## _cr08236 ## Source details **Canonical URL:** [_cr08236](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08236.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08236.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08236.pdf.json) --- ### Executive Summary: completion recommendation and program status - Staff recommends completion of the third review. - All end-December 2007 assessment criteria were met. - Staff supports the authorities’ request for waivers of nonobservance of four structural assessment criteria for end-May and end-June 2008 related to: - the national identity card system, - nonbank regulation, - the Integrated Personnel and Payroll System, - budget allocation for arrears clearance. - Nonobservance reflects changes in program design from new information and reassessment of costs and priorities that do not compromise program integrity. - Macroeconomic performance remains strong and the growth outlook remains positive. - Starting in 2008/09, authorities plan to scale up domestic investment to alleviate infrastructure bottlenecks; this requires care to ensure value for money and to avoid a concomitant real decline in current spending producing new domestic arrears. - The Bank of Uganda (BoU) faces the challenge of bringing inflation back below 5 percent. ### I. Growth, inflation, and external flows - Growth and national accounts revisions: - Revised estimates show the economy expanded by nearly 10 percent a year over the last three years. - The new estimates show nominal GDP to be some 5 percent higher in 2006/07 than previously reported and real GDP growth 3 percentage points higher. - Inflation: - Rising world food and fuel prices pushed core inflation into the double digits for the first time since the mid-1990s. - In April, core inflation increased to nearly 11 percent, with some 2.5 percentage point directly attributable to its tradable food component. - Prices of locally produced and consumed staple foods have been broadly stable reflecting relatively good recent harvests. - Foreign exchange inflows and sterilization: - Foreign exchange inflows intensified in 2007/08. - Much of the inflows were sterilized through open market operations (OMOs), allowing the shilling to appreciate only modestly against the U.S. dollar but depreciate against the Euro and in effective terms. - The use of government securities to mop-up excess liquidity raised the budgetary costs of OMOs by a further ¼ percentage point of GDP in 2007/08. - The base money target was exceeded by 5.4 percent at end-December 2007 due to partial sterilization to avoid a spike in interest rates. ### II. Third review — assessment criteria, targets, and arrears - Assessment criteria outcomes through end-December 2007: - Greater-than-budgeted spending related to CHOGM, purchase of a new presidential jet, and natural disasters was offset by across-the-board cuts in non-priority areas and strong revenue performance. - Earlier-than-programmed repayment of the Bujagali bridge loan and technical delays in budget execution contributed to substantial overperformance on net credit to government. - Strong foreign exchange inflows drove international reserves well above the program floor; the ceiling on net domestic assets of the BoU was comfortably observed. - Financing for the Bujagali hydropower project was secured in December 2007; the related non-concessional guarantee is US$115 million and is within the program ceiling. - The government’s debt strategy was published in December 2007. - Targets not observed or at risk: - The indicative target on the stock of domestic budgetary arrears is not being observed; corrected estimates for 2006/07 show the indicative ceiling was exceeded by a large margin. Partly due to a higher stock of arrears at the beginning of the fiscal year, the December 2007 target is expected to have been exceeded by at least 0.3 percent of GDP. - The indicative target on poverty-related spending was not observed due to delays in recruitment and compliance by spending agencies. - Reasons for nonobservance of four structural criteria with end-May and end-June test dates: - Delay in tender for National ID system due to cost considerations; authorities intend to enhance existing databases instead. - Authorities opted for specialized regulatory agencies rather than a single regulatory body for the non-bank financial sector. - The Integrated Personnel and Payroll System rollout to relevant Ministries is expected by end-January 2009 rather than end-May 2008 due to procurement delays. - The 2008/09 budget allocates U Sh 300 billion for arrears clearance; authorities wish to use this to clear all verified arrears rather than just group (A) arrears, with clearance of pension arrears a priority. ### III. Outlook: growth, public investment, and fiscal stance - Growth and external outlook: - Immediate macroeconomic outlook is positive; economic growth is projected at 8 percent as reconstruction activity in neighboring countries continues to provide an outlet for Ugandan goods. - Projected increase in the oil import bill (of some one percent of GDP) is expected to be comfortably covered by continued strong foreign exchange inflows. - Uganda’s self-sufficiency in food production and occasional net exporter status position the country to benefit from higher global food prices. - Scale-up of public investment: - Authorities plan to scale up domestic investment to address infrastructure bottlenecks. - Cornerstone initiative: upgrade key transport corridors at a cost of some 4 percent of GDP over the next three years; financing through cuts in current spending and higher domestic borrowing and consistent with the government’s debt strategy. - A high share of imported goods and services in road construction would help minimize crowding out of the private sector; Uganda’s comfortable foreign exchange reserves provide cover for additional imports. - The World Bank will work closely with the authorities to facilitate implementation; authorities are also developing Karuma hydropower project to augment electricity supply. - FY 2008/09 budget specifics: - Development spending slated to increase from 3 to 5½ percent of GDP. - Staff welcomes reorientation towards development spending and estimates it could be accommodated within the macroeconomic program, subject to absorption capacity and ensuring value for money. - Authorities consider “turnkey” contracts in the roads sector to speed implementation. - Current primary spending is projected to decline by close to 1¼ percent of GDP. - Domestic borrowing of more than one percent of GDP will be required in 2008/09. - The programmed ½ of GDP increase in tax revenues in 2008/09 is fairly ambitious and may require administrative and policy measures beyond those currently being considered. - Fiscal consolidation is expected to resume in 2009/10 assuming increasing revenue reduces the deficit excluding grants. - The cumulative rise in public debt of some four percent of GDP over the next three years would still leave net public debt at a low level—about 20 percent of GDP—by 2011/12. ### IV. Monetary policy and financial sector priorities - Main monetary policy challenges: - Sterilizing sizeable foreign exchange inflows and fighting imported inflation dominate the agenda. - Broad agreement that rapid economic growth played a minimal role in the pick-up in inflation; first-round effects of higher food and oil prices should be accommodated on the assumption of a permanent impact on the price level. - The base money target for end-June 2008 has been revised slightly upwards; the base money path through end-June 2009 is based on a conservative core inflation projection of five percent to avoid second-round effects. - With sterilization burden falling on interest rates and the budget, the BoU is reviewing its sterilization mix. - Policymakers remain mindful of potentially adverse effects of intensified appreciation of the shilling against the U.S. dollar on exporters. - Financial sector developments and reforms: - Four new banks have been allowed entry, boosting competition in the banking sector. - Credit to the private sector is expanding rapidly, and the quality of the banks’ portfolios appears to remain sound. - The BOU is preparing the financial market development plan (MEFP, ¶13). - Specialized regulatory agencies decided for non-bank financial entities: Insurance Commission regulates insurance; draft pension regulator legislation to be submitted to Parliament by end-December, 2008; an appropriate entity to supervise SACCOs and other non-deposit-taking providers to be found. - Uganda Development Bank (UDB) to be monitored by a reconstituted independent board; balance sheet approximately US$30 million at present. ### V. Arrears, public financial management, and structural actions - Arrears status and causes: - Arrears increased in 2006/07 to U Sh 100 billion from some U Sh 60 billion in the previous two fiscal years. - Two thirds of the arrears incurred in 2006/07 were in areas covered by the commitment control system (CCS), indicating weaknesses in the system. - New CCS arrears accumulated in 2006/07 amounted to 0.3 percent of GDP. - Corrective measures and program rules: - For 2008/09, ensure sufficient allocation of resources and minimize cuts once spending limits have been allocated. - Launch a comprehensive audit of the IFMS system to review effectiveness; expected completion: end-September, 2008. - Starting July 2008, expenditures committed outside IFMS will not be recognized by the Accountant General as arrears and will not be programmed for payment in future budgets by MoFPED. - Clearance of category B arrears to take first call on resources available on a quarterly basis. - Starting with the 2008/09 budget, up to 15 percent of quarterly cash releases to spending agencies will be withheld and used to clear verified arrears until cumulative CCS arrears since start of 2004/05 fiscal year have been cleared. - Implement the new Integrated Personnel and Payroll System in specified Commissions, Ministries, and Local Governments by January 2009 (implementation deadline extended from May 2008). - Pending IFMS review, the definition of domestic arrears is modified to exclude arrears accumulated during the current fiscal year; the end-June 2008 indicative target revised accordingly (TMU, ¶8). ### VI. Program monitoring, adjusters, and reporting - Structural assessment criteria (selected implementation status): - 1. Finalize and publish the Government of Uganda Debt Strategy: Date: End-December 2007 — Implementation status: Observed. - 2. Submit to cabinet a policy paper on new regulatory framework for non-BOU supervised financial institutions: Date: End-June 2008 — Implementation status: Not observed. Note: framework for supervision of pension funds submitted to Cabinet. - 3. Implement pilot Integrated Personnel and Payroll System in designated entities: Date: End-May 2008 — Implementation status: Not observed (implementation shifted to January 2009). - 4. For 2008/09 budget, allocate U Sh 300 billion for payments of verified group (A) domestic arrears: Date: End-June 2008 — Implementation status: Not observed (resources to be allocated for all verified arrears). - 5. Issue tender for national identity card system: Date: End-June 2008 — Implementation status: Not observed (postponed due to cost). - 