## _cr16145

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---

### Real Sector Developments
- President Museveni declared winner of the February 18 presidential elections with 61 percent of total votes cast; electoral process marked by allegations of excessive use of force and lack of transparency.
- Real GDP growth:
  - FY2012/13: 3.3; FY2013/14: 4.8; FY2014/15: 5.0; FY2015/16: 5.0; FY2016/17: 5.5 (percent).
- Growth drivers and indicators:
  - FY2015/16 growth supported by large public investments in hydropower projects.
  - Leading indicators: business tendency indicators rebounding; continued robust growth led by services and industry.
  - Contribution to GDP growth by sector presented in IMF charts (Services, Industry, Agriculture).
- External sector and reserves:
  - Current account deficit expected at 9¾ percent of GDP in FY2015/16 (noted elsewhere as 9.7 percent of GDP).
  - Gross international reserves projected to reach US$ 2.75 billion, equivalent to 3.9 months of prospective imports.
- Credit and banking:
  - Banking system described as well-capitalized, liquid and profitable.
  - NPL ratio increased to about 7 percent of total loans in March.
  - Growth in credit to the private sector (excluding exchange rate valuation effects) declined from 8½ percent in June 2015 to 2.3 percent in March 2016.
  - US dollar deposits grew strongly as depositors moved to protect savings from exchange rate risks.

### Inflation, Exchange Rate, and Monetary Policy
- Inflation:
  - Headline CPI: 5.1 percent (April), 8.5 percent (December).
  - Core CPI: 6.4 percent (April), 7.6 percent (December).
  - Headline CPI, period average projections: FY2015/16: 7.3; FY2016/17: 5.5 (percent).
  - Core CPI, period average projections: FY2015/16: 6.8; end FY2016/17: about 5.1 percent.
- Exchange rate dynamics:
  - Shilling depreciation: more than 30 percent year-over-year through September 2015; appreciation by over 10 percent through March 2016.
  - Nominal and real effective exchange rates indexed to January 2010 (document charts).
- Monetary policy actions and rates:
  - Bank of Uganda reduced the Central Bank Rate (CBR) by 100 basis points in April (from 17.0 to 16.0).
  - Key interest rate series (selected end/period values shown in source):
    - Central Bank Rate: Jul-11 13.0; Jul-12 19.0; Jul-13 11.0; Jul-14 11.0; Jul-15 14.5; Sep-15 16.0; Dec-15 17.0; Mar-16 17.0; Apr-16 16.0.
    - 7-day interbank market: Jul-11 15.3; Jul-12 18.5; Jul-13 11.0; Jul-14 11.0; Jul-15 17.1; Sep-15 18.1; Dec-15 18.2; Mar-16 17.0; Apr-16 16.4.
  - Treasury bill yields (91-day) series include: 14.2; 18.7; 9.9; 9.6; 13.4; 16.7; 17.6; 15.1; 13.7 (percent) across dates presented.

### Fiscal Policy, Revenue Mobilization, and Public Investment
- Budget revenue ambition:
  - Budget targets revenue increase equivalent to 0.5 percent of GDP through tax policy measures and administrative reforms.
  - Tax policy measures include increases in excise taxes on petrol, cigarettes and alcohol; expansion of VAT coverage; introduction of various environmental levies.
- Tax administration measures and expected yields:
  - Data mining and matching (customs and domestic filings) — expected UGX 5 Billion.
  - Strengthening risk assessment of VAT offset claims and refunds — expected UGX 10 Billion.
  - Expanding scope of single customs territory and enforcement — expected UGX 10 Billion.
  - Sector-focused taxpayer education strategy — expected UGX 5 Billion.
  - Strengthening risk-based audit processes — expected UGX 165 Billion.
  - Implement Taxpayer Register Expansion Project (TREP) — expected UGX 62 Billion.
  - Decentralize Large and Medium Taxpayer Offices — expected UGX 50 Billion.
- Fiscal balances and projections (selected):
  - Overall balance (percent of GDP): FY2012/13 -3.6; FY2013/14 -4.1; FY2014/15 -4.5; FY2015/16 -6.4; FY2016/17 -6.2.
  - Underlying deficit (percent of GDP): FY2015/16 -2.3; FY2016/17 -3.5; objective to improve to 1½ percent of GDP by FY2019/20.
  - Public gross nominal debt (percent of GDP): FY2012/13 22.0; FY2013/14 26.2; FY2014/15 29.1; FY2015/16 33.2; FY2016/17 38.8 (and subsequent series up to 49.2 in forward table).
- Public investment and PIM:
  - Continue scaling up public infrastructure while ensuring adherence to budget targets for priority public investment and poverty-alleviating expenditures.
  - Structural benchmark: finalize and disseminate the Investment Appraisal User Manual (end-December 2016).
  - Major projects: Karuma and Isimba hydropower plants; Standard-gauge railway (SGR) to Kenyan border; Entebbe airport rehabilitation; Kampala-Entebbe expressway.
- Social spending:
  - Poverty Action Fund (PAF) allocations: FY2015/16 Ushs. 4.33 trillion; FY2016/17 Ushs. 4.81 trillion (increase of 11 percent).
  - Spending on poverty-alleviating sectors to rise from Shs. 3 trillion in FY2014/15 to Shs. 3.7 trillion in FY2016/17.
  - Additional Shs. 90 billion allocated as a specific fund for women and youth.

### Program Monitoring, Targets, and Reporting Requirements
- Program recommendation:
  - Staff recommends completion of the sixth review of the PSI-supported program and supports a waiver for minor slippage on the overall deficit ceiling.
  - Staff supports a one-year extension of the current PSI.
- Key quantitative targets and outturn highlights (selected):
  - Ceiling on the overall deficit of the Central Government (Ush billions): Program Adjusted Target (Mar 31, 2016) 1,682; Outturn 1,150; June 30, 2016 Program Adjusted Target 1,143 — Met.
  - Floor on tax revenue (Ush billions): Mar 31, 2016 Program Adjusted Target 2,441; Outturn 2,364 — Not Met; Jun 30, 2016 Program Adjusted Target 5,282; Outturn 5,310 — Met.
  - Minimum increase in net international reserves of the Bank of Uganda (US$mn): Jun 30, 2016 Program Adjusted Target 49; Outturn 50 — Met.
  - Ceiling on the stock of external payment arrears incurred by the public sector: 0 — Met.
- Data and reporting to IMF:
  - Submission protocol summarized in Table 1 (Attachment II.1) with frequencies and lags (e.g., BoU weekly items with 5 working days lag; Ministry of Finance monthly summary central government accounts with 4 weeks lag; semi-annual reporting on stock of unpaid bills signed by PS/ST with 3 months lag).
  - IMF contact for electronic submission: afruga@imf.org.
- Program consultation mechanism for inflation:
  - Quarterly consultation bands for twelve-month average CCPI:
    - Core inflation target: 5.0; Inner band upper limit: 7.0; Outer band upper limit: 8.0; Inner band lower limit: 3.0; Outer band lower limit: 2.0 (for Jun. 2016, Sep. 2016, Dec. 2016, Mar. 2017).
  - If CCPI falls outside outer band, authorities will consult IMF Executive Board before review completion.

### Financial Stability, Prudential Measures, and AML/CFT
- Financial stability and macroprudential measures:
  - Planned adoption of maximum loan-to-value ratios as a macro-prudential tool.
  - Planned adoption of the capital conservation buffer, capital charge for systemically important banks, and the liquidity coverage ratio in line with Basel III and the Amended Financial Institutions Act.
  - BoU stress tests indicate continued resilience of bank capital under credit risk and liquidity shocks; vigilance against market, liquidity, operational risks, credit concentration, and currency mismatches necessary.
- Banking sector indicators (selected series Mar-12 to Mar-16):
  - Regulatory capital to risk-weighted assets (percent): series include 21.8; 20.7; 20.9; 21.9; 24.5; 24.3; 23.1; 22.1; 23.6; 22.8; 22.5; 22.2; 23.2; 21.2; 19.7; 21.0; 21.8.
  - NPLs to total gross loans (percent): series include 3.4; 3.9; 4.7; 4.2; 4.7; 4.0; 4.4; 6.0; 6.2; 5.8; 5.3; 4.1; 4.2; 4.0; 3.9; 6.5; 6.9.
- AML/CFT reforms and FATF gray list exit:
  - FATF determination (February 2014) identified key deficiencies.
  - Required actions include passage of amendments to the AML Act and Insurance Act by May 2016 (Structural Benchmark: end-June 2016).
  - Proposed strengthening of FIA’s financial and operational independence and enhanced supervisory powers.
- Financial inclusion and innovation:
  - Financial inclusion under four pillars: financial literacy; consumer protection; innovations; data measurement.
  - Mobile money: total value of transactions in 2015 US$10 billion (about 38 percent of GDP).
  - Proposals under study include savings and loan accounts using mobile money patterned after Kenya’s M-Shwari system.

### Risks, External Spillovers, and Structural Priorities
- Risks to the outlook (selected):
  - Downside risks predominate: unfavorable weather, lower international oil prices affecting oil-related FDI, spillovers from China’s economic rebalancing, U.S. monetary policy normalization, regional geopolitical instability.
  - Domestic risk: lingering post-election uncertainties affecting fiscal policies.
  - Upside: inter-regional trade expansion may diversify export demand.
- Annex I — Spillovers from China (main findings):
  - Ugandan exports to China: 2½ percent of total exports.
  - Imports from China: about 15 percent of total imports—mostly financed by loans from China.
  - If Ugandan exports to commodity-exporting countries continue their first nine months FY2015/16 decline of 7 percent y-o-y, exports would decline by about $70 million (⅓ percent of GDP).
  - China’s FDI and Eximbank financing are key for infrastructure projects (Karuma, Isimba, Entebbe–Kampala toll highway, Entebbe airport rehabilitation).
  - Policy implication: monitor commodity prices and Chinese FDI/financing commitments; be prepared for project delays, cost overruns, and assess implications for debt sustainability.

