## EXECUTIVE SUMMARY

## Source details

**Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2024/english/1ugaea2024001.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2024/english/1ugaea2024001.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2024/english/1ugaea2024001.pdf.json)

---

### Context and recent developments
- Economic recovery gaining strength following a rapid decline in inflation, favorable agriculture and robust industrial and services activity.
- Passage of the Anti-Homosexuality Act (AHA) in May 2023 and related actions (World Bank suspension of new loans until safeguards are in place; U.S. business advisory and removal from AGOA) have increased downside risks to external financing and tourism.
- Authorities are implementing fiscal consolidation, maintaining a moderately tight monetary stance against upside inflation risks, and undertaking reforms to improve governance and reduce corruption.

### Arrangement under the Extended Credit Facility (ECF)
- The 36-month ECF arrangement was approved in June 2021 with access at 200 percent of quota.
- Review chronology:
  - 1st review completed March 2022;
  - combined 2nd and 3rd reviews completed January 2023;
  - 4th review completed June 2023.
- Program objective: support recovery from COVID-19 and external shocks and put conditions for sustainable private-sector-led growth.

### Program performance and structural measures
- All September 2023 quantitative performance criteria (QPCs) were met, as well as most June 2023 indicative targets (ITs).
- Preliminary December 2023 ITs: net credit to government (NCG) and inflation met; net international reserves (NIR) missed.
- Structural benchmarks (SBs) and prior actions (PAs) for the fifth review:
  - Four out of seven SBs for the fifth review met on or before test dates; one completed with delay.
  - SB on amendments to the Financial Institutions Regulations (end-December 2023) was missed.
  - SB on amendment of the Bank of Uganda (BoU) Act was reformulated as amendment of the PFM regulation and elevated as a prior action (PA); all three PAs for the fifth review have been met.

### Requested modifications to QPCs and ITs (end‑March 2024)
- Authorities request modifications to end-March 2024 QPCs and ITs on:
  - Floors on primary budget balance and tax revenues.
  - NIR and social spending floors.
  - Ceiling on NCG from the BoU.
- Rationale for requested revisions:
  - Higher FY22/23 budget deficit outturn necessitates an upward revision of 0.4 percent of GDP in the primary budget deficit target for FY23/24 while remaining committed to the same amount of fiscal consolidation agreed under the fourth review.
  - Lower nominal GDP forecast requires downward revision in the tax revenue target.
  - Persistent absorption capacity constraints motivate a downward revision of the program target for social spending.
  - March 2024 NIR target revised down to reflect higher-than-anticipated debt service payments in the first half of FY23/24 and previously unbudgeted war reparation payments to Democratic Republic of Congo.
  - Lowering the ceiling on NCG from the BoU reflects planned higher repayments to BoU to partly compensate for last year’s shortfall.
  - June 2024 ITs dropped as they fall outside the ECF arrangement period ending on June 27, 2024.

### Risks to the program
- Key risks include:
  - Tighter external financial conditions.
  - Larger-than-expected impact of the AHA on external financing and tourism.
  - Climate shocks affecting agriculture.
- Buffers cited: Uganda’s moderate level of public debt and strong FDI inflows.

### Macroeconomic and sector developments — key indicators
- Growth and activity:
  - Real GDP growth accelerated to 5.2 percent in FY22/23 from 4.6 percent in FY21/22.
  - Growth projected to reach 6 percent in FY23/24 and to return to pre-pandemic trend of 6-7 percent over the medium term.
  - High-frequency indicators: monthly index of economic activity increased by 5.5 percent in October; PMI rose to 53.4 in November 2023; PMI was 54.8 in December 2023; Composite Index of Economic Activity increased by 6.5 percent y-o-y in November 2023.
- Inflation:
  - Headline inflation declined to 2.4 percent in October 2023; rose to 2.8 percent (y/y) in January 2024.
  - Core inflation remains below the BoU’s target of 5 percent; core inflation 2.4 percent in January 2024; food inflation 2.6 percent.
  - Annual average headline and core inflation projected at 3.1 and 2.8 percent, respectively, in FY23/24.
- External sector:
  - Gross international reserves: $3.7 billion at end-December 2023, covering 3.1 months of imports.
  - FX developments: bilateral UGX/USD depreciated by around 2 percent during July-December 2023; NEER and REER remained broadly stable.
  - Exports rebounded (resumption of gold exports, recovery in tourism); imports rising amid strong FDI inflows; portfolio outflows persist.
- Financial sector and credit:
  - Credit to the private sector increased by 8.7 percent (y/y) in nominal terms as of November 2023; shilling and FX loans grew by 9 and 8 percent, respectively.
  - NPLs rose from 5.3 to 5.7 percent between June 2022 and June 2023; provisioning ratio improved from 65.4 to 65.9 percent.
  - Commercial banks’ credit to the public sector stood at close to 30 percent of total assets at end-2022; banking sector exposure to government debt 29.8 percent of total assets as of September 2023.
- Fiscal outcomes and financing pressures:
  - Headline fiscal deficit for FY22/23 was 5.5 percent of GDP (projected 5.1 percent at time of 4th review).
  - Drivers of larger deficit: higher current spending (1 percent of GDP) and lower grants (0.6 percent of GDP); partly offset by higher tax revenues (0.2 percent of GDP) and lower capital expenditure (0.9 percent of GDP).
  - Government borrowed from BoU rather than repaying outstanding advances per SLA and PFM Act.
  - In FY23/24Q1, current and domestically financed development expenditures under-executed by around 20 and 70 percent, respectively.
  - Rising interest payments doubled since FY14/15 and reached 23 percent of revenues in FY22/23.
  - S&P lowered Uganda’s long-term sovereign credit rating from B to B- in October 2023.

### Program performance details (quantitative targets and execution)
- June 2023 ITs: seven of ten met (NIR, inflation, tax revenues, floor on social spending, repayment of domestic arrears, newly contracted external debt, non-accumulation of external arrears). Misses:
  - Primary budget balance adjusted for lower-than-anticipated project loans missed by 1.3 percent of GDP.
  - BoU’s NCG missed by 1.7 percent of GDP due to supplementary budget measures.
  - IT on spending for vulnerable households missed by a small margin due to verification of outstanding arrears.
- September 2023:
  - All QPCs met.
  - IT on tax revenue missed; ITs on social spending and spending for vulnerable households missed by 26 and 63 percent below target, respectively.
- December 2023 preliminary assessment:
  - NCG and inflation targets appear met.
  - NIR target missed as tight market conditions prevented BoU from executing planned FX purchases.

### Structural reform agenda: implementation status
- Between June and December 2023:
  - Four of seven SBs met on or before test dates; two SBs for June 2023 met ahead of test dates; end-November 2023 SB on publication of an anti-corruption assessment met on time; end-December 2023 SB on finalizing entries of learners' data into EMIS met on time.
  - SB on ownership structure for data collected by the Central Data Hub (end-October 2023) approved with delay in January 2024.
  - SB on adoption of amendments to the Financial Institutions Regulation (end-December 2023) missed and is being implemented.
  - SB on BoU Act amendment was not met, reformulated into a PA and completed in February.

### Macroeconomic outlook and risks
- Growth drivers: favorable weather, construction and investment in the oil sector, subdued inflation, roll-out of Parish Development Model (PDM).
- Oil projects:
  - EACOP expected to begin transporting crude oil by end-2025; a refinery expected to operate in 2027; projected to significantly reduce the current account deficit in the medium term.
- External sector projections:
  - Imports likely to remain elevated reflecting large investments associated with the oil project.
  - Private sector credit growth projected to pick up as COVID-19 effects dissipate and fiscal consolidation reduces crowding out risk.
- Risk assessment:
  - Risks to growth tilted to the downside (Annex I).
  - AHA could have larger-than-anticipated impacts on external grants, loans, portfolio flows and tourism.
  - Vulnerability to climate shocks given mostly rain-fed agriculture.
- Inflation outlook:
  - Energy prices expected to increase on base effects; core inflation projected to remain contained.
  - Upside inflation risks from a slightly positive output gap, commodity price volatility, unpredictable domestic weather, and exchange rate depreciation pressures from continued portfolio outflows.

### Policy mix and priorities — staff recommendations
- Overall policy mix:
  - Tight fiscal policy to reduce financing and debt sustainability risks and address potential crowding out.
  - Data-dependent monetary policy with potential room for loosening mindful of emerging risks.
  - Exchange rate flexibility, limiting interventions to address excessive volatility.
- Fiscal priorities:
  - Reinforce fiscal consolidation while ring-fencing spending for social needs and growth-enhancing development.
  - Priorities: expenditure control, strengthening budgetary processes, and revenue mobilization.
- Monetary policy:
  - With inflation below target, room for monetary loosening is emerging but should be cautious given tight global financial conditions and commodity price risks.
  - Policy rate held at 9.5 percent since October 2023; ex-ante real policy rate assessed at about 6 percent, 150 basis points above estimated neutral real rate of 4.5 percent.
- External sector:
  - Rebuild external buffers; achieve NIR target of four months of next year’s imports of goods and services (excluding oil investment related imports) as end point of ECF-supported program.
- Structural reforms:
  - Improve governance, reduce corruption, enhance financial stability and inclusion to facilitate private-sector-led growth.

### A. Reinforcing fiscal consolidation and discipline
- Commitment and targets:
  - Authorities committed to delivering the same fiscal consolidation in FY23/24 as agreed in the 4th review: 1.7 percentage points of GDP.
  - To achieve overall fiscal target of 3.8 percent, contingency measures worth 0.5 percent of GDP identified (PA for completion of this review).
- Composition of adjustments:
  - Revenue measures agreed at 4th review expected to yield 0.6 percent of GDP.
  - Reduction in current spending and domestically-financed capital spending yielding 1.3 percent of GDP.
  - Higher externally financed development spending (net of grants) of 0.3 percent of GDP partly offsets savings.
- Financing strategy:
  - Plan to borrow around 3½ percent of GDP in domestic market.
  - Plan to borrow around 0.8 percent of GDP externally mostly from commercial banks.
  - Of outstanding BoU advances UGX 4.8 trillion, authorities plan to repay UGX 3.5 trillion in FY23/24 and remainder in FY24/25.

### B. Minimizing inflation risks and safeguarding stability
- Monetary stance:
  - Policy rate reduced by 50 basis points in August 2023 and held at 9.5 percent since October 2023.
  - Staff indicates room for gradual easing if inflation remains far below target, but policy must remain vigilant and data dependent.
- Financial stability:
  - Banking sector liquid, profitable and well-capitalized; LCR increased from 185 percent in June 2022 to 269 percent in September 2023.
  - ROA reached 2.9 percent in September 2023.
  - Continue stress testing and risk-based supervision with IMF TA.

### C. Rebuilding external buffers
- Reserve developments:
  - Reserve levels: 3.9 bn USD (covering 3.6 months of imports, excluding oil imports) at end-September 2023 from 4.1 bn at end-June 2023; fell to 3.7 bn USD at end-December 2023.
  - Achieving NIR target of four months of next year’s imports (excluding oil investment related imports) retained as program end-point.
- Policy measures:
  - Reduce government imports: government imports reduced by 20 percent in FY22/23 and planned further cut of 30 percent in FY23/24.
  - Limit FX interventions; step up FX purchases as market conditions improve.

### D. Improving governance, financial stability and inclusion
- Governance and anti-corruption:
  - Guided by National Anti-Corruption Strategy (NACS); Directorate for Ethics published assessment and annual report (SB, end-November 2023).
  - Staff encourages adoption of anti-corruption measures and requests Fund TA for governance diagnostic assessment.
- AML/CFT and FATF:
  - BoU adopted AML/CFT risk-based supervision tools as of May 2023; BoU hired four additional staff for ML/TF supervision.
  - Authorities completed FATF action plan; on-site visit in December 2023 confirmed high-level commitment to reforms.
- Financial inclusion and infrastructure:
  - NSFI II launched November 2023 prioritizes inclusive green finance and gender-inclusive finance.
  - BoU clarified ownership structure of Central Data Hub data to facilitate Credit Registration Bureau use (SB end-October 2023).
  - Authorities developing cybersecurity guidelines and a BoU platform to enable purchase of government securities using mobile money (SB end-April 2024).

### Revisions to end‑March 2024 QPCs, ITs and targets (summary)
- Primary balance target: proposed downward revision to reflect relaxation of the FY23/24 deficit target.
- Tax revenues: ITs revised down in line with lower nominal GDP.
- Social spending: IT revised down in nominal terms but projected to remain unchanged as a share of GDP relative to FY22/23.
- BoU net credit to the government: end‑March 2024 QPC ceiling revised downward reflecting planned larger repayment in FY23/24.
- March 2024 NIR target revised down to accommodate higher-than-projected debt service and war reparations payments.
- June 2024 ITs dropped as they fall outside ECF arrangement ending June 27, 2024.

### External financing, program financing, and IMF repayment capacity
- Program financing:
  - Program fully financed with firm commitments for remainder of arrangement; ongoing discussions on new syndicated loans from commercial banks.
  - Authorities using half of the August 2021 SDR allocation for program financing in FY23/24.
- Uganda’s capacity to repay the Fund:
  - Total outstanding Fund credit would peak at SDR1,083 million, or 300 percent of quota in 2024.
  - Equivalent to 2.8 percent of GDP, 17.9 percent of exports of goods and services and 46.3 percent of gross international reserves.
  - IMF repayments expected to peak at 1.9 percent of exports of goods and services and 5.7 percent of reserves in 2029.
  - Conclusion: risks to Uganda's capacity to repay would remain adequate given track record and moderate public debt.

