## 1ugaea2023003

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### Program performance and QPC status
- QPC on BoU net credit to government (NCG) was missed by "1 percent above the ceiling" in end-March 2023 due to a slight delay in disbursement of external commercial loans and lower-than-planned repayment of BoU advances by the government.
- Authorities requested a waiver for the nonobservance of the March QPC on BoU NCG.
- All structural benchmarks (SBs) with deadlines between January and June 2023 were met.
- End-March indicative targets (ITs):
  - Social spending floor: missed (March miss noted as "4.8 percent below the floor" in one section; another note: missed by around 5 percent).
  - Tax revenue floor: missed on both test dates, mainly reflecting lower-than-anticipated collection of corporate taxes.
- No accumulation of external arrears; ITs on inflation, repayment of domestic arrears, and support to vulnerable households were met in December and March.

### Macroeconomic outlook and recent developments
- Growth and activity:
  - Real GDP Growth: FY2020/21 3.5; FY2021/22 4.7; FY2022/23 5.5; FY2023/24 6.0 (Table 1).
  - High-frequency indicators: PMI 55.4 in April 2023; Composite Index of Economic Activity increased by 5.9 percent y-o-y in March 2023.
  - Medium-term: projected return to pre-pandemic trend of 6-7 percent.
- Inflation:
  - Headline CPI: 6.2 percent in May 2023 (peak 10.7 percent in October 2022).
  - Core inflation: 5.6 percent y-o-y in May 2023 (peak 9.0 percent in January 2023).
  - BoU assesses core inflation has peaked and likely to reach the medium-term target by end-2023.
- External sector and reserves:
  - FX reserves stabilized around US$3.6 billion since Q4:2022 (declined from US$4.1 billion in June 2022 to US$3.5 billion in October 2022).
  - By end-April 2023, the shilling had depreciated 5.8 percent against the US dollar y-o-y; the REER appreciated 5.7 percent y-o-y (data as of March 2023).
  - Current account deficit: widened in Q3:2022; Q4:2022 narrowed; exports increased in Q1:2023.
- Financial conditions:
  - Private sector credit growth: 9.8 percent (yoy) in Q1:2023 from 10.2 percent in Q4:2022 (other series: 10.7 percent in April 2023 y-o-y).
  - Banking sector NPL ratio: 5.8 percent in March 2023 (5.4 percent in December 2022); banks writing off bad loans proactively.
  - Interbank rate: around 12 percent; 7-day interbank rate eased to 11.7 percent in April 2023 from 12.1 percent in February 2023.

### Monetary stance and policy
- BoU actions:
  - Policy rate hikes totaling 350 basis points between June and October 2022 (policy rate reached 10 percent in October 2022).
  - Cash Reserve Ratio raised by 2 percentage points in June 2022.
  - BoU paused tightening to assess disinflation; current ex-ante real policy rate ~5 percent (about 200 basis points higher than at time of 2nd and 3rd reviews); stance described as broadly neutral.
- Guidance:
  - BoU should remain data dependent and be ready to resume tightening if disinflation slows or price expectations deteriorate.
  - Exchange rate flexibility remains crucial; FX sales limited to smoothing excessive volatility; active FX purchases encouraged to rebuild reserves when conditions allow.

### Fiscal consolidation, budget execution, and public finances
- Fiscal outcomes and targets:
  - FY21/22 fiscal deficit: 7.4 percent of GDP (slightly below program target of 7.5 percent).
  - FY22/23 headline deficit target: 5.1 percent of GDP.
  - Through first three quarters of FY22/23 fiscal deficit was 72 percent of the amount projected for the whole fiscal year.
  - Domestic revenues and spending: about 70 percent of full-year FY22/23 targets; grants: 45 percent.
- Key fiscal indicators (selected Table 1 series):
  - Revenue and grants (% of GDP): FY2020/21 14.3; FY2021/22 14.1; FY2022/23 14.7; FY2023/24 15.8.
  - Expenditure (% of GDP): 23.7; 21.5; 19.8; 19.3.
  - Primary Balance (% of GDP): -6.7; -4.3; -1.9; -0.5.
  - Fiscal Balance (% of GDP): -9.4; -7.4; -5.1; -3.4.
  - Public Debt (% of GDP): 49.0; 50.6; 48.6; 47.8.
  - Reserves (months of next year's imports): 4.9; 4.1; 3.2; 3.1.
- Composition and adjustments:
  - To maintain FY22/23 deficit at 5.1 percent, authorities curtailed non-priority capital expenditures (0.5 percent of GDP) to offset tax revenue under-performance (0.4 percent of GDP) and higher arrears clearance (0.1 percent of GDP).
  - FY23/24 fiscal deficit expected to be 0.1 percent of GDP smaller than envisaged at combined 2nd and 3rd reviews; social spending expected to total 22.4 percent of total spending (FY23/24).
- BoU financing table (percent of GDP):
  - Net financing: FY21/22 0.2; FY22/23 -0.6; FY23/24 -0.6.
  - BoU advances (memo outstanding): FY21/22 2.1; FY22/23 0.7; FY23/24 -0.1.

### Revenue mobilization — Domestic Revenue Mobilization Strategy (DRMS)
- DRMS targets and measures:
  - DRMS target: increase revenue to GDP ratio by 0.5 percent point per year.
  - Additional measures in FY23/24 and beyond expected to raise FY23/24 tax revenue ratio by 0.6 percentage point relative to FY22/23.
- Selected FY2022/23 and FY2023/24 tax revenue projections and measures (Text Table 3 excerpts):
  - Tax revenue (UGX bn): FY2022/23 23,458 (12.63 percent of GDP); FY2023/24 27,424 (13.23 percent of GDP).
  - Identified tax administration measures in National Budget Framework Paper: UGX 878 (0.30 percent of GDP) with components including DTS and EFRIS UGX 222 (0.11 percent of GDP), arrears management UGX 154 (0.07 percent of GDP), third-party information UGX 144 (0.07 percent of GDP).
  - Additional tax administration measures: UGX 354 (0.17 percent of GDP) including IT strategy UGX 150 (0.07 percent of GDP), URA staff salary enhancements UGX 100 (0.05 percent of GDP).
  - Tax exemptions rationalization: UGX 1624 (1.70 percent of GDP) with income tax measures UGX 310 (0.15 percent of GDP) and VAT measures UGX 107 (0.05 percent of GDP).
  - Additional tax policy measures: UGX 25 (0.12 percent of GDP) including waiver incentives and mineral water rate options.
  - Buoyancy: UGX 1,993 (2,328 noted as 1.12 percent of GDP).

### Debt sustainability and financing
- Staff judgment: government debt sustainable in the medium term; risk of debt distress is moderate.
- DSA findings:
  - Except for a one-off breach of the external-debt-service-to-export ratio in FY22/23, external debt burden and public debt indicators remain below thresholds under baseline.
  - Stress tests show breaches of thresholds under adverse shocks, indicating moderate risk.
- Public debt levels and composition (selected):
  - Public gross debt (percent of GDP): 49.0; 50.6; 50.9; 48.6; FY23/24 49.6 (Table series).
  - External public debt (% of GDP): 31.6; 31.3; 30.9; 31.2.
  - Domestic debt (% of GDP): 17.4; 19.3; 19.0; 17.7.
  - External debt major creditors and shares (selected): World Bank (IDA) US$4,418.6 (20.2 percent of total public debt), Eximbank of China US$2,649.2 (12.1 percent).
- Program financing:
  - Program is fully financed; expected use of new commercial syndicated loans and half of recent SDR allocation (about US$235 million) to repay BoU advances; firm commitments for next 12 months exist.
  - Given structural decline in official development assistance, financing likely to rely more on commercial financing; staff encourage pursuit of grants and concessional loans.

### Financial sector stability, supervision, and risks
- Banking sector strength and vulnerabilities:
  - Regulatory capital to risk-weighted assets: ~24.1–24.2 percent (Dec-22/Mar-23 figures).
  - Liquidity coverage ratio: 283.8 percent in March 2023 (184.5 percent in June 2022).
  - NPLs: overall banking sector ~5.3–5.8 percent; of six DSIBs, four had NPLs below 4.5 percent and two around 12 percent at end-March 2023.
  - Sovereign-bank nexus: share of Uganda sovereign debt in total bank assets rose from 19 percent in 2019 to 27 percent in 2022.
  - FX credit accounts for around 30 percent of bank loans.
- Policy and supervisory priorities:
  - Safeguard financial stability and strengthen supervisory framework; move to risk-based supervision and strengthen stress-testing capacity with Fund TA.
  - Monitor interest rate risks and consider prudential measures on banks’ sovereign exposures.
  - Implement AML/CFT risk-based supervision tools; expedite measures to exit FATF grey list.
  - Proposed SBs include policies for supervisory sanctioning power under AML (Amendment) Regulations 2023 (end-March 2024) and cybersecurity guidelines (end-April 2024).

### Social programs, PDM rollout, and PFM constraints
- Parish Development Model (PDM):
  - PDM aims to provide parishes cash for lending through SACCOs; over 40 percent of population lives on less than $1.90 a day.
  - SACCO status: about 90 percent received planned funds and completed first meetings; less than 5 percent completed training and internal audit to start disbursing; about 3 thousand households have accessed PDM loans so far.
  - Expectation of beneficiary increase as training and auditing requirements completed in FY23/24.
- Social assistance expansion:
  - Fourth NUSAF (Cabinet approval pending) to benefit about 3.1 million people (667,000 households) with total budget of $280 million.
  - SAGE program: ensure timely funding of Senior Citizens Grants; consider lowering eligibility age (currently 80+).
- PFM reforms and arrears:
  - Validated domestic arrears as of 31 March 2023: 2.7 trillion (1.5 percent of GDP).
  - Plan to clear arrears by end-FY25/26 with provisions in FY23/24 and subsequent years.
  - PFM reform axes: budget preparation, arrears reduction/prevention, cash management, asset/accounting/performance improvements.
  - IMF TA sought for cash management, aggregate borrowing plan, and spending execution capacity in health and education.

### Structural reforms, governance, and climate priorities
- Governance and transparency:
  - Beneficial Owners Regulations gazetted; centralized beneficial ownership registry and URSB measures to enforce compliance (expected full compliance by December 2023).
  - Publication of treasury memoranda addressing FY20/21 audit weaknesses and decisions from investigations leading to sanctions (SBs met).
  - Commitment to publish assessments under NACS and strengthen asset declaration transparency; Leadership Court Tribunal to publish sanctions within 30 days of adjudication.
- Private sector and business environment:
  - NSPSDII adopted; one-stop shop for business registration and permits; promote industrial parks and special economic zones; support AfCFTA activation.
- Financial inclusion and digitalization:
  - National Financial Inclusion Strategy II to be in place by end-June 2023.
  - Operationalize national payment switch (tendering to complete before 30th June 2023); proposed BOU mobile-money platform for purchase of government securities (SB end-April 2024).
  - Movable asset registry and CRB enhancements; URSB recorded 13,533 security interest notices by July 31, 2022.
- Climate actions:
  - Increase forest coverage from 14 percent to 21 percent by 2030.
  - Disaster Risk Management plan and proposed Presidential allocation of US$50 million as seed funds over next three financial years.
  - BOU to integrate climate-related risks into stress testing and internal frameworks; institutionalize ESGS Framework.

### Key risks (Annex I and staff assessment)
- Near-term and domestic risks:
  - Further tightening of external financial conditions; slower-than-expected disinflation; spillovers from conflict in Sudan; potential larger-than-expected impact of Anti-Homosexuality Bill 2023 on donor funding, FDI, and tourism.
  - Natural disasters and climate vulnerability given rain-fed agriculture.
  - Slow progress on fiscal reforms, FATF action plan, and PFM execution capacity.
- External risks:
  - Systemic financial instability, commodity price volatility, abrupt global slowdown, intensification of regional conflicts.
- RAM likelihood definitions:
  - "Low" <10 percent; "Medium" 10–30 percent; "High" 30–50 percent.
- Policy responses summarized:
  - Revenue-based fiscal consolidation; full implementation of DRMS; accelerate PFM reforms; maintain exchange rate flexibility; retain NIR floor of 4 months of next year’s imports (excluding oil-related financing) as program end point in June 2024.

### Staff appraisal and recommendations (selected)
- Support completion of Fourth Review and waiver request for March QPC on BoU NCG given minor deviation.
- Key recommendations:
  - Revenue mobilization: Full implementation of DRMS, front-loaded revenue measures, tax exemption rationalization, contingency revenue measures if needed.
  - Fiscal management: Increase pace of PFM reforms, prioritize social spending execution capacity, avoid arrears accumulation, extend TSA coverage, operationalize monthly cash flow forecasting.
  - Monetary policy: BoU remain ready to resume tightening if disinflation slows; maintain exchange rate flexibility.
  - External financing: Secure concessional financing to reduce reliance on commercial borrowing and limit debt service costs.
  - Financial sector: Safeguard stability, strengthen supervision, expedite AML/CFT actions to exit FATF grey list.
  - Structural reforms: Strengthen anti-corruption framework, improve transparency (beneficial ownership, asset declarations), advance financial inclusion, implement climate adaptation measures.

*Source: Uganda—Fourth Review Under the Extended Credit Facility Arrangement, June 6, 2023 (IMF staff report).*

### 2023. The Quantitative Performance Criterion (QPC) on the ceiling on the Bank of Uganda

### 2023. The Quantitative Performance Criterion (QPC) on the ceiling on the Bank of Uganda

### Program performance and QPC status
- The QPC on the ceiling on the Bank of Uganda (BoU) net credit to government (NCG) was missed by a very small margin in March 2023: the end-March QPC was exceeded by "1 percent above the ceiling" due to a slight delay in the disbursement of external commercial loans that necessitated a lower-than-planned repayment of BoU advances by the government.
- The authorities requested a waiver for the nonobservance of the March QPC on BoU NCG given the minor nature of the deviation and the expected continued successful implementation of the program.
- All structural benchmarks due between March and June 2023 have been met.
- End-March indicative targets (ITs) on social spending and tax revenue floors were missed.

### Macroeconomic outlook and recent developments
- Context and outlook:
  - The economy is recovering from shocks induced by the war in Ukraine and the Ebola outbreak; recent global market turmoil and potential spillovers from the conflict in Sudan pose new policy challenges.
  - Growth is supported by robust industrial activity and services, while agriculture was weighed down by unfavorable weather conditions that have since improved.
  - The growth outlook is slightly more favorable in the near term relative to the combined 2nd and 3rd reviews; end-2023 and FY23/24 inflation projections have been marked down.
- Inflation:
  - Year-on-year CPI inflation was 6.2 percent in May 2023, down from a peak of 10.7 percent in October 2022.
  - Core inflation (excluding food crops and energy) decelerated to 5.6 percent y-o-y in May 2023 from a peak of 9.0 percent in January 2023.
  - The BoU assesses core inflation has peaked and is likely to come down to the medium-term target by end-2023.
- External sector and reserves:
  - The current account deficit widened in Q3:2022, reflecting a decline in tourism receipts and higher imports; terms-of-trade improvements and a recovery in goods exports helped narrow the deficit in Q4:2022; recent data suggests a further increase in exports in Q1:2023.
  - FX reserves stabilized since Q4:2022 at around US$3.6 billion after a decline from US$4.1 billion in June 2022 to US$3.5 billion in October 2022.
  - By end-April 2023, the shilling had depreciated 5.8 percent against the US dollar y-o-y; the REER appreciated 5.7 percent y-o-y (data as of March 2023).
- Financial sector and credit:
  - Private sector credit growth moderated to 9.8 percent (yoy) in Q1:2023 from 10.2 percent in Q4:2022.
  - The banking sector NPL ratio increased to 5.8 percent in March 2023 from 5.4 percent in December 2022; banks continued to write off bad loans proactively.
  - Credit demand softened due to higher borrowing costs following earlier policy rate increases.

### Monetary and fiscal policy stance
- Monetary policy:
  - The BoU tightened policy between June and October 2022 (policy rate hikes totaling 350 basis points and a 2 percentage point increase in the cash reserve ratio in June 2022) and has paused tightening while assessing disinflation.
  - With the unchanged nominal policy rate and lower expected inflation, the current ex-ante real policy rate is around 5 percent—about 200 basis points higher than at the time of the 2nd and 3rd reviews; the current stance is described as broadly neutral.
- Fiscal policy and program adjustments:
  - In June 2021 the IMF Executive Board approved a 36-month ECF arrangement equivalent to 200 percent of quota.
  - Requests were made to modify QPCs and ITs to reflect updated financing assumptions:
    - Downward revisions to floors on primary budget balance of the central government and tax revenues were requested due to tax revenue underperformance in the first three quarters of FY22/23.
    - A downward revision of the ceiling on the PV of newly contracted external public and publicly guaranteed (PPG) debt reflects changes in government borrowing plans.

### Key numerical indicators (Table 1: Selected Economic Indicators, FY2020/21-FY2023/24)
- Real GDP Growth (%): 3.5 (FY2020/21), 4.7 (FY2021/22), 5.5 (FY2022/23), 6.0 (FY2023/24)
- Headline Inflation - average (%): 2.5, 3.4, 9.2, 5.7
- Core Inflation - average (%): 3.5, 3.2, 7.7, 5.3
- Revenue and grants (% of GDP): 14.3, 14.1, 14.7, 15.8
- Expenditure (% of GDP): 23.7, 21.5, 19.8, 19.3
- Primary Balance (% of GDP): -6.7, -4.3, -1.9, -0.5
- Fiscal Balance (% of GDP): -9.4, -7.4, -5.1, -3.4
- Public Debt (% of GDP): 49.0, 50.6, 48.6, 47.8
- Broad Money (% change): 8.5, 10.0, 11.3, 11.2
- Credit to Private Sector (% change): 8.3, 11.0, 8.9, 10.4
- Policy Rate, EOP (%): 6.5, 7.5, ..., ...
- Current Account Balance (% of GDP): -9.5, -7.9, -8.6, -8.9
- Reserves (in months of next year's imports): 4.9, 4.1, 3.2, 3.1
- External Public Debt (% of GDP): 31.6, 31.3, 30.9, 31.2
- REER (% change): 0.6, 3.7, ..., ...

### Risks and vulnerabilities
- Near-term risks highlighted:
  - Further tightening of external financial conditions.
  - Slower-than-expected disinflation that would necessitate further monetary tightening and higher interest rates.
  - Potential larger-than-expected impact of the Anti-Homosexuality Bill 2023 on donor funding, FDI and income from tourism.
  - Spillovers from the conflict in Sudan could hurt exports and the balance of payments.
- Uganda’s moderate public debt level and continued access to concessional financing provide space to pursue program objectives.

### Policy priorities and recommendations
- Revenue and fiscal management:
  - Full implementation of the Domestic Revenue Mobilization Strategy (DRMS), including additional tax administrative measures identified by the authorities, is crucial to help maintain the debt-to-GDP ratio on a declining path and allow for an increase in social spending over the medium term.
  - The tax exemption rationalization plan remains an important component of the revenue mobilization effort.
  - Increasing the pace of Public Financial Management (PFM) reforms is essential to enhance capacity to execute social spending in a timely manner.
- Monetary and exchange rate policy:
  - The current monetary policy stance is appropriate, but the BoU should be ready to resume tightening if signs emerge of a slower-than-expected disinflation.
  - Exchange rate flexibility remains crucial to preserve external buffers.
- Financial sector stability and supervision:
  - Safeguarding financial stability and strengthening the supervisory framework remain paramount given some deterioration in asset quality of banks.
- Structural and governance reforms:
  - Accelerate structural reforms to unlock growth potential, with priorities including:
    - Enhancing domestic revenue mobilization.
    - Strengthening the anti-corruption framework and the AML/CFT regime.
    - Advancing the financial inclusion agenda.
    - Implementing climate adaptation measures.
  - Sustain efforts to improve transparency of implementation of the asset declaration framework including sanctions enforcement for violations.

