; 7.2; 5.5; 5.0; 5.0. - Core inflation (period average): 3.5; 3.0; 3.2; 4.4; 7.5; 5.0; 6.8; 5.0; 5.0; 5.0. - Policy rate: Bank of Uganda policy rate shown as 6.5 and 6.5 and 7.5 in the table footnote series; narrative: "After being reduced to its lowest since 2011, the policy rate was increased rapidly to battle rising inflation" (figure caption). ### Fiscal developments and public finances - Total revenue and grants (Billions of Ush): 21,239; 23,295; 22,992; 25,418; 27,783; 29,551; 32,220; 37,341; 46,150; 55,459 (series as presented). - Revenue (Billions of Ush): 19,839; 21,501; 21,830; 24,585; 25,551; 28,854; 29,934; 35,030; 44,121; 53,707. - Tax revenue (Billions of Ush): 18,337; 20,305; 20,425; 23,265; 23,965; 27,087; 28,153; 32,712; 38,100; 44,253. - Oil revenue (o/w, Billions of Ush): 141; 0; 0; 0; 0; 0; 0; 306; 3,733; 6,890. - Grants (Billions of Ush): 1,400; 1,794; 1,162; 833; 2,232; 698; 2,286; 2,312; 2,029; 1,752. - Expenditures and net lending (Billions of Ush): 35,140; 35,114; 34,967; 33,568; 37,175; 36,418; 39,513; 45,577; 54,517; 59,737. - Current expenditures (Billions of Ush): 18,165; 20,088; 21,324; 19,119; 23,055; 21,433; 25,097; 27,299; 32,016; 35,855. - Development expenditures (Billions of Ush): 15,085; 14,276; 12,785; 14,054; 13,160; 14,785; 14,216; 18,078; 22,301; 22,689. - Interest payments (Billions of Ush): 3,990; 4,947; 4,966; 5,095; 6,071; 5,538; 6,578; 6,023; 6,433; 6,273. - Overall balance (Billions of Ush): -13,902; -11,819; -11,974; -8,150; -9,392; -6,867; -7,292; -8,236; -8,367; -4,278. - Primary balance (Billions of Ush): -9,912; -6,872; -7,008; -3,056; -3,320; -1,329; -714; -2,213; -1,934; 1,995. - Net domestic borrowing (Billions of Ush): 4,629; 3,030; 3,420; 2,120; 2,010; 1,200; 410; 1,600; 600; -495. - Financing gap (Billions of Ush): 673; 1,804; 1,981; 920; 2,310; 946; 938; 0; 0; 0. - Fiscal ratios (percent of GDP): - Total revenue and grants: 14.3; 14.8; 14.1; 14.6; 15.1; 15.1; 15.5; 16.0; 17.6; 18.8. - Expenditures and net lending: 23.7; 22.2; 21.5; 19.3; 20.2; 18.7; 19.0; 19.5; 20.8; 20.3. - Overall balance: -9.4; -7.5; -7.4; -4.7; -5.1; -3.5; -3.5; -3.5; -3.2; -1.5. - Primary balance: -6.7; -4.4; -4.3; -1.8; -1.8; -0.7; -0.3; -0.9; -0.7; 0.7. - Interest payments: 2.7; 3.1; 3.1; 2.9; 3.3; 2.8; 3.2; 2.6; 2.5; 2.1. - Development expenditures: 10.2; 9.0; 7.9; 8.1; 7.1; 7.6; 6.8; 7.7; 8.5; 7.7. ### Public debt and debt composition - Public gross debt (percent of GDP): 49.0; 52.9; 50.6; 53.1; 50.9; 52.1; 49.6; 48.6; 47.1; 44.0. - Public external debt (percent of GDP): 31.6; 34.1; 34.1; 34.1; 31.9; 34.0; 32.4; 31.8; 31.8; 31.0. - Public domestic debt (percent of GDP): 17.4; 18.8; 19.3; 19.0; 19.0; 18.1; 17.2; 16.8; 15.3; 13.0. - Table 10 decomposition highlights (selected): - Total debt (US$ millions): 21,901.9 (FY21/22, total). - External (US$ millions): 13,542.9 (FY21/22). - Domestic (US$ millions): 8,359.0 (FY21/22). - Multilateral creditors (US$ millions): 7,908.0 (FY21/22). - Bilateral creditors (US$ millions): 3,574.1 (FY21/22). - Commercial creditors (US$ millions): 1,331.7 (FY21/22). - Local currency debt held by non-residents (US$ millions): 700.2 (FY21/22). ### Monetary, liquidity, and financial sector developments - Broad money (M3) growth series (percent): 8.5; 9.1; 10.0; 11.5; 14.5; 14.8; 12.6; 12.3; 12.7; 12.3 (table series). - Credit to non-government sector (percent growth): 8.3; 12.0; 11.0; 13.5; 8.3; 14.0; 12.8; 13.2; 14.3; 15.5. - M3/GDP (percent): 22.0; 22.0; 22.8; 22.3; 23.3; 22.2; 22.2; 22.2; 22.3; 22.3. - Banking sector indicators (selected, percent): - Regulatory capital to risk-weighted assets: 21.9 (Mar-20) rising around low- to mid-20s through Sep-22 (e.g., 22.7; 22.5; 22.2; 23.8; 23.5; 24.1; 23.7; 25.6; 22.8; 22.9). - NPLs to total gross loans: 5.4; 6.0; 5.1; 5.3; 5.4; 4.8; 5.4; 5.2; 5.8; 5.3; 5.2 (periods shown). - Liquidity: Liquid assets to total deposits around high 40s to low 50s (48.8; 49.1; 48.8; 50.7; 47.6; 51.5; 49.2; 48.2; 49.6; 46.5; 38.5). - Profitability: Return on assets around 2.8 to 2.4; Return on equity around 15.9 to mid-teens; Net interest margin around 11.2 to about 10.1. - Financial sector narrative points (figure captions): - "Banks remain well capitalized... although the liquidity buffers have declined." - "Asset quality appears to be gradually improving due to increase in loan write-offs... while provisioning continues to increase." - "Banks’ earnings have started showing some recovery. Foreign exchange loans remain below regulatory limits. Forex deposit growth has lagged that of shilling deposits, and overall growth is coming down. Private sector credit growth remains subdued. Private sector credit growth is driven by consumption loans, construction, manufacturing and trade." ### External sector and balance of payments - Current account (US$ millions): -3,837; -3,591; -4,418; -5,515; -7,269; -7,942; -7,721 (2020/21 to 2026/27 series). - Trade balance (US$ millions): -3,045; -3,300; -4,341; -5,401; -6,913; -6,257; -4,900. - Exports, f.o.b. (US$ millions): 5,279; 3,837; 5,691; 5,678; 6,183; 7,615; 9,250. - Imports, f.o.b. (US$ millions): 8,324; 7,137; 10,032; 11,079; 13,096; 13,872; 14,149. - Oil-related entries (selected): - Exports "Of which: oil": 0; 0; 0; 0; 64; 1,387; 2,687 (US$ millions, series). - Imports "Of which: oil": 830; 1,237; 1,271; 1,207; 1,217; 1,209; 617 (US$ millions, series). - Financial account (US$ millions): -3,196; -2,883; -3,276; -5,717; -7,346; -8,270; -7,258. - Direct investment (net, US$ millions): -920; -1,218; -2,189; -3,869; -5,339; -5,740; -5,395. - Gross international reserves (US$ billions): 4.2; 4.2; 4.1; 4.1; 3.7; 4.5; 4.5; 4.9; 5.6; 5.3 (series presented across tables and memoranda). - Reserves in months of next year's imports: 4.9; 3.8; 3.7; 3.3; 3.0; 3.2; 3.1; 3.2; 3.5; 3.6 (series across projections). ### IMF ECF arrangement access, phasing, and IMF obligations - Original and proposed disbursements under ECF (Millions of SDR and percent of quota) — total: - Individual disbursements listed at: 180.5 (50.0), 90.25 (25.0), 90.25 (25.0), 90.25 (25.0), 90.25 (25.0), 90.25 (25.0), 90.25 (25.0) depending on schedule; Total 722.00 (200.0) (table headings). - Note: "Uganda's quota is SDR 361 million." - Table 9: Indicators of capacity to repay the IMF (selected): - Total IMF obligations based on existing and prospective credit (in millions of SDRs): 0.0; 0.6; 2.8; 2.8; 38.9; 93.1; 120.1; 174.3; 210.4; 183.3 (2021–2030 series). - Total IMF obligations in millions of U.S. dollars: 0.0; 0.8; 3.9; 3.9; 54.7; 130.7; 168.8; 244.9; 295.6; 257.5. - IMF credit outstanding (end-of-period, in millions of SDRs): 631.88; 812.39; 92.81; 083.0; 1046.99; 556.78; 839.36; 667.94; 60.32; 79.8 (table formatting preserved). - IMF credit outstanding (in millions of U.S. dollars): 877.9; 1,132.4; 1,387.4; 1,518.6; 1,473.2; 1,346.2; 1,181.1; 939.8; 647.7; 393.7. - IMF obligations as percent of GDP, exports, revenue, reserves, and quota appear in the table with small percentages (e.g., In percent of GDP: 0.0; 0.0; 0.0; 0.0; 0.1; 0.2; 0.3; 0.3; 0.4; 0.3). ### External financing needs, projected borrowing program, and financing gaps - External financing requirements (US$ millions) — Financing needs: 4,076; 3,655; 3,990; 6,314; 7,703; 8,572; 7,515 (2020/21–2026/27 series). - Financing gap identified (US$ millions): 233; 116; 349; 233; 0; 0; 0 (series). - Projected external borrowing program (July 1, 2022–June 30, 2023) — by sources of debt financing (USD million, percent): - Total PPG external debt volume of new debt in 2022: USD 3,527.5 (100.0 percent). - Concessional debt: 1,322.9 (37.5 percent); Multilateral debt: 1,322.9 (37.5 percent). - Non-concessional debt: 2,204.6 (62.5 percent); Semi-concessional: 1,881.5 (53.3 percent); Commercial terms: 323.1 (9.2 percent). - By creditor type: Multilateral 2,015.9 (57.1 percent); Bilateral - Paris Club 435.3 (12.3 percent); Bilateral - Non-Paris Club 2,749.4 (12.6 percent listed but table formatting retained as presented); Other 750.8 (21.3 percent). - Uses: Infrastructure 2,449.7 (69.4 percent); Social Spending 572.1 (16.2 percent); Budget Financing 505.7 (14.3 percent). - Projected external borrowing program (July 1, 2023–June 30, 2024) — by sources of debt financing (USD million, percent): - Total USD 5,279.6 (100.0 percent). - Concessional debt: 519.2 (9.8 percent); Multilateral debt: 519.2 (9.8 percent). - Non-concessional debt: 4,760.4 (90.2 percent); Semi-concessional: 3,935.7 (74.6 percent); Commercial terms: 824.7 (15.6 percent). - By creditor type: Multilateral 789.2 (15.0 percent); Bilateral - Paris Club 713.0 (14.5 percent); Bilateral - Non-Paris Club 2,952.7 (55.9 percent); Other 824.7 (15.6 percent). - Uses: Infrastructure 4,185.7 (79.3 percent); Social Spending 100.0 (1.9 percent); Budget Financing 824.7 (15.6 percent); Other 169.2 (3.2 percent). ### Key risks and adjustment narrative (as presented) - Monetary tightening: "After being reduced to its lowest since 2011, the policy rate was increased rapidly to battle rising inflation... and yields have also risen in response to inflation." - Liquidity: "Excess liquidity has fallen as overall liquidity in the system has tightened... and the BoU has reduced its use of mopping up instruments." - Financial sector resilience: Banks are described as well capitalized, with declining liquidity buffers, improving asset quality due to loan write-offs, increasing provisioning, recovering earnings, subdued private sector credit growth, and FX exposures below regulatory limits. - External vulnerability: Current account deficits widen in projections (e.g., current account balance percent of GDP: -9.5; -7.9; -9.2; -10.7; -13.0; -13.0; -11.6) with large projected direct investment outflows linked to oil investment and large import needs. *Source: BoU and IMF staff calculations; Ugandan authorities and IMF staff estimates and projections.* ### Annex I. Risk Assessment Matrix (RAM) ### Annex I. Risk Assessment Matrix (RAM) ### Major Domestic Risks - Local Ebola or Covid-19 outbreaks - Likelihood/Time Horizon: Medium / Short term - Expected Impact on Economy: High — Rapidly increasing hospitalization and deaths force new lockdowns; demand for contact-intensive sectors – including tourism - would contract further; firms face a prolonged increase in production costs and shortage of supply; pandemic-prompted protectionist actions would disrupt trade. - Policy Response: - Prioritize COVID vaccine roll out and scale up other public health measures (contact tracing, isolation facilities, protective equipment for health care workers). - Strengthen social safety net. - Use all available policy space by extending fiscal an monetary support. - Reprioritize fiscal spending towards health and protecting affected households and firms. - Intensification of security risks - Likelihood/Time Horizon: High / Short to Medium Term - Expected Impact on Economy: High — Deterioration of security situation in Uganda and its key trading partners would have widespread adverse effects on the economy. - Policy Response: - Reprioritize fiscal spending within the security envelope to protect livelihoods. - Other macro policies should be geared 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. - Social unrest (rising inflation, declining incomes, worsening inequality) - Likelihood/Time Horizon: Low / Short term - Expected Impact on Economy: High — Economic activity would be disrupted; growing political instability would weaken the institutional framework; deepened political uncertainty would weaken investor confidence weighing on investment. - Policy Response: - Intensify social safety net measures. - Formulate credible medium-term fiscal path to support investor confidence. - Slow progress on fiscal reforms (revenue mobilization and public sector efficiency) - Likelihood/Time Horizon: Medium / Short to Medium Term - Expected Impact on Economy: High — Would lower growth dividend and increase risk of debt distress. - Policy Response: - Improve the quality of public spending. - Define operational debt ceiling with annual budget deficit and a binding expenditure envelope. - Slow progress to complete FATF action plan (jurisdictions under increased monitoring) - Likelihood/Time Horizon: Medium / Short term - Expected Impact on Economy: Medium — Could adversely impact corresponding banking relationships and stability of the financial system. - Policy Response: - Accelerate efforts to complete the action plan items agreed with FATF, including by ensuring strong coordination amongst relevant stakeholders. - Natural disasters related to climate change (higher frequency) - Likelihood/Time Horizon: Medium / Medium/Long-term - Expected Impact on Economy: High — Lower growth, increase in poverty levels, worsened public debt sustainability. - Policy Response: - Improve economic resilience to shocks, build fiscal and external buffers. ### Major External Risks - De-anchoring of inflation expectations and stagflation (supply shocks → higher headline inflation; tighter global monetary policy) - Likelihood/Time Horizon: Medium / Short Term - Expected Impact on Economy: Medium — Would reduce capital inflows with negative impact on the banking and public sector as well as credit growth; higher domestic borrowing costs. - Policy Response: - Tighten monetary policy. - Temporary FXI could be considered to smooth excess volatility. - Formulate credible medium-term fiscal path to support investor confidence. - Intensifying spillovers from the war in Ukraine - Likelihood/Time Horizon: High / Short to Medium Term - Expected Impact on Economy: Medium — Would weaken the recovery and intensify the inflationary pressure through surging commodity prices. - Policy Response: - Adjust monetary policy as needed in response to the inflationary pressure. - Accommodative fiscal policy to mitigate the impact on the poor. - Formulate credible medium-term fiscal path to support investor confidence. - Cyberthreats (cyberattacks on critical physical or digital infrastructure) - Likelihood/Time Horizon: Medium / Short to Medium Term - Expected Impact on Economy: Low — Would disrupt economic activities, put at risk financial stability, but financial sector remains small. - Policy Response: - Step up efforts to strengthen cyber security. - Preemptively, carry out regular testing of the resilience of computer systems and address vulnerabilities. - Commodity price shocks (supply disruptions and negative demand shocks) - Likelihood/Time Horizon: High / Short to Medium Term - Expected Impact on Economy: Medium — Poor households would be particularly vulnerable; renewed inflationary pressure and weaker recovery. However, higher energy prices could provide stronger incentive for swift planned investments; as a net food exporter, Uganda could also benefit from higher export receipts. - Policy Response: - Provide targeted fiscal support to vulnerable households. - Formulate credible medium-term fiscal path to support investor confidence. - Adjust monetary policy in view of the inflationary pressure. - Abrupt global slowdown or recession - Likelihood/Time Horizon: Medium / Short Term - Expected Impact on Economy: High — Slowdown in exports and GDP growth. - Policy Response: - Allow automatic fiscal stabilizers to operate; could temporarily ease macroeconomic policies if growth slows sharply. ### RAM methodological note - The RAM shows events that could materially alter the baseline path. Relative likelihoods are staff subjective assessments: “low” indicates probability below 10 percent, “medium” between 10 and 30 percent, and “high” between 30 and 50 percent. “Short term” and “medium term” indicate risks could materialize within 1 year and 3 years, respectively. Non-mutually exclusive risks may interact and materialize jointly. --- ### Key Recent Economic Developments and Policy Stance (from Letter of Intent and MEFP) ### Growth and outlook - Real GDP grew 4.7 percent in FY21/22 — 0.9 percentage point higher than projected at the time of the first review. - Growth projections revised: - FY22/23 growth downgraded from 6 to 5.3 percent. - FY23/24 projection revised down from 6.3 to 6 percent. - Over the medium term, investment in oil-related infrastructure, the energy sector and road and water infrastructure, coupled with recovery in agriculture, manufacturing and construction, stronger external demand and reform implementation will bring annual growth back above 6 percent. ### Public health and outbreaks - An Ebola-Sudan outbreak originated in the Mubende district in September, affecting nine districts including Kampala; vaccine not available for this variant though clinical trials expected to start soon; outbreak has been largely contained. ### Inflation and monetary policy - Headline inflation increased to 10.6 percent and core inflation rose to 8.8 percent in November 2022. - Inflationary pressures are broadening but projected to return to target by the end of 2023. - Bank of Uganda (BOU) policy rate history: - From March 2020 to June 2021, policy rate lowered three times by a cumulative 250 bps to 6.5 percent. - Since then, BOU increased the policy rate by 350 bps to 10 percent in October 2022. - Nominal private sector credit increased by 10.5 percent in October 2022 (y-o-y); in real terms growth remains below the pre-pandemic rate. ### External sector and reserves - Current account balance at about -7½ percent of GDP in 2022H1. - Reserves declined to US$3.7bn, from a peak of US$4.5bn in April. - The shilling depreciated 3 percent vis-à-vis the US dollar between March and November 2022. - Foreign direct investment remained subdued; foreign investors’ appetite for government securities has declined; increase in other investment flows partly offset. ### Fiscal policy and revenue mobilization - Government implementing Domestic Revenue Mobilization Strategy projected to yield additional revenues of ½ percent of GDP per year. - Government remains on fiscal consolidation path, limiting non-priority and unproductive spending; reprioritizing spending to health and support for households and businesses. - Requests in Letter of Intent: - Rephasing of access under arrangement to facilitate disbursement. - Waiver for nonobservance of the September QPC on net international reserves due to temporary deviation. - Modifications requested to December 2022 ITs: floors on the primary budget balance, NIR, support to vulnerable households, social spending, tax revenues, repayment of outstanding domestic arrears, and the ceiling on net claims on the government by the central bank. - Reprogramming of four of the 12 structural benchmarks as specified in the MEFP. ### Program priorities and policy framework - Near-term: fiscal policy to deliver sustainable fiscal consolidation that protects livelihoods; monetary policy tightened to ensure return of core inflation to target. - Programs to support livelihoods: Parish Development Model (PDM) and other measures to support hardest hit. - Medium-term program focuses: - Safeguarding macroeconomic stability by maintaining public debt on a sustainable path. - Mobilizing domestic revenues. - Prioritizing spending. - Strengthening reserve buffers. - Improving the Bank of Uganda’s inflation targeting framework. - Supporting financial sector stability. - Strengthening governance, expanding social safety net, implementing structural reforms to boost human capital and private sector development, and enhancing resilience to shocks including climate change. *Source: Annex I. Risk Assessment Matrix (RAM) and accompanying Letter of Intent and Memorandum of Economic and Financial Policies from the provided IMF document.* ### 9. We managed to contain the fiscal deficit. ### 9. We managed to contain the fiscal deficit. ### Fiscal outcomes and fiscal stance - Overall fiscal deficit in FY21/22: 7.4 percent of GDP (slightly below the first review target of 7.5 percent). - Drivers of FY21/22 outturn: higher-than-expected-tax revenues and under-execution of capital spending (reflecting lower-than-expected external financing) offset grants shortfall and increased interest and other spending. - Public debt (including stock of BOU advances, in June): estimated at 50.8 percent of GDP (lower than projection at first program review). - Commitment: maintain fiscal consolidation in the current high-interest-rate environment to keep government debt sustainable. - Q1 FY22/23 performance: met the quantitative performance criterion (QPC) on the primary balance by a large margin due to tightening of spending. - Q1 FY22/23 implementation status vs annual targets: tax revenues and grants at 21 percent of the amount targeted for the whole financial year; non-interest expenditure at 12 percent of the yearly target. - Policy stance: continue to boost tax revenue while protecting social spending, support to the vulnerable, and high-quality public investment. ### Banking sector and financial stability - Regulatory capital to risk-weighted assets ratio: 22.9 percent in September 2022 (prudential minimum: 10 percent). - Liquidity coverage ratio: decreased from 301.7 percent in March 2022 to 169.5 percent in September 2022 (due to tightening monetary policy and higher cash reserve requirement). - COVID-19 relief loans outstanding: UGX 1,987.3 billion (about 10 percent of total loans) at end-August 2022. - Provisioning ratio for NPLs: 67 percent in September 2022 (reflecting risk aversion, forward-looking provisioning for IFRS 9, and preparation for write-offs). ### Program performance (QPCs and ITs) - End-March results: - Met all end-March QPCs. - Met ceiling on PV of newly contracted external public and publicly guaranteed debt. - Met floors on the primary balance and net international reserves. - No accumulation of external arrears. - Repayment of BOU advances exceeded full-year target up to March — met PC on BOU net credit to government with comfortable margin. - Met ITs on repayment of domestic arrears, social spending and support to vulnerable households. - Missed IT on tax revenues (shortfall in tax revenues). - End-June results: - Met ceiling on PV of newly contracted external public and publicly guaranteed debt. - Met floors on the primary balance and net international reserves. - No accumulation of external arrears. - BOU advances to government increased (government financing constraints and postponement of expected disbursement under ECF-supported program) — breach of Service Level Agreement and indicative target on BOU net credit to government. - Met ITs on repayment of domestic arrears, tax revenues, support to vulnerable households, and monetary policy consultation clause on core inflation. - Missed IT floor on social spending by close to 5 percent. - End-September results: - Met QPC on primary budget balance by large margin due to under-execution of non-interest spending. - Met QPC on BOU advances to government by large margin. - Met continuous PC on newly contracted external public and publicly guaranteed debt by postponing closure of some planned new loans. - No accumulation of external arrears. - Met monetary policy consultation clause on core inflation. - Met IT on support to vulnerable households and repayment of outstanding arrears. - Missed QPC on net international reserves (reflecting tighter global financial conditions). - Missed IT on social spending (releases made late in the quarter and could not be executed by end-September). - Missed IT on tax revenues by a small margin. ### Structural reform agenda and implementation status - Implementation summary for 2nd and 3rd reviews: 6 out of 12 structural benchmarks (SBs) implemented; 5 completed with delay. - Prior action completed: implementation of asset declaration framework — published on Inspectorate of Government’s website information on compliance, application for access, and sanctions enforced (Prior Action). - Charter of Fiscal Responsibility (CFR) adopted by Parliament on time (SB, July 2022). CFR provisions include: - Establish non-oil primary balance as operational fiscal target when oil production commences. - Ensure sufficiency in revenue mobilization to finance government programs. - Maintain prudent and sustainable levels of public debt. - Ensure fiscal balance excluding petroleum revenues is sustainable over the medium term. - Manage revenues from petroleum and other finite natural resources for current and future generations. - Manage fiscal risks prudently. - Ensure consistency of the Medium Term Expenditure Framework with the NDP. - Promote efficiency, effectiveness and value for money in expenditure. - Asset declaration access SB: completion unattainable due to legal impediments (data privacy/security). Measures taken: - Amended Leadership Code Regulations to include beneficially owned assets. - Reduced fees for application to access declarations from UGX200,000 to UGX100,000. - Published compliance information on Inspectorate of Government website (Prior Action). - Transition to GFSM 2014: finalized ahead of May 2022 deadline; full set of tables with medium-term fiscal framework published two weeks after test date (on June 14, 2022) at Budget speech. - Unified registry of social assistance programs upgrade: completed with delay due to IT challenges; completed in August (SB, June 2022). Database covers almost 140 thousand beneficiaries. - Tax