### Key financing and balance‑of‑payments figures (as presented)
- Financing needs: 4,783; 3,903; 3,944; 3,966; 5,416; 4,687
- Current account deficit: 4,286; 3,713; 4,253; 4,066; 4,849; 4,433
- Reserve accumulation (+=increase): 497; 190; -309; -101; 567; 254
- Financing sources: 3,387; 3,458; 3,060; 3,954; 5,173; 4,319
- Net FDI: 1,420; 2,300; 2,475; 3,784; 3,977; 3,951
- Net World Bank inflows (1/): 374; 112; 140; 451; 00
- Net commercial banks inflows: 289; 432; 976; 686; 426; 415
- BOP financing gap: 243; 116; 365; 365; 243; 243
- ECF: 243; 116; 365; 365; 243; 243

### Statistical issues, climate commitments, and capacity development
- Data provision broadly adequate; further progress needed in fiscal and real sector statistics; continued TA from AFRITAC East.
- Uganda committed to climate objectives in 2022 updated NDC.
- C-PIMA assessment identified good practices and reform priorities to incorporate climate aspects into PFM.
- WB Country Climate and Development Report expected summer 2024.
- Authorities expressed interest in climate reforms supported by an RSF.

### Staff appraisal — macro outlook, risks, and policy recommendations
- Macro outlook:
  - Broad-based recovery continues; growth accelerating supported by decline in inflation and oil-related investment.
  - Exports and tourism rebound narrowed current account deficit; inflation below central bank target expected to converge to target medium term.
- Risks:
  - Mostly on the downside: AHA impacts, high international interest rates, climate shocks.
- Policy recommendations:
  - Continued commitment to fiscal consolidation; enhance revenue through DRMS implementation.
  - Improve spending composition to protect social services and growth-enhancing capital expenditures.
  - Reduce reliance on central bank financing and abide by PFM Act limits.
  - Monetary policy to remain vigilant and data dependent; consider gradual easing as risks recede.
  - Rebuild external buffers via fiscal consolidation and exchange rate flexibility.
  - Strengthen AML/CFT supervision, apply consistent sanctioning regime, finalize FATF exit, and advance financial inclusion.
  - Address BoU Act shortcomings to enhance independence and transparency.

### Box summaries: AHA, Inflation, and Near‑Term Revenue Reform Priorities (highlights)
- Box 1 — AHA:
  - AHA signed May 2023 criminalizes behavior of lesbian, gay, bisexual, transgender, an intersex people; penalties include life sentence and death penalty for “aggravated homosexuality.”
  - World Bank suspended approval of new loans August 2023 until safeguards; constitutional petitions underway.
- Box 2 — Inflation:
  - Uganda’s inflation receded faster than expected; VAR and ARDL analysis indicate monetary policy and supply shocks’ quantified effects (examples include: a 50-basis point hike in policy rate leads to an estimated 1 percentage point reduction in inflation after a year).
- Box 3 — Revenue reforms:
  - DRMS aims to raise domestic revenue to 16-18 percent of GDP from current some 14 percent.
  - Revenue forgone from tax expenditures administered by URA estimated at 1 percent of GDP as of FY22/23.
  - Priorities include rationalizing tax expenditures, discontinuing cost-ineffective tax holidays, reforming PIT and VAT exemptions, and transforming URA (e-tax 2, compliance risk management, data cleansing).

### Annex I — Risk Assessment Matrix (selected risks and policy responses)
- Domestic risks:
  - Slow progress on fiscal reforms — Likelihood: Medium / Time Horizon: Short to Medium Term / Impact: High. Policy: improve quality of public spending; define operational debt ceiling.
  - Natural disasters related to climate change — Likelihood: Medium / Time Horizon: Medium/Long-term / Impact: High. Policy: improve resilience, build buffers.
- External risks:
  - Systemic financial instability — Likelihood: Medium / Time Horizon: Short Term / Impact: Medium. Policy: temporary FX intervention (FXI) could be considered; credible fiscal path.
  - Intensification of regional conflict(s) — Likelihood: High / Time Horizon: Short to Medium Term / Impact: Medium. Policy: adjust monetary/fiscal policy as needed; credible fiscal path.
  - Commodity price volatility and abrupt global slowdown — Likelihood: High/Medium; impacts include inflationary pressure and weaker recovery. Policy responses: targeted fiscal support, adjust monetary policy, credible fiscal path.
- RAM interpretation: "low" = <10 percent probability; "medium" = 10–30 percent; "high" = 30–50 percent.

*Source: 1ugaea2024001 - EXECUTIVE SUMMARY (PDF).*

### EXECUTIVE SUMMARY

### 1ugaea2024001 - EXECUTIVE SUMMARY

### Context and recent developments
- Economic recovery continues to gain strength following a rapid decline in inflation, favorable agriculture and robust industrial and services activity.
- Passage of the Anti-Homosexuality Act (AHA) in May 2023 and related actions (World Bank suspension of new loans until safeguards are in place; U.S. business advisory and removal from AGOA) have increased downside risks to external financing and tourism.
- Authorities are implementing fiscal consolidation, maintaining a moderately tight monetary stance against upside inflation risks, and undertaking reforms to improve governance and reduce corruption.

### Arrangement under the Extended Credit Facility (ECF)
- The 36-month ECF arrangement was approved in June 2021 with access at 200 percent of quota.
- Review chronology: 1st review completed March 2022; combined 2nd and 3rd reviews completed January 2023; 4th review completed June 2023.
- The program supports recovery from COVID-19 and external shocks and aims to put conditions for sustainable private-sector-led growth.

### Program performance and structural measures
- All September 2023 quantitative performance criteria (QPCs) were met, as well as most June 2023 indicative targets (ITs).
- Preliminary data suggest December 2023 ITs: net credit to government (NCG) and inflation were met; net international reserves (NIR) was missed.
- Structural benchmarks (SBs) and prior actions (PAs) for the fifth review:
  - Four out of seven SBs for the fifth review were met on or before test dates; one was completed with delay.
  - SB on amendments to the Financial Institutions Regulations (end-December 2023) was missed.
  - SB on amendment of the Bank of Uganda (BoU) Act was reformulated as amendment of the PFM regulation and elevated as a prior action (PA) for completion of the current review.
  - Two additional PAs for the completion of the fifth review: identifying fiscal contingency measures for FY23/24 and finalizing the cash management framework.
  - All three PAs have been met.

### Requested modifications to QPCs and ITs (end-March 2024)
- Authorities request modifications to end-March 2024 QPCs and ITs on:
  - Floors on primary budget balance and tax revenues.
  - NIR and social spending floors.
  - Ceiling on NCG from the BoU.
- Rationale for requested revisions:
  - Authorities remain committed to the same amount of fiscal consolidation agreed under the fourth review, but a higher FY22/23 budget deficit outturn necessitates an upward revision of 0.4 percent of GDP in the primary budget deficit target for FY23/24.
  - A lower nominal GDP forecast requires a downward revision in the tax revenue target.
  - Persistent absorption capacity constraints motivate a revision down of the program target for social spending.
  - A downward revision in the March 2024 NIR target reflects higher-than-anticipated debt service payments in the first half of FY23/24.
  - Lowering the ceiling on NCG from the BoU is requested as authorities envisage higher repayments to BoU to partly compensate for last year’s shortfall.
  - June 2024 ITs are to be dropped as they fall outside the ECF arrangement period, which ends on June 27, 2024.

### Risks to the program
- Key risks include tighter external financial conditions, a larger-than-expected impact of the AHA on external financing and tourism, and climate shocks affecting agriculture.
- Uganda’s moderate level of public debt and strong FDI inflows are cited as continuing buffers.

### Macroeconomic and sector developments (key indicators)
- Growth and activity:
  - Real GDP growth accelerated to 5.2 percent in FY22/23 from 4.6 percent in FY21/22, driven by agriculture and services.
  - Monthly index of economic activity increased by 5.5 percent in October; PMI rose to 53.4 in November 2023.
- Inflation:
  - Headline inflation declined to 2.4 percent in October 2023; rose to 2.8 percent (y/y) in January 2024.
  - Core inflation remains below the BoU’s target of 5 percent.
- External sector:
  - Gross international reserves: $3.7 billion at end-December 2023, covering 3.1 months of imports.
  - FX developments: bilateral UGX/USD depreciated by around 2 percent during July-December 2023; NEER and REER remained broadly stable.
  - Exports rebounded (resumption of gold exports, recovery in tourism); imports rising amid strong FDI inflows; portfolio outflows persist.
- Financial sector and credit:
  - Credit to the private sector increased by 8.7 percent (y/y) in nominal terms as of November 2023; shilling and FX loans grew by 9 and 8 percent, respectively.
  - Nonperforming loans (NPLs) rose from 5.3 to 5.7 percent between June 2022 and June 2023.
  - Provisioning ratio improved from 65.4 to 65.9 percent over the same period.
  - Commercial banks’ credit to the public sector stood at close to 30 percent of total assets at end-2022.
- Fiscal outcomes and financing pressures:
  - Headline fiscal deficit for FY22/23 was 5.5 percent of GDP (projected 5.1 percent at time of 4th review).
  - Drivers of larger deficit: higher current spending (1 percent of GDP) and lower grants (0.6 percent of GDP); partly offset by higher tax revenues (0.2 percent of GDP) and lower capital expenditure (0.9 percent of GDP).
  - Government resorted to borrowing from BoU rather than repaying outstanding advances as stipulated in the BoU-MOFPED Service Level Agreement (SLA) and the PFM Act.
  - In FY23/24Q1, current and domestically financed development expenditures were under-executed by around 20 and 70 percent, respectively.
  - Rising interest payments doubled since FY14/15 and reached 23 percent of revenues in FY22/23.
  - S&P lowered Uganda’s long-term sovereign credit rating from B to B- in October 2023.

### Program performance details (quantitative targets and execution)
- June 2023 ITs: seven of ten met (NIR, inflation, tax revenues, floor on social spending, repayment of domestic arrears, newly contracted external debt, non-accumulation of external arrears). Misses:
  - Primary budget balance adjusted for lower-than-anticipated project loans missed by 1.3 percent of GDP.
  - BoU’s NCG missed by 1.7 percent of GDP (large margins) due to supplementary budget measures.
  - IT on spending for vulnerable households missed by a small margin due to verification of outstanding arrears.
- September 2023:
  - All QPCs met.
  - IT on tax revenue missed due to low profitability in manufacturing and lower imports of fabrics, textiles, and tiles.
  - ITs on social spending and spending for vulnerable households missed by large margins (26 and 63 percent below target, respectively) due to financing constraints and under-execution.
- December 2023 preliminary assessment:
  - NCG and inflation targets appear met.
  - NIR target missed as tight market conditions prevented BoU from executing planned FX purchases to build reserves.

*International Monetary Fund. Executive Summary, Uganda 1ugaea2024001.*

### 10.      Th

### 10.      Th

### Structural reform agenda: implementation status
- Four of the seven SBs due between June and December 2023 met on or before the test dates (MEFP ¶11 and Table 9).
- Two SBs for June 2023 (strengthening social assistance programs and governance) were met ahead of the test dates.
- End-November 2023 SB on publication of an anti-corruption assessment met on time.
- End-December 2023 SB on finalizing entries of learners' data into the Education Management Information System (EMIS) and publication of diagnostics by local government met on time (Table 9).
- SB on ownership structure for data collected by the Central Data Hub (end-October 2023) was approved with a delay in January 2024 due to BoU Board backlog.
- SB on adoption of amendments to the Financial Institutions Regulation (end-December 2023) was missed and is currently being implemented.
- SB on the BoU Act amendment (end-October 2023, reprogrammed from September 2022) was not met (paragraph 25, third bullet; Table 10). This SB was reformulated to include a more comprehensive definition of BoU advances to the government in the amendment to the PFM regulation and elevated to a PA for the completion of the fifth review. The PA was completed in February.

### Macroeconomic outlook and risks
- Growth projections and drivers:
  - Growth projected to reach 6 percent in FY23/24, benefitting from favorable weather conditions, construction and investment in the oil sector, subdued inflation, and positive impacts from the roll-out of the Parish Development Model (MEFP ¶17).
  - Exports expected to recover further amid robust coffee and gold trade.
  - Imports likely to remain elevated reflecting large investments associated with the oil project.
  - Medium-term growth projected to return to pre-pandemic trend of 6-7 percent boosted by oil production (Text Figure 5).
  - East Africa Crude Oil Pipeline (EACOP) expected to begin transporting crude oil by end-2025; a refinery expected to operate in 2027. Projected to significantly reduce the current account (CA) deficit in the medium term (Tables 4a and 4b).
  - Private sector credit growth projected to pick up as COVID-19 effects dissipate, fiscal consolidation reduces crowding out risk, and structural impediments to financial market development are addressed.
- Risks:
  - Risks to growth tilted to the downside (Annex I).
  - Further tightening of external financial conditions could constrain syndicated loans and jeopardize fiscal financing and recovery.
  - The AHA could have a larger-than-anticipated impact on availability of external grants and loans, as well as portfolio flows and tourism.
  - Uganda vulnerable to climate shocks due to mostly rain-fed agriculture.
- Inflation outlook:
  - Annual average headline and core inflation rates projected at 3.1 and 2.8 percent, respectively, in FY23/24, down from 5.7 and 5.3 percent, respectively, projected at the time of the 4th review.
  - Energy prices expected to increase on base effects; core inflation projected to remain contained.
  - Upside inflation risks from a slightly positive output gap, commodity price volatility, unpredictable domestic weather, and exchange rate depreciation pressures from continued portfolio outflows.