*Source: Uganda—Fourth Review Under the Extended Credit Facility Arrangement, June 6, 2023 (IMF staff report).*

### 9.      Fiscal consolidation continues. Following the 7.4 percent of GDP fiscal deficit in FY21/22

### 1ugaea2023003 - 9.      Fiscal consolidation continues. Following the 7.4 percent of GDP fiscal deficit in FY21/22

### Fiscal consolidation and budget execution
- FY21/22 fiscal deficit: 7.4 percent of GDP (slightly below the program target of 7.5 percent of GDP).
- FY22/23 headline deficit target: 5.1 percent of GDP; budget execution through first three quarters: fiscal deficit was 72 percent of the amount projected for the whole fiscal year.
- Relative to the full-year FY22/23 target through Q3:
  - Domestic revenues and spending: about 70 percent.
  - Grants: 45 percent.
- Q1:FY22/23 expenditure retrenchment amid revenue uncertainty; Q2 and Q3 broadly caught up as planned.
- Public debt at end-FY21/22: 50.6 percent of GDP (including outstanding BoU advances); level was lower than projected at the time of the 1st program review, mainly due to higher nominal GDP.

### Parish Development Model (PDM) rollout and social impact
- PDM purpose: subnational transfer program to support rural communities by providing parishes cash for lending to subsistence households through SACCOs and limiting increase in the poverty headcount ratio (over 40 percent of the population lives on less than $1.90 a day).
- SACCO implementation status:
  - About 90 percent of SACCOs have received planned funds, completed their first general meeting, elected leaders and appointed bank account signatories.
  - Less than 5 percent of SACCOs have completed training and internal audit required to start disbursing funds.
  - About 3 thousand households have accessed PDM loans so far.
- Expectation: number of beneficiaries to increase as more SACCOs satisfy training and auditing requirements planned to be completed in FY23/24.
- Financial inclusion module in PDM information system rolled out in various districts (SB end-June 2023); last-mile usage reports prepared.

### Program performance and structural benchmarks (SBs)
- Quantitative targets:
  - Most end-December and end-March quantitative targets were met (MEFP ¶10-11 and Table 1).
  - Primary balance and NIR floors and the ceiling on the PV of newly contracted external PPG debt were met in December (IT) and March (QPC).
  - Ceiling on BoU net credit to the government (NCG): met in December (IT); missed by 1 percent above the ceiling in March (QPC). Authorities request a waiver for nonobservance of end-March QPC on BoU NCG.
  - No accumulation of external arrears.
  - ITs on inflation, repayment of domestic arrears, and support to vulnerable households: met in December and March.
  - IT on tax revenues: missed on both test dates, mainly reflecting lower-than-anticipated collection of corporate taxes.
  - IT on social spending: met in December; missed in March by 4.8 percent below the floor due to PFM and expenditure execution capacity constraints; end-June IT on social spending floor will likely not be met.
- Structural benchmarks: all 6 SBs with deadlines between January and June 2023 were met (MEFP ¶12 and Table 2a), including:
  - Beneficial ownership information mechanism (met January; SB end-March 2023).
  - Tools for risk-based AML/CFT supervision (reprogrammed to end-May 2023; met).
  - Treasury memoranda addressing FY20/21 audit weaknesses (SB end-May 2023).
  - Medium-term ICT strategy and procurement plan for Integrated Tax Administration System (SB end-May 2023).
  - Financial inclusion module rollout and reporting (SB end-June 2023).
  - Report on decisions from investigations into unauthorized spending posted on MoFPED website (SB end-June 2023).
- Authorities progressing toward implementing future SBs.

### Macroeconomic outlook and risks
- Real GDP growth:
  - FY22/23 revised upward from 5.3 to 5.5 percent reflecting higher-than-expected H1:FY22/23 outturns.
  - FY23/24 unchanged at 6 percent.
  - Medium-term: projected return to pre-pandemic trend of 6-7 percent based on governance reforms, oil sector development, and more efficient government spending.
- Core inflation:
  - Projected to decline to the 5-percent target by end-2023 due to BoU monetary tightening, improved domestic harvests, and softer global commodity prices.
- Forecast uncertainties: evolution of global commodity prices; pace of monetary policy tightening domestically and globally; financial conditions including risk premia and exchange rate; potential spillovers from conflict in Sudan.
- Key downside risks to growth (Annex I):
  - Further tightening of external financial conditions.
  - Renewed pickup in inflation leading to additional monetary tightening.
  - Stronger drag of higher borrowing costs on private credit and investment.
  - Potential negative impact of conflict in Sudan on exports.
  - FX credit accounts for around 30 percent of bank loans—financial sector stability sensitive to syndicated loan availability.
  - Potential reductions in grants, external loans, FDI, and tourism linked to the Anti-Homosexuality Bill, 2023.
  - New public health challenges (e.g., Marburg virus near Tanzania border).
  - Climate vulnerability due to mostly rain-fed agriculture.
- Upside risks: higher-than-expected positive impact from PDM; faster regional trade integration.

### Policies and public finance strategy
- Fiscal path:
  - Fiscal deficit expected to continue shrinking, slightly more than envisioned in combined 2nd and 3rd reviews, aiding decline in government debt/GDP and contributing to rebuilding reserve buffers.
  - Improvement in spending composition in favor of social spending has slowed relative to previous review.
- Revenue mobilization:
  - Authorities will implement additional revenue mobilization measures in FY23/24—supplemented with higher non-tax revenue—than programmed at combined 2nd and 3rd reviews to address tax revenue under-performance.
  - Domestic Revenue Mobilization Strategy (DRMS) target: increase revenue to GDP ratio by 0.5 percent point per year.
  - Additional administrative and tax policy measures in FY23/24 along with previous measures and exemption rationalizations expected to increase FY23/24 tax revenue ratio by 0.6 percentage point relative to FY22/23.
  - New grant commitments and higher-than-expected non-tax revenues (mainly from higher education enrollment) projected to raise total government revenues in FY23/24 by 0.3 percent of GDP relative to the combined 2nd-3rd reviews.
- Monetary policy:
  - Monetary policy stance should depend on evolution of price expectations and price pressures; BoU should be ready to resume tightening if disinflation slows.
- External buffers and exchange rate:
  - Further reduction of government imports financed by FX reserves, together with exchange rate flexibility, crucial for rebuilding external buffers and supporting needed exchange rate adjustment.
- Medium-term priorities:
  - Preserve debt sustainability while creating space for social spending.
  - Advance reforms to improve governance and reduce corruption vulnerabilities.
  - Raise potential growth.

### FY22/23–FY26/27 projections and key numeric indicators (as presented)
- Real GDP growth (percent): Act. 3.5; 2nd-3rd review 4.7; Rev. 5.3; Prog. 5.5 for FY22/23; FY23/24 6.0; FY24/25 6.0; FY25/26 6.6; FY26/27 7.1; later 7.0.
- Core inflation, average (percent): Act. 3.5; 2nd-3rd review 3.2; Rev. 7.5; Prog. 7.7 for FY22/23; FY23/24 6.8; FY24/25 5.3; FY25/26 5.0; FY26/27 5.0.
- Credit to non-government sector (percent nominal growth): Act. 8.3; 2nd-3rd review 11.0; Rev. 8.3; Prog. 8.9 for FY22/23; FY23/24 12.8; FY24/25 10.4; FY25/26 11.8; FY26/27 12.7; later 13.8.
- Overall fiscal balance (percent of GDP): Act. -9.4; 2nd-3rd review -7.4; Rev. -5.1; Prog. -5.1 for FY22/23; FY23/24 -3.5; FY24/25 -3.4; FY25/26 -3.4; FY26/27 -3.3; later -2.7.
- Public debt (percent of GDP): Act. 49.0; 2nd-3rd review 50.6; Rev. 50.9; Prog. 48.6 for FY22/23; FY23/24 49.6; FY24/25 47.8; FY25/26 46.8; FY26/27 45.6; later 43.9.
- Current account balance (percent of GDP) 1/: Act. -9.5; 2nd-3rd review -7.9; Rev. -7.1; Prog. -6.7 for FY22/23; FY23/24 -5.7; FY24/25 -4.2; FY25/26 -4.0; FY26/27 -4.3; later -3.2.
- Gross International Reserves (months of imports) 1/: Act. 4.9; 2nd-3rd review 4.5; Rev. 3.7; Prog. 3.8 for FY22/23; FY23/24 4.0; FY24/25 4.0; FY25/26 4.2; FY26/27 4.9; later 4.9.
  - 1/ Excluding oil project financing and investment related imports and exports.

### Composition of FY22/23–FY23/24 fiscal adjustments and spending composition
- FY22/23: To maintain 5.1 percent deficit, authorities will:
  - Balance tax revenue under-performance (projected 0.4 percent of GDP lower than at combined 2nd-3rd reviews) and higher domestic arrears clearance (0.1 percent of GDP) by curbing non-priority capital expenditures (0.5 percent of GDP).
  - Social spending expected to total 22 percent of total spending by end-FY22/23, 0.2 percent of GDP lower than projected at combined 2nd-3rd reviews.
- FY23/24:
  - Fiscal deficit 0.1 percent of GDP smaller than envisaged at combined 2nd-3rd reviews.
  - Deficit-enhancing factors totaling 1 percent of GDP: lower tax revenues, higher hydropower investment, higher other current expenditures, and BoU recapitalization.
  - Deficit-reducing factors totaling 1.1 percent of GDP: higher non-tax revenues and grants, lower interest payments, and lower government wages and capital expenditures.
  - Social spending expected to increase to 22.4 percent of total spending, 0.3 percent of GDP lower than previously expected at earlier reviews; expansion and PFM improvements expected to raise the social spending ratio above 2nd-3rd review path from FY24/25 onward.
  - Security spending: around 13.2 percent of total domestically financed spending in FY23/24 (against 9.1 percent previously projected); expected to converge to 2nd-3rd review path from FY24/25 onward.
- Authorities will seek IMF technical assistance to improve spending execution capacity in health and education agencies.

### BoU financing and external borrowing
- BoU financing to government (Text Table 2 summary, percent of GDP):
  - Net financing: FY21/22 0.2; FY22/23 -0.6; FY23/24 -0.6.
  - Deposit withdrawal: FY21/22 -0.1; FY22/23 0.5; FY23/24 0.0.
  - Petroleum fund withdrawal: FY21/22 0.1; FY22/23 0.0; FY23/24 0.0.
  - BoU advances: FY21/22 0.2; FY22/23 -1.1; FY23/24 -0.7.
  - Recapitalization: FY21/22 0.0; FY22/23 0.0; FY23/24 0.1.
  - Memo: Outstanding BoU advances: FY21/22 2.1; FY22/23 0.7; FY23/24 -0.1.
- Government fast-tracking external borrowing:
  - Commercial bank budget support: about US$146 million disbursed by Standard Chartered in FY22/23; additional US$330 million by Standard Chartered and Amarog Capital and 500 million Euro by Stanbic expected by end-FY22/23.
  - When approved, forthcoming ECF disbursements will also contribute to budget support.
  - Half of recent SDR allocation (equivalent to about US$235 million) expected to contribute to repayment of BoU advances and remain on BoU’s balance sheet.

### Domestic Revenue Mobilization Strategy (DRMS) measures (Text Table 3 excerpts)
- FY2022/23 and FY2023/24 tax revenue (UGX bn and percent of GDP):
  - Tax revenue (UGX bn): FY2022/23 23,458 (12.63 percent of GDP); FY2023/24 27,424 (13.23 percent of GDP).
  - Projected increase: UGX 3,033 and 3,967 (1.91 percent of GDP).
- Identified measures for FY2023/24 (UGX bn; percent of GDP where shown):
  - Tax administration measures in National Budget Framework Paper: UGX 878 (0.30 percent of GDP).
    - Leverage information technology (DTS and EFRIS): UGX 222 (0.11 percent of GDP).
    - Arrears management: UGX 154 (0.07 percent of GDP).
    - Use of 3rd party information for taxpayer registration and compliance: UGX 144 (0.07 percent of GDP).
    - Focused audit of specialized sectors: UGX 41 (0.02 percent of GDP).
    - Transit monitoring of cargo: UGX 18 (0.01 percent of GDP).
    - Exchange of information for valuation of imports: UGX 15 (0.01 percent of GDP).
    - Curb smuggling at porous borders: UGX 12 (0.01 percent of GDP).
    - Conduct non-intrusive inspection of goods: UGX 9 (0.00 percent of GDP).
  - Additional tax administration measures: UGX 354 (0.17 percent of GDP).
    - Implementation of new IT strategy to plug revenue leakages: UGX 150 (0.07 percent of GDP).
    - URA staff salary enhancement efficiency: UGX 100 (0.05 percent of GDP).
    - Sector based audits in income tax and excise duty: UGX 100 (0.05 percent of GDP).
    - Improved tax education: UGX 4 (0.00 percent of GDP).
  - Tax exemptions rationalization: UGX 1624 (1.70 percent of GDP).
    - Income tax measures total UGX 310 (0.15 percent of GDP), including capping indefinite carry forward of tax losses UGX 186 (0.09 percent of GDP), restricting Section 40A of TPC UGX 108 (0.05 percent of GDP), repeal Section 27A of ITA UGX 15 (0.01 percent of GDP).
    - VAT measures total UGX 107 (0.05 percent of GDP), including standard rate on supply of diapers UGX 87 (0.04 percent of GDP), expand definition of electronic services UGX 10 (0.00 percent of GDP), limit VAT exemption on inputs into iron ore smelting to billets UGX 10 (0.00 percent of GDP), leather products made in Uganda and inputs UGX 1 (0.00 percent of GDP).
  - Additional tax policy measures: UGX 25 (0.12 percent of GDP), including waiver of interest and penalties for voluntary payers Jun-Dec 2023 UGX 20 (0.10 percent of GDP), impose rate of 10% or Shs.75 per litre of mineral water UGX 29 (0.01 percent of GDP), withholding tax on commissions from agency banking UGX 15 (0.01 percent of GDP), review withholding tax on lotteries and gaming UGX 9 (0.00 percent of GDP).
  - Buoyancy: UGX 1,993 (2,328 noted as 1.12 percent of GDP).
- Planned ICT and compliance measures:
  - Medium-term ICT strategy and procurement plan for Integrated Tax Administration System (SB end-May 2023).
  - Compliance improvement plan for large taxpayer office and focus on taxation of multinational enterprises (proposed SB end-March 2024).
  - Expand EMIS coverage to include teachers in public schools (proposed SB end-April 2024).

*Source: Uganda authorities and IMF staff (excerpts from 1ugaea2023003).*

### 21.      Uganda’s government debt is sustainable in the medium term and the risk of debt

### 21.      Uganda’s government debt is sustainable in the medium term and the risk of debt

### Debt sustainability and risk assessment
- Staff judgment: government debt is sustainable in the medium term and the risk of debt distress is moderate.
- DSA findings:
  - Except for a one-off breach of the external-debt-service-to-export ratio in FY22/23, the external debt burden and public debt indicators remain below their respective thresholds and benchmarks under the baseline scenario.
  - The one-off breach of the debt service-to-exports ratio under the baseline scenario does not impact the overall debt sustainability assessment; it largely reflects a likely temporary dip in export revenue in FY22/23 because of uncertainty around gold export levies.
  - Stress tests lead to breaches of thresholds and benchmarks, indicating a moderate risk of overall and external debt distress.

### Fiscal operations (Text Table 4: FY21/22-FY23/24 — key figures)
- Total revenue and grants: 11.4, 15.1, 14.7, 15.5, 15.8
- Revenue: 13.4, 13.4, 13.9, 13.5, 14.4, 14.3
- Tax: 12.6, 12.6, 13.0, 12.6, 13.5, 13.2
- Nontax: 0.9, 0.9, 0.9, 0.9, 0.9, 1.1
  - o/w: Oil revenues: 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- Grants: 0.7, 0.7, 1.2, 1.2, 1.1, 1.5
- Expenditures and net lending: 21.5, 21.5, 20.2, 19.8, 19.0, 19.3
- Primary current expenditures: 10.1, 10.1, 9.2, 9.3, 8.9, 9.2
  - o/w: Parish Development Model: 0.0, 0.0, 0.5, 0.5, 0.5, 0.5
- Interest expenditures: 3.1, 3.1, 3.3, 3.3, 3.2, 2.9
- Development expenditures: 7.9, 7.9, 7.1, 6.7, 6.8, 6.7
  - External: 2.9, 2.9, 3.5, 3.1, 3.3, 3.7
  - Domestic: 5.0, 5.0, 3.7, 3.5, 3.5, 2.9
- Net lending and investment: 0.2, 0.2, 0.2, 0.1, 0.0, 0.3
- Other spending (arrears clearance): 0.4, 0.4, 0.4, 0.4, 0.1, 0.1
- Overall balance: -7.4, -7.4, -5.1, -5.1, -3.5, -3.4
- Overall balance excl. PDM: -7.4, -7.4, -4.6, -4.6, -3.0, -3.0
- Primary balance: -4.3, -4.3, -1.8, -1.9, -0.3, -0.5
- Primary balance excl. PDM: -4.3, -4.3, -1.3, -1.3, 0.1, 0.0
- Memorandum items:
  - Social spending: 3.7, 3.7, 3.7, 3.5, 3.7, 3.4
  - Security spending: 2.6, 2.6, 2.0, 2.1, 1.4, 2.0
- Source of table: MoFPED and IMF Staff calculations

### Monetary policy and inflation control
- Guidance: monetary policy stance should be calibrated to the evolution of price expectations and price pressures (MEFP ¶22).
- Key uncertainties: passthrough from global commodity prices and exchange rate movements related to advanced economies’ central bank tightening and global risk sentiment.
- Baseline forecast: core inflation returning to 5 percent target by end-2023; current stance broadly neutral (see paragraph 8 and Annex III).
- Recent measures and effects:
  - Cash Reserve Ratio increase in June 2022 has drained liquidity; interbank rate is currently 12 percent, 2 percentage points above the policy rate.
  - Effects include higher lending rates and slower credit growth.
- Recommendation: BoU should remain data dependent and be ready to resume tightening if disinflation slows, including if core inflation takes longer than the baseline expectation of end-2023 to return to 5 percent.

### Preserving external buffers and exchange rate policy
- Fiscal consolidation and exchange rate flexibility are essential for rebuilding external buffers (MEFP ¶24-25).
- Pressures: rising debt service amid tight global financial conditions will continue to pressure FX reserves despite import cuts and FX purchases by the central bank.
- Policy recommendations:
  - Further reduction of government imports financed by FX reserves in FY23/24, more than envisaged in the combined 2nd-3rd reviews.
  - Retain the NIR floor of 4 months of next year’s imports of goods and services (excluding oil investment related financing and imports) as the end point of the ECF program in June 2024.
  - Exchange rate flexibility should be maintained; FX sales limited to mitigating excessive volatility.
  - More active FX purchases to replenish reserves when market conditions allow.