### Staff Appraisal and Key Policy Recommendations
- Macroeconomic assessment:
  - Economy demonstrated strong resilience despite election-related uncertainties and regional/global challenges.
  - Medium-term prospects supported by prospective oil production, inter-regional trade, and scaled-up infrastructure investments.
- Fiscal recommendations:
  - Continue to limit fiscal slippages and correct the shift from public investment to current spending.
  - Enhance public investment efficiency: appropriate project selection, implement Public Investment Management Guidelines, careful assessment of PPP contingent risks.
  - Strengthen revenue mobilization and enforce non-priority expenditure restraint to maintain low risk of debt distress.
- Monetary and financial policy guidance:
  - Further monetary easing should be guided by the inflation forecast and conditioned on fiscal prudence, exchange rate and food price behavior, private sector credit dynamics, and output gap considerations.
  - Strengthen prudential oversight and expand macroprudential toolkit (loan-to-value limits, capital buffers, liquidity coverage).
- Arrears and PFM actions:
  - Decisive reduction of domestic payment arrears: complete reconciliation and validation, regularize semi-annual reporting, tighten expenditure controls, enforce sanctions.
  - Finalize and submit Charter of Fiscal Responsibility; finalize PFM Regulations; update MoU between MoFPED and BoU to reflect PFM Act and petroleum fund management.
- Structural benchmarks and capacity building:
  - Prioritize exiting the FATF gray list; finalize and disseminate Appraisal User Manual (end-December 2016); update Development Committee guidelines (end-December 2016).
  - Request for East AFRITAC technical assistance on arrears reconciliation and PIM.

*Source: Ministry of Finance, Planning and Economic Development of Uganda, Bank of Uganda, and IMF staff calculations (excerpts from IMF Country Report content unit _cr16145).*

### 1. Real Sector Developments _______________________________________________________________________6

### 1. Real Sector Developments

### Background and recent developments
- President Museveni was declared the winner of the presidential elections held on February 18 with 61 percent of total votes cast; the electoral process was marked by allegations of excessive use of force and lack of transparency.
- GDP growth in FY2015/16 is expected to reach 5 percent, supported by ongoing large public investments in hydropower projects.
- Headline inflation decelerated to 5.1 percent and core inflation to 6.4 percent in April, compared to 8.5 and 7.6 percent in December, supported by lower food, fuel and electricity prices and a stable exchange rate amid tight monetary conditions.
- After a more than 30 percent year-over-year depreciation through September 2015, the shilling appreciated by over 10 percent through March 2016.
- Current account deficit is expected at 9¾ percent of GDP in FY2015/16, with weak export performance and increased project-related imports partly offset by lower international oil prices.
- Gross international reserves projected to reach US$ 2.75 billion (US$100 million higher than projected during the 5th review), equivalent to 3.9 months of prospective imports.
- Banking system remains well-capitalized, liquid and profitable, but NPL ratio increased to about 7 percent of total loans in March.
- Growth in credit to the private sector (excluding exchange rate valuation effects) declined from 8½ percent in June 2015 to 2.3 percent in March 2016.
- US dollar deposits grew strongly as depositors moved to protect savings from exchange rate risks.

### Real activity and leading indicators
- Leading indicators: after declining in early FY2015/16, business tendency indicators are rebounding, suggesting continued robust growth led by services and industry.
- Contribution to GDP growth by sector (percent, y-o-y): Services, Industry, Agriculture, Total (figures presented in IMF charts; overall growth expectation noted above).

### Inflation and exchange rate dynamics
- Inflation:
  - Headline CPI: 5.1 percent (April), 8.5 percent (December).
  - Core CPI: 6.4 percent (April), 7.6 percent (December).
- Exchange rate:
  - Nominal exchange rate: shilling depreciated over 30 percent y-o-y through September 2015; appreciated by over 10 percent through March 2016.
  - Nominal and real effective exchange rates indexed to January 2010 (document charts).
- Price behavior: price increases appear to peak across several CPI sub-groups (Food and Non-Alcoholic Beverages; Housing, Water, Electricity, Gas and Other Fuels; Health; Transport).

### Monetary policy response
- Bank of Uganda’s Monetary Policy Committee reduced the central bank rate (CBR) by 100 basis points in April (after a pause in the hiking cycle) to address decelerating core inflation and weak credit growth.
- Key interest rates (percent):
  - Central Bank Rate: Jul-11 13.0; Jul-12 19.0; Jul-13 11.0; Jul-14 11.0; Jul-15 14.5; Sep-15 16.0; Dec-15 17.0; Mar-16 17.0; Apr-16 16.0.
  - 7-day interbank market: Jul-11 15.3; Jul-12 18.5; Jul-13 11.0; Jul-14 11.0; Jul-15 17.1; Sep-15 18.1; Dec-15 18.2; Mar-16 17.0; Apr-16 16.4.
  - Deposit (shillings) and Lending (shillings) rates series presented in text table.
- Treasury bill yields (percent): 91-day (various dates: 14.2, 18.7, 9.9, 9.6, 13.4, 16.7, 17.6, 15.1, 13.7); 182-day and 364-day series likewise tabulated.

### Banking sector and credit conditions
- Financial soundness: banking system well-capitalized, liquid and profitable.
- Nonperforming loans (NPLs): preliminary increase to about 7 percent of total loans in March.
- Banks tightened lending standards, especially in foreign currency lending.
- Credit to private sector (annual growth, percent): 6.4 (FY2012/13); 14.0 (FY2013/14); 20.5 (FY2014/15); 16.3 (FY2015/16); 16.3 (FY2016/17) — as shown in Text Table 2 (macroeconomic outlook table).

### Fiscal context affecting the real sector
- Election-related revenue shortfalls of about Shs. 180 billion (0.2 percent of GDP), particularly in VAT and excise taxes, due to weaker compliance in Q3 FY2015/16.
- Security-related spending pressures led to a net spending overrun of around Shs. 50 billion expected for FY2015/16.
- Underlying deficit projected at 2¼ percent of GDP (definition: overall deficit excluding large infrastructure projects financed by non-concessional external borrowing and BoU recapitalization).

### Macroeconomic outlook (selected projections and historicals as presented)
- Real GDP growth: FY2012/13 3.3; FY2013/14 4.8; FY2014/15 5.0; FY2015/16 5.0; FY2016/17 5.5 (percent).
- Headline CPI inflation, period average: FY2012/13 5.0; FY2013/14 5.4; FY2014/15 3.0; FY2015/16 7.3; FY2016/17 5.5 (percent).
- Core CPI inflation, period average: FY2012/13 6.6; FY2013/14 4.7; FY2014/15 3.4; FY2015/16 6.8; FY2016/17 5.1 (percent).
- External current account balance: FY2012/13 -6.4; FY2013/14 -7.8; FY2014/15 -8.3; FY2015/16 -9.7; FY2016/17 -10.7 (percent of GDP).
- International reserves (stock, months of imports): FY2012/13 4.5; FY2013/14 5.1; FY2014/15 4.5; FY2015/16 3.9; FY2016/17 4.0 (months).
- Overall balance: FY2012/13 -3.6; FY2013/14 -4.1; FY2014/15 -4.5; FY2015/16 -6.4; FY2016/17 -6.2 (percent of GDP).
- Underlying deficit: FY2012/13 -2.9; FY2013/14 -4.1; FY2014/15 -3.0; FY2015/16 -2.3; FY2016/17 -3.5 (percent of GDP).
- Policy rate (end of period): 11.0; 11.0; 13.0 (percent) for shown years in table.

### Risks identified
- Downside risks predominate: unfavorable weather (affecting food inflation and output), lower international oil prices affecting oil-related FDI, spillovers from China’s economic rebalancing, U.S. monetary policy normalization, and regional geopolitical instability.
- Domestic risk: lingering post-election uncertainties affecting fiscal policies.
- Upside: inter-regional trade expansion may diversify export demand and reduce vulnerabilities.

### Policy priorities and recommendations relevant to the real sector
- Continue scaling up public infrastructure while ensuring adherence to budget targets for priority public investment and poverty-alleviating expenditures.
- Rebound in private investment requires improvements in the business environment, implementation of structural reforms, export diversification, regional integration, and progress toward oil production.
- Monetary policy easing (CBR cut of 100 basis points) aimed at supporting credit growth and economic activity while preserving inflation convergence toward the 5 percent medium-term target.

*Source: Ministry of Finance, Planning and Economic Development of Uganda, Bank of Uganda, and IMF staff calculations.*

### 13.      The budget targets a revenue increase equivalent to 0.5 percent of GDP to better

### _cr16145 - 13.      The budget targets a revenue increase equivalent to 0.5 percent of GDP to better

### Revenue mobilization measures and targets
- The budget targets a revenue increase equivalent to 0.5 percent of GDP through a mix of tax policy measures and administrative reforms.
- Tax policy measures include:
  - increases in excise taxes on petrol, cigarettes and alcohol;
  - expansion of the coverage of VAT;
  - introduction of various environmental levies.
- Administrative reforms aim to:
  - strengthen monitoring, compliance and enforcement through improved data mining and matching focused on customs and domestic tax filings;
  - strengthen risk-based audits;
  - improve data quality and integrity for the taxpayers registration database and taxpayers accounts.

### Medium-term fiscal consolidation and debt sustainability
- Objective: maintain Uganda’s low risk of debt distress.
- Underlying deficit projection: improve to 1½ percent of GDP by FY2019/20.
- Fiscal strategy elements:
  - enhanced revenue mobilization;
  - non-priority expenditure restraint;
  - planned scaling up of public investment to address infrastructure gaps while maintaining debt sustainability.
- Consistency: medium-term fiscal projections remain consistent with the low risk of debt distress assessed in the Fifth review (IMF Country Report No. 15/321).

### Tax revenue projections and VAT opportunities
- Tax revenues are projected to increase by ½ percent of GDP per annum over the medium term through tax policy and administrative reforms.
- VAT compliance and policy gaps (per the 2014 FAD VAT Gap Report):
  - Closing the VAT compliance gap to about 40 percent of potential VAT would raise VAT revenues by the equivalent of 2–2½ percent of GDP.
  - Addressing the VAT policy gap could contribute another 1 percent of GDP.
- Recommended follow-up: enhance the tax-paying culture and close monitoring of the tax gap and strategic compliance risks pertaining to the Large and Medium Taxpayers’ Offices.
- Note: These yields were estimated prior to adoption of a package of tax reforms (including eliminating some VAT exemptions) in the FY2014/15 budget; current estimates are likely somewhat lower and will be revisited during an upcoming comprehensive review.