### Policy mix and priorities
- Overall policy mix:
  - Tight fiscal policy to reduce financing and debt sustainability risks and address potential crowding out of private sector credit.
  - Data-dependent monetary policy with potential room for loosening mindful of emerging risks.
  - Exchange rate flexibility limiting interventions to address excessive volatility.
- Fiscal policy priorities:
  - Reinforce fiscal consolidation while ring-fencing spending for social needs and growth-enhancing development.
  - Expenditure control, strengthening budgetary processes, and revenue mobilization are priorities.
- Monetary policy:
  - With inflation well below central bank target, room for monetary loosening is emerging, though monetary policy should consider risks from tight global financial conditions and higher commodity prices.
- External sector:
  - Rebuilding external buffers and improving competitiveness through exchange rate flexibility and structural reforms remain critical.
- Structural reforms:
  - Improve governance, reduce corruption and enhance financial stability and inclusion to facilitate private-sector-led growth.

### A. Reinforcing fiscal consolidation and discipline
- Commitment and targets:
  - Authorities committed to delivering the same fiscal consolidation in FY23/24 as agreed in the 4th review, i.e., 1.7 percentage points of GDP (MEFP ¶12).
  - To achieve overall fiscal target of 3.8 percent, contingency measures worth 0.5 percent of GDP identified (a PA for the completion of this review).
- Constraints to further consolidation:
  - Further consolidation in FY23/24 is difficult because (i) many enterprises still recovering from COVID-19 and (ii) projects inadvertently omitted from original FY23/24 budget or previously approved by Parliament could not be postponed.
- Composition and expected fiscal adjustments:
  - FY23/24 fiscal consolidation expected through:
    - Revenue measures agreed at 4th review (tax administration reforms, rationalization of VAT and income tax exemptions, additional tax policy measures) expected to yield savings worth 0.6 percent of GDP.
    - Reduction in current spending and domestically-financed capital spending yielding savings worth 1.3 percent of GDP.
    - Partly countered by higher externally financed development spending (net of grants) of 0.3 percent of GDP.
  - Over the medium term, fiscal deficit expected to improve to around 3 percent of GDP, boosted by oil revenues coming onstream in FY25/26.
  - Public debt trajectory revised up relative to the 4th review by about 2 percentage points of GDP, but debt level expected to remain below 50 percent of GDP in FY23/24 and decline to 44 percent by FY28/29.
- Spending composition changes:
  - Current spending projected to decline in FY23/24 due to lower non-wage primary spending (by 0.6 percent of GDP)5.
  - Capital spending expected to slightly increase (by 0.2 percent of GDP).
  - Social spending expected to remain flat in FY23/24 as a share of domestically financed spending.
  - Authorities to investigate capacity constraints causing underspending of on-budget social spending and seek IMF TA if needed.
  - Parish Development Model (PDM): about 83 percent of loans disbursed reaching 88 percent of targeted beneficiary households (MEFP ¶17).
- Financing strategy and BoU advances:
  - Authorities plan to meet most FY23/24 financing needs domestically, seeking to borrow around 3½ percent of GDP in domestic market.
  - Domestic financial system has adequate liquidity but large financing needs likely to keep domestic interest rates elevated and could crowd out private sector credit in medium term.
  - Plan to borrow around 0.8 percent of GDP externally mostly from commercial banks; discussions well-advanced.
  - Of outstanding BoU advances UGX 4.8 trillion, authorities plan to repay UGX 3.5 trillion in FY23/24 and remainder in FY24/25.
  - Forthcoming ECF disbursements will also contribute to budget support and address identified balance of payment need.
- Debt sustainability:
  - As per June 2023 Debt Sustainability Analysis (DSA), public debt deemed sustainable in medium term with moderate risk of debt distress.
  - Except for a one-off breach of external debt service-to-exports ratio, external debt burden indicators and total public debt remained below thresholds under the ECF-supported program scenario.
  - Stress tests indicated more breaches of thresholds; PV of external debt-to-exports, external debt service-to-revenues, and external debt service-to-exports ratios close to thresholds.
  - An update to the DSA expected in mid-2024 at Article IV consultation or the 6th ECF review.

### B. Minimizing inflation risks and safeguarding stability
- Monetary stance and indicators:
  - Current monetary policy stance appropriately tight.
  - In August 2023, BoU reduced policy rate and reserve requirement ratio by 50 basis points each as inflation eased.
  - Policy rate held at 9.5 percent since October 2023 MPC meeting.
  - Staff assessment indicates an ex-ante real policy rate of about 6 percent, 150 basis points above estimated neutral real rate of 4.5 percent.
- Forward guidance:
  - Room for further loosening exists but policy must remain vigilant and data dependent as inflation risks are tilted to the upside (MEFP ¶19).
  - Core inflation expected to remain within BoU’s target band (5 percent plus or minus 3 percent) in near term and return to central target over medium term.
  - If inflation remains far below target, a cautious and gradual easing could help bring it back and support activity.
  - BoU communication and financial market reforms supported by MCM TA mission (January 2024) which performed a communication diagnostic and suggested reform priorities.
- Financial stability:
  - Banking sector is liquid, profitable and well-capitalized; minimizing financial stability risks remains a priority.
  - Statutory increase in minimum paid-up capital implemented December 2022 contributed to capital buffers.
  - Aggregate liquidity coverage ratio (LCR) increased from 185 percent in June 2022 to 269 percent in September 2023, driven by increased holdings of treasury securities.
  - Banking sector profitability improved with ROA reaching 2.9 percent in September 2023.
  - BoU benefits from bottom-up stress testing and risk-based supervision TA.

### C. Rebuilding external buffers
- Reserve and external financing developments:
  - FX reserves improved at end FY22/23 with coverage reaching 3.4 months of imports (4.3 months, excluding oil investment related imports) reflecting IMF disbursements and external commercial loans.
  - Weak FX market sentiment following WB and U.S. announcements and other one-off outflows in 2023Q4 limited BoU’s ability to purchase FX.
  - Reserve levels: 3.9 bn USD (covering 3.6 months of imports, excluding oil imports) at end-September 2023, from 4.1 bn at end-June 2023; fell further to 3.7 bn USD at end-December 2023.
  - Further buildup of FX reserves will remain challenging amid high interest rates and limited portfolio inflows.
- Policy stance:
  - Fiscal consolidation and exchange rate flexibility essential to rebuild external buffers (MEFP ¶21 - ¶22).
  - Achieving NIR target of four months of next year’s imports of goods and services (excluding oil investment related imports) retained as end point of ECF-supported program.
  - Authorities committed to target through reduced government imports and plan to step up FX purchases as market conditions improve.
  - Government imports reduced by 20 percent in FY22/23 and planned further cut of 30 percent in FY23/24.
  - Authorities committed to allowing exchange rate to move in line with market developments; no FX market intervention since June 2022 and plan to limit FX sales to preventing excessive volatility only.

### D. Improving governance, financial stability and inclusion
- Governance and anti-corruption:
  - Guided by the National Anti-Corruption Strategy (NACS), authorities prepared and published an assessment report against agreed indicators and targets, and an annual report for FY22/23 on prevalence of corruption and anti-corruption efforts.
  - In process of amending Financial Institutions (Corporate Governance) Regulations (structural benchmark end-December 2023) in line with Basel Committee principles.
  - Staff encourages adoption of measures against corruption and request for Fund TA to conduct governance diagnostic assessment on corruption vulnerabilities linked to key state functions.
- AML/CFT framework:
  - With Fund TA support, BoU adopted AML/CFT risk-based supervision tools for banks, forex bureaus and money remitters as of May 2023.
  - Findings informed AML/CFT supervisory strategy including onsite inspections for higher-risk entities.
  - BoU hired four additional staff for AML Unit.
  - To exit FATF grey-list, authorities completed action plan with FATF; on-site visit in December 2023 confirmed high-level commitment to reforms.
- Financial stability and access:
  - Implementation of first National Financial Inclusion Strategy (NSFI I) significantly improved access to financial services (Annex II).
  - NSFI II launched November 2023 prioritizes inclusive green finance market and gender-inclusive finance.
  - BoU clarified ownership structure of financial data collected by Central Data Hub to facilitate use by Credit Registration Bureau (SB for end-October 2023).
  - Authorities developing cybersecurity guidelines for financial services in early 2024 and working to operationalize BoU platform to enable purchase of government securities using mobile money with safeguards.
- BoU governance and independence:
  - 2021 safeguards assessment identified reforms in BoU Act to enhance transparency and independence.
  - Authorities addressed definition of BoU advances to central government through PFM Act regulation changes, including a limit on BoU advances (a PA for completion of this review).
  - Plan further revisions to BoU Act to remediate deficiencies identified in safeguards assessment; other safeguards recommendations remain in progress (MEFP ¶39).
  - BoU revised investment policy and guidelines to reduce concentration risk in foreign exchange reserves; steps taken to safeguard independence of audit committee and strengthen currency operations.
- Beneficial ownership transparency:
  - Uganda Registration Services Bureau (URSB) implementing measures to increase submissions of beneficial ownership information, including e-register configuration to require submission at incorporation stage.
  - Daily fines for non-compliance not binding in practice; authorities rely on e-system requirements and company strike-offs.
  - URSB holds beneficial ownership information for 98% of active companies on the register and expected full compliance by end-2023.
- Spending efficiency:
  - Entry of student data in EMIS completed, expected to improve accuracy of projected funding requirements for primary and secondary schools and support planning and budgeting.

*Source: 1ugaea2024001 - 10.      Th (PDF).*

### 26.      The proposed revision to end-March 2024 QPCs and targets reflect the revisions in the

### 1ugaea2024001 - 26.      The proposed revision to end-March 2024 QPCs and targets reflect the revisions in the

### Revisions to end‑March 2024 QPCs, ITs and targets
- Proposed downward revision of the primary balance target to reflect relaxation of the fiscal deficit target for FY23/24 (Table 8).
- IT on tax revenues revised down in line with lower nominal GDP.
- IT on social spending revised down in nominal terms but projected to remain unchanged as a share of GDP relative to FY22/23.
- June 2023 IT on BoU net credit to the government was missed; therefore:
  - A larger repayment in FY23/24 requires a downward revision in the end‑March 2024 QPC ceiling.
- March 2024 NIR target revised down to accommodate:
  - Higher-than-projected debt service payments during the first three quarters of FY23/24.
  - Previously unbudgeted war reparation payments to Democratic Republic of Congo.
- June 2024 ITs dropped as they fall outside the current ECF arrangement, which ends on June 27, 2024.

### AML/CFT supervision and structural adjustments to SBs
- Staff proposes to drop the end‑March 2024 SB on AML/CFT supervision (Table 9).
- Recent IMF TA identified:
  - Inconsistencies between AML Act and related regulations.
  - Overlapping responsibilities between institutions in charge of sanctioning non‑compliance with AML/CFT requirements.
- Staff advice and interim measures:
  - AML regulations should be revised ahead of preparation of related supervisory policies and procedures.
  - BoU and the Financial Intelligence Authority (FIA) developed a memorandum of understanding (MoU) outlining responsibilities and procedures to support assessment, coordination, and application of sanctions in the interim.
  - Fund staff will work with authorities, within the ongoing TA to the BoU, to further strengthen the MoU and the adopted risk‑based supervision tools for the banking, money remittance and foreign exchange sectors by the end of the program.

### External financing, program financing, and IMF repayment capacity
- Program financing and commitments:
  - Program is fully financed. There are firm commitments for the remainder of the arrangement, including ongoing discussions on new syndicated loans from commercial banks (Text Table 2).
  - Authorities are using half of the August 2021 SDR allocation for program financing in FY23/24.
  - A larger catalytic role of the ECF‑supported program is unlikely given long‑standing donor concerns on broader governance issues and negative impacts of the AHA.
- Uganda’s capacity to repay the Fund (Table 11):
  - Total amount of outstanding Fund credit would peak at SDR1,083 million, or 300 percent of quota in 2024.
  - Equivalent to 2.8 percent of GDP, 17.9 percent of exports of goods and services and 46.3 percent of gross international reserves.
  - IMF repayments are expected to peak at 1.9 percent of exports of goods and services and 5.7 percent of reserves in 2029.
  - Conclusion: Considering strong track record of servicing debt and Uganda’s moderate level of public debt, risks to Uganda's capacity to repay would remain adequate even if downside risks listed in Annex I were to materialize.

### Key financing and balance‑of‑payments figures (as presented)
- Financing needs: 4,783; 3,903; 3,944; 3,966; 5,416; 4,687
- Current account deficit: 4,286; 3,713; 4,253; 4,066; 4,849; 4,433
- Reserve accumulation (+=increase): 497; 190; -309; -101; 567; 254
- Financing sources: 3,387; 3,458; 3,060; 3,954; 5,173; 4,319
- Net FDI: 1,420; 2,300; 2,475; 3,784; 3,977; 3,951
- Net World Bank inflows (1/): 374; 112; 140; 451; 00
- Net commercial banks inflows: 289; 432; 976; 686; 426; 415
- BOP financing gap: 243; 116; 365; 365; 243; 243
- ECF: 243; 116; 365; 365; 243; 243
- Sources: Authorities and IMF staff estimates and projections.
- Note 1/: Includes Covid‑19 Economic Crisis and Recovery Development Policy Financing approved by the Bank prior to FY20/21 and disbursed in FY20/21, UGIFT and financing for vaccination (both loans and grants, given the higher share of grants following the shift to moderate debt distress as a result of the DSA at program approval).