### Financial sector stability and reforms
- Banking sector indicators and vulnerabilities:
  - Liquidity coverage ratio (LCR) increased to 283.8 percent in March 2023 from 184.5 percent in June 2022.
  - Interbank rate: 12 percent (see monetary section).
  - Of the six Domestic Systemically Important Banks (DSIBs), which jointly account for 66 percent of gross lending:
    - Four had NPLs below 4.5 percent at end-March 2023.
    - Two had NPL ratios of around 12 percent at end-March 2023.
  - Some small banks might lack sufficient capital or liquidity buffers if financial conditions tighten further.
- Sovereign-bank nexus:
  - Share of Uganda sovereign debt in total bank assets increased from 19 percent in 2019 to 27 percent in 2022, contributing to crowding out private sector credit.
  - Stress testing by BoU indicates all DSIBs and Primary Dealer Banks (PDBs) are adequately capitalized to withstand a 300 basis-point increase in interest rates in the next six months on the value of their bond portfolios.
  - Authorities should closely monitor interest rate risks and assess prudential measures on banks’ sovereign exposures.
- AML/CFT and supervisory capacity:
  - BoU has started developing and implementing AML/CFT risk-based supervision tools for banks with Fund TA support; remaining tools for foreign exchange bureaus and money remittance sectors were rolled out in mid-May 2023.
  - Uganda remains on the FATF grey list; its agreed action plan with FATF fully expired in May 2022.
  - Authorities should expedite measures to complete remaining items under their action plan to exit the grey list.
  - BoU to formulate policies and procedures to guide implementation of supervisory sanctioning power under the AML (Amendment) Regulations 2023 for non-compliance by banks (proposed new SB, end-March 2024).
- Financial sector reform milestones and planned actions:
  - BoU Board Committee to issue resolution on ownership structure for Central Data Hub data (SB, end-October 2023).
  - Amend Financial Institutions Regulations in line with Basel Committee principles (SB, end-December 2023).
  - Operationalize platform to enable purchase of government securities using mobile money with safeguards (proposed new SB, end April 2024).
  - Develop and implement cybersecurity guidelines for financial services (proposed new SB, end April 2024).
  - Move to risk-based supervision and strengthen stress-testing capacity with Fund TA.

### Structural reforms for governance and private sector development
- Priority areas aligned with the National Development Plan:
  - Enhance transparency:
    - Beneficial Owners Regulations 2023 gazetted; capacity constraints may hinder effective implementation and compliance.
    - Authorities should intensify efforts, including sanctions for non-compliance, to ensure accurate beneficial ownership information.
    - Authorities obtained a 6-month extension from the global EITI Board for publication of the first annual report 2020/21.
    - Continue publishing tax expenditures and procurement contracts; maintain compilation and quarterly publication of unpaid invoices and prevent arrears formation.
  - Strengthen anti-corruption framework:
    - Ensure timely collection and publication of decisions from investigations into unauthorized spending commitments (SB, end-June 2023).
    - Maintain progress toward publication of the assessment report under the National Anti-Corruption Strategy (NACS) and the annual report for FY2022/23 (SB, end-November 2023).
  - Strengthen oversight of public corporations, especially in the oil sector, ahead of expected significant revenues from oil exports; IMF TA in FY23/24 to support transparency and budgeting of flows to/from SOEs.
  - Accelerate climate adaptation strategy implementation and budget for the disaster risk management plan, water catchment, and forest coverage; complete the Climate Module of the PIMA (C-PIMA) and assess long-term climate risks to integrate climate aspects into PIM reforms and fiscal planning.

### Program modalities, structural benchmarks, and financing
- Proposed modifications requested by authorities:
  - Revisions to a QPC and ITs reflecting changing macroeconomic environment, tax revenue underperformance in FY22/23, and revised financing plans.
  - Modifications include floors on primary budget balance of the central government, tax revenues, and ceiling on PV of newly contracted external public and publicly guaranteed debt.
  - Downward revision of June 2023 IT floors on tax revenues and the primary budget balance due to tax revenue underperformance in the first three quarters of FY22/23.
  - Downward revision of ceiling on PV of newly contracted PPG debt reflects change in government borrowing plans (June and December 2023 IT, September 2023 QPC).
- Structural benchmarks (SB) progress:
  - SB on issuance of regulations for timely access to beneficial ownership information met ahead of deadline (end-March 2023).
  - SB on development of AML-risk based supervisory tools completed in May 2023.
  - Treasury memoranda addressing FY20/21 audit weaknesses issued (SB end-May 2023).
  - Medium-term ICT strategy and procurement plan for a new Integrated Tax Administration System completed (SB end-May 2023).
  - Financial inclusion module in PDM information system rolled out; reports on last-mile usage being prepared (SB end-June 2023).
  - Report on decisions from investigations into unauthorized spending posted on MoFPED website (SB end-June 2023).
  - New proposed SBs include: compliance improvement plan for large taxpayer office (end-March 2024); policies for supervisory sanctioning power under AML Regulations 2023 (end-March 2024); cybersecurity guidelines for financial services (end-April 2024); operationalization of BoU mobile-money securities purchase platform (end-April 2024); expansion of EMIS to include teachers in public schools countrywide (end-April 2024).
- Program financing:
  - The program is fully financed.
  - New commercial syndicated loans are expected and planned use of half of the August 2021 SDR allocation will contribute to closing the FY22/23 financing gap.
  - Firm commitments for the next 12 months exist.
  - Given a structural decline in official development assistance and moderate appetite for budget support, financing needs will likely be met largely through commercial financing.
  - Staff encourage continued pursuit of grants and concessional loans via strengthened implementation capacity and structural reforms to support the catalytic role of the program.

### External financing (Text Table 5: FY20/21-FY23/24, Millions of US$ — key figures)
- Financing needs: 4,076; 3,655; 3,990; 3,944; 6,314; 5,416
- Current account deficit: 3,837; 3,591; 4,418; 4,253; 5,515; 4,849
- Reserve accumulation (+=increase): 239; 65; -428; -309; 799; 567
- Financing sources: 3,363; 3,039; 3,641; 3,060; 6,081; 5,173
  - o/w World Bank: 374; 199; 126; 141; 264; 5
  - o/w AfDB: 0; 3; 2; 0; 0; 0
  - o/w commercial banks: 289; 432; 455; 976; 750; 426
- BOP financing gap: 243; 116; 349; 365; 233; 243
- ECF: 243; 116; 349; 365; 233; 243
- Sources: Authorities and IMF staff estimates and projections.

### Capacity to repay the Fund and IMF exposure
- Total Fund outstanding credit would peak at SDR1,083 million, or 300 percent of quota in 2024, equivalent to:
  - 2.8 percent of GDP
  - 19.3 percent of exports of goods and services
  - 46.9 percent of gross international reserves
- IMF repayments expected to peak at 2.2 percent of exports of goods and services and 4.3 percent of reserves in 2029.
- Considering Uganda’s track record of servicing debt, moderate public debt level, and continued access to concessional financing, risks to capacity to repay would remain moderate even if downside risks materialize.

### Staff appraisal, risks, and policy recommendations
- Macro outlook and risks:
  - Recovery continues but faces headwinds from an Ebola outbreak, spillovers from the war in Ukraine, and tightening external financial conditions; risk of scarring and deterioration in socio-economic indicators.
  - Risks tilted to the downside: further tightening of external financial conditions, renewed pickup in inflation, potential negative impact on exports from the conflict in Sudan, and climate shocks.
  - An upside risk: positive impact on spending and growth from the Parish Development Model (PDM).
- Program performance:
  - Most QPCs and ITs were met in December 2022 and March 2023.
  - Ceiling on BoU NCG missed by 1 percent in March due to slight delay in disbursement of external commercial loans and lower-than-planned repayment of BoU advances by government.
  - All 6 SBs with deadlines between January and June 2023 have been met.
- Key policy recommendations:
  - Revenue-based fiscal consolidation to keep debt sustainable over the medium term while creating space for social spending.
    - Full implementation of the DRMS, including additional tax administrative measures, and strong front-loaded revenue mobilization to maintain declining debt-to-GDP path and allow increased social spending.
    - Increase pace of PFM reforms to enhance capacity to execute social spending timely.
    - Be ready to implement contingency revenue measures if planned measures do not deliver intended yields.
    - Tax exemption rationalization plan remains important for revenue mobilization.
  - Monetary policy: BoU should stand ready to resume tightening if disinflation slows.
  - External buffers and exchange rate policy:
    - Tight macro policies and exchange rate flexibility to bring domestic absorption in line with production, reduce current account deficit, and replenish reserves.
    - Deploy more active FX purchases to replenish reserves when conditions allow; avoid FX sales except to smooth excessive volatility.
    - Secure further concessional financing to reduce reliance on commercial borrowing and limit debt service costs.
    - Strengthen implementation capacity and structural reforms to accelerate activation of underutilized World Bank concessional loans.

*Source: IMF staff report material provided in the content unit.*

### 40.      Financial stability risks should be minimized. The banking sector remains well capitalized,

### 40.      Financial stability risks should be minimized. The banking sector remains well capitalized,

### Financial stability and banking sector
- The banking sector remains well capitalized, and liquidity has rebounded.
- The banking sector continues to write off bad loans proactively.
- The asset quality of some banks has deteriorated.
- Against this backdrop, safeguarding financial stability and strengthening the supervisory framework remain paramount.

### Structural reform priorities to unlock growth potential
- Structural reforms remain key to unlock Uganda’s growth potential and require more proactive efforts.
- Priority areas include:
  - Strengthening the anti-corruption framework and the AML/CFT regime.
  - Advancing the financial inclusion agenda.
  - Implementing climate adaptation measures.
- The authorities should sustain efforts to improve transparency of implementation of the asset declaration framework including sanctions enforcement for violations.
- Making information publicly available on the implementation progress of the National Anti-Corruption Strategy will strengthen effectiveness of the strategy and improve public accountability.

### Implementation of 2021 safeguards assessment recommendations and BoU independence
- The implementation of the 2021 safeguards assessment recommendations should help strengthen BoU’s independence and its overall safeguards framework.
- The authorities have consulted with Staff on the revised principles underpinning the BoU Act Amendments and work is underway on preparing a new draft for consideration by the Cabinet (SB, end-October 2023).
- 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.
- The BoU is taking steps to strengthen its currency operations and the internal audit mechanism, along with other safeguards recommendations that remain in progress (see MEFP para 39).

*Source: 1ugaea2023003 - 40.      Financial stability risks should be minimized. The banking sector remains well capitalized,*

### 43.      Staff supports the authorities’ requests for completion of the Fourth Review, as well as

### 1ugaea2023003 - 43.      Staff supports the authorities’ requests for completion of the Fourth Review, as well as

### Real sector developments
- Growth in FY21/22 was higher than expected, driven by a strong recovery in services following the reopening.
- Real GDP (annual percent change): 3.5, 4.7, 5.3, 5.5, 6.0, 6.0, 6.6, 7.1, 7.0 (series shown in Table 1).
- Non-Oil real GDP (annual percent change): 3.5, 4.7, 5.3, 5.5, 6.0, 6.0, 6.2, 6.1, 6.0.
- GDP deflator (annual percent change): 2.5, 4.8, 7.6, 8.2, 6.7, 5.3, 5.0, 5.0, 5.0.
- Headline inflation (period average): 2.5, 3.4, 8.3, 9.2, 7.2, 5.7, 5.0, 5.0, 5.0.
- Core inflation (period average): 3.5, 3.2, 7.5, 7.7, 6.8, 5.3, 5.0, 5.0, 5.0.
- Business perceptions and leading indicators remain positive though less optimistic reflecting spillovers from the war in Ukraine.
- Exchange-rate notes: since February 2022 the shilling weakened against the dollar and euro with a turnaround in recent months; gained against regional currencies contributing to real appreciation. Real effective exchange rate and nominal exchange rate series shown in figures.

### External sector developments
- Current account balance (US$, millions): -3,837; -3,591; -4,253; -4,849; -6,571; -6,996; -6,844 (2020/21–2026/27 series in Table 4a).
- Current account (percent of GDP): -9.5; -7.9; -8.6; -8.9; -11.1; -11.8; -10.6 (Table 4b).
- Trade balance (US$, millions): -3,045; -3,300; -3,978; -4,896; -6,573; -5,634; -4,365.
- Exports f.o.b. (US$, millions): 5,279; 3,837; 4,980; 5,723; 6,192; 7,847; 9,486.
- Imports f.o.b. (US$, millions): 8,324; 7,137; 8,958; 10,620; 12,765; 13,481; 13,851.
- Primary income (net, US$, millions): -680; -778; -836; -830; -1,006; -2,202; -3,322.
- The deficit is mainly financed by FDI and budget and project support loans; foreign investors’ holdings of government securities have declined.
- Financial account (percent of GDP): -7.9; -6.3; -5.7; -8.6; -10.9; -12.7; -8.8.
- Gross international reserves (US$, billions): 4.2; 4.1; 3.7; 3.8; 4.5; 4.7; 4.9. Reserve coverage in months: 4.9; 4.1; 3.0; 3.2; 3.1; 3.1; 3.7; note reserve buffer has fallen below the 4-month import coverage ratio.

### Fiscal developments and public debt
- Total revenue and grants (Ush. billions): 21,239; 22,992; 27,783; 27,229; 32,220; 32,748; 37,484; 45,870; 54,223 (Table 2a).
- Revenue (Ush. billions): 19,839; 21,830; 25,551; 25,043; 29,934; 29,672; 34,483; 43,239; 51,944.
- Tax revenue (Ush. billions): 18,337; 20,425; 23,965; 23,458; 28,153; 27,424; 31,869; 37,131; 42,680.
- Grants (Ush. billions): 1,400; 1,162; 2,232; 2,186; 2,286; 3,075; 3,001; 2,631; 2,279.
- Expenditures and net lending (Ush. billions): 35,140; 34,967; 37,175; 36,710; 39,513; 39,895; 45,294; 54,558; 61,998.
- Development expenditures (Ush. billions): 15,085; 12,785; 13,160; 12,355; 14,216; 13,822; 17,541; 20,948; 22,516.
- Overall balance (Ush. billions): -13,902; -11,974; -9,392; -9,481; -7,292; -7,147; -7,810; -8,688; -7,775.
- Overall balance (percent of GDP): -9.4; -7.4; -5.1; -5.1; -3.5; -3.4; -3.4; -3.3; -2.7.
- Primary balance (percent of GDP): -6.7; -4.3; -1.8; -1.9; -0.3; -0.5; -0.6; -0.5; 0.1.
- Public gross debt (percent of GDP): 49.0; 50.6; 50.9; 48.6; 49.6; 47.8; 46.8; 45.6; 43.9 (Table 1).
- External debt (percent of GDP): 31.6; 31.3; 31.9; 30.9; 32.4; 31.2; 30.8; 31.1; 30.8.
- Domestic debt (percent of GDP): 17.4; 19.3; 19.0; 17.7; 17.2; 16.6; 16.0; 14.5; 13.1.
- H1:FY2022/23: domestic revenues decreased despite increase in import duties; project grants surged; fiscal deficit declined in H1:FY2022/23; development expenditure financed domestically and externally.

### Monetary developments
- Broad money (M3) annual percent change: 8.5; 10.0; 14.5; 11.3; 12.6; 11.2; 12.2; 12.7; 12.3 (Table 1).
- Credit to non-government sector (annual percent change): 8.3; 11.0; 8.3; 8.9; 12.8; 10.4; 11.8; 12.7; 13.8.
- Bank of Uganda policy rate noted in figures: policy rate reduced to lowest since 2011 then increased rapidly to battle rising inflation; series shown in charts.
- Central bank and interbank rates (percent) and Treasury bill yields increased in response to inflation and declining foreign investor appetite (figures).
- Excess reserves and BoU use of mopping-up instruments declined; REPOs and deposit auction series shown.

### Financial sector developments
- Banks remain well capitalized: regulatory capital to risk-weighted assets (percent) series: e.g., Dec-22 ~24.1 (figure/table).
- Liquidity ratio (liquid assets to total deposits) has slightly declined: series shows ~49.2 percent (Dec-22 in figure).
- Asset quality appears stable: NPLs to total gross loans ~5.3–5.8 percent across recent observations (tables).
- Large exposures to gross capital have declined (figures).
- Banks’ earnings show signs of recovery: Return on assets around 2.7–2.8 percent; return on equity around 15 percent (Table 5).
- Foreign exchange loans remain below regulatory limits; forex deposit growth lagging shilling deposits.
- Private sector credit growth remains low but slowly picking up, driven by FX-denominated credit; private sector lending and deposits series shown.

### External financing and borrowing plans
- Financing needs (US$, millions): 4,076; 3,655; 3,944; 5,416; 6,959; 7,961; 6,063 (Table 7).
- Financing gap/prospective financing (US$, millions): 243; 116; 365; 243; 0; 0; 0 (Table 7).
- Projected external borrowing program FY2022/23: total USD million by source = 2,779.1 (Table 8a).
  - Concessional debt: 786.0 (28 percent of total); Non-concessional debt: 1,993.1 (72 percent).
  - Uses: Infrastructure 1,557.4; Social Spending 293.4; Budget Financing 928.3.
- Projected external borrowing program FY2023/24: total USD million by source = 4,746.4 (Table 8b).
  - Concessional debt: 943.0 (20 percent); Non-concessional debt: 3,803.4 (80 percent).
  - Uses: Infrastructure 4,220.3; Social Spending 110.0; Budget Financing 416.2.

### IMF arrangement and access, phasing, and capacity to repay
- ECF arrangement availability schedule (Millions of SDR / Percent of Quota):
  - June 28, 2021: 180.50 / 50.0 (Approval of the arrangement).
  - December 28, 2021: 90.25 / 25.0 (Completion of the first review and observance of continuous and end-September 2021 performance criteria).
  - June 28, 2022: 90.25 / 25.0 (Completion of the second review and observance of continuous and end-March 2022 performance criteria).
  - December 28, 2022: 90.25 / 25.0 (Completion of the third review and observance of continuous and end-September 2022 performance criteria).
  - June 1, 2023: 90.25 / 25.0 (Completion of the fourth review and observance of continuous and end-March 2023 performance criteria).
  - December 1, 2023: 90.25 / 25.0 (Completion of the fifth review and observance of continuous and end-September 2023 performance criteria).
  - June 1, 2024: 90.25 / 25.0 (Completion of the sixth (final) review and observance of continuous and end-March 2024 performance criteria).
  - Total: 722.00 Millions of SDR / 200.0 percent of quota.
- Indicators of capacity to repay the IMF (Table 9 highlights):
  - Total IMF obligations based on existing and prospective credit (millions of SDR): series shows 0.0; 0.6; 4.4; 5.9; 42.0; 96.2; 123.3; 159.4; 213.5; 186.4 for 2021–2030.
  - IMF credit outstanding (end-of-period, millions of SDRs): 631.8; 812.3; 992.8; 1,083.0; 1,046.9; 956.7; 839.3; 685.9; 478.3; 297.8 (2021–2030).
  - Net use of IMF credit (end-of-period, millions of SDRs): 180.5; 90.3; 36.1; 90.3; 0.3; -36.1; -90.3; -117.3; -153.4; -207.6.

### Key macroeconomic projections and memorandum items (Table 1 highlights)
- Investment (percent of GDP): 28.4; 26.2; 25.5; 29.2; 25.4; 33.9; 35.7; 37.3; 38.5.
- Savings (percent of GDP): 19.0; 18.3; 16.2; 20.6; 14.8; 25.0; 24.6; 26.5; 28.8.
- GDP at current market prices (Ush. billion): 148,310; 162,721; 184,254; 185,663; 208,356; 207,218; 232,039; 260,849; 293,052.
- GDP (US$ billion): 40.5; 45.5; 47.8; 49.5; 51.7; 54.6; 59.4; 65.4; 70.6.
- GDP per capita (Nominal US$): 969; 1,057; 1,077; 1,115; 1,132; 1,193; 1,261; 1,336; 1,400.

