Press Release: IMF Approves Second Annual Loan for Uganda under ESAF

November 29, 1995

The International Monetary Fund (IMF) today approved the second annual loan for Uganda under the enhanced structural adjustment facility (ESAF)1 equivalent to SDR 40.17 million (about $60 million), in support of the Government's 1995/96 macroeconomic and structural adjustment program. The loan will be disbursed in two equal semi-annual installments, the first of which is available on December 15. The three-year ESAF credit, for the equivalent of SDR 120.51 million ($180 million) was approved on September 6, 1994 (see Press Release No. 94/60).


With broadly based real economic growth of 10 percent and an inflation rate of 3.4 percent, Uganda had a strong economic performance in 1994/95 (July-June), and observed all the quantitative and structural benchmarks under the economic program supported by the first annual ESAF loan. The authorities contained the upward pressure on the real effective exchange rate, which arose from a doubling of coffee prices compared to 1993/94, through sterilizing capital inflows, higher imports, and fiscal and monetary measures. Although good progress was made in structural reforms, the weak state of the financial sector continued to constrain the effectiveness of monetary policy. In February 1995, Uganda became the first country to receive a stock-of-debt operation on Naples terms from Paris Club creditors.

The Program for 1995/96

The Government's medium-term policy framework seeks high and sustained economic growth and pverty reduction within a sound macroeconomic environment. Consistent with these medium-term goals, the objectives for the 1995/96 program, supported by the second annual ESAF loan, are to achieve real growth of 6.5 percent; to keep inflation below 5 percent on an end-year basis, and to increase gross reserves. The eternal current account deficit, excluding grants, will decline slightly to 7.9 of GDP in 1995/96 from 8.3 percent in 1994/95, as the coffee boom subsides, while the overall balance of payments is projected to remain in surplus, with gross reserves rising to 4.3 months imports in 1995/96 from 3.4 months in 1994/95. To these ends, the authorities will continue to pursue tight financial policies, while leaving adequate room for private sector investment activity. The overall fiscal deficit, excluding grants, is to be reduced by 2 percentage points of GDP through a combination of revenue-enhancing measures and expenditure restraint. The monetary program allows for broad money growth only slightly above nominal GDP growth, with a provision for contingency mechanisms to sterilize additional inflows.

Structural Reforms

To enhance the effectiveness of monetary policy, financial sector reforms are being addressed. These include the development of a secondary market in treasury bills and steps to deal expeditiously with the weak state of the banking system. The development of a securities industry is being given added impetus by legislation creating a Capital Markets Authority, and it is expected that a stock exchange will be established and functioning by end-June 1996. Other structural reforms in the public sector will focus on the tax system, public expenditure management and the civil service, and public enterprises.

Social Issues

The Government has made a major effort to improve the economic well-being of all Ugandans. One of the major ways in which the less well-to-do have benefitted is through the decline in inflation. In view of the competitive and liberalized export sector, the recent coffee boom has resulted in significant benefits accruing directly to the large number of smallholders in the coffee sector. The Government is also increasing the budgetary allocation for basic social services in respect of primary health care, education, and water supply, and is targeting these expenditures toward the less well-off segments of the population.

The Challenge Ahead

Notwithstanding the progress achieved so far, a number of risks remain in the period ahead. In addition to the fragile external situation, it will be essential to ensure that monetary growth remains within program projections so as to maintain a low rate of inflation. On the structural side, further progress in the financial sector and privatization will contribute importantly to better resource mobilization and allocation, thereby enhancing growth prospects. Uganda's adjustment efforts will also continue to be critically dependent on both multilateral and bilateral donor support.

Uganda joined the IMF on September 27, 1963. Its quota2 is SDR 133.9 million (about $200 million), and its outstanding use of IMF credit currently totals SDR 263 million (about $393 million).

Uganda: Selected Economic Indicators

  1994/95 1995/96* 1996/97** 1997/98**

(percent change)
Real GDP growth 10.0 6.5 6.0 6.0
Consumer prices
    (end of period)
3.4 5.0 5.0 5.0
(percent of GDP)
Government budget, excluding grants,
    (deficit –)
–7.8 –6.1 –5.5 –4.4
External current account balance, excluding grants
    (deficit –)
–8.4 –7.9 –7.7 –7.1
(months of imports)
Foreign exchange reserves 3.6 4.3 5.1 5.2

Sources: Ugandan authorities; and IMF staff estimates and projections.

1. The ESAF is a concessional IMF lending facility for assisting low-income members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent and are repayable over 10 years with a 5 1/2-year grace period.

2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.


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