## _cr14344 ## Source details **Canonical URL:** [_cr14344](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14344.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14344.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14344.pdf.json) --- ### Recent economic developments and outlook - Real GDP growth in FY2013/14: 5.2 percent; growth slightly weaker than expected due to under-execution of externally-financed public investment. - Service sector: strong performance (tourism and business travel); exports depressed by stalled demand in trading partners. - Headline annual inflation: fell from 5.0 percent in June 2014 to 1.8 percent in October 2014 due to a sharp decline in food prices. - Core inflation: 2.4 percent in October 2014; average core inflation: 5.2 percent in June 2014 (within PSI consultation clause); preliminary end-September average core inflation: 4.2 percent. - Exchange rate: 5 percent appreciation between July 2013 and February 2014; subsequent depreciation of over 10 percent since February. - External current account: deficit narrowed in FY2013/14; projected to widen in FY2014/15 due to imports for HPPs and other infrastructure projects. - International reserves: peak coverage of 4.7 months of imports in June 2014; projected to be 4.1 months in FY2014/15. - Real GDP growth projections: FY2014/15: 6.1 percent; FY2015/16: 6.2 percent. - Key risks: external shocks (regional security, donor delays, FX outflows), persistence of Ebola, domestic implementation capacity constraints, possible fiscal slippages in pre-electoral period. - Medium-term prospects: oil production set to start in FY2018/19; by FY2020/21 enhanced electricity supply and road infrastructure expected to generate significant productivity gains. ### Fiscal performance, public investment, and arrears - Overall deficit (excluding BoU recapitalization): increased from 3.4 to 4.1 percent of GDP in FY2013/14. - Expansion of the deficit was lower by 0.7 percent of GDP than anticipated due to under-execution of externally-financed projects. - Tax revenue: nominally somewhat lower than envisaged; tax-to-GDP targeted to increase by 0.5 percent to 13.1 percent of GDP. - Financing: about two thirds of the deficit domestically financed; domestic financing increase to 4 percent of GDP (compared to 2.5 percent in FY2013/14) explained by use of savings to finance HPPs. - Domestic arrears: stock reduced by 0.8 percent of GDP in FY2013/14; reported reduction by Shs. 544 billion (about 0.9 percent of GDP reported as Shs. 584 billion). - Authorities intend to reduce arrears by at least Shs. 80 billion (0.1 percent of GDP) annually over the medium term. - FY2014/15 budget: removed many tax exemptions; parliament introduced additional expenditures financed by reducing the contingency reserve rather than increasing domestic borrowing. - Contingency reserve remaining: 0.1 percent of GDP; government committed not to use it unless absolutely necessary after implementing savings. ### Large infrastructure projects and financing implications - Two large hydropower plants (Karuma and Isimba) construction begun despite some financing agreements not finalized. - Government disbursed 15 percent financing share for HPPs using savings from oil capital gain taxes and the energy fund; financing guarantee from China’s Eximbank. - Financing agreement for 85 percent of Isimba cost finalized; Karuma negotiations ongoing. - Government used resources from its main BoU account temporarily in August and reversed the transaction in early November. - Fiscal impact: HPPs projected to raise overall fiscal deficit to 6.8 percent of GDP in FY2014/15 (HPPs account for 3.4 percent of GDP; BoU recapitalization 0.4 percent of GDP). - Staff recommendations: - Prepare thorough feasibility studies for envisaged infrastructure projects. - Invite private sector participation where possible and seek most favorable financing terms. - Sequence projects in line with implementation capacity and assess impact on debt sustainability and economic absorption. - Authorities to phase projects starting in FY2015/16, with comprehensive analysis during next review mission. ### Monetary policy, reserves, and banking sector - Bank of Uganda (BoU) policy rate (CBR): reduced by 50 basis points to 11 percent in June 2014; CBR kept at 11 percent in July and October 2014 meetings. - Lending rates: 22 percent; time deposit rates declined. - BoU interventions: maintained exchange rate flexibility; intervened sporadically (three occasions in June and July) to stem volatility; announced program of daily FX purchases to build reserves but reduced purchases on days of excessive pressure. - Monetary stance assessment: prudent stance brought inflation to a four-year low, creating conditions for potential additional easing provided inflation expectations anchored and fiscal risks contained. - Banking system: liquid and solvent; profitability affected by sharp increase in NPLs up to March 2014 but recovering as provisioning completed and bad debts declined; BoU revoked license of one bank due to persistent losses and missed reporting. - Credit: recovering—annual growth in credit to private sector FY2013/14: 13.9 percent; projected FY2014/15 and FY2015/16: 15.6 percent each. - Recommendations: better fiscal-monetary coordination, planned securities issuances, certainty on timing of government deposit use at BoU, heightened bank risk assessment as credit picks up, strengthen AML/CFT framework. ### Program performance (PSI) and monitoring - Program performance: satisfactory. - End-June QACs on net international reserves and government net domestic financing were met. - Most end-June and continuous QACs and most indicative targets observed; IT on tax revenue missed. - Preliminary end-September: some ITs on net government domestic financing and net international reserves missed for technical reasons. - Staff recommends completing the third review of the PSI-supported program; LoI and MEFP include policies for remainder of fiscal year and an additional SB on guidelines to screen/select/finance investment projects. - Proposed modifications: increase end-December 2014 ceiling on net domestic financing (supported by staff); drop the base money IT on transitional basis. - Monitoring framework: - Progress monitored via QACs, ITs and SBs; fourth review by end-June 2015; fifth review by end-December 2015. - Reporting procedures: GoU to submit data electronically to afruga@imf.org with specified frequencies and lags (Bank of Uganda weekly/monthly/quarterly items; Ministry of Finance monthly/quarterly). ### Structural reforms and public financial management (PFM) - PFM bill: Parliament yet to approve; regulations in drafting with IMF Fiscal Affairs Department support; regulations to cover petroleum revenue management, budget cycle, cash management, accounting and auditing. - Treasury Single Account (TSA): further steps to fully implement TSA; plan to convert to TSA head and sub-account structure; pilot to include donor-funded projects. - Public Investment Management: new department in MoFPED; World Bank support to develop and publish public investment guidelines (new SB). - BoU recapitalization: second recapitalization with marketable securities completed ahead of schedule (October 2014 SB); further recapitalizations needed to align capital to monetary liabilities; MoU between MoFPED and BoU delayed. - Legal/regulatory reforms: amendments to Financial Institutions Act to enable Islamic banking, mobile banking improvements, insurance services by banks, reform deposit protection and bank resolution, expand credit bureau access, include market risk in risk-weighted assets, introduce additional bank capital buffers. - Identity cards: registration started; target to issue minimum of 3 million ID cards by July 2015 to support tax collection and AML/CFT objectives. - GDP rebasing: base year updated from FY2001/02 to FY2009/10; rebasing expected to raise nominal GDP by as much as 17 percent; UBOS expected to publish rebased GDP before end of year. ### Debt sustainability assessment (Annex I) — key findings and assumptions - Risk assessment: Uganda remains at low risk of debt distress overall. - Debt dynamics: - Public domestic debt increased by 5 percent of GDP; external public debt increased by about 5 percent of GDP. - NPV of public debt-to-GDP projected to peak at about 34½ percent in FY2019 (below 74 percent benchmark for heightened vulnerability for strong performers). - Debt service-to-revenue ratio about 39 percent (high among LICs) due to low revenues and short domestic maturities. - Financing assumptions: - Envisaged non-concessional borrowing (NCB) under the PSI of $2.2 billion to finance: Karuma $1.4 billion; Isimba $0.5 billion; oil-related infrastructure $0.2 billion; industrial substations 0.1 billion. - Grant element of new public sector borrowing assumed at 15–20 percent long-run. - Growth assumptions: - Average medium-term growth projected at 6½ percent (reduced from 7 percent previously); long-term average 7¼ percent. - Baseline conclusions: - PPG external debt sustainable under baseline and standardized stress tests; all debt burden indicators remain below country-specific thresholds under baseline and stress tests. - Stress-test highlight: - Illustrative unchanged primary deficit of 4.9 percent of GDP (vs baseline average primary deficit of 1.5 percent) would raise NPV public debt-to-GDP to 62 percent by FY2035. - Policy implications: - Address short domestic debt maturities and low revenue base via stronger revenue mobilization and deeper financial markets; ensure project selection and execution consider absorptive capacity. ### Selected key macro and fiscal indicators (selected figures preserved) - Real GDP growth: - FY2011/12: 3.4; FY2012/13: 6.0; FY2013/14: 5.2; FY2014/15: 6.1; FY2015/16: 6.2 - Headline CPI inflation, period average: - FY2011/12: 2; FY2012/13: 3.5; FY2013/14: 5.8; FY2014/15: 6.7; FY2015/16: 5.0 - Core CPI inflation, period average: - FY2011/12: 2; FY2012/13: 4.6; FY2013/14: 6.6; FY2014/15: 5.2; FY2015/16: 4.5 - External current account balance (percent of GDP): - FY2011/12: -11.2; FY2012/13: -9.3; FY2013/14: -6.2; FY2014/15: -10.3; FY2015/16: -9.4 - International reserves (months of imports): - FY2011/12: 4.2; FY2012/13: 4.4; FY2013/14: 4.7; FY2014/15: 4.1; FY2015/16: 4.1 - Fiscal balance (excluding one-off spending): - FY2011/12: -3.9; FY2012/13: -3.4; FY2013/14: -4.1; FY2014/15: -3.1; FY2015/16: -2.9 - Overall balance (percent of GDP): - FY2011/12: -3.0; FY2012/13: -4.1; FY2013/14: -4.1; FY2014/15: -6.8; FY2015/16: -5.5 - Policy rate (end of period): - FY2011/12: 20.0; FY2012/13: 11.0; FY2013/14: 11.0 - Credit to the private sector (annual growth, percent): - FY2011/12: 11.5; FY2012/13: 6.4; FY2013/14: 13.9; FY2014/15: 15.6; FY2015/16: 15.6 ### Policy recommendations and strategic priorities - Fiscal policy: - Maintain increased revenue mobilization and restrain current spending to create space for development projects. - Implement revenue package fully, step up tax compliance and enforcement, and monitor tax revenue closely. - Limit market issuances to avoid crowding out private credit; sequence infrastructure projects with feasibility studies and capacity constraints in mind. - Staff recommended preparing feasibility studies, inviting private participation, seeking favorable financing terms, sequencing projects, and assessing impact on debt sustainability; authorities to conduct comprehensive analysis with staff for phasing from FY2015/16. - Expenditure control: - Resist spending pressures and supplementary budgets; preserve spending quality and avoid reallocations from capital to current expenditure. - Maintain contingency balance as safeguard against shocks. - Monetary and financial sector: - Consider additional monetary easing if inflation forecasts show contained pressures and fiscal risks dissipate; improve fiscal-monetary coordination. - Continue strong banking supervision, remove banks’ structural rigidities, strengthen AML/CFT framework, and enhance risk assessment as credit expands. - Public financial management and governance: - Complete approval and implementation of the PFM bill and its regulations; finalize the charter of fiscal responsibility. - Advance TSA implementation (TSA head and sub-account structure) and integrate donor funds and autonomous agencies when ready. - Issue national ID cards to aid tax collection and AML/CFT efforts. - Debt management: - Ensure project selection on economic viability and cost recovery; pace execution to reflect absorptive capacity; halt temporary fiscal deficits after project completion to restore sustainable path. ### Monitoring adjustors and specific schedules (selected numerical schedules preserved) - Schedule A: Budget Support (Ush billions) — Cumulative from July 1: - Dec-14: 50; Mar-15: 62; Jun-15: 62; Sep-15: 28; Dec-15: 83 - Schedule B: Expenditures on hydropower projects (Ush billions) — Cumulative from July 1: - Land acquisition for Karuma and Isimba HPPs: - Dec-14: 100; Mar-15: 100; Jun-15: 100; Sep-15: 0; Dec-15: 0 - Government share associated with the China Eximbank loan: - Dec-14: 1,130; Mar-15: 1,130; Jun-15: 1,130; Sep-15: 0; Dec-15: 0 - Schedule D: GoU’s foreign-currency spending to cofinance hydropower projects (US$ millions) — Cumulative from October 1, 2014: - Dec-14: 86; Mar-15: 86; Jun-15: 86; Sep-15: 0; Dec-15: 0 - Schedule E: Recapitalization of the Bank of Uganda (Ush billions) — Cumulative from July 1: - Dec-14: 250; Mar-15: 250; Jun-15: 250; Sep-15: 0; Dec-15: 200 - Petroleum and Energy Fund stocks (Oct 16, 2014): - Energy Fund: Ush 92; Petroleum Fund: Ush 1612 ### Data, reporting and technical assistance - GoU to provide frequent reporting to IMF (see reporting schedules for BoU and MoFPED); data to be sent to afruga@imf.org. - UBOS to publish rebased GDP (FY2009/10) and new CPI series; rebasing expected to raise nominal GDP by as much as 17 percent. - TA from East AFRITAC and IMF planned for national accounts, CPI, PPI, MFS and expansion of coverage for other financial corporations; improvements in external sector statistics and BPM6 implementation underway. *Source: International Monetary Fund — Uganda staff report (extracts from _cr14344).