*Source: Uganda Authorities and IMF staff calculations as presented in the cited chapter.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Potential Domestic Risks
- Intensification of security risks and spillovers from the civil conflict in Sudan  
  - 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 (Renewed inflation surge that depresses real incomes, worsens inequality, and causes social unrest)  
  - 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, including on improving 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 on action plan agreed with FATF for jurisdictions under increased monitoring  
  - Likelihood/Time Horizon: Medium / Short term  
  - Expected Impact on Economy: Medium — "This could adversely impact corresponding banking relationship and stability of the financial system"  
  - Policy Response:  
    - Accelerate efforts to complete the action plan items agreed with FATF, including by ensuring strong coordination among relevant stakeholders.

- Natural disasters related to climate change (Higher frequency of natural disasters causes severe economic damage)  
  - 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.

### Potential External Risks
- Systemic financial instability (Sharp swings in real interest rates, risk premia, and assets repricing amid economic slowdowns and policy shifts)  
  - Likelihood/Time Horizon: Medium / Short Term  
  - Expected Impact on Economy: Medium — "Tightening of external financing conditions; capital outflows and exchange rate volatility."  
  - Policy Response:  
    - Temporary FXI could be considered to smooth excess volatility.  
    - Formulate credible medium-term fiscal path to support investor confidence.

- Intensification of regional conflict(s) (Escalation of Russia’s war in Ukraine or other regional conflicts and resulting economic sanctions)  
  - 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.

- Commodity price volatility (Supply disruptions and demand fluctuations cause recurrent commodity price volatility, external and fiscal pressures)  
  - Likelihood/Time Horizon: Medium / Short to Medium Term  
  - Expected Impact on Economy: Medium — "Poor households would be particularly vulnerable to the rising commodity prices. Renewed inflationary pressure and weaker recovery."  
  - 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.  
  - Additional note from source: "However, higher energy prices could provide stronger incentive for swift planned investments. As a net food exports, Uganda could also benefit from higher export receipts."

- Abrupt global slowdown or recession (Synchronized sharp growth downturn with adverse spillovers)  
  - 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.

- Cyberthreats (Cyberattacks on critical domestic and/or international 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.

### RAM methodological note (staff assessment definitions)
- "Low" is meant to indicate a probability below 10 percent.  
- "Medium" is meant to indicate a probability between 10 and 30 percent.  
- "High" is meant to indicate a probability between 30 and 50 percent.  
- "Short term" indicates the risk could materialize within 1 year; "medium term" within 3 years.  
- The RAM shows events that could materially alter the baseline path. Non-mutually exclusive risks may interact and materialize jointly.  

*Source: Annex I. Risk Assessment Matrix (as presented in the provided IMF content).*

### 1. Despite the challenging environment, Uganda’s recovery momentum is strong.

### 1. Despite the challenging environment, Uganda’s recovery momentum is strong.

### Economic activity and growth
- Economic activity has been robust driven by strong industrial activity and services; agricultural production was affected by a drought in some regions.
- Spillovers from the war in Ukraine raised food and fuel prices and contributed to a temporary surge in inflation in mid-2022.
- Following a stronger-than-anticipated outturn for GDP growth in the first half of FY2022/23:
  - Growth forecast for the fiscal year raised to 5.5 percent (from 5.3 percent at the time of the ECF combined 2nd and 3rd reviews).
  - Growth projection for FY 2023/24 kept unchanged at 6 percent.
- Medium-term prospects: investment in oil-related infrastructure, the energy sector and transport, recovery in manufacturing and construction, stronger external demand and reform implementation expected to lift annual growth above 6 percent.
- High-frequency indicators:
  - Purchasing Manager’s Index at 55.4 in April 2023.
  - Composite Index of Economic Activity increased by 5.9 percent growth y-o-y in March 2023.

### Balance of risks to the outlook
- Downside risks:
  - Uncertainty around duration and impact of the war in Ukraine on oil prices, global growth, and global financial conditions could weigh on recovery and poverty.
  - Pace of monetary tightening globally and movements in risk premia and the exchange rate could push debt servicing costs up, lower borrowing capacity, and weaken foreign investor inflows into the local bond market.
  - Increased frequency and intensity of climate shocks (droughts and floods) could undermine agricultural activity and increase rural food insecurity.
- Upside risks:
  - Positive impact on spending and growth from the Parish Development Model (PDM).
  - Faster trade integration within the region could boost medium-term growth potential and near-term prospects through higher investment.

### Inflation and monetary policy
- Inflation trajectory:
  - Headline inflation was 6.2 percent and core 5.6 percent in May.
  - Food inflation remains elevated but decelerating; fuel and non-food core inflation are in the range of 3-5 percent.
  - Core inflation projected to return to mid-point target of 5 percent by end-2023 on account of monetary and fiscal policy tightening, improved domestic harvests, and easing global goods demand-supply imbalances.
- Bank of Uganda (BOU) policy actions and market rates:
  - BOU increased the policy rate by a cumulative 350 bps to 10 percent in October 2022.
  - Reserve requirements tightened, resulting in an interbank rate 200bps above the policy rate.
  - BOU paused its tightening cycle; monetary policy stance described as appropriate.
  - 7-day interbank rate eased to 11.7 percent in April 2023 from a peak of 12.1 percent in February 2023.
- Credit growth:
  - Private sector credit grew by 10.7 percent in April 2023 (y-o-y), below the pre-pandemic average of 12.0 percent and equal to 2.7 percent in real terms.

### External sector and reserves
- Current account:
  - Deteriorated in second half of 2022 due to decline in tourism receipts and increase in imports (partly FDI-related), partly offset by recovery of goods exports.
  - Terms of trade improvement following softening of global oil and metals prices helped narrow the deficit in 2022Q4; recent data shows continued pickup in exports.
- Capital flows and reserves:
  - Foreign Direct Investments (FDI) and other investment inflows picked up, but portfolio outflows continued.
  - Reserves remained stable at US$ 3.6 billion since October 2022 despite IMF disbursement in January 2023 and FX purchases, due to FX demand to finance government imports and debt service.

### Fiscal policy, budget execution, and debt
- FY22/23 budget execution to date:
  - In first three quarters of FY22/23 the fiscal deficit was 72 percent of the amount projected for the whole fiscal year (5.1 percent of GDP).
  - Domestic revenues and spending at about 70 percent of the yearly target; grants at 45 percent.
- FY23/24 fiscal stance:
  - FY22/23 headline deficit target agreed at combined 2nd and 3rd reviews: 5.1 percent.
  - FY23/24 budget will target a deficit of 3.4 percent, i.e., shrink by 0.1 percent of GDP more than envisaged during the 2nd and 3rd reviews.
  - To achieve the FY23/24 target: revenue measures (including tax exemptions rationalization and administrative measures) to ensure tax revenue/GDP ratio increases by at least 0.6 percentage points relative to FY22/23; if underperformance in H1, implement additional revenue measures and cuts to non-priority spending.
- Public debt:
  - Public debt (inclusive of outstanding BOU advances) was 50.6 percent of GDP at end-FY21/22.
  - Debt-to-GDP ratio projected to fall to 47.8 percent of GDP (including the stock of BOU advances) in FY23/24 and continue declining over the medium term.
- Fiscal consolidation and revenue strategy:
  - Implementation of the Domestic Revenue Mobilization Strategy (DRMS), expenditure prioritization and improved spending efficiency intended to reduce the deficit below the 3.5 percent of GDP target over the medium term.
  - DRMS progress: medium-term revenue strategy being updated and costed; measures to enhance income tax system, improve excise duty regime, strengthen VAT productivity, and review VAT registration threshold.
  - Specific tax administration actions: increase taxpayer registrations, enhance voluntary compliance, improve arrears management; proposed SB to formulate a compliance improvement plan for the large taxpayers’ office (end-March 2024).
  - Tax expenditure rationalization underway with four fronts of implementation, announced sunset clauses on some tax expenditures and planned cost-benefit analyses.

### Social spending and absorptive capacity
- Social spending targets and execution:
  - Maintain share of social spending at 22 percent of total spending by end-FY22/23 (to compensate under-performance of tax revenues while curbing non-priority capital expenditures).
  - Share of social spending this fiscal year will be 22 percent of the total domestically-financed spending, below the 23.1 percent agreed at the time of the 2nd and 3rd reviews.
  - Committed to increasing social spending to around 22.5 percent in FY 23/24 and around 26 percent in FY 24/25.
- Absorptive capacity constraints:
  - Released funds for social spending have not been deployed timely due to capacity constraints at line ministries and agencies, leading to missed indicative targets in September 2022 and March 2023.
  - IMF TA will be sought to help improve capacity (for example, fiscal federalism/devolution to improve sub-national governments’ ability to use appropriated funds).
- Education data and EMIS:
  - Registering all primary and secondary schools’ learners’ data into the Education Management Information System (EMIS); learners’ data for all government schools validated (about 10 million students).
  - Next stage: validate private schools (about 40,000) not yet uploaded; expand EMIS to include teachers and issue a report showing pupil-teacher ratios by district (proposed SB, end-April 2024).

### Banking sector and macro-financial stability
- Banking sector health:
  - Banking sector profitable and well-capitalized but systemic risks remain elevated due to tight financial conditions and slower growth.
  - Regulatory capital to risk-weighted assets ratio: 24.2 percent in March 2023 (minimum prudential requirement: 10 percent).
  - Liquidity coverage ratio: 283.8 percent in March 2023, up from 184.5 percent in June 2022.
- Asset quality and provisioning:
  - Supervised Financial Institutions continued provisioning for Non-Performing Loans (NPLs) proactively, influenced by banks’ risk aversion, IFRS 9 requirements, and preparation for write-off of bad loans after end of COVID-19 credit relief measures in September 2022.
  - Domestic Systemically-Important Banks (DSIBs) and primary dealers’ portfolios of available-for-trading government treasury securities as a proportion of their total assets, marked-to-market, range from 8.4 percent to 24.6 percent as at end March 2023.
- Monitoring:
  - Authorities will closely monitor risks to macro-financial stability, including risks from a deeper sovereign-bank nexus.

### Program performance and structural reforms
- Program performance:
  - End-December indicative targets: all met except one; floors on the primary balance and net international reserves, ceilings on BOU net credit to government and on the PV of newly contracted external public and publicly guaranteed debt met; no accumulation of external arrears; met ITs on inflation, repayment of domestic arrears, social spending and support to vulnerable households; missed IT on tax revenues by a small margin.
  - End-March QPCs and ITs: met all but one end-March QPC; missed a performance criterion on BOU net credit to government by 1 percent due to delay in approving use of SDRs and timing of external commercial borrowing; missed IT on tax revenues and IT on social spending by around 5 percent each.
- Structural benchmarks implemented (deadlines between January 2023 and June 2023):
  - Companies’ Act amended in August 2022 to establish a definition of beneficial ownership consistent with FATF standards; Beneficial Owners Regulations gazetted in January 2023 (SB reprogrammed to end-March 2023) and implemented ahead of reprogrammed deadline.
  - Auditor General’s report on FY 20/21 COVID-19 spending published February 2022 and approved by Parliament in February 2023; treasury memoranda issued explaining how weaknesses will be addressed (SB, end-May 2023).
  - Tools for risk-based AML/CFT supervision of financial sector developed and implemented (SB, end-May 2023); banking-sector tools rolled out in 2022; tools for foreign exchange bureaus and money remitters rolled out in May 2023 with IMF technical support.
  - Medium-term ICT strategy completed with plan for procurement of a new Integrated Tax Administration System (ITAS) (SB, end-May 2023); URA to work with IMF staff to refine TORs and launch procurement.
  - MOFPED published decisions from investigations leading to sanctions for period starting FY 2020/21 with clear personal penalties and enforcement actions (SB, end-June 2023).
  - Parish Development Management information system (PDMIS) being rolled out to parishes and a report on drawdown of funds by vulnerable households is available (SB, end-June 2023).

### Parish Development Model (PDM) rollout and implementation challenges
- PDM objectives: organize and deliver public and private interventions to boost income and employment at parish level.
- SACCOs and revolving funds:
  - Out of 10,587 established cooperatives (SACCOs), 10,102 (95 percent) have received the first installment (25 million per SACCO) dedicated revolving funds.
  - 9,917 SACCOs have received the second installment as of 26th May 2023.
  - Arrangements to provide the balance for each PDM SACCO to make 100m per SACCO before end of FY23 have been finalized.
- Implementation constraints:
  - Training of SACCO leaders and enterprise group members is slower than expected; by March only about 3,000 households had accessed PDM loans.
  - Training highlighted as critical for effective utilization of funds.

*Source: 1ugaea2023003 - 1. Despite the challenging environment, Uganda’s recovery momentum is strong.*

### 20. We will continue boosting social assistance programs to strengthen the social safety

### 20. We will continue boosting social assistance programs to strengthen the social safety net.

### Social assistance programs and targeting
- Expanding the national identification database and the unified national registry of all social assistance programs to support targeting of beneficiaries.
- Fourth Northern Uganda Social Action Fund (NUSAF), awaiting Cabinet approval in June, will:
  - Enhance poor and vulnerable households' resilience to economic shocks, and establish adaptative social protection service delivery systems.
  - Benefit about 3.1 million people (667,000 households) in areas with high poverty.
  - Provide about 1.4 million people access to temporary employment in public works, enabling them to earn income and acquire productive assets.
  - Have a total budget of $280 million; the government shall approach the World Bank for grant financing for it.
- Under the Social Assistance Grant for Empowerment (SAGE) program:
  - Avoid accumulation of new arrears by releasing adequate funding for Senior Citizens Grants in a timely fashion.
  - Continue discussions on lowering the age threshold for eligibility (currently 80+ years) and adjusting the individual benefit to the higher cost of living.

### Strengthening public financial management (PFM)
- PFM reforms will evolve around four main axes: budget preparation, arrears reduction/prevention, cash management, and asset/accounting/performance improvements.
- Improving the budget preparation process:
  - Ensure ministries submit all foreseeable expenditures and work to avoid issuance of supplementary budgets, limiting these to unforeseeable shocks.
  - In exceptional cases of supplementary budgets, in consultation with IMF staff, ensure requests are costed, financing sources identified, and the debt impact assessed.
  - Auditor General conducting a special audit to remove ghost employees from the payroll and identify areas of indiscipline by Accounting Officers.
- Reducing outstanding domestic arrears and preventing new accumulation:
  - Plan to repay all arrears in three years has not been implemented; provisions for clearance of domestic arrears will be made in FY23/24 and subsequent FY to ensure all arrears are cleared by the end of FY25/26.
  - Measures in line with the domestic arrears strategy (published June 2021) include:
    - Establishment of an oversight team to reconcile claims against funds provided for payment.
    - Ensure baseline of valid domestic arrears is established and regularly updated.
    - Improve organizational budget planning by ensuring Accounting Officers submit realistic budget projections.
    - Strengthen internal control systems to identify weaknesses and close gaps in commitment control systems.
    - Ensure an appropriate payment plan is put in place and adhered to; prioritize clearance of arrears based on age (first in, first out within categories), while giving priority within categories to small businesses and suppliers and high interest earning arrears.
    - Explore alternative strategies to clear the outstanding stock.
    - Accounting Officer(s) who accumulate further arrears will not be re-appointed and appropriate sanctions will be applied.
  - As of 31st March 2023, the total validated arrears stood at 2.7 trillion (1.5 percent of GDP), largely from purchase of goods and services, court awards and compensations and taxes and other deductions.
  - Automatic registration of invoices and funds availability is now captured on IFMS and available to all government budget entities; support provided to complete recording of historical arrears data on IFMS.
  - MOFPED publishing quarterly reports of unpaid invoices to facilitate monitoring of arrears clearance execution.
- Strengthening cash management:
  - IMF TA sought to support cash management reforms and operationalize monthly cash flow forecasts.
  - Reform plans include:
    - (i) extension of the Treasury Single Account (TSA) to all remaining extra budgetary units and agencies;
    - (ii) operationalization of an online module to all ministries, departments, and agencies for reporting of spending projections by FY22/23;
    - (iii) preparation of an aggregate borrowing plan that considers the government’s consolidated cash position within and outside the TSA by FY23/24.
  - An online module has been developed and training is ongoing; the module will be revised for user experience and is expected to be rolled out by the end of FY2022/23.
  - A draft aggregate borrowing plan consolidating government’s cash position for FY2023/24 was prepared; final plan will be produced after Parliamentary appropriation for FY2023/24.
- Strengthening performance, accounting, and utilization of fixed and financial assets:
  - Transitioning from modified accrual to accrual accounting; a pre-feasibility study suggests funding must be secured to stretch uninterrupted for the next 5 years for the Accrual Accounting and Asset Management project under IPSAS adoption.
  - Main interventions:
    - (i) development and deployment of a robust Integrated Government Assets Management Information System;
    - (ii) enhancement of IFMIS and ICT infrastructure to support migration to accrual IPSAS basis in all ministries;
    - (iii) enhancement of institutional capacity in asset and liability management;
    - (iv) training of staff.
- Improving public investment management:
  - Public Investment Management Assessment (PIMA) completed June 2022, published December 2022, highlighted reform priorities:
    - Integrate multi-year commitment process into mainstream budget review process and improve IT system interfaces for accurate recording of multi-year commitments.
    - Ensure predictable budget releases for investment projects by enhancing realism of annual Budget and MTEF and instituting active cash management.
    - Strengthen investment portfolio monitoring to be forward-looking and based on explicit project baselines, identify projects at risk and required actions, focusing monitoring on major projects.
    - Strengthen policy framework for effective public investment management, including a new Public Investment Policy approved by MoFPED.
- Implementing a new public investment financing strategy:
  - Debt management framework remains appropriate; debt projected to remain sustainable and is currently at a moderate risk of debt distress.
  - Efforts to broaden scope of potential creditors and financing sources, particularly concessional funding.
  - Introducing a Public Investment Finance Strategy to support seeking additional donor financing during the remainder of the program under the ECF.
  - Key elements include establishment of a Project Preparation Fund financed by Government resources and allocation of institutional responsibilities.
  - Over the medium term, large infrastructure projects (e.g., railways) will slightly shift financing composition towards non-concessional loans.
  - Plan to closely follow goals in the Medium-Term Debt Management Strategy, including increasing maturity of domestic debt.

### Monetary and exchange rate policies
- Bank of Uganda (BOU) commitments:
  - Remain committed to achieving the inflation target over the medium term.
  - Monitor inflation developments closely and stand ready to adjust the policy rate as needed: Inflation peaked in October 2022 and core inflation is expected to return to the 5 percent target by end-2023.
  - The Monetary Policy Consultation Clause will remain a key pillar of the program.
- Build forecasting and policy analysis capacity:
  - Developed a suite of models to guide monetary policy formulation; models reviewed periodically with IMF TA to improve forecast performance.
  - Strengthening external communication, including through IMF TA.
- Fine tuning liquidity forecasting:
  - Strengthen market intelligence around prevailing market liquidity to guide choice of open market operations tools: repurchase agreements, BoU bills, Special Deposit Facility (S-DAF), and sale of recapitalization securities.
  - Use liquidity forecast errors and other verifiable implementation indicators to gauge success in liquidity forecasting improvements.
- Strengthening BOU independence:
  - Principles underpinning amendments to the BOU Act (SB, end-October 2023) being drawn up to reflect discussions with IMF staff; principles submitted to the Attorney General for legal opinion and will be shared with IMF staff by end-June 2023.
  - After IMF review and recommended changes, principles will be re-submitted to Cabinet and draft Amendment Bill submitted to Parliament.
- Reserve coverage and exchange rate flexibility:
  - Committed to maintaining reserve cover at an adequate level and strengthening it over time.
  - Goal of reaching 4 months of reserve coverage (defined as months of next year’s imports of goods and services excluding oil project financing and investment related imports) by the end of program (FY23/24) through continued fiscal consolidation and exchange rate flexibility.
  - Medium-term aim to strengthen reserve coverage to the East Africa Community target of 4.5 months once oil production starts in 2024/25.
  - Ensure continued exchange rate flexibility by limiting FX interventions and reducing government imports financed by FX reserves; last FX intervention was in May 2022.

