Frequently Asked Questions on Uganda
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The IMF Extended Credit Facility (ECF) for Uganda
- The ECF provides financial assistance to countries facing protracted balance of payments difficulties, with the aim of restoring macroeconomic stability and reducing poverty through strong growth.
- Key ECF terms and timing:
- Zero-interest rate.
- Grace period of 5½ years.
- Final maturity of 10 years.
- Program size and disbursement:
- About $1 billion will be disbursed under Uganda’s ECF-supported program, in semi-annual tranches over three years.
- Disbursements are subject to review, scheduled, at most, six months apart.
- The first tranche of $258 million was disbursed when the program was approved by the IMF Executive Board on June 28, 2021.
- On March 9, 2022, the IMF Executive Board completed the first review of the ECF arrangement with Uganda, allowing an immediate disbursement of around $128 million to cover budget needs.
Program objectives and policy framework
- Central objective: support recovery from the COVID-19 pandemic while generating strong and inclusive private sector-led growth.
- Fiscal strategy:
- Reduce the budget deficit and debt over time (as the COVID-19 shock eases) through lower non-priority spending, the phase-out of crisis measures, and higher government revenue.
- Greater public sector efficiency to ensure increased spending on social programs, including on health, education, and social assistance.
- Structural and institutional priorities:
- Strengthen revenue mobilization (including identification of tax exemptions).
- Strengthen governance (improved accountability for public officials).
- Upgrade public investment management framework and strengthen cash and arrears management.
- Improve transparency in public accounts, strengthen anticorruption framework, and increase financial sector resilience.
- Program flexibility:
- The ECF-supported program has built-in flexibility, allowing targets to be modified—notably reserve and fiscal objectives—at the time of semi-annual reviews.
Recent performance and reforms implemented
- Macroeconomic stability:
- The authorities were able to maintain macroeconomic stability, supported by IMF financing and by non-resident inflows and syndicated loans.
- Financing helped preserve priority social spending and increase COVID-19-related spending despite revenue shortfalls after the June-July 2021 lockdown.
- Inflation remained low and external reserve buffers remained strong.
- Fiscal and debt containment:
- Reduced financing needs helped contain the rise in debt and keep it sustainable.
- Structural reforms and governance measures implemented over the past six months:
- Tracking of COVID-19 expenditures and publication of audits of COVID-19 spending.
- Ongoing disclosure of beneficial ownership information for COVID-19 procurement contracts.
- Adoption of a regulation requiring financial institutions to identify and apply enhanced due diligence measures for domestic politically exposed persons, in line with Financial Action Task Force recommendations.
- Measures to strengthen accountability of high-level officials, including through asset declarations.
- Acceleration of Anti-Money Laundering/Combating the Financing of Terrorism implementation and enforcement of legal anti-corruption frameworks.
- COVID-19 audit findings and use of funds:
- Recently published COVID-19 audits suggest that resources ring-fenced in the FY20/21 budget for COVID-19 interventions were mostly used for their intended purposes.
- Part of the allocation was used to settle domestic arrears, boosting liquidity.
- Remaining amounts were used to support international reserves, recapitalize Uganda’s Development Bank (UDB), and support procurement of vaccines and medical supplies, among others.
Social and spending safeguards
- The program includes two quantitative targets that require minimum spending on:
- (i) education and health; and
- (ii) social protection.
- Both quantitative spending targets were met in September 2021.
- Shifting spending composition toward priority social areas is intended to address Uganda’s development needs while achieving fiscal objectives.
Debt sustainability, reserves, and financing strategy
- Debt outlook:
- Given plans to unwind crisis measures and raise revenue levels, Uganda’s debt remains sustainable despite the recent increase in the debt stock stemming from the effects of the COVID-19 pandemic.
- Lower fiscal deficits financed through higher domestic revenue and lower non-priority spending would help reduce high borrowing costs and ensure debt remains sustainable.
- More contained government domestic borrowing would create space for private sector development.
- External buffers and risks:
- To reduce vulnerability to shocks, Uganda is building external reserves and strengthening social assistance programs.
- An increase in international energy and food prices will push up headline inflation and pose hardships on households.
- Tighter financial conditions could increase borrowing costs and lead to a reversal of capital flows, putting pressure on the exchange rate.
Use of SDR allocation and budget financing
- The SDR allocation aims to address global long-term needs for reserves, helping countries cope with the impact of the COVID-19 crisis.
- The Ugandan authorities decided to use half of the allocation (about $250 million) to finance the FY21/22 budget deficit.
- The SDR allocation will replace more expensive foreign commercial borrowing of the same amount.
- It will be used on education, health and water and sanitation projects, including financing the reopening of schools.
- Oversight and safeguards:
- The Ministry of Finance has a spending plan for SDRs, which will be monitored through special quarterly reports on budget execution.
- Implementation of governance reforms under the ECF-supported program will help safeguard the use of SDRs.
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