* ### 1. Recent Economic Developments ........................................................................................ ### 1. Recent Economic Developments ### Recent macroeconomic performance - Real GDP growth in FY2013/14: 5.2 percent; turned out slightly weaker than expected at the time of the second PSI review, mainly due to under-execution of externally-financed public investment. - Service sector (primarily tourism and business travel) performed strongly, but overall growth decelerated relative to FY2012/13 owing to depressed exports as demand in trading partners stalled. - Headline annual inflation slowed from 5.0 percent in June 2014 to 1.8 percent in October 2014 due to a sharp decline in food prices. - Core inflation: 2.4 percent in October 2014, well below anticipated levels. - Exchange rate: 5 percent appreciation observed between July 2013 and February 2014; subsequent depreciation of the shilling of over 10 percent since February (reflecting global dollar strength and increased import demand). The real effective exchange rate is broadly in line with fundamentals. - External current account deficit narrowed despite weak exports as imports slowed, tourism receipts strengthened, and earnings repatriation declined. - International reserves: peak coverage of 4.7 months of imports in June 2014. - Debt: remained at low level of distress (Annex 1). - Banking system: continued to be liquid and solvent. Profitability affected by a sharp increase in non-performing loans (NPLs) in the year up to March 2014, but recovering as banks completed provisioning and bad debts began to decline. - Credit to the private sector: recovering, driven mainly by personal and household loans for consumption; lending rates remained high at 22 percent while time deposit rates declined. ### Fiscal performance and execution - Overall deficit (excluding recapitalization of the Bank of Uganda): increased from 3.4 to 4.1 percent of GDP in FY2013/14. - Expansion of the deficit was lower by 0.7 percent of GDP than anticipated at the time of the second PSI review due to procurement and project management difficulties that prevented full execution of externally-financed projects. - Tax revenue in nominal terms: somewhat lower than envisaged (flat as a percent of GDP), affected by compliance and enforcement challenges and insufficient tax buoyancy. - Financing: about two thirds of the deficit was domestically financed. - Domestic arrears: declined by 0.8 percent of GDP, of which 0.7 percent involved cash payments (mainly to road construction companies). - FY2014/15 budget: removed many tax exemptions; parliament introduced additional expenditures financed by reducing the contingency reserve rather than increasing domestic borrowing. - Fiscal performance in first four months of FY2014/15: satisfactory, with tax revenue collection above expectations and only small overruns in expenditure. ### Large infrastructure projects and financing - Construction of two large hydropower plants (HPPs) has begun although external financing agreements have not been finalized. - Government disbursed its 15 percent financing share for HPPs using savings from windfall capital gain taxes on oil transactions (the oil fund) and the energy fund, based on a financing guarantee from China’s Eximbank. - Financing agreement for 85 percent of cost of Isimba (the smallest dam) finalized; loan document expected to be ratified by parliament shortly. - Financing negotiations for 85 percent of the cost of Karuma (the largest dam) ongoing; delays attributed to protracted due diligence and creditor internal procedures. - Note: government used resources from its main account in the BoU (and not from the oil fund) to finance HPPs in August on a temporary basis while awaiting parliamentary approval for the use of the oil fund; transaction was reversed in early November. ### Monetary policy stance - Bank of Uganda (BoU) reduced the central bank rate (CBR) by 50 basis points to 11 percent in June 2014. - BoU kept the CBR constant in MPC meetings of July and October 2014 despite a downward trend in inflation, citing risks from higher food prices, shilling depreciation, and global/domestic uncertainties. - Lending rates: 22 percent; time deposit rates: declined. ### Program performance (PSI) - Program performance: satisfactory. - Average core inflation: 5.2 percent in June 2014—within the PSI inflation consultation clause bands. - End-June quantitative assessment criteria (QAC) on net international reserves and government net domestic financing were met. - All other end-June and continuous QAC and most indicative targets (ITs)—including the IT on reduction in the stock of domestic arrears—were observed. - IT on tax revenue: missed, reflecting lower growth and shortfalls in efficiency gains. - Preliminary end-September performance: average core inflation at 4.2 percent (close to the inner band lower limit). ITs on net government domestic financing and on net international reserves were missed for technical reasons. ### Structural reforms progress - Structural benchmarks (SB) met on eliminating exemptions from tax on interest earned on loans granted to agriculture and supply of specialized vehicles, plant and machinery (the latter producing a lower yield than expected). - Second recapitalization of the BoU with marketable securities completed ahead of schedule (SB for October 2014). - Report on stock of domestic arrears published with delay in October (SB for September 2014). - Progress reported on upcoming SBs: further steps to fully implement the Treasury Single Account (TSA), issue regulations for the Public Finance Management (PFM) bill, use the trading license regime to collect taxes in three municipalities, and issue national identification cards. ### Key macroeconomic indicators (selected projections and recent outcomes) - Real GDP growth: FY2011/12: 3.4; FY2012/13: 6.0; FY2013/14: 5.2; FY2014/15: 6.1; FY2015/16: 6.2 - Headline CPI inflation, period average: FY2011/12: 2; FY2012/13: 3.5; FY2013/14: 5.8; FY2014/15: 6.7; FY2015/16: 5.0 - Core CPI inflation, period average: FY2011/12: 2; FY2012/13: 4.6; FY2013/14: 6.6; FY2014/15: 5.2; FY2015/16: 4.5 - External current account balance (percent of GDP): FY2011/12: -11.2; FY2012/13: -9.3; FY2013/14: -6.2; FY2014/15: -10.3; FY2015/16: -9.4 - International reserves (stock, months of imports): FY2011/12: 4.2; FY2012/13: 4.4; FY2013/14: 4.7; FY2014/15: 4.1; FY2015/16: 4.1 - Fiscal balance (excluding one-off spending): FY2011/12: -3.9; FY2012/13: -3.4; FY2013/14: -4.1; FY2014/15: -3.1; FY2015/16: -2.9 - Overall balance (percent of GDP): FY2011/12: -3.0; FY2012/13: -4.1; FY2013/14: -4.1; FY2014/15: -6.8; FY2015/16: -5.5 - Policy rate (end of period): FY2011/12: 20.0; FY2012/13: 11.0; FY2013/14: 11.0 - Credit to the private sector (annual growth, percent): FY2011/12: 11.5; FY2012/13: 6.4; FY2013/14: 13.9; FY2014/15: 15.6; FY2015/16: 15.6 ### Economic outlook and risks - Growth projection for FY2014/15: 6.1 percent (unchanged). Drivers: scaled-up public investment and a recovery in private demand as households and corporations deleverage and start accessing bank credit. - Average core inflation projected at 4.5 percent, within the PSI consultation bands. - Current account deficit projected to widen as imports related to HPPs and other infrastructure projects rise; financing to include FDI, concessional and non-concessional borrowing, and use of savings, bringing international reserves to 4.1 months of imports. - Medium-term prospects: stepped-up infrastructure development, progress on East African Community (EAC) integration, and oil production create favorable prospects. Oil production set to start in FY2018/19; by FY2020/21 enhanced electricity supply and road infrastructure expected to generate significant productivity gains and lower the economy’s vulnerability to shocks. - Risks: external shocks (deteriorating regional security, delays in donor support and loans for HPPs, foreign exchange outflows due to advanced economy conditions), persistence of Ebola affecting tourism and investor sentiment, and domestic risks from implementation capacity constraints and possible fiscal slippages as the election period approaches. ### Policy recommendations and strategic priorities - Fiscal policy - Maintain increased revenue and restrained current spending to provide space for large development projects. - Overall fiscal deficit projected to widen to 6.8 percent of GDP in FY2014/15 due to HPPs (3.4 percent of GDP, high import content) and BoU recapitalization (0.4 percent of GDP, no impact on domestic demand). - Excluding one-off items, a fiscal consolidation of 1 percent of GDP is projected, supported by: - Authorities’ commitment to increase the tax-to-GDP ratio by 0.5 percent to 13.1 percent of GDP. - Recovery in donor grants. - Important current spending savings. - Domestic financing increase to 4 percent of GDP (compared to 2.5 percent in FY2013/14) explained by use of savings to finance HPPs; market issuances limited to avoid crowding out private sector credit. - Medium-term strategy: continue to increase tax revenue and speed up project implementation to narrow infrastructure gap and advance EAC integration. - Staff recommended: prepare thorough feasibility studies for envisaged infrastructure projects, invite private sector participation when possible, seek most favorable financing terms, sequence projects in line with implementation capacity, and carefully assess impact on debt sustainability and economic absorption. - Authorities aim to conduct a comprehensive analysis with staff during the next review mission, with a view to phasing in projects starting in FY2015/16. - Revenue measures and administration - Revenue package eliminated many statutory VAT exemptions and several income tax exemptions, and increased excise taxes on various products. - Yield from elimination of a large VAT exemption overestimated; expected revenue from this measure now reduced (up to 0.2 percent of GDP less than anticipated). - New tax policy measures expected to yield about 0.1 percent of GDP: increase in the export levy on unprocessed tobacco leaf, withholding tax on re-insurance, and requirement that parliamentarians pay tax on their allowances. - Additional efficiency gains (standardized valuation controls across customs agents, mandatory tax identification numbers for government suppliers, additional income tax audits) expected to yield another 0.1 percent of GDP. - Staff recommended continuous monitoring of tax revenue, stepped-up tax compliance and enforcement, and leadership by the recently appointed head of the Uganda Revenue Authority (URA). - Expenditure control - Staff supported efforts to keep expenditure under control and urged the government to resist spending pressures given limited fiscal space. - Parliament approved additional current spending of about 0.3 percent of GDP; government decided to utilize portion of contingency reserve and identified savings on wages, pensions, and other outlays mainly via payroll cleaning and removal of ghost workers. - Contingency buffer significantly diminished; remaining contingency reserve: 0.1 percent of GDP. Authorities indicated readiness to resist spending pressures ahead of the 2016 election and not to use the remaining contingency reserve unless absolutely necessary after fully implementing identified savings, to maintain issuance of securities at the programmed level. *Source: International Monetary Fund, Uganda staff report.* ### 16. Considerable progress has been made on reducing arrears. During FY2013/14, the stock of ### _cr14344 - 16. Considerable progress has been made on reducing arrears. ### Arrears Reduction and Transparency - During FY2013/14, the stock of arrears was reduced by 0.8 percent of GDP to Shs. 584 billion (0.9 percent of GDP). - The authorities intend to further reduce it by at least Shs. 80 billion (0.1 percent of GDP) every year over the medium term. - Staff urged the authorities to maintain the steady pace of arrears reduction and publish the quarterly reports on arrears and unpaid bills in a timely manner, in line with the agreed SBs. ### Ministry of Finance, Planning and Economic Development (MoFPED) Coordination - Insufficient internal consistency hampered the preparation of accurate revenue and expenditure estimates, complicating the budgetary process. - Authorities are working on enhancing coordination within the Ministry to: - improve estimates of revenue yields; and - ensure consistency across all entities producing arrears figures and interest payment projections. ### Monetary and Financial Sector Policies — Preserving Low Inflation - Staff argued that the August and October MPC meetings could have provided a good opportunity for further monetary easing, citing: - the declining trend in core inflation since January; - the presentation to parliament of the budget in June; and - overall improvements in confidence that helped anchor inflation expectations. - BoU authorities noted offsetting factors to easing: - expected price increases in food crops; - high exchange rate pass-through to domestic prices; and - possible faster recovery of domestic demand. - BoU sees full implementation of the revenue-enhancing measures and adherence to the domestically-financed planned expenditure as necessary to support monetary easing. - Recommendations to improve fiscal-monetary coordination: - Better planned issuances of securities for fiscal purposes. - More certainty about the extent and timing of the use of government deposits in the BoU, given the current BoU Act allows for large intra-year overdrafts in the main government account. - Coordinate timing of financing and implementation of HPPs and other projects, especially when BoU is expected to sell foreign exchange to the government for investment-related imports. - Exchange rate policy: - BoU maintained exchange rate flexibility; intervened sporadically—on three occasions in June and July—to stem heightened volatility. - Kept announced program of daily purchases to build up international reserves, but reduced purchased amount on days of excessive market pressure. - Staff