### Financial sector policies and supervision
- Macroprudential regulation:
  - BoU has fully implemented BASEL II principles and several aspects of BASEL III.
  - Implementation since January 1, 2022 of systemic risk buffer for domestic systemically important banks, capital conservation buffer, countercyclical capital buffer, and leverage ratio.
  - Liquidity coverage ratio and net stable funding ratio (NSFR) included in draft Financial Institutions (Liquidity) Regulations 2023; BoU finalized with the First Parliamentary Counsel in the first quarter of 2023 and is following up on gazetting.
  - Statutory instrument requiring an increase in the minimum paid-up capital for SFIs is already in effect; capital restoration plans for non-compliant institutions will be ready by end-June 2023.
  - BoU issued guidelines on supervisory review process and minimum disclosure requirements under Pillar 3.
- Supervisory and governance reforms:
  - Adopting amendments to the Financial Institutions (Corporate Governance) Regulations in line with Basel Committee guidelines (SB, end-December 2023); BoU Legal Department drafting regulations.
  - Moving towards continuous risk-based supervision (RBS): new RBS manual and risk matrix developed; pilot underway.
  - Continue regular solvency stress tests and monitor banks’ loan classification to ensure alignment with IFRS 9.
  - Enhancing AML/CFT risk-based supervision:
    - Updated risk-based tools for banks rolled out in 2022; similar tools for forex bureaus and money remitters rolled out in May 2023.
    - Conducted supervisory outreach; results will inform supervisory strategies and risk-based onsite inspections; 7 onsite inspections conducted on higher risk banks to date.
    - Published four guidance notes in 2022 on customer due diligence, suspicious transactions reporting, targeted financial sanctions and ML/TF risk assessment.
    - With IMF assistance, BOU will develop policies and procedures to guide implementation of supervisory enforcement power for non-compliances provided through AML (Amendment) Regulations 2023 (proposed SB, end-April 2024).
  - Strengthening banks' resilience:
    - Draft Financial Institutions (Liquidity) Regulations 2023 updated list of eligible liquid assets.
    - Following gazetting, BoU shall require compliance with liquidity coverage ratio and NSFR requirements.
    - Maintain Emergency Liquidity Assistance facility at BoU as Lender of Last Resort for SFIs; facility established May 2022 to provide funds to solvent SFIs facing idiosyncratic liquidity stress.
    - Continue to strengthen stress testing capabilities: inaugural bottom-up stress testing of domestic systemically important banks completed May 2022.
    - With IMF TA, BoU developed May 2022 an FX liquidity stress testing model focused on liquidity linkages across sectors.
    - Scrutinize sovereign-bank nexus and corporate and household balance sheets to gauge credit and concentration risks and evaluate new risks from tightening global financial conditions and higher energy and commodity prices.
    - Review and strengthen systemic risk surveillance framework using dashboard indicators and by building indices including the banking pressure index, the stress index, and the vulnerability index.

### Structural reforms, governance, and anti-corruption
- Structural reform agenda aims to generate higher, more inclusive growth by facilitating private sector activity and enhancing human capital.
  - Reversing decline in private investment since the global financial crisis is a priority under NDPIII; implementation delayed by COVID-19 and global disruptions.
  - Continued focus on reforms in health and education sectors, governance reforms, reducing cost of doing business, and fostering financial inclusion.
- Asset declaration and transparency:
  - Building public trust in the asset declaration regime by enhancing transparency in implementation.
  - Continue publishing compliance statistics and applications to access declarations on the Inspectorate of Government’s website annually.
  - Publishing information on individual sanctions imposed when adjudication decisions are made by the Leadership Code Tribunal (LCT) semi-annually.
  - Published two annual reports for 2020/21 and 2021/22 on the LCT website.
  - Proportionate and dissuasive sanctions will be imposed on public leaders for non-compliance with the Leadership Code Act and regulations.
- Anti-corruption measures (National Anti-Corruption Strategy NACS 2019-2024):
  - Publish an assessment report against agreed indicators and targets, and the annual report for fiscal year 2022/2023 on prevalence of corruption and anticorruption efforts (SB, end-November 2023); Terms of Reference finalized and procurement process underway, with countrywide assessment to commence by June.
  - Leverage civil society and citizens to identify and report potential corruption.
  - Conduct a governance diagnostic assessment on corruption vulnerabilities and key state functions in collaboration with IMF staff by end-March 2024; develop prioritized actions based on findings and publish the governance diagnostic report with due consideration to sensitive information.
  - Roll out the Prosecution Case Management Information System countrywide to extend to prosecutors, prisons, and police so cases can be filed digitally at the source.

*1ugaea2023003 - 20. We will continue boosting social assistance programs to strengthen the social safety net.*

### 31. We are implementing commitments under the Extractive Industries Transparency

### 31. We are implementing commitments under the Extractive Industries Transparency Initiative (EITI)

### Extractive Industries Transparency Initiative (EITI)
- Joined EITI in August 2020.
- Preparing to disclose contracts and licenses for oil and gas production signed from 2021 onwards and beneficial owners of corporate entities involved in projects in the mineral sector.
- The first EITI report (2020/21) was published with delay in May 2022, on account of difficulties with procurement.
- The first EITI assessment is due this year.
- Stepping up coordination between the EITI office placed at MOFPED and sector ministries to improve information sharing.

### Financial Integrity Measures
- Intensifying efforts to complete all actions as agreed under the FATF’s International Cooperation Review Group (ICRG) action plan to ensure Uganda’s exit out of FATF’s ‘grey list’.
- Continued capacity building of AML/CFT supervisors and law enforcement agencies through training, outreach to reporting institutions, strengthening institutional framework for mutual legal assistance, and completing the terrorism financing risk assessment for non-profit organizations.
- Near-term focus on outstanding action items under FATF’s ICRG action plan in the following areas:
  - Ensuring sustained implementation of AML/CFT risk-based supervision on banks, forex bureaus, money remitters and other higher risk sectors.
    - Data and information from the issuance of the offsite AML/CFT supervision tools will inform supervisory strategies and activities on a risk-based approach.
    - In 2022, onsite supervision was conducted for higher risk banks based on findings of the risk-based tools; supervisory actions taken where non-compliances or supervisory issues identified.
    - Currently conducting onsite supervision on ten large forex bureaus and money remitters, targeted to complete by June 2023.
  - Ensuring timely access by competent authorities to beneficial ownership information.
    - Following amendments to the Companies Act and issuance of the beneficial ownership regulations providing for creation of centralized beneficial ownership registry, Uganda Registration Services Bureau (URSB) issued a notice in January 2023 to all companies to submit beneficial ownership information to the registrar.
    - To improve compliance, URSB has restricted the use of its services for companies that are compliant.
    - URSB deployed a new electronic registration system in April 2023 to allow a more streamlined, convenient and speedy process.
    - Plan to leverage the system to enable real-time access by competent authorities to the beneficial ownership registry through an application programming interface by July 2023.
    - Expect full compliance by companies by December 2023.
  - Strengthening the legal and institutional framework for targeted financial sanctions for proliferation financing.
    - Amendments to the Anti-Terrorism Regulations, issued in January 2023, have enabled creation of mechanisms for targeted financial sanctions (TFS) on proliferation financing.
    - Issued guidance notes on TFS for reporting entities and conducted workshops on TFS for competent authorities and financial institutions.
    - Plan to conduct additional training for financial institutions and designated non-financial businesses and professions before end-2023.

### Reducing the Cost of Doing Business
- Adopted second National Strategy for Private Sector Development (NSPSDII) aiming to boost investor confidence, accelerate industrialization and increase profitability, competitiveness, and growth of enterprises.
- United all permits and registration requirements for new businesses in a one-stop shop accessible physically and online.
- Under NSPSDII plans:
  - Scale up business support services by opening one-stop business centers in all districts to reduce informality.
  - Lower cost of doing business by investing in power connectivity and energy distribution, and by improving transport linkages including by promoting PPPs.
  - Facilitate establishment of 15 subregional business and technology incubation centers and technology transfer centers by 2025.
- Working with the World Bank to secure:
  - 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.
  - TA to agencies for development of private sector regulation and mechanisms for export promotion.
- Investing in transport infrastructure (Standard Gauge Railway and roads) to support trade links with neighboring countries and implementing commitments to AfCFTA while addressing non-tariff barriers and harmonizing standards.
- Updating national export strategy and promoting trade regime consistent with WTO, EAC, COMESA, and AfCFTA provisions.
- Ramping up efforts to promote Uganda as a tourist destination in a sustainable manner to boost foreign exchange earnings, create jobs and reduce poverty.

### Fostering Financial Inclusion
- Leading discussions on the National Financial Inclusion Strategy II; current strategy expired in 2022, new strategy to be in place by end-June 2023.
- Draft strategy introduces two new pillars: developing an inclusive green finance market and promoting gender inclusive finance; draft sent to stakeholders for consultation.
- Priorities include promoting digital financial literacy and improving internet connectivity in the countryside.
- Key priorities and measures:
  - Increasing uptake of formal credit among women, MSMEs, and small-scale farmers.
    - Strengthening credit funds: Agriculture Credit Facility (ACF), EMYOOGA, Small Businesses Recovery Fund (SBRF), and Uganda Women Entrepreneurship Program.
    - Computerizing land registry and extending coverage of the immovable property registry to facilitate borrowing by SMEs.
    - BOU’s implementation of a legal and regulatory framework for payments and settlements to promote financial inclusion.
    - Allowed Tier 3 financial institutions to participate in government-run specialized funds through amendment of the Microfinance Deposit Taking Institutions (Amendment) Bill.
  - Modernizing financial infrastructure for data sharing and movable collateral lending.
    - Regulations finalized and website open for registry of movable assets; URSB recorded 13,533 security interest notices by July 31, 2022, an increase from 7,625 a year before.
    - Plan to implement a deep dive assessment of the movable asset-based lending market with a special focus on women, youth, and farmers.
    - Amendments to the Credit Reference Bureau (CRB) gazetted in October 2022 allow 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 (SB, end-October 2023).
  - Promoting digital finance.
    - Spur digital transformation of government-to-person payments, strengthen consumer empowerment and confidence in digital financial services.
    - Launch a national payment switch (tendering process to be completed before 30th June 2023) expected to support P2P, P2M/B, W2B, B2W, P2G, B2G, and other digital payments.
    - The switch will centrally process all electronic transactions and intelligently channel them to one or more payment processors/sponsors for authorization through the Real Time Gross Settlement System.
    - Operationalize a BOU platform enabling purchase of government securities with mobile money using a unitized treasury-linked fund model (proposed SB, end-April 2024); model distributes income daily and allows investors to pull out investment at any time.
  - Strengthening consumer protection in the digital economy.
    - Continue implementation and improvement of the NPS Consumer Protection Regulation with new interventions targeting digital financial service providers, lowering cost of digital financial services, and enhancing consumer awareness through financial education.
    - Continue to monitor implementation of the cybersecurity guidelines issued to PSPs and OPs; these outline minimum requirements SFIs shall benchmark against in developing customized cyber risk management frameworks (proposed SB, end-April 2024).
    - A common template was adopted at the EAC meeting at end-March 2023 and is being customized to countries’ specific financial sector needs.

### Climate Policies
- Committed to enhancing the economy’s resilience to climate change; key sectors most affected include agriculture, water, infrastructure, and energy.
- Updated Nationally Determined Contributions have expanded their adaptation component.
- Committed to implementing the Disaster Risk Management plan approved by Cabinet.
  - Intend to use the 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; working with development partners to scale-up capacity to leverage these accreditations to access financing.
- Main priority areas:
  - Strengthening water catchment ability.
    - Climate finance including donor grants is available but difficult to obtain due to cumbersome application processes and very high standards for developing bankable projects.
    - Committed to seeking TA from multilateral organizations to increase capacity in this area.
  - Increasing forest coverage from 14 percent to 21 percent by 2030.
    - COVID-19 and Ebola outbreaks diverted resources and reduced enforcement capacity, affecting tree planting projects; recent efforts have reversed the deforestation trend.
    - Committed to allocating adequate resources going forward to combat deforestation as the economy recovers.
- BOU climate-related actions (BOU Strategic Plan 2022-2027):
  - Integrate climate-related risks in stress testing frameworks and domestic systemically important banks analytical frameworks.
  - Mandate disclosure of how climate change-related risks are provided for within the Internal Capital Adequacy Assessment Process as a central component of RBS.
  - Develop a criterion for assessing sensitivity of banks’ balance sheets to climate-related issues and their impact on banks’ balance sheets.
  - Develop climate scenarios for economic forecasts and define climate-related shocks for use in FPAS and DSGE models; reviewing the World Bank’s UGAMOD to that end.
  - 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 change-related risks.
- BOU institutional measures (BOU Strategic Plan 2022-2027):
  - Institutionalize an Environmental, Social, and Governance Sustainability (ESGS) Framework.
  - Raised awareness in the financial sector on ESGS issues and conducted a situational analysis of ESGS initiatives in supervised financial institutions to form sustainability principles and are working on guidelines.
  - Applied to the European Organization for Sustainable Development and was admitted to participate in the Sustainability Standards Certification Initiative effective July 1, 2023.
  - Adopted measures including a paperless office environment and working with other government agencies to address data gaps on climate issues.
  - Undertake capacity development for staff and joined the Network of Central Banks and Supervisors for Greening the Financial System.
  - In domestic money markets, develop a governance framework for issuance of bonds which will provide mechanisms for issuance of green bonds.

### Other Program Modalities
- Implementing recommendations from the 2021 IMF’s safeguards assessment.
  - Revised Principles amending the BOU Act will 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.
  - Appropriate limits and criteria on guarantees to the Government will be introduced.
  - Conducted a market study to compare printing costs and a cost-benefit analysis of replacing low denomination banknotes with coins.
  - Will request TA to review and revise the mechanism for distinguishing realized and unrealized gains/losses.
  - Will step up implementation of internal audit recommendations ensuring effectiveness of the related follow up mechanism.
  - Board resolved on 9th May 2022 that the Audit and Governance Committee (AGCC) will be comprised only of independent Board members; resolution is being implemented alongside the existing Board Charter.
  - The revised Board Charter will be reviewed and approved by the incoming Board by July 2023.
  - The first half-year currency operations report was finalized and presented to the EXCOM in April and discussed at the Board at end-2022 together with the Foreign Exchange Reserves Management Policy review.
  - Internal Audit department continues periodic reviews of program monetary data submitted to the IMF in accordance with definitions in the Technical Memorandum of Understanding.

### Statistics and Data Strengthening
- Continuing to strengthen statistics essential for policy design.
  - Data provision is broadly adequate for surveillance and program monitoring, but will continue improving timeliness and accuracy of national accounts and government finance statistics and developing institutional sector accounts as well as higher frequency GDP indicators.
  - Preparing for the next population census that will take place on August 23-24, 2023.
    - Conducting a mapping exercise to update boundaries, facilities, features, and households to establish enumeration areas with help of community leaders.
    - Digital data collection tool will capture socio-economic and education variables that will be published on the web site.

*Source: 1ugaea2023003 - 31. We are implementing commitments under the Extractive Industries Transparency Initiative*

### 41. The program’s semi-annual quantitative performance criteria and SBs are listed in

### 41. The program’s semi-annual quantitative performance criteria and SBs are listed in

### Program timing and coverage
- The fifth review and sixth review are scheduled to be completed on or after December 1, 2023 and June 1, 2024, respectively, based on test dates for periodic performance criteria of end-September 2023 and end-March 2024, respectively.
- The Technical Memorandum of Understanding sets out definitions of key concepts and indicators, as well as reporting requirements.
- Note: The March 2023, September 2023 and March 2024 PCs are for the fourth, fifth and sixth review, respectively.

### Quantitative performance criteria (Text Table 1) — categories and reported figures
- Primary budget balance of the central government (- = deficit; floor, in billions of USh) 1/:
  - -1,624 -1,433 -1,028 Met -2,746 -1,600 -1,568 Met -3,320 -3,435 -2,067 -2,067 -2,740 -2,740 -1,913 -1,035
- Net claims on the government by the central bank (ceiling) 1/:
  - 1,598 1,475 Met 799 809 Not met -1,185 -1,185 2,815 2,815 1,877 1,877 806 -1,286
- Stock of net international reserves (floor, in millions of US$) 2/:
  - 2,571 2,515 2,720 Met 2,574 2,492 2,537 Met 2,503 2,503 2,687 2,687 2,794 2,794 2,844 2,872
- Stock of external payment arrears incurred or guaranteed by the public sector (ceiling):
  - 0 0 Met 0 0 Met 0 0 0 0 0 0 0 0
- PV of newly contracted external public and publicly guaranteed debt (ceiling, millions of US$) 1/:
  - 2,748 237 Met 2,748 668 Met 2,748 2,319 4,042 3,522 4,042 3,522 3,522 3,522
- Monetary policy consultation clause (outer and inner bands, upper and lower limits):
  - Outer band (upper limit): 8 8 8 8 8 8 8 8 8 8
  - Inner band (upper limit): 7 7 7 7 7 7 7 7 7 7
  - Inner band (lower limit): 3 3 3 3 3 3 3 3 3 3
  - Outer band (lower limit): 2 2 2 2 2 2 2 2 2 2
- Core inflation target 3/ (annual percentage change, twelve-month period average core inflation):
  - 56.0 Met 57.3 Met 55 55 55 55 55 55 55 55
- Indicative targets (selected):
  - Support to vulnerable households (floor, billions of USh) 1/: 48 161 Met 187 191 Met 226 226 818 116 316 319 122 1
  - Social spending (floor, billions of USh) 1/4/: 2,684 2,993 Met 4,766 4,537 Not met 6,847 6,847 1,849 1,849 3,698 3,698 5,376 7,054
  - Tax revenues (floor, in billions of USh) 1/: 11,439 10,948 Not met 17,349 16,434 Not met 23,965 23,458 6,149 6,149 13,288 13,288 19,949 27,424
  - Repayment of outstanding domestic arrears (floor, in billions of USh) 1/: 571 665 Met 662 712 Met 662 662 100 100 200 200 206 206

- Footnotes and monitoring notes in Text Table 1:
  - 1/ PCs are cumulative flows (i) from July 1, 2022 to end-December 2022, end-March 2023 and end-June 2023; and (iii) from July 1, 2023 to end-September 2023, end-December 2023, end-March 2024 and end-June 2024.
  - 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/ Core inflation excludes energy, fuel, and utilities and food crops.
  - 4/ Social spending includes spending on education, health, social development (excluding external financing).
  - In addition to QPCs enumerated in this table, 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.