exemption rationalization plan adopted in November (SB, June 2022): identifies 0.1 percent of GDP in savings in FY 22/23 and 0.2 percent in subsequent years. - Credit bureau coverage expanded by amendments to Credit Reference Bureau in September (SB, August 2022). - Implementing regulations to the Financial Institutions Act issued in October (SB, September 2022) — defines fit and proper test criteria for bank shareholders. - Treasury instructions SB on sanctions for unauthorized spending commitments: consulted Attorney General; PFM Act already provides strict sanctions; SB not met. - Reprogramming requests for several SBs to accommodate capacity constraints and legislative agenda: - Auditor General’s report on FY 20/21 COVID-19 spending: SB requested to end-May 2023. - Companies’ Act beneficial ownership regulations: SB requested to end-March 2023 (MEFP ¶37). - BOU Act amendments: draft principles to be revised and resubmitted — SB requested reprogramming to end-October 2023. - AML/CFT risk-based supervision tools: SB requested reprogramming to end-May 2023 (MEFP ¶32). ### Parish Development Model (PDM) and social programs - PDM objective: target 39 percent of households in the subsistence sector to include them in the formal sector under NDP III pillar "sustainable industrialization for inclusive growth, employment and wealth creation". - PDM delivery and components: - Use existing government structures; parish chief responsible for implementation. - Agricultural production, storage, processing, marketing: national database of farming households; two priority agricultural products per district; households organized into "enterprise groups". - Infrastructure and economic services: improved community access roads, water for production, internet access and connectivity. - Financial inclusion: support via SACCOs using computerized payment systems; target equal share women, youth and disabled; revolving fund to lend at low interest with repayment over 3 years. - Social services: primary health care, education and clean water. - Information system management: real-time data for monitoring and evaluation. - FY22/23 PDM implementation: close to Ush206.3bn disbursed to around 8.251 (out of a total of 10,594) SACCOs. - Monitoring and reporting: Parish Chiefs and District Commercial Officers required to report quarterly to Ministry of Finance; random spot checks and audits; UBOS to provide indicators for implementation tracking. - Planned systems development: financial inclusion module in Parish Development Management Information System (PDMIS) to track access to revolving funds and report drawdown by demographic categories (proposed new SB, end-June 2023). ### Education and social monitoring - Proposed structural benchmark: register all primary and secondary schools’ learners’ data into the Education Management Information System and publish diagnostics by local government (proposed new SB, end-December 2023). ### Fiscal policy and debt management forward-looking measures - FY22/23 deficit target: will widen compared to the first review to accommodate PDM rollout. - Policy on subsidies: do not plan to introduce costly and ineffective subsidies; provide support to vulnerable households in rural areas. - Compared with 1st review: interest expenditures and public sector wages each higher by 0.5 percent of GDP (interest reflecting higher and more expensive borrowing; wages addressing higher cost of living and overdue adjustments). - Clearance of domestic arrears accelerated to support private sector: 0.1 percent of GDP. - Net change in deficit vs 1st review: increase in revenues and grants implies modest increase of 0.4 percent of GDP, resulting in a target of 5.1 percent of GDP for the year. - External financing measures: approached external commercial banks for a syndicated loan of $440 million. - Repayment of BOU advances expected to rectify breach of Service Level Agreement and allow full compliance in FY22/23 and FY23/24. - Medium-term debt dynamics: - Debt-to-GDP ratio will temporarily increase to 50.9 percent of GDP (including stock of BOU advances) in FY22/23 before converging below 50 percent of GDP by FY23/24. - Commitment to cumulative adjustment over medium term in line with target envisaged at 1st review. - Expectation that DRMS, expenditure prioritization and improved spending efficiency will reduce deficit below CFR Law target of 3 percent of GDP over the medium term. ### Revenue mobilization and tax administration - DRMS implementation progress: tax administration and policy measures yielded full-year target of 0.7 percent of GDP by June 2022 (on back of efforts to collect tax arrears) — overperformed target for FY21/22. - Medium-term revenue strategy: being updated and costed to enhance income tax productivity, improve excise duty regime, strengthen VAT productivity and review VAT exemptions. - Tax administration priorities: increase taxpayer compliance, use of ICT systems, capacity building, and improving arrears management. - Planned ICT and compliance measures: - Design medium-term ICT strategy and procurement plan for new Integrated Tax Administration System software (proposed new SB, end-May 2023). - Critical ICT issues: building a Data Center, migrating data, data management and governance strategy, system integration for third-party data exchange, data analytics capacity, data security, risk management capacity, operational processes and SOPs. - Formulate a compliance improvement plan focused on specialized sectors and taxation of multinational enterprises. - Tax expenditure rationalization: - Begin implementing recommendations of technical assistance on tax expenditure rationalization (September 2022) on four fronts: institutional arrangements and capacity to assess/evaluate tax expenditures; review and rationalize tax expenditures on direct income (personal and corporate income taxes); cease granting discretionary provisions under tax procedures code; rationalize most costly and inefficient tax expenditures under VAT and excise taxes. - Announce sunset clauses on some tax expenditures and accompany with cost-benefit analysis to assess impact on growth, exports and import-substitution strategy. *Source: 1ugaea2023001 - 9. We managed to contain the fiscal deficit.* ### 24. We will continue to identify cost-saving measures by asking Ministries to ensure that ### 1ugaea2023001 - 24. We will continue to identify cost-saving measures by asking Ministries to ensure that ### Fiscal prioritization and public investment management - Priority spending will be aligned with NDPIII at the planning stage; investments chosen according to the newly published project selection criteria will be saved. - Projects that have not been appraised or selected using the new criteria or do not have identified funding will not be included in the budget/Public Investment Plan (PIP). - IMF technical assistance and a public investment management assessment (PIMA) conducted in June 2022 identified gaps and cross-cutting recommendations, including: - Establishing medium-term fiscal envelope forecasts to better prioritize and allocate capital spending. - Publishing multi-year public investment plans in line with the medium-term budget framework. - Exercising rigorous public investment portfolio oversight. - Strengthening the legal framework for public investment management, including amending the PFM Act to include a chapter on public investment management and legal reforms to address land use and right-of-way challenges. - If downside risks materialize or financing assurances do not materialize: - Cut non-priority spending to safeguard fiscal goals. - Consider implementing a temporary freeze on new project commitments and delaying projects that have not started or have yet to receive financing. - Consider contingency revenue measures identified as part of the DRMS. ### Social spending and safety nets - The program targets higher priority social spending while noting limited scope for further increases due to the debt outlook affected by a decline in GDP growth and the fiscal response to COVID-19. - The targeted increase in social spending is reversing the decline in public education and health spending. - Rollout of the PDM will support subsistence households. - Donor funding originally for COVID-19 interventions is being redirected to support the fight against the Ebola outbreak; accelerating routine vaccinations (yellow fever, measles, polio) using subnational government structures and community mobilization to overcome antivax sentiment. - Measures in health sector: - Increasing health professionals’ wages. - Clearing arrears that arose due to the unexpected length of the COVID-19 pandemic. - Implementing targeted containment measures to combat the Ebola outbreak. - Social assistance expansions and reforms: - Expanding the national identification database and the unified national registry of all social assistance programs to support beneficiary targeting. - Fourth Northern Uganda Social Action Fund, once approved by cabinet, will increase beneficiaries. - Pilot under the Urban Labor-Intensive Public Works Program funded by the International Labor Organization; assessment at pilot end will inform expansion to other urban centers. - Under the Senior Citizens Grants (SAGE) program: - Clear outstanding arrears to beneficiaries and avoid new arrears by releasing adequate funding in a timely fashion. - Continue discussions on lowering the age threshold for eligibility (currently 80+ years). - Presidential initiative on Wealth and Job Creation (Emyooga) underway through the Microfinance Support Center, increasing the number of SACCOs and member associations. ### Strengthening public financial management (four main areas) - Improving the budget preparation process: - Ensure ministries submit for the budget all foreseeable expenditures. - Avoid supplementary budgets; where necessary, in consultation with IMF staff, ensure requests are costed, financing sources identified, and debt impact assessed. - Reducing the outstanding stock of domestic arrears and preventing new accumulation: - Increased budget provisions for the clearance of domestic arrears in FY21/22 and continued prioritization in subsequent years. - Measures in line with the domestic arrears strategy published in June 2021. - Publish on the MOFPED website decisions arising from investigations that led to sanctions for the period starting from FY 2020/21 onwards, with clear personal penalties for officers responsible for unauthorized spending commitments and actions taken to enforce compliance (proposed new SB, end-June 2023). Keep the webpage up to date. - Plan to: (i) operationalize automatic registration of invoices and automatic confirmation of fund availability; (ii) continue publishing quarterly reports of unpaid invoices; (iii) monitor the execution of arrear clearance. - Strengthening cash management: - Sought IMF technical assistance to support cash management reforms and operationalize monthly cash flow forecasts. - Extend Treasury Single Account (TSA) to all remaining extra-budgetary units and agencies. - Public Investment Management (PIM) priorities from PIMA completed in February 2022: - Integrate the multi-year commitment process into the mainstream budget review process and expedite IT interface improvements to improve accuracy and recording of multi-year commitments. - Ensure predictable budget releases for investment projects by enhancing realism of the annual Budget and MTEF and instituting active cash management arrangements. - Strengthen investment portfolio monitoring to be forward-looking, based on explicit project baselines, clearly identifying projects at risk and actions required to resolve the risk, with focus on major projects. - Strengthen the legal framework for effective public investment management, including amendment of the PFM Act to include a chapter on PIM (or a separate PIM law) and legal reform to address land use and right-of-way challenges (expropriation law). ### Debt management and financing composition - Our debt management framework remains appropriate; debt is projected to remain sustainable and is currently at a moderate risk of debt distress. - Efforts to broaden potential creditors and financing sources: - Organized a credit outreach event together with the World Bank. - Creating expression of interest guidelines and setting up a mobile money platform for retail investors to purchase Treasury securities. - Introducing a public investment financing strategy to seek additional donor financing during the remainder of the ECF-supported program. - Over the medium term, large