### Expenditure restraint and public investment efficiency
- Restraint in recurrent spending is intended to create space for priority poverty-alleviating spending and public investment.
- Authorities’ measures to boost investment efficiency:
  - appropriate project selection;
  - effective implementation of the new Public Investment Management Guidelines;
  - careful assessment of contingent risks from PPP arrangements.
- Technical assistance: request from East AFRITAC.
- Structural benchmark: finalize and disseminate the Investment Appraisal User Manual (end-December 2016).

### Monetary policy stance and inflation anchoring
- Monetary policy easing conditioned on the BoU’s inflation forecast and underlying risks.
- Recent action: BoU eased monetary policy in April in response to deceleration in inflationary expectations.
- Additional easing conditional on:
  - how actual inflation tracks expectations;
  - adherence to the budget;
  - behavior of food prices and second-round effects on core inflation;
  - global and regional economic environment and exchange rate movements;
  - behavior of private sector credit and effect on the output gap.

### Financial stability and macroprudential measures
- BoU plans to strengthen prudential oversight to safeguard financial stability.
- Specific vulnerabilities: exposure to foreign currency loans in the real estate sector during rapid exchange rate depreciation.
- Planned measures:
  - adopt maximum loan-to-value ratios as a macro-prudential tool;
  - adopt capital conservation buffer, capital charge for systemically important banks, and the liquidity coverage ratio in line with Basel III and the Amended Financial Institutions Act.
- Ongoing actions: continuous monitoring through onsite and offsite supervision; updates to micro- and macro-prudential toolkit.
- BoU stress tests indicate continued resilience of bank capital under a battery of credit risk and liquidity shocks, but vigilance against market, liquidity, operational risks, credit concentration, and currency mismatches remains necessary.

### AML/CFT legal reforms and FATF gray list exit
- FATF determination (February 2014): key deficiencies in AML/CFT legal framework, including powers of the Financial Intelligence Authority (FIA) and supervisory agencies, and criminalization of terrorist financing.
- Required actions:
  - Passage of amendments to the AML/CFT legal framework (e.g., AML Act and Insurance Act) by May 2016 (Structural Benchmark, end-June 2016) to address FATF recommendations and facilitate exit from the FATF gray list.
- Ongoing reforms and capacity building aim to strengthen FIA’s financial and operational independence and enhance supervision, including risks from mobile money innovations.

### Financial inclusion and innovation
- Financial inclusion pursued under four pillars: financial literacy, consumer protection, innovations, and data measurement.
- Activities:
  - financial literacy and training programs in secondary and primary schools; development of a Trainer’s Manual;
  - consumer protection: “Key Facts” disclosure document and a BoU complaints desk.
- Mobile banking: total value of transactions made by mobile phones in 2015 registering US$10 billion (about 38 percent of GDP).
- Proposals under study: creation of savings and loan accounts using mobile money patterned after Kenya’s M-Shwari system.
- Operational challenges: system integrity, prevention of criminal abuse, and safeguarding deposits through deposit insurance.
- Staff recommendation: ensure regulatory framework keeps pace with innovation.

### Structural reforms and public financial management (PFM)
- Public financial management reforms remain a central structural priority.
- Key actions and structural benchmarks:
  - Finalization of the Charter of Fiscal Responsibility (CFR) and submission to Parliament (Structural Benchmark, end-September 2016).
  - Implementation of new PFM Regulations consistent with international best practice to facilitate the PFM Act (Structural Benchmark, end-June 2016).
  - Reducing domestic payment arrears: reconciliation and validation of the stock of domestic payment arrears; tighten expenditure controls (Structural Benchmark, end-June 2016). Measures include enhanced audit timing, semi-annual reporting, and enforcement of sanctions under the PFM Act; request for East AFRITAC technical assistance.
  - Strengthening fiscal/monetary coordination: revise Memorandum of Understanding between BoU and MoFPED to reflect the new PFM Act (including petroleum fund management, public debt, the CFR, and EAC monetary union protocol agreements).
- Proposed Amendments to the BoU Act (Structural Benchmark, end-May 2016): strengthen Bank independence; provisions for implementing inflation targeting; establish BoU’s capital as a percentage of monetary liabilities; limit intra-year advances to the government to 10 percent of the previous year’s revenues.
- Structural benchmark list includes: Parliamentary approval of AML/CFT-related amendments by May 2016 (end-June 2016); finalization, publication, and dissemination of the Public Investment Project Appraisal User Manual (end-December 2016); update and publish Development Committee guidelines (end-December 2016).

### Growth, poverty reduction, and development planning
- First National Development Plan (NDPI, 2008/09-2013/14): growth averaged 5½ percent over FY2010/11 and FY2013/14, driven by services expansion; employment creation modest; poverty rate declining but still high; moderate human capital gains.
- Second National Development Plan (NDPII, 2015/16-2019/20) theme: “Strengthening Uganda’s Competitiveness for Sustainable Wealth Creation, Employment, and Inclusive Growth”; roadmap towards middle-income status by 2020.
- NDPII priorities: agriculture; tourism; minerals, oil and gas; infrastructure development; human capital development; resource mobilization including revenue mobilization and nontraditional financing sources; consistency with regional harmonization objectives.

### Staff appraisal and key recommendations
- Macroeconomic resilience: economy demonstrated strong resilience despite election-related uncertainties and complex regional and global environment; growth remains robust with favorable medium-term prospects supported by prospective oil production, inter-regional trade, and scaled-up infrastructure investments.
- Fiscal observations and recommendations:
  - Welcome measures to limit fiscal slippages in FY2015/16 but regret shift from public investment to current spending; correction needed in next year’s budget.
  - FY2016/17 budget: appropriately targets an increase in public investment while resuming fiscal consolidation; revenue measures equivalent to ½ percent of GDP underpin a slight decline in the overall deficit.
  - Encourage enhancing public investment efficiency (project selection, implementation of new public investment management guidelines) and careful assessment of contingent risks from PPP arrangements to safeguard debt sustainability and low risk of debt distress.
- Monetary policy: BoU’s inflation targeting framework has helped anchor inflation expectations; further easing should be guided by the inflation forecast and conditioned on fiscal prudence, exchange rate and food price behavior, and the output gap.
- Arrears: decisive reduction of domestic payment arrears is a priority. Authorities encouraged to complete reconciliation and validation of arrears, regularize semi-annual reporting of unpaid bills, tighten expenditure controls, and enforce sanctions to strengthen compliance.
- AML/CFT: rapid progress on AML/CFT legal framework needed for prompt exit from the FATF gray list; timely Parliamentary approval of amendments to the Anti-Money Laundering Amendment Act and the Insurance Act is critical. Staff supports strengthening FIA capacity and independence.

*International Monetary Fund — Excerpts from IMF Country Report content unit _cr16145*

### 32.      Vigilance is needed to ensure continued financial stability. Exchange rate and interest

### 32.      Vigilance is needed to ensure continued financial stability. Exchange rate and interest

### Financial stability pressures and supervisory recommendations
- Exchange rate and interest rate volatility exerted some pressure on bank balance sheets, and an effort is needed to guard against latent risks.
- Staff supports the authorities’ plans to further strengthen prudential supervision and the macro-prudential toolkit, including through the issuance of new loan-to-value guidelines to mitigate risks in the real estate sector.
- Staff supports the adoption of:
  - the capital conservation buffer,
  - capital charge for systemically important banks, and
  - the liquidity coverage ratio,
  - in line with Basel III guidelines.
- Implementation of the Amended Financial Institutions Act and ensuring that the regulatory framework keeps pace with financial innovation will help to preserve financial stability.

### Structural reforms to strengthen institutions
- The authorities are urged to step up implementation of other structural reforms.
- Priority actions identified:
  - Expedite finalization of the amendments to the BoU Act, designed to strengthen the BoU’s independence.
  - Align the regulations of the new Public Financial Management Act with international best practice.
  - Finalize and approve the Charter of Fiscal Responsibility.

*Source: IMF staff assessment in the cited chapter.*

### 34.      Staff recommends completion of the sixth review of the PSI-supported program.

### _cr16145 - 34.      Staff recommends completion of the sixth review of the PSI-supported program.

### Executive recommendation
- Staff recommends completion of the sixth review of the PSI-supported program.
- Staff supports a waiver of the nonobservance of the ceiling on the overall deficit of the central government on the grounds that the slippage was minor.
- Staff supports the authorities’ request for a one-year extension of the current PSI to facilitate policy continuity and allow sufficient time for progress on structural reforms.
- The attached MEFP outlines the macroeconomic objectives and policies for the period ahead.

### Real economy and inflation (selected indicators)
- Real GDP: 4.4, 3.3, 4.8, 5.0, 5.0, 5.0, 5.8, 5.5, 5.8, 6.0, 6.2
- GDP deflator: 20.9, 4.1, 2.3, 3.6, 8.2, 7.6, 4.0, 4.4, 4.1, 3.8, 3.9
- CPI (period average): 20.9, 5.0, 5.4, 3.0, 7.7, 7.3, 6.3, 5.5, 5.0, 5.0, 5.0
- CPI (end of period): 15.0, 5.4, 2.6, 5.0, 8.0, 7.6, 5.6, 5.1, 5.0, 5.0, 5.0
- Core inflation (end of period): 13.2, 6.9, 1.9, 5.1, 7.7, 6.6, 5.7, 4.9, 5.0, 5.0, 5.0

### Money, credit, and interest rates
- Broad money (M3): 7.2, 6.6, 17.4, 15.9, 14.0, 15.5, 15.0, 12.9, 14.4, 15.1, 14.5
- Credit to non-government sector: 11.5, 6.4, 13.9, 20.4, 19.4, 16.2, 15.4, 16.2, 16.4, 16.5, 16.6
- Bank of Uganda policy rate (end of year CBR): 20.0, 11.0, 11.0, 13.0
- M3/GDP (percent): 19.0, 18.9, 20.6, 22.0, 22.0, 22.5, 23.0, 23.0, 23.9, 25.0, 26.0