### Statistical issues, climate commitments, and capacity development
- Data provision is broadly adequate for surveillance and program monitoring.
- Further progress needed in fiscal and real sector statistics; Uganda to continue receiving TA from AFRITAC East.
- Uganda committed to ambitious climate change objectives in its 2022 updated Nationally Determined Contribution (NDC).
- C‑PIMA assessment identified good practices and reform priorities to incorporate climate change aspects into PFM.
- WB Country Climate and Development Report expected to be completed in summer of 2024.
- Authorities expressed interest in developing climate reforms that could be supported by an RSF.

### Staff appraisal — macro outlook, risks, and policy recommendations
- Growth and inflation:
  - Broad‑based recovery continues; economic growth is accelerating.
  - Supported by rapid decline in inflation and construction of a new oil pipeline supporting investment and demand for services.
  - Rebound in gold exports and tourism has supported activity and narrowed the current account deficit.
  - Inflation has fallen to below the central bank’s target and is expected to converge to the target in the medium term.
- Risks:
  - Mostly on the downside.
  - Passing of the AHA has led to negative reaction among development partners and donors, complicating financing landscape; could affect FDI and tourism, dampen growth and widen the current account deficit.
  - High international interest rates and growing reliance on external financing raise debt servicing costs.
  - Large share of agriculture makes economy vulnerable to climate shocks, which are becoming more frequent.
- Fiscal policy recommendations:
  - Continued commitment to fiscal consolidation important to reduce risks and safeguard sustainability.
  - Enhance revenue by redoubling efforts to implement the DRMS to provide space to maintain critical expenditures and rely less on costly domestic and external financing.
  - Staff welcomes identification of contingency measures to reach the FY23/24 fiscal deficit target.
  - Improve composition of spending to maintain social services and support for the most vulnerable, and provide space for growth‑enhancing capital expenditures.
  - Reduce reliance on central bank financing and abide by legal limits set under the PFM Act.
- Public financial management:
  - Addressing deficiencies in PFM will support fiscal sustainability and strengthen governance.
  - Challenges have resulted in repeated need to issue supplementary budgets, adding expenditure uncertainty.
  - Staff welcomes ongoing efforts to improve budgeting, expenditure control and cash management.
- Monetary policy:
  - Should remain vigilant and data dependent.
  - BoU kept the policy rate stable at its most recent policy meeting in February 2024.
  - Staff assesses the policy stance to be moderately tight and appropriate, with room to loosen gradually as risks recede to bring core inflation back up to the central bank target.
- External buffers and exchange rate:
  - Authorities need to rebuild external buffers.
  - Fiscal consolidation and exchange rate flexibility expected to help alleviate pressures on foreign exchange reserves and facilitate BoU’s target to reach an FX coverage of 4 months of imports, excluding oil‑related imports.
  - Limit intervention in the exchange rate market to situations with excess volatility to allow exchange rate adjustment and improve competitiveness.
- Financial sector policies and AML/CFT:
  - Financial system is well capitalized and liquid but with pockets of vulnerability.
  - Staff welcomes BoU’s improvements in stress‑testing methodology.
  - For AML/CFT: strengthen BoU supervisory capacity, apply a consistent sanctioning regime, and finalize Uganda’s exit from the FATF grey‑list.
  - Continue efforts to extend gains in financial inclusion under the second National Financial Inclusion Strategy.
- Structural reforms:
  - Focus on reducing corruption and improving governance.
  - Staff welcomes implementation of the National Anti‑Corruption Strategy and efforts to improve corporate governance, enhance beneficial ownership transparency, and implement cybersecurity guidelines.
  - Greater clarity on definition of BoU advances to the government in the PFM Act will help reduce risks of fiscal dominance, improve governance, and enhance transparency.
  - Authorities should address remaining shortcomings in the BoU Act identified in the Safeguards Assessment to enhance independence and transparency of the Bank of Uganda.
- Staff action:
  - Staff supports the authorities’ request for the completion of the fifth review, and the modification of QPCs and ITs.

### Box summaries: Anti‑Homosexuality Act (AHA), Inflation, and Near‑Term Revenue Reform Priorities

- Box 1 — Implications of the Anti‑Homosexuality Act:
  - AHA signed in May 2023 criminalizes behavior of lesbian, gay, bisexual, transgender, an intersex people; includes penalties for participating in, promotion, facilitation, and failure to report same sex acts.
  - Penalties include life sentence on consensual same‑sex conduct among adults (already punishable under the penal code) and death penalty for “aggravated homosexuality” involving children or people with disabilities.
  - Donor reactions:
    - August 2023: World Bank suspended approval of all new loans until safeguards are put in place to secure equal access for all to their programs.
    - Technical mission assessed risks to minorities for 22 projects under implementation and 9 under preparation; proposed mitigation measures including issuance of guidelines, third‑party monitoring, and grievance redress mechanisms.
    - Bilateral partners have kept doors for dialogue open and existing portfolios unchanged while monitoring implementation.
    - US Embassy issued advisories discouraging businesses citing corruption and human rights restrictions.
  - Government response includes circulars and guidelines for non‑discrimination across ministries and services and other measures.
  - Constitutional Court petitions challenging the AHA are underway.

- Box 2 — Inflation Performance: Key drivers and policy assessment:
  - Uganda’s inflation receded faster than expected, falling below the BoU’s 5 percent core inflation target.
  - Since BoU adopted inflation targeting in July 2011, inflation generally stayed below the SSA median.
  - Post‑war in Ukraine, Uganda’s inflation temporarily exceeded the SSA median and reached double digits for first time since August 2012; peaked in October 2022 then decelerated rapidly.
  - 2022‑23 surge driven primarily by higher food prices; correlation of 0.7 between Uganda’s food prices and global food prices.
  - Empirical analysis (VAR with sign restrictions, quarterly data 2007–2023):
    - A one percentage point decrease in output growth due to an aggregate demand (AD) shock would lower annualized inflation by 0.4 percentage point within a year.
    - A one percentage point decrease from an aggregate supply (AS) shock would raise annualized inflation by 0.5 percentage point.
    - Historical decomposition shows supply‑side contributions were relatively more significant in driving recent inflation surge and subsequent decline.
  - Monetary policy contribution:
    - BoU raised policy rate from 6.5 to 10 percent between June and October 2022, held it steady until a 50‑basis point cut in August 2023, maintained thereafter.
    - VAR estimate: a 50‑basis point hike in the policy rate leads to an estimated 1 percentage point reduction in inflation after a year, with approximately 33 percent of this decrease attributable to changes in the monetary policy rate.
    - ARDL monthly analysis (2011–2023): policy rate changes primarily affect bank lending rates in the long term; treasury rates sensitive to policy rate changes and adjust in tandem; government credit inversely responds; private sector credit shows minimal impact, indicating structural barriers to policy transmission.

- Box 3 — Near‑Term Revenue Reform Priorities:
  - Third National Development Plan (NDPIII, adopted 2020) and current ECF arrangement underpin a multi‑year fiscal consolidation plan to create space for priority social and high‑quality infrastructure spending.
  - Main element: DRMS envisages bringing domestic revenue to 16‑18 percent of GDP from current level of some 14 percent.
  - Key pillar: raising revenues through rationalization of tax expenditures and improvements in revenue administration; estimates suggest large potential gains.
  - Despite relatively high statutory tax rates, untargeted exemptions and collection inefficiency result in low tax‑to‑GDP ratio compared to peers.
  - Many tax expenditures are offered outside purview of revenue authorities; reforms will require broad ministerial support, appropriate resources and time for proper cost‑benefit analysis.

*Source: IMF staff report excerpt (Content unit: 1ugaea2024001).*

### Box 3. Figure 1. Revenue Patterns

### Box 3. Figure 1. Revenue Patterns

### Tax-to-GDP Ratio
- Title: "Tax-to-GDP Ratio (In Percent)"
- Time coverage on x-axis: 2015, 2016, 2017, 2018, 2019, 2020, 2021
- Vertical axis tick values shown: 0, 5, 10, 15, 20
- Series plotted: Uganda; Low Income Developing Countries (IMF Classification); Sub-Saharan Africa; EAC

### Corporate Income Tax Revenue
- Title: "Corporate Income Tax Revenue (Percent of GDP)"
- Time coverage on x-axis: 2015, 2016, 2017, 2018, 2019, 2020, 2021
- Vertical axis tick values shown: 0.0, 0.5, 1.0, 1.5, 2.0, 2.5, 3.0, 3.5
- Series plotted: Uganda; Low Income Developing Countries (IMF Classification); Sub-Saharan Africa; EAC

### VAT Standard Rate
- Title: "VAT Standard Rate 1 (In Percent)"
- Footnote 1: "VAT includes both VAT and Goods and Services Tax"
- Time coverage on x-axis: 2015, 2016, 2017, 2018, 2019, 2020
- Vertical axis tick values shown: 14, 15, 16, 17, 18, 19
- Series plotted: Uganda; Low Income Developing Countries (IMF Classification); Sub-Saharan Africa; EAC

### VAT Revenue
- Title: "VAT Revenue 1 (Percent of GDP)"
- Footnote 1: "VAT includes both VAT and Goods and Services Tax"
- Time coverage on x-axis: 2015, 2016, 2017, 2018, 2019, 2020, 2021
- Vertical axis tick values shown: 0, 1, 2, 3, 4, 5, 6
- Series plotted: Uganda; Low Income Developing Countries (IMF Classification); Sub-Saharan Africa; EAC

*Source: WEO, IMF Internal Databases: World, IBFD*

### Box 3. Near-Term Revenue Reform Priorities (concluded)

### Box 3. Near-Term Revenue Reform Priorities (concluded)

### Fiscal and tax-expenditure context
- Revenue forgone from tax expenditures administered by the Uganda Revenue Administration (URA) was estimated at 1 percent of GDP as of FY22/23.
- An even larger part of tax exemptions is administered outside the URA’s domain.
- The government needs to conduct a comprehensive cost-benefit analysis to determine impact of these tax incentives and strengthen controls for their administration to limit leakages.

### Corporate Income Tax (CIT) and excises
- Characterization:
  - CIT and VAT regimes: relatively high rates and narrow bases.
  - Excise regime: raises revenues that are above-average compared to peers in the region but is not well focused on correcting negative externalities associated with major excise tax bases: fossil fuels, vehicles, alcohol and tobacco.
- Top CIT reform priorities:
  - Discontinue tax holidays that are cost-ineffective and offer windfall gains to companies who would have invested even in the absence of any incentives.
  - Instead offer cost-based incentives, such as accelerated depreciation to strategic industries.
  - Repeal the tax exemption for savings and credit cooperative societies (SACCOs) or restrict it to microfinance cooperatives serving low-income investors.

### Personal Income Tax (PIT)
- PIT reform priorities:
  - Repeal exemptions of parliamentary and military incomes (with a corresponding gross-up), which undermine taxpayer morale.
  - Tax non-business capital gains, which would be highly progressive.
- Caveat:
  - The overall net impact of these reforms could be small if taxpayers were to be compensated through higher salaries.

### Value-Added Tax (VAT)
- VAT reforms should focus on numerous non-standard exemptions and reduced rates, including for:
  - fuels, gambling, tourism, garments and textiles, residential construction, agriculture, raw foods, and medical and educational goods and services.
- Note on policy practice:
  - VAT and especially excise policies are often used in Uganda to promote domestic production over imports. Such practices, while common in the East African Community (EAC), should be avoided.
  - Strategic domestic industries could be promoted using cost-based direct tax incentives (such as accelerated depreciation).

### Revenue administration and URA transformation
- URA needs transformation to align with good international practices across the compliance continuum and to promote voluntary compliance.
- Priority actions:
  - Focus on taxpayer perceptions and confidence in the revenue system and administration.
  - Prioritize funding for basic infrastructure and enhance the digitalization and IT strategy.
  - Fast-track implementation of a new e-tax 2 system.
  - Strengthen compliance risk management by:
    - finalizing/publishing a customer identification program (CIP) for large taxpayers;
    - initiating CIPs for other specialized sectors;
    - investing in measures to promote the work of the Internal Compliance Division.
  - Organizational reform supported by a comprehensive change in management strategy, increased staff, and investment in skills development.
  - Data cleansing to build internal trust and successfully implement the new e-tax system.

### Extractives sector
- As Uganda expands development of the extractive industry, develop compliance management strategies that safeguard revenue from the sector even before production starts.