6. Finalize draft financial market development strategy (BOU with EAC MAC): Date: End-May 2008 — Implementation status: Observed. - 7. Submit to Cabinet complete list of international subscriptions and obligations: Date: End-April 2008 — Implementation status: Observed. - 8. Update national energy (Oil) policy to include macroeconomic policy options: Date: End-June 2008 — Implementation status: Observed. - Adjuster to ceiling on increase in Net Credit to Government (NCG): - Ceiling adjusted downward (upward) by any excess (shortfall) in nonbank financing less payment of domestic group A arrears relative to programmed cumulative amounts in Schedule C. - Payment of domestic group A arrears cannot exceed the programmed amount by more than U Sh 45.0 billion. - Schedule C: Nonbank Financing Minus Repayment of Domestic Arrears (Cumulative billions of Uganda shillings, beginning July 1 of the fiscal year): - (A) Nonbank financing: 31 | -22 | 14 | 200 (Quarter: June 30, 2008 | Sept 30, 2008 | Dec 31, 2008 | June 30, 2009) - (B) Domestic arrears repayment: 280 | 20 | 137 | 300 - (C) Total = (A) – (B): -249 | -41 | -123 | -100 - Adjusters to BoU Net Domestic Assets (NDA) ceilings: - NDA ceiling for end-June adjusted upward by daily average commercial bank automatic access to the BOU discount window and rediscounting of government securities. - NDA ceiling adjusted for changes in legal reserve requirements: calculated as percent change in reserve requirement multiplied by actual required reserves at end of previous calendar month. - Monitoring and reporting requirements: - Authorities to inform IMF staff in writing at least ten business days prior to making policy changes that could affect program outcomes. - Authorities to report nonconcessional external debt contracted or guaranteed and any accumulation of new external payments arrears. - Authorities to furnish official communication describing program performance within 8 weeks of a test date. - Summary reporting schedule includes weekly, monthly, quarterly items with specified submission lags (examples: issuance of government securities — weekly, 5 working days; consumer price index — monthly, 2 weeks; consolidated banking system balance sheet — monthly, 4 weeks; summary of CCS group (B) arrears — quarterly, 6 weeks). ### VII. Key quantitative figures and projections (selected, as presented) - US$115 of the US$400 million non-concessional borrowing room utilized (Bujagali). - Program includes borrowing room of up to US$400 million or about three percent of GDP (Karuma). - New CCS arrears accumulated in 2006/07 amounted to 0.3 percent of GDP. - Government plans to devote about 0.2 percent of GDP annually to SME long-term credit schemes (MEFP, ¶5). - Real GDP10.87.97.19.88.1 - Headline inflation (end of period)7.24.45.110.24.5 - Core inflation (end of period)5.27.34.811.35.0 - Terms of trade (deterioration –)18.27.7-4.03.4-6.6 - Broad money (M2)18.916.716.620.314.5 - Domestic credit 7.2-6.414.37.215.4 - Private sector credit28.322.928.731.422.2 - Domestic investment21.222.327.624.125.2 - Current account balance (including grants)-3.5-2.8-8.0-3.6-6.7 - Net donor inflows7.27.68.17.76.9 - External debt (including Fund)43.011.115.914.316.6 - Gross foreign exchange reserves (months of next year's imports of goods and services)4.85.85.26.05.6 - Total revenue and grants3,2413,6244,0854,4645,140 - Revenue2,2672,6673,1353,1973,906 - Expenditures and net lending 3,2283,8444,8425,0516,176 - Current expenditures2,2332,4422,7332,8422,934 - Development expenditures9351,2051,8752,0542,852 - Overall balance (including grants)13-220-757-587-1,036 - Overall balance (excluding grants)-962-1,177-1,707-1,854-2,270 - Net foreign assets3,0743,8354,1805,0675,206 - Base money1,0461,2431,4501,4941,748 - Money and quasi-money (M3)3,2723,8424,4814,6575,468 - Gross reserves of BOU (US$ millions)1,4082,0912,1522,6402,630 - Current account-350-331-1,030-505-1,179 (US$ millions) - Exports, f.o.b.1,0421,5211,4361,7191,872 (US$ millions) - Imports, f.o.b.-1,969-2,514-3,256-3,159-3,971 (US$ millions) - Net donor support6117781,0371,0911,203 - Real GDP (percent change)10.87.99.88.18.0 (medium-term frame) - Underlying average inflation (percent change)5.27.88.08.05.0 (medium-term frame) - Current account balance (including grants)-3.5-2.8-3.6-6.7-6.9 (medium-term frame) - Revenue12.512.713.313.914.4 (percent of GDP, medium-term frame) - Total expenditure and net lending17.818.321.022.021.7 (percent of GDP, medium-term frame) - Overall balance (including grants)0.1-1.0-2.4-3.7-3.9 (percent of GDP, medium-term frame) - Stock of domestic debt 8.79.411.610.28.3 (percent of GDP, medium-term frame) - Credit to the private sector (percent of GDP)8.18.79.910.411.0 (medium-term frame) - Gross foreign exchange reserves (months of next year's imports)4.85.86.05.65.5 (medium-term frame) - Program exchange rates (US$ per currency unit, unless indicated otherwise): - Euro 1.5500 - British pound 2.0033 - Japanese Yen 0.0099 - Kenya shilling 0.0153 - Tanzania shilling 0.0008 - SDR 1.6304 - Uganda shilling (per US$1) 1,684.26 - Cumulative changes in base money and reserves (in billions of shillings): - Cumulative change in base money: June 2008 252; Sept 2008 147; Dec 2008 233; June 2009 254 - Cumulative change in NFA: June 2008 756; Sept 2008 47; Dec 2008 59; June 2009 -16 - Cumulative change in NDA: June 2008 -504; Sept 2008 100; Dec 2008 174; June 2009 270 - Stock of domestic payment arrears under the Commitment Controls System (CCS): - Verified report estimates this stock of arrears at U Sh 147 billion as of June 2007. - Schedule A: Budget Support Plus Total HIPC Initiative Assistance (Cumulative billions of Uganda shillings, beginning July 1 of the fiscal year): - June 30, 2008 915 - September 30, 2008 238 - December 31, 2008 384 - June 30, 2009 681 - Schedule B: Debt Service Due, Before HIPC Initiative Assistance (Cumulative billions of Uganda shillings, beginning July 1 of the fiscal year): - June 30, 2008 165 - September 30, 2008 88 - December 31, 2008 133 - June 30, 2009 185 ### VIII. Risks, vulnerabilities, and policy implications - Program risks and vulnerabilities: - Despite a more demanding external environment, program risks remain manageable. - High foreign exchange reserves and large reliance on local food production make Uganda less vulnerable to higher food and oil prices. - Revenue performance continues to improve; prudent expenditure management should assure continued fiscal discipline. - Repeated failure to arrest the growth of domestic arrears suggests the need for a thorough re-examination of the integrated financial management system (IFMS) and the appropriateness of budgetary allocations. - Uganda is assessed to be at low risk of debt distress. - Policy implications and guidance: - Careful project appraisal and timely implementation are required given increased public investment and infrastructure bottlenecks. - Ensure that budgeted compression of current expenditures in 2008/09 does not give rise to new arrears or disruptions to key public services. - Strong efforts and greater political commitment are required to reverse the increasing trend in domestic arrears. - The BOU should be prepared to tighten monetary policy if inflationary expectations arise; the BOU is employing a combination of short-term accommodation and forward-looking tightening in setting base money targets. - Allowing a higher degree of exchange rate flexibility may be required to ease the budgetary cost of sterilization. - Main risk to the program: uncertain repercussions from the global economic slowdown (slower growth in industrial countries could dampen export prices; continued strife in the North could erase recent regional gains). - Additional funding may be needed for drought-affected regions and internally displaced persons in the North. *Source: IMF staff report content provided in the chapter.* ### Executive Summary ...................................................................................................... ### _cr08236 - Executive Summary ...................................................................................................... ### Executive Summary: completion recommendation and program status - Staff recommends completion of the third review. - All end-December 2007 assessment criteria were met. - Staff supports the authorities’ request for waivers of nonobservance of four structural assessment criteria for end-May and end-June 2008 related to: - the national identity card system, - nonbank regulation, - the Integrated Personnel and Payroll System, - budget allocation for arrears clearance. - Nonobservance reflects changes in program design from new information and reassessment of costs and priorities that do not compromise program integrity. - Macroeconomic performance remains strong and the growth outlook remains positive. - Starting in 2008/09, authorities plan to scale up domestic investment to alleviate infrastructure bottlenecks; this requires care to ensure value for money and to avoid a concomitant real decline in current spending producing new domestic arrears. - The Bank of Uganda (BoU) faces the challenge of bringing inflation back below 5 percent. ### I. Good performance and new challenges — growth, inflation, and external flows - Growth and national accounts revisions: - Revised estimates show the economy expanded by nearly 10 percent a year over the last three years. - The new estimates show nominal GDP to be some 5 percent higher in 2006/07 than previously reported and real GDP growth 3 percentage points higher. - Inflation: - Rising world food and fuel prices have recently pushed core inflation into the double digits for the first time since the mid-1990s. - In April, core inflation increased to nearly 11 percent, with some 2.5 percentage point directly attributable to its tradable food component. - Prices of locally produced and consumed staple foods have been broadly stable reflecting relatively good recent harvests. - Foreign exchange inflows and sterilization: - The already-sizeable foreign exchange inflows intensified in 2007/08. - Much of the inflows were sterilized through open market operations (OMOs), allowing the shilling to appreciate only modestly against the U.S. dollar but depreciate against the Euro and in effective terms. - The use of government securities to mop-up excess liquidity raised the budgetary costs of open market operations by a further ¼ percentage point of GDP in 2007/08. - The base money target was exceeded by 5.4 percent at end-December 2007 due to partial sterilization to avoid a spike in interest rates. ### II. Third review — assessment criteria, targets, and arrears - Assessment criteria outcomes through end-December 2007: - Greater-than-budgeted spending related to CHOGM, purchase of a new presidential jet, and natural disasters was offset by across-the-board cuts in non-priority areas and strong revenue performance. - Earlier-than-programmed repayment of the Bujagali bridge loan and technical delays in budget execution contributed to substantial overperformance on net credit to government. - Strong foreign exchange inflows drove international reserves well above the program floor; the ceiling on net domestic assets of the BoU was comfortably observed. - Financing for the Bujagali hydropower project was secured in December 2007; the related non-concessional