### Fiscal accounts (selected aggregates)
- Revenue and grants (percent of GDP): 13.1, 12.9, 12.9, 14.8, 15.7, 15.7, 15.8, 16.2, 16.0, 16.1, 16.6
- Expenditure (percent of GDP): 15.6, 16.5, 17.1, 19.3, 22.3, 22.1, 22.4, 22.5, 22.4, 22.7, 21.9
- Capital expenditure (percent of GDP): 5.8, 6.6, 7.2, 8.3, 11.7, 11.0, 11.5, 11.3, 11.7, 11.7, 10.9
- Primary balance (percent of GDP): -1.5, -2.2, -2.7, -2.8, -4.5, -4.4, -4.4, -4.1, -4.1, -3.9, -2.6
- Overall balance (percent of GDP): -2.5, -3.6, -4.1, -4.5, -6.6, -6.4, -6.6, -6.2, -6.5, -6.5, -5.3
- Overall balance excluding grants (percent of GDP): -4.5, -5.0, -5.1, -5.7, -8.6, -8.1, -8.1, -8.1, -7.5, -7.3, -6.0
- Net domestic borrowing (percent of GDP): 0.0, 1.0, 2.3, 3.3, 1.3, 1.6, 1.4, 0.9, 0.8, 0.9, 0.4

### Public debt and borrowing
- Public gross nominal debt (percent of GDP): 22.0, 26.2, 29.1, 33.2, 38.8, 36.9, 38.7, 40.5, 44.3, 47.8, 49.2
- External public debt (percent of GDP): 13.2, 15.2, 16.3, 19.3, 25.8, 23.2, 25.5, 27.1, 30.8, 34.3, 36.5

### External sector (selected)
- Exports (goods and services, percent of GDP): 20.2, 20.5, 18.7, 18.9, 23.1, 20.4, 21.8, 19.4, 20.3, 21.2, 21.6
- Imports (goods and services, percent of GDP): 33.1, 30.7, 28.7, 30.3, 35.4, 32.0, 34.2, 31.5, 31.1, 32.5, 31.5
- Current account balance (including grants, percent of GDP): -8.8, -6.4, -7.8, -8.3, -9.6, -9.7, -10.2, -10.7, -10.3, -11.2, -10.1
- Gross international reserves (US$ billions): 2.6, 2.9, 3.4, 2.9, 2.6, 2.7, 3.0, 2.9, 3.3, 3.7, 3.9
- Reserves (months of next year imports): 4.2, 4.5, 5.1, 4.5, 3.6, 3.9, 3.8, 4.0, 4.1, 4.3, 4.5

### Fiscal accounts (levels, FYs, selected)
- Total revenue and grants (billions of Ugandan Shillings): 7,771; 8,245; 8,868; 11,045; 13,306; 13,208; 14,811; 15,071; 16,319; 18,135; 20,576
- Total expenditures and net lending (billions of Ugandan Shillings): 9,281; 10,523; 11,684; 14,379; 18,943; 18,590; 20,942; 20,875; 22,921; 25,492; 27,132
- Overall balance (billions of Ugandan Shillings): -1,510; -2,277; -2,816; -3,334; -5,637; -5,382; -6,130; -5,804; -6,602; -7,356; -6,556
- Financing (billions of Ugandan Shillings): 1,191; 2,084; 2,463; 3,402; 5,637; 5,382; 6,130; 5,804; 6,602; 7,356; 6,556
- External financing (net, billions): 1,171; 1,418; 887; 919; 4,555; 4,017; 4,789; 4,969; 5,735; 6,319; 6,001

### Banking sector indicators (selected, Mar-12 to Mar-16 series shown)
- Regulatory capital to risk-weighted assets (percent): 21.8; 20.7; 20.9; 21.9; 24.5; 24.3; 23.1; 22.1; 23.6; 22.8; 22.5; 22.2; 23.2; 21.2; 19.7; 21.0; 21.8
- NPLs to total gross loans (percent): 3.4; 3.9; 4.7; 4.2; 4.7; 4.0; 4.4; 6.0; 6.2; 5.8; 5.3; 4.1; 4.2; 4.0; 3.9; 6.5; 6.9
- Return on assets (percent): 4.4; 4.4; 4.3; 3.9; 3.6; 3.3; 3.2; 2.0; 2.4; 2.1; 2.2; 2.6; 2.5; 2.8; 2.7; 2.6; 2.8
- Liquid assets to total deposits (percent): 37.5; 38.9; 42.5; 42.0; 42.7; 41.1; 40.6; 42.5; 45.4; 46.5; 41.8; 44.0; 44.2; 46.4; 46.0; 46.4; 42.5

### Balance of payments (selected, US$ millions)
- Current account (US$ millions): -2,042; -1,582; -2,110; -2,189; -2,073; -2,357; -2,653; -2,850; -2,888; -3,386; -3,304
- Trade balance (US$ millions): -2,574; -2,123; -2,367; -2,250; -2,113; -2,169; -2,540; -2,505; -2,516; -2,744; -2,689
- Exports, f.o.b. (US$ millions): 2,667; 2,912; 2,706; 2,738; 2,967; 2,687; 3,135; 2,691; 2,976; 3,465; 3,840
- Imports, f.o.b. (US$ millions): -5,241; -5,035; -5,074; -4,988; -5,080; -4,856; -5,675; -5,196; -5,493; -6,209; -6,528
- Gross official reserves (US$ millions): 2,644; 2,912; 3,394; 2,895; 2,645; 2,745; 3,005; 2,910; 3,320; 3,670; 3,922
- Current account balance (percent of GDP): -8.8, -6.4, -7.8, -8.3, -9.1, -9.7, -10.2, -10.7, -10.3, -11.2, -10.1

*Source: _cr16145 - 34.      Staff recommends completion of the sixth review of the PSI-supported program.*

### Annex I. Spillovers from China

### Annex I. Spillovers from China

### Main conclusion
- A moderate growth slowdown in China is unlikely to produce a significant deterioration in the current account through direct trade links between Uganda and China, while indirect effects through commodity prices warrant close monitoring.
- The capital and financial accounts could be negatively affected given the relatively high importance of China as a source of FDI and loans financing large infrastructure projects.
- If Chinese funding sources were to become scarce, infrastructure-related imports would also decline, limiting the overall impact on the balance of payments.
- Effects on economic activity could be more significant, affecting long-term potential growth, as there are no clear cost-effective financing alternatives.

### Trade links: exposure and channels
- Ugandan exports to China comprise 2½ percent of total exports.
- Imports from China are about 15 percent of total imports—mostly financed by loans from China.
- Over 40 percent of Ugandan exports (including informal) go to commodity-exporting countries—particularly South Sudan, an oil-dependent economy.
- A slowdown in China may have indirect effects through lower global commodity prices by weakening demand for Ugandan exports originating from commodity-dependent countries.
- In the first nine months of FY2015/16, Ugandan exports to commodity-exporting countries declined by 7 percent compared to the same period of the previous year.
- If this performance continues through the rest of the current fiscal year, exports would decline by about $70 million (⅓ percent of GDP).

### Financial links: FDI, loans, and infrastructure financing
- China’s FDI reached $400 million in the first half of 2014 (UIA data).
- China ranked first in terms of planned FDI to Uganda by value over the past two years, with large investments in the manufacturing and constructions sectors, accounting for about 30 percent of all new projects.
- China ranks second by number of projects, with 53 projects in FY2013/14, only behind India.
- Between 1993 and 2012, 310 Chinese enterprises were registered in Uganda with planned investments of $683 million, creating 33,000 job opportunities (UIA).
- Chinese companies operate in nearly every sector, including farming, retail, telecommunications and mobile telephone networks.
- China, mostly through Eximbank, is a key source of financing of large infrastructure projects, including the two HPPs Karuma and Isimba, the toll highway between Entebbe International Airport and Kampala, and the rehabilitation of the Entebbe airport.
- China is active in the oil sector through the China National Offshore Oil Corporation (CNOOC).

### Balance of payments and growth implications
- Uganda’s balance of payments is unlikely to be strongly affected by spillovers from China given the trade and financial linkages described.
- Growth would be hurt if the Chinese slowdown were to lead to a substantial decline in FDI, particularly if China reconsidered financing of Uganda’s key infrastructure projects.
- Delays in financing could lead to large project cost overruns; relying on alternative financing sources would likely result in a higher debt burden, since alternative cost-effective options are not immediately available.
- FDI from China (or projects financed by China and/or executed by Chinese firms) may benefit from the ample resources available to Eximbank and the comparatively stronger economic fundamentals of Uganda relative to other SSA countries that previously received substantial FDI from China.

### Monitoring and policy implications (as expressed in the text)
- Close monitoring of commodity prices is warranted due to indirect spillover risk via commodity-exporting trading partners.
- Monitor Chinese FDI and financing commitments for key infrastructure projects (Karuma, Isimba, Entebbe–Kampala toll highway, Entebbe airport rehabilitation) given their importance for removing energy and transportation bottlenecks and for unlocking growth potential.
- Be prepared for potential project delays and cost overruns if Chinese financing becomes scarce, and assess implications for debt sustainability given limited immediate access to alternative cost-effective financing.

*Source: Annex I. Spillovers from China (excerpt) from the provided IMF document.*

### 16.      Real GDP growth is projected at 5 percent for FY2015/16 and 5.5 percent for FY2016/17,

### _cr16145 - 16.      Real GDP growth is projected at 5 percent for FY2015/16 and 5.5 percent for FY2016/17,

### Macro outlook and inflation
- Real GDP growth is projected at 5 percent for FY2015/16 and 5.5 percent for FY2016/17, driven by public investment and private sector demand.
- Average annual headline inflation:
  - FY 2015/16: (7.3) percent
  - FY 2016/17: 5.5 percent
- Average core inflation projected:
  - end FY2015/16: about 6.8 percent
  - end FY2016/17: 5.1 percent
  - Projected to remain within the PSI consultation band.

### Current account and external financing
- Current account deficit (including grants):
  - FY2015/16: 9.7 percent of GDP
  - FY2016/17: 10.7 percent of GDP
  - Medium-term (by 2018/19): 11.2 percent of GDP
- FY2015/16 reserve coverage: 3.9 months of the next year’s imports (higher than programmed during the Fifth PSI review).
- Financing: expected to be mostly by FDI and other loans; deficits to be financed largely by external sources, majority on highly concessional terms.

### Risks to the outlook
- Downside risks include:
  - declining international commodity prices and tighter global financial conditions,
  - delays in implementing export-led government programs,
  - lower growth in other EMEs including China,
  - indirect effects from lower demand from South Sudan.
- Positive factor: growing importance of inter-regional trade helping diversify export demand.