*Source: Box 3. Near-Term Revenue Reform Priorities (concluded), IMF*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Potential Domestic Risks
- 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

- Deterioration of security conditions. Spillovers from crises in the region and domestic terrorist attacks could worsen security, and give rise to financing pressures.
  - Likelihood/Time Horizon: Low / Short term
  - Expected Impact on Economy: Medium — Economic activity would be disrupted. Investor confidence would decline.
  - Policy Response:
    - Formulate credible medium-term fiscal path to support investor confidence

- 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 and risk premia, and asset repricing amid economic slowdowns and policy shifts trigger insolvencies in countries with weak banks or non-bank financial institutions, causing market dislocations and adverse cross-border spillovers.
  - Likelihood/Time Horizon: Medium / Short Term
  - Expected Impact on Economy: Medium — Lower availability of external commercial loans; 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 disrupt trade (e.g., energy, food, tourism, and/or critical supply chain components), remittances, FDI and financial flows, and payment systems, and lead to refugee flows.
  - 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. A succession of supply disruptions (e.g., due to conflicts, uncertainty, and export restrictions) and demand fluctuations causes recurrent commodity price volatility, external and fiscal pressures in EMDEs, contagion effects, and social and economic instability.
  - Likelihood/Time Horizon: High / 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. 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.
  - Policy Response:
    - Provide targeted fiscal support to vulnerable households
    - Formulate credible medium-term fiscal path to support investor confidence
    - Adjust monetary policy in view of the inflationary pressure

- Abrupt global slowdown or recession. Global and idiosyncratic risk factors combine to cause a synchronized sharp growth downturn, with recessions in some countries, adverse spillovers through trade and financial channels, and market fragmentation causing sudden stops in EMDEs.
  - 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

- Cyber threats. Cyberattacks on physical or digital infrastructure (including digital currency and crypto assets ecosystems) or misuse of AI technologies trigger financial and economic instability.
  - Likelihood/Time Horizon: Medium / Short to Medium Term
  - Expected Impact on Economy: Low — It could disrupt economic activities, and put financial stability at risk, although the financial sector is 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 Methodology and Interpretation
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent).
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.
- “Short term” and “medium term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

*Source: Annex I. Risk Assessment Matrix*

### 1.  Macroeconomic developments have been favorable, but there are near-term

### 1.  Macroeconomic developments have been favorable, but there are near-term

### Economic developments and outlook
- GDP growth: strong outturn in the second half of FY22/23 helped achieve 5.2 percent annual growth in FY22/23 (up from 4.6 percent in FY21/22). Projection for FY23/24 unchanged at 6 percent. Over the medium term, annual growth expected to lift above 6 percent due to investment in oil-related infrastructure, the energy sector and transport, recovery in manufacturing and construction, stronger external demand, and reform implementation.
- Risks: uncertainty around the duration and impact of the war in Ukraine and the conflict in Gaza and Israel; unfavorable weather conditions; lower global growth; lower capital inflows; tight global financial conditions — all could weigh on near-term recovery and poverty alleviation.
- High-frequency indicators: Purchasing Manager’s Index was 54.8 in December 2023 (breakeven value 50). Composite Index of Economic Activity increased by 6.5 percent y-o-y in November 2023. New orders, purchases, and rising employment supportive of steady growth.
- External environment: elevated prices of imported fuel and high interest rates abroad and at home contributing to rising financing costs.

### Inflation and monetary conditions
- Headline inflation: 2.8 percent in January 2024.
- Core inflation: 2.4 percent in January 2024; food inflation 2.6 percent.
- Expectation: core inflation expected to remain below the central bank’s target of 5 percent in the near term and converge to the target over the medium term.
- BoU policy actions: policy rate increased by a cumulative 350 bps between July 2022 and October 2022 to 10 percent; reserve requirements tightened, resulting in an interbank rate 200 bps above the policy rate. BoU reduced both the policy rate and the reserve requirement ratio by 50 basis points each in August 2023 and has held both constant since.
- Interbank rate: 7-day interbank rate eased to 10.6 percent in December 2023 from a peak of 12.1 percent in February 2023.
- Private sector credit: grew by 8.1 percent in December 2023 (y-o-y), below the pre-pandemic average of 12 percent.

### External sector and reserves
- Current account: showed improvement in the first three quarters of 2023, reflecting increased export revenues in excess of the increase in import expenditure and a strong rebound in tourism; overall deficit remains elevated.
- Foreign direct investment: strong, mostly reflecting oil-related investment.
- Foreign holdings of domestic debt: yet to recover; other investment flows constrained in 2023Q3 due to tight global financial conditions.
- FX reserves: US$3.7 billion in December 2023.
- Constraint: limited portfolio inflows and elevated government debt service continue to put pressure on further FX reserves accumulation.

### Banking sector and financial soundness
- Profitability: return on assets rose from 2.8 percent in September 2022 to 3.1 percent in September 2023.
- Paid-up capital compliance: as of end-September 2023, 18 out of 25 banks complied with the new paid-up capital requirement of UGX 120 billion. Remaining seven banks represent 5.1 percent of banking sector assets; three applied to downgrade to Tier II license, three onboarding a new shareholder, one pursuing shareholders for recapitalization.
- Capital adequacy: Tier I capital to risk-weighted assets 24.1 percent in September 2023 (minimum prudential requirement 10 percent).
- Liquidity Coverage Ratio (LCR): increased from 185 to 268 percent over the year to September 2023; all banks above prudential minimum LCR of 100 percent.
- Non-performing loans (NPLs): aggregate NPL ratio 5.3 percent in September 2023; specific provisions-to-NPLs increased from 44.8 to 45.6 percent.

### Fiscal outturn FY22/23
- Fiscal deficit: 5.5 percent of GDP in FY22/23, higher than the 5.1 target agreed at the time of the 4th review.
- Drivers of larger deficit: higher current spending and lower grants, partially offset by higher tax revenues and lower capital expenditures.
- Specific increased spending needs: (i) increase in pensions and gratuities following ongoing audit and digitalization of records; (ii) financial support for two ailing state-owned companies; (iii) classified expenditures; (iv) co-financing for WB projects for local government (UGIFT and USMID).
- Financing difficulty consequences: postponed planned repayment of BoU advances (originally planned for FY22/23) to the current and next fiscal years due to delay in drawing SDRs and shortfall in commercial loans.

### Program performance (quantitative and structural targets)
- End-June 2023: met six of ten indicative targets (ITs) — met floors on net international reserves (NIR), social spending and tax revenues; met ceiling on present value (PV) of newly contracted external public and publicly guaranteed (PPG) debt; met inflation, repayment of domestic arrears and non-accumulation of external arrears. Missed ITs: primary budget balance adjusted for lower-than-anticipated project loans, BoU net credit to the government (NCG), and support to vulnerable households.
- End-September 2023: met all six Quantitative Performance Criteria (QPCs) — PV of newly contracted external PPG debt, net international reserves, primary fiscal balance, inflation, NCG and external arrears. Missed ITs: social spending, support to vulnerable households, and tax revenues.
- End-December 2023: missed IT on NIR (preliminary assessment) but met ITs on NCG and core inflation.
- Structural benchmarks (SBs) status (June–December 2023): out of seven SBs with test dates between June and December 2023:
  - Met ahead of the fourth review: development of a financial inclusion module in the Parish Development Management Information System; publication of decisions arising from investigations that led to sanctions.
  - Met on time: publication of two reports related to objectives of the National Anti-Corruption Strategy; finalizing entries of learners’ data into EMIS and publication of diagnostics by local government.
  - Implemented with delay: issuing a resolution on ownership structure for data collected by the Central Data Hub as prerequisite for use of Credit Registration Bureau.
  - In progress: adopting amendments to the Financial Institutions Regulations.
  - Missed: SB on the BoU Act amendment; instead implemented a prior action (PA) for completion of the 5th review.

### Fiscal policy and debt management (policy framework and measures)
- FY23/24 fiscal consolidation target: headline deficit of 3.8 percent.
- Fiscal deficit reduction: expected to decline by 1.7 percentage points of GDP as envisaged in the 4th review, though starting from a higher base.
- Revenue measures: tax exemptions rationalization and administrative measures agreed during the 4th review being implemented; expected increase in tax revenue/GDP ratio of 0.6 percentage points relative to FY22/23, in line with Domestic Revenue Mobilization Strategy (DRMS).
- Current expenditure: will decrease as a share of GDP relative to FY22/23 while maintaining share of social spending at 21.2 percent of total expenditure.
- One-off spending allowance: permit increase of UGX 300 bn in non-wage primary recurrent spending relative to FY22/23 to include one-off spending on two national projects (population census, UGX 343 bn; renewal of national IDs, UGX 367 bn).
- Domestically financed development spending: plan to increase measured as percent of GDP relative to the framework agreed during the 4th review.

### Contingent fiscal measures and safeguards (PA for completion of 5th review)
- Additional expenditure measures if underperformance occurs:
  - freeze planned recruitments in FY23/24 for all MDAs except health and education;
  - reduce expenditure of government officials on travel abroad, inland (monitoring and evaluation), training and consultancy;
  - slow down execution of non-priority capital expenditure;
  - delay recapitalization of extra-budgetary institutions, such as the Uganda Development Corporation and the Uganda Development Bank.
- Supplementary budget process: for any supplementary budget for FY23/24, the government will share an assessment of cost, financing sources and debt impact, revenue measures and relevant data with IMF staff ahead of adoption by Parliament (new continuous structural benchmark).

### Revenue administration, tax expenditures, and DRMS reforms
- DRMS: review conducted; medium-term revenue strategy continuously updated and costed; considering making DRMS a rolling strategy.
- Tax administration reforms: enhance income tax system, improve excise duty regime, strengthen VAT productivity; increase taxpayer registrations; improve tax administration processes and payment systems; enhance voluntary compliance; improve arrears management.
- Operational actions: step up implementation of the new e-tax system; lower backlog of unpaid VAT refunds; move aggressively to reduce tax arrears and prevent further accumulation; formulate a compliance improvement plan for the large taxpayers’ office (SB, end-March 2024); seek TA to strengthen customs administration of the extractive industries sector ahead of oil production; procure the Integrated Tax Administration System.
- Tax expenditure (TE) rationalization: adopted tax expenditure rationalization framework; progress on TE reporting with benchmarks and inventories for each major tax category and regular annual TE reports since 2015/16. Implementing recommendations on four fronts:
  - (i) institutional arrangements and capacity to assess and evaluate TEs, including a new fiscal governance framework for TE;
  - (ii) reviewing and rationalizing TEs on direct income;
  - (iii) ceasing granting discretionary provisions under the tax procedures code;
  - (iv) rationalizing costliest and most inefficient TEs under VAT and excise taxes.
- Specific reform priorities:
  - require all companies receiving tax incentives to file complete annual tax returns;
  - tax non-business capital gains (or enforce stamp duty on company share trades);
  - tax gambling, and tourism outside of Kampala, and narrow broad exemptions for agriculture/raw foods;
  - align benchmark system for calculating excise TEs with prices that fully reflect the social cost of excisable goods and services and rationalize excise tax rates toward those prices.
- Policy instruments: announced sunset clauses on some TEs and will accompany with cost-benefit analysis to assess impact on growth, exports, and import-substitution strategy.

### Social spending and support to vulnerable groups
- Priority social spending: committed to keeping share of social spending at 21.2 percent in FY23/24 and increase to 21.5 percent in FY24/25.
- Absorptive capacity constraints: released funds for social spending have not been deployed timely, contributing to missed ITs in September 2022, March 2023, and September 2023.
- Capacity support: will conduct diagnostics and, if needed, seek IMF TA to improve capacity (e.g., fiscal federalism/devolution) to improve sub-national governments’ ability to use appropriated funds.
- Education data: finalized registration of all primary and secondary schools’ learners’ data into EMIS and published diagnostics by local governments (SB, end-December 2023). Plan to expand EMIS coverage to include teachers in public schools countrywide and issue a report showing pupil-teacher ratios by district (SB, end-April 2024).
- Support to vulnerable households: expanding national identification database and unified national registry of all social assistance programs. Under 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 individual benefit to the higher cost of living. Ministry of Gender to submit information on arrears to beneficiaries from previous years for verification and inclusion in the stock for clearance.

### Parish Development Model (PDM) implementation
- PDM objectives: strategy for organizing and delivering public and private sector interventions to boost income and welfare.
- FY22/23 achievements (first phase):
  - 10,585 SACCOs established and fully capitalized (out of 10,594 parishes: 10,585 parishes = 99 percent).
  - Full dedicated revolving fund of 100 million shillings per SACCO disbursed as of end-June 2023.
  - About 877 billion shillings in loans disbursed (83 percent of target).
  - Reached 880,000 households (88 percent of targeted beneficiaries).
- District progress example: Kisoro and Kumi districts disbursed funds to all targeted beneficiaries through the PDM Information System.

*Source: 1ugaea2024001 - 1.  Macroeconomic developments have been favorable, but there are near-term*