guarantee is US$115 million and is within the program ceiling. - The government’s debt strategy was published in December 2007. - Targets not observed or at risk: - The indicative target on the stock of domestic budgetary arrears is not being observed; corrected estimates for 2006/07 show the indicative ceiling was exceeded by a large margin. Partly due to a higher stock of arrears at the beginning of the fiscal year, the December 2007 target is expected to have been exceeded by at least 0.3 percent of GDP. - The indicative target on poverty-related spending was not observed due to delays in recruitment and compliance by spending agencies. - Reasons for nonobservance of four structural criteria with end-May and end-June test dates: - Delay in tender for National ID system due to cost considerations; authorities intend to enhance existing databases instead. - Authorities opted for specialized regulatory agencies rather than a single regulatory body for the non-bank financial sector. - The Integrated Personnel and Payroll System rollout to relevant Ministries is expected by end-January 2009 rather than end-May 2008 due to procurement delays. - The 2008/09 budget allocates U Sh 300 billion for arrears clearance; authorities wish to use this to clear all verified arrears rather than just group (A) arrears, with clearance of pension arrears a priority. ### III. Outlook: growth, public investment, and fiscal stance - Growth and external outlook: - Immediate macroeconomic outlook is positive; economic growth is projected at 8 percent as reconstruction activity in neighboring countries continues to provide an outlet for Ugandan goods. - Projected increase in the oil import bill (of some one percent of GDP) is expected to be comfortably covered by continued strong foreign exchange inflows. - Uganda’s self-sufficiency in food production and occasional net exporter status position the country to benefit from higher global food prices. - Scale-up of public investment: - Authorities plan to scale up domestic investment to address infrastructure bottlenecks. - Cornerstone initiative: upgrade key transport corridors at a cost of some 4 percent of GDP over the next three years; financing through cuts in current spending and higher domestic borrowing and consistent with the government’s debt strategy. - A high share of imported goods and services in road construction would help minimize crowding out of the private sector; Uganda’s comfortable foreign exchange reserves provide cover for additional imports. - The World Bank will work closely with the authorities to facilitate implementation; authorities are also developing Karuma hydropower project to augment electricity supply. - FY 2008/09 budget specifics: - Development spending slated to increase from 3 to 5½ percent of GDP. - Staff welcomes reorientation towards development spending and estimates it could be accommodated within the macroeconomic program, subject to absorption capacity and ensuring value for money. - Authorities consider “turnkey” contracts in the roads sector to speed implementation. - Current primary spending is projected to decline by close to 1¼ percent of GDP. - Domestic borrowing of more than one percent of GDP will be required in 2008/09. - The programmed ½ of GDP increase in tax revenues in 2008/09 is fairly ambitious and may require administrative and policy measures beyond those currently being considered. - Fiscal consolidation is expected to resume in 2009/10 assuming increasing revenue reduces the deficit excluding grants. - The cumulative rise in public debt of some four percent of GDP over the next three years would still leave net public debt at a low level—about 20 percent of GDP—by 2011/12. ### IV. Monetary policy and financial sector priorities - Main monetary policy challenges: - Sterilizing sizeable foreign exchange inflows and fighting imported inflation dominate the agenda. - Broad agreement that rapid economic growth played a minimal role in the pick-up in inflation; first-round effects of higher food and oil prices should be accommodated on the assumption of a permanent impact on the price level. - The base money target for end-June 2008 has been revised slightly upwards; the base money path through end-June 2009 is based on a conservative core inflation projection of five percent to avoid second-round effects. - With sterilization burden falling on interest rates and the budget, the BoU is reviewing its sterilization mix. - Policymakers remain mindful of potentially adverse effects of intensified appreciation of the shilling against the U.S. dollar on exporters. ### V. Risks, vulnerabilities, and policy implications - Program risks and vulnerabilities: - Despite a more demanding external environment, program risks remain manageable. - High foreign exchange reserves and large reliance on local food production make Uganda less vulnerable to higher food and oil prices. - Revenue performance continues to improve; prudent expenditure management should assure continued fiscal discipline. - Repeated failure to arrest the growth of domestic arrears suggests the need for a thorough re-examination of the integrated financial management system (IFMS) and the appropriateness of budgetary allocations. - Uganda is assessed to be at low risk of debt distress. *Source: IMF staff report, Executive Summary (Country Report).* ### 13. The authorities attach great importance to further developing Uganda’s ### 13. The authorities attach great importance to further developing Uganda’s ### Financial sector development - Four new banks have been allowed entry, boosting competition in the banking sector. - Credit to the private sector is expanding rapidly, and the quality of the banks’ portfolios appears to remain sound (Table 8). - The Bank of Uganda (BOU) is preparing the financial market development plan (MEFP, ¶13). ### Energy and infrastructure (hydropower) - Bujagali dam construction is on track; Karuma identified as the next least-cost power generation option. - Bujagali implemented as a Public-Private Partnership (PPP) initiative, with US$115 of the US$400 million non-concessional borrowing room in the program being utilized. - Authorities are exploring financing modalities for Karuma, including use of resources accumulated in the energy fund and/or arrangements similar to Bujagali. - The program includes borrowing room of up to US$400 million or about three percent of GDP to allow for potential nonconcessional borrowing for Karuma. - The last joint Bank-Fund Debt Sustainability Analysis (Country Report 08/4) showed that such borrowing would not materially impact external debt sustainability. ### Public financial management and arrears - Both under-budgeting and non-observance of public financial management rules have contributed to further accumulation of domestic arrears. - New CCS arrears accumulated in 2006/07 amounted to 0.3 percent of GDP. - The government is planning a series of measures to reinforce efforts to eliminate such arrears (MEFP, ¶8). - Pending the authorities’ review of the IFMS, the definition of domestic arrears is being modified to exclude arrears accumulated during the current fiscal year; the end-June 2008 indicative target has been revised accordingly (TMU, ¶8). ### Access to long-term credit and SME support - Limited availability of long-term credit is seen as a major constraint on private sector development and industrialization. - Government plans to devote about 0.2 percent of GDP annually to schemes intended to improve access to long-term credit by small and medium-size enterprises (MEFP, ¶5). - Staff cautioned that a more concerted push toward these initiatives could divert funds from infrastructure, which has been identified as the dominant constraint on industrialization. ### Program monitoring and modifications - Quantitative assessment criteria, quantitative indicative targets, and structural assessment criteria and benchmarks were set (MEFP, Tables 1 and 2). - Modifications made to assessment criteria to reflect: - Strong foreign exchange inflows (end-June 2008 quantitative assessment criteria on net international reserves and net domestic assets of the BOU). - New, higher, external financing assumptions for 2007/08 (assessment criterion on net credit to government). - Allowance for financing for the Karuma hydropower project on nonconcessional terms (assessment criterion on nonconcessional borrowing). - Indicative target on poverty-related spending modified to exclude outcomes not under direct control of the Ministry of Finance (TMU, ¶10). - An additional structural benchmark—on the regulatory framework for pension funds—has been added. ### Staff appraisal, risks, and policy guidance - Staff supports the authorities’ request for waivers for the nonobservance of assessment criteria and modification of quantitative assessment criteria, and recommends completion of the third review. - Staff view: Uganda’s private sector-driven economy, assisted by disciplined fiscal and monetary policies, has shown remarkable resilience; the economic outlook remains positive. - Staff stresses careful project appraisal and timely implementation given increased public investment and infrastructure bottlenecks. - Warning to ensure that the budgeted compression of current expenditures in 2008/09 does not give rise to new arrears or disruptions to key public services. - Strong efforts and greater political commitment are required to reverse the increasing trend in domestic arrears. - The BOU should be prepared to tighten monetary policy if inflationary expectations arise; the BOU is employing a combination of short-term accommodation and forward-looking tightening in setting base money targets. - Allowing a higher degree of exchange rate flexibility may be required to ease the budgetary cost of sterilization. - Main risk to the program: uncertain repercussions from the global economic slowdown (slower growth in industrial countries could dampen export prices; continued strife in the North could erase recent regional gains). - Uganda appears relatively comfortable to withstand food and oil price shocks due to a strong economy, sufficient locally-grown food supply, and substantial foreign exchange reserves; additional funding may be needed for drought-affected regions and internally displaced persons in the North. ### Key quantitative figures and projections (as presented in the chapter) - US$115 of the US$400 million non-concessional borrowing room utilized (Bujagali). - Program includes borrowing room of up to US$400 million or about three percent of GDP (Karuma). - New CCS arrears accumulated in 2006/07 amounted to 0.3 percent of GDP. - Government plans to devote about 0.2 percent of GDP annually to SME long-term credit schemes (MEFP, ¶5). - Real GDP10.87.97.19.88.1 - Headline inflation (end of period)7.24.45.110.24.5 - Core inflation (end of period)5.27.34.811.35.0 - Terms of trade (deterioration –)18.27.7-4.03.4-6.6 - Broad money (M2)18.916.716.620.314.5 - Domestic credit 7.2-6.414.37.215.4 - Private sector credit28.322.928.731.422.2 - Domestic investment21.222.327.624.125.2 - Current account balance (including grants)-3.5-2.8-8.0-3.6-6.7 - Net donor inflows7.27.68.17.76.9 - External debt (including Fund)43.011.115.914.316.6 - Gross foreign exchange reserves (months of next year's imports of goods and services)4.85.85.26.05.6 - Total revenue and grants3,2413,6244,0854,4645,140 - Revenue2,2672,6673,1353,1973,906 - Expenditures and net lending 3,2283,8444,8425,0516,176 - Current expenditures2,2332,4422,7332,8422,934 - Development expenditures9351,2051,8752,0542,852 - Overall balance (including grants)13-220-757-587-1,036 - Overall balance (excluding grants)-962-1,177-1,707-1,854-2,270 - Net foreign assets3,0743,8354,1805,0675,206 - Base money1,0461,2431,4501,4941,748 - Money and quasi-money (M3)3,2723,8424,4814,6575,468 - Gross reserves of BOU (US$ millions)1,4082,0912,1522,6402,630 - Current account-350-331-1,030-505-1,179 (US$ millions) - Exports, f.o.b.1,0421,5211,4361,7191,872 (US$ millions) - Imports, f.o.b.