### Fiscal policy — stance and outcomes
- Fiscal deficit:
  - FY2015/16: expected to be 6.3 percent of GDP (lower than 6.6 percent projected at the 5th review).
  - FY2016/17 budget envisages overall deficit of 6.2 percent of GDP.
- Revenue performance:
  - Revenue shortfall for FY 2015/16 estimated at Ush 100 billion compared to PSI targets.
  - Planned domestic borrowing increased to 1.1 trillion shillings, Ushs 200 billion higher than expected in January, but below the budgeted 1.4 trillion shillings.
- Expenditure pressures:
  - Higher-than-anticipated expenditure due to security and election-related needs.
  - Ush 100 bn of new expenditure requires new financing despite reallocations.
- Financing plans and shifts:
  - Plan to issue Ushs 612 bn new domestic debt.
  - Plan to access $100 million (Shs. 347 billion) of the PTA Bank loan to replace domestic financing.
  - Government requested a line of credit of USD 200 million from PTA Bank (three year revolving facility); will not use the loan in FY2015/16 but plan to use in FY2016/17 and FY2017/18 to replace more costly domestic financing.
  - China Eximbank remains the most important source of non-concessional external financing.
  - Strategy to shift composition of financing towards lower-cost (lower debt) sources over the medium term.

### Tax policy measures (FY2016/17 tax package) — expected increase in tax-to-GDP ratio of about ½ percent of GDP
- Excise and duty adjustments:
  - Increase excise duty on ready to drink spirits from 70 percent to 80 percent.
  - Increase Excise Duty on petrol from Shs. 1000 to Shs. 1100 and for diesel from Shs. 680 to Shs. 780.
  - Increase excise duty on cigarettes (Soft cap from Shs. 45,000 to Shs. 50,000 per 1000 sticks and Hinge lid from Shs. 75,000 to Shs. 80,000 per 1000 sticks).
  - Increase excise duty on motor vehicle lubricants from 5 percent to 10 percent.
  - Increase excise duty on cement from Shs. 500 to Shs. 1,000 per 50 Kg bag.
  - Increase excise duty on sugar from Shs. 50 per kg to Shs. 100 per kg.
  - Increase excise duty on confectionaries (chewing gum, sweets and chocolates) from 10 percent to 20 percent.
  - Increase stamp duty on land transfer from 1 percent to 2 percent.
  - Impose VAT on bulbs other than compact fluorescent bulbs.
  - Increase various fees under the Mining Act 2003.
  - Impose import duty on high value consumer products from the COMESA region.
  - Increase environmental levy on used clothing from 15 percent to 20 percent.
  - Introduce a 5 year driving permit and increase driving permit fees.

### Tax administration measures (expected revenue yields listed)
- Intensification of data mining and matching focusing on customs and Domestic tax filings — expected to generate UGX 5 Billion.
- Strengthening risk assessment of VAT offset claims and refunds — expected to generate UGX 10 Billion.
- Expanding the scope of the single customs territory and enforcement — expected to generate UGX 10 Billion.
- Sector focused taxpayer education strategy (AEO clients, enforcement, VAT threshold, preferential regimes, WHT, presumptive tax) — expected to generate UGX 5 Billion.
- Strengthening risk based audit processes — expected to generate UGX 165 Billion.
- Implement Tax payer Register Expansion Project (TREP) — expected to generate UGX 62 Billion.
- Decentralize the Large Taxpayer Office and Medium Taxpayer Office — expected to generate UGX 50 Billion.
- Expand and strengthen the international taxation office through attachment, training and purchase of equipment (no explicit yield stated).

### Public investment management and major projects
- Public Investment Management reforms and benchmarks:
  - Develop PIMS Guidelines and Procedures; PIMS diagnostic study reports due for publication.
  - Develop Integrated Bank of Projects (IBP); finalize, publish and disseminate Appraisal User Manual to all MDAs by December 2016 (new Structural Benchmark).
  - Revise guidelines for the Development Committee by December 2016 (new Structural Benchmark).
- Major projects in FY2016/17:
  - Karuma and Isimba hydropower plants.
  - Standard-gauge railway (SGR) connecting Kampala to the Kenyan border (construction expected to begin with domestic financing while loan arrangement finalized).
  - Rehabilitation of Entebbe airport.
  - Kampala-Entebbe expressway and significant infrastructure improvements within greater Kampala area.
  - Resettlement Action Plan implementation for industrial substations.
- Medium-term projects:
  - Oil refinery and Kampala-Jinja expressway under PPP arrangements.
  - Kibuye-Busega-Nabbingo road with financing from the ADB.
  - On the refinery, signing of shareholders agreement, project framework agreement, and implementation agreement expected by May 2016.

### Social protection and Poverty Action Fund (PAF)
- Allocations to PAF:
  - FY 2015/16: Ushs. 4.33 trillion
  - FY 2016/17: Ushs. 4.81 trillion (increase of 11 percent)
- Spending on poverty alleviating sectors (Agriculture, Education, Health, Water and Environment):
  - Increase from Shs. 3 trillion in FY2014/15 to Shs. 3.7 trillion in FY2016/17.
- Additional allocations:
  - An additional Shs. 90 billion allocated as a specific fund for women and youth.
- Social assistance programs:
  - Government committed to deepening interventions and expanding to new districts by providing Ushs 149bn over the medium to long term.
- Social protection policy approved in November 2015.

### Monetary policy and financial sector
- Monetary policy objective: BoU to ensure core inflation target of 5 per cent in the medium term.
- Policy rate movement:
  - CBR reduced to 16 percent in April from 17 percent in February 2016.
- Exchange rate policy: BoU committed to avoiding excessive volatility while allowing the real exchange rate to reflect market conditions.
- Prudential measures and macroprudential policy:
  - Plan to implement capital conservation buffer, capital charge for systemically important banks and liquidity coverage ratio.
  - Recently amended FIA Act will give BoU powers to implement additional capital buffers.
  - BoU to conduct macroprudential regulation to identify and mitigate systemic risks.
- Financial inclusion:
  - Activities under four pillars: financial literacy; financial consumer protection; Financial Innovations; Data and Measurement.
  - Bank collects data on financial inclusion indicators; participates in FINSCOPE surveys (three surveys undertaken).
- Mobile money:
  - Total value of transactions in 2015: around US$10 billion, about 38 percent of GDP.
  - Government developing comprehensive legal framework for mobile money industry.
  - Tier 4 Microfinance and Money Lenders Bill to be passed and regulatory framework established for Tier 4 institutions.
  - Microfinance policy 2008-2015 to be reviewed.

### AML/CFT actions and timelines
- Government committed to addressing FATF concerns and removing Uganda from the gray list.
- Legislation:
  - Anti-Money Laundering (Amendment) Bill, 2015, and Insurance (Amendment) Bill, 2011, tabled in Parliament for first reading and committed to the Finance Committee.
  - Prepared amendments to provide for: (i) a risk-based approach in accordance with FATF; (ii) adequate risk assessment and due diligence; (iii) strengthened record keeping; (iv) empowerment of Financial Intelligence Authority (FIA) to impose sanctions for non-compliance (new Structural Benchmark).
- ML/TF National Risk Assessment (NRA):
  - Using World Bank Tool; preparation for phase I concluded and Phase II underway; Phase II envisaged to be completed in 2 years.

### Structural reforms and PFM
- PFM Act:
  - New PFM Act enacted on 6th March 2015 and amended in November; key amendments include Sections 25, 26, 28, 36 and 82.
  - PFM regulations being finalized (expected to be completed by June 2016).
- Charter of Fiscal Responsibility (CFR):
  - Work ongoing; CFR will cover measurable fiscal objectives for next five years, methodology, data sources, and consistency with Section 4(2) of the PFM Act.
  - CFR to be submitted to Parliament by September 2016 (Structural Benchmark).

*International Monetary Fund — Uganda: selected excerpts and policy measures from the source content.*

### 39.       The MoFPED and the BoU commit to continue to improve their policy coordination and

### _cr16145 - 39.       The MoFPED and the BoU commit to continue to improve their policy coordination and

### Policy coordination between MoFPED and BoU
- MoFPED and the BoU commit to continue to improve their policy coordination and communication with the markets through regular meetings and a memorandum of Understanding.
- The memorandum will be revised to take into account:
  - the new PFM Act (particularly petroleum fund management, public debt, CFR);
  - the amendments to the BoU Act once enacted;
  - the new EAMU Protocol.

### Treasury Single Account (TSA) implementation
- Implementation of the TSA is well ahead of target and will continue to extend the TSA framework depending on infrastructure readiness.
- So far, 56 local governments have been included against a target of 30 entities.
- Inclusion of donor accounts in the future depends on donor acceptability and policy agreement; engagement with development partners will continue.
- The structural benchmark was reformulated in line with extension of TSA to local government.

### Domestic arrears, reporting, and IFMIS usage
- Commitment to strengthen procedures to ensure timely reporting and avoid reoccurrence of domestic arrears.
- Publication schedule changes:
  - Publication of reports on unpaid bills signed by the PS/ST contained in the central government votes proposed to change from quarterly to semi-annual, effective in June 2016 (Structural Benchmark).
  - The annual report on the stock of domestic arrears will continue to be published in June 2016 (Structural Benchmark).
- Reconciliation and verification:
  - Progress in reconciliation of data from Internal Audit and Accountant General; verification to be concluded before financial statements preparation at vote level and consolidation by Accountant General.
  - Only verified arrears shall be considered for payment.
  - A reconciled set of figures for FY2013/14, FY2014/15 and December 2015 will be shared with the Fund by May 6, 2016 in accordance to the template provided by the IMF.
- Enforcement and systems:
  - Strict sanctions to be applied to accounting officers who accumulate new arrears; publication of the list of accounting officers who are not reappointed.
  - Intend to ensure better utilization of the Integrated Financial Management and Information System (IFMIS) so that no obligations are committed outside of IFMIS.

### Arrears from SOEs and local governments
- Tracking arrears from SOEs and local governments is essential.
- Under the PFM Act, 2015, local Governments and SOEs shall be required to report on arrears stock on a half-year basis, in line with financial reporting requirements.
- This information will inform preparation of the Fiscal Risks statement.
- Further automation of IFMIS to Local Governments is ongoing, subject to available funding.