### Structural benchmarks (Text Table 2a: January–December 2023) — measures, rationale, deadlines, status, comments
- Establishment of legal and regulatory mechanisms for timely access to accurate basic and beneficial ownership information for legal entities. Reprogrammed from June 2022.
  - Rationale: Strengthen governance and reduce vulnerability to corruption
  - Deadline: End-March 2023
  - Status: Met
  - Comments: The Companies Amendment Act 2022 was passed in September 2022, and the Companies (Beneficial Owners) Regulations were published in January 2023.
- Issue treasury memoranda that explain how weaknesses raised by the FY 20/21 audit will be addressed. Reprogrammed from June 2022.
  - Rationale: Strengthen fiscal transparency
  - Deadline: End-May 2023
  - Status: Met
  - Comments: The three volumes of Treasury memoranda (TM) were approved and issued in May 2023 for the central government, the local governments and COSASE.
- Development and implementation of tools for risk-based AML/CFT supervision of the financial sector. Reprogrammed from October 2022.
  - Rationale: Strengthen governance and financial sector stability
  - Deadline: End-May 2023
  - Status: Met
  - Comments: The AML/CFT Risk-based Supervision Manual and ML/TF Risk Assessment Methodology were developed. The tools were earlier rolled out to banks and non-banks.
- Design a medium-term ICT strategy supported by a plan for the procurement of a new Integrated Tax Administration System (ITAS).
  - Rationale: Improve domestic revenue mobilization
  - Deadline: End-May 2023
  - Status: Met
  - Comments: Draft strategy and procurement plan were shared with staff. In the coming months URA will work with IMF staff to refine the procurement plan.
- 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 on drawdown including by demographic categories such as gender.
  - Rationale: Strengthen social assistance programs
  - Deadline: End-June 2023
  - Status: Met
  - Comments: The module has been developed and is being piloted in various districts. System pending linkage with NIRA, Telecom, and bank systems. The report is under preparation and nearing completion.
- 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.
  - Rationale: Strengthen governance and reduce vulnerability to corruption
  - Deadline: End-June 2023
  - Status: Met
  - Comments: Report on sanctions was posted to the MOFPED website.
- Issue a resolution by the BOU Board Committee on the ownership structure for data collected by the Central Data Hub as a prerequisite for the use of Credit Registration Bureau data to compute credit scores for MSMEs and individuals and to generate indicators for macroprudential regulations.
  - Rationale: Strengthen financial stability
  - Deadline: End-October 2023
  - Status/Comments: The study and assessment for the most appropriate ownership and operational model for the Central Data Hub are being conducted with TA from the IFC.
- Parliamentary adoption of the BoU Act amendments, in consultation with IMF staff, to strengthen governance and autonomy, including for the dynamic recapitalization of the BoU, enhancements of the ELA, and the resolution powers of the BoU. Reprogrammed from September 2022.
  - Rationale: Enhance BoU governance
  - Deadline: End-October 2023
  - Status/Comments: Cabinet memo withdrawn from cabinet. Revised principles are being drafted. We will consult closely with IMF staff.
- In consultation with Fund staff, Directorate for Ethics and Integrity to publish, in relation to the strategic objectives of the National Anti-Corruption Strategy (NACS) 2019-2024, (i) an assessment report against the agreed indicators and targets, and (ii) the annual report for fiscal year 2022/23 on the prevalence of corruption and anti-corruption efforts.
  - Rationale: Strengthen governance and reduce vulnerability to corruption
  - Deadline: End-November 2023
  - Status/Comments: MOFPED provided resources and work has begun.
- Adopt amendments to the Financial Institutions (Corporate Governance) Regulations, in line with the principles provided in the Basel Committee on Banking Supervision's guidelines on corporate governance.
  - Rationale: Strengthen corporate governance and financial stability
  - Deadline: End-December 2023
  - Status/Comments: The Consolidated Corporate Governance Guidelines were issued to the sector for the implementation in January 2023. BOU extended the implementation timelines to December 2023 to allow for onboarding of INEDs, bringing back in house the Company Secretary role and function in Supervised Financial Institutions (especially for Tier I).
- Finalize entries of learners' data into EMIS and publish diagnostics by local government informing the education sector funding needs.
  - Rationale: Improve budgetary planning and funding of the education system
  - Deadline: End-December 2023
  - Status/Comments: To date, 9.8 million learners were uploaded on EMIS. The Ministry of Education is recruiting staff to provide support to local governments and schools in utilizing the system.

### Proposed structural benchmarks for the 5th and 6th reviews (Text Table 2b)
- Formulate a compliance improvement plan for the large taxpayer office (LTO) with focus on specialized sectors and taxation of multinational enterprises (MNEs).
  - Rationale: Improve domestic revenue mobilization
  - Deadline: End-March 2024
- In consultation with Fund staff, BoU to formulate policies and procedures to guide implementation of supervisory sanctioning power provided under the Anti-Money Laundering (Amendment) Regulations 2023 for non-compliance with AML/CFT requirements by banks.
  - Rationale: Strengthen financial sector governance and financial stability
  - Deadline: End-March 2024
- Operationalize a BOU platform, with requisite safeguards, that enables the purchase of government securities using mobile money.
  - Rationale: Promote financial inclusion and mobilize
  - Deadline: End-April 2024
- Develop and implement cybersecurity guidelines for financial services.
  - Rationale: Strengthen financial stability
  - Deadline: End-April 2024
- Expand coverage of the EMIS to include teachers in public schools countrywide. Issue a report showing pupil-teacher ratios by district.
  - Rationale: Ensure appropriately targeted and rightsized funding for education
  - Deadline: End-April 2024

### Technical Memorandum of Understanding — key definitions and reporting framework (Attachment II)
- Scope:
  - Defines the quarterly performance criteria and indicative targets described in the Memorandum of Economic and Financial Policies (MEFP) for the financial program supported by the IMF Three-Year Extended Credit Facility (ECF) over the period of June 30, 2021—June 30, 2024; and sets forth reporting requirements under the instrument.
  - Stock of 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.
- Floor on primary budget balance of the central government:
  - Defined as the overall budget balance of the central government excluding net interest payments on public debt.
  - Overall budget balance defined from below the line as the sum of: (a) Net external financing (NEF) and (b) Net domestic financing (NDF).
  - NDF defined on a cash basis and includes (i) change in net claims on the central government by the banking system, (ii) change in net claims on the central government of domestic nonbank institutions and households, (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 from the central bank and MOFPED through the Debt Management and Financial Analysis System and Aid Management System.
- Ceiling on net claims on the government by the central bank:
  - Background: Government may receive temporary advances from BoU up to 10 percent of recurrent revenues over the fiscal year per Amendments to the 2015 PFM Act; Act requires full repayment within the respective fiscal year.
  - GoU committed to repay total outstanding advance by FY23/24 in line with the Service Level Agreement (SLA).
  - Purpose: Monitor temporary advances and ensure prompt repayment to reduce risk of monetization of fiscal deficits and inflationary pressures.
  - Definition for calculation: net claims on government by BoU = difference between claims on central government and liabilities to central government, excluding deposits in administered funds, project accounts with the central bank, and net recapitalization securities. Adjustments (add backs and subtractions) specified for Deposits in Administered Funds, Deposits in the Petroleum Fund, Government Project Deposits, and Recapitalization Securities.
- Floor on Net International Reserves (NIR) of BoU:
  - NIR defined as reserve assets of BoU net of short-term external liabilities of BoU.
  - Reserve assets exclude pledged or encumbered external assets and include only external assets readily available to and controlled by BoU.
  - Short-term external liabilities defined as liabilities to nonresidents of original maturities less than one year, contracted by BoU and include outstanding IMF purchases and loans.
  - For program monitoring, reserve assets and short-term liabilities will be calculated in U.S. dollars by converting stocks at program exchange rates set out in Text Table 1.
  - NIR floors for September 2022, March 2023, September 2023 and March 2024 are QPCs; floors for June 2022 and December 2022 and end-June and end-December 2023 are indicative targets.
- Ceiling on external arrears incurred or guaranteed by the public sector:
  - Definition of debt for the limit follows point 8(a) of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 6230-(79/140), as amended), and applies to commitments contracted or guaranteed for which value has not been received.

- Program exchange rates (Text Table 1, End-April 2023):
  - US Dollar (US$): 1.00000
  - Australian Dollar/US$: 1.51172
  - Canadian Dollar/US$: 1.35520
  - Euro/US$: 0.90752
  - British Pound/US$: 0.79573
  - US$/Japanese Yen: 0.00734
  - US$/Ugandan Shilling: 0.00027
  - US$/SDR: 1.34701
  - 1/ For currencies not listed in this table, the cross-exchange rates to the U.S. dollar at end-Apr 2023 will be applied.

*Source: Text Tables 1 and 2 and Attachment II, Technical Memorandum of Understanding (excerpts).*

### 13. For the purpose of this guideline, the term "debt" will be understood to mean a current, i.e.,

### 1ugaea2023003 - 13. For the purpose of this guideline, the term "debt" will be understood to mean a current, i.e.,

### Definition of "debt"
- Debt means a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract.
- A debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the government.
- The guarantee of a debt arises from any explicit legal or contractual obligation of the public sector to service a debt owed by a third-party debtor (involving payments in cash or in kind).

### Primary forms of debt (enumerated)
- Loans:
  - Advances of money by the lender on an undertaking to repay in the future (including deposits, bonds, debentures, commercial loans and buyers' credits).
  - Temporary exchanges of assets equivalent to fully collateralized loans (such as repurchase agreements and official swap arrangements).
- Suppliers' credits:
  - Contracts where the supplier permits the obligor to defer payments until sometime after goods are delivered or services provided.
- Leases:
  - Arrangements under which property is provided for use for one or more specified period(s), usually shorter than the total expected service life, while the lessor retains title.
  - For the guideline, debt from a lease equals the present value (at lease inception) of all lease payments expected during the agreement, excluding payments covering operation, repair, or maintenance.

### Arrears and related liabilities
- Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation constitute debt under this definition.
- Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
- The ceiling on the accumulation of new external payments arrears is zero.
  - This limit applies on a continuous basis to the change in the stock of overdue payments on debt contracted or guaranteed by the public sector from their level at end-June 2021.
  - External debt payment arrears consist of external debt service obligations reported by specified authorities that have not been paid when due, but exclude arrears on obligations subject to rescheduling, disputed debt service obligations and the HIPC-related external arrears to Iraq and Nigeria.
  - The government will immediately report to IMF staff any new external arrears it accumulates.

### Ceiling on the present value (PV) of newly contracted external public and publicly guaranteed debt
- A performance criterion (ceiling) applies to the present value of external debt, newly contracted or guaranteed by the public sector.
  - The 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.
  - The quantitative target does not apply to normal import-related commercial debt having a maturity of less than one year, rescheduling agreements, and IMF disbursements.
  - The government will immediately report to IMF staff any new external loans it contracts or guarantees, stating the loan conditions.

### Coverage: public sector and external debt
- Public sector comprises the central government, state government, local government, social security funds, the central bank, nonfinancial public enterprises and other official sector entities.
- External debt is any debt contracted or guaranteed by the public sector on both concessional and non-concessional terms with non-residents, excluding nonresidents’ holdings of domestically-issued government securities.

### Concessionality and present value calculations
- A debt is concessional if it includes a grant element of at least 35 percent.
- Grant element calculation:
  - Grant element = (nominal value - PV) / nominal value, expressed as a percentage of the nominal value.
  - PV at contracting is calculated by discounting the future stream of debt service payments due on the debt.
  - For debts with a grant element equal or below zero, the PV will be set equal to the nominal value of the debt.
  - The discount rate used is the unified discount rate of 5 percent set forth in Executive Board Decision No. 15248-(13/97).

### Variable-rate debt PV treatment and program reference rates/spreads
- For debts carrying a variable interest rate in the form of a benchmark interest rate plus a fixed spread:
  - PV is calculated using a program reference rate plus the fixed spread (in basis points) specified in the contract.
  - The 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 of six-month reference rates over six-month USD SOFR:
    - 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 the variable rate is linked to a benchmark interest rate other than the 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.

### Consultation mechanism on inflation (CCPI)
- Quarterly consultation bands are set for the twelve-month average rate of consumer price inflation as measured by the core consumer price index (CCPI) published by UBOS.
- Observed CCPI inflation subject to consultation: September 2022, March 2023, September 2023 and March 2024.
- CCPI inflation treated as indicative targets: June 2022, December 2022, June 2023 and December 2023.
- If observed average CCPI inflation for a test date linked to an ECF program review (March 2022, September 2022, March 2023, September 2023 and March 2024 for respective reviews) falls outside the outer band:
  - Authorities will complete a consultation with the Executive Board of the Fund on their proposed policy response before requesting completion of the review.
  - The authorities cannot request completion of a review under the ECF program if the average CCPI inflation has moved outside the outer band as of the test date, until the consultation with the Executive Board has taken place.
  - The Bank of Uganda (BoU) will report publicly the reasons for any breach of the outer bands, and its policy response.
  - The BoU will conduct discussions with Fund staff when observed average CCPI inflation falls outside the inner band.

### Direct support programs and social spending floors
- Floor on total social assistance spending to support vulnerable households (indicative target).
  - 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 verified on basis of data on quarterly releases of social assistance spending.
- Floor on total social spending (health, education, social development), excluding external financing.
  - Monitored on the basis of monthly government finance statistics.

### Tax revenue and arrears repayment targets
- Floor on tax revenue of central government measured cumulatively from the beginning of the fiscal year in July.
  - Tax revenue defined as sum of direct domestic taxes, indirect domestic taxes, and international trade taxes per Government of Uganda’s revenue classification.
- Indicative floor on repayment of outstanding domestic arrears of central government:
  - Floor on cumulative gross repayment for specified 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, December 31, 2023, and March 31, 2024.
- Unpaid bill definition:
  - Any verified outstanding payment owed by any entity forming 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 the annual audit report of the Auditor General.

### Adjustors (NIR and primary balance)
- NIR and primary balance targets are based on program assumptions regarding:
  - 1, budget support;
  - 2, recapitalization of the BoU;
  - 3, external financing tied to projects.
- Adjustor related to budget support:
  - Uganda shilling equivalent of projected budget support (grants and loans) on a cumulative basis from the beginning of the relevant quarter is presented under Schedule A.
  - The floor on the stock of NIR of the BoU will be adjusted upward (downward) by the amount by which budget support (excluding IMF disbursements), grants and loans exceed (falls short of) projected amounts.
  - Any downward adjustment to the floor on the stock of NIR will be capped by 10 percent of the revised targeted amount set out in Schedule A.
  - The floor on the primary budget balance of the central government will be adjusted upward (downward) by the amount by which budget support grants exceeds (falls short of) projected amounts.
- Adjustor related to recapitalization of the BoU:
  - The floor on the primary budget balance will be adjusted downward (upward) by the amount by which recapitalization of the BoU exceeds (falls short of) Schedule B projected amounts.
- Adjustor related to externally financed projects:
  - The floor on the primary budget balance will be adjusted upward (downward) by the amount by which 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:
  - The floor on spending under direct support programs to vulnerable households will be adjusted upward (downward) by the amount by which spending under NUSAF and SCG exceeds (falls short of) projected amounts in Schedule E.

### Monitoring and reporting requirements
- The Government of Uganda will submit specified information to IMF staff with the frequency and submission time lags indicated in Table 1.
- Submission channel: data should be mailed electronically to AFRUGA@imf.org.
- Selected reporting requirements and frequencies (as specified):
  - BoU weekly report on operations in the foreign exchange market and the level of BoU’s international reserves; submission lag 5 working days.
  - BoU monthly reports (private sector credit growth, excess reserves, disaggregated CPI, balance sheet and consolidated accounts, monthly balances of net foreign assets/net domestic assets/base money); submission lags vary from 2 weeks to 4 weeks.
  - Ministry of Finance monthly summary of central government accounts; submission lag 4 weeks.
  - Ministry of Finance semi-annual summary of stock of arrears by government entities; submission lag 3 months.
  - Ministry of Finance quarterly reports on disbursements, debt rescheduling, arrears, committed undisbursed balances by creditor; submission lag 6 weeks.
  - Ministry of Finance annual summary of contingent liabilities; submission lag 6 weeks.
  - Additional quarterly and monthly reporting items are specified for the BoU and Ministry of Finance with defined submission lags in Table 1.

*Source: Excerpt from the IMF document provided.*

### 34. The Inspectorate of Governance will publish on its website freely and easily available to the

### 34. The Inspectorate of Governance will publish on its website freely and easily available to the public information on (i) public leaders who did not timely submit the asset declaration, no later than end-November of the year of the asset declaration submission, as provided for under the Leadership Code Act, and (ii) the semi-annual statistical data relating to application to access the content of the declarations, by end-November of each year, in the following format:

### Transparency of Asset Declarations — Publication Requirements
- The Inspectorate of Governance will publish on its website, freely and easily available to the public:
  - (i) public leaders who did not timely submit the asset declaration, no later than end-November of the year of the asset declaration submission, as provided for under the Leadership Code Act.
  - (ii) the semi-annual statistical data relating to application to access the content of the declarations, by end-November of each year, in the specified tabular format.

- Required tabular formats to be published:
  - Table 2. Uganda: Number of Leaders who did not Timely submit Asset Declaration
    - Declaration period [Reference Period]
    - Number
    - Timely submission rate1 (%)
    - Leaders2 who did not promptly submit declaration
    - Of which:
      1. Members of Cabinet3
      2. Members of Parliament4
      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
  - Notes attached to Table 2:
    - 1/ 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.
    - 2/ As defined under Second Schedule of the Leadership Code Act that are required to make declaration.
    - 3/ All Cabinet Ministers and Ministers of State including President, Vice President, Prime Minister and Deputy Prime Ministers.
    - 4/ Including Speaker and Deputy Speaker of Parliament.

### Access Applications — Statistics Format
- Table 3. Uganda: Number of Applications Received, approved, and rejected, to access the content of declarations
  - Period [Reference Period]
  - 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)

### Leadership Court Tribunal — Publication of Sanctions
- The Leadership Court Tribunal will publish on its website, freely and easily available to the public, information on sanctions imposed on leaders found to be in breach of the Leadership Code Act (LCA) and Regulations (LCR):
  - Timing: as and when sanction decisions are made by the Tribunal, but no later than 30 days following the completion of the adjudication process.
  - Required published information:
    - (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.

### Debt Sustainability Analysis — Key Findings and Outlook
- The economy is recovering from external shocks induced by the war in Russia’s invasion of Ukraine and higher inflation, and the outlook has improved.
- Given the implementation of fiscal consolidation, Uganda’s public debt continues to be sustainable in the medium term.
- Risk assessments:
  - Risk of external debt distress: Moderate0F1
  - Overall risk of debt distress: Moderate
  - Granularity in the risk rating: Limited space to absorb shocks
  - Application of judgment: Yes
  - Date: June 6, 2023
- Baseline assessment details:
  - Except for a one-off breach of the external-debt-service-to-export ratio in FY22/23, all external PPG debt and total public debt burden trajectories remain below their respective indicative thresholds and benchmarks over the medium term under the baseline scenario.
  - Stress tests show breaches of external debt burden thresholds and the public debt benchmark; a median shock could lead to a breach for the external and total debt service indicators, indicating limited space to absorb shocks.
- Key risks highlighted:
  - Slower growth
  - Environmental shocks
  - Further tightening of global financial conditions
  - Delayed reform implementation
  - Further delays in oil exports
  - Possible spillovers to trade from the conflict in Sudan
  - Potential repercussions on donor financing and tourism deriving from the recent parliamentary approval of the ‘Anti-Homosexuality Bill 2023’
- Policy challenge and recommended direction:
  - Replace a growth model based on debt-financed public spending emphasizing infrastructure with one where the private sector leads economic growth, supported by the state through:
    - investments in human capital,
    - targeted regulations to promote green and inclusive growth that reduces inequality and ensures sustainability.
  - Success depends on effective implementation of the ECF-supported program to maintain macroeconomic stability, scaled-up investments in human capital, better support to the vulnerable, farmers and MSMEs, and more effective use of public resources to maximize returns on investments.