advised reminding markets that the primary BoU objective is achieving the inflation target and that foreign exchange interventions are subordinate to that objective. ### Monetary and Financial Sector Policies — Promoting a More Efficient Financial System - Transmission and rates: - 7-day interbank rate follows the CBR closely; clear correlation between the CBR and the time deposit rate. - Decline in lending rates over the last year has been negligible and bank spreads have widened. - Costs of dealing with NPLs (which rose sharply since 2012 and only started declining last June), increased provisioning and decline in profitability partly explain slow lending rate response. - Credit recovery is recent and expected, but credit is not yet broad-based and leaves key productive sectors underserved (Annex 2). - Supervision and recommendations: - Financial oversight remains diligent; BoU revoked the license of a bank that incurred persistent losses and missed reporting requirements. - Supervision improvements: on-site inspections focusing on more risky banks; specific instructions for capital injections; governance improvements; joint efforts with foreign regulators to enhance consolidated supervision. - Staff encouraged heightened bank risk assessment as credit picks up and the shilling depreciates. - Recommended further strengthening of the AML/CFT framework, particularly regarding terrorism financing, in line with the action plan agreed with the Financial Action Task Force. - Key interest rate table (monthly averages; preserve figures as provided): - CBR: Jul-11 13.00, Jul-12 13.00, Jul-13 13.50, Jan-14 11.50, Apr-14 11.00, Jul-14 11.00, Sep-14 11.00 - 7-day interbank market: Jul-11 15.32, Jul-12 18.52, Jul-13 11.02, Jan-14 11.16, Apr-14 11.35, Jul-14 11.01, Sep-14 11.00 - Deposit (shillings): Jul-11 2.82, Jul-12 3.61, Jul-13 2.90, Jan-14 3.53, Apr-14 3.41, Jul-14 2.40, Sep-14 2.49 - Lending (shillings): Jul-11 21.72, Jul-12 26.88, Jul-13 23.15, Jan-14 21.82, Apr-14 21.65, Jul-14 21.41, Sep-14 21.68 - 91-day Treasury bill: Jul-11 13.09, Jul-12 16.74, Jul-13 9.37, Jan-14 8.37, Apr-14 9.87, Jul-14 9.07, Sep-14 10.03 - 182-day Treasury bill: Jul-11 13.47, Jul-12 16.38, Jul-13 10.68, Jan-14 10.66, Apr-14 11.33, Jul-14 10.33, Sep-14 10.87 - 364-day Treasury bill: Jul-11 13.30, Jul-12 14.93, Jul-13 11.70, Jan-14 10.74, Apr-14 11.53, Jul-14 10.68, Sep-14 11.25 - Source: Bank of Uganda. (Note: Data from Aug-14 used when Sep-14 unavailable.) ### Structural Reforms — Public Financial Management and Economic Efficiency - PFM bill and regulations: - Parliament has yet to approve the PFM bill; progress on drafting regulations with IMF Fiscal Affairs Department support. - Regulations to cover petroleum revenue management; budget preparation, approval and implementation; and cash management, accounting and auditing. - PFM bill will bring forward the budget cycle, advancing most milestones by three months. - Further work needed to finalize a charter of fiscal responsibility, which will establish fiscal principles and measurable objectives (Annex 3). - Staff encouraged timely completion of regulations and continued progress in implementing the TSA by strengthening design and avoiding movement of cash to subaccounts. - Integration of donor funds and autonomous and semi-autonomous agencies would occur later than envisaged, once the TSA head and sub-account structure is completed; proposed modification of the relevant SB to reflect this approach. - Public investment management: - New department created in MoFPED to strengthen capacity for identifying, appraising, and developing investment projects. - With World Bank support, authorities will develop and publish public investment guidelines for economic, social and financial analysis of proposed projects (new structural benchmark). - A new Public Private Partnership (PPP) Act was passed by parliament; a PPP unit was established within the Ministry. ### Demographics, GDP Rebasing, and Development Planning - Census and national identification: - Population census completed in August; results—including employment statistics—expected by the end of the year. - Registration of national identification cards started in June; expected to support tax collection, promote identification of financial sector clients, and help combat money laundering. - GDP rebasing: - Uganda Bureau of Statistics expected to publish rebased GDP figures before the end of the year. - New GDP base year updated from FY2001/02 to FY2009/10; coverage expanded to include information and communications technology sector and mobile money transactions, among others. - Rebasing is expected to raise nominal GDP by as much as 17 percent. - Discussions on impact of rebased GDP on PSI targets and on tax and debt dynamics will take place in the context of the next program review. - National Development Plan: - A new five year National Development Plan is being prepared; original start June 2015 was extended by one year to allow consultation and alignment with rebased GDP, census results, and the charter of fiscal responsibility. - An updated annual performance review of the poverty reduction strategy describes recent progress and intended policies; staff welcomes progress in improving social indicators supported by sound economic policies, targeted interventions, and structural reforms. ### Central Bank and Financial Sector Modernization - BoU recapitalization and independence: - Ongoing recapitalization with marketable securities is helping improve BoU’s instrument independence. - Further recapitalizations needed to fully align BoU’s capital to its monetary liabilities. - Signature of a memorandum of understanding between MoFPED and BoU to contain BoU’s administrative costs and align capital has been delayed. - Staff encouraged finalization of such agreement and progress on planned amendments to the BoU Act to: - limit the government’s use of BoU credit; - make the BoU’s Board more independent; and - strengthen internal and external audit functions. - Forecasting and policy signaling: - BoU improving forecasting capacity with IMF Research Department assistance. - Schedule for monetary policy signaling changed: CBR now announced every two months on the tenth working day of the month (formerly, the first week of every month) to incorporate firmer economic data. - Capacity building to enhance quality and dissemination of the Forecast and Policy Analysis System (FPAS). - Financial Institutions Act amendments under discussion to: - open the door to Islamic banking; - improve mobile banking and money transfer services; - introduce insurance services by banks; - reform the deposit protection fund and bank resolution process; - expand access to credit bureau data; - allow inclusion of market risk in measurement of risk-weighted assets; and - introduce additional bank capital buffers. - Staff welcomed these reforms to boost competition and efficiency. ### Social Protection - Despite declines in the poverty rate, approximately seven million citizens still live below the poverty line; inequality remains widespread. - Staff, with DFID and the World Bank, presented evidence on benefits of well-structured targeted transfer programs and recommended exploring options to ensure inclusive growth (Annex 4). - Authorities favor growth inclusiveness, agreed with social protection principles, and decided to take stock of ongoing projects and analyze how to enhance the social protection system given constrained budgets. ### Regional Integration - Progress as East African Community member: - In April, single customs territory system extended to cover products like cigarettes, cement, and steel goods. - 36 national priority laws harmonized to enhance the common market; laws on investment, immigration and external trade still need conformity. - Free Kiswahili training lessons opened to the public to promote regional business. - The East African Payment System is facilitating cross-border payments and promoting regional trade. - Areas with less progress: removal of non-tariff barriers (weighbridges, roadblocks, delays at border posts, inconsistent import and export standards). - Monetary Union Protocol parliamentary ratification was expected by July 2014 among partner states; Uganda is yet to do so. ### Staff Appraisal — Key Findings and Recommendations - Macro outcomes and implementation capacity: - Policies supported economic growth while preserving low inflation and a comfortable international reserve position, providing buffers against regional shocks. - Government investment supported growth; BoU began easing monetary policy with favorable results in credit expansion. - Space for externally-financed investment was not fully used; several projects remain in the pipeline despite available financing—highlighting need to upgrade capacity to appraise, analyze and implement projects. - Revenue and expenditure policy: - Removal of many statutory tax exemptions in a pre-electoral year is a key milestone for raising the low tax-to-GDP ratio. - Full implementation of new measures and actions to enforce tax compliance should enable achievement of the targeted 0.5 percent increase in the tax-to-GDP ratio. - Achievement depends on strong enforcement and avoiding granting new exemptions; the new head of the URA is encouraged to lead these efforts. - Revenue enhancement must be complemented by strict adherence to the expenditure envelope and improved coordination within MoFPED. - Recent clean-up of the payroll and significant reduction of arrears are commendable. - Need to resist spending pressures including use of supplementary budgets; preserve spending quality by avoiding reallocations from capital to current expenditure; further reduce and publish arrears in line with PSI understandings; treat existing contingency balance as a safeguard against shocks. - Monetary policy and financial sector: - BoU’s prudent stance has brought inflation to a four-year low, creating conditions for some additional monetary easing. - Provided inflation forecasts show well-contained pressures and fiscal risks dissipate, BoU could consider lowering the CBR to support growth. - Better fiscal-monetary coordination should assist easing. - Strong banking supervision and actions to remove banks’ structural rigidities and encourage financial deepening should continue. - Infrastructure investment rollout: - Financing agreements for the HPPs should be finalized without further delay to avoid interruptions in execution. - Strategy for other projects should include: - project selection based on strong feasibility studies and commercial viability analysis; - sequencing that accounts for impact on debt sustainability, the economy’s ability to absorb investments without generating inflation or crowding out the private sector, and implementation capacity. - Structural reforms to continue: - Approval and implementation of the PFM bill is a priority. - Completion of the charter of fiscal responsibility and issuance of PFM bill regulations will facilitate petroleum revenue management preparations and improve fiscal policy efficiency. - Progress on BoU recapitalization and enhancement of central bank independence will be welcomed. - Issuance of national identity cards to all citizens will be an important mechanism for boosting transparency of economic transactions. *Source: _cr14344 - 16. Considerable progress has been made on reducing arrears.* ### 39. Staff recommends completing the third review of the PSI-supported program. The ### Staff Report Extract: Recommendation to Complete Third Review of PSI-Supported Program ### Key Institutional Recommendations - Staff recommends completing the third review of the PSI-supported program. - The attached LoI and MEFP outline policies for the rest of this fiscal year and propose an additional structural benchmark on the development of guidelines to screen, select and finance investment projects. - The authorities propose an increase in the end-December 2014 ceiling on net domestic financing of the central government, which staff supports to reflect the expected lower expansion in nominal GDP. - Staff proposes dropping the base money IT, as it is not being taken into consideration for monetary policy, and was introduced on a transitional basis. ### Recent Economic Developments (Summary from Figures) - Economic growth has recently decelerated, led by the service sector. - Leading indicators are consistent with the deceleration. - Inflation has been low, helped by decelerating food crops’ prices. - Private sector credit is gradually rebounding. - Robust investment flows are financing the current account deficit. - International reserves maintain adequate coverage. ### Fiscal Developments and Outlook (Summary from Figures) - Fiscal consolidation should continue. - Emphasis on higher revenue mobilization. - Streamlining of current spending is recommended to provide space for increased infrastructure spending. - Public investment should be aligned to regional standards. - Contain domestic borrowing requirements to support fiscal sustainability. ### Monetary and Financial Sector Developments (Summary from Figures) - The Central Bank rate has a clear influence on interbank rates. - The spread between deposit and lending rates remains high. - Provisions have increased concurrently with NPLs, negatively impacting profitability. - The inflation targeting framework is helping align core inflation forecasts to the medium term target. - The framework has been successful in reducing inflation and minimizing the effect of reserve money on inflation. ### Selected Key Statistics (as reported) - Real GDP: 6.63.46.05.75.26.16.16.26.56.87.0 - GDP deflator: 5.024.24.57.36.77.25.74.94.34.34.3 - CPI (period average): 6.523.55.86.96.76.95.05.05.05.05.0 - CPI (end of period): 15.718.03.66.05.06.46.05.05.05.05.0 - Core inflation (end of period): 12.119.65.75.12.95.95.75.05.05.05.0 - Broad money (M3): 25.77.26.613.417.416.317.517.515.215.914.9 - Credit to non-government sector: 43.611.56.410.613.914.715.615.615.415.115.7 - NPLs (percent of total loans): 1.63.94.0...5.8.................. - Revenue and grants (percent of GDP): 18.515.514.814.514.215.415.115.215.616.116.5 - Expenditure (percent of GDP): 22.818.518.919.518.422.622.020.721.521.219.9 - Overall balance (percent of GDP): -4.3-3.0-4.1-5.0-4.1-7.2-6.8-5.5-5.9-5.1-3.4 - Net domestic borrowing (percent of GDP): 2.80.01.22.62.53.64.02.02.71.91.2 - Public gross nominal debt (percent of GDP): 31.026.530.133.730.637.033.737.039.340.740.3 - Investment (percent of GDP): 25.024.624.523.622.627.127.126.127.227.626.4 - Savings (percent of GDP): 12.312.314.913.616.115.516.516.417.419.118.2 - Current account balance (including grants, percent of GDP): -11.4-11.2-9.3-9.7-6.2-11.2-10.3-9.4-9.5-8.2-7.9 - Gross international reserves (in billions of US$): 2.02.62.93.03.43.03.23.43.74.34.6 - Months of next year imports (reserves): 3.24.24.44.24.74.04.14.14.24.34.3 ### Banking Sector Indicators (selected, March 2010–September 2014) - Regulatory capital to risk-weighted assets: 22.7 21.7 21.2 20.2 21.2 19.3 18.3 20.3 21.8 20.7 20.9 21.9 24.5 24.3 23.1 22.1 23.6 22.8 22.5 - NPLs to total gross loans: 3.7 3.3 2.8 2.1 2.5 1.6 1.8 2.2 3.4 3.9 4.7 4.2 4.7 4.0 4.4 6.0 6.2 5.8 5.3 - Return on assets: 2.4 2.3 2.4 2.7 2.9 3.1 3.6 4.0 4.4 4.4 4.3 3.9 3.6 3.3 3.2 2.0 2.4 2.1 2.2 - Return on equity: 15.5 16.1 16.2 18.0 19.6 22.4 25.4 27.4 28.1 29.5 27.9 24.2 21.0 20.4 18.9 12.4 14.2 12.8 13.1 - Net interest margin: 10.0 9.9 10.0 10.0 10.1 10.5 11.0 11.7 12.5 12.8 12.9 12.8 12.5 12.2 11.8 11.6 11.4 11.5 11.3 - Liquid assets to total deposits (percent): 45.5 41.6 40.5 39.8 40.5 35.6 36.2 37.6 37.5 38.9 42.5 42.0 42.7 41.1 40.6 42.5 45.4 46.5 41.8 *Source: IMF staff report (extract provided).