### Financial sector legislation and BoU amendments
- The Financial Institutions (Amendment) Act, 2016 was passed by Parliament and assented to by H.E. the President on 19th January, 2016.
  - The Act provides for: introduction of Islamic Banking; Reforming the Deposit Protection Fund; introduction of Agent Banking; and introduction of Bancassurance.
- A draft Cabinet Memo on the Principles for Amending the BOU Act has been prepared and will soon be presented to Cabinet.
- A BOU Amendment Bill will be submitted to Parliament by September 2016.

### EAC regional integration and MTCP
- Progress towards EAC regional integration will continue.
- A medium term convergence program (MTCP) prepared to guide transition to the convergence criteria; it outlines medium-term macroeconomic and fiscal objectives and strategies to attain monetary and economic convergence by 2021.
- The MTCP will be presented for discussion at the EAC Sectoral Council on Finance and Economic Affairs (SCFEA) in May 2016.

### Program monitoring, QACs, ITs, and SBs
- Program monitored through quantitative assessment criteria (QAC), indicative targets (ITs), and structural benchmarks (SBs) as detailed in attached Tables 1 and 2 and through semi-annual reviews.
- The seventh review expected by end-December 2016 and the eighth by end-June 2017.
- The Technical Memorandum of Understanding (TMU) contains definitions and reporting requirements.

### Key quantitative targets and outturns (selected entries from Table 1.1)
- Ceiling on the overall deficit of the Central Government (Billions of Ugandan shillings):
  - Program Adjusted Target (March 31, 2016): 1,682
  - Outturn Result (March 31, 2016): 1,150
  - Program Adjusted Target (June 30, 2016): 1,143 — Met
  - Program Proposed (September 30, 2016): 2,346; Outturn Result: 2,113; 2,325 — Not met
  - Subsequent Program Proposed values: 3,814; 5,382; 1,590; 3,983; 4,988
- Ceiling on the stock of external payment arrears incurred by the public sector: 0 (Met across observations).
- Minimum increase in net international reserves of the Bank of Uganda (US$mn):
  - June 30, 2016 Program Adjusted Target: 49
  - Outturn Result: 50
  - March 31, 2016 Outturn: -140 — Not Met
  - Other listed values: -225; -262; 31 — Met; -281; -150; 41; 83; 124
- Share of oil revenue placed in the Petroleum Fund: 100 (Met across observations).
- Floor on tax revenue (Billions of Ugandan shillings):
  - March 31, 2016 Program Adjusted Target: 2,441; Outturn: 2,364 — Not Met
  - June 30, 2016 Program Adjusted Target: 5,282; Outturn: 5,310 — Met
  - Other Program Proposed values: 7,997; 11,040; 2,756; 6,008; 9,084
- Expenditures on poverty alleviating sectors (Billions of Ugandan shillings):
  - March 31, 2016 Program Adjusted Target: 768; Outturn: 782 — Met
  - June 30, 2016 Program Adjusted Target: 1,570; Outturn: 1,488 — Not met
  - Other Program Proposed values: 2,367; 3,032; 893; 1,824; 2,782
- Net change in the stock of domestic arrears:
  - Program values: -20; -39; -80; -80; -62 (outturns not available because reconciliation not completed).
- Ceiling on withdrawals from energy and petroleum funds (Billions of Ugandan shillings):
  - March 31, 2016 Program Adjusted Target: 70; Outturn: 149; 122 — Met
  - June 30, 2016: 173; Outturn: 140; 140 — Met
  - Subsequent Program Proposed values: 253; n.a.; n.a.; n.a.; n.a.

### Inflation consultation bands (Table and TMU)
- Quarterly consultation bands for twelve-month average CCPI (core consumer price index):
  - Outer band (upper limit): 8.0 (Jun. 2016, Sep. 2016, Dec. 2016, Mar. 2017)
  - Inner band (upper limit): 7.0 (Jun. 2016, Sep. 2016, Dec. 2016, Mar. 2017)
  - Core inflation target: 5.0 (Jun. 2016, Sep. 2016, Dec. 2016, Mar. 2017)
  - Inner band (lower limit): 3.0 (Jun. 2016, Sep. 2016, Dec. 2016, Mar. 2017)
  - Outer band (lower limit): 2.0 (Jun. 2016, Sep. 2016, Dec. 2016, Mar. 2017)
- Consultation mechanism:
  - If observed average CCPI inflation for the 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.
  - BoU will report to the public reasons for any breach of the outer bands and its policy response.
  - BoU will conduct discussions with Fund staff when observed average CCPI inflation falls outside the inner band for June 2016 and December 2016.

### Technical details: Program exchange rates (end-June 2015)
- US Dollar (US$) 1.0
- British Pound/US$ 0.636213
- Japanese Yen/US$ 122.45
- SDR/US$ 0.711039
- Kenyan Shilling/US$ 98.6394
- Tanzania Shillings/US$ 2,020.35
- Euro/US$ 0.893735
- Canadian dollar/US$ 1.2474
- Australian dollar/US$ 1.302083
- Ugandan Shillings/US$ 3,301.80

### Selected structural benchmarks and status (from Table 1.2)
- Ministry of Finance to submit to Parliament amendments to the Bank of Uganda Act to support inflation targeting, establish capital of the BoU as adequate percent of monetary liabilities, and limit intra-year advances to 10 percent of tax revenues of the previous year:
  - Date: April 2016 — Status: Not met. Draft Cabinet Memo on the Principles for Amending the BoU Act to be presented to Cabinet, thereafter Bill to Parliament — Revised date: September 2016.
- Government to continue annual recapitalizations of BoU with marketable securities to bring capital to statutory level until amendments come into force:
  - Date: November 2015 — Status: Met. Commentary: information on progress to contain operational and administrative costs lacking.
- Ministry of Finance to publish quarterly reports signed by PS/ST on stock of unpaid bills of all government entities contained in central government votes:
  - Dates: November 15, 2015; February 15, 2016; May 15, 2016 — Status: Not met; reconciliation ongoing — Proposed to change to semi-annual reports.
- Ministry of Finance to publish a semi-annual report signed by PS/ST on the stock of unpaid bills of all government entities contained in the central government votes:
  - Date: June 2016 — Proposed revised date: March 2017.
- Ministry of Finance to publish a report signed by PS/ST on the stock of domestic arrears of all government entities contained in the central government votes:
  - Date: December 2015 — Status: Not met; reconciliation ongoing — Revised date: June 2016.
- Regulations for implementation of the PFM Act in line with international best practice to become effective:
  - Date: March 2016 — Status: Not met; initial Regulations not in line with international practices — Revised date: June 2016.
- Ministry of Finance to send to Parliament the charter of fiscal responsibility:
  - Date: April 2016 — Status: Not met; draft under internal discussion — Revised date: September 2016.
- Ministry of Finance to develop the Public Investment Management Guidelines and Procedures:
  - Date: December 2015 — Status: Met.
- Ministry of Finance to include 30 local governments in the TSA structure:
  - Date: March 2016 — Status: Met.
- Ministry of Finance to introduce specific rules and controls on the intra-year use and balances of the Uganda Consolidated Fund (UCF) and UCF/TSA and institutionalize those rules in a framework agreement with the BOU and in the Charter of Fiscal Responsibility:
  - Date: April 2016 — Status: Not met. Commentary: new rules and controls specified in the PFM Act 2015 and Amendments.

### Proposed new structural benchmarks (selected)
- Strengthen the AML/CFT framework in line with international standard, including amendments to give the FIA sole authority to appoint its own staff, empower regulators under the Capital Markets Authority Act and Insurance Regulatory Act, and provide legal basis for freezing of terrorist assets under UNSCR 1267 and 1373:
  - Target month: June 2016.
- Finalize, publish and disseminate the Appraisal User Manual to all Ministries, Departments and Agencies:
  - Target month: December 2016.
- Update and publish Development Committee guidelines to ensure compliance with the Appraisal User Manual:
  - Target month: December 2016.

*Source: _cr16145 - 39.       The MoFPED and the BoU commit to continue to improve their policy coordination and*

### 6.      Changes in NEF will be measured using external financing (net) provided in the monthly

### 6.      Changes in NEF will be measured using external financing (net) provided in the monthly

### Measurement of NEF
- Changes in NEF will be measured using external financing (net) provided in the monthly government financial statistics.
- These data will be based on the reconciled donor disbursement figures obtained by the central bank and by Ministry of Finance, Planning, and Economic Development (MoFPED) through the Debt Management and Financial Analysis System (DMFAS) and Aid Management System (AMS).

### D. Floor on the Net International Reserves of the Bank of Uganda (QAC)
- Definition:
  - Net international reserves (NIR) of the Bank of Uganda are defined for program-monitoring purposes as reserve assets of the BoU net of short-term external liabilities of the BoU.
  - Reserve assets are external assets readily available to, and controlled by, the BoU and exclude pledged or otherwise encumbered external assets, including, but not limited to, assets used as collateral or guarantees for third-party liabilities.
  - Short-term external liabilities are liabilities to nonresidents, of original maturities less than one year, contracted by the BoU and include outstanding IMF purchases and loans.
- Measurement:
  - For program-monitoring purposes, reserve assets and short-term liabilities at the end of each test period will be calculated in U.S. dollars by converting the stock from their original currency denomination at program exchange rates (as specified in text table 1).
  - The NIR limits are the cumulative changes of the NIR stock from the beginning of the respective fiscal year to the specified dates.

### E. Share of Oil Revenue Placed in Petroleum Fund (QAC)
- Purpose:
  - To avoid a situation whereby petroleum revenues bypass the Ugandan budget framework.
- Legal/operational basis:
  - The 2015 PFM Act has established a petroleum fund, and government has established a petroleum revenue account in the BoU.
- Condition for satisfaction:
  - This QAC will be deemed satisfied if 100 percent of any kind of petroleum-related revenues (even before the start of oil production) is transferred to this account upon collection by URA.
  - These resources may then be spent or saved as governed by the 2015 PFM Act.