### Public Debt Coverage, Composition, and Fiscal Metrics
- Coverage:
  - Public and publicly guaranteed (PPG) external and domestic debt covers debt contracted and guaranteed by the central government, state and local government, social security fund, and central bank.
  - Uganda’s Public Debt Management Framework (2018) mandates the Ministry of Finance, Planning and Economic Development to prepare and publish quarterly Debt Statistical Bulletins covering PPG debt with a residency-based definition of domestic and external debt.
  - Bank of Uganda (BoU) provides data on locally issued government debt held by non-residents, allowing residency-based analysis.
  - Due to data limitations, debt data does not cover several elements of the general government debt including extra budgetary funds and non-guaranteed debt issued by state-owned enterprise (SOE), although SOEs issue debt only in the domestic market.
- Contingent liability stress test components and amounts:
  - Disputed arrears to Tanzania: US$58 million or 0.1 percent of GDP
  - Estimates of non-guaranteed SOE debt: 9.1 percent of GDP
  - Default PPP shock: 35 percent of PPP stock, implying 1.7 percent of GDP
  - Default financial market shock: 5 percent of GDP
  - Total contingent liability shock (in percent of GDP): 15.9
- Public debt trajectory and composition (end of FY2021/22):
  - Public debt reached 50.6 percent of GDP in nominal terms at the end of FY2021/22.
  - Increase of almost nine percentage points over the past two years, primarily driven by external borrowing.
  - External public debt outstanding: US$13.6 billion or 31.3 percent of GDP (residency basis).
  - Domestic debt: about US$8.4 billion (19.3 percent of GDP).
  - Present value terms: total public sector debt amounted to 41.7 percent of GDP at the end of FY2021/22.
- External debt terms and composition:
  - Most existing stock of external public debt is on concessional terms.
  - Highly concessional loans from the IMF, IDA and ADF account for half of the external debt portfolio.
  - The share of semi-concessional and non-concessional debt has been increasing.
  - Eximbank of China loans reached 20 percent of external public debt outstanding at the end of FY2021/22.
  - Commercial loans constitute around 10 percent of external public debt, mostly owed to the Trade Development Bank (TDB), Standard Bank of South Africa (SBSA), and Standard Chartered.
  - Local-currency government securities held by offshore investors were 6 percent of external public debt.
- Public domestic debt composition:
  - Public domestic debt (residency based) is dominated by medium-to long-term securities.
  - T-bonds constituted around three-fourths of Treasury securities at the end of FY2021/22.
  - T-bonds are mostly held by non-banks (close to 70 percent).
  - T-bills were predominantly held by banks (more than 80 percent).
  - Outstanding advances from the Bank of Uganda contributed 2.1 percent of GDP to domestic debt at the end of FY21/22.
- Borrowing costs and interest payments:
  - Total interest payments increased from 2.7 percent of GDP in FY2020/21 to 3.1 percent of GDP in FY2021/22, largely due to the increased stock of domestic debt.
  - More than 90 percent of interest payments in FY2021/22 were on domestic debt, given that external borrowing was dominated by concessional debt.

### Key Figures and Tables Mentioned (verbatim labels and figures as presented)
- Table 2. Uganda: Number of Leaders who did not Timely submit Asset Declaration
- Table 3. Uganda: Number of Applications Received, approved, and rejected, to access the content of declarations
- Text Table 1. Uganda: Coverage of Public and Publicly Guaranteed Debt and Parameters for Contingent Liability Shock
  - SoE's debt (guaranteed and not guaranteed by the government)2percent of GDP9.1
  - PPP35 percent of PPP stock1.7
  - Financial market (a minimum starting value of 5 percent of GDP)5percent of GDP5
  - Total (in percent of GDP)15.9
- Public debt totals and decompositions (selected reported values):
  - Total: 21,901.9 (In millions of US$) 100.0 percent; 50.6 (Percent GDP)
  - External: 13,542.9 (In millions of US$) 61.8 percent; 31.3 (Percent GDP)
  - Domestic: 8,359.0 (In millions of US$) 38.2 percent; 19.3 (Percent GDP)
  - Multilateral creditors total: 7,908.0 (In millions of US$) 36.1 percent; 18.3 (Percent GDP)
  - IMF: 842.0 (In millions of US$) 3.8 percent; 1.9 (Percent GDP)
  - World Bank (IDA): 4,418.6 (In millions of US$) 20.2 percent; 10.2 (Percent GDP)
  - Bilateral creditors total: 3,574.1 (In millions of US$) 16.3 percent; 8.3 (Percent GDP)
  - Eximbank of China: 2,649.2 (In millions of US$) 12.1 percent; 6.1 (Percent GDP)
  - Commercial creditors total: 1,331.7 (In millions of US$) 6.1 percent; 3.1 (Percent GDP)
  - Local currency debt held by non-residents, total: 700.2 (In millions of US$) 3.2 percent; 1.6 (Percent GDP)
  - Domestic: 8,359.0 (In millions of US$) 38.2 percent; 19.3 (Percent GDP)
  - Nominal GDP (memo items): FY2021/22 45,557; FY22/23 49,472; FY23/24 54,555

*Prepared by the staff of the International Monetary Fund (IMF) and the International Development Association (IDA).*

### 6.      The medium-and long-term macroeconomic framework underlying this DSA is consistent

### 6.      The medium-and long-term macroeconomic framework underlying this DSA is consistent

### Baseline macroeconomic assumptions and outlook
- Real GDP growth:
  - The real GDP growth outlook for FY22/23 and FY23/24 is at 5.5 and 6 percent, respectively (downward revision from the previous DSA figures of 6 and 6.5 percent for FY22/23 and FY23/24).
  - Over the medium-term, growth is projected to return to the annual 6-7 percent level observed before the COVID-19 crisis.
  - Drivers: more productive composition of government spending, spending and tax collection efficiency gains, governance and product market reforms (including INVITE and climate smart agriculture and agribusiness development projects), recovery in tourism, and oil-sector related private investment ahead of oil production in 2025 (pipeline construction by Total Energies, CNOOC, and governments of Uganda and Tanzania).
- Inflation:
  - Headline inflation is expected to peak at 9.2 percent in FY22/23.
  - Core inflation is projected to decline to the 5-percent target by end-2023 due to BOU monetary tightening, improved domestic harvests, and softer global commodities prices.
  - The correlation between CPI and the GDP deflator is expected to decline as oil-related investment and net exports increase their weight in the GDP deflator starting in FY24/25.
- Oil revenue projections:
  - Budget revenues from oil, net of oil-related expenditures, are expected to start in FY2024/25 and peak at around 2.6 percent of GDP in FY2027/28 before gradually declining over the long term.
  - Institutions established include the Uganda Petroleum Fund, The Consolidated Fund, and the Petroleum Investment Fund, and EITI reporting continued.
  - ECF-supported program aims to transition to a rules-based framework for oil revenue management (Income Tax Amendment Bill, Public Finance Management Bill, East African Crude Oil Pipeline Bill).
- Primary and overall fiscal balance:
  - The overall deficit target of 3.4 percent of GDP in FY23/24 is slightly smaller than the previous DSA.
  - Implementation of the Domestic Revenue Mobilization Strategy (DRMS) and decline in unproductive expenditures are expected to narrow the primary fiscal deficit in FY2023/24.
  - DRMS implementation is projected to raise tax revenues by 0.5 percent of GDP per annum.
  - Tax expenditure leakages were estimated at about 5.2 percent of GDP in FY20/21.
  - In FY23/24, tax administration measures are estimated at 0.4 percent of GDP; tax exemption rationalizations are estimated at 0.2 percent of GDP.
  - Deficit-enhancing factors (BOU recapitalization, hydro-power investment, lower tax revenue) are expected to be more than offset by higher grants, higher non-tax revenues, lower interest payments and lower government wages.
  - Spending rationalization and efficiency gains are expected to permit higher social spending and clearance of arrears without undue pressures on the primary balance.
- Current account, FDI, and reserves:
  - Current account deficit expected to peak in FY2024/25, driven by capital imports for oil production, then improve over the medium term aided by fiscal consolidation and oil exports.
  - FDI inflows expected to continue increasing driven by oil-related projects (Tilenga, Kingfisher, pipeline) and potential AfCFTA rollout effects.
  - Gross official reserves, excluding impact of oil project financing and investment-related imports, expected to gradually rise over the medium term despite a temporary decline in FY2022/23.
- Financing mix:
  - Advances from the Bank of Uganda assumed fully repaid by FY2023/24.
  - Domestic debt financing projected to maintain a constant share of T-bonds covering two-thirds of domestic financing; T-bills cover remaining share.
  - ECF-supported program places a limit on the present value of new external and publicly guaranteed external debt to limit debt accumulation and reliance on non-concessional financing.
  - Over the long term, financing assumed to shift gradually from domestic to external and less concessional debt.
- IDA financing:
  - Assumed average disbursement over the next five fiscal years about US$ 496 million per year, largely via project support (municipal infrastructure, roads, water management, digital acceleration); remainder through P4Rs. No budget support operations planned.

### Realism tool outputs and projection robustness
- Comparison to cross-country and historical experience:
  - Small differences between past and projected debt-creating flows; contributions of past debt-creating flows remain similar for the projection period.
  - Unexpected changes in external debt slightly above the median across low-income countries and marginally outside interquartile range for public debt—reflecting recent large debt increase during the Covid-19 crisis and projected decrease amid fiscal consolidation.
- Fiscal and growth realism:
  - Improvement in the primary balance over the next 3-years is in the top quartile of the distribution (reflecting cyclical tax revenue improvement, DRMS implementation, and adjustment after Covid-19).
  - Growth outlook supported by private investment and improved spending efficiency, including stronger public investment management under the IMF-supported program.
  - Investment expected to increase, with private investment offsetting a temporary decline in public investment.
- Note on implementation risks:
  - Climate change and natural disasters remain material downside risks; adaptation infrastructure can reduce by two thirds the GDP losses at the trough triggered by a disruptive disaster and almost halve the resulting fiscal gap (model simulation findings referenced).

### Country classification and debt-carrying capacity
- Uganda’s debt-carrying capacity classified as "medium" (unchanged).
  - April 2023 WEO and World Bank 2021 CPIA (3.55) produce a composite indicator (CI) score of 2.91.
  - CI lies between thresholds 2.69 and 3.05 corresponding to medium and strong capacity, respectively.
- External debt indicative thresholds and public debt benchmark:
  - PV of external debt-to-exports ratio threshold: 180
  - PV of external debt-to-GDP ratio threshold: 40
  - Debt service-to-exports ratio threshold: 15
  - Debt service-to-revenue ratio threshold: 18 percent
  - Benchmark of PV of total public debt: 55 percent

### External debt sustainability and stress tests
- Baseline debt dynamics:
  - Solvency and liquidity indicators remain below indicative thresholds over the projection horizon except for the debt service-to-exports ratio in FY22/23.
  - PV of PPG external debt-to-GDP ratio peaks at 22.3 percent (threshold 40 percent).
  - PV of external debt-to-exports ratio reaches 162.8 percent (threshold 180 percent) before gradually declining below 140 percent over the medium term.
  - Debt service-to-exports ratio projected at 17.1 percent in FY22/23 (above threshold 15 percent), declines to 14.3 percent in FY23/24 and continues declining.
  - Debt service-to-revenue ratio reaches 17.4 percent in FY22/23 (against threshold 18 percent) and then declines.
  - The FY22/23 breach of the debt service-to-exports ratio is largely driven by gold exports collapsing to zero owing to a proposed export tax; this is expected to be resolved with exports catching up in the next fiscal year. Staff judges this one-off breach does not alter the overall debt sustainability assessment of moderate risk of debt distress.
- Stress test outcomes:
  - PV of PPG external debt-to-GDP ratio remains under threshold even under stress tests; the combined shock is the most extreme.
  - PV of external debt-to-exports ratio, external debt service-to-revenue ratio, and external debt service-to-exports ratio breach respective thresholds under several stress tests:
    - Export shock is the most extreme for PV of external debt-to-exports ratio and external debt service-to-exports ratio, causing long-lasting breaches.
    - Combined shock and combined contingent liability shock produce breaches for these indicators; other shocks produce temporary breaches.
    - Debt service-to-revenue ratio shows one isolated breach under the depreciation shock.
- Private external debt:
  - Private external debt peaks in FY2022/23 at 12 percent of GDP (or 28 percent of external debt) before declining toward 9.1 percent of GDP (or 22.7 percent of external debt) in FY32/33.
  - Under the baseline, private external debt does not elevate the risk of debt distress, but contingent liability shocks indicate potential spillovers from private sector debt under adverse scenarios.

*Source: Uganda authorities, IMF staff projections, and accompanying analysis in the DSA chapter.*

### 12.      The total public debt-to-GDP trajectory under the baseline shows a declining path (Table 2).

### 1ugaea2023003 - 12.      The total public debt-to-GDP trajectory under the baseline shows a declining path (Table 2).

### Debt trajectory and key indicators
- The PV of public debt-to-GDP ratio peaks at 40 percent in FY2022/23, before declining towards 28.7 percent by FY2032/33 as oil export receipts ensue.
- This compares to an indicative benchmark of 55 percent for countries with medium debt-carrying capacity.
- Notwithstanding the recent increase in the nominal level of public debt-to-GDP to above 50 percent of GDP, the trajectory is expected to show a gradual decline over the medium-and long-run.
- The PV of debt-to-revenue ratio and the debt service-to-revenue ratio are expected to decline over the medium term, supported by the implementation of the DRMS and the oil-related revenue inflows from FY2024/25 onward.
- The decline in the liquidity indicators is mainly driven by the projected increase in exports and government revenue.

### Stress tests and scenario results
- Adding domestic debt to the analysis does not elevate the risk of debt distress.
- For the PV of debt-to-GDP ratio, the most extreme stress test is the growth shock, under which the PV of total public debt-to-GDP ratio rises above the benchmark of 55 percent.
- The PV of total public debt-to-revenue ratio rises to 324 percent under the most extreme scenario of the contingent liabilities shock.
- In the long-run, the PV of total public debt-to-revenue ratio rises to 341 percent by FY2038/39 in response to a growth shock.
- The most extreme shock to public debt service is the combined contingent liability shock, under which the debt service-to-revenue peaks at 63 percent in FY22/23.
- The stress tests indicate more breaches of thresholds than the baseline; several external debt burden indicators are close enough to their respective thresholds that a median shock would lead to a breach.

### Conclusions on debt distress risk
- Uganda’s risk of external and overall public debt distress is moderate, with limited space to absorb shocks.
- Except for a one-off breach of the external debt service-to-exports ratio, which is projected above the threshold in FY22/23, external debt burden indicators and total public debt remain below their respective thresholds and benchmark throughout the projection horizon under the ECF-supported program scenario.
- Staff’s judgement is that the one-off breach of the debt service-to-exports ratio under the baseline scenario does not impact the overall debt sustainability assessment.
- Although the PV of external debt-to-GDP ratio indicates substantial space to absorb shocks without being downgraded to a high risk of debt distress, the PV of external debt-to-exports, the external debt service-to-revenues ratio, and the external debt service-to-exports ratios are close enough to their respective thresholds that a median shock would lead to a breach.

### Risks to the debt outlook
- External risks:
  - Uncertainty around the external outlook, including possible spillovers to trade stemming from the conflict in Sudan.
- Climate and natural disasters:
  - Increased frequency of natural disasters due to climate change.
- Domestic risks:
  - Slower-than-expected implementation of reforms.
  - Any further delay in oil production.
  - Potentially limited capacity of commercial banks to increase their purchase of government securities in response to future shocks given the increasing weight of those securities in their balance sheets.
- Political/economic risks:
  - The recent parliamentary adoption of the ‘Anti-Homosexuality Bill 2023’ could jeopardize the availability of grants and external loans from development partners and negatively impact FDI flows and tourism.

### Policy recommendations to mitigate debt risks
- Implementing the DRMS:
  - Given Uganda’s relatively low revenue collection, the strategy outlines key tax policy reforms, including a rationalization of exemptions, and tax administration strengthening to improve compliance.
- Strengthening overall public financial management (PFM):
  - Avoid arrears and the use of supplementary budgets.
  - Use the published international audit of domestic arrears and the domestic arrears strategy to clear arrears and prevent further accumulation.
  - Extend coverage of the Treasury Single Account to extra budgetary entities and externally funded projects.
  - Improve accuracy of monthly cash flow forecasting and prepare an aggregate borrowing plan considering the government’s consolidated cash position.
  - Operationalize monthly and quarterly cash flow forecasting.
  - Authorities committed in the Memorandum of Economic and Financial Policies to aim to avoid supplementary budgets and, if necessary, limit them to unforeseeable unexpected shocks with costed requests, identified financing sources, and debt impact assessed.
- Improving spending efficiency and public investment management:
  - Improve use of medium-term fiscal envelope forecasts for better project prioritization and capital expenditure budgeting.
  - Use the project selection criteria published in May 2021 to identify priority projects.
  - Address PIM shortcomings by reducing overcommitment in multi-year projects and reducing or eliminating the use of emergency procurement procedures.
  - Foster open and competitive bidding and refrain from procuring through direct channels.
- Strengthening debt management:
  - Continue to ensure that the government’s financing needs and payment obligations are met at the lowest possible cost over the medium to long run, consistent with prudent risk-taking.
  - Improve communication and coordination across government agencies on new borrowing plans.
- Improving debt transparency:
  - Publish a statement of fiscal risks in the budget framework paper that lists contingent liabilities and reports on risks arising to the budget.
  - Extend coverage to potential debt collateralization in the public sector.
  - Improve communication to enhance understanding and management of risks.
- Broadening the scope of potential creditors:
  - Finalize the public investment financing strategy (already in advanced draft form) and expression of interest guidelines.
  - Set up a mobile money platform for retail investors to purchase Treasury securities.
- Closely monitoring contingent liabilities:
  - Step up efforts to estimate, disclose, manage, contain, and shorten the lag in the publication of information on contingent liabilities, especially those in the financial sector, state-owned enterprises (including potential inclusion in government finance statistics), and PPPs.
- Implementing Performance and Policy Actions (PPAs):
  - Implement a set of reforms in the areas of debt sustainability, debt management and fiscal sustainability as per IDA’s Sustainable Development Finance Policy (SDFP) to incentivize reduction of debt vulnerabilities.
- Enhancing governance frameworks:
  - Safeguard the quality and effectiveness of public investment and other government spending.
  - Avoid premature reliance on uncertain future oil-related flows.
  - Maintain sound asset-liability management.

*Source: 1ugaea2023003 - 12.      The total public debt-to-GDP trajectory under the baseline shows a declining path (Table 2).*

### 17.      The authorities agreed with the assessment of the risk of debt distress. They expressed

### 1ugaea2023003 - 17.      The authorities agreed with the assessment of the risk of debt distress. They expressed

### Authorities' assessment and policy emphasis
- The authorities agreed with the assessment of the risk of debt distress.
- They expressed concerns about the slight reduction in the composite index of debt carrying capacity, relative to the previous DSA.
- They emphasized the importance of:
  - keeping debt below 50 percent of GDP (in nominal terms) over the medium term;
  - reducing the ratio of debt servicing costs to revenues via the implementation of the DRMS.

### Indicators of public and PPG external debt under alternative scenarios (FY2022/23-2032/33)
- Note on stress tests: "The most extreme stress test is the test that yields the highest ratio in or before 2033. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented."
- Commodity price shock magnitudes are "based on the commodity prices outlook prepared by the IMF research department."
- Borrowing assumptions for stress tests: "All the additional financing needs generated by the shocks under the stress tests are assumed to be covered by PPG external MLT debt in the external DSA. Default terms of marginal debt are based on baseline 10-year projections."
- Examples of thresholds and parameters appearing in figures and notes:
  - Threshold: 2.0% 2.0%
  - Tailored Tests: 5.0% 6 25 5.0% 25 6
  - Combined CLs / Natural Disasters: Most extreme shock 1/ No
  - Debt service-to-revenue ratio and PV of debt-to-GDP ratio series are shown for 2022/23–2032/33 with labeled "Most extreme shock" types (e.g., One-time depreciation, Combination, Exports).