-1,969-2,514-3,256-3,159-3,971 (US$ millions) - Net donor support6117781,0371,0911,203 - Real GDP (percent change)10.87.99.88.18.0 (medium-term frame) - Underlying average inflation (percent change)5.27.88.08.05.0 (medium-term frame) - Current account balance (including grants)-3.5-2.8-3.6-6.7-6.9 (medium-term frame) - Revenue12.512.713.313.914.4 (percent of GDP, medium-term frame) - Total expenditure and net lending17.818.321.022.021.7 (percent of GDP, medium-term frame) - Overall balance (including grants)0.1-1.0-2.4-3.7-3.9 (percent of GDP, medium-term frame) - Stock of domestic debt 8.79.411.610.28.3 (percent of GDP, medium-term frame) - Credit to the private sector (percent of GDP)8.18.79.910.411.0 (medium-term frame) - Gross foreign exchange reserves (months of next year's imports)4.85.86.05.65.5 (medium-term frame) *Source: IMF staff report content provided in the chapter.* ### 1. Finalize and publish the Government of Uganda Debt ### _cr08236 - 1. Finalize and publish the Government of Uganda Debt Strategy ### Structural assessment criteria and implementation status (selected items) - 1. Finalize and publish the Government of Uganda Debt Strategy. - Date: End-December 2007 - Implementation status: Observed - 2. Submit to cabinet a policy paper outlining establishment of a new regulatory framework for financial institutions not under the statutory supervision of the BOU (including private and public pension funds, and the Uganda Development Bank). - Date: End-June 2008 - Implementation status: Not observed. Notes: The framework for supervision of pension funds has been submitted to Cabinet. The insurance industry is already being regulated by the insurance commission. An appropriate entity to regulate SACCOs will be found. The framework for the UDB will not be established due to the UDB’s relatively small size. - 3. Implement pilot Integrated Personnel and Payroll System in three Commissions (Public Service Commission, Health Service Commission, Education Service Commission), Ministries (Ministry of Finance, Ministry of Health, Ministry of Public Service, Ministry of Education), and Local Governments (Lira and Jinja Districts). - Date: End-May 2008 - Implementation status: Not observed. Notes: Implementation date shifted to January 2009 due to delays in procurement process. - 4. For 2008/09 budget, allocate U Sh 300 billion for payments of verified group (A) domestic arrears, with priority given to pension arrears. - Date: End-June 2008 - Implementation status: Not observed. Notes: The resources will be allocated for payments of all verified arrears. - 5. Issue a tender to select the provider for the national identity card system. - Date: End-June 2008 - Implementation status: Not observed. Notes: Due to cost considerations, introduction of the national ID system to be postponed. Priority will be given to enhancing the existing databases. - 6. The BOU, in consultation with other members of the Monetary Affairs Committee of the EAC, will finalize a comprehensive draft financial market development strategy. - Date: End-May 2008 - Implementation status: Observed - 7. The Ministry of Finance, in conjunction with the Ministry of Foreign Affairs, will submit to Cabinet the complete list of international subscriptions and the related payment obligations. - Date: End-April 2008 - Implementation status: Observed - 8. Update national energy (Oil) policy to include macroeconomic policy options. - Date: End-June 2008 - Implementation status: Observed ### Banking sector selected indicators (June 2004–December 2007; values as reported) - Adjusted assets: 3,184; 3,294; 3,526; 3,659; 3,841; 4,422; 4,629; 5,546 (U Sh billions) - Liquid assets: 1,279; 1,538; 1,374; 1,558; 1,179; 1,500; 1,460; 1,688 (U Sh billions) - Tier I: 276; 313; 311; 348; 379; 444; 480; 526 (U Sh billions) - Tier II: 32; 30; 26; 32; 36; 40; 35; 50 (U Sh billions) - Total capital: 309; 343; 337; 380; 416; 484; 515; 575 (U Sh billions) - Risk-weighted assets (RWA): 1,624; 1,674; 1,881; 2,076; 2,271; 2,686; 2,563; 2,957 (U Sh billions) - Nonperforming assets (NPA): 142; 133; 294; 150; 608; 89 (U Sh billions) [values as presented across periods] - Loans and advances: 884; 977; 1,114; 1,258; 1,450; 1,703; 1,768; 2,174 (U Sh billions) - Foreign exchange advances: 218; 267; 327; 384; 450; 463; 465; 650 (U Sh billions) - Foreign exchange deposits: 806; 817; 838; 786; 815; 949; 937; 1,150 (U Sh billions) - Deposits: 2,396; 2,438; 2,549; 2,595; 2,741; 2,961; 3,145; 3,613 (U Sh billions) - Return on average assets: 5.0; 4.3; 3.4; 3.6; 3.5; 3.4; 3.9; 3.9 (percent) - Core capital/ RWA: 17.0; 18.7; 16.5; 16.8; 16.7; 16.5; 18.7; 17.8 (percent) - Total capital/ RWA: 19.0; 20.5; 17.9; 18.3; 18.3; 18.0; 20.1; 19.5 (percent) - NPAs/total advances: 1.6; 2.2; 2.9; 2.3; 2.8; 2.9; 3.4; 4.1 (percent) - Loan loss provision/ NPA: 139.6; 97.8; 78.0; 103.8; 93.8; 74.4; 69.3; 71.8 (percent) - Liquid assets/ total deposits: 53.4; 63.1; 53.9; 60.0; 43.0; 50.7; 46.4; 46.7 (percent) - Advances/ deposits: 36.9; 37.4; 43.7; 48.5; 52.9; 57.5; 56.2; 60.2 (percent) - Foreign exchange exposure/ core capital: 4.7; -2.0; -2.7; -2.7; -8.7; -7.4; -2.5; -8.4 (percent) - Foreign exchange advances/ foreign exchange deposits: 27.0; 32.6; 39.1; 48.8; 55.2; 48.8; 49.6; 56.6 (percent) - Source: Ugandan authorities. Note: Foreign exchange exposure is calculated using the short-hand method. ### Millennium Development Goals indicators (selected) - Percentage share of income or consumption held by poorest 20 percent: 5.9 (percent) - Prevalence of child malnutrition (percent of children under 5): 23.0; 25.5; 22.8 (percent) - Population below minimum level of dietary energy consumption (percent): 23.0; 25.0; 19.0 (percent) - Net primary enrollment ratio (percent of relevant age group): 87.3; 98.4 (percent) [data for 2004 noted] - Youth literacy rate (percent of ages 15-24): 70.1; 74.7; 79.4; 77.0 (percent) - Ratio of girls to boys in primary and secondary education (percent): 76.8; 81.0; 95.0; 96.0 (percent) - Share of women employed in the nonagricultural sector (percent): 43.2 (percent) - Proportion of seats held by women in national parliament (percent): 12.0; 17.0; 18.0; 24.0 (percent) - Under-5 mortality rate (per 1,000): 160.0; 156.0; 145.0; 136.0 (per 1,000) - Infant mortality rate (per 1,000 live births): 93.0; 92.0; 85.0; 79.0 (per 1,000) - Immunization, measles (percent of children under 12 months): 52.0; 57.0; 61.0; 86.0 (percent) - Maternal mortality ratio (modeled estimate, per 100,000 live births): 880.0 (per 100,000) [value presented] - Births attended by skilled health staff (percent of total): 38.3; 37.8; 39.0 (percent) - Prevalence of HIV, female (percent of ages 15-24): 4.6; 5.0 (percent) - Contraceptive prevalence rate (percent of women ages 15-49): 4.9; 14.8; 22.8 (percent) - Incidence of tuberculosis (per 100,000 people): 161.1; 324.0; 369.0 (per 100,000) - Tuberculosis cases detected under DOTS (percent): 44.4; 45.0 (percent) - Forest area (percent of total land area): 25.9; 21.3; 18.0 (percent) - Nationally protected areas (percent of total land area): 9.7; 9.7; 32.6 (percent) - CO2 emissions (metric tons per capita): 0.0; 0.0; 0.1; 0.1 (metric tons per capita) - Access to an improved water source (percent of population): 45.0; 52.0; 60.0 (percent) - Access to improved sanitation (percent of population): 79.0; 43.0 (percent) - Fixed line and mobile telephones (per 1,000 people): 1.6; 2.0; 13.5; 56.0 (per 1,000) - Personal computers (per 1,000 people): 0.5; 2.8; 9.0 (per 1,000) - Population (millions): 17.8; 20.9; 25.1; 28.8 (millions) - Adult literacy rate (percent of people ages 15 and over): 56.1; 67.0 (percent) - Total fertility rate (births per woman): 7.2; 6.9; 7.1 (births per woman) - Life expectancy at birth (years): 45.7; 43.1; 50.0 (years) - Source: World Development Indicators database, April 2007. ### Letter of Intent (June 20, 2008) — program overview and requests - Government informs IMF of progress under Policy Support Instrument (PSI) and transmits the MEFP updating objectives and policies through May 2008 and targets through first half of 2008/09. - Noted shocks and performance: - Economy continues to grow at high rates despite less favorable global environment and disruptions from turmoil in Kenya. - Most assessment criteria for the third review under the PSI were observed; waivers requested for nonobservance of specific structural measures modified due to reassessment of costs and priorities. - Government requests waivers for nonobservance of the relevant assessment criteria and commits to consult with the Fund on revisions to the PSI. ### Memorandum of Economic and Financial Policies (MEFP) — update and policy priorities - Program objectives: - Sustained macroeconomic stability, economic growth, and poverty reduction, consistent with the Poverty Eradication Action Plan (PEAP) and PSI. - Raise economic growth to create jobs for roughly half a million new labor-market entrants each year. - Recent program performance (through first half of 2007/08): - All assessment criteria have been met (per MEFP summary). - Fiscal performance within program limits; ceiling on net claims on government by banking system observed. - Ceiling on net domestic assets of BOU and floor on BOU net international reserves comfortably observed. - Base money slightly exceeded the allowed 5 percent band for the indicative target. - Indicative target for poverty-related spending performed at 94 percent of programmed amounts (below 95 percent target). - Debt strategy published in December 2007; U Sh 300 billion allocated for arrears clearance in 2008/09 budget. - Fiscal policy stance and 2008/09 budget priorities: - 2008/09 budget to significantly increase agriculture and infrastructure spending. - Financing: strengthen tax collection, reduce current spending, and modestly increase domestic borrowing; fiscal sustainability to be maintained. - Priority spending increases: - Agriculture: improve value chain, research and extension, access to inputs, financing and marketing services. - Infrastructure: focus on energy and transportation; sustain increased allocation initiated in prior budgets. - Energy: - US$75 million bridge loan by GOU supported construction at Bujagali; bridge loan repaid. - Only US$115 of the borrowing room under the non-concessional borrowing limit of US$400 million has been used. - Karuma hydro project identified as next priority; intend to finance via public and private resources; may use non-concessional borrowing and request a US$400 million limit on nonconcessional borrowing in the PSI-supported program. - Roads: - Plan to spend an additional US$200 million per year over the next three years to