### F. Ceiling on Cumulative Changes in Temporary Advances from the Bank of Uganda to the Central Government (IT)
- Background:
  - The GoU may receive “temporary advances” from the BoU to cover temporary deficiencies of recurrent revenue, up to 18 percent of recurrent revenues over the fiscal year, according to Section 33 of the 2000 BoU Act.
  - The 2000 BoU Act does not specify repayment timing nor how advance amounts are to be measured.
  - Amendments to the 2015 PFM Act require full repayment within the respective fiscal year and reduce the cap to 10 percent of recurrent revenues.
  - Envisaged amendments to the BoU Act expected to be submitted to Parliament in September, 2016, will also address this issue.
  - At the beginning of FY2015/16, the GoU requested access up to about Ush 2,000 billion, with commitment of full repayment by end of fiscal year.
- Purpose of the indicative target:
  - Help define and monitor the balance of outstanding temporary advances and ensure prompt repayment.
  - Reduce likelihood that temporary advances replace domestic market financing, risking monetization of fiscal deficits.
  - Ceiling set only up to the end of FY2015/16 and expected to be removed afterward because Amendments to the PFM Act supersede the BoU Act.
- Definition and measurement:
  - Cumulative change in temporary advances is defined as the cumulative change, from the beginning of the respective fiscal year, in adjusted net claims on the central government by the BoU.
  - Adjusted net claims = BoU credit to the central government minus the central government's deposits, excluding:
    - deposits in administered accounts (including the energy and petroleum funds),
    - project accounts with the central bank,
    - net recapitalization securities (recapitalization securities provided to the central bank less those used for monetary policy purposes).
  - Credits comprise BoU loans and advances to the government and holdings of government securities and promissory notes.
  - Calculation based on data from balance sheets of the monetary authority as per the DCS.

### G. Floor on Expenditures on Poverty Alleviating Sectors (IT)
- Scope:
  - Floor includes domestic expenditures inclusive of wages and salaries in the Health, Education, Water and Environment and Agriculture sectors, as defined by the Government of Uganda functional budget classification, excluding those which are externally financed.
- Verification:
  - Compliance will be verified on the basis of releases.

### H. Ceiling on Issuance of Guarantees by the Government or Bank of Uganda (IT)
- Objective:
  - Prevent accumulation of contingent liabilities by the GoU (including entities such as ministries, agencies and authorities).
- Coverage:
  - Includes any direct, contingent liabilities of the GoU (including entities that are part of the GoU such as ministries, agencies and authorities).
  - Excludes guarantee programs which have explicit budget appropriations.

### I. Tax Revenue (IT)
- Floor applies on tax revenue of the central government measured cumulatively from the beginning of the fiscal year.
- Definition for program-monitoring purposes:
  - Tax revenue = 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 value-added taxes net of refunds;
    - infrastructure levy;
    - taxes on international trade
  - minus temporary road licenses and fees to hides and skins, as defined by the GoU’s revenue classification.

### J. Net Accumulation of Domestic Arrears of the Government (IT)
- Ceiling applies to net accumulation of domestic arrears of the central government as an indicative target.
  - A negative target represents a floor on net repayment.
  - Ceiling for each test date is measured cumulatively from the beginning of the respective fiscal year.
- Definitions:
  - Unpaid bill = any verified outstanding payment owed by any entity that forms part of the central government votes for: utilities, rent, employee costs, other recurrent, court awards, compensation, contributions to international organizations, development, taxes, and other deductions.
  - Domestic arrears = total stock of unpaid bills as of June 30 of the fiscal year as reported in the consolidated financial statements of the GoU.
- Frequency and measurement:
  - Observed on a semi-annual basis.
  - For quarter ending December 31: net change in stock of unpaid bills as reported in the semi-annual report on domestic arrears.
  - For quarter ending June 30: change in total stock of arrears as reported in the consolidated financial statements of the GoU.

### K. Adjustors
- Targets are based on program assumptions regarding:
  - (A) budget support excluding assistance provided under the Heavily Indebted Poor Countries (HIPC) Initiative and the MDRI;
  - (B) net inflows into the Petroleum Fund;
  - (C) recapitalization of the BoU;
  - (D) external financing tied to projects; and
  - (E) GoU’s contingent reimbursement under the Hoima refinery project.

- Adjustor related to budget support:
  - 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 the beginning of the relevant fiscal year is presented under Schedule A.
  - 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.
  - The ceilings on the cumulative increase in overall deficit will be adjusted downward (upward) by the amount by which budget support grants, excluding HIPC Initiative and MDRI assistance, exceeds (falls short of) the projected amounts.
- Schedule A: Budget Support (Ush billions; cumulative from the beginning of the respective fiscal year)
  - Jun-16: Budget support grants 110; Budget support loans 0
  - Sep-16: Budget support grants 4; Budget support loans 0
  - Dec-16: Budget support grants 19; Budget support loans 0
  - Mar-17: Budget support grants 47; Budget support loans 261

- Adjustor on Inflows into the Petroleum Fund:
  - Ceilings on cumulative increase in overall deficit 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 B.
- Schedule B: Inflows into Petroleum Fund (Ush billions; cumulative from the beginning of the respective fiscal year)
  - Jun-16: 125
  - Sep-16: 0
  - Dec-16: 0
  - Mar-17: 0

- Adjustor on Recapitalization of the BoU:
  - Ceilings on overall deficit 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 C.
- Schedule C: Recapitalization of the Bank of Uganda (Ush billions; cumulative from the beginning of the respective fiscal year)
  - Jun-16: 200
  - Sep-16: 350
  - Dec-16: 350
  - Mar-17: 350

- Adjustor related to externally financed projects:
  - Ceiling on overall deficit will be adjusted downward (upward) by the amount by which (both concessional and non-concessional) external financing tied to projects falls short of (exceeds) the projected amounts as set out in Schedule D.
  - Any upward adjustment will be capped by 10 percent of the amounts set out in Schedule D.
- Schedule D: External Financing Tied to Projects (Ush billions; cumulative from the beginning of the respective fiscal year)
  - Jun-16: 4,356
  - Sep-16: 1,018
  - Dec-16: 3,297
  - Mar-17: 3,888

- Adjustor related to contingent reimbursement under the Hoima refinery project:
  - Under the Hoima refinery project, the GoU guarantees to reimburse the private partner’s construction costs of USD136 million (including financing costs) in the contingency that there is no Crude Supply Agreement in place by October 2017.
  - The floor on the change in NIR will be adjusted downward (upward) by the amount by which the GoU’s spending in foreign currency due to the contingent reimbursement under the Hoima refinery project exceeds (falls short of) the projected amounts set out in Schedule E, measured at the U.S. dollar equivalent at program exchange rates (Text Table 1).
  - Any downward adjustment will be capped by USD136 million.
- Schedule E: GoU’s Contingent Reimbursements under the Hoima Refinery Project (USD millions; cumulative from the beginning of the respective fiscal year)
  - Jun-16: 0
  - Sep-16: 0
  - Dec-16: 0
  - Mar-17: 0
  - Note: Evaluated at the program exchange rates (Text Table 1).

### L. Ceiling on the Accumulation of New External Payments Arrears Incurred by the Public Sector
- Definition of debt:
  - Uses definition set out in point 8 of the Guidelines on Public Debt Conditionality in Fund Arrangements (Executive Board Decision No. 6230-(79/140), as amended by Decision No. 15688-(14/107), effective June 30, 2015).
  - Applies to debt as defined in point 8 and to commitments contracted or guaranteed for which value has not been received.
  - Key elements of definition (point 8 excerpts):
    - Debt = current, i.e., not contingent, liability created under a contractual arrangement through provision of value in the form of assets (including currency) or services, requiring obligor to make payments in future to discharge principal and/or interest.
    - Primary forms include: (i) loans (including deposits, bonds, debentures, commercial loans and buyers' credits), temporary exchanges of assets equivalent to fully collateralized loans (repurchase agreements, official swap arrangements); (ii) suppliers' credits; (iii) leases (present value at inception of lease payments expected during agreement).
    - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are included.
    - Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
- Coverage:
  - 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’ (ability to determine general corporate policy or ≥ 50 percent government ownership).
  - Contracting and guaranteeing defined as approval by a resolution of Parliament as required in Section 36(5) and 39(1) of the Public Finance and Management Act, 2015.
- Limit:
  - The ceiling on the accumulation of new external payments arrears is zero.
  - To be observed on a continuous basis.
  - 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 2015.
  - 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.

*International Monetary Fund — UGANDA program documents excerpt*

### 29.      The GoU will submit information to IMF staff with the frequency and submission time lag

### 29.      The GoU will submit information to IMF staff with the frequency and submission time lag

### Submission protocol and tracking
- The GoU will submit information to IMF staff with the frequency and submission time lag as indicated in Table 1.
- The quality and timeliness of the data submission will be tracked and reported by IMF staff.
- The information should be mailed electronically to afruga@imf.org.

### Bank of Uganda reporting requirements (selected items from Attachment Table II.1)
- Issuance of government securities, repurchase operations and reverse repurchase operations.
  - Submission Frequency: Weekly
  - Submission Lag: 5 working days
- Operations in the foreign exchange market and the level of the BoU‘s international reserves.
  - Submission Frequency: Weekly
  - Submission Lag: 5 working days
- Interest rates (7 day interbank, commercial bank prime lending rate, government securities).
  - Submission Frequency: Weekly
  - Submission Lag: 5 working days
- Private sector credit growth by shilling and forex, and excess reserves of commercial banks.
  - Submission Frequency: Monthly
  - Submission Lag: 5 working days
- Disaggregated consumer price index.
  - Submission Frequency: Monthly
  - Submission Lag: 2 weeks
- Balance sheet of the BoU, consolidated accounts of the commercial banks, and depository corporations’ survey.
  - Submission Frequency: Monthly
  - Submission Lag: 4 weeks
- Monthly balances of net foreign assets, net domestic assets, and base money of the BoU.
  - Submission 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. Detailed information about the recording of the recapitalization of the BoU.
  - Submission Frequency: Monthly
  - Submission Lag: 4 weeks
- Monthly foreign exchange cash flow table of BoU.
  - Submission 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.
  - Submission 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.
  - Submission Frequency: Quarterly
  - Submission Lag: 6 weeks
- Summary of stock of external debt, external arrears, and committed undisbursed loan balances by creditor.
  - Submission Frequency: Quarterly
  - Submission Lag: 6 weeks
- Standard off-site bank supervision indicators for deposit money banks.
  - Submission 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.
  - Submission Frequency: Quarterly
  - Submission Lag: 6 weeks
- Currency composition of the BoU’s international reserves in unit of each currency at each end of quarter.
  - Submission Frequency: Quarterly
  - Submission Lag: 6 weeks