* ### Annex I. Uganda: Joint Fund-Bank Staff Debt Sustainability ### Annex I. Uganda: Joint Fund-Bank Staff Debt Sustainability Analysis Update (November 2014) ### A. Background and Recent Developments - Update purpose: This DSA updates the joint IMF/IDA DSA from December 18, 2013 to incorporate recent macroeconomic developments. - Overall risk assessment: - Uganda remains at low risk of debt distress. - Debt service-to-revenue ratio is high due to relatively low revenues and short maturity of domestic debt, posing sustainability risks. - Oil-related treatment: - Given limited information, the DSA update does not include any revenues related to the envisaged oil production and includes only the oil infrastructure investment that has been defined so far. - Debt composition and evolution (2007–2014): - External public debt increased by about 5 percent of GDP. - Public domestic debt increased by 5 percent of GDP. - Share of external debt remained at more than 50 percent. - Creditor composition: - Concessional multilateral debt constitutes most of Uganda’s PPG external debt. - Share of multilateral creditors—primarily the World Bank and the African Development Bank—remains close to 90 percent. - Non-Paris Club creditors account for close to 10 percent of PPG external debt (owing almost exclusively to higher borrowing from China). - Private sector external debt: - Remained about 8 percent of GDP in FY2001–2008, increased to about 17 percent of GDP in FY2014. - Increase driven by intercompany lending, which now represents more than half of private external debt. - Debt management improvements: - Government undertaking regular assessments of maturities and associated risks (exchange rate and rollover). - Cash and Debt Management Directorate established within the Ministry of Finance. - New medium-term debt strategy plans scaling up of non-concessional borrowing (NCB) to finance key infrastructure projects. ### Underlying Macroeconomic Assumptions (consistent with PSI) - Policy stance: Baseline assumes implementation of the authorities’ economic and structural policies. - Financing assumptions: - Greater availability of financing at non-concessional but still reasonable terms (grant element of 15–20 percent over the long run). - Envisaged NCB under the PSI of $2.2 billion to finance: - Karuma dam: $1.4 billion - Isimba dam: $0.5 billion - Some oil-related infrastructure: $0.2 billion - Industrial substations: 0.1 billion - Oil revenues: Macroeconomic framework does not include revenues from envisaged oil production. - Growth projections: - Average medium-term growth projected at 6½ percent (reduced from 7 percent in previous update). - Average long-term growth projected at 7¼ percent. - Current account: - Projected at 9 percent of GDP on average over the medium term. - Long-term average current account deficit projected at 7 percent of GDP (baseline excludes oil exports). - Fiscal balance: - Fiscal deficit projected to widen from about 4 percent of GDP in FY2013/14 to an average of 5¼ percent of GDP in the medium term. - Fiscal deficit peaking at about 7 percent of GDP in FY2014/15. - Long-term average fiscal deficit expected to come down to about 2¾ percent of GDP. ### B. External Debt Sustainability Analysis - Baseline conclusion: - PPG external debt is assessed to be sustainable over the projection period. - All debt burden indicators remain below Uganda’s country-specific debt burden thresholds under the baseline and standardized stress tests. - GDP rebasing: - Upcoming GDP rebasing would likely improve the PV of debt-to-GDP ratio. - Debt indicators involving fiscal revenues are not likely to improve given low revenue collection. - CPIA risk: - Updated three-year average CPIA index during 2011–13 dropped from 3.75 to 3.73, marginally below the threshold of 3.75. - If the three-year average CPIA index during 2012–2014 remains below 3.75, Uganda would be downgraded from “strong performer” to “medium performer,” lowering thresholds for debt indicators. - Importance of retaining high quality of policies and institutions to maintain debt sustainability. - PPG External Debt Thresholds (as presented): - Strong performer / Medium performer - PV of debt in percent of Exports - 200150 - GDP - 5040 - Revenue - 300250 - Debt service in percent of Exports - 2520 - Revenue - 2220 ### C. Public Debt Sustainability Update - Overall assessment: - Evolution of total public debt (external and domestic) is sustainable under the baseline and stress tests. - Key ratios and risks: - NPV of public debt-to-GDP ratio projected to peak at about 34½ percent in FY2019 (well below the 74 percent benchmark associated with heightened vulnerabilities for strong performers). - Average maturity of domestic debt is less than three years. - Debt service-to-revenue ratio about 39 percent, among the highest in LICs, increasing rollover and interest rate risks. - Policy implications: - Need to address short domestic debt maturities and low revenue base via stronger revenue mobilization and deeper financial markets to extend average maturities. - Stress-test scenario: - Illustrative scenario: unchanged primary deficit of 4.9 percent of GDP over the projection period (versus baseline average primary deficit of 1.5 percent of GDP). - Under that scenario, NPV of public debt-to-GDP would grow and reach 62 percent of GDP by FY2035. - Highlights importance of reducing fiscal deficits after the temporary increase related to scaling up public investment. ### D. Conclusions and Policy Recommendations - Risk envelope: - Uganda continues to face low risk of debt distress overall. - Post-MDRI cautious external borrowing has provided space to scale up public investment. - Project selection and execution: - Authorities should ensure economic viability and appropriate cost recovery of any new projects. - Pace of execution should consider absorptive and implementation capacity constraints. - Ensure appropriate cost recovery and avoid delays and inefficiencies that could add costs. - Fiscal path: - Temporary increase in fiscal deficits during project construction should be halted once projects are completed to bring public debt back to a sustainable path. - Domestic debt risks: - Planned increase in tax revenues and maintenance of a stable economic environment should help reduce rollover and interest rate risk of domestic debt. *Annex I. Uganda: Joint Fund-Bank Staff Debt Sustainability Analysis Update, November 2014* ### 11. The authorities concurred with staff’s views. The authorities remain committed to ensuring ### 11. The authorities concurred with staff’s views. The authorities remain committed to ensuring ### Authorities' stance and policy commitments - The authorities concurred with staff’s views. - The authorities remain committed to ensuring debt sustainability through long-term prudent debt management, outlined in their Medium Term Debt Strategy, which aims to minimize costs and risks from financing large public investment projects. - The authorities acknowledged the importance of taking into account the absorptive capacity of the economy to maintain macroeconomic stability, as well as ensuring projects’ viability and efficient implementation. - The authorities will continue to engage with IMF/IDA staff on debt management issues. ### Debt dynamics and projected indicators (selected) - External debt (nominal): 2012 = 31.5; 2013 = 34.1; 2014 = 34.8; 2015 = 36.7; 2016 = 39.0; 2017 = 39.7; 2018 = 39.1; 2019 = 38.2; 2020 = 38.1; 2025 average = 37.7; 2035 average = 37.9. - Public and publicly guaranteed (PPG) external debt: 2012 = 15.6; 2013 = 17.4; 2014 = 17.6; 2015 = 19.7; 2016 = 22.5; 2017 = 24.2; 2018 = 25.6; 2019 = 25.9; 2020 = 24.9; 2025 average = 24.7; 2035 average = 20.9. - Change in external debt: 2012 = -2.1; 2013 = 2.6; 2014 = 0.7; 2015 = 2.0; 2016 = 2.2; 2017 = 0.7; 2018 = -0.5; 2019 = -1.0; 2020 = 0.0; 2025 average = -0.1; 2035 average = 0.1. - Identified net debt-creating flows (average 2015-20) = 1.3 (percent of GDP). - Non-interest current account deficit series (selected): 2012 = 10.8; 2013 = 8.9; 2014 = 5.9; 2015 = 6.9; 2016 = 3.5; 2017 = 9.7; 2018 = 8.8; 2019 = 8.8; 2020 = 7.4; 2025 average = 7.0; 2035 average = 6.5. - Net FDI (negative = inflow): 2012 = -6.4; 2013 = -4.7; 2014 = -4.7; 2015 = -4.9; 2016 = 0.8; 2017 = -5.2; 2018 = -6.2; 2019 = -6.0; 2020 = -5.7; 2025 average = -5.6; 2035 average = -3.7. - Endogenous debt dynamics (selected): 2012 = -4.5; 2013 = -2.3; 2014 = -4.0; 2015 = -1.4; 2016 = -1.5; 2017 = -1.7; 2018 = -1.7; 2019 = -1.6; 2020 = -1.5; 2025 average = -1.4; 2035 average = -1.4. - PV of external debt (selected): 2025 = 30.9; 2035 = 31.5. - PV of PPG external debt (selected): 2015 = 9.4; 2016 = 11.5; 2017 = 14.1; 2018 = 15.9; 2019 = 17.6; 2020 = 18.1; 2025 = 17.7; 2035 = 16.4. - PV of PPG external debt in percent of exports (selected): 2015 = 43.4; 2016 = 54.8; 2017 = 64.1; 2018 = 70.9; 2019 = 72.6; 2020 = 72.9; 2025 = 70.5; 2035 = 60.3. - PV of PPG external debt in percent of government revenues (selected): 2015 = 72.1; 2016 = 84.4; 2017 = 99.6; 2018 = 108.6; 2019 = 115.5; 2020 = 115.0; 2025 = 114.3; 2035 = 100.9. - Debt service-to-exports ratio (in percent): 2012 = 5.6; 2013 = 5.4; 2014 = 5.6; 2015 = 6.1; 2016 = 7.7; 2017 = 7.6; 2018 = 7.4; 2019 = 7.6; 2020 = 7.7; 2025 = 9.6; 2035 = 11.1. - PPG debt service-to-exports ratio (in percent): 2012 = 2.4; 2013 = 2.3; 2014 = 2.7; 2015 = 2.1; 2016 = 2.2; 2017 = 2.7; 2018 = 3.0; 2019 = 3.3; 2020 = 3.6; 2025 = 5.5; 2035 = 5.6. - PPG debt service-to-revenue ratio (in percent): 2012 = 4.3; 2013 = 4.1; 2014 = 4.5; 2015 = 3.3; 2016 = 3.4; 2017 = 4.1; 2018 = 4.8; 2019 = 5.2; 2020 = 5.9; 2025 = 8.9; 2035 = 9.3. - Total gross financing need (Billions of U.S. dollars): 2012 = 1.1; 2013 = 1.2; 2014 = 0.6; 2015 = 1.5; 2016 = 1.2; 2017 = 1.3; 2018 = 1.1; 2019 = 1.2; 2020 = 1.8; 2025 = 3.4; 2035 = 10.4. - Non-interest current account deficit that stabilizes debt ratio (selected): 2015 = 13.0; 2016 = 6.3; 2017 = 5.2; 2018 = 7.8; 2019 = 6.5; 2020 = 8.1; 2025 = 7.9; 2035 = 6.5. ### Public sector debt (selected) - Public sector debt (percent of GDP): 2012 = 26.0; 2013 = 30.1; 2014 = 33.2; 2015 = 35.9; 2016 = 39.0; 2017 = 41.2; 2018 = 42.5; 2019 = 42.2; 2020 = 41.2; 2025 average = 35.7; 2035 average = 29.4. - Foreign-currency denominated share (percent of GDP): 2012 = 15.6; 2013 = 17.4; 2014 = 17.6; 2015 = 19.7; 2016 = 22.5; 2017 = 24.2; 2018 = 25.6; 2019 = 25.9; 2020 = 24.9; 2025 average = 24.7; 2035 average = 20.9. - Change in public sector debt: 2012 = -5.9; 2013 = 4.1; 2014 = 3.1; 2015 = 2.8; 2016 = 3.1; 2017 = 2.1; 2018 = 1.3; 2019 = -0.3; 2020 = -1.0; 2025 average = -1.2; 2035 average = -0.4. - Primary deficit (selected): 2012 = 1.8; 2013 = 2.5; 2014 = 2.6; 2015 = 1.4; 2016 = 1.7; 2017 = 5.0; 2018 = 3.5; 2019 = 3.8; 2020 = 2.8; 2025 average = 1.0; 2035 average = 1.5. - Revenue and grants (percent of GDP): 2012 = 15.5; 2013 = 14.8; 2014 = 14.2; 2015 = 15.1; 2016 = 15.2; 2017 = 15.6; 2018 = 16.1; 2019 = 16.5; 2020 = 16.2; 2025 average = 16.2; 2035 average = 16.2. - PV of public sector debt (selected): 2015 = 25.0; 2016 = 27.7; 2017 = 30.7; 2018 = 32.9; 2019 = 34.4; 2020 = 34.4; 2025 = 34.0; 2035 = 29.5. - Gross financing need (percent of GDP): 2012 = 6.0; 2013 = 10.9; 2014 = 12.4; 2015 = 16.2; 2016 = 15.0; 2017 = 15.7; 2018 = 15.0; 2019 = 13.0; 2020 = 13.3; 2025 = 9.8; 2035 = 8.1. - PV of public sector debt-to-revenue and grants ratio (percent): 2015 = 176.0; 2016 = 183.5; 2017 = 201.5; 2018 = 211.0; 2019 = 213.5; 2020 = 209.1; 2025 = 209.6; 2035 = 182.1; 2035 (alternate) = 153.3 (two columns reported). - Debt service-to-revenue and grants ratio (percent): 2012 = 24.7; 2013 = 31.6; 2014 = 37.6; 2015 = 37.3; 2016 = 38.4; 2017 = 39.4; 2018 = 39.1; 2019 = 38.0; 2020 = 38.9; 2025 = 32.5; 2035 = 28.2. ### Key macroeconomic assumptions (selected) - Real GDP growth (percent): 2012 = 3.4; 2013 = 6.0; 2014 = 5.2; 2015 = 6.9; 2016 = 2.1; 2017 = 6.1; 2018 = 6.2; 2019 = 6.5; 2020 = 6.8; 2025 = 7.0; 2035 = 7.2; 2021-35 average = 6.6. - GDP deflator in US dollar terms (change in percent): 2012 = 12.8; 2013 = 3.1; 2014 = 8.9; 2015 = 6.1; 2016 = 8.3; 2017 = 0.9; 2018 = -1.7; 2019 = 0.5; 2020 = 1.4; 2025 = 2.2; 2035 = 3.6. - Effective interest rate (percent): 2012 = 1.2; 2013 = 1.3; 2014 = 1.2; 2015 = 2.0; 2016 = 1.6; 2017 = 1.7; 2018 = 1.9; 2019 = 1.9; 2020 = 2.2; 2025 = 2.5; 2035 = 2.7. - Growth of exports of G&S (US dollar terms, percent): 2012 = 22.1; 2013 = 6.9; 2014 = 7.1; 2015 = 18.5; 2016 = 10.2; 2017 = 3.4; 2018 = 9.5; 2019 = 8.9; 2020 = 16.7; 2025 = 12.6; 2035 = 12.0. - Growth of imports of G&S (US dollar terms, percent): 2012 = 12.3; 2013 = -1.8; 2014 = 4.6; 2015 = 17.4; 2016 = 12.4; 2017 = 10.9; 2018 = 4.8; 2019 = 7.9; 2020 = 8.8; 2025 = 9.9; 2035 = 15.0. - Grant element of new public sector borrowing (percent, selected): 2018 = 24.0; 2019 = 19.7; 2020 = 21.9; 2021 = 19.5; 2022 = 21.4; 2023 = 24.0; 2024 = 21.8; 2025 = 20.9; 2035 = 14.6. - Government revenues (excluding grants, percent of GDP): 2012 = 13.2; 2013 = 13.1; 2014 = 13.1; 2015 = 13.6; 2016 = 14.2; 2017 = 14.7; 2018 = 15.2; 2019 = 15.8; 2020 = 15.5; 2025 = 16.0; 2035 = 16.2. - Aid flows (Billions of US dollars, selected): 2012 = 0.8; 2013 = 1.0; 2014 = 0.5; 2015 = 0.7; 2016 = 0.6; 2017 = 0.7; 2018 = 0.6; 2019 = 0.6; 2020 = 0.7; 2025 = 0.8; 2035 = 1.1. - Grant-equivalent financing (percent of GDP, selected): 2018 = 2.2; 2019 = 1.8; 2020 = 1.7; 2021 = 1.6; 2022 = 1.2; 2023 = 1.4; 2024 = 0.8; 2025 = 0.4; 2035 = 0.7. - Nominal GDP (Billions of US dollars): 2012 = 19.6; 2013 = 21.5; 2014 = 24.6; 2015 = 26.3; 2016 = 27.4; 2017 = 29.4; 2018 = 31.8; 2019 = 34.8; 2020 = 38.7; 2025 = 65.3; 2035 = 184.9. ### Stress tests and sensitivity analysis (high-level) - The most extreme stress test is defined as the test that yields the highest ratio on or before 2025; across figures it corresponds variously to One-time depreciation shock and Terms shock. - Table 3 and Table 4 present multiple alternative scenarios and bound tests for 2015–2035, including: - A1. Key variables at their historical averages in 2015-2035. - A2. New public sector loans on less favorable terms in 2015-2035 (assumes interest rate on new borrowing is by 2 percentage points higher than in the baseline). - B1. Real GDP growth at historical average minus one standard deviation in 2016-2017. - B2. Export value growth at historical average minus one standard deviation in 2016-2017. - B3. US dollar GDP deflator at historical average minus one standard deviation in 2016-2017. - B4. Net non-debt creating flows at historical average minus one standard deviation in 2016-2017. - B5. Combination of B1-B4 using one-half standard deviation shocks. - B6. One-time 30 percent nominal depreciation relative to the baseline in 2016. - Sensitivity outcomes (selected examples from Table 3): - PV of debt-to-exports ratio (baseline series, percent): 2015 = 55; 2016 = 64; 2017 = 71; 2018 = 73; 2019 = 73; 2020 = 71; 2025 = 60. - PV of debt-to-revenue ratio (baseline series, percent): 2015 = 84; 2016 = 100; 2017 = 109; 2018 = 116; 2019 = 115; 2020 = 114; 2025 = 116; 2035 = 101. - PV of debt-to-GDP ratio (baseline series, percent): 2015 = 12; 2016 = 14; 2017 = 16; 2018 = 18; 2019 = 18; 2020 = 19; 2025 = 16; 2035 = 11. - Debt service-to-revenue ratio (baseline series, percent): 2015 = 22; 2016 = 33; 2017 = 34; 2018 = 56. - Table 4 stress scenarios include alternative assumptions on primary balance and permanent lower GDP growth; examples: - PV of Debt-to-GDP Ratio (baseline): 2015 = 28; 2016 = 31; 2017 = 33; 2018 = 34; 2019 = 34; 2020 = 34; 2025 = 30; 2035 = 25. - PV of Debt-to-Revenue Ratio (baseline): 2015 = 18; 2016 = 20; 2017 = 22; 2018 = 21; 2019 = 23; 2020 = 21; 2025 = 18; 2035 = 15. - Debt Service-to-Revenue Ratio (baseline): 2015 = 37; 2016 = 38; 2017 = 39; 2018 = 39; 2019 = 32; 2020 = 28; 2025 = 15; 2035 = 3 (table includes multiple columns and scenarios). ### Key policy-relevant points - The Medium Term Debt Strategy aims to minimize costs and risks from financing large public investment projects. - Authorities emphasize absorptive capacity, project viability, and efficient implementation as critical to maintaining macroeconomic stability. - Continued engagement with IMF/IDA staff on debt management issues is planned. *Sources: Ugandan authorities; and IMF staff estimates and projections.* ### Annex II. Uganda: Encouraging Productive Credit ### Annex II. Uganda: Encouraging Productive Credit ### Industry structural rigidities - Interest rate spreads between lending and deposit rates: - At an average 11 percent in domestic currency and 6½ percent in foreign currency over 2000–2014, spreads are the highest among EAC countries. - A BoU study finds that operational costs and bank profitability are the main determinants of high spreads. - Bank efficiency: - Resource intermediation has improved: the share of income from securities trading dropped from 35 percent in 2003 to less than 15 percent in 2013. - The cost-to-income ratio (among the highest in the EAC) has remained sticky and generally exhibiting an upward trend, suggesting banks have not exhausted economies of scale and have room to switch to more competitive business models to reduce operational costs. - Banking competition: - Number of commercial banks increased from 14 to 24. - Assets of foreign banks make up up to 80 percent of total assets. - Expansion has not induced a substantial increase in the number of depositors or access to credit. - Concentration of market power remains high: the 3 largest banks still hold about 50 percent of system assets. ### Structural weaknesses in the economy - Financial depth and access: - Private sector credit increased from 9 percent of GDP in 2007 to 14 percent in 2013. - Uganda is mainly a cash based economy with a low savings rate; demand for project finance cannot be matched with longer term maturities on deposits, constraining housing finance. - Financial access statistics (as of 2013): - About 20 percent of adults owned a formal bank account in a financial institution. - 15 percent remained financially excluded (underserved by any kind of financial institution, formal or informal). - The pool of wholesale depositors is shallow and dominated by the national social security fund. - Mobile money: - Mobile money transactions expanded from 3 percent of GDP in 2010 to 30 percent in 2013. - Expansion helped reduce cash use, encouraged savings, enabled transactions without visiting a bank branch, and provided an opportunity for strengthening tax mobilization. - Financial literacy: - A large segment of the population has poor information on savings and investments, especially the poor, rural and less educated population. ### Economic policies - Policy environment: - Swings in growth and inflation outcomes have created a challenging environment for banks’ business models; uncertainty hampered banks’ capacity to screen borrowers and adequately price risk. - Volatility has contributed to increasing dollarization, complicating banks’ decisions. - Regulation and supervision: - Better systems for risk assessment and collateral management will allow banks to take more efficient credit decisions. ### Authorities’ actions and recommended reforms - Macroeconomic and supervisory measures: - Maintain recent gains on the inflation front and improve fiscal-monetary policy coordination to avoid repeating credit boom-bust cycles and safeguard financial sector stability. - Continue analytical work to assess sustainability of credit growth, follow developments in the real estate sector, and monitor short term liabilities to foreign portfolio investors. - Strengthen the macro-prudential framework to improve risk management in systemically important banks, introduce a capital conservation buffer, and introduce counter-cyclical financial regulation. - Structural and market measures: - Focus on licensing, mergers/acquisitions, and collateral management to overcome market segmentation, improve bank business models and boost competition. - Envisaged amendments to the Financial Institution Act, including the introduction of Islamic banking. - Ongoing improvements to mobile and money transfer services. - Expansion of access to the credit bureau. - Consumer education to enhance financial literacy and attract depositors. - Bank business models should adapt to the increasing use of mobile money transactions to make them safe and efficient. *Source: Annex II. Uganda: Encouraging Productive Credit (IMF).* ### 1. This Memorandum of Economic and Financial Policies complements the previously agreed ### _cr14344 - 1. This Memorandum of Economic and Financial Policies complements the previously agreed ### Recent Economic and Policy Developments - Growth in FY2013/14 is now estimated at 5.2 percent, somewhat lower than anticipated under the program, mainly reflecting the combination of the adverse impact of regional developments on the external sector, the slower-than-expected growth in key trading partners, and lower public sector investment. - The Bank of Uganda’s (BoU) cautious monetary policy stance kept inflation under control and well within the PSI consultation clause. - The current account deficit improved, with higher service receipts and lower-than-expected imports on account of delays in the implementation of the Karuma and Isimba hydroelectric projects. - Reserve coverage increased to over 4½ months of imports. - Fiscal performance: - Underperformance of Shs 83 billion for the year as a whole compared to the projections of the last PSI review. - Weak VAT collections and lower corporate income tax returns by key taxpayers, including banks and telecommunication companies. - Improvements in tax compliance and enforcement fell short of expectations. - Weaker-than-expected implementation of externally-financed projects reduced expenditures by about 1 percent of GDP, more than compensating for the revenue shortfall. - The overall deficit was 4.1 percent of GDP, against an expectation of 5 percent of GDP at the time of the last PSI review. - Inflation: - Core inflation reached 2.4 percent and headline inflation 1.8 percent by end-October 2014. - Monetary policy remained cautious given forecasted upward pressures from anticipated higher food prices, exchange rate pass through and a rebound in private sector demand. - Banking sector: - Remains well capitalized and liquid. - BoU revoked the license of one small bank that had incurred persistent losses. - Non-performing loans remain high reflecting the lagged effect of the economic slowdown in FY2011/12. ### Performance under the PSI - As of end-June 2014: - Quantitative assessment criteria (QAC) on net domestic financing and net international reserves were observed. - Core inflation was within the consultation clause. - Indicative targets on base money, change in the stock of domestic arrears, and social spending were observed. - The indicative target on tax revenue was missed. - Corrective actions: - Newly approved revenue package. - Additional efficiency gains and tax policy measures. - Structural reform progress: - Parliament approved a strong package of revenue measures. - Exemption on interest earned on agriculture-related loans approved in original form. - Expected yield from discontinuation of exemptions on supply of goods and services related to hydro-power, roads and bridges was modified and did not yield additional revenue this year. - Government continued BoU recapitalization, providing Shs 250 billion of marketable securities (October 2014 benchmark). - Ministry of Finance published a report on the stock of domestic arrears of all government entities contained in the central government votes on October 24, 2014 (September structural benchmark). ### Macroeconomic Outlook - Growth projection: - Expected to accelerate to 6.1 percent in FY2014/15—as foreseen in the last PSI review—supported by scaling up of public investment in infrastructure; a recovery in private sector activity fueled by higher credit growth; increased FDI; and a rebound in agricultural production. - Inflation: - Core inflation expected to remain within the PSI consultation clause despite likely upward pressure from tax increases, exchange rate depreciation and potential second round effects of a rebound in food crop prices. - Hydropower projects impact: - Implementation of the two hydropower projects will result in an important fiscal expansion. - Projects are mostly externally financed and with high import content; no expected crowding out effects on the private sector. - Projects will influence balance of payments, with associated imports widening the current account deficit. - Reserves: - Projected to be kept at a comfortable level of 4.1 months of imports after the use of government deposits from the energy and petroleum funds to finance Uganda’s share of the hydropower projects. - Main risks: - Further spillovers from external developments and delays in implementation of envisaged projects. ### Economic Policies — Fiscal Policy - Revenue objective: - Aim to increase tax revenue by 0.5 percent of GDP, supported by the approved revenue package and efficiency gains. - Expenditure and deficit: - Significant increase of infrastructure investment with the start of construction of Karuma and Isimba HPPs. - Envisaged deficit expected to be large, at 6.8 percent of GDP. - Deficit would reach only 3.1 percent of GDP if the projects (high import content and bring their own financing) and the central bank recapitalization (no impact on aggregate demand) are excluded. - Necessary domestic financing expected to be compatible with envisaged increase in bank credit to the private sector. ### Economic Policies — Tax Revenue - Parliamentary actions effective since July 1: - Elimination of many VAT exemptions. - Several goods lost their zero-rate status. - Government procurement is now tax inclusive. - Corporate income taxes are charged on initial allowances on eligible property, interest earned by banks on loans to the agricultural sector, and educational institutions. - Excise duties increased on fuels, sugar and money transfers. - Measures not approved or adjusted: - Parliament did not approve elimination of exemptions on agricultural inputs. - Yield of removing VAT exemption on goods and services provided to civil works, agriculture, education and health sectors lower than initially expected. - Cabinet renewed tax exemption to the textile sector with stricter conditions and requirement that government pay the tax on behalf of exempt companies. - Compensatory actions to address lower-than-expected yields: - Introducing an export levy on unprocessed tobacco leaf. - Withholding tax on re-insurance. - Requiring Members of Parliament to pay tax on their additional emoluments. - Additional efficiency gains from improving customs valuation controls. - Increasing tax compliance of