infrastructure projects (e.g., railways) will lead to a slight shift in the composition of financing towards non-concessional loans. - Plans to follow the Medium-Term Debt Management Strategy goals, including increasing the maturity of domestic debt. - Additional measures to reduce need for costly external financing: - Unlock under-utilized World Bank lending through improved implementation capacity. - Further reduce tax exemptions. ### Monetary and exchange rate policies - Bank of Uganda (BOU) committed to achieving the inflation target over the medium term; fiscal consolidation will help improve policy rate effectiveness. - BOU will: - Continue monitoring inflation closely and stand ready to adjust the policy rate in both directions as needed; an increase may be needed if core inflation increases above the upper band inflation target (5+/-3 percent) over the relevant horizon. The inflation consultations clause will remain a key pillar of the program. - Continue building Forecasting and Policy Analysis System capacity; developing nowcasting tools to construct leading indicators and planning to strengthen external communication, including through IMF technical assistance. - Continue fine tuning liquidity forecasting and strengthen market intelligence to guide open market operations toolkit choice. Broadened liquidity management toolkit beyond traditional repurchase agreements to include Bank of Uganda bills and special deposit facility for commercial banks at central bank and use of Bank of Uganda recapitalization bonds. - Reserves and external position: - Expect reserve cover to be at 3.6 months of imports by the end of fiscal year 2022/23. - Current account deficit expected to narrow gradually to about 5 percent of GDP (excluding imports related to oil project financing and investment related imports) in FY24/25. - Aim to build reserves back to the 4 months of import cover during the program (defined as months of next year’s imports of goods and services excluding oil project financing and investment related imports) through donor financing and continued exchange rate flexibility. - Exchange rate stance: - Shilling expected to depreciate gradually to the equilibrium level. - Continue to allow exchange rate flexibility to correct external imbalances, facilitate adjustment to shocks and protect reserves; avoid FX sales to support the currency except in instances of disorderly market conditions that jeopardize financial stability. - Note: non-resident holdings of government bonds constitute a quarter of international reserves. - BOU completed a review of the Foreign Exchange Reserves Management Policy; Financial Markets Department undertaking annual review of the Strategic Asset Allocation (SAA). Policy approval expected in December. ### Financial sector policies and supervision - Macroprudential regulation: - BOU has fully implemented BASEL II principles and is selecting aspects of BASEL III. - Systemic risk buffer for domestic systemically important banks, capital conservation buffer and leverage ratio are regulatory requirements since January 1, 2022. - Liquidity coverage ratio and net stable funding ratio expected to be gazetted as prudential requirements and come into effect by December 2022. - Minimum paid-up capital for SFIs increased; statutory instrument gazetted on 16th December 2022. - Guidelines for supervisory review process and methodology for Pillar 2 capital add-ons to be finalized by end-2022. - Supervisory and governance reforms: - Adopted new corporate governance guidelines developed with IMF long-term expert by end-June 2022; plan to develop and adopt enforceable regulations consistent with guidelines (proposed new SB, end-December 2023). - Moving towards continuous risk-based supervision (RBS) with a new RBS manual and risk matrix; pilot underway; continue regular solvency stress tests and monitor alignment with IFRS 9; plan to integrate Uganda Development Bank under BOU supervision. - Operationalizing new resolution policy framework approved in June 2021; Resolution Manual adopted by Board in December 2021; interim resolution located in Financial Stability Department with two staff pending restructuring. - Enhancing AML/CFT risk-based supervision: - Revised AML/CFT data collection template (DCT) issued to banks in March 2022; roll-out to foreign exchange bureaus and money remitters expected to deliver risk data by end-March 2023. - Finalizing AML/CFT risk management questionnaire for banks to be issued by end-2022 with IMF TA; adapt for non-banking sectors and roll out by end-March 2023. - Development and implementation of these tools will be a structural benchmark (requested postponement of September 2022 SB to May 2023). - Issued guidance notes on customer due diligence and suspicious reporting transactions in September 2022; final drafts on targeted financial sanctions and ML/TF risk assessment expected by end-November 2022. - Established a dedicated AML/CFT supervision unit at the BOU with 5 dedicated staff. - Strengthening bank oversight: - Introduced a new list of eligible liquid assets and requires banks to comply with the liquidity coverage ratio. - Maintain standing lending facilities at the BOU as the Lender of Last Resort window for SFIs; Emergency Liquidity Assistance facility established in May 2022. - Continue to strengthen stress testing capabilities; bottom-up stress testing for domestic systemically important banks completed in May 2022; developed FX liquidity stress testing model in May 2022 with IMF TA. - Closely scrutinize corporate and household balance sheets to gauge credit and concentration risks amid tightening global financial conditions and higher energy and commodity prices. - Review and strengthen systemic risk surveillance using dashboard indicators and building indices including the resilience index, the banking pressure index, the stress index, and the vulnerability index. ### Structural reforms and governance - Structural reform agenda focused on higher and more inclusive growth by facilitating private sector activity and enhancing human capital. - Priority to reverse decline in private investment under NDPIII, though implementation delayed by COVID-19 and global disruptions; continued focus on health and education spending. - Pursue governance reforms, reduce cost of doing business, and foster financial inclusion to unlock private sector activity. - Governance and anti-corruption measures: - Enhance transparency in asset declaration regime implementation. - Published information on compliance statistics, applications to access declarations, and leaders found in breach of the Leadership Code Act and Regulations on the Inspectorate of Government’s website; moving forward publish such information annually and publish individual sanctions as adjudication decisions are made by the Tribunal. - Impose proportionate and dissuasive sanctions on public leaders for non-compliance with the Leadership Code Act and Regulations. - Leverage civil society and citizens to identify and report potential corruption in line with National Anti-Corruption Strategy (NCAS) 2019-2024. *Source: 1ugaea2023001 - PDF chapter content provided.* ### 36. We will step-up efforts to improve good governance and tackle corruption, in line ### 1ugaea2023001 - 36. We will step-up efforts to improve good governance and tackle corruption, in line ### Anti-corruption actions and governance diagnostics - Directorate for Ethics and Integrity will, in consultation with Fund staff, publish by end-November 2023: - an assessment report against the agreed indicators and targets of the National Anti-Corruption Strategy (NACS) 2019-2024 (proposed new SB, end-November 2023); and - the annual report for fiscal year 2022/2023 on the prevalence of corruption and anticorruption efforts, as guided by the NACS’ monitoring and evaluation framework. - Request technical assistance from the Fund to conduct a governance diagnostic assessment on corruption vulnerabilities and key state functions: - diagnostic to be completed by end-March 2024; - develop prioritized actions based on findings and recommendations; - commit to making the governance diagnostic report publicly available with due consideration to sensitive information. ### Prosecutions and case management - Office of the Director of Public Prosecution (past year): - prosecuted 268 corruption cases; - 174 cases were concluded; - 115 resulted in convictions with a success rate of 81 percent. - Recoveries and sanctions: - recovered 10 billion shillings and 16,000 USD, as well as anti-malaria drugs worth 28 million shillings; - 51 public officers convicted and barred from holding public office for the next 10 years in accordance with the law. - Case management systems: - Prosecution Case Management Information System launched in 2018 to capture, store and update records about suspects and case proceedings online; - system roll-out countrywide to extend to prosecutors, prisons, and police to allow cases to be filed digitally at the source. ### Extractive Industries Transparency Initiative (EITI) - Uganda has joined EITI. - Commitments under EITI: - stand ready to disclose contracts and licenses for oil and gas production and beneficial owners of corporate entities that hold a legal interest; - first EITI report containing the relevant disclosures will be finalized and submitted in 2022. ### Financial integrity measures (AML/CFT and FATF ICRG) - Intensify efforts to complete actions under the FATF International Cooperation Review Group (ICRG) action plan to exit the FATF ‘grey-list’. - Capacity building and institutional measures undertaken: - build capacity of AML/CFT supervisors and law enforcement through training; - outreach to reporting institutions on AML/CFT obligations and suspicious transaction reporting; - strengthen institutional framework for mutual legal assistance; - complete terrorism financing risk assessment for non-profit organizations. - Focus on outstanding ICRG action items in coming months, including: - Issuing regulations for timely access by competent authorities to beneficial ownership information: - URSB developed regulations (SB, June 2022) with targeted adoption of regulation by March 2023 to enable completion of the SB; - URSB enhancing IT system to allow direct and immediate access by competent authorities and integration with Uganda Revenue Authority and National Identification and Registration Authority databases; - amendments relating to trustees and partnerships requiring establishment of beneficial ownership registers passed, with implementing regulations expected to be gazetted at the same time. - Improving effectiveness of AML/CFT risk-based supervision: - with IMF technical assistance, BOU to develop offsite supervision tools and implement onsite supervision strategies informed by offsite findings; - conduct AML/CFT onsite inspections on higher-risk financial institutions and sectors and impose proportionate and dissuasive sanctions for non-compliance; - develop additional guidance notes for supervised entities on targeted financial sanctions and risk assessment, to be published by end-December 2022. - Ensuring compliance with new regulations on domestic politically exposed persons (PEPs): - AML/CFT regulations issued February 2022 for domestic PEPs, family members, and close associates; - BOU will conduct onsite inspections on a risk-based approach to ensure compliance by reporting institutions. ### Reducing the cost of doing business - One-stop shop established uniting all permits and registration requirements for new businesses (accessible physically and online). - Envisaged actions consistent with NDPIII to relax constraints on private sector initiative and growth: - address non-financial factors (power, transport, ICT) leading 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 the local and regional level; - further streamline bureaucratic red tape, reduce duplications and speed up clearances for business operations. - Collaboration with the World Bank to provide: - subsidized financing for microfinance institutions and banks to support business creation in the southwest of Uganda; - financing for establishment and operation of industrial parks and special economic zones; - technical assistance to agencies for development of private sector regulation and mechanisms for export promotion. ### Trade and regional integration - Invest in transport infrastructure (Standard Gauge Railway and roads) to support trade links with neighboring countries. - Commitments to AfCFTA implementation and trade facilitation: - lower administrative compliance burden and simplify customs procedures