### Ministry of Finance reporting requirements (selected items from Attachment Table II.1)
- Summary of central government accounts. Revenues shall be recorded on a cash basis, with a breakdown including infrastructure levy. 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).
  - Submission Frequency: Monthly
  - Submission Lag: 4 weeks
- Summary of the stock of arrears (or unpaid bills) by government entities contained in the central government votes as reported by the Accountant General and signed by the PS/ST.
  - Submission Frequency: Semi-annually
  - 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.
  - Submission 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.
  - Submission Frequency: Quarterly
  - Submission Lag: 4 weeks
- Detailed central government account of disbursed donor project support grants and loans.
  - Submission 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. Parliament resolutions on any new loans.
  - Submission Frequency: Quarterly
  - Submission Lag: 6 weeks
- Updated national accounts statistics (real and nominal) according to UBOS and medium-term projections.
  - Submission Frequency: Quarterly
  - Submission Lag: 12 weeks
- Releases of domestic expenditures on wages and salaries in the Health, Education, Water and Environment and Agriculture sectors, as defined by the Government of Uganda’s functional budget classification, with a breakdown based on financing (domestically financed or externally financed).
  - Submission Frequency: Quarterly
  - Submission Lag: 6 weeks

### Statistical issues, capacity, and technical assistance (selected highlights)
- Overall data provision is adequate for surveillance purposes, although some shortcomings remain.
- Real Sector Statistics:
  - Rebasing: Rebased GDP estimates (FY2009/10) were released in November 2014.
  - Quarterly accounts: In January 2016 a mission assisted with developing quarterly expenditure approach accounts in current and constant prices.
  - Financial accounts: In March 2016, an STA mission provided TA on developing financial accounts showing transactions and balance sheets by institutional sector for planned dissemination of data for September 2016.
  - Price indexes: Uganda developed the region’s first RPPI. A January 2016 mission assisted with developing export and import price indexes and improving the producer price index for hotels and restaurants.
  - Labor market indicators: Employment and wages/earnings are infrequently compiled and disseminated; UBOS aims to compile and disseminate these data categories on an annual basis but compiles them with a two-year lag due to resource and data limitations.
- Government Finance Statistics (GFS):
  - MoFPED compiles annual (GFSY) and monthly (IFS) budgetary central government data on a cash basis following GFSM 2014.
  - With East AFRITAC support, authorities have expanded coverage to the general government sector and plan to publish general government annual GFS by June 2016.
  - Plans: disseminate estimates of the stock of financial assets and liabilities by 2017 and complete implementation of GFSM 2014 by the end of 2017.
- Monetary and Financial Statistics:
  - TA in FY2015/16 aims at improving institutional coverage and classification of other depository corporations (ODCs) and initiating data collection for other financial corporations, including insurance companies, pension funds, non-deposit taking microfinance institutions, and foreign exchange bureaus.
  - Uganda began publishing SRF-based monetary data from 2002 in IFS beginning in early 2009.
- Financial sector surveillance:
  - The BOU reports all 12 core FSIs and 7 of the 13 encouraged FSIs for deposit takers, an FSI for households, and 2 FSIs for real estate markets. All FSIs are reported quarterly, except sectoral distribution of loans to total loans, reported monthly.
- External Sector Statistics:
  - The BOU compiles quarterly balance of payments and international investment position (IIP) statistics on the basis of BPM6. The oldest time series of BPM6-based quarterly balance of payments and IIP are Q1-2001 and Q1-1999, respectively.
  - Recommendation: Adjusting coverage and valuation of trade in goods and services, and separating balance of payment transactions from other flows, may improve measurement of current account deficit and IIP financial stocks.
- Participation in data initiatives:
  - Uganda is participating in the IMF–DFID Enhanced Data Dissemination Initiative, Quarterly National Accounts (QNA) Statistics Module. CPI, PPI and annual estimates of rebased GDP have been released. Comprehensive SUTs have been compiled; and quarterly GDP by production approach (GDP-P) at constant and current prices disseminated.

*Prepared by The African Department (in consultation with other departments); content excerpted from Attachment Table II.1 and Statistical Issues (as of May 20, 2016).*

### 2000. In February 2005, a STA mission prepared a

### _cr16145 - 2000. In February 2005, a STA mission prepared a

### Reporting to STA
- Uganda reports government finance statistics (GFS) data according to the GFSM 2014 framework for the GFS Yearbook.
- No high frequency data are reported for inclusion in the International Financial Statistics (IFS).
- The Bank of Uganda (BoU) regularly reports monetary data for the central bank and ODCs in the SRF format.
- The BoU reports all core FSIs and some FSIs for deposit takers, households, and real estate markets.

### Statement by Ms. Kapwepwe, Executive Director for Uganda (June 6, 2016)
- Authorities value engagement with the Fund and broadly agree with staff’s assessment.
- The second National Development Plan (NDP II) (FY 2015/16 – FY 2019/20) aims for middle income status by 2020 and prioritizes agriculture, tourism, mining, oil and gas; infrastructure and human capital are fundamental.

### Program Performance under the PSI
- All end-December 2015 Quantitative Assessment Criteria (QAC) were met, except:
  - The QAC on the overall deficit was missed with a minor slippage.
- The floor on the accumulation of international reserves was met.
- Inflation was kept within the inflation consultation clause.
- All indicative targets were met except:
  - The indicative target on poverty-reducing expenditure (missed due to reallocation to security-related expenditure).
  - The indicative target on reduction in the stock of arrears (missed).
- Structural benchmarks progress:
  - Notable progress on public investment guidelines and extension of the Treasury Single Account (TSA) to local governments.
  - Delays in issuing PFM Act regulations and sending the Charter of Fiscal Responsibility (CFR) and BOU Act amendments to Parliament due to need for further consultations.
- Authorities request:
  - Completion of the sixth review and a waiver of the non-observance of the ceiling on the overall deficit of the central government.
  - A one-year extension of the current PSI arrangement.
- New structural benchmarks to prioritize:
  - Exiting the FATF gray list.
  - Finalization and publication of the Public Investment Project Appraisal User Manual and accompanying Development Committee guidelines.

### Recent Economic Developments and Outlook
- Growth projections:
  - Economic growth expected to reach 5 percent in 2015/16.
  - Economic growth expected to increase to 5.5 percent in 2016/17 (subject to downside risks).
- Exchange rate and inflation:
  - From end May 2015 to September 2015, the shilling depreciated by 21 percent.
  - The exchange rate appreciated by over 10 percent through March 2016.
  - Headline inflation: 5.1 percent year-on-year in April (from 6.2 percent in March).
  - Core inflation: 6.4 percent year-on-year in April (from 6.9 percent in March).
  - Monetary Policy Committee reduced the Central Bank Rate (CBR) by 1 percentage point to 16 percent in April.
- External sector:
  - Current account deficit projected at 9.7 percent of GDP in 2015/16.
  - International reserve position equivalent to 3.9 months of prospective imports.
  - Export earnings remained sluggish; infrastructure-related import increase partly offset by lower international oil prices.
  - Capital and financial account surpluses driven by project and budget support loans moderated balance of payments impact.
- Financial sector:
  - System remains sound and profitable; stress tests show resilience.
  - Non-performing loans (NPLs) increased, largely due to forex NPLs and volatility in interest and exchange rates.

### Fiscal Policy
- Fiscal stance FY2015/16:
  - Fiscal deficit for 2015/16 expected to widen to 6.4 percent of GDP (lower than 6.6 percent predicted at the time of the 5th Review).
- Budget 2016/17 intentions:
  - Deficit envisaged at 6.2 percent of GDP.
  - Strengthen revenue performance and restrain non-priority expenditure.
  - New measures in the 2016/17 tax package expected to yield an increase of the tax-to-GDP ratio of about 0.5 percent of GDP.
- Public investment and expenditure management:
  - Prioritize infrastructure investment to facilitate private sector development.
  - Develop Public Investment Management Systems (PIMS) guidelines and procedures.
- Social and targeted spending:
  - Increase allocations to the Poverty Action Fund (PAF) by 11 percent in 2016/17.
  - Releases to agriculture, education, health, water and environment will increase.
  - Additional 90 billion shillings allocated as a dedicated fund for women and youth.

### Monetary and Financial Sector Policies
- Monetary policy stance:
  - BOU will adjust policy in line with the inflation forecast and assessment of risks, consistent with the medium term inflation target of 5 percent.
  - Commitment to a flexible exchange rate regime; interventions confined to smoothing excess volatility.
- Prudential oversight:
  - Strengthen oversight to address vulnerabilities from credit sector concentration and currency mismatches.
- Financial inclusion under four pillars:
  - Financial literacy, financial consumer protection, financial innovations, and data and management.
- Legislative and industry developments:
  - Financial Institutions (Amendment) Act, 2016 passed and assented in January 2016.
  - Government developing a legal framework for the mobile money industry; mobile money transactions about 38 percent of GDP.
- AML/CFT:
  - Steps to ensure removal from the FATF gray list.
  - Anti-Money Laundering (Amendment) Bill and the Insurance Act presented to parliament; a structural benchmark included to ensure timely implementation.

### Structural Reforms
- PFM Act:
  - Enacted on March 6, 2015 and amended in November 2015; regulations to be finalized by end June 2016.
  - Requires local governments and state owned enterprises to report on arrears stock on a half year basis.
  - Progress on verification and reconciliation of arrears; strengthening procedures and sanctions for accounting officers who accumulate new arrears; fuller utilization of IFMIS.
- BOU Act and coordination:
  - Cabinet to consider principles for amending the BOU Act prior to submission to Parliament by September 2016.
  - A memorandum of understanding (MoU) drawn to coordinate operations between MOFPED and BOU, taking into account the new PFM Act, BOU Act amendments, and EAMU protocol.
- EAC integration:
  - Medium Term Convergence Program (MTCP) presented and adopted by the EAC Sectoral Council of Finance and Economic Affairs (SCFEA) in May 2016.

### Conclusion
- The Ugandan economy has remained resilient due to sound macroeconomic policies and an IMF-supported economic reform program.
- The authorities’ overarching macroeconomic goal is to deliver macroeconomic stability to support inclusive and sustainable growth and socio-economic transformation.
- Authorities seek Executive Board approval for the requested one-year extension of the current PSI and remain committed to continued engagement with the Fund.

*Source: _cr16145 - 2000. In February 2005, a STA mission prepared a*

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