government suppliers. - Revenue collection developments: - Tax collection during the first three months of the fiscal year fell slightly short of expectations; turned above expectations in October. - Some new revenues materialized with a delay due to protracted parliamentary discussions and stakeholder lobbying. - Slowdown of imports due to construction at the port of Mombasa contributed to reducing income from international trade taxes. - Confidence that October improvement will be maintained and fully compensate initial delays. - Tax efficiency and administration actions: - Action plan based on VAT gap analysis includes enhanced collaboration with public agencies and private sector to strengthen income tax management. - Effort currently covers only Kampala due to limited funding: 8,525 taxpayers registered and Shs 1.2 billion collected. - Plan to step up resources to register, assess, and collect revenues in collaboration with local governments in at least three municipalities by December 2014 (structural benchmark). - Strengthening compliance in international taxation; additional training for tax auditors and an IMF technical assistance mission before year end. - Commitment to conduct 6 document reviews and conclude 2 international tax audits by December 2014 and another 6 document reviews and 2 international tax audits by June 2015. - Established a public sector office within URA to monitor government taxes. - Plan to sensitize the population to strengthen the civil culture of tax compliance. ### Economic Policies — Expenditure - Statutory expenditure increases during budget approval: - Increased wages for Parliamentarians and increased resources for their security. - Additional funding to align the education system funding to the school year. - Contingency provision: - Introduced in budget to respond to unexpected expenditure, fixed costs overruns, and revenue shortfalls. - A large part of the contingency provision was used to cover new unexpected expenditures, reducing the buffer for the rest of the year. - Commitment to adhere to the approved budget and preserve expenditure quality in the pre-electoral year. - Will take into account realized savings in wages when making quarterly cash allocations to ensure expenditure discipline. - Hydropower projects: - Construction of Isimba and Karuma HPPs has started. - Isimba: parliamentary approval of the loan envisaged soon and start of construction in January 2015 following conclusion of negotiations with China’s Eximbank and relocation of population. - Karuma: negotiations with China Eximbank expected to be finalized before the end of 2014. - The 15 percent Government contribution to both projects (Shs. 880 billion) was released to contractors during quarter 1 of 2014/15 to ensure continuation of works while loan agreements are finalized. ### Economic Policies — Financing and Arrears - Financing plan for the overall deficit: - Use China’s Eximbank loans for the HPPs. - Reduction of government savings in the oil and energy funds to provide the domestic contribution to the projects. - Domestic debt issuance up to Shs. 1.4 trillion. - Maintain a contingency reserve of Shs. 100 billion in fiscal accounts. - Domestic arrears: - Declined by about Shs. 544 billion. - Commitment to continue publishing reports on the stock of arrears and unpaid bills; first quarter report to be published on time. - Institutional changes: - Established a new Directorate dedicated to cash and debt management. - Created a new department to focus on implementation capacity and public investment management. ### Economic Policies — Monetary and Financial Policies - Inflation targeting: - Framework working well; commitment to achieve the 5 percent medium-term inflation target entrenched. - BoU will continue to assess developments and adapt stance to maintain inflation within its target. - Monetary transmission: - Interbank market interest rates are very responsive to BoU’s monetary policy moves. - Interest rates on government securities have followed the policy rate; lending rates have responded more slowly. - Credit to the private sector is gradually rebounding. - Foreign exchange interventions: - BoU conducted regular announced interventions to maintain reserves and prevent excessive exchange rate volatility. - Recent interventions replenished reserves used to pay for government’s share of Karuma and Isimba projects. - On days of excessive volatility, BoU suspended purchases for reserve build up. - Interventions have been fully sterilized. - Commitment to update markets through existing and new communication channels. - Financial sector supervision: - Monitoring of nonperforming loans continues. - Lending rates remain relatively sticky downwards due in part to high overhead costs and provisioning for nonperforming loans. - September 2014 credit survey: credit standards to enterprises expected to stay broadly unchanged, with a bias toward easing for both enterprises and households. - BoU revoked the license of a bank that incurred persistent losses and missed reporting requirements as part of strong supervision. ### Structural Reforms - Infrastructure and investment planning: - Plan to boost infrastructure investments for regional integration, oil production readiness (road, water, electricity access), the standard gauge railway, and the refinery. - Will take into account updated debt sustainability analysis to ensure the risk of debt distress remains low; assess absorptive and implementation capacity; and ensure commercial viability of projects. - Future oil revenues will be an important source of repayment, but will not be used as collateral for external borrowing. - Intend to continuously update IMF staff on future developments and details of infrastructure investment plans. - Upon availability of feasibility studies and concrete financing plans, intend to discuss inclusion of medium-term projects under the PSI in upcoming reviews. - Prior to embarking on these projects will develop and publish public investment management guidelines to improve screening, selection and financing assessment of investment projects (new structural benchmark). - Public Financial Management (PFM) and TSA: - Continued payroll cleanup saved about Shs. 100 billion in the first quarter of the FY. - IMF technical assistance mission concluded excellent progress on TSA but additional effort required to reach a well-structured and fully functional TSA. - Intend to strengthen TSA design by converting to a TSA head and TSA sub-account structure, and to complete a pilot exercise aimed at including donor-funded projects in the TSA (structural benchmarks for May and July 2015). - PFM Bill and regulations: - Public Finance Management Bill remains at the plenary of Parliament and expected to be first item after parliamentary recess. - Working on regulations to operationalize the act with IMF technical assistance to meet May 2015 deadline for completion of regulations and the charter of fiscal responsibility (structural benchmarks). - Intend to use new budgetary calendar for FY2015/16 budget. - Identity cards: - Progressing towards issuing 3 million identity cards by July 2015 (structural benchmark). - Institutional coordination: - Enhancing coordination within the Ministry of Finance, Planning and Economic Development to improve revenue yield estimates and ensure consistency across entities producing arrears figures and interest projections. - National Development Plan (NDP II): - Work ongoing to prepare updated NDP II. - Initial plan to adopt NDP II by end-June 2015 extended by one year to incorporate rebased GDP figures, the new PFM Bill, population census results, and the forthcoming Charter of Fiscal Responsibility. - Produced a progress note intending to use the extended plan as the Assessment Progress Report of the Poverty Reduction Strategy. - Recent developments positive in terms of poverty reduction; decision to maintain macroeconomic stability, scale-up infrastructure and make growth inclusive will help further. - Legal and regulatory reforms: - Committed to finalize and submit amendments to the BoU Act to Parliament by April 2015 (structural benchmark). - A new Financial Institutions Act will be presented to Parliament in 2015/16. - Regional integration: - Approval of the Monetary Union Protocol by cabinet, expected to be ratified by Parliament by the end of 2014. ### Risks to the Program - Key risks: - External uncertainties including developments in neighboring countries and policies in advanced economies that could affect trade, FDI, and portfolio inflows. - Domestic developments in a pre-electoral context. *Source: Memorandum of Economic and Financial Policies (excerpt).* ### 31. Progress in the implementation of the policies under this program will be monitored ### _cr14344 - 31. Progress in the implementation of the policies under this program will be monitored ### Monitoring framework and schedule - Progress will be monitored through quantitative assessment criteria (QAC), indicative targets (ITs), and structural benchmarks (SBs) detailed in the attached Tables 1 and 2 and through semi-annual reviews. - The net domestic financing QAC is proposed to be modified for end–December 2014, and new QACs proposed for end-June 2015, to be monitored at the fourth and fifth PSI reviews respectively. - Indicative targets are proposed for March, September and December 2015. - The fourth review is expected to be completed by end-June 2015 and the fifth review by end-December 2015. - The attached Technical Memorandum of Understanding (TMU) contains the needed definitions. ### Key quantitative assessment criteria and indicative targets (selected figures from Table 1) - Ceiling on the increase in net domestic financing (central government, cumulative change): - Program/Outturn/Result snapshots shown in Table 1; selected values include: 1,647; 1,557; 1,341; 1,539; 1,326; 1,371; 2,196; 2,461; 2,542; 2,896; 2,600; 2,832; 353; 937. - Compliance status in Table 1: some instances marked "Met" and some "Not met". - Ceiling on the stock of external payments arrears incurred by the public sector: - Values reported: 0 (multiple entries). Compliance: Met. - Ceiling on contracting or guaranteeing of new nonconcessional external debt with maturities greater than one year by the public sector: - Ceiling value repeated: 2,200 (multiple entries). - Program entries: 2,200; 2,200; 81 (Met); and repeated 2,200 entries. - Ceiling on new external debt with maturity up to one year contracted or guaranteed by the public sector: - Values reported: 0 (multiple entries). Compliance: Met. - Minimum increase in net international reserves of the Bank of Uganda (US$mn): - Selected values: 178; 164; 379; -250; -254; -288; -275; -175; -245; -109; -236; 63; 125. - Some period assessments: entries marked "Met" and some "Not met". - Share of oil revenue placed in the Petroleum Fund (QAC): - Target and outturn values: 100 (multiple entries). Compliance: Met. - Indicative target — Ceiling on the increase in base money liabilities of the Bank of Uganda: - Values include: 570; 547; 236; 109; and entries marked n.a. - Compliance: entries marked "Met". - Indicative target — Floor on tax revenue (cumulative from beginning of fiscal year): - Values include: 7,914; 7,831 (Not Met); 2,078; 2,035 (Not Met); 4,422; 4,362; 6,736; 6,576; 9,372; 9,132; 2,345; 5028. - Note in footnote: the floors on tax revenue for the "Program" column for December 2014 to June 2015 were corrected because earlier numbers referred to Total revenue rather than Tax revenue. - Indicative target — Expenditures on poverty alleviating sectors (domestic, inclusive of wages and salaries): - Values include: 2,731; 2,841 (Met); 701; 782 (Met); 1,403; 1,277; 2,104; 2,141; 2,806; 2,994; 884; 1,443. - Indicative target — Ceiling on the issuance of guarantees by the Government/Bank of Uganda: - Values: 0 (multiple entries). Compliance: Met. - Indicative target — Net change in the stock of domestic arrears: - Values include: -50; -544 (Met); -20; -26 (Met); -40; -70; -60; -80; -80; -80; -20; -40. - Indicative target — Ceiling on withdrawals from energy and petroleum funds: - Values include: 120; 26; 26 (Met); 1,102; 652; 652 (Met); 1,102; 1,230; 1,102; 1,230; 1,102; 1,230; 1,230; 1,230. - Inflation consultation clause — quarterly consultation bands (annual twelve-month average CCPI): - Outer band (upper limit): 9.3; 9.0; 8.7; 8.3; 8.3; 8.0; 8.0; 8.0; 8.0; 8.0 (as reported across test dates). - Inner band (upper limit): 8.3; 8.0; 7.7; 7.3; 7.3; 7.0; 7.0; 7.0; 7.0; 7.0. - Core inflation target: 6.3; 5.2 (Met); 6.0; 4.2 (Met); 5.7; 5.3; 5.3; 5.0; 5.0; 5.0; 5.0. - Inner band (lower limit): 4.3; 4.0; 3.7; 3.3; 3.3; 3.0; 3.0; 3.0; 3.0; 3.0. - Outer band (lower limit): 3.3; 3.0; 2.7; 2.3; 2.3; 2.0; 2.0; 2.0; 2.0; 2.0. - Program exchange rates (end-March 2014) used for converting foreign assets and liabilities: - US Dollar (US$) 1.0 - British Pound/US$ 0.6 - Japanese Yen/US$ 102.9 - SDR/US$ 0.6 - Kenyan Shilling/US$ 86.3 - Tanzanian Shilling/US$ 1630.7 - Euro/US$ 0.7 - Ugandan Shillings/US$ 2549.5 ### Structural benchmarks (selected measures and status from Table 2) - Amendments to the Bank of Uganda Act including a provision for capital adequacy of BoU as an adequate percent of monetary liabilities and other provisions to support inflation targeting: - Rationale: To enable monetary policy independence and credibility of the central bank. - Date: April 2015. - Government to continue with annual recapitalizations of the Bank of Uganda with marketable securities to bring capital to the statutory level, based on BoU commitment to implement its business plan: - Rationale: To enhance central bank efficiency, discipline and monetary policy independence. - Dates: October 2014; October 2015. Status: Met. - Ministry of Finance to publish quarterly reports signed by the PS/ST on the stock of unpaid bills of all government entities contained in the central government votes: - Rationale: To facilitate control and reduction of unpaid bills. - Dates: November 15, 2014 (quarter ending September 30, 2014); February 15, 2015 (quarter ending December 31, 2014); May 15, 2015 (quarter ending March 31, 2015). - Ministry of