### 19. Strengthening public financial management continues to be a central part of our

### 19. Strengthening public financial management continues to be a central part of our

### Public Financial Management — Six main axes
- Improving the budget preparation process
  - Ensure ministries, departments and agencies submit all foreseeable expenditures and avoid issuance of supplementary budgets except for unforeseeable shocks.
  - For FY24/25 budget: review undertaken to identify baseline costs and critical expenditures required to meet current government obligations and commitments.
  - Exceptional supplementary budgets will be costed, financing sources identified, and debt impact assessed and shared with the IMF before adoption.
  - Auditor General conducted a special audit to remove ghost employees from the payroll and identify areas of indiscipline by Accounting Officers; report finalized in December 2023 and will form the basis for a strategy to improve payroll systems and budgeting.
- Reducing the outstanding stock of domestic arrears
  - Limit accumulation of domestic arrears to penalties and fees imposed by courts and verification of old arrears.
  - Continue to make provisions for clearance of domestic arrears in the current and subsequent fiscal years; clearance constrained by availability of financial resources.
  - Prioritize arrear payments: pensions, salaries, utilities, rent, and payments for provision of goods and services, adhering to the "first in, first out” principle.
  - As of end-June 2023, total validated arrears stood at 2.7 trillion UGX (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 captured on Integrated Financial Management System (IFMS); support provided to complete recording and verification of historical arrears and their payment through IFMS on an annual basis.
  - Implemented a form to document verified arrears at fiscal-year conclusion; any arrear payments must be associated with previously recorded and approved arrears.
- Strengthening cash management
  - Finalized and approved the Cash Management Framework (PA for the completion of the 5th review).
  - Obtained IMF TA to support cash management reforms including:
    i. Extension of the Treasury Single Account (TSA) to all remaining extra budgetary units and agencies: TSA converted to a traditional TSA with central payments and no sub-accounts. All local governments (LGs) included in IFMS and TSA arrangements. At least one Extrabudgetary Unit (EBU) included in IFMS and TSA. Pilot for incorporation of remaining Externally Funded Projects (EFPs) and EBUs expected in July 2024; final roll-out for all EFPs and EBUs expected by July 2025.
    ii. Operationalization of an online module for reporting spending projections: Program Budgeting System online module developed for Central Government, tested with major spending ministries/agencies and awaits full roll out in FY23/24. Local government model development underway but requires additional funding and training.
    iii. Preparation of an aggregate borrowing plan considering consolidated cash position within and outside the TSA by FY23/24: draft aggregate borrowing plan for FY2023/24 prepared; final plan to be produced after Parliamentary appropriation for FY2024/25. Technical committee convened by the PS/ST to assess practicability of implementing IMF TA recommendations.
- Strengthening performance, accounting, and utilization of fixed and financial assets
  - Stepping up transition from modified to full accrual accounting.
  - Pre-feasibility study suggests funding must be secured for Accrual Accounting and Asset Management project to stretch uninterrupted for the next 5 years.
  - Main interventions: (i) develop and deploy Integrated Government Assets Management Information System; (ii) enhance IFMIS and ICT infrastructure requirements to support migration to accrual IPSAS basis in all ministries; (iii) enhance institutional capacity in asset and liability management; (iv) training.
- Improving public investment management
  - Implement PIMA 2022 reform priorities: i) integrate multi-year commitment process into mainstream budget review and improve IT system interfaces; ii) ensure predictable budget releases for investment projects by enhancing realism of annual Budget and MTEF and instituting active cash management; iii) strengthen investment portfolio monitoring to be forward-looking and based on explicit project baselines; iv) identify projects at risk and required remedial actions with focus on major projects; v) strengthen policy framework including a new National Public Investment Management Policy currently under consideration by Cabinet.
- Implementing new debt and public investment financing strategies
  - Debt projected to remain sustainable and is currently at a moderate risk of debt distress.
  - Efforts to broaden potential creditors and financing sources, particularly for concessional funding.
  - Introduced a Public Investment Finance Strategy to support commitment to seek additional donor financing.
  - Key elements: establishment of the Project Preparation Fund financed by Government resources and allocation of institutional responsibilities.
  - Finalizing the third five-year Public Debt and Financial Liabilities Management Framework FY23/24–FY28/29 including debt management principles, thresholds and benchmarks emphasizing sustainability, risk management, financing source diversification, and heightened transparency and accountability.

### Monetary and Exchange Rate Policies
- Inflation targeting and monetary policy
  - BoU committed to achieving the inflation target over the medium term.
  - Monitor inflation developments closely and stand ready to adjust the policy rate as needed.
  - Headline inflation decelerated and core inflation is below the 5 percent target and projected to remain below target in the near term.
  - Monetary Policy Consultation Clause remains a key pillar of the program.
  - Build forecasting and policy analysis capacity: developed a suite of models, refining output gap estimates, upgrading high frequency indicators, establishing partnerships with other central banks for an inflation expectation questionnaire, and collaborating with the IMF to evaluate monetary policy transmission using micro-level data; strengthen external communication including through IMF TA.
- Reserves and exchange rate flexibility
  - Committed to maintaining reserve cover at an adequate level and strengthening it over time.
  - Goal: reach reserves coverage of 4 months of next year’s imports of goods and services (excluding oil project related imports) by the end of the program (June 2024).
  - Continue fiscal consolidation and exchange rate flexibility; medium-term aim to strengthen reserve coverage to the East Africa Community’s target of 4.5 months.
  - Ensure continued exchange rate flexibility: committed to market-determined exchange rate and have stayed away from FX intervention since May 2022.
  - Following World Bank announcement on the Anti-Homosexuality Act, despite temporary market volatility, did not intervene in FX market.
  - Continue limiting FX interventions, reducing government imports financed by FX reserves, and step-up FX purchases to build reserves as market conditions permit.

### Financial Sector Policies
- Macroprudential regulation and Basel implementation
  - Strengthening macroprudential regulation is a key priority.
  - BoU fully implemented BASEL II principles and several aspects of BASEL III.
  - Implemented systemic risk buffer for systemically important domestic banks, capital conservation buffer, countercyclical capital buffer, and leverage ratio as regulatory requirements since January 1, 2022.
  - Liquidity coverage ratio and net stable funding ratio (NSFR) included in Financial Institutions (Liquidity) Regulations 2023 gazetted in August 2023.
  - BoU issued guidelines on supervisory review process and minimum disclosure requirements under Pillar 3.
- Supervisory and governance reforms — priorities
  - Adopt amendments to the Financial Institutions (Corporate Governance) Regulations in line with Basel Committee guidelines (SB, end-December 2023).
  - Enhance AML/CFT risk-based supervision for banks, forex bureaus, money remitters and other higher risk sectors:
    - New RBS manual and risk matrix developed; BoU running a pilot for supervision based on new RBS manual and operationalizing enhancements in the manual and Project Charter.
    - Since June 2023: three onsite inspections of higher-risk banks, five forex bureaus and money remitters, and four follow-up examinations, resulting in two enforcement actions on banks.
    - Issued three circulars on beneficial ownership obligations, application of targeted financial sanctions, and common AML/CFT deficiencies.
    - Hired four new supervisory personnel in the AML unit with specialized AML/CFT expertise; will continue increasing staffing and redeploy qualified supervisory staff from Non-Bank Financial Institutions Division to the AML unit.
- Strengthening banks’ resilience
  - Financial Institutions (Liquidity) Regulations (August 2023) updated list of eligible liquid assets and specified liquidity management framework requirements including liquidity management strategy, contingency plan and stress testing requirements.
  - Commit to issuing guidelines on requirements, computation and treatment of liquidity coverage ratio and net stable funding ratio, and guidance on bi-annual Internal Liquidity Adequacy Assessment Process.
  - Maintain Emergency Liquidity Assistance facility at the BoU as Lender of Last Resort for SFIs (established May 2022); none of the banking institutions has used the window so far.
  - Strengthen stress testing capabilities with IMF TA: developed an FX liquidity stress testing model focused on liquidity linkages across sectors; model used to simulate a deposit run scenario and training provided. Compiling data to support FX stress tests and address information gaps for wider FX stress testing including households and non-financial corporates.
  - Scrutinize sovereign‑bank nexus and corporate and household balance sheets to gauge credit and concentration risks. As of September 2023, banking sector's exposure to government debt amounted to 29.8 percent of total assets, compared to 27 percent in September 2022. Risk of sovereign exposure remains low as most securities are "Held-to-Maturity" and are highly liquid.
  - BoU will review and strengthen systemic risk surveillance framework using dashboard indicators covering financial markets, financial institutions, payment systems and the real economy, and build indices including the banking pressure index, the stress index, and the vulnerability index.

### Structural Reforms
- Focus on generating higher and more inclusive growth by facilitating private sector activity and enhancing human capital development.
- Priority to reverse decline in private investment under NDPIII; NDPIII objectives unchanged but implementation delayed due to COVID-19 and global disruptions.
- Continue implementation of reforms in health and education, pursue governance reforms, reduce cost of doing business, and foster financial inclusion to unlock private sector activity.

### Governance and Anti-Corruption
- Strengthening BoU governance
  - Missed SB requiring Parliamentary adoption of BoU Act Amendments reprogrammed from September 2022.
  - In consultation with IMF staff, adopted PFM regulations including comprehensive definition of BoU advances inclusive of redemption of government securities (PA for the completion of the 5th review).
  - Remain committed to amending the BoU Act at a future date to address weaknesses from the 2021 safeguards assessment.
- Asset declaration transparency
  - Publish compliance statistics and applications to access declarations on the Inspectorate of Government’s website annually.
  - Publish information on individual sanctions imposed when adjudication decisions are made by the Leadership Code Tribunal (LCT) semi‑annually.
  - Published three annual reports for FY20/21, FY21/22, and FY22/23 on the LCT web site.
  - LCT expeditiously processed 27 cases received from the IG in FY22/23; reports include nature of breaches, penalties and names of public officers in breach of asset declaration requirement.
  - Plan to engage relevant government agencies and the public to raise awareness and comprehension of the LCT's function and mandate.
- Anti-corruption efforts
  - Step-up efforts in line with National Anti-Corruption Strategy (NACS 2019–2024).
  - Directorate of Ethics completed and published (i) an assessment report against agreed indicators and targets, and (ii) the annual report for FY22/23 on prevalence of corruption and anti-corruption efforts (SB, end-November 2023).
  - Reports note Uganda’s institutional and legal anti-corruption framework is strong but implementation needs strengthening.
  - Plan to leverage civil society and citizens to identify and report corruption, increase uptake of automation and e-services at URA, local governments and in public recruitment and procurement, and establish formal engagement mechanisms with CSOs and subnational communities.

### Extractives and Transparency
- Implementing EITI commitments joined 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.
- Second EITI report (FY20/21) published in June 2023 covering payments by extractive entities and revenues received by government agencies.
- Reconciliation of payment flows resulted in an unexplained discrepancy of 0.3 percent of total.
- Identified data gaps to be addressed under new legal regime strengthening mining sector regulation.

### Financial Integrity and AML/CFT
- Continue efforts to exit FATF grey-list and demonstrate sustained implementation of AML/CFT measures.
- As of September 2023, successfully completed action plan with the FATF.
- Measures taken: enforce legal persons’ beneficial ownership declaration obligations, enable competent authorities’ direct online access to this information, and maintain information accuracy.
- Conducted training courses for financial institutions, designated non-financial businesses and professions, and competent authorities on targeted financial sanctions obligations and strengthened financial investigations.
- Published second National Risk Assessment in May 2023 and a risk assessment of the non-profit organization sector in August 2023.
- December 2023 onsite visit by the FATF confirmed high-level political commitment to sustain reforms and continue strengthening AML/CFT system, a crucial step towards exiting the grey-list in 2024.

*Source: 1ugaea2024001 - 19. Strengthening public financial management continues to be a central part of our*

### 31. We are continuing to ensure timely access and accuracy of beneficial ownership

### 1ugaea2024001 - 31. We are continuing to ensure timely access and accuracy of beneficial ownership

### Beneficial ownership registry and company compliance
- The Uganda Registration Services Bureau enabled competent authorities’ real-time access to the beneficial ownership registry in July 2023 while continuing to respond to manual information requests.
- Ongoing reviews resulted in striking off 298,572 non-compliant or inactive companies as of August 2023.
- Beneficial ownership information is now available for over 98 percent of companies on the register.
- The authorities will continue implementation of these measures and aim to be compliant soon.

### AML/CFT supervisory sanctions and governance
- Plans to adopt supervisory sanctions for non-compliance with AML/CFT requirements by banks under the Anti-Money Laundering (Amendment) Regulations 2023 (SB, end-March 2024) have been postponed.
- An IMF TA in August 2023 identified inconsistencies between the Anti-Money Laundering Act and the implementing regulations; recommended revising the Regulations before developing implementing policies and procedures for supervisory sanctions.
- An MoU between the BoU and the Financial Intelligence Authority outlining respective responsibilities for sanctioning procedures for non-compliance with AML/CFT requirements has been adopted to guide interim arrangements.

### Financial inclusion: National Financial Inclusion Strategy II priorities and measures
- Reduce financial exclusion and access barriers:
  - Establish more physical access points in underserved areas.
  - Promote uptake of digital financial services.
  - Create an enabling environment through effective policy and efficient financial infrastructure to foster growth of formal accounts.
- Deepen and broaden usage of quality, affordable formal financial services:
  - Provide subsidized credit through existing (e.g., Agricultural Credit Facility and the Emyooga program) and new credit facilities.
  - Advance customer-centric business models and products.
  - Increase usage of alternative collateral arrangements.
  - Develop efficient credit information markets.
- Promote gender inclusive finance:
  - Develop and implement gender-sensitive regulations and policies.
  - Offer tailored financial training and services.
  - Address socio-cultural barriers.
  - Collect gender-disaggregated data for monitoring progress.
- Develop an inclusive green finance market:
  - Enhance awareness of green finance among financial service providers, industry stakeholders, and consumers.
  - Promote uptake and usage of green finance products.
- Modernize financial infrastructure:
  - Improve financial institutions’ data sharing infrastructure for credit.
  - Allow financial institutions to accept movable collateral for lending.
  - Implement a deep dive assessment of the movable asset-based lending market with special focus on women, youth, and farmers to uncover supply-side and demand-side challenges.
  - Defined ownership structure of data collected by Central Data Hub to which the CRBs will submit credit information; new structure approved by the Board in January 2024.
  - Encourage Tier 4 micro financial institutions to utilize CRB data to lower microcredit lending rates.
- Promote digital finance:
  - Digitalize government-to-person payments.
  - Strengthen consumer empowerment and confidence in digital financial services.
  - Launch a national payment switch to improve efficiency and reduce costs.
  - Operationalize a BoU platform, with requisite safeguards, enabling purchase of government securities with mobile money using a unitized treasury-linked fund model (SB, end-April 2024). The model can distribute income daily, allowing investors to pull out investments at any time.
  - Utilize digital platforms to facilitate registration, licensing, and regulation of Tier 4 micro financial institutions.
- Strengthen consumer protection:
  - Implement a comprehensive consumer protection legal framework.
  - Design the third strategy for financial literacy (2025–29).
  - Implement cybersecurity guidelines for Payment Service Providers outlining minimum requirements SFIs shall benchmark against in developing their cyber risk management frameworks (SB, end-April 2024).

