Key Questions on Uganda

Last Updated: June 28, 2021

Read the key questions regarding the IMF arrangement with Uganda

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What is an Extended Credit Facility and what are the terms to which Uganda agreed to?

The IMF’s Extended Credit Facility (ECF) provides financial assistance to countries facing protracted balance of payments difficulties—meaning their underlying macroeconomic imbalances are expected to be resolved over the medium or longer term. The facility supports economic programs aimed at restoring macroeconomic stability sustainably and reducing poverty durably through strong growth.

 

The ECF carries a zero-interest rate, with a grace period of 5½ years, and a final maturity of 10 years. The duration of Uganda’s ECF-supported program is three years for a loan of about $1 billion, disbursed in semi-annual tranches. Disbursements are subject to review, which are scheduled, at most, six months apart. These reviews assess the government’s progress in implementing its economic reforms.

 

The program was approved by the IMF Executive Board on June 28, 2021, which makes available the first disbursement of $258 million.

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Why does Uganda need an IMF-supported program

The COVID-19 pandemic has opened a sizeable gap between the resources the government has, and what it needs—a situation that will persist over the medium term. Without additional resources, the government would have to cut spending, including on health, and will have to resort to expensive domestic or non-concessional external borrowing.  This would increase costs and reduce resources available for expanding private sector credit.

 

The IMF’s financial assistance—which will be disbursed semi-annually over the next three years—will support reforms outlined in Uganda’s third National Development Plan (NDP III) and Medium-Term Fiscal Framework. The government aims to increase priority social spending while keeping debt sustainable. It aims to strengthen public financial management, fortify the banking system, and advance structural reforms, including in governance.  These changes will help private sector development and generate more inclusive growth.

 

The IMF will continue to support the government’s reforms through technical assistance.

What are the goals of the Uganda program supported by the ECF

The central objective of the authorities’ reform program—supported by the IMF’s Extended Credit Facility (ECF)—is to boost recovery from the COVID-19 pandemic, while generating strong and inclusive private sector-led growth. The budget deficit and debt will be reduced over time (as the COVID-19 shock eases) through higher government revenue.  Meanwhile, greater public sector efficiency will ensure increased spending on social programs, including on health, education, and social assistance.

 

A strong multi-year approach to lowering deficits and improving public spending is necessary to ensure sufficient resources are available for vulnerable groups and maintain the much-needed higher spending on health and education.

 

Greater transparency in public accounts, a stronger anticorruption framework, and higher financial sector resilience will all be needed for more inclusive growth.

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How will Uganda’s new IMF program advance the governance and anti-corruption agenda?

Improving governance is a crucial part of the government’s IMF-supported program.  In addition to meeting the commitments agreed under the IMF’s emergency financial assistance of May 2020, it includes specific commitments to enhance transparency and accountability in the use of public resources. Measures include stronger cash management, publication of tax expenditures, and stronger reporting requirements for politically exposed persons.

 

The governance reforms are expected to help Uganda exit the “grey list” of countries with substantial deficiencies in their anti-corruption framework, and progress towards meeting the requirements under the Extractive Industries Transparency Initiative for managing oil revenues.

 

The program’s transparency and governance reforms will build upon the improvements launched by the government’s new Leadership Code—which requires government officials to disclose their assets, incomes and liabilities, and clarifies sanctions in case of false reporting.  This also builds on recent advances in financial sector supervision, and enhanced transparency in procurement.

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The IMF provided $491.5 million to Uganda in May 2020 under the Rapid Credit Facility; what transparency measures were put in place to ensure this funding is used appropriately?

The IMF provided emergency financial assistance to Uganda to help ease the impact of the pandemic on the economy and the population. To ensure the funds are used for their intended purposes, the authorities committed to several governance and transparency measures. These include: (i) reporting on the COVID-19 expenditures; (ii) publishing on the government’s website large procurement contracts (above USh500 million for works contracts, and above USh200 million for goods and services) related to COVID-19 spending, together with the names of awarded companies; and (iii) undertaking an independent audit of COVID-19 expenditures.

 

The Government has already published the independent audit of COVID-19 spending for FY 19/20, and an audit of COVID-19 spending up to the third quarter FY 20/21 was finalized and will be discussed in Parliament. Aggregate procurement reports have also been published on the Ministry of Finance web site. With a portion of IMF funding going to the Uganda Development Bank (UDB), the UDB’s 2020 annual report describes its lending practices and how loans are awarded across sectors. The government has also adopted a template to be used for new COVID-19 procurement contracts that will detail the beneficiaries of those contracts, which will also be published on the Public Procurement and Disposal of Public Assets portal.

 

Uganda: RCF Commitments

RCF commitments

Status

Publish COVID-19 expenditure for Q4 FY19/20 and cash releases for Q1& Q2 FY20-21 as defined in the letter of intent for the RCF request.

FY19/20 audit reports on FY19/20 spending, and all cash releases on COVID-19 are published (links available here and here).

Publish procurement contracts and winning bidders for Q4 of FY19-20 and Q1& Q2 FY20-21 as defined in the letter of intent of the RCF request.

Amend the procurement forms to collect and publish beneficial ownership information for these procurement contracts going forward.

Procurement reports by Ministry are available here).

 

Procurement forms for Covid-19 contracts introducing beneficial ownership have been approved.

Complete and publish the independent audit of COVID-19 spending for FY2019/20.

Audit completed and can be found here.

Complete a special independent audit of at least the first three quarters of FY20/21.

Audit completed on June 14th. It will be published after presentation to Parliament in FY21/22.

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Is Uganda’s debt sustainable?

Given plans to unwind crisis measures and raise revenue levels, Uganda’s debt remains sustainable despite the recent increase in debt exacerbated by the COVID-19 crisis.

 

The authorities’ program supported by the ECF arrangement enshrines a credible, multi-year effort to mobilize domestic revenues, and reduce deficits and debt, while also improving spending quality and efficiency.  This will lay the ground for durable and inclusive growth for the years to come.

 

The $1 billion ECF arrangement with the IMF will help meet Uganda’s significant medium-term financing needs and catalyze other donor support. To avoid sharper fiscal consolidation and more expensive commercial borrowing, the authorities are taking part in the Debt Service Suspension Initiative and making every effort to pursue other concessional resources from development partners.