upgrade key transport corridors linking Uganda to South Sudan, Kenya, and Rwanda. - Appropriation under “transport corridor project” to be ring-fenced; any additional funds beyond US$200 million financed from reallocations within the budget envelope. - Railway: reviewing concession agreement with Rift Valley Railway to ensure implementation. - Human resource development: increase investment in Universal Primary and Secondary Education and basic health service delivery. - Private sector development: - Construction of industrial parks. - Gradual recapitalization of the Uganda Development Bank (UDB); Government intends to issue an Industrialization Bond in 2008/09 of U Sh 20 billion to be managed by UDB. - UDB loans to ensure full cost recovery; additional resources conditioned on internationally accepted best practices. - If UDB non-performing loan (NPL) ratio exceeds 10 percent, additional resources will not be provided until ratio drops below 10 percent. - Annual independent audits required on UDB’s risk assessment before additional recapitalization resources provided. - Introduce a credit guarantee scheme to underwrite up to 50 percent of credit risk for certain commercial bank loans, with U Sh 20 billion allocated in 2008/09 for the scheme. - Revenue and tax administration measures: - Continue commitment to increasing tax collection in the medium term. - Planned measures: - Produce a tax procedure code to improve taxpayer understanding and compliance. - Introduce amendments to the Income Tax Act for petroleum taxation. - Update the excise tax law and address revenue loss from smuggling. - Increase efficiency of the tax tribunal by appointing qualified members by end-June 2008. - Consider introducing an electronic tax registry to improve VAT collection. *Source: Government of Uganda letter and MEFP update as presented in the submitted document.* ### 7. Parliament has recently approved tax incentives for qualified investors to take effect ### 7. Parliament has recently approved tax incentives for qualified investors to take effect starting July 1, 2008 ### Tax incentives and budget allocation for private sector development - Parliament-approved tax incentives take effect starting July 1, 2008. - Incentives are only granted to companies exporting more than 80 percent of their production. - Revenue losses are expected to be very modest (not exceeding 0.1 percent of GDP). - The budget is allocating some U Sh 60 billion (1/4 percent of GDP) for private sector development through these initiatives and other measures. - Going forward, these initiatives will be the modalities through which the government will provide sector-specific support; other government resources will be directed towards other priorities. ### Arrears: status, causes, and corrective measures - Arrears increased in 2006/07 to U Sh 100 billion from some U Sh 60 billion in the previous two fiscal years. - Two thirds of the arrears incurred in 2006/07 were in areas covered by the commitment control system (CCS), indicating weaknesses in the system. - Contributing factors: insufficient budgetary allocations for some categories (such as utilities) and failure by line ministries and agencies to observe public financial management rules. Policy actions and measures to reduce arrears: - For 2008/09, ensure sufficient allocation of resources and minimize cuts once spending limits have been allocated. - Launch a comprehensive audit of the IFMS system to review effectiveness, including access, compliance, and system integrity. This review is expected to be completed by end-September, 2008. - Starting July 2008, expenditures committed outside the IFMS system for both IFMS and non-IFMS votes will not be recognized by the Accountant General as arrears and therefore will not be programmed for payment in future budgets by MoFPED. - Efforts will be made to ensure that clearance of category B arrears takes the first call on resources available on a quarterly basis. - Starting with the 2008/09 budget, up to 15 percent of quarterly cash releases to spending agencies will be withheld and used to clear verified arrears, until the cumulative CCS arrears incurred by the relevant spending agency since the start of the 2004/05 fiscal year has been cleared. - Implement the new Integrated Personnel and Payroll System in three Commissions (Public Service Commission, Health Service Commission, Education Service Commission), four Ministries (Ministry of Finance, Ministry of Health, Ministry of Public Service, Ministry of Education), and two local governments (Lira and Jinja Districts) by January 2009 (implementation deadline extended from May 2008 due to procurement delays). Expected outcome: improved payroll and pension records and accurate payroll and pension figures. - To address arrears to international organizations, the Ministry of Finance, together with the Ministry of Foreign Affairs, have submitted to cabinet the complete list of international subscriptions and related payment obligations; individual memberships will be reviewed and sufficient budgetary provisions ensured. ### Monetary policy objectives and instruments - Commitment to keep annual average core inflation below five percent guided by reserve money target. - In 2007/08, inflation likely to trend higher than this due to strong increases in international fuel, food, and commodity prices and effects of the turmoil in Kenya. - Given higher economic growth and increase in money demand, the Bank of Uganda (BOU) will increase the targeted stock of base money for June 2008 by an additional 3 percent. - For 2008/09, base money growth will target core inflation of 5 percent. - BOU will continue to manage liquidity using an appropriate instrument mix. - Subject to foreign exchange market conditions, BOU will continue to use sales of foreign exchange to sterilize donor inflows. - Persistent inflows will prompt review of the instrument mix to avoid undue upward pressure on interest rates. - BOU is pursuing tools needed for a future inflation targeting framework. - In June 2007, UBOS rolled out a new measure of core inflation. - UBOS is expected to roll out a quarterly GDP index by October 2008. ### Financial sector and structural reforms - Specialized regulatory agencies decided for non-bank financial entities: - Insurance commission already regulates insurance industry. - A specific regulatory agency will be established for pensions (existing including NSSF and new entities); draft legislation to be submitted to parliament by end-December, 2008. - An appropriate entity will be found to supervise non-deposit taking financial service providers (leasing companies, Savings and Credit Cooperatives (SACCOs), other microfinance institutions). - Uganda Development Bank (UDB): - Government recognizes need to supervise UDB but does not wish to establish a dedicated regulatory body for a single relatively small institution (balance sheet approximately US$30 million). - UDB activities are being monitored by its newly reconstituted and independent board; as portfolio expands, an appropriate regulatory solution will be found. - BOU, as part of the Monetary Affairs Committee of the EAC, drafted a five-year financial market development plan; stakeholder comments will be incorporated. - National identity card system: - Introduction is expected to take longer due to limited resources. - Interim steps: enhance existing databases (passports, driving licenses, tax identification numbers) and supplement with biometric information. - In the financial sector, identity fraud-related losses will be addressed through issuance of financial cards with biometric information by the Credit Reference Bureau (CRB). - Energy fund: - Government reached agreement on principles guiding the operation of the energy fund and will issue appropriate regulations. - Ministry of Finance will have authority to decide on using the energy fund. - Energy fund will be subject to review by the Auditor General. - Oil production: - Commercial oil production is expected to start soon. - Government recognizes risks to macroeconomic stability, fiscal sustainability, and non-oil development. - Government has finalized the national energy policy and is updating it to include macroeconomic policy options; will ensure prudent policies, transparency, and accountability. ### Key quantitative program targets and operational numbers (as presented) - Program exchange rates (US$ per currency unit, unless indicated otherwise): - Euro 1.5500 - British pound 2.0033 - Japanese Yen 0.0099 - Kenya shilling 0.0153 - Tanzania shilling 0.0008 - SDR 1.6304 - Uganda shilling (per US$1) 1,684.26 - Cumulative changes in base money and reserves (in billions of shillings): - Cumulative change in base money: June 2008 252; Sept 2008 147; Dec 2008 233; June 2009 254 - Cumulative change in NFA: June 2008 756; Sept 2008 47; Dec 2008 59; June 2009 -16 - Cumulative change in NDA: June 2008 -504; Sept 2008 100; Dec 2008 174; June 2009 270 - Base money definition: sum of currency issued by BOU and commercial banks’ deposits in the BOU, including statutory required reserves and excess reserves and net of deposits of closed banks and Development Finance Funds contributed by commercial banks. - Stock of domestic payment arrears under the Commitment Controls System (CCS): - The program ceiling on the stock of CCS arrears covers accumulation of arrears after end-June 2004 (“group B arrears”). - Verified report estimates this stock of arrears at U Sh 147 billion as of June 2007. - Schedule A: Budget Support Plus Total HIPC Initiative Assistance (Cumulative billions of Uganda shillings, beginning July 1 of the fiscal year): - June 30, 2008 915 - September 30, 2008 238 - December 31, 2008 384 - June 30, 2009 681 - Schedule B: Debt Service Due, Before HIPC Initiative Assistance (Cumulative billions of Uganda shillings, beginning July 1 of the fiscal year): - June 30, 2008 165 - September 30, 2008 88 - December 31, 2008 133 - June 30, 2009 185 - Specific program operational rules and definitions: - Arrears under CCS defined as bills received prior to beginning of current fiscal year and unpaid within 30 days under recurrent or development expenditure budgets (excluding court awards). - For program monitoring, quarterly CCS reports (including IFMIS and non-IFMIS sites) prepared by the Internal Audit and Inspection Office will be used. - Arrears can be cleared in cash or through debt swaps. - Deferred payments are defined as (i) all debt service rescheduled under the HIPC Initiative; and (ii) payments falling due to all non-HIPC Initiative creditors that are not currently being serviced by the authorities (gross new arrears being incurred). *Source: _cr08236 - 7. Parliament has recently approved tax incentives for qualified investors to take effect* ### 13. The ceiling on the increase in NCG will be adjusted downward (upward) by any ### _cr08236 - 13. The ceiling on the increase in NCG will be adjusted downward (upward) by any ### Adjuster to the ceiling on the increase in Net Credit to Government (NCG) - The ceiling on the increase in NCG will be adjusted downward (upward) by any excess (shortfall) in nonbank financing less payment of domestic group A arrears relative to the programmed cumulative amounts presented in Schedule C. - For the purpose of this adjuster, payment of domestic group A arrears cannot exceed the programmed