through protocols on trade facilitation; - address non-tariff barriers and harmonization of standards with trading partners; - discussions ongoing to reduce trade barriers for a wide range of goods and lower trade costs for services. - Commit to unwinding measures introduced to protect strategic industries during COVID-19 (basic manufactures, food processing and pharmaceuticals) to support a trade regime consistent with WTO, EAC, COMESA, and AfCFTA provisions. - Strengthen dialogue with key trading partners via participation in regional fora and working closely with the EAC Secretariat. ### Fostering financial inclusion - Implement National Financial Inclusion Strategy; current strategy expired in 2022 and a new strategy is being developed to be in place in the first quarter of 2023. - Key priorities: - Enhance credit support to SMEs and the agricultural sector: - increase uptake of the Small Businesses Recovery Fund through amended eligibility criteria; - inject capital into the Agriculture Credit Facility; - consider enabling access for Tier 3 financial institutions to participate in government-run specialized funds. - Modernize financial infrastructure: - improve financial institutions’ data sharing infrastructure for credit and allow movable collateral for lending; - URSB recorded 13,533 security interest notices by July 31, 2022, an increase from 7,625 a year before; - Amendments to the CRB gazetted in October 2022 allow the CRB to gather information from all credit providers on borrowers; - define ownership structure of data collected by Central Data Hub to which the CRBs will submit credit information (proposed new SB, end-October 2023). - Promote digital finance: - spur digital transformation of government-to-person payments; - strengthen consumer empowerment and confidence in digital financial services; - launch a national payment switch expected to support P2G, B2G, and other digital payments; - BOU finalizing business requirements of the National Switch to centralize payments and provide a centralized interface with mobile money systems, Point of Sale Systems, Automated Teller Machines, card payment schemes, and internet-based e-commerce portals. - Strengthen consumer protection amid digitalization: - NPS Consumer Protection Regulations gazetted September 2022 to empower consumers of digital financial services and strengthen redress mechanisms; - continue to improve Consumer Protection Regulation and increase digital literacy through financial education; - adopt cybersecurity guidelines for financial services outlining minimum requirements for SFIs’ cyber risk management frameworks. ### Climate policies and resilience - Commitment to enhance resilience to climate change; Ministry of Water and Environment estimates climate change damage in agriculture, water, infrastructure, and energy sectors could amount to US$273-437 billion (2.8-4.5 percent of cumulative prospected GDP) between 2010 and 2050. - Actions and resources: - use proposed Presidential allocation of US$50million as seed funds for disaster risk management in the next three financial years; - completed accreditation to the Green Climate Fund and the Adaptation Fund and working with development partners to scale-up capacity to access financing. - Main priority areas: - Strengthen water catchment ability; seek technical assistance from multilateral organizations to increase capacity for developing bankable projects. - Increase forest coverage from 14 percent to 21 percent by 2030; note that Ministry of Water and Environment suffered a budget cut of 40 percent during the COVID-19 pandemic but recently managed to reverse the deforestation trend and will allocate adequate resources as the economy recovers. ### Central Bank (BOU) climate-related measures and ESGS - BOU Strategic Plan 2022-2027 climate-related actions to tackle financial stability risks: - issue guidelines to financial institutions on disclosing climate-related risks in existing financial reporting systems; - integrate climate-related risks in stress testing and domestic systemically important banks analytical frameworks; - mandate disclosure of how climate-related risks are provided for within the Internal Capital Adequacy Assessment Process as a central component of RBS; - introduce a new ranking criterion for banks that considers sensitivity to climate-related issues and impact on banks’ balance sheets. - Monetary policy and operations: - develop climate scenarios for economic forecasts and define climate-related shocks for FPAS and DSGE models; - review pricing of central bank lending facilities to reflect counterparties’ climate-related lending and use climate-related preparedness to adjust counterparties’ eligibility for central bank lending facilities and purchase assets according to climate-related risks. - Environmental, Social, and Governance Sustainability (ESGS) Framework under BOU Strategic Plan 2022-2027: - raise awareness in the financial sector on ESGS issues and conduct situational analysis of ESGS initiatives in supervised financial institutions to form sustainability principles for sector integration; - pursue institutional sustainability measures including applying to the European Organization for Sustainable Development for Sustainability Standards Certification Initiative participation, adopting a paperless office environment, and addressing data gaps on climate issues; - undertake staff capacity development, join the Network of Central Banks and Supervisors for Greening the Financial System; - develop a governance framework for issuance of bonds including mechanisms for issuance of green bonds in domestic money markets. ### Other program modalities, safeguards, and statistics - Safeguards and BOU Act revisions: - implementing recommendations from the 2021 Fund’s safeguards assessment; - revised Principles amending the BOU Act to fully address safeguards recommendations and subject all temporary advances to the Government to the limit of 10 percent of current-year revenues established in the PFM Act, 2015; - introduce appropriate limits and criteria on guarantees to the Government. - request to reprogram the September 2022 SB to end-October 2023 to accommodate additional steps. - Currency operations and related reviews: - conducted market study and cost-benefit analysis of replacing low denomination banknotes with coins to be presented to the Board on 20th December 2022; - revised Audit and Governance Committee Charter requiring only independent members approved on 9th May 2022; - first half-year currency operations report finalized and presented to EXCOM in April 2022 and presented to the Strategy and Finance Committee (SFCB) of the Board to be ratified on 20th December 2022; - Foreign Exchange Reserves Management Policy review ratified by SFCB and to be ratified on 20th December 2022. - Internal Audit directorate continues quarterly reviews of program monetary data submitted to the Fund in accordance with TMU definitions. - Statistics strengthening and census preparations: - continue to support UBOS to improve timeliness and accuracy of National Accounts and Government Finance Statistics and migrate from the Enhanced General Data Dissemination System to the Special Data Dissemination Standard; - priority to develop institutional sector accounts, higher frequency GDP indicators, and rebasing of CPI, PPI and IPI; - UBOS implementing High Frequency Phone Survey (now extended to include Ebola questions) and Uganda National Household Survey. - preparation for population census on August 23-24, 2023: - conducting mapping exercise to update boundaries, facilities, features and households to establish enumeration areas with help of community leaders; - census to be conducted digitally through Geographic Information System and expected to show results in three months; - data collection tool will capture socio-economic variables, update education statistics and provide a platform for evaluation of data through publication on the web site. *IMF country report content unit 1ugaea2023001 — chapter sections on governance, integrity, inclusion, climate, safeguards, and statistics.* ### 47. The semi-annual quantitative performance criteria, continuous performance criteria, ### 47. The semi-annual quantitative performance criteria, continuous performance criteria, ### Overview and timing - The semi-annual quantitative performance criteria (QPCs), continuous performance criteria (PCs), indicative targets (ITs) and structural benchmarks (SBs) are listed in Tables 1 and 2 (b and c) of the MEFP. - Definitions and reporting requirements are set out in the accompanying Technical Memorandum of Understanding (TMU). - The 4th review and 5th review are scheduled to be completed on or after June 1, 2023 and December 1, 2023, respectively, based on test dates for periodic performance criteria of end-March 2023 and end-September 2023, respectively. - Note: The March 2022, September 2022, March 2023, and September 2023 PCs are for the second, third, fourth and fifth review, respectively. - In addition to QPCs enumerated in Table 1, the Standard Continuous Performance Criteria will also apply: (i) not to impose or intensify restrictions on the making of payments and transfers for current international transactions, (ii) not to introduce or modify multiple currency practices, (iii) not to conclude bilateral payments agreements that are inconsistent with Article VIII, (iv) not to impose or intensify import restrictions for balance of payments reasons. ### Table 1 — Key quantitative performance criteria and indicative targets (selected figures) - Fiscal targets — Primary budget balance of the central government (- = deficit; floor, in billions of USh) 1/: - End-Mar QPC: Target -5,047; Adj. target -5,057; Act. -2,670; Status Met - End-Jun IT: Target -6,872; Adj. target -6,808; Act. -5,370; Status Met - End-Sept QPC: Target -910; Adj. target -130; Act. 814; Status Met - End-Dec IT: Target -1,356; Adj. target -1,624; Act. -2,746-3,320-2,067-2,740 (table shows multiple adjacent values) - Monetary targets — Net claims on the government by the central bank (ceiling) 1/: - End-Mar QPC: Target 300; Adj. target -466; Act. Met - End-Jun IT: Target 580; Adj. target 1,591; Act. Not met - End-Sept QPC: Target 2,458; Adj. target 113; Act. Met - End-Dec IT: Target 1,639; Adj. target 1,598; Act. 799-1,1852,8151,877 (table shows multiple adjacent values) - Target for international reserves — Stock of net international reserves (floor, in millions of US$) 2/: - End-Mar QPC: Target 3,432; Adj. target 3,407; Act. 3,570; Status Met - End-Jun IT: Target 3,125; Adj. target 3,046; Act. 3,235; Status Met - End-Sept QPC: Target 3,455; Adj. target 2,811; Act. Not met - End-Dec IT: Target 3,308; Adj. target 2,571; Act. 2,5742,5032,6872,794 (table shows multiple adjacent values) - Continuous PCs: - Stock of external payment arrears incurred or guaranteed by the public sector (ceiling): 0; Act. 0; Status Met (across listed test dates) - PV of newly contracted external public and publicly guaranteed debt (ceiling, millions of US$) 1/: - Values shown: 1,818; 539 Met; 1,818; 593 Met; 2,748; 66 Met; 2,748 repeated and later 4,0424,042 - Monetary policy consultation clause — Bands (upper/lower limits) and core inflation target 3/: - Outer band (upper limit): 8 8 8 8 8 8 8 8 8 (repeated as shown) - Inner band (upper limit): 7 7 7 7 7 7 7 7 7 (repeated as shown) - Core inflation target 3/: 5 2.7 Met; 5 3.2 Met; 5 4.4 Met; followed by 5 5 5 5 5 (table formats numbers across cells) - Inner band (lower limit): 3 3 3 3 3 3 3 3 3 (repeated) - Outer band (lower limit): 2 2 2 2 2 2 2 2 2 (repeated) - Note: "Core inflation excludes energy, fuel, and utilities and food crops. Annual percentage change, twelve-month period average core inflation." - Indicative targets: - Support to vulnerable households (floor, billions of USh) 1/: Target 220; Adj. target 220; Act. Met; other entries include 292220221Met2651Met7714818722681163 (table cells) - Social spending (floor, billions of USh) 1/ 4/: Values shown: 4,391; 4,716 Met; 6,303; 5,980 Not met; other entries include 1,4631,212Not met2,9632,6844,7666,8471,8493,698 - Tax revenues (floor, in billions of USh) 1/: Values shown: 14,653; 14,580 Not met; 20,305; 20,425 Met; other entries include 5,1215,038Not met11,12511,43917,34923,9656,14913,288 - Repayment of outstanding domestic arrears (floor, in billions of USh) 1/: Values shown: 300550 Met; 603606 Met; 100480 Met; 200571662662100200 (table cells contain multiple entries) - Footnotes and measurement conventions: - 1/ PCs are cumulative flows (i) from July 1, 2021 to end-March and end-June 