### Climate resilience and public investment planning
- Climate priorities and targets:
  - Increase forest coverage from 14 percent to 21 percent by 2030.
  - Expand renewable energy generation capacity to achieve at least 3,200 MW of renewable electricity generation by 2030.
  - Updated Nationally Determined Contributions with an expanded adaptation component.
  - Accredited 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 sector vulnerabilities identified: agriculture, water, infrastructure, and energy.
- Strengthening fiscal climate risk management and public investment:
  - IMF TA enabled integration of fiscal risks analysis and disclosure into budgeting and public investment.
  - Climate public investment management assessment (C-PIMA) highlighted significant strengths in institutional PIM design from reforms since 2015; actions underway to strengthen effectiveness and impact.
  - Planned actions (in line with recommendations):
    - Update project appraisal and selection framework to include analysis of climate change impacts for both traditionally procured and PPP projects.
    - Strengthen information on climate-related spending by reviewing tagging structure to ensure budget codes properly identify climate-related current and development expenditure.
    - Pool information on natural hazards across sectors.
    - Develop an asset register to determine risks to public infrastructure and inform disaster risk management strategy development.

### Other program modalities, safeguards, and statistics
- Safeguards and central bank governance:
  - Continued implementation of recommendations from the 2021 safeguards assessments; two recommendations closed (revising investment policy and guidelines; follow-up of Internal Audit recommendations).
  - Due to high currency printing costs, Statistics Department report led to decision to replace UGX1000 banknotes with coins; a roadmap was approved.
  - Will request TA to review and revise the mechanism for distinguishing realized and unrealized gains/losses.
  - New BoU Board took office in July 2023; will review and approve proposed amendments to the Audit and Governance Committee of the Board Charter to require membership of only independent Board members as per Board resolution.
  - Internal Audit continues periodic reviews of program monetary data submitted to the IMF per the Technical Memorandum of Understanding.
- Statistics improvements and census preparation:
  - Continue strengthening timeliness and accuracy of national accounts and government finance statistics; develop institutional sector accounts and higher frequency GDP indicators.
  - Population census scheduled for May 10, 2024; mapping exercise underway to update boundaries, facilities, features, and households to establish enumeration areas with community leaders’ help.
  - Aligning Balance of Payments with National Accounts by unifying definitions, extending labor survey to quarterly frequency reporting, mapping forests, wetlands, and land use to feed into the Sustainable Development Goals.

### Key quantitative program figures and performance criteria (selected)
- Strike-off of non-compliant or inactive companies: 298,572 (as of August 2023).
- Beneficial ownership coverage on register: over 98 percent.
- Renewable electricity generation capacity target: at least 3,200 MW by 2030.
- Forest coverage target: increase from 14 percent to 21 percent by 2030.
- Population census date: May 10, 2024.
- BoU Board assumption of office: July 2023.
- Examples from Table 1: Primary budget balance and related status entries (selected exactly as presented):
  - -3,435 -1,783 -4,108 Not met -2,067 -1,798 1,459 Met -2,740 -1,913 -2,112
  - Net claims on the government by the central bank (ceiling) 1/ -1,185 1,957 Not met 2,815 -1,276 Met 1,877 520 Met 806 662
  - Stock of net international reserves (floor, in millions of US$) 2/ 2,503 2,055 2,859 Met 2,687 2,685 2,689 Met 2,794 2,518 Not met* 2,844 2,725
  - PV of newly contracted external public and publicly guaranteed debt (ceiling, millions of US$) 1/ 2,319 1,352 Met 3,522 453 Met 3,522 3,522 3,522
  - Core inflation target 3/ 57.4 Met 56.4 Met 54.7 Met 55
  - Support to vulnerable households (floor, billions of USh) 1/ 226 226 221 Not met 8130 Not met 163 191 191
  - Social spending (floor, billions of USh) 1/ 4/ 6,847 6,850 Met 1,849 1,365 Not met 3,698 5,376 5,002
  - Tax revenues (floor, in billions of USh) 1/ 23,458 23,733 Met 6,149 5,622 Not met 13,288 19,949 19,177
  - Repayment of outstanding domestic arrears (floor, in billions of USh) 1/ 662 769 Met 100 100.4 Met 200 206 216
- Selected structural benchmarks and statuses (from Tables 2 and 3, preserving deadlines and statuses):
  - Develop a financial inclusion module in the Parish Development Management information system (PDMIS) to track access to revolving funds by targeted vulnerable households — End-June 2023 — Met.
  - Publish on the MOFPED website decisions arising from investigations that led to sanctions for period starting from FY 2020/21 onwards — End-June 2023 — Met.
  - Issue a resolution by the BoU Board Committee on the ownership structure for data collected by the Central Data Hub — End-October 2023 — Not met (Completed with a delay (January 2024)).
  - Parliamentary adoption of the BoU Act Amendments (reprogrammed from September 2022) — End-October 2023 — Not met (Reformulated and elevated as a prior action).
  - Directorate for Ethics and Integrity to publish assessment and annual report related to NACS 2019-2024 — End-November 2023 — Met.
  - Adopt amendments to the Financial Institutions (Corporate Governance) Regulations — End-December 2023 — Not met (In progress).
  - Finalize entries of learners' data into EMIS and publish diagnostics — End-December 2023 — Met.
  - Formulate a compliance improvement plan for the large taxpayer office (LTO) — End-March 2024 — On track.
  - BoU to formulate policies and procedures to guide implementation of supervisory sanctioning power under Anti-Money Laundering (Amendment) Regulations 2023 — End-March 2024 — Fund staff proposes to drop this SB (An IMF TA identified inconsistencies).
  - Operationalize BoU platform to enable purchase of government securities using mobile money — End-April 2024 — In progress (Procurement completed in June; system development started).
  - Develop and implement cybersecurity guidelines for financial services — End-April 2024 — On track (Draft reviewed internally in October 2023; to be sent to MCM department).
  - Expand coverage of the EMIS to include teachers and issue pupil-teacher ratio report — End-April 2024 — On track.
- Cash Management and fiscal prior actions:
  - Adopted necessary PFM regulations on February 12, 2024 (prior action for completion of 5th review).
  - Identified contingency measures worth 0.5 percent of GDP (prior action for completion of 5th review) including postponing or putting on hold non-priority current and capital spending.
  - Finalized Cash Management Framework on January 22, 2024 (prior action for completion of 5th review).

*Italicized line attributing source provided by the pipeline.*

### 3. The primary balance target will be a floor on the cumulative flows: (i) from July 1, 2021, to

### 1ugaea2024001 - 3. The primary balance target will be a floor on the cumulative flows: (i) from July 1, 2021, to

### Primary balance target: scope and timing
- The primary balance target will be a floor on the cumulative flows for:
  - (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; and
  - (iii) from July 1, 2023, to September 30, 2023, December 31, 2023, March 31, 2024, and June 27, 2024.
- Classification of targets:
  - Floors on primary budget balance for end-March and end-September 2022, end-March and end-September 2023, and end-March 2024 will be quantitative performance criteria under the ECF program.
  - Floors for end-June and end-December 2022 and end-June and end-December 2023 will be indicative targets.

### C. Ceiling on Net Claims on the Government by the Central Bank — background and purpose
- Legal framework and limits:
  - The Government of Uganda (GoU) may receive temporary advances from the Bank of Uganda (BoU) to cover temporary deficiencies of recurrent revenue of up to 10 percent of recurrent revenues over the fiscal year, according to the Amendments to the 2015 PFM Act.
  - The Act requires full repayment within the respective fiscal year.
- Commitments:
  - The GoU has committed to repay the total outstanding advance by FY23/24 in line with the Service Level Agreement (SLA).
- Purpose:
  - The quantitative performance criterion on the ceiling of net claims on the government by the central bank is to define and monitor temporary advances, ensure prompt repayment, reduce the likelihood of bypassing treasury securities issuance, and help avoid monetization of fiscal deficits and inflationary pressures.
  - It also monitors the BoU extended repayment schedule for existing advances.

### C. Definition and measurement of net claims on the government by BoU
- Core definition:
  - Net claims on the government by the BoU is defined as the difference between claims on central government and liabilities to central government, excluding deposits in administered funds (including the petroleum funds, agriculture credit facility and development finance scheme projects), project accounts (both donor and government funded) with the central bank and net recapitalization securities (recapitalization securities provided to the central bank less those used for monetary policy purposes).
- Calculation for program monitoring (based on monetary authorities’ balance sheets as per the DCS):
  - a) Net claims on the government by the BoU = gross claims by BoU on central government minus gross liabilities by BoU to the central government.
  - b) Plus: Deposits in Administered Funds — includes mainly the Agricultural Credit Facility. Use gross deposits in administered funds (Administered Funds (Total deposits held by BoU)).
  - c) Plus: Deposits in the Petroleum Fund — include both UGX and USD accounts.
  - d) Plus: Government Project Deposits — donor project funds transferred to BoU to administer.
  - 9. Minus: Recapitalization Securities — subtract recap securities except those used for monetary purposes (repos) which are already netted out.

### D. Floor on Net International Reserves (NIR) of the Bank of Uganda
- Definition for program monitoring:
  - NIR = reserve assets of the BoU net of short-term external liabilities of the BoU.
  - Reserve assets = external assets readily available to, and controlled by, the BoU; exclude pledged or otherwise encumbered external assets.
  - Short-term external liabilities = liabilities to nonresidents, of original maturities less than one year, contracted by the BoU and include outstanding IMF purchases and loans.
- Valuation and test dates:
  - Reserve assets and short-term liabilities at end of each test period will be calculated in U.S. dollars by converting the stock from their original currency denomination at program exchange rates as set out in Table 1 above.
  - The NIR limit for each test date will be a floor on the NIR stock at the end of each test period.
  - NIR floors for September 2022, March 2023, September 2023 and March 2024 will be quantitative performance criteria under the ECF.
  - Floors for June 2022 and December 2022 and end-June and end-December 2023 will be indicative targets.

### E. Ceiling on External Arrears Incurred or Guaranteed by the Public Sector
- Definition of debt (referenced to Guidelines on Public Debt Conditionality):
  - Debt = a current, i.e., not contingent, liability created under a contractual arrangement through provision of value in assets or services, requiring future payments in assets or services; includes loans, suppliers' credits, and leases (debt measured as present value at lease inception).
  - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt.
- Continuous performance criterion:
  - The ceiling on the accumulation of new external payments arrears is zero.
  - This applies 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 Statistics Department of BoU and Accountant General’s office that have not been paid when due, excluding arrears on obligations subject to rescheduling, disputed debt service obligations and the HIPC-related external arrears to Iraq and Nigeria.
  - For this continuous performance criterion, the government will immediately report to IMF staff any new external arrears it accumulates.

### F. Ceiling on the Present Value of Newly Contracted External Public and Publicly Guaranteed Debt
- Definition and coverage:
  - Public sector comprises central government, state government, local government, social security funds, the central bank, nonfinancial public enterprises and other official sector entities.
  - A debt is considered contracted when all conditions for its entrance into effect have been met, including approval by the government.
  - Contracting of credit lines with no predetermined disbursement schedules or with multiple disbursements will be considered contracting of debt.
- External debt:
  - Any debt contracted or guaranteed by the public sector on concessional and non-concessional terms with nonresidents, excluding nonresidents’ holdings of domestically-issued government securities (covered under NDF).
- Concessionality rules and discounting:
  - A debt is concessional if it includes a grant element of at least 35 percent.
  - Grant element = (nominal value – PV) / nominal value, where PV is calculated by discounting future debt service at the unified discount rate of 5 percent.
  - For debts with grant element equal or below zero, PV = nominal value.
  - For variable-rate debt of the form benchmark plus fixed spread, PV uses a program reference rate plus the fixed spread (in basis points) specified in the debt 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.
  - Spreads specified:
    - The spread of six-month Euro EURIBOR over six-month USD SOFR is -179 basis points.
    - The spread of six-month JPY OIS over six-month USD SOFR is -159 basis points.
    - The spread of six-month GBP SONIA over six-month USD SOFR is -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 other than six-month USD SOFR, a spread reflecting the difference between the benchmark rate and the six-month USD LIBOR (rounded to the nearest 50 bps) will be added.
- Performance criterion:
  - 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 with official guarantees.
  - The quantitative target does not apply to normal import-related commercial debt with maturity less than one year, rescheduling agreements, and IMF disbursements.
  - For this continuous performance criterion, the government will immediately report to IMF staff any new external loans it contracts or guarantees, stating the conditions.

### G. Consultation Mechanism on Inflation
- Inflation bands and monitoring:
  - The quarterly consultation bands for the twelve-month average CCPI (core consumer price index) published by UBOS are specified in the QPC table.
  - Observed CCPI inflation for September 2022, March 2023, September 2023 and March 2024 will be subject to the consultation mechanism.
  - CCPI inflation for June 2022, December 2022, June 2023 and December 2023 will be indicative targets.
- Consultation procedures:
  - 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) 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 linked to such review, until the consultation with the Executive Board has taken place.
  - The BoU will report publicly the reasons for any breach of the outer bands and its policy response, and will conduct discussions with Fund staff when observed average CCPI inflation falls outside the inner band.

### H. Direct Support Programs to Vulnerable Households
- Indicative floor on total social assistance spending to support vulnerable households.
- Included programs:
  - Northern Uganda Social Action Fund (NUSAF), Senior Citizens Grant (SCG), Urban Labor-Intensive Public Works (LIPW), Social Assistance Grants for Empowerment (SAGE), and the EMYOOGA Initiative.
- Verification:
  - Compliance with the indicative floor will be verified on the basis of data on quarterly releases of social assistance spending.

### I. Social Spending
- A floor on total social spending will be set.
- Coverage:
  - All spending in health, education, and social development (excluding external financing).
- Monitoring:
  - Social spending will be monitored on the basis of the monthly government finance statistics.