### Public debt indicators under alternative scenarios (FY2022/23-2032/33)
- Public debt benchmark and category qualification details appear:
  - Public debt benchmark entry: 63% 63% 26% 26% 12% 12% 2.0% 2.0% 25 25 66 10.5% 10.5% 99 55 6.0% 6.0%
- Borrowing assumptions and terms of marginal debt noted for domestic and external debt (default terms of marginal debt based on baseline 10-year projections).
- PV of Debt-to-Revenue ratio: "Most extreme shock is Combined contingent liabilities" indicated in figures for 2022/23–2032/33.

### Drivers of debt dynamics — baseline scenario
- Charts and notes identify contributions to debt change from:
  - Real GDP growth
  - Nominal interest rate
  - Price and exchange rate changes (including real exchange rate depreciation)
  - Primary deficit and other debt-creating flows
- Residual defined: "Difference between anticipated and actual contributions on debt ratios."
- Footnotes:
  - Distribution across LICs for which LIC DSAs were produced.
  - Given relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by drivers of the external debt dynamics equation.

### Qualification of the Moderate Category (2022/23-2032/33)
- For PV debt/GDP and PV debt/exports thresholds: x is 20 percent and y is 40 percent.
- For debt service/Exports and debt service/revenue thresholds: x is 12 percent and y is 35 percent.
- Category labels shown in figures: Some space, Substantial space, (1-X)*Threshold, (1-Y)*Threshold, Threshold, Limited space, Baseline.

### Table 1 — External Debt Sustainability Framework, Baseline Scenario, FY2019/20-2032/33 (selected rows and exact values)
- External debt (nominal) 1/:
  - 2019/20: 41.5
  - 2020/21: 44.7
  - 2021/22: 43.6
  - 2022/23: 42.9
  - 2023/24: 43.0
  - 2024/25: 42.7
  - 2025/26: 42.9
  - 2026/27: 42.2
  - 2027/28: 41.5
  - 2028/29: 39.9
  - 2029/30: 36.7
  - 2032/33: 41.5
- of which: public and publicly guaranteed (PPG):
  - 2019/20: 28.6
  - 2020/21: 31.6
  - 2021/22: 31.3
  - 2022/23: 30.9
  - 2023/24: 31.2
  - 2024/25: 30.8
  - 2025/26: 31.1
  - 2026/27: 30.8
  - 2027/28: 30.4
  - 2028/29: 30.8
  - 2029/30: 22.7
  - 2032/33: 30.6
- Identified net debt-creating flows (selected years):
  - 2019/20: 1.8
  - 2020/21: 4.2
  - 2021/22: 0.3
  - 2022/23: 1.4
  - 2023/24: -0.7
  - 2024/25: -0.8
  - 2025/26: -1.1
  - 2026/27: -0.9
  - 2027/28: -3.3
  - 2028/29: -1.5
  - 2029/30: -0.3
  - 2032/33: -1.3
- Non-interest current account deficit (selected years):
  - 2019/20: 6.0
  - 2020/21: 8.5
  - 2021/22: 7.0
  - 2022/23: 7.5
  - 2023/24: 8.0
  - 2024/25: 10.2
  - 2025/26: 10.0
  - 2026/27: 9.0
  - 2027/28: 5.9
  - 2028/29: 6.8
  - 2029/30: 6.4
  - 2032/33: 7.8
- Endogenous debt dynamics (selected years):
  - 2019/20: -1.6
  - 2020/21: -2.0
  - 2021/22: -4.0
  - 2022/23: -1.1
  - 2023/24: -1.4
  - 2024/25: -1.8
  - 2025/26: -1.9
  - 2026/27: -2.1
  - 2027/28: -1.9
  - 2028/29: -1.8
- Residual (selected years):
  - 2019/20: 2.7
  - 2020/21: -1.0
  - 2021/22: -1.4
  - 2022/23: -2.1
  - 2023/24: 0.8
  - 2024/25: 0.5
  - 2025/26: 1.3
  - 2026/27: 0.2
  - 2027/28: 2.6
  - 2028/29: 1.5
  - 2029/30: 0.8
  - 2032/33: 1.0
- Sustainability indicators (selected):
  - PV of PPG external debt-to-GDP ratio (series includes values such as 21.9, 22.3, 21.6, 21.0, 20.9, 20.3, 19.8, 19.8)
  - PV of PPG external debt-to-exports ratio (sample values: 178.5, 162.8, 150.3, 143.1, 130.4, 117.7, 118.6, 146.0)
  - PPG debt service-to-exports ratio sample: 24.4, 24.0, 14.7, 17.1, 14.3, 14.2, 13.1, 13.6, 12.4, 10.2
  - PPG debt service-to-revenue ratio sample: 28.1, 29.7, 13.4, 17.4, 14.4, 14.0, 12.7, 13.2, 11.5, 8.1
- Gross external financing need (Million of U.S. dollars):
  - 2019/20: 3,109
  - 2020/21: 4,827
  - 2021/22: 4,855
  - 2022/23: 4,230
  - 2023/24: 3,391
  - 2024/25: 3,545
  - 2025/26: 3,839
  - 2026/27: 4,303
  - 2027/28: 2,349
  - 2028/29: 3,534
- Key macro assumptions (selected):
  - Real GDP growth (in percent): 2019/20: 3.0; 2020/21: 3.5; 2021/22: 4.7; 2022/23: 5.5; 2023/24: 6.0; 2024/25: 6.6; 2025/26: 7.1; 2026/27: 7.0; 2027/28: 6.5; 2028/29: 6.1; 2032/33: 6.4
  - GDP deflator in US dollar terms (change in percent): 2019/20: 3.5; 2020/21: 4.1; 2021/22: 7.4; 2022/23: 3.0; 2023/24: 4.1; 2024/25: 2.0; 2025/26: 2.0; 2026/27: 1.9; 2027/28: 1.9; 2028/29: 1.7; 2032/33: 2.5
  - Effective interest rate (percent) 4/: 2019/20: 2.0; 2020/21: 2.5; 2021/22: 2.3; 2022/23: 2.7; 2023/24: 2.3; 2024/25: 2.2; 2025/26: 2.1; 2026/27: 1.7; 2027/28: 1.5; 2028/29: 1.1; 2032/33: 2.1
  - Growth of exports of G&S (US dollar terms, in percent): sample series includes -14.6, 25.1, -16.7, 21.6, 15.8, 11.1, 19.2, 17.0, 5.1, 3.0, 2.5, 15.0
  - Growth of imports of G&S (US dollar terms, in percent): sample series includes -9.1, 34.1, -14.3, 25.5, 18.6, 20.2, 5.6, 2.7, -10.5, 3.6, 4.1, 10.3
  - Grant element of new public sector borrowing (in percent): sample values shown include 29.1, 36.7, 37.2, 37.5, 38.4, 39.8, 38.0, 36.5
  - Government revenues (excluding grants, in percent of GDP): 2019/20: 12.4; 2020/21: 13.4; 2021/22: 13.4; 2022/23: 13.5; 2023/24: 14.3; 2024/25: 14.9; 2025/26: 16.6; 2026/27: 17.7; 2027/28: 18.1; 2028/29: 17.0; 2032/33: 15.9
  - Aid flows (in Million of US dollars) 5/: 2019/20: -1,580; 2020/21: -2,044; 2021/22: -1,685; 2022/23: 1,463; 2023/24: 1,737; 2024/25: 1,485; 2025/26: 1,484; 2026/27: 1,493; 2027/28: 1,625; 2028/29: 2,184
  - Grant-equivalent financing (in percent of GDP) sample: 2.7, 3.0, 2.6, 2.6, 2.3, 2.2, 2.1, 2.6
- Memorandum items:
  - PV of external debt (percent series): ... 34.2 34.4 33.5 32.9 32.7 31.8 30.8 28.9
  - In percent of exports: ... 279.2 250.5 232.4 223.8 203.8 184.3 184.6 213.0
  - Total external debt service-to-exports ratio: 34.7 34.2 50.3 43.1 38.4 34.1 31.3 28.5 26.7 20.9
  - PV of PPG external debt (in Million of US dollars): 9,959 11,041 11,809 12,494 13,571 14,334 15,168 22,292
  - (PVt-PVt-1)/GDPt-1 (in percent): 2.4 1.6 1.3 1.8 1.2 1.2 1.9
  - Non-interest current account deficit that stabilizes debt ratio: 1.5 5.3 8.1 8.2 7.9 10.5 9.7 9.7 6.7 6.9

### Table 2 — Public Sector Debt Sustainability Framework, Baseline Scenario, FY2019/20-2032/33 (selected rows and exact values)
- Public sector debt 1/ (percent of GDP):
  - 2019/20: 41.9
  - 2020/21: 49.0
  - 2021/22: 50.6
  - 2022/23: 48.6
  - 2023/24: 47.8
  - 2024/25: 46.8
  - 2025/26: 45.6
  - 2026/27: 43.9
  - 2027/28: 42.5
  - 2028/29: 39.4
  - 2029/30: 33.6
  - 2032/33: 42.0
- of which: external debt (sample repeat of PPG share): 28.6 31.6 31.3 30.9 31.2 30.8 31.1 30.8 30.4 30.8 22.7 30.9
- Change in public sector debt (selected): 6.3, 7.1, 1.6, -2.0, -0.8, -0.9, -1.2, -1.8, -1.4, -0.2
- Identified debt-creating flows (selected): 5.1, 4.8, 3.5, -1.6, -0.7, -0.6, -0.7, -1.1, -0.7, 0.1, 1.8, -0.4
- Primary deficit (selected): 5.0, 6.7, 4.3, 1.9, 0.5, 0.6, 0.5, -0.1, -0.5, 1.2, 3.4, 0.9
- Revenue and grants (percent of GDP): 13.2, 14.3, 14.1, 14.7, 15.8, 16.2, 17.6, 18.5, 18.9, 17.8, 14.4, 17.6
- PV of public debt-to-GDP ratio (sample): ... 42.3 40.0 38.6 37.4 35.7 33.7 32.2 28.7
- PV of public debt-to-revenue and grants ratio (sample): ... 299.3 272.5 244.0 231.4 203.3 182.3 170.1 161.4
- Debt service-to-revenue and grants ratio 3/: 48.9 42.4 42.3 63.0 48.4 42.4 33.5 33.1 31.5 21.2
- Gross financing need 4/: 9.7 10.9 10.5 10.6 8.1 7.4 6.4 6.1 5.4 5.0
- Key macro and fiscal assumptions (selected):
  - Real GDP growth (in percent): 3.0, 3.5, 4.7, 5.5, 6.0, 6.6, 7.1, 7.0, 6.5, 6.1, 3.8, 6.3
  - Average nominal interest rate on external debt (in percent): 1.7, 2.1, 1.7, 3.0, 2.6, 2.4, 2.4, 2.3, 2.2, 1.6, 2.0
  - Average real interest rate on domestic debt (in percent): 9.6, 7.7, 2.8, 5.8, 8.2, 8.8, 9.8, 10.7, 15.5, 9.9, 1.0, 9.8
  - Inflation rate (GDP deflator, in percent): 3.1, 2.5, 4.8, 8.2, 5.3, 5.0, 5.0, 5.0, 5.0, 4.8, 14.8, 5.1
  - Primary deficit that stabilizes the debt-to-GDP ratio 5/: -1.2, -0.4, 2.7, 3.8, 1.3, 1.5, 1.7, 1.7, 0.8, 1.4, 0.4, 1.6
- PV of contingent liabilities (not included in public sector debt): 0.2, 0.5, 1.5, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0

### Sensitivity analyses (selected exact series and thresholds)
- Table 3 (External PPG debt indicators, FY2022/23-2032/33) — Baseline PV of debt-to-GDP ratio series sample:
  - Baseline: 22.3 21.6 21.0 20.9 19.8 19.5 19.2 19.3 19.5 19.8
- Table 3 — Baseline PV of PPG external debt-to-exports ratio (selected): 162.8 150.3 143.1 130.4 117.7 118.6 120.8 123.7 129.4 137.1 146.0
- Table 3 — Baseline Debt service-to-exports ratio (selected): 17.1 14.3 11.8 12.5 11.2 10.8 10.2
- Table 4 (Public debt sensitivity) — Baseline PV of Debt-to-GDP Ratio (selected): 40.0 38.6 37.4 35.7 33.7 32.9 28.7
- Table 4 — Baseline Debt service-to-revenue ratio (selected): 63.0 48.4 42.4 33.5 33.1 31.5 24.8 27.1 24.4 22.8 21.2

### Policy implications and monitoring focus (extracted from text and figures)
- Maintain nominal public debt below 50 percent of GDP over the medium term.
- Implement the Debt Risk Management Strategy (DRMS) to reduce the ratio of debt servicing costs to revenues.
- Use stress tests and tailored tests (combined contingent liabilities, natural disasters, commodity price shocks, market financing tests) to assess vulnerabilities, with specific assumptions that additional financing needs from shocks are covered by PPG external MLT debt under the external DSA and domestic financing in the public DSA when applicable.
- Monitor key sustainability ratios: PV of PPG external debt-to-GDP, PV of PPG external debt-to-exports, debt service-to-exports, debt service-to-revenue, PV of public debt-to-GDP, PV of public debt-to-revenue, and gross financing needs.

*Source: Country authorities; and staff estimates and projections, as presented in the IMF document excerpt.*

### Introduction

### Introduction

### Program performance and requests
- All Quantitative Performance Criteria (QPCs) and Indicative Targets (ITs) for end-December 2022 and end-March 2023 were met.
- All QPCs were met, except the March QPC on Bank of Uganda (BoU) net credit to government, which was missed by a small margin due to delays associated with external commercial borrowing.
- Two ITs in March on tax revenues and the floor on social spending were marginally missed, reflecting lower-than-expected corporate tax collections and lower absorptive capacity of some ministries and agencies.
- All six Structural Benchmarks (SBs) falling due between March and June 2023 were met, two ahead of their end-June deadline.
- Authorities seek Executive Directors’ support for completion of the fourth review under the Extended Credit Facility (ECF) arrangement and request:
  - a waiver of non-observance of the March QPC on BoU net credit to government;
  - modification of a QPC and indicative targets, specifically to modify the floors on the primary budget balance and tax revenues; and
  - modification of the ceiling on the present value of newly contracted external public and publicly guaranteed debt.

### Recent economic developments and outlook
- Real GDP growth:
  - improved from 3.5 percent in FY2020/21 to 4.7 percent in FY2021/22.
  - expected to pick up to 5.5 percent in FY2022/23 and 6 percent in FY2023/24.
  - projected in the medium term to return to a pre-pandemic trend of between 6 and 7 percent.
- Key drivers of recent and expected growth: wholesale and retail sectors, education, real estate, mining, post-pandemic reopening, governance reforms, private investment, development of the oil sector, increased regional trade, and more efficient and productive government spending.
- Downside risks include a protracted war in Ukraine and conflict spillovers from Sudan.
- Headline inflation:
  - declined from 10.2 percent in December 2022 to 6.2 percent in May 2023.
  - BoU forecasts inflation to return to the 5 percent target by year-end.
  - risks: volatile global commodity prices, pace of international and domestic policy tightening, and potential spillovers from the conflict in Sudan.
- Current account and reserves:
  - current account deficit remains sizeable at 6.7 percent of GDP for FY2022/23.
  - international reserves at 3.8 months of imports in March 2023 (compared to 3.7 months at the second and third reviews).
  - external reserves fall below the program target of 4 months and the EAC target of 4.5 months of imports.

### Fiscal policy, revenue mobilization, and public spending
- Fiscal balance:
  - narrowed from a deficit of 9.4 percent of GDP in FY2020/21 to 7.4 percent in FY2021/22 and further to 5.1 percent in FY2022/23.
- Revenue strategy:
  - authorities attach prominence to revenue-enhancing measures, including tax exemption rationalization and strengthening tax administration.
  - committed to implementation and adaptation of the Domestic Revenue Mobilization Strategy (DRMS).
  - DRMS expected to enhance income tax productivity, improve the excise duty regime, and strengthen VAT productivity, including by reviewing the VAT registration threshold.
- Expenditure and social spending:
  - authorities committed to sustaining an increase in priority social spending but face challenges from the debt outlook and capacity constraints.
  - seek Fund technical assistance (TA) to improve social spending performance.
  - plan to strengthen social safety nets by bolstering social assistance programs.
  - contingency measure: cut non-priority spending to safeguard fiscal goals if downside risks materialize or financing assurances do not materialize.
  - plan to strengthen public investment management and ensure predictability of budget releases for investment projects.

### Debt outlook and debt management
- Debt is projected to remain sustainable and is currently assessed at moderate risk of distress.
- Authorities pursuing measures to diversify the creditor base and maintain debt sustainability.
- Public Investment Finance Strategy aims to catalyze additional donor financing.
- Over the medium term, large infrastructure projects are expected to lead to a slight shift in the composition of financing towards non-concessional loans.
- Commitment to objectives of the Medium-Term Debt Management Strategy, including increasing the maturity of domestic debt.

### Monetary, exchange rate, and financial sector policies
- Monetary policy:
  - BoU aims to bring inflation back to the 5 percent target over the medium term.
  - BoU increased the policy rate by a cumulative 350 basis points between May and October 2022 and kept monetary policy tight.
  - BoU stands ready to adjust the policy rate as needed, while adhering to the monetary policy consultation clause under the ECF program.
- Exchange rate policy:
  - authorities remain committed to exchange rate flexibility to absorb external shocks.
  - will continue limiting interventions to address disorderly market conditions and reduce FX reserves-financed government imports.
- Central bank governance:
  - authorities view central bank independence as paramount and are working on revised principles underpinning amendments to the BoU Act.
  - revised principles to be resubmitted to Cabinet once reviews are completed; thereafter the draft Amendment Bill will be submitted to Parliament.
- Banking system and macroprudential policy:
  - Uganda’s banking system remains resilient, profitable, adequately capitalized and liquid.
  - authorities attentive to risks from the sovereign-bank nexus and corporate and household indebtedness.
  - BoU implementing full Basel II principles and selected aspects of Basel III to suit the banking sector’s level of development.
  - progress on supervisory and governance reforms, new corporate governance regulations planned.
  - advancing risk-based supervision (RBS) with a manual and risk matrix in place and a pilot ongoing.
  - priorities include enhancing AML/CFT risk-based supervision, strengthening bank resilience, and enhancing BoU’s stress testing capacity.
  - to foster financial inclusion, authorities are implementing the National Financial Inclusion Strategy and foresee leveraging digitalization under the program.

### Structural reforms, governance, transparency, and climate actions
- Structural reform agenda focused on higher and more inclusive growth, private sector role, and human capital development.
- Measures to reduce the cost of doing business include a centralized one-stop shop for permits and registration and streamlining red tape.
- Governance and anti-corruption:
  - advancing governance and anti-corruption policies, enhancing transparency in asset declaration implementation to build public trust.
  - plan to intensify efforts guided by the National Anti-Corruption Strategy (NACS) 2019–2024.
  - commitment to the Extractive Industries Transparency Initiative (EITI): authorities will disclose contracts and licenses for oil and gas production and beneficial owners of corporate entities that hold a legal interest.
- Climate resilience:
  - completed accreditation to the Green Climate Fund and the Adaptation Fund.
  - working with development partners to scale up capacity to leverage these accreditations to access climate financing.
  - prioritized actions: strengthening water catchment ability; expanding forest coverage from 14 percent to 21 percent by 2030; and including climate change risk as a focus area of the BoU’s Strategic Plan 2022–2027.

### Conclusion
- Ugandan authorities remain committed to program objectives to maintain macroeconomic stability and support sustainable growth and an inclusive recovery.
- Authorities appreciate the Fund’s continued policy and technical support and look forward to continued engagement with the IMF for successful implementation of their reform agenda and Executive Board support in the completion of the fourth review under the ECF arrangement.

*Source: Introduction (1ugaea2023003)*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1ugaea2023003.pdf_