amount by more than U Sh 45.0 billion. - Footnote: Comprising the check float and the change in government securities and government promissory notes held by the nonbank sector. The change in government securities held by the nonbank sector will be calculated from the data provided by the Central Depository System (CDS). ### Schedule C: Nonbank Financing Minus Repayment of Domestic Arrears (Cumulative billions of Uganda shillings, beginning July 1 of the fiscal year) - Quarter: June 30, 2008 | September 30, 2008 | December 31, 2008 | June 30, 2009 - (A) Nonbank financing: 31 | -22 | 14 | 200 - (B) Domestic arrears repayment: 280 | 20 | 137 | 300 - (C) Total = (A) – (B): -249 | -41 | -123 | -100 ### Adjusters to the Bank of Uganda (BOU) Net Domestic Assets (NDA) ceilings - The ceiling on NDA of the BOU for end-June will be adjusted upward by the daily average amount of commercial bank automatic access to the BOU discount window and rediscounting of government securities by commercial banks. - The ceiling on NDA of the BOU for every test date will be adjusted downward/upward to reflect decreases/increases in the legal reserve requirements on deposits in commercial banks. - The adjuster will be calculated as the percent change in the reserve requirement multiplied by the actual amount of required reserves (Uganda shillings and foreign-currency denominated) at the end of the previous calendar month. ### External borrowing contracted or guaranteed by the central government, statutory bodies, or the BOU, and arrears - Assessment criterion on short-term debt: contracting or guaranteeing external debt with original maturity of one year or less by the government or the BOU. Excluded: normal import-related credits. - Program ceiling: new nonconcessional borrowing with maturities greater than one year contracted or guaranteed by the government, statutory bodies, or the BOU. - Nonconcessional borrowing defined as loans with a grant element of less than 35 percent, calculated using average commercial interest rates references (CIRRs) published by the OECD. - In assessing concessionality: - Use the 10-year average CIRRs to discount loans with maturities of at least 15 years. - Use the 6-month average CIRRs for loans with shorter maturities. - Add margins to both averages for differing payment periods: 0.75 percent for repayment periods of less than 15 years; 1 percent for 15–19 years; 1.15 percent for 20–25 years; and 1.25 percent for 30 years or more. - Coverage includes financial leases and other instruments giving rise to external liabilities, contingent or otherwise, on nonconcessional terms. - Exclusions: changes in indebtedness from refinancing credits and rescheduling operations, and credits extended by the IMF. - Special note: arrangements to pay over time obligations arising from judicial awards to external creditors that have not complied with the HIPC Initiative do not constitute nonconcessional external borrowing. - For program purposes, the Bujagali project is defined as the hydroelectric dam and related equipment located at the dam site. - Contraction is defined as approval by a resolution of Parliament as required in Section 20(3) of the Public Finance and Accountability Act, 2003. ### Definition of "debt" for limits (Guidelines on Performance Criteria with Respect to External Debt, Executive Board Decision No. 12274-(00/85), August 24, 2000) - Debt means a current, i.e., not contingent, liability created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, requiring the obligor to make one or more payments in assets or services at some future time to discharge principal and/or interest. - Primary forms of debt include: - (i) Loans (advances of money), including deposits, bonds, debentures, commercial loans and buyers' credits; repurchase agreements and official swap arrangements. - (ii) Suppliers' credits (deferred payment contracts). - (iii) Leases: debt is the present value (at inception) of all lease payments expected to be made during the agreement period excluding payments for operation, repair, or maintenance. - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are treated as debt. - Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. - The definition also applies to commitments contracted or guaranteed for which value has not been received. ### Ceiling on accumulation of new external payments arrears - The ceiling on the accumulation of new external payments arrears is zero. - This limit is to be observed on a continuous basis and applies to the change in the stock of overdue payments on debt contracted or guaranteed by the government, the BOU, and statutory bodies from their level at end-June 2006. - It comprises those external arrears reported by the Trade and External Debt Department of the BOU and the Macro Department of the Ministry of Finance that cannot be rescheduled because they were disbursed after the Paris Club cutoff date. ### Monitoring and reporting requirements - The authorities will inform IMF staff in writing at least ten business days (excluding legal holidays in Uganda or in the United States) prior to making any changes in economic and financial policies that could affect the outcome of the financial program. Policies include customs and tax laws, wage policy, and financial support to public and private enterprises. - The authorities will inform IMF staff of any nonconcessional external debt contracted or guaranteed by the government, the BOU, or any statutory bodies, and any accumulation of new external payments arrears on the debt contracted or guaranteed by these entities. - The authorities will furnish an official communication to the IMF describing program performance of quantitative and structural assessment criteria and benchmarks within 8 weeks of a test date. - Submission channel: information should be mailed electronically to AFRUGA746@IMF.ORG. ### Summary of reporting requirements (selected items and submission lags) - Issuance of government securities. Frequency: Weekly. Submission lag: 5 working days. - Interest rates on government securities. Frequency: Weekly. Submission lag: 5 working days. - Operations in the foreign exchange market and daily average exchange rates. Frequency: Weekly. Submission lag: 5 working days. - Consumer price index. Frequency: Monthly. Submission lag: 2 weeks. - Balance sheet of the BOU, consolidated accounts of the commercial banks, and monetary survey. Frequency: Monthly. Submission lag: 4 weeks. - The Internal Audit Department (IAD) of the BOU will review reconciliations of monetary survey data with financial records and audited financial statements. Any revisions to monetary survey data, in line with IMF safeguards mission recommendations, will be documented and reconciled. - Composition of foreign assets and liabilities of the BOU by currency of denomination. Frequency: Monthly. Submission lag: 4 weeks. - Statement of (i) cash balances held in project accounts at commercial banks; (ii) total value (measured at issue price) of outstanding government securities from the Central Depository System (CDS); and (iii) the stock of government securities (measured at issue price) held by commercial banks from the CDS. Frequency: Monthly. Submission lag: 6 weeks. - Summary of (i) monthly commodity and direction of trade statistics; (ii) disbursements, principal and interest, flows of debt rescheduling and debt cancellation, arrears, and committed undisbursed balances—by creditor category; and (iii) composition of nominal HIPC Initiative assistance, disaggregated into grants, flow rescheduling, and stock-of-debt reduction by creditor. Frequency: Monthly. Submission lag: 6 weeks. - Summary of stock of external debt, external arrears, and committed undisbursed loan balances by creditor. Frequency: Quarterly. Submission lag: 6 weeks. - Standard off-site bank supervision indicators for deposit money banks. Frequency: Quarterly. Submission lag: 4 weeks. - Summary table of preliminary program performance comparing actual monthly outcome with adjusted program targets for (i) base money; (ii) net claims on central government by the banking system; (iii) stock of external arrears; (iv) new nonconcessional external borrowing; and (v) net international reserves. Reporting institution: Bank of Uganda. Frequency: Quarterly. Submission lag: 5 weeks. - Daily average amount of commercial bank automatic access to the BOU discount window and rediscounting of government securities by commercial banks. Reporting institution: Bank of Uganda. Frequency: Quarterly. Submission lag: 4 weeks. - Summary of central government accounts (recording conventions specified). Frequency: Monthly. Submission lag: 6 weeks. - Summary of outstanding stock of group (B) domestic arrears (group (B) arrears comprise the stock of CCS/IFMS arrears incurred after end-June 2004). Frequency: Quarterly. Submission lag: 6 weeks. - Summary of contingent liabilities of the central government (includes borrowings by statutory bodies, government guarantees, pending court claims, or court awards the government has appealed). Frequency: Quarterly. Submission lag: 6 weeks. - Detailed central government account of disbursed budget support grants and loans, HIPC support, and external debt service due and paid. Frequency: Monthly. Submission lag: 4 weeks. - Detailed central government account of disbursed donor project support grants and loans. Frequency: Monthly. Submission lag: 6 weeks. - Statement on new loans contracted during the period according to loan agreements. Frequency: Quarterly. Submission lag: 6 weeks. - Ministry of Finance: Updated national accounts statistics (real and nominal) according to UBOS and medium-term projections. Frequency: Quarterly. Submission lag: 4 weeks. *Prepared by the African Department (Informational Annex to Third Review Under the Policy Support Instrument and Request for Waiver and Modification of Assessment Criteria).