Finance to publish a report signed by the PS/ST on the stock of domestic arrears of all government entities contained in the central government votes: - Rationale: To facilitate control and reduction of expenditure arrears. - Date: September 30, 2014 for quarter ending June 30, 2014. Status: Met with delay (Report published on October 24, 2014). - Government to have issued a minimum of 3 million ID cards under the new national identification system: - Rationale: Support revenue collection, unique ID of financial sector clients, combat money laundering and terrorism financing. - Date: July 2015. - Government to eliminate exemptions on supply of specialized vehicles, plant and machinery, feasibility studies, engineering designs, consultancy services and civil works related to hydro-electric power, roads and bridges: - Rationale: To increase revenue and tax administration efficiency. - Date: July 2014. Status: Met. - Government to eliminate exemption from tax of interest earned on loans granted for the purpose of agriculture including farming, forestry, fish farming, bee keeping, animal husbandry or similar operations: - Rationale: To increase revenue and tax administration efficiency. - Date: July 2014. Status: Met. - URA to register, assess, and collect revenue using the trading license regime in at least three municipalities: - Rationale: To enhance revenue collections. - Date: December 2014. - Ministry of Finance to complete the second phase of TSA implementation and convert to a TSA head and TSA sub-account structure: - Rationale: Improve cash management and controls. - Date: May 2015. - Ministry of Finance to finalize regulations for implementation of the PFM bill: - Rationale: Ensure efficient PFM implementation and oil revenue management. - Date: May 2015. - Ministry of Finance to finalize the charter of fiscal responsibility: - Rationale: To improve fiscal and macroeconomic management. - Date: May 2015. - Development and publication of the Public Investment Management Guidelines and Procedures: - Rationale: Strengthen MDAs capacity in project preparation and appraisal. - Date: June 2015. - Ministry of Finance to begin the third phase of TSA implementation by conducting a pilot exercise aimed at including donor-supported projects in the TSA: - Rationale: Key milestone for full TSA implementation. - Date: July 2015. ### Technical Memorandum of Understanding (TMU) — definitions and monitoring rules (A–K, selected points) - A. Introduction: - TMU defines QACs and ITs for the program period December 31, 2014—December 31, 2015 and reporting requirements. - All foreign assets and liabilities will be converted into U.S. dollars at each test date using program exchange rates and then into Uganda shillings using the program U.S. dollar-Uganda shilling exchange rate for end-March 2014, unless otherwise indicated. - B. Consultation Mechanism on Inflation (QAC): - Quarterly consultation bands for the twelve-month average CCPI are specified in Text Table 1 (see inflation bands above). - If observed average CCPI for a test date linked to a PSI program review falls outside the outer band, authorities will complete a consultation with the Executive Board of the Fund on proposed policy response before requesting completion of the review. The BoU will report publicly reasons for any breach of outer bands and its policy response. - BoU will conduct discussions with Fund staff if observed average CCPI falls outside the inner band for end-of-quarter. - C. Ceiling on the Cumulative Increase in Net Domestic Financing of the Central Government (QAC): - NDF defined on a cash basis as sum of: a. change in net claims on central government by the banking system (difference between outstanding bank credits to central government and central government deposits with deposit corporations, excluding administered and project accounts; includes central bank); b. change in net claims on central government of domestic nonbank institutions and households (treasury bills, bonds or other government securities held by nonbank institutions and households, including nonresidents and nonresident financial institutions, plus other liabilities to domestic nonbank institutions or households). - All changes calculated as difference between end-of-period stocks, net of valuation changes from currency movements. - D. Floor on the Net International Reserves of the Bank of Uganda (QAC): - NIR defined as reserve assets of the BoU net of short-term external liabilities of the BoU. - Reserve assets exclude pledged or otherwise encumbered external assets. - Short-term external liabilities defined as liabilities to nonresidents, original maturities less than one year, including outstanding IMF purchases and loans. - Reserve assets and short-term liabilities converted to U.S. dollars at program exchange rates for each test period. NIR limits are cumulative changes from July 1 of the respective fiscal year. - NIR floor for December 2014 and June 2015 are QACs; floors for March, September and December 2015 are ITs. - E. Floor on Expenditures on Poverty Alleviating Sectors (IT): - IT includes domestic expenditures inclusive of wages and salaries in Health, Education, Water and Environment and Agriculture sectors as defined by GOU functional budget classification, excluding externally financed components. - Compliance verified on the basis of releases. - F. Ceiling on Issuance of Guarantees by the Government or Bank of Uganda (IT): - Ceiling includes any direct contingent liabilities of the GoU issued after June 28, 2014, and guarantees issued prior to that date but extended after June 28, 2014. - Excludes guarantee programs with explicit budget appropriations. - G. Share of Oil Revenue Placed in Petroleum Fund (QAC): - QAC aimed to avoid bypass of petroleum revenues from the budget framework. - Petroleum fund to be created upon passage of revised PFM bill; in interim a petroleum revenue account in the BoU is established. - QAC deemed satisfied if 100 percent of petroleum revenues are transferred to this account upon collection by URA. - H. Tax Revenue (IT): - Floor applies on tax revenue measured cumulatively from beginning of fiscal year. - Tax revenue defined as sum of direct domestic taxes (PAYE, corporate tax, presumptive tax, other direct taxes, withholding tax, rental income tax, tax on bank interest, casino tax and unallocated receipts), excise duty and VAT net of refunds and taxes on international trade minus temporary road licenses and fees to hides and skins, per GoU revenue classification. - I. Net Accumulation of Domestic Arrears of the Government (IT): - Ceiling applies to net accumulation of domestic arrears of central government (indicative target), measured cumulatively from July 1 of respective fiscal year. - Unpaid bill defined as verified outstanding payment owed by any entity part of central government votes for utilities, rent, employee costs, other recurrent, court awards, compensation, contributions to international organizations, development, taxes and other deductions. - For quarters other than the one ending June 30, net change in stock of unpaid bills is used as IT; for quarter ending June 30, change in total stock as reported in consolidated financial statements used as IT. - J. Ceiling on Withdrawals from the GoU Deposits from the Petroleum and Energy Funds (IT): - Ceiling measured cumulatively from beginning of fiscal year. - Withdrawals restricted to uses: (i) spending on Karuma and Isimba hydro-power projects and associated industrial substations related to loan agreement between GoU and China Eximbank (GoU’s share adds up to US$424 million covering 15 percent of total costs of projects, loan insurance, and management fees); (ii) spending on land acquisition for Karuma and Isimba HPPs (Ush120 billion); (iii) a maximum of the domestic currency equivalent of US$64 million. - K. Adjusters: - Adjuster related to budget support (details continued in TMU). *Source: _cr14344 - 31. Progress in the implementation of the policies under this program will be monitored* ### 15. The NIR and the NDF targets are based on program assumptions regarding budget ### _cr14344 - 15. The NIR and the NDF targets are based on program assumptions regarding budget ### Budget-support adjustor and Schedule A - The NIR and the NDF targets are based on program assumptions regarding budget support excluding assistance provided under the Heavily Indebted Poor Countries (HIPC) Initiative and the MDRI. - The Uganda shilling equivalent of projected budget support (grants and loans) excluding HIPC Initiative and MDRI assistance in the form of grants on a cumulative basis from July 1 of the relevant fiscal year is presented under Schedule A. - Adjustment rule: - The ceilings on the cumulative increase in NDF will be adjusted downward (upward), and the floor on the cumulative increase in NIR of the BoU will be adjusted upward (downward) by the amount by which budget support, grants and loans, excluding HIPC Initiative and MDRI assistance, exceeds (falls short of) the projected amounts. - Schedule A: Budget Support (Ush billions) — Cumulative from July 1 of respective fiscal year - Dec-14: 50 - Mar-15: 62 - Jun-15: 62 - Sep-15: 28 - Dec-15: 83 - Note: "Budget support loans and grants excluding HIPC initiative and MDRI assistance." ### Adjustors related to hydropower financing — background and fund stocks - The GoU is expected to cofinance the Karuma and Isimba hydropower projects and associated industrial substations, under loan agreements with China’s Eximbank. - GoU’s expected share: - (i) 15 percent of the total project costs, loan insurance, and management fees (US$424 million); - (ii) land acquisition for Karuma and Isimba HPPs at a total cost of Ush 120 billion. - These funds are expected to come from withdrawals of deposits in the energy and petroleum funds. - By end of Q1 2014, the GoU had spent US$338 million, coming from the Energy Fund and temporarily the Uganda Consolidated Fund. - Accounting treatment: - The foreign currency-denominated deposits of the Petroleum Fund do not constitute part of the BoU’s international reserves and are recorded under other foreign assets of the BoU. Any further foreign currency denominated inflows to the Fund will continue to be recorded outside of the reserves and under other foreign assets of the BoU. - Stock of the Oil and Energy Fund at October 16, 2014 (Ush billions and USD millions) - Energy Fund: Ush 92; USD 0 (BoU reserves) - Petroleum Fund: Ush 1612; USD 0 (BoU other assets) ### Adjustor on expenditures on hydropower projects and Schedule B - Adjustment rule: - The ceiling on the cumulative increase in NDF and the ceiling on the cumulative withdrawals from the GoU deposits from the Petroleum Fund and the Energy Fund will be adjusted downward (upwards) by the amount by which the domestic currency equivalent of the aforementioned spending (i) and (ii) financed by withdrawals from the Petroleum Fund and the Energy Fund (using the market exchange rate) falls short of (exceeds) the projected amounts as set out in Schedule B. - Any upward adjustment to meet higher-than-expected share will be capped at US$64 million. - Spending financed by external borrowing are not included in this adjuster. - Schedule B: Expenditures on hydropower projects (Ush billions) — Cumulative from July 1 of respective fiscal year - Land acquisition for Karuma and Isimba HPPs: - Dec-14: 100 - Mar-15: 100 - Jun-15: 100 - Sep-15: 0 - Dec-15: 0 - Government share associated with the China Eximbank loan: - Dec-14: 1,130 - Mar-15: 1,130 - Jun-15: 1,130 - Sep-15: 0 - Dec-15: 0 ### Adjustor on inflows into the Petroleum Fund and Schedule C - Adjustment rule: - The ceiling on the cumulative increase in NDF will be adjusted upward (downward) by the amount by which inflows into the petroleum fund (excluding valuation changes) falls short of (exceeds) the projected amounts as set out in Schedule C. - Schedule C: Inflows into Petroleum Fund (Ush billions) — Cumulative from November 1, 2013 - Dec-14: 0 - Mar-15: 0 - Jun-15: 0 - Sep-15: 0 - Dec-15: 0 ### Adjustor on foreign-currency spending for hydropower projects and Schedule D - Adjustment rule: - The floor on the change in NIR will be adjusted upward (downward) by the amount by which the GoU’s spending in foreign currency to cofinance the hydropower projects, in line with point (i) in paragraph 17 (converted at the market exchange rate) falls short of (exceeds) the projected amounts set out in Schedule D. - Any downward adjustment will be capped at US$64 million. - The GoU will first withdraw the foreign currency denominated portion of its deposits, including any new foreign currency inflows to the energy and petroleum funds. - Schedule D: GoU’s foreign-currency spending to cofinance the hydropower projects (US$ millions) — Cumulative from October 1, 2014 - Dec-14: 86 - Mar-15: 86 - Jun-15: 86 - Sep-15: 0 - Dec-15: 0 ### Adjustor related to Bank of Uganda recapitalization and Schedule E - Adjustment rule: - The ceiling on NDF will be adjusted upward (downward) by the amount by which the recapitalization of the BoU exceeds (falls short of) the projected amounts as set out in Schedule E. - Schedule E: Recapitalization of the Bank of Uganda (Ush billions) — Cumulative from July 1 of respective fiscal year - Dec-14: 250 - Mar-15: 250 - Jun-15: 250 - Sep-15: 0 - Dec-15: 200 ### Ceiling on contracting/guaranteeing new non-concessional external debt and on external payments arrears - Definitions and coverage: - The assessment criterion on short-term debt refers to contracting or guaranteeing external debt with original maturity of one year or less by the public sector. - Excluded from this assessment criterion are normal import-related credits and non-resident holdings of government securities and government promissory notes. - Public sector comprises the general government (central government, local governments, and monetary authorities), and entities that are public corporations subject to ‘control by the government’ defined as the ability to determine general corporate policy or by at least 50 percent government ownership. - Ceiling on new non-concessional borrowing: - The program includes a ceiling on new