2022; (ii) from July 1, 2022 to end-September, end-December, 2022, end-March and end-June 2023; and (iii) from July 1, 2023 to end-September 2023. - 2/ The NIR excludes IMF disbursements under the program, central bank short-term liabilities, and is assessed at program exchange rate. The impact of the SDR allocation, assumed to be fully saved, is reflected in the target. - 3/ PCs are cumulative flows (i) from July 1, 2021 to end-March and end-June 2022; and (ii) from July 1, 2022 to end-September, end-December 2022, end-March and end-June 2023. - 3/ Core inflation excludes energy, fuel, and utilities and food crops. Annual percentage change, twelve-month period average core inflation. ### Structural benchmarks — actions, status, and reprogramming (selected items) - Table 2a — Prior Actions for the Combined 2nd and 3rd Reviews: - Publish on the Inspectorate of Government’s website information on: (i) number of leaders who did not promptly submit the asset declarations for the March 2021 declaration period, with a breakdown by categories of leaders; (ii) number of requests received, approved, and rejected, to access the leaders’ declarations on a semi-annual basis, with breakdowns; and (iii) the names of leaders found in breach of the Leadership Code Act and Regulations by the Leadership Code Tribunal for January 2021 to June 2022. - Rationale: Strengthen governance and reduce vulnerability to corruption - Status: Met. Completed in December 2022. Relevant information is published on the Inspectorate of Government and Leadership Code Tribunal’s websites. - Table 2b — Original Structural Benchmarks — Combined 2nd and 3rd Reviews (examples): - Adoption of IGG regulations to lower barriers to access information about asset declarations and to enforce requirement to declare assets of spouses, children and beneficially owned assets. - Rationale: Strengthen governance and reduce vulnerability to corruption - Deadline: March 2022 - Status: Not met. Comment: Leadership Code Regulations amended in September 2022 to include beneficially owned assets. Given criticality, a prior action was set on publication of specified information (Table 2a). - Prepare and publish a medium-term fiscal framework aligned with GFSM 2014 in budget documents. - Rationale: Fiscal sustainability and enhancing fiscal transparency - Deadline: May 2022 - Status: Not met. Comment: Completed in June. Published in documents accompanying the Budget speech, June 14. “Background to the budget” reports the fiscal framework according to GFSM 2014 (page 71). - Prepare a unified registry of all social assistance programs. - Rationale: Targeting of social assistance programs - Deadline: June 2022 - Status: Not met. Comment: Completed in August 2022. NSR primary link; NSSF Data; Public Service Pension Data. - Establish legal and regulatory mechanisms for timely access to accurate basic and beneficial ownership information for legal entities. - Rationale: Strengthen governance and reduce vulnerability to corruption - Deadline: June 2022 - Status: Not met. Comment: Reprogrammed. Bill passed by Parliament on September 1, 2022 and assented by H.E. President. Implementing regulation under review with FATF. - Other SBs addressed: sanctions/regulation for unauthorized spending commitments; treasury memoranda addressing FY20/21 audit weaknesses; tax exemption rationalization plan aiming to identify at least 0.1 percent of GDP in savings in FY 22/23 and 0.2 percent in subsequent years (Completed in November 2022); Charter for Fiscal Responsibility adoption by Parliament (Met — adopted in May). - Several measures were reprogrammed, completed later, or deemed not legally possible and hence adjusted in approach. - Table 2c — Proposed New and Reprogrammed Structural Benchmarks (selection and deadlines): - Establishment of legal and regulatory mechanisms for timely access to accurate basic and beneficial ownership information for legal entities. Reprogrammed from June 2022. Deadline: End-March 2023. - Issue treasury memoranda explaining how weaknesses raised by FY 20/21 audit will be addressed. Reprogrammed from June 2022. Deadline: End-May 2023. - Development and implementation of tools for risk-based AML/CFT supervision of the financial sector. Reprogrammed from October 2022. Deadline: End-May 2023. - Design a medium-term ICT strategy supported by a plan for procurement of a new Integrated Tax Administration System (ITAS). Deadline: End-May 2023. - Develop a financial inclusion module in the Parish Development Management information system (PDMIS) to track access to revolving funds by targeted vulnerable households and report drawdown by demographic categories. Deadline: End-June 2023. - Publish on the MOFPED website decisions arising from investigations that led to sanctions from FY 2020/21 onwards, with clear personal penalties and actions to enforce compliance. Deadline: End-June 2023. - Issue a resolution by the BOU Board Committee on ownership structure for data collected by the Central Data Hub as prerequisite for use of Credit Registration Bureau data for MSME and individual credit scores and macroprudential indicators. Deadline: End-October 2023. - Parliamentary adoption of the BoU Act amendments (in consultation with IMF staff) to strengthen governance and autonomy, including dynamic recapitalization of the BoU, enhancements of the ELA, and resolution powers. Reprogrammed from September 2022. Deadline: End-October 2023. - Other SBs with later deadlines include publication of Directorate for Ethics and Integrity assessment and annual report (End-November 2023), adoption of amendments to Financial Institutions (Corporate Governance) Regulations (End-December 2023), and finalizing EMIS learners' data and diagnostics (End-December 2023). ### Attachment II — Technical Memorandum of Understanding (selected definitions and measurement) - Introduction: - The TMU defines the semi-annual and continuous performance criteria and indicative targets described in the MEFP for the program supported by the IMF Three-Year Extended Credit Facility (ECF) over June 30, 2021—June 30, 2024; and sets forth reporting requirements under the arrangement. - All foreign assets and liabilities will be converted into U.S. dollars at each test date using the cross-exchange rate referred to in Text Table 1 and then converted into Uganda shillings using the program U.S. dollar-Uganda shilling exchange rate for end-December 2021, unless otherwise indicated. - Text Table 1 — Program Exchange Rate (end-October 2022): - US dollar (US$) 1.0000 - Australian Dollar/US$ 1.5627 - Canadian Dollar/US$ 1.3624 - Euro/US$ 1.012 - British pound/US$ 0.8720 - US$/Japanese yen 0.0067 - US$/Rwandan franc 0.0010 - SDR/US$ 0.7792 - Note: For currencies not listed, cross-exchange rates to the U.S. dollar at end-Oct 2022 will be applied. For Rwanda franc the exchange rate is as of end-March. - Floor on Primary Budget Balance of the Central Government: - The QPC on the floor on the primary budget balance is defined as the overall budget balance of the central government excluding net interest payments on public debt. - Overall budget balance is defined from below the line as the sum of: 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 (which are covered under NDF). b) Net domestic financing (NDF): defined on a cash basis as the sum of: i. Change in net claims on the central government by the banking system (difference between claims on central government and liabilities to central government of the central bank and other depository corporations). ii. 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. iii. Net proceeds from sales of non-financial assets including privatization receipts. - NDF will be calculated based on data from balance sheets of the monetary authority and other depository corporations and government liabilities to nonbank institutions and households as per the Depository Corporations Survey (DCS). - Changes in NEF will be measured using external financing (net) provided in the monthly government finance statistics, based on reconciled donor disbursement figures obtained by the central bank and MoFPED through DMFAS and AMS. - The primary balance target will be a floor on the cumulative flows for specified July-to-test-date periods (see Table 1 footnotes). - Ceiling on Net Claims on the Government by the Central Bank: - Background: - 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, according to Amendments to the 2015 PFM Act. The Act requires full repayment within the respective fiscal year. - The GoU has committed to repay the total outstanding advance by FY23/24 in line with the Service Level Agreement (SLA). - Purpose and measurement: - Purpose: To define and monitor the balance of temporary advances and ensure prompt repayment to reduce risk of monetization of fiscal deficits and inflationary pressures; acts as monitoring mechanism for GoU extended repayment schedule. - Net claims on the government by the BoU is defined as the difference between claims on central government and liabilities to central government, excluding deposits in administered funds (including the petroleum funds, agriculture credit facility and development finance scheme projects), project accounts (both donor and government funded) with the central bank and net recapitalization securities (recapitalization securities provided to the central bank less those used for monetary policy purposes). - Calculation (based on DCS): a) Net claims on the government by BOU = gross claims by BOU on central government minus gross liabilities by BOU to the central government. b) Plus: Deposits in Administered Funds (mainly the Agricultural Credit Facility) — gross deposits in administered funds should be used; this liability is added back to exclude it from net claims. c) Plus: Deposits in the Petroleum Fund — both UGX and USD accounts included and added back. d) Plus: Government Project Deposits (donor project funds earmarked for specific projects and transferred to BOU to administer) — added back to exclude from net claims. *Source: 1ugaea2023001 - 47. The semi-annual quantitative performance criteria, continuous performance criteria,* ### 9. Minus: Recapitalization Securities. The securities used for monetary purposes (repos) are ### 9. Minus: Recapitalization Securities. The securities used for monetary purposes (repos) are ### Recapitalization securities (general) - Securities used for monetary purposes (repos) are already netted out because they are included in both gross claims by BOU on central government and gross liabilities by BOU to the central government. - Hence only recap securities should be subtracted. ### D. Floor on Net International Reserves of the Bank of Uganda - Net international reserves (NIR) of the BOU are defined for program monitoring purposes 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 and exclude pledged or otherwise encumbered external assets, including, but not limited to, assets used as collateral or guarantees for third-party liabilities. - Short-term external liabilities: liabilities to nonresidents, of original maturities less than one year, contracted by the BoU and include outstanding IMF purchases and loans. - For program-monitoring purposes, reserve assets and short-term liabilities at the end of each test period will be calculated in U.S. dollars by converting the stock from their original currency denomination at program exchange rates as set out in Table 1 above. - NIR limit for each test date: a floor on the NIR stock at the end of each test period. - NIR floors specified as: - Quantitative performance criteria under the ECF for September 2022, March 2023 and September 2023. - Indicative targets for June 2022 and December 2022 and end-June and end-December 2023. ### E. Ceiling on External Arrears Incurred or Guaranteed by the Public Sector - Definition of debt: set out in point 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 6230-(79/140), as amended by Decision No. 15688-(14/107), effective June 30, 2015, and Decision No. 16919-(20/103), adopted on October 28,2020). Applies also to commitments contracted or guaranteed for which value has not been received. - Point 8(a) definition summary: - Debt = current liability created under contractual arrangement through provision of value in assets (including currency) or services, requiring obligor to make one or more payments in assets or services at future points to discharge principal and/or interest. - Primary forms: (i) loans (including deposits, bonds, debentures, commercial loans, buyers' credits, repurchase agreements, official swap arrangements), (ii) suppliers' credits, (iii) leases (debt = present value at inception of all lease payments expected during agreement, excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are considered debt. - Ceiling on accumulation of new external payments arrears: zero. - Applies continuously to change in stock of overdue payments on debt contracted or guaranteed by the public sector from their level at end-June 2021. - External debt payment arrears: external debt service obligations reported by Statistics Department of the BoU, Accountant General’s office of Ministry of Finance, Planning and Economic development that have not been paid when due as specified in contractual agreements. - Excludes arrears on obligations subject to rescheduling, disputed debt service obligations and the HIPC-related external arrears to Iraq and Nigeria. - Government must immediately report any new external arrears it accumulates to IMF staff. ### F. Ceiling on the Present Value of Newly Contracted External Public and Publicly Guaranteed Debt - Definition, coverage: - Definition of debt: paragraph 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 15688-(14/107), effective June 30, 2015). - Public sector includes central government, state government, local government, social security funds, central bank, nonfinancial public enterprises and other official sector entities. - Guarantee arises from any explicit legal or contractual obligation of the public sector to service a debt owed by a third-party debtor (payments in cash or in kind). - Debt is contracted when all conditions for its entrance into effect have been met, including approval by the government. - Contracting of credit lines with no predetermined disbursement schedules or with multiple disbursements will also be 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 (covered under NDF). - Concessionality: - A debt is concessional if it includes a grant element of at least 35 percent. - Grant element calculation: difference between the present value (PV) of debt and its nominal value, expressed as a percentage of the nominal value of the debt. - PV of debt at contracting: discount future stream of payments of debt service due on this debt. - For debts with a grant element equal or below zero, PV will be set equal to the nominal value of the debt. - Discount rate: the unified discount rate of 5 percent set forth in Executive Board Decision No. 15248-(13/97). - Variable interest rate treatment: - For debts carrying a variable interest rate in the form of a benchmark interest rate plus a fixed spread, PV calculated using program reference rate plus the fixed spread (in basis points) specified in contract. - Program reference rate for the six-month USD SOFR is 1.56 percent and will remain fixed for the duration of the program. - Specified spreads: - Spread of six-month Euro EURIBOR over six-month USD SOFR: -179 basis points. - Spread of six-month JPY OIS over six-month USD SOFR: -159 basis points. - Spread of six-month GBP SONIA over six-month USD SOFR: -12 basis point. - For interest rates on 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. - Quantitative performance criterion (ceiling): - Applies to present value of external debt newly contracted or guaranteed by the public sector. - Ceiling applies to debt contracted or guaranteed for which value has not yet been received, including private debt for which official guarantees have been extended. - Quantitative target does not apply to normal import-related commercial debt having maturity less than one year, rescheduling agreements, and IMF disbursements. - For this continuous PC, government must immediately report any new external loans it contracts or guarantees, stating loan conditions. ### G. Consultation Mechanism on Inflation - Quarterly consultation bands for twelve-month average rate of consumer price inflation measured by the core consumer price index (CCPI) published by UBOS are specified in the QPC table. - Observed CCPI inflation for September 2022, March 2023 and September 2023: subject to the consultation mechanism. - CCPI inflation for June 2022, December 2022, June 2023 and December 2023: indicative targets. - If observed average CCPI inflation for test date linked to ECF program review (March 2022, September 2022, March 2023, September 2023 for second–fifth reviews) falls outside the outer band specified in QPC table: - Authorities will complete consultation with Executive Board of the Fund on proposed policy response before requesting completion of the review. - Authorities cannot request completing a review under the ECF program if average CCPI inflation has moved outside outer band as of test date until consultation with Executive Board has taken place. - BoU will report publicly the reasons for any breach of the outer bands and its policy response. - BoU will conduct discussions with Fund staff when observed average CCPI inflation falls outside the inner band specified in QPC table. ### H. Direct Support Programs to Vulnerable Households - Indicative floor on total social assistance spending to support 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 the EMYOOGA Initiative. - Compliance verification: 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. ### I. Social Spending - Floor on total social spending will be set. - Includes all spending in health, education, and social development (excluding external financing). - Monitoring: monthly government finance statistics. ### J. Tax Revenues - Floor applies on tax revenue of central government measured cumulatively from beginning of fiscal year in July. - For program monitoring: tax revenue = sum of direct domestic taxes, indirect domestic taxes, and international trade taxes, as defined by Government of Uganda’s revenue classification. ### K. Floor on Repayment of Outstanding Domestic Arrears (IT) - Indicative target: floor on cumulative gross repayment of outstanding domestic arrears of central government. - Target periods: - (i) from July 1, 2021 to March 31, 2022 and June 30, 2022; - (ii) from July 1, 2022 to September 30, 2022, December 31, 2022, March 31, 2023, and June 30, 2023; - (iii) from July 1, 2023 to September 30, 2023 and to December 31, 2023. - Unpaid bill definition: any verified outstanding payment owed by any entity that forms part of central government votes for utilities, rent, employee costs, other recurrent, court awards, compensation, contributions to international organizations, development, taxes, and other deductions. - Domestic arrears: total stock of unpaid bills at end of year as reported in annual audit report of the Auditor General. ### L. Adjustors - NIR and primary balance targets based on program assumptions regarding: 1. budget support; 2. recapitalization of the BoU; 3. external financing tied to projects; 4. DSSI relief; and 5. the proposed SDR allocation. - Adjustor related to budget support: - Uganda shilling equivalent of projected budget support (grants and loans) on a cumulative basis from beginning of relevant quarter presented under Schedule A. - Floor on stock of NIR of BoU adjusted upward (downward) by amount budget support (excluding IMF disbursements), grants and loans exceeds (falls short of) projected amounts. - Any downward adjustment to floor on stock of NIR capped by 10 percent of the revised targeted amount in Schedule A. - Floor on primary budget balance of central government adjusted upward (downward) by amount by which budget support grants exceeds (falls short of) projected amounts. - Adjustor related to recapitalization of BoU: - Floor on primary budget balance adjusted downward (upward) by amount by which recapitalization of the BoU exceeds (falls short of) projected amounts in Schedule B. - Adjustor related to externally financed projects: - Floor on primary budget balance adjusted upward (downward) by amount by which (both concessional and non-concessional) external financing tied to projects falls short of (exceeds) projected amounts in Schedule C. - Any downward adjustment capped by 10 percent of amounts set out in Schedule C. - Adjustor related to direct support programs to vulnerable households: - Floor on spending under direct support programs adjusted upward (downward) by amount by which spending under NUSAF and SCG exceeds (falls short of) projected amounts in Schedule E. ### M. Monitoring and Reporting Requirements - Government of Uganda to submit information to IMF staff with frequency and submission time lags indicated in Table 1. - Quality and timeliness tracked and reported by IMF staff. - Information submission email: AFRUGA@imf.org - Selected reporting requirements and lags: - Bank of Uganda: operations in foreign exchange market and level of BoU’s international reserves — Weekly, 5 working days. - Bank of Uganda: private sector credit growth by shilling and forex, and excess reserves of commercial banks — Monthly, 5 working days. - Bank of Uganda: disaggregated consumer price index — Monthly, 2 weeks. - Bank of Uganda: balance sheet of the BoU, consolidated accounts of commercial banks, and depository corporations’ survey — Monthly, 4 weeks. - Bank of Uganda: monthly balances of net foreign assets, net domestic assets, and base money of the BoU — Monthly, 4 weeks. - Bank of Uganda: details on government position at central bank including deposits broken down by government project accounts and administered funds; detailed information about recording of recapitalization of central bank, and government securities used for monetary purposes — Monthly, 4 weeks. - Bank of Uganda: monthly foreign exchange cash flow table of BoU — Quarterly, 4 weeks. - Bank of Uganda: currency composition of BoU’s international reserves at end of each quarter — Quarterly, 6 weeks. - Ministry of Finance: summary of central government accounts (revenues on cash basis; expenditures when checks issued except specified items) — Monthly, 4 weeks. - Ministry of Finance: summary of stock of arrears by government entities as reported by Accountant General and signed by PS/ST — Semi-annually, 3 months. - Ministry of Finance: disbursements, principal and interest, flows of debt rescheduling and debt cancellation, arrears, and committed undisbursed balances—by creditor category — Quarterly, 6 weeks. - Ministry of Finance: summary of stock of external debt, external arrears, and committed undisbursed loan balances by creditor — Quarterly, 6 weeks. - Ministry of Finance: statement on new external loans contracted or guaranteed by central government and BoU; Parliament resolutions on any new loans — Quarterly, 6 weeks. - Ministry of Finance: statement of cash balances held in project accounts at commercial banks; total value of outstanding government securities from CDS; stock of government securities held by commercial banks from CDS — Quarterly, 6 weeks. - Ministry of Finance: updated national accounts statistics (real and nominal) according to UBOS and medium-term projections — Quarterly, 12 weeks. - Additional reporting: contingent liabilities, provision of all government guarantees, detailed monthly central government account of disbursed budget support and project grants and loans, privatization receipts, detailed donor project support, and other items as specified in Table 1 with respective frequencies and lags. ### N. Anti-Corruption - Inspectorate of Government to publish on its website, freely and easily available to public, information on: - (i) public leaders who did not timely submit the asset declaration (where declaration required for the year), and - (ii) the semi-annual statistical data relating to application to access the content of the declarations, by end-November of each year, in prescribed format. - "Members of Cabinet" category includes President, Vice President, Prime Minister, Cabinet Ministers and Ministers of State. *Source: 1ugaea2023001 - 9. Minus: Recapitalization Securities. The securities used for monetary purposes (repos) are* ### 1. Members of Cabinet ### 1. Members of Cabinet ### Leadership Code, Declarations, and Transparency - Total number of leaders/category of leaders who did not promptly submit declaration against total number of leaders/category of leaders required to declare under the Leadership Code Act. - As defined under Second Schedule of the Leadership Code Act that are required to make declaration. - Including Speaker and Deputy Speaker of Parliament. - Table 3. Number of Applications Received, Approved, and Rejected, to Access the Content of Declarations — columns include: - Application Received - Application Approved - Application Rejected - Total number of leaders - Of which: 1. Members of Cabinet; 2. Members of Parliament; 