* ### 2005. In the upcoming joint FAD-WB mission, the FAD will be represented by AFRITAC ### _cr08236 - 2005. In the upcoming joint FAD-WB mission, the FAD will be represented by AFRITAC ### Technical assistance and mission chronology - STA multisector statistics mission: visited Kampala in December 1998 to conduct a comprehensive assessment of Uganda’s macroeconomic statistics and provide recommendations. - Follow-up STA missions: - National accounts and money and banking statistics: March–April 2000. - Government financial statistics (GFS): December 2001; follow-up GFS mission May 2003. - Balance of payments statistics: February–March 2002; follow-up August 2003. - Participation in data dissemination systems: - Uganda participated in the General Data Dissemination System (GDDS); metadata initially posted in May 2000. - A STA mission prepared a data ROSC in February 2005 (results published July 2006). - Monetary and Financial Department (MFD) TA since 2001 FSAP: - Focus areas: liquidity management, exchange rate intervention, central bank accounting and auditing, banking supervision. - Resident advisor appointed mid-July 2001; subsequently replaced by a second resident advisor. - MFD TA missions: July 2001 and January 2002 (liquidity management); March and September–October 2002 (central bank accounting and accounting manual); June 2003 (TA evaluation visit); March 2004 (follow-up on monetary and exchange rate operations, public debt, liquidity management); November 2004 (FSAP update mission); August 2005 (TA on enhancing monetary policy implementation and developing financial markets). - Joint MCM/BOU workshop on financial market development: April 2006. - Upcoming / planned TA linkage: - In the upcoming joint FAD-WB mission, the FAD will be represented by AFRITAC East to follow up on 2005 FAD arrears mission recommendations and check implementation of the new financial and physical reporting system for local governments. ### Progress and outstanding issues in monetary and financial statistics - March 2008 monetary and financial statistics mission findings: - Substantial progress in producing historical data on standardized report forms (SRF) to align with the Monetary and Financial Statistics Manual (MFSM). - Four quarters of central bank accounts finalized in 1SR format. - Commercial bank data produced in 2SR format for June 2006 - October 2007. - Banks to begin reporting with data for May 2008 on the new system, to run in parallel with existing system for six months. - Recommended consolidation of credit institutions and microfinance deposit-taking institutions into the depository corporations survey. - Initiated collection of data from insurance companies. - No progress on savings and credit cooperatives. - February 2006 monetary and financial statistics mission noted areas needing improvement to align with MFSM: - Reverse repos between the BOU and ODCs not classified as advances to banks. - Inconsistency among BOU departments on classification of foreign assets as reserve assets. - Loans and advances presented net of provisions for loan losses. - Classification issues in Development Finance Department accounts (use of original source of funds rather than unit subject to claim/liability). - Unclear economic and accounting nature of administered and internally managed funds of the BOU. - Data availability gaps: - Monetary data not fully updated in International Financial Statistics: latest central bank data Jan. 2008; other depository corporations Sept. 2007. ### Real sector and national accounts developments - East AFRITAC technical assistance since 2004: - Support for compilation of quarterly national accounts and training via short missions and a regional workshop. - Compilers developed quarterly value added estimates at constant 2002 prices using ISIC Rev III groups. - Methodological shortcomings remain relating to benchmarking. - UBOS data practices: - Industrial production: output data from a sample of manufacturing establishments used to compile Major and Main Index of Industrial Production (IIP). - Labor market indicators (employment, unemployment, wages/earnings) compiled with a two year lag due to resource and data constraints; UBOS aims annual compilation and dissemination. - Consumer prices: collected from six urban centers; inflation rates disseminated on the last working day of every month; plans to expand coverage by one urban center. - Producer prices (factory gate) collected from manufacturing establishments to compute Producer Price Index for Manufacturing (PPI-M). ### Government finance statistics (GFS) status - MoFPED responsibilities and coverage: - Compiles fiscal statistics on general government including budgetary central government and local governments; excludes extra budgetary institutions and National Social Security Fund. - Revised chart of accounts implemented from July 1, 2003 for budgetary central government and local government units. - Uganda reports GFS data according to GFSM 2001 for the GFS Yearbook, but institutional coverage limited to budgetary central government and local governments. - External debt and reporting: - External debt and debt service schedule data disseminated in millions of dollars and in Uganda shillings (using end of year exchange rates) for the fiscal year (July to June). - Uganda does not report any high frequency data for inclusion in the IFS. - Planned assistance: - Under DFID Phase II, authorities agreed that a GFS mission will visit Uganda in September 2008 to assist with improving fiscal data. ### External sector statistics and related recommendations - 2005 data ROSC mission conclusions: - Balance of payments statistics broadly follow BPM5 but with departures in definitions, scope, and classifications. - Urged completion of conversion to BPM5 and development of new source data/estimation techniques for: - exports of freight and imports of passenger transportation, - compensation of employees, - direct investment abroad, - portfolio investment, - financial derivatives. - Recommended improving international trade data by incorporating Survey of Informal Cross-Border Trade results and greater use of trade partner country data sources. - April 2008 mission recommendations: - Reviewed private sector financial survey and informal cross-border trade survey; examined remittance estimation methods. - Proposed measures to address gaps in recording transactions in securities market by nonresidents through secondary market and nominee accounts. - Proposed priority program to cover developments in the oil industry. - Identified alternative methods to improve remittance estimation. - Recommended a timely, small-scale quarterly survey of financial flows. ### Joint Bank-Fund work program (July 2008 – June 2009): selected items and timing - Mutual information on relevant work programs and World Bank key elements: - Poverty Reduction Support Credit: June 2009. - Continued portfolio focus: infrastructure (transport and energy), local government service delivery, agricultural research and training, Kampala infrastructure, Northern Uganda rehabilitation. - Public Expenditure Review (health sector and public sector wages): June 2009. - Study on fostering financial deepening: June 2009. - Study on “Understanding and Elimination of Non-tariff barriers to support Trade Integration with the EAC”: June 2009. - IMF work program: - Article IV and Fourth Review under PSI: Sep.–Oct. 2008; expected delivery Dec. 2008. - Fifth Review under PSI: Mar.–Apr. 2009; expected delivery June 2009. - Staff visit on the government budget: May 2009; expected delivery June 2009. - Requests and joint products: - Bank requests to Fund for monitoring government contracting of non-concessional borrowing: Sep.–Oct. 2008; expected delivery Dec. 2008. - Bank requests to Fund for monitoring the cost of monetary policy and discussion on mix of instruments with authorities: Sep.–Oct. 2008; expected delivery Dec. 2008. - Joint products planned (Sep.–Oct. 2008 through Dec. 2008): collaboration on financial market development strategy, Joint DSA, JSAN. ### Data dissemination, ROSC and SDDS participation - GDDS and SDDS engagement: - Metadata initially posted on DSBB in May 2000; partial updates of real and external sector metadata completed August 2005. - Uganda participating in SDDS, government finance, and monetary and financial statistics modules of the Fund’s GDDS Project for Anglophone Africa (DFID-funded). - ROSC and SDDS assessments: - STA data ROSC mission in February 2005; ROSC published July 21, 2006. - ROSC assessed national accounts, prices, government finance, and balance of payments; monetary and financial statistics were not assessed in that ROSC. - April 2007 mission conducted an SDDS assessment focusing on dissemination practices for coverage, periodicity and timeliness. ### Data quality and reporting table highlights (as of June 9, 2008) - Selected data items with latest observation and reception dates (verbatim): - Exchange rates: Apr. 2008; May 2008; Frequency: M. - International reserve assets and reserve liabilities of the monetary authorities: Jan. 2007; Abr. 2007; Frequency: M. - Reserve/base money: Jan. 2008; Apr. 2008; Frequency: M. - Broad money: Sept. 2007; Dec, 2007; Frequency: M. - Central bank balance sheet: Jan. 2008; Apr. 2008; Frequency: M. - Consolidated balance sheet of the banking system: Sept. 2007; Dec. 2007; Frequency: M. - Interest rates: Apr. 2008; May 2008; Frequency: M. - Consumer price index: Apr. 2008; May 2008; Frequency: M. - Revenue, expenditure, balance and composition of financing — central government: June 2006; July 2006; Frequency: M. - Stocks of central government and central government-guaranteed debt: June 2006; July 2006; Frequency: M. - External current account balance: Q4. 2007; May 2008; Frequency: Q. - Exports and imports of goods and services: Q4. 2007; May 2008; Frequency: M. - GDP/GNP: 2006; July 2007; Frequency: A. - Gross external debt: Dec. 2005; May 2006. - International Investment Position: 2007; May 2008; Frequency: A. - Data quality assessments referenced the ROSC published July 21, 2006 (mission Feb. 9-22, 2005) for methodological soundness and accuracy/reliability ratings. ### Future technical assistance priorities (Fund) - Priority TA areas for next few years: - Tax administration. - Public expenditure management, especially control and monitoring of public arrears at both central and local government levels. - Monetary and exchange rate management. - Bank supervision. - National accounts statistics. - Reporting standards for government finance statistics. - Monetary and balance of payments statistical reporting. - Central bank accounting and audit. - Debt management. ### PSI third review and policy messages (Press Release No. 08/172, July 10, 2008) - IMF Executive Board completed the third review under the three-year Policy Support Instrument (PSI) for Uganda (PSI approved Dec. 15, 2006). - Board actions: - Approved waivers of non-observance of four structural assessment criteria (non-observance due largely to adjustments from new information and reassessment of costs and priorities). - Approved modification of the continuous assessment criterion on external debt and three end-June 2008 quantitative assessment criteria. - Deputy Managing Director and Acting Chair Mr. Takatoshi Kato: selected observations - Uganda’s economy “has continued to thrive, owing to appropriate fiscal and monetary policies, improved regional stability, and its resilience to shocks.” - Economic outlook supported by higher public investment in infrastructure and sound economic policies. - “A comfortable level of foreign exchange reserves and sufficient locally-grown food supplies are helping Uganda cope with the sharp increases in world fuel and food prices.” - Inflation: “Rising food and fuel prices have lifted Uganda’s inflation to about 11 percent.” - Policy guidance: - Continued focus on price stability as primary monetary policy objective is essential. - Authorities committed to prevent spillover into sustained higher inflation and are adjusting monetary policies accordingly. - Following strong fiscal consolidation, authorities are well-placed to scale up domestic investment to alleviate infrastructure bottlenecks, but careful evaluation of planned projects for cost effectiveness and debt sustainability is warranted, especially for non-concessional financing. - Planned restraint on current expenditure must be implemented to avoid new budget arrears or disruptions to key public services. - Strengthening focus on domestic budget arrears is essential; while clearing old arrears is proceeding, accumulation of new arrears has yet to be arrested. New measures to address technical shortcomings in public financial management and to strengthen internal compliance with budget spending limits are welcome. ### Recent economic developments (authorities’ statement) - Statement by Uganda’s Executive Director and Advisor dated July 7, 2008: - “The Ugandan economy continues to perform buoyantly as a result of a disciplined fiscal stance, implementation of prudent monetary policy, and strong effort in carrying out structural reforms.” - Real GDP growth was 7.4 percent in the FY 2006/07 and is projected at *This summary is based solely on the supplied content from the IMF document provided.