non-concessional borrowing with maturities greater than one year contracted or guaranteed by the public sector, measured cumulatively from June 28, 2013. - Non-concessional borrowing is defined as loans with a grant element of less than 35 percent. - The discount rate used for this purpose is 5 percent. - The ceiling covers financial leases and other instruments giving rise to external liabilities, including contingent liabilities on non-concessional terms. - Exclusions: changes from non-resident holdings of government securities and government promissory notes, refinancing credits and rescheduling operations, and credits extended by the IMF. - Arrangements to pay over time obligations arising from judicial awards to external creditors that have not participated in the HIPC Initiative do not constitute non-concessional external borrowing for the program. - Excluded from these limits are also non-concessional borrowing within the limits specified in Table 1 of the MEFP. - The ceiling also excludes non-concessional borrowing by one state-owned bank, Housing Finance Bank. - Definition of debt (from Guidelines on Performance Criteria with Respect to External Debt, Point 9): - Debt is 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 future payments in the form of assets or services to discharge principal and/or interest. - Forms include: (i) loans (advances of money, deposits, bonds, debentures, commercial loans, buyers' credits, repurchase agreements, official swap arrangements), (ii) suppliers' credits, (iii) leases (present value at inception of lease payments expected during agreement, excluding operation/repair/maintenance payments). - Under this definition, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. - Ceiling on 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 public sector from their level at end-June 2014. - External debt payment arrears consist of external debt service obligations (reported by the Statistics Department of the BoU, the Macro Department of the Ministry of Finance) that have not been paid at the time they are due as specified in the contractual agreements but shall exclude arrears on obligations subject to rescheduling. *Source: _cr14344 - 15. The NIR and the NDF targets are based on program assumptions regarding budget* ### 27. The GoU will submit information to IMF staff with the frequency and submission time lag ### 27. The GoU will submit information to IMF staff with the frequency and submission time lag as indicated in Table 1 ### Submission procedure - The information should be mailed electronically to afruga@imf.org. - The quality and timeliness of the data submission will be tracked and reported by IMF staff. - Reporting follows the frequencies and submission lags indicated in Table 1. ### I. Bank of Uganda — Reports, frequencies, and submission lags - Issuance of government securities, repurchase operations and reverse repurchase operations. - Frequency: Weekly - Submission Lag: 5 working days - Operations in the foreign exchange market. - Frequency: Weekly - Submission Lag: 5 working days - Interest rates (7 day interbank, commercial bank prime lending rate, government securities). - Frequency: Weekly - Submission Lag: 5 working days - Private sector credit growth by shilling and forex, and excess reserves of commercial banks. - Frequency: Weekly - Submission Lag: 5 working days - Disaggregated consumer price index. - Frequency: Monthly - Submission Lag: 2 weeks - Balance sheet of the BoU, consolidated accounts of the commercial banks, and depository corporations’ survey. - Frequency: Monthly - Submission Lag: 4 weeks - Daily balances of net foreign assets, net domestic assets, and base money of the BoU. - Frequency: Monthly - Submission Lag: 4 weeks - Details on the government position at the central bank including deposits broken down by i) net public debt, ii) government project accounts, iii) Petroleum Fund (specifying the currency), iv) Energy Fund, v) government ministries accounts, and the remainder in vi) other deposits. In addition, liabilities broken down by i) appropriation account (UCF), ii) other drawdown accounts iii) government securities accounts and the remainder in iv) other liabilities. - Frequency: Monthly - Submission Lag: 4 weeks - Monthly foreign exchange cash flow table of BoU. - Frequency: Quarterly - 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: Quarterly - 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. - Frequency: Quarterly - 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 outcome with adjusted program targets for (i) net claims on central government by the banking system; (ii) new non-concessional external borrowing; and (iii) net international reserves. - Frequency: Quarterly - Submission Lag: 6 weeks ### II. Ministry of Finance — Reports, frequencies, and submission lags - Summary of central government accounts. Revenues shall be recorded on a cash basis. Expenditures shall be recorded when checks are issued, except for domestic and external debt-service payments, cash transfers to districts, and externally funded development expenditures. Expenditures on domestic interest will be recorded on an accrual basis and external debt service will be recorded on a commitment basis (i.e., when payment is due). - Frequency: Monthly - Submission Lag: 4 weeks - Summary of the stock of unpaid bills by government entities contained in the central government votes as reported by the Accountant General and signed by the PS/ST. - Frequency: Quarterly - Submission Lag: 6 weeks - Summary of the stock of arrears by government entities contained in the central government votes as reported by the Accountant General and signed by the PS/ST. - Frequency: Annual - Submission Lag: 3 months - Summary of contingent liabilities of the central government and the BoU. For the purpose of the program, contingent liabilities include all borrowings by statutory bodies, government guarantees, claims against the government in court cases that are pending, or court awards that the government has appealed. - Frequency: Quarterly - Submission Lag: 6 weeks - Detailed monthly central government account of disbursed budget support and project grants and loans (less change in the stock of project accounts held at the BoU and commercial banks), HIPC support, and external debt service due and paid. - Frequency: Quarterly - 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 external loans contracted or guaranteed by the central government and the BoU during the period according to loan agreements. - Frequency: Quarterly - Submission Lag: 6 weeks - Updated national accounts statistics (real and nominal) according to UBOS and medium-term projections. - Frequency: Quarterly - Submission Lag: 12 weeks *Source: Attachment II. Table 1. Summary of Reporting Requirements (as provided in the content unit)._ ### 3. Joint Work ### 3. Joint Work ### Program - Joint DSA update May 2015 June 2015 ### Statistical Issues — I. Assessment of Data Adequacy for Surveillance General - Overall data provision is adequate for surveillance purposes, although some shortcomings remain. Real Sector Statistics - Since 2004 Uganda has been receiving technical assistance (TA) from the East African Technical Assistance Center (East AFRITAC) on the compilation of annual and quarterly national accounts. - In late 2011 the authorities started to disseminate quarterly GDP estimates at 2002 constant prices by economic activity. - UBOS developed supply and use tables (SUT) that include preliminary product balances for 155 activities by 161 products. - An East AFRITAC mission in May 2014 is assisting in finalizing the SUT and compiling the rebased GDP estimates. - The rebased GDP estimates (FY2009/10) are expected to be released by the end of 2014. - Labor market indicators such as employment and wages/earnings are infrequently compiled and disseminated. - UBOS aims to compile and disseminate these data categories on an annual basis, but due to resource and data unavailability, these data are compiled with a two year lag. - The current consumer price index (CPI) series released in January 2010 are expected to be replaced in June 2014 by the new CPI series that use the expenditure weights from the 2009/2010 Uganda National Household Survey. - Coverage includes eight urban areas. - Index methodology uses, at the elementary level, a geometric average, and at the higher-level, a modified Laspeyres-type formula to facilitate incorporation of replacement items and better imputations. - An East AFRITAC mission will review the new CPI during June 2014 prior to its release. - UBOS compiles and disseminates a Producer Price Index (PPI) for manufacturing (separately for imports and domestic output) and for hotels. - East AFRITAC has been providing TA to rebase and expand the manufacturing PPI to include the output of the mining and quarrying, electricity and water industries. - An East AFRITAC mission in July 2014 will assist in finalizing the PPI for release and commence development of export and import price indices. Government Finance Statistics - The Ministry of Finance, Planning and Economic Development (MoFPED) compiles fiscal statistics following the Government Finance Statistics Manual 2001 (GFSM 2001), but for budgetary central government and local governments only, with balance sheet data restricted to the budgetary central government. - MoFPED has recently been given official responsibility for compiling and disseminating these statistics and East AFRITAC will be providing assistance to UBOS over FY2015 in expanding coverage and improving the quality of these statistics. Monetary, Financial and External Sector Statistics (MFS) - TA in FY2014 will aim at improving the institutional coverage and classification of other depository corporations (ODCs) and initiation of the collection and compilation of data for other financial corporations, mainly insurance companies and pension funds. - This would build on previous missions financed by DFID on the standardized report forms (SRFs). - Uganda began publishing SRF-based monetary data from 2002 in IFS beginning in early 2009. - The Bank of Uganda, with the assistance of East AFRITAC missions in December 2011 and February 2013, has improved the quality of external sector statistics and implemented Balance of Payments and International Investment Position Manual (BPM6) standards. ### IMF Press Release — IMF Executive Board Completes Third PSI Review for Uganda (Press Release No. 14/563; December, 10, 2014) Key outcomes and findings - The Executive Board completed the third review of Uganda’s economic performance under the program supported by the Policy Support Instrument (PSI). - The Board’s decision was taken on a lapse of time basis. - The PSI for Uganda was approved by the Executive Board on June 28, 2013 (see Press Release No: 13/239). Macroeconomic performance and projections - Real Gross Domestic Product (GDP) growth was lower than expected in fiscal year (FY) 2013/14, reflecting: - under-execution of externally-financed public investment; and - adverse impact on exports of slower growth in main trading partners. - Inflation dropped to 1.8 percent in October from 5.0 percent in June 2014 owing to a sharp decline in food prices and slower economic activity. - International reserve coverage increased to a high level of 4¾ months of imports. - Growth is projected to increase in FY2014/15, supported by: - scaled-up public investment; and - a recovery in private demand as households and businesses start accessing bank credit. Program performance and fiscal outcomes - Performance under the PSI-supported program remains satisfactory. - The end-June targets for inflation and international reserves were met. - The ceiling on government’s net domestic financing was observed. - The stock of government arrears was significantly reduced. - The indicative target on tax revenue was missed, reflecting: - lower growth; and - shortfalls in efficiency gains. - On the fiscal front, the overall deficit excluding the recapitalization of Bank of Uganda (BoU) increased from 3.4 to 4.1 percent of GDP in FY2013/14. - Challenges in tax compliance resulted in lower-than-expected revenue. - The recent elimination of many tax exemptions, if accompanied by strict enforcement by the Uganda Revenue Authority and enhanced compliance from taxpayers, would result in a welcome enhancement of tax revenues. - Strict adherence to the approved budget and improvements in policy coordination would complement these efforts. Monetary policy and financial sector - The BoU’s prudent stance has brought inflation to a four-year low, setting the conditions for some additional monetary easing provided that: - inflation expectations are anchored; and - fiscal risks are contained. - Strong banking supervision and actions to remove banks’ structural rigidities and encourage financial deepening are expected to continue. Infrastructure, oil, and medium-term priorities - Uganda’s infrastructure investment needs remain considerable. - The authorities plan to boost these investments amid: - stepped up efforts toward regional integration; - the coming on stream of oil production; and - actions to improve the business environment. - Authorities have committed to base the revamped infrastructure investment program on a well-planned rollout strategy, which will include: - project selection on the basis of strong feasibility studies; and - sequencing that takes into account the impact on debt sustainability and the absorption and implementation capacities of the economy. - The plan to upgrade the capacity to appraise, analyze and implement investment projects is welcomed. - Efforts aimed at achieving: - successful East African Community economic integration; - transparent and efficient management of the upcoming oil proceeds; - appropriate implementation of the upcoming infrastructure projects; and - further gains in public financial management; are set to support the authorities’ medium-term objective of attaining inclusive growth and poverty reduction. *International Monetary Fund — Press Release No. 14/563; December, 10, 2014* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14344.pdf_