### J. Tax Revenues
- A floor applies on tax revenue of central government measured cumulatively from the beginning of the fiscal year in July.
- Definition for program monitoring:
  - Tax revenue = sum of direct domestic taxes, indirect domestic taxes, and international trade taxes, as defined by the Government of Uganda’s revenue classification.

### K. Floor on Repayment of Outstanding Domestic Arrears (Indicative Target)
- A floor applies to repayment of outstanding domestic arrears of the central government as an indicative target.
- Timing of the cumulative gross repayment floor:
  - (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; and
  - (iii) from July 1, 2023, to September 30, 2023, December 31, 2023, and March 31, 2024.
- Definitions:
  - Unpaid bill = any verified outstanding payment owed by any entity that forms part of the central government votes for: utilities, rent, employee costs, other recurrent, court awards, compensation, contributions to international organizations, development, taxes, and other deductions.
  - Domestic arrears = total stock of unpaid bills at the end of the year as reported in the annual audit report of the Auditor General.

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

- Schedule excerpts as presented in the source (UGX. billions):
  - Text Table 2. Uganda: Schedule A: Budget Support
    - 2nd-3rd Review Target ActualTargetActual 4th Review Target Actual 4th Review Target Budget support grants58287732803244 Budget support loans3,0411,4154,1282,5150034363 End-Dec 2024 End-Mar 1/ Cumulative flows (i) from July 1, 2022 to end-December 2022, end-March 2023 and end-June 2023; and (ii) from July 1, 2023 to end-September 2023, end-December 2023, and end-March 2024. 2023 End-MarEnd-JunEnd-Sep
  - Text Table 3. Uganda: Schedule B: Recapitalization of the Bank of Uganda
    - 2nd-3rd Review Target ActualTargetActual 4th Review Target Actual 4th Review Target Recapitalization of BoU0000217217217 End-Dec 2024 End-Mar End-Mar 2023 1/ Cumulative flows (i) from July 1, 2022 to end-December 2022, end-March 2023 and end-June 2023; and (ii) from July 1, 2023 to end-September 2023, end-December 2023, and end-March 2024. End-JunEnd-Sep
  - Text Table 4. Uganda: Schedule C: External Financing Tied to Projects (header only in source excerpt)

*Source: 1ugaea2024001 - IMF.*

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

### 1ugaea2024001 - 31. The floor on primary budget balance of the central government will be adjusted upward

### Adjustors for the fiscal program and direct support programs
- The floor on primary budget balance of the central government will be adjusted upward (downward) by the amount by which (both concessional and non-concessional) external financing tied to projects falls short of (exceeds) the projected amounts as set out in Schedule C.
- Any downward adjustment will be capped by 10 percent of the amounts set out in Schedule C.
- The floor on spending under direct support programs to vulnerable households will be adjusted upward (downward) by the amount by which spending under NUSAF and SCG exceeds (falls short of) the projected amounts as set out in Schedule E.

### Monitoring and reporting requirements
- The Government of Uganda will submit information to IMF staff with the frequency and submission time lags as indicated in Table 1; quality and timeliness will be tracked and reported by IMF staff.
- Submission channel: electronic mail to AFRUGA@imf.org.
- Selected reporting frequencies and lags (as specified):
  - Bank of Uganda: operations in the foreign exchange market and level of BoU’s international reserves — Weekly; Submission lag: 5 working days.
  - Bank of Uganda: private sector credit growth by shilling and forex, and excess reserves of commercial banks — Monthly; Submission lag: 5 working days.
  - Bank of Uganda: disaggregated consumer price index — Monthly; Submission lag: 2 weeks.
  - Bank of Uganda: balance sheet of the BoU, consolidated accounts of the commercial banks, and depository corporations’ survey — Monthly; Submission lag: 4 weeks.
  - Bank of Uganda: monthly balances of net foreign assets, net domestic assets, and base money of the BoU — Monthly; Submission lag: 4 weeks.
  - Bank of Uganda: detailed information about recording of the recapitalization of the central bank, and government securities used for monetary purposes — Monthly; Submission lag: 4 weeks.
  - Bank of Uganda: monthly foreign exchange cash flow table — Quarterly; Submission lag: 4 weeks.
  - Bank of Uganda: summary of monthly commodity and direction of trade statistics — Quarterly; Submission lag: 6 weeks.
  - Bank of Uganda: standard off-site bank supervision indicators for deposit money banks — Quarterly; Submission lag: 4 weeks.
  - Bank of Uganda: summary table of preliminary program performance comparing actual outcome with adjusted program targets for (i) net claims on central government by the central bank; (ii) new non concessional external borrowing; and (iii) net international reserves — Quarterly; Submission lag: 4 weeks.
  - Ministry of Finance: summary of central government accounts (cash basis for revenues; expenditures recorded when checks are issued except for specified items; domestic interest on accrual; external debt service on commitment basis) — Monthly; Submission lag: 4 weeks.
  - Ministry of Finance: summary of the stock of arrears by government entities — Semi-annually; Submission lag: 3 months.
  - Ministry of Finance: disbursements, principal and interest, flows of debt rescheduling and debt cancellation, arrears, and committed undisbursed balances—by creditor category — Quarterly; Submission lag: 6 weeks.
  - Ministry of Finance: summary of stock of external debt, external arrears, and committed undisbursed loan balances by creditor — Quarterly; Submission lag: 6 weeks.
  - Ministry of Finance: summary of contingent liabilities of the central government and the BoU — Annual; Submission lag: 6 weeks.
  - Ministry of Finance: provision of all government guarantees — Quarterly; Submission lag: 6 weeks.
  - Ministry of Finance: detailed monthly central government account of disbursed budget support and project grants and loans — Quarterly; Submission lag: 4 weeks.
  - Ministry of Finance: detailed central government account of disbursed donor project support grants and loans — Monthly; Submission lag: 6 weeks.
  - Ministry of Finance: statement on new external loans contracted or guaranteed by the central government and the BoU, and parliament resolutions on any new loans — Quarterly; Submission lag: 6 weeks.
  - Ministry of Finance: statement of (i) cash balances held in project accounts at commercial banks; (ii) total value (measured at issue price) of outstanding government securities from the Central Depository System (CDS); and (iii) the stock of government securities (measured at issue price) held by commercial banks from the CDS — Quarterly; Submission lag: 6 weeks.
  - Ministry of Finance: updated national accounts statistics (real and nominal) according to UBOS and medium-term projections — Quarterly; Submission lag: 12 weeks.
- Note: For program purposes, the budget records domestic interest payments on a cash-basis while this entry will be reported on an accrual basis.

### Anti-corruption transparency and asset declarations
- The Inspectorate of Governance will publish on its website, freely and easily available to the public, information on:
  - 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
  - the semi-annual statistical data relating to applications to access the content of the declarations, by end-November of each year, in the specified tabular formats.
- The Leadership Court Tribunal will publish on its website information on sanctions imposed on leaders found to be in breach of the Leadership Code Act (LCA) and Regulations (LCR), no later than 30 days following the completion of the adjudication process. The publication shall include:
  - the names of public leaders being sanctioned,
  - the sanctioned leader’s respective designation, title or office held,
  - a brief explanation of the nature of breaches against the provisions of the LCA and/or LCR,
  - date of sanction imposed, and
  - the nature of sanction and/or penalty imposed.

### Statement by Ugandan authorities — program overview and recent performance
- Authorities’ view and priorities:
  - The ECF is viewed as a key policy anchor aligned with the Third National Development Plan (2021–2025).
  - Priorities: entrench price stability; maintain fiscal and debt sustainability; strengthen support to vulnerable households; advance structural reforms to enhance resilience and private sector development; ensure inclusive and durable growth.
- Program performance:
  - All Quantitative Performance Criteria (QPCs) for September 2023 and seven out of ten Indicative Targets (ITs) for end-June 2023 were met.
  - Preliminary data for December indicates the IT for net credit to government (NCG) and inflation were met but the IT for net international reserves (NIR) was missed.
  - Five out of seven structural benchmarks (SBs) due between June and December 2023 were met; two were met well-ahead of the deadline, two on time, and one with a delay.
  - One SB (amendment of the Bank of Uganda Act) was transformed into a prior action and has since been met.
  - Three corrective actions were prescribed for the fifth ECF review, including identifying fiscal contingency measures for FY23/24 and finalizing the cash management framework; all prior actions have been met.
- Authorities’ request:
  - In view of satisfactory program performance and corrective measures to address outstanding SBs, the authorities seek Executive Directors’ support in completing the fifth review under the ECF arrangement and associated request for modifications.

### Recent economic developments and outlook
- Growth and inflation:
  - Real GDP: 4.6 percent in 2021/22; 5.2 percent in 2022/23.
  - Growth projected to accelerate to 6 percent in 2023/24.
  - Medium-term growth projection: return to pre-pandemic growth levels of 6 -7 percent.
  - Headline inflation: 10.2 percent in December 2022; 2.4 percent in October 2023; 2.8 percent in January 2024.
- External sector and reserves:
  - Current account deficit: 8.3 percent of GDP in 2022/23.
  - International reserves: declined to 3.1 months of imports in December 2023 (EAC target: 4.5 months of imports).

### Fiscal policy, revenue mobilization and debt management
- Fiscal stance and revenue:
  - Authorities committed to fiscal consolidation to ensure fiscal and debt sustainability.
  - Plan to increase tax revenue/GDP ratio by 0.6 percentage points relative to the previous fiscal year, driven by tax exemptions rationalization and tax administration measures.
  - Plans include improvements to the income tax system, excise duty regime, and strengthened VAT productivity through a medium-term strategy.
  - Continued reliance on Fund TA to enhance customs administration of the extractive industries sector before oil production begins.
- Expenditure prioritization and social spending:
  - Plan to reduce the share of expenditure in GDP compared to FY2022/23 while maintaining the ratio of social spending to total expenditure.
  - Recognize absorptive capacity constraints in social sectors (health and education); plan deeper diagnostics and Fund TA support as needed.
  - Expanding the national identification database and unifying the national registry of all social assistance programs to better target social support.
- Public financial management and arrears:
  - Medium-term fiscal strategy prioritizes strengthening public financial management: improving budget preparation, reducing stock of domestic arrears, and strengthening cash management practices.
  - Cash Management Framework approved and finalized as a prior action for this review.
  - Plans to strengthen performance, accounting, and utilization of fixed and financial assets; and improve public investment management.
- Debt management and financing strategies:
  - Authorities implementing new debt and public investment financing strategies.
  - Introduced a Public Investment Finance Strategy to support additional donor financing.
  - Key element: establishment of the Project Preparation Fund financed by government resources and allocation of institutional responsibilities.

### Monetary and exchange rate policies
- Bank of Uganda objectives and actions:
  - Emphasis on achieving medium-term price stability.
  - Stand ready to make appropriate monetary policy adjustments while adhering to the inflation consultation clause of the ECF program.
  - Tight monetary policy stance contributed to inflation falling below target.
  - Enhancing forecasting and policy analysis system (FPAS) capability.
- Reserves and exchange rate flexibility:
  - Committed to strengthen reserves towards program target of 4 months of import cover.
  - Committed to allow exchange rate flexibility to absorb external shocks; interventions confined to addressing disorderly market conditions.
  - To date, authorities refrained from intervening in the forex market, including after pressures following the Anti-Homosexual Act (AHA) fallout.

### Financial sector policies and AML/CFT progress
- Banking sector resilience:
  - Banking sector demonstrated resilience, with ample capital and liquidity buffers.
  - Authorities attentive to emerging pockets of vulnerabilities and place a high premium on enhancing macroprudential regulation.
  - BoU has fully implemented Basel II principles and some aspects of Basel III.
  - Ongoing supervisory and governance reforms, including new regulations on corporate governance.
  - Strengthening stress testing capabilities with Fund TA; monitoring sovereign-bank nexus and household/corporate balance sheets for credit and concentration risks.
- AML/CFT and FATF status:
  - Authorities completed actions under FATF’s International Cooperation Review Group action plan; Uganda exited the FATF grey list in February 2024.
  - Continued efforts to further strengthen the AML/CFT regime.

### Structural reforms, governance, and climate
- Structural reform priorities:
  - Focus on private sector participation, human capital development, governance reforms, and anti-corruption measures.
  - Strengthen Bank of Uganda’s governance and autonomy.
  - Enhance transparency in asset declaration regime and improve public trust.
  - Commitment to Extractive Industries Transparency Initiative (EITI): disclose contracts and licenses for oil and gas production and beneficial owners; released second EITI report in June 2023.
- Financial inclusion and digital finance:
  - National Financial Inclusion Strategy II focus areas: reducing financial exclusion and barriers to access; deeper usage of quality and affordable formal financial services; promoting gender inclusive finance.
  - Promote green finance awareness and modernize financial infrastructure: established a Central Data Hub for credit information, digitalizing government-to-person payments, and launching a national payments switch.
- Climate adaptation and fiscal risks:
  - Expanded adaptation component of Nationally Determined Contributions; working with development partners to secure additional funding after accreditation with the Green Climate Fund and Adaptation Fund.
  - With Fund TA, now able to integrate fiscal risks analysis and disclosure into budgeting and public investment.

### Conclusion and authorities’ request
- Authorities remain committed to program objectives to ensure macroeconomic stability, support sustainable growth, and an inclusive recovery.
- Authorities appreciate Fund policy and technical support and request Executive Directors’ support in completion of the fifth review under the ECF arrangement.

*Source: 1ugaea2024001 - 31. The floor on primary budget balance of the central government will be adjusted upward*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1ugaea2024001.pdf_