* ### 8.9 percent in the FY 2007/08, propelled by expansions in services and manufacturing. The ### _cr08236 - 8.9 percent in the FY 2007/08, propelled by expansions in services and manufacturing. The ### Economic performance and poverty - Real GDP growth of 8.9 percent in the FY 2007/08, propelled by expansions in services and manufacturing. - The proportion of the people living below the poverty line has declined substantially. ### Inflation, external sector, and reserves - Underlying inflation: - 7.3 percent in 2006/07. - Projected at 11.3 percent in 2007/08 against program targets of 8.1 percent and 4.8 percent, respectively. - Factors contributing to higher-than-expected inflation: - Political unrest in Kenya in December 2007 exerted prolonged upward pressure on prices. - Increased domestic and regional demand for goods and services. - Higher international oil and food prices. - Sharp increase in electricity tariffs. - Headline inflation: - 11.8 percent in May 2008. - Balance of payments and capital flows: - Strong balance of payments performance and capital inflows produced modest appreciation pressures on the Uganda shilling against the US dollar. - International reserves: - Foreign exchange reserves equivalent to 5.8 months of import cover in 2006/07. - Projected to increase to 6.0 months of imports in 2007/08. ### Fiscal performance and public finances (FY 2007/08) - Fiscal outcomes to date and outlook are in line with the Medium-Term Expenditure Framework (MTEF) and program objectives in the Memorandum of Economic and Financial Policies (MEFP). - Revenue performance: - Better than expected tax collection in the first half of 2007/08 more than offset negative customs revenue impact from the unrest in Kenya. - Overall revenues expected to perform better than targeted. - Expenditure performance: - Spending within the budget envelope despite pressures from hosting the Commonwealth Heads of Government Meeting and emergency responses (floods in the North and East, and Ebola outbreak in the West). - Expenditure pressures offset by adjustments in non-priority areas. - Lower-than-expected levels of government implementation capacity largely contributed to a budget surplus for the first half of 2007/08. - Fiscal policy objectives and measures: - Authorities aim to restrain expenditure and improve revenue collection by 0.5 percent of GDP per year in line with the MTEF for the remainder of FY2007/08 and FY 2008/09. - Measures to improve implementation capacity include creation of the Uganda Roads Authority. - Comprehensive audit review of the IFMS to be completed in September 2008. - Expenditures contracted outside the IFMS will not be recognized by the Accountant General with effect from July 2008. - Commitment to discipline in contracting new loans to maintain debt sustainability. - Priority spending: agriculture; infrastructure (energy, roads and railways); human resource development; environment for private sector development (including construction of four industrial parks); provision of tax incentives to qualifying investors in export business. - Transport and regional connectivity investments: - An additional US$200 million per year for the next 5 years has been budgeted and ring-fenced to upgrade key transport corridors linking the country to Southern Sudan, Eastern DRC, Kenya and Rwanda. - Discussions with Tanzania envisaged to open a sea route through Dar-es-salaam. - Uganda-Kenya concession agreement for the Rift Valley Railway line under review. - Energy projects: - Bujagali hydroelectric dam and power plant under construction for one year. - Karuma hydro power project in the pipeline. ### Monetary policy and financial sector - Monetary policy objective: - Maintain annual average underlying inflation below 5 percent within the framework of the reserve money target for both FY 2007/08 and 2008/09. - Liquidity and sterilization: - Authorities committed to manage liquidity using an appropriate policy instrument mix without exacerbating market instability and loss of export competitiveness. - Sterilization of excess liquidity to rely on both indirect monetary policy instruments and foreign exchange sales. - Mix of instruments to be kept under review due to persistent capital inflows to avoid undue pressure on interest and exchange rates. - Deposit auctions introduced to expand the array of monetary policy instruments for liquidity management. - Cost of sterilization is being shared between the fiscal and monetary authorities. - Policy framework and targets: - Reviewing preconditions for, and appropriateness of, an inflation targeting framework in the medium-term. - Continuing with a flexible reserve money growth target range to account for shifts in velocity and the money multiplier and the surge in net capital inflows. - Base money growth target adjusted further upwards by 3 percentage points in view of higher economic growth and increased money demand. - Financial sector development and access to finance: - Recognition that high cost of borrowing for small scale enterprises is a serious impediment to higher growth, employment creation and poverty reduction. - New commercial banks allowed entry to boost competition. - Uganda Development Bank (UDB) is gradually being recapitalized to ensure availability of long-term financing based on internationally accepted best practices. - Credit guarantee scheme to cover up to 50 percent of credit risk associated with loans by commercial banks for certain sectors will be introduced. - Financial market development: - BoU, in consultation with the Monetary Affairs Committee of the East African Community, has drafted a comprehensive financial market development plan aimed at enhancing effectiveness and efficiency of the financial sector, including financial deepening. ### Structural reforms and institutional measures - PSI and PEAP reform implementation: - Authorities committed to sustaining the country’s economic reform program under the PSI and PEAP. - New bodies to regulate nonbank financial institutions (except UDB) are being established. - Existing Insurance Commission will continue to regulate the insurance industry. - Draft legislation to establish a regulator for the pension sector and determine an appropriate entity to supervise other non-deposit taking financial service providers (leasing companies and microfinance institutions) are underway. - UDB supervision to be carried out by the newly reconstituted and independent board for the time being. - Credit information and fraud reduction: - Issuance of financial score cards and envisaged establishment of the Credit Reference Bureau (CRB) aimed at reducing identity fraud-related losses and information asymmetry between banks and borrowers. - Tax administration and legal capacity: - Measures to improve efficiency of the tax tribunal and its legal capacity to handle cases. - Consideration of introducing an electronic tax registry. - Energy revenue management: - National energy policy being updated to ensure that oil revenue is managed and invested prudently, in an accountable manner and transparently. - Agreement reached on the principles of operating the energy fund. - National identity card system: - Introduction has taken longer than previously envisaged due to high cost; interim measures being taken to enhance existing databases. ### Performance under the PSI (Program for Sustained Implementation) - Compliance and targets: - All assessment criteria through end-December 2007 were met. - Performance in the first half of 2007/08 broadly satisfactory. - Indicative target for poverty related spending was not observed because of delays in recruitment of teachers and compliance by spending agencies, despite required resources being made available. - Structural measures and missed criteria: - Debt strategy published in December 2007; most other structural measures on track. - Four structural assessment criteria for May and June 2008 were missed: - Delay in issuance of the tender for the national identity card system. - Establishment of a single regulatory body for non-bank financial sectors (authorities opted for specialized regulatory agencies instead). - Slight delay in the roll over of the new Integrated Personnel and Payroll System. - Budgetary allocation towards the reduction of the stock of domestic arrears. - Nonobservance of these structural criteria mainly due to improvement in program design in light of new information, as elaborated in the staff report. - Specific missed assessment criteria detailed in Conclusion: - One structural assessment criterion for end-May 2008 not met: implementation of a pilot Integrated Personnel and Payroll System in three commissions, four ministries and local governments. - Three structural assessment criteria for end-June 2008 missed: - Submission to cabinet of a policy paper outlining the establishment of a new regulatory framework for financial institutions. - U Sh300 billion for payment of domestic arrears. - Issuance of a tender for national identity card system. - Authorities are seeking waivers in view of remedial measures put in place. ### Medium-term outlook and policy objectives - Central objective: - Raise real economic growth to an average of 8 percent per annum in the medium-term, supported by sound public finances and prudent monetary policy to ensure job creation and "Prosperity For All". - Policy focus: - Remove constraints affecting private investment. - Leverage prevailing peace in Northern Uganda, strong domestic and regional market, and regional peace and stability in East and Central Africa to further growth. - Key challenges to sustain higher growth: - Expanding fiscal space to finance domestic infrastructure investment and increased spending pressure arising from reconstruction of Northern Uganda. - Prudent fiscal management and stemming the growth of domestic arrears. - Tightening monetary policy to bring inflation down to less than 5 percent. - Prudent management of large foreign exchange inflows. - Removal of structural rigidities in the financial sector. - Managing macroeconomic consequences of fast rising oil prices. ### Conclusion and request - Authorities have remained committed to implementing prudent macroeconomic and structural policies under the PSI. - All assessment criteria through end-December 2007 were observed. - Some structural assessment criteria for end-May and end-June 2008 were not met due to new information and reassessment of costs and priorities; remedial measures have been put in place. - Authorities believe policies set out in the MEFP are adequate to achieve PSI objectives and are committed to working with the Fund and other development partners in program implementation. - Authorities request completion of the third review under the PSI. *IMF staff report content as provided in the source PDF.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08236.pdf_