3. Judges of the Courts of Judicature; 4. Directorate of Public Prosecutions (staff of or above the rank of State Attorney); 5. Permanent Secretaries; 6. Heads of State-Owned Enterprises - Reasons for rejection of application (if applicable) - The Leadership Court Tribunal will publish on its website, no later than 30 days following the completion of the adjudication process, the following information on sanctions imposed on leaders found to be in breach of the Leadership Code Act (LCA) and Regulations (LCR): - (i) the names of public leaders being sanctioned, - (ii) the sanctioned leader’s respective designation, title or office held, - (iii) brief explanation of the nature of breaches against the provisions of the LCA and/or LCR, - (iv) date of sanction imposed, - (v) the nature of sanction and/or penalty imposed. ### Data Releases After Staff Report (growth and inflation) - Q3 2022 (Q1 FY 2022/23) GDP Press Report (released December 22): - Real GDP grew by 7.5 percent y/y in Q1 2022/23. - Agriculture sector grew by 0.2 percent. - Industrial sector grew 12.7 percent. - Services grew by 9 percent. - Purchasing Manager’s Index increased to 52.0 (from 50.9 in November). - December 2022 CPI Data (released December 31): - Headline inflation declined to 10.2 percent y/y in December 2022 (from 10.6 percent the previous month). - Energy, fuel and utilities annual inflation: 10.6 percent in December vs. 12.2 percent in November. - Core inflation: 8.4 percent in December vs. 8.8 percent in November. - Food crops and related items inflation: 29.4 percent in December from 27.8 percent the previous month. - Headline inflation averaged 7.2 percent for the year 2022 (highest in more than a decade). ### Statement by Ugandan Authorities — Introduction and Program Performance - Authorities appreciate dialogue with staff during combined second and third reviews under the Extended Credit Facility (ECF) arrangement and broadly share staff’s appraisal and policy priorities. - Contextual shocks: COVID-19 pandemic, spillovers from the Russia-Ukraine war, Ebola outbreak in late 2022, and adverse climate events. - Program performance highlights: - Most Quantitative Performance Criteria (QPCs) and Indicative Targets (ITs) for end-March, end-June, and end-September 2022 test dates were met. - All QPCs met except the September QPC on net international reserves (missed due to tighter global financial conditions). - All ITs met except: IT on tax revenues in March; ITs on Bank of Uganda net credit to government and the floor on social spending in June. - Six of the twelve (12) Structural Benchmarks (SBs) were met (five met with delay). - Completion of SB to lower barriers to access asset declaration information faced legal impediments relating to data privacy and security; alternative measures completed: amended Leadership Code Regulations to include assets that are beneficially owned and reduced by half the fees for application to access the declarations. - SB on strict sanctions for officers responsible for unauthorized spending commitments: PFM Act already provides strict sanctions, including custodial sentences; proposed regulation would dilute them — authorities will focus on enforcement via publication of decisions arising from investigations leading to sanctions (applies from FY 2020/21 onwards). - SB on establishment of legal and regulatory mechanisms for timely access to accurate, basic, and beneficial ownership information for legal entities was not met pending issuance of regulation, expected to be completed in the first quarter of 2023. To date, the regulations have been signed by the Minister of Justice. - Authorities requested re-programming of remaining four SBs to allow more time for completion due to capacity constraints and legislative agenda. - Authorities seek Executive Directors’ support for completion of second and third reviews under the ECF arrangement, including waiver of nonobservance of performance criteria, modification of targets, and rephasing of access. ### Recent Economic Developments and Outlook - Growth: - GDP growth: 3.5 percent in 2020/21 to 4.7 percent in 2021/22. - Projections revised down: from 6 percent and 6.3 percent to 5.3 percent and 6 percent for 2022/23 and 2023/24 respectively (relative to first review). - Medium-term growth expected to return to pre-pandemic trend of 6 -7 percent. - Further growth impetus expected from oil sector development and more efficient government spending. - Inflation and external risks: - Headline inflation rose to 10.6 percent in November 2022 (from 2.9 percent in December 2021); moderated to 10.2 percent in December 2022. - Inflation projected to remain above target and return to the 5 percent target in the medium term. - Downside risks: deteriorating global economic environment, successive domestic shocks, Ebola-Sudan outbreak since September 2022. - Authorities intensified contact tracing and public awareness and procured preventive material; expect country to be declared Ebola-free by the WHO in the near future. - External balances and reserves: - Current account deficit expected to improve from 7.9 percent of GDP in 2021/22 to 7.1 percent in 2022/23. - International reserves declined from 4 months of imports at time of first review to 3.6 months in September 2022. - International reserves remain lower than the EAC target of 4.5 months of imports. ### Fiscal Policy and Debt Management - Fiscal consolidation remains a priority to enhance fiscal and debt sustainability while preserving growth. - Domestic Revenue Mobilization Strategy (DRMS): - Tax administration and policy measures yielded the full-year target of 0.7 percent of GDP by June 2022 (through concerted efforts to collect tax arrears). - Medium-term revenue strategy aims to enhance income tax productivity, improve excise duty regime, and strengthen VAT productivity including by reviewing VAT exemptions. - Expenditure priorities: - Prioritize effective and better targeted support to the vulnerable in rural areas; avoid costly and ineffective subsidies. - Strengthen social safety net by bolstering social assistance programs. - Targeted increase in social spending expected to reverse decline in public education and health spending. - Expand national identification database and unified national registry of all social assistance programs. - Roll out of the Parish Development Model expected to widen FY22/23 deficit target modestly by 0.4 percent of GDP (reflects higher borrowing costs and cost of living adjustment to the civil service wage bill). - Accelerate clearance of domestic arrears to support private sector. - Public investment and financing: - Utilized IMF technical assistance on a public investment management assessment (PIMA) in June 2022. - Contingency plan to cut non-priority spending if downside risks materialize or financing assurances do not materialize. - Aim to diversify creditor base via a credit outreach event with the World Bank. - Launch public investment financing strategy for additional donor financing. - Medium-Term Debt Management Strategy goals include increasing maturity of domestic debt to reduce need for costly external financing. - Measures to unlock under-utilized World Bank lending, including improved implementation capacity and reducing tax exemptions. ### Monetary and Exchange Rate Policies - Bank of Uganda (BoU) policy stance: - Maintained tight monetary policy to bring inflation back to target over the medium term. - Increased policy rate by a cumulative 350 basis points between May and October 2022. - Remain attentive to inflation developments and stand ready to adjust the policy rate as needed, while adhering to the inflation consultation clause under the ECF program. - Capacity and toolkit improvements: - Committed to building Forecasting and Policy Analysis System’s capacity to support monetary policy under the price-based framework. - Continue finetuning liquidity forecasting and broadening the liquidity management toolkit beyond traditional repurchase agreements, including: - Inclusion of BoU bills and the special deposit facility for commercial banks at the central bank. - Use of BoU recapitalization bonds to manage liquidity at various maturities. - Exchange rate and reserves: - Committed to maintaining reserve cover at adequate levels and strengthening reserves over time. - Allow exchange rate flexibility to contribute to correction of external imbalances, intervening only to address disorderly market conditions. - Safeguards: - Implementing recommendations from the Fund’s 2021 safeguards assessment. - Revised Principles amending the BoU Act are expected to fully address safeguards recommendations and limit all temporary advances to Government to 10 percent of current-year revenues, as established in the PFM Act, 2015. ### Financial Sector Policies - Banking system resilience: - Banking system remained resilient, profitable, and well-capitalized. - Stock of outstanding COVID-19 relief loans declined to about 10 percent of total loans at end-August 2022 (after expiry of support measures in September 2022). - Supervised financial institutions (SFIs) continued provisioning for NPLs proactively and preparing for write-off of bad loans. - Macroprudential and supervisory reforms: - BoU fully implemented Basel II principles and is looking to adopt aspects of Basel III. - Elements under consideration include a systemic risk buffer for domestic systemically important banks, capital conservation buffer and leverage ratio, liquidity coverage ratio and net stable funding ratio. - Minimum paid-up capital for SFIs was increased; statutory instrument gazetted in December 2022. - Authorities prioritize adoption of new regulations on corporate governance to address weaknesses and mitigate financial stability risks. - AML/CFT and FATF engagement: - Intensify efforts to complete actions under FATF’s International Cooperation Review Group action plan to exit FATF grey list. - Build capacity of AML/CFT supervisors and law enforcement through training; conduct outreach to raise awareness of AML/CFT obligations and risks. - Strengthened institutional framework for mutual legal assistance; completed terrorism financing risk assessment for non-profit organizations. - Near-term aims include issuing regulations for timely access to beneficial ownership information by competent authorities, improving effectiveness of AML/CFT risk-based supervision, and ensuring compliance with new regulations on domestic politically exposed persons. ### Structural Reforms and Governance - Reform objectives: - Generate higher and more inclusive growth through enhanced private sector participation and human capital development, while addressing governance concerns and corruption. - Implement legal and administrative measures to improve the doing business environment: - Permits and registration requirements for new businesses available in a one-stop shop (physically and online). - Plan to address power, transport, and ICT constraints and streamline bureaucratic red tape. - Financial inclusion and digitalization: - Implementing National Financial Inclusion Strategy; envisage progress under the program leveraging digitalization. - Governance and anti-corruption: - Advance governance and anti-corruption policies by enhancing transparency in asset declaration regime to build public trust. - Intensify efforts to improve good governance and tackle corruption in line with National Anti-Corruption Strategy (NACS) 2019-2024. - Noted prosecutions and recovery of funds and goods in the past year. - Commitments under Extractive Industries Transparency Initiative (EITI): disclose contracts and licenses for oil and gas production and beneficial owners of corporate entities that hold a legal interest. - Climate change: - Completed accreditation to the Green Climate Fund and the Adaptation Fund. - Working with development partners to scale-up capacity to leverage accreditations for financing. - Priorities: strengthen water catchment ability; increase forest coverage from 14 percent to 21 percent by 2030; include climate change risk as a strategic focus area of the BoU’s Strategic Plan 2022-2027. ### Conclusion - Ugandan authorities remain committed to the program’s objectives to maintain macroeconomic stability and support sustainable growth and an inclusive recovery. - Authorities value continued Fund policy and technical support and look forward to Executive Directors’ support in completion of the combined second and third reviews under the ECF arrangement. *Source: 1ugaea2023001 - 1. Members of Cabinet* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1ugaea2023001.pdf_