Press Release: IMF Approves Three-Year ESAF for Uganda

November 10, 1997

The International Monetary Fund (IMF) today approved a three-year loan for Uganda under the Enhanced Structural Adjustment Facility (ESAF),1 in an amount equivalent to SDR 100.42 million (about US$138 million) in support of the government’s economic program for 1997/98-1999/2000. The first annual loan, in an amount equivalent to SDR 40.2 million (about US$55 million), is available in two equal semiannual installments, the first of which is available immediately.


Over the past decade, the government of Uganda has implemented wide-ranging macroeconomic and structural reforms supported by the IMF and other multilateral institutions and bilateral donors, which have accelerated real GDP growth, lowered inflation, strengthened the balance of payments, improved the fiscal position, and achieved substantial progress in key structural areas. During 1994/95-1996/97, annual real GDP rose by almost 8 percent on average, inflation declined to some 6 percent annually, and both government finances and the external position improved. Nonetheless, revenue performance and the overall fiscal position fell short of the original targets. Important structural reforms were undertaken during the last three years, including a substantial reduction in the size of the civil service and the army, initiation and expansion of the privatization program, financial sector reforms, and introduction of the Value Added Tax (VAT).

Medium-Term Strategy and the Program for 1997/98

The principal objectives of the government’s program for 1997/98 and 1999/2000, supported by the ESAF loans, are to sustain high and broad-based economic growth and ensure that the poor are able to participate in, and benefit from, increased economic activity. The overall strategy will focus on maintaining macroeconomic stability; liberalizing further the economy to promote private sector, export-oriented growth; and undertaking structural and institutional reforms that will further reduce impediments to growth and job creation. The program aims at achieving a real GDP growth rate of at least 7 percent a year on average, reducing annual inflation to about 5 percent and increasing gross international reserves to the equivalent of 4.9 months of imports of goods and nonfactor services.

At the core of the government’s medium-term program is an increase in the gross investment-to-GDP ratio to about 23 percent in 1999/2000, and a reduction in the overall fiscal deficit by about 1.7 percent of GDP over the program period. This is consistent with the envisaged low inflation target, while allowing for continued strong growth in private sector credit.

In the framework of this medium-term strategy, the macroeconomic targets for 1997/98 are: 1) to achieve a real GDP growth of 7.5 percent; 2) to hold inflation to 5 percent on an end-year basis; and 3) to contain the external current account deficit to 7.0 percent of GDP while maintaining gross reserves at 4.6 months of imports. To achieve these objectives, the authorities plan to improve customs and tax administration substantially, reduce the incidence of smuggling, and prevent other forms of revenue leakages while exercising considerable expenditure restraint. Monetary policy will continue to build upon the major gains achieved in reducing inflation, taking into account projected balance of payments developments, the need for adequate provision of credit to the private sector, and increased savings by the government in the banking system. Uganda has made significant progress in reducing its debt burden in recent years and with the full application of the HIPC Initiative, its indebtedness will decline further. The authorities announced full capital account convertibility, effective July 1, 1997, and plan to table a new foreign exchange statute in Parliament in the near future.

Structural Reforms

The government will deepen and broaden structural reforms in the financial sector, civil service, tax and customs administration, trade liberalization, the privatization program, and enterprise restructuring, and more generally improve the environment for private sector activity through deregulation. At the end of June 1998, a total of 95 public enterprises will have been privatized or liquidated. This accelerated schedule will result in the divesting of 80 percent of the targeted enterprises by end-June 1998, and it will complete the divestiture of majority ownership in the remaining enterprises by June 1999.

Addressing Social Needs

In addition to the social benefits of sustaining a high level of economic growth, the current budget incorporates real increases in priority areas, including primary health and education. More generally, critical elements of the authorities’ medium-term objective are to reduce the incidence of poverty through increased social expenditures and to intensify efforts to measure and monitor the outcome of these expenditures. At the same time, the National Task Force on Poverty has prepared an action plan for poverty eradication in consultation with sector ministries.

The Challenge Ahead

The revenue outlook for 1997/98 is expected to be especially difficult, as reforms in tariffs and excise taxes are likely to have initial negative effects on revenues and the impact of improvements in tax and customs administration will take some time to yield results. The government will need to exercise considerable expenditure restraint, focusing only on the most essential. In addition to its structural reform program. Uganda will need to tackle other impediments to growth and to private sector development in the medium-term . Action should also be taken to improve the country’s legal and judicial frameworks, the determination of land use and tenure provisions, capacity building, and inadequacies in the statistical base, including social indicators.

Uganda joined the IMF on September 27, 1963. Its quota2 is SDR 133.9 million (about US$185 million). Uganda’s outstanding use of IMF financing currently totals SDR 276 million (about US$380 million).

Uganda: Selected Economic Indicators








(Percent change)

Real GDP








Consumer prices (end-period)








(Percent of GDP)

Overall fiscal balance

excluding grants (deficit-)








External current account balance excluding official grants( deficit-)








(Months of imports of goods and nonfactor services)

Gross foreign exchange reserves








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

* Provisional.

** Program.

1 The ESAF is a concessional IMF facility for assisting eligible 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 a year and are repayable over 10 years, with a 5½-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 share of the allocation of SDRs.


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