Public Information Notice: IMF Executive Board Concludes 2008 Article IV Consultation with Uganda
IMF News, February 17, 2009
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- Published: February 17, 2009
Background
- Uganda's economy has been among the fastest-growing in Sub-Saharan Africa, building on two decades of sound policies that delivered high growth, low inflation, and steady poverty reduction.
- In 2008 Uganda was affected by two major shocks:
- Global surge in food and fuel prices, causing domestic inflation to rise above 15 percent.
- Global economic downturn, likely reducing demand for Uganda's exports and the availability of financing for critical investment projects.
- Near-term outlook and policy responses:
- Economic growth in 2008/09 is expected to decline from recent high levels but remain robust at 7-7½ percent.
- Core inflation is estimated to fall to 7 percent by June 2009, aided by lower international food and fuel prices.
- Monetary policy is expected to support disinflation, with base money growing at a substantially lower pace than in 2007/08.
- Fiscal deficit projected to widen somewhat in 2008/09 as development expenditures are scaled up; recourse to domestic financing expected to remain limited to less than 1 percent of GDP.
- International reserves expected to drop moderately as demand for exports falls and other inflows (remittances, FDI) are scaled back.
- Financial system relatively insulated from the global financial crisis, but slowdown could expose weaknesses in banks' credit portfolios.
Executive Board Assessment
- Directors commended authorities for sound macroeconomic management that underpinned the strong performance and poverty reduction.
- Immediate challenges arise from the global downturn and reduced external financing; economy judged well-positioned due to low public debt, comfortable international reserves, and a relatively sound banking sector.
- Medium-term constraints highlighted:
- Infrastructure bottlenecks and dependence on subsistence agriculture impede growth.
- Preparation of a new National Development Plan, including scaling-up government investment in infrastructure, was welcomed.
- Need for careful evaluation of investment projects, including impacts on debt sustainability and international reserves.
- Fiscal policy guidance:
- Recognized strong fiscal performance in 2007/08.
- Fiscal policy should maintain modest stimulus underlying the 2008/09 budget.
- In case of revenue shortfall in 2008/09, authorities encouraged to avoid precipitous cuts in current expenditures, strengthen expenditure management, and prevent further accumulation of domestic arrears.
- Supported authorities' medium-term target to increase tax revenues by ½ percent of GDP annually and welcomed consideration of a fiscal rule to underpin consolidation and prudent use of oil revenues.
- Monetary and exchange rate policy guidance:
- Monetary policy should sustain confidence in the currency while supporting disinflation.
- Authorities encouraged to use falling international food and fuel prices to bring inflation back toward the medium-term objective.
- Preconditions should be ensured before introducing a formal inflation-targeting framework.
- Flexible exchange rate regime seen as effective; staff assessment that the real effective exchange rate is broadly in line with fundamentals.
- Scope noted for targeted foreign exchange intervention to avoid excessive volatility.
- Financial sector guidance:
- Banking sector overall sound, banks well-capitalized and relatively insulated from global crisis.
- Concerns about rapid expansion of bank lending and significant share of foreign-exchange loans in banks' portfolios.
- Need to further strengthen prudential supervision and collaborate closely with home supervisors of banks operating in Uganda.
Key Economic Indicators and Projections (selected figures)
- Real GDP (percent change):
- 2006/07: 8.6
- 2007/08: 9.8
- 2008/09 Est.: 9.5
- 2009/10 Proj.: 7.4
- 2010/11 Proj.: 7.3
- 2011/12 Proj.: 7.1
- 2012/13 Proj.: 8.0
- Headline inflation (end of period):
- 2006/07: 4.4
- 2007/08: 10.2
- 2008/09 Est.: 12.5
- 2009/10 Proj.: 7.7
- 2010/11 Proj.: 5.0
- Core inflation (end of period):
- 2008/09 Est.: 11.3 (note: table shows core inflation 11.3 in 2006/07 and 12.1 in 2007/08; 7.0 shown for 2009/10)
- 2006/07: 11.3
- 2007/08: 12.1
- 2009/10 Proj.: 7.0
- Terms of trade (deterioration -):
- 2006/07: 5.5
- 2008/09 Est.: -2.5
- 2010/11 Proj.: -3.6
- 2011/12 Proj.: -2.6
- Real effective exchange rate (depreciation -):
- 2006/07: 2.7
- Broad money (M2, percent change):
- 2006/07: 16.7
- 2007/08: 20.3
- 2008/09 Est.: 30.3
- 2009/10 Proj.: 18.0
- 2010/11 Proj.: 17.6
- 2011/12 Proj.: 19.0
- Domestic credit (percent change):
- 2006/07: -6.4
- 2007/08: 7.2
- 2008/09 Est.: 22.0
- 2009/10 Proj.: 16.2
- 2010/11 Proj.: 14.9
- 2011/12 Proj.: 15.1
- 2012/13 Proj.: 16.0
- 2013 Proj.: 16.3
- Credit to the central government (percent of M3 at start of the period):
- 2006/07: -17.2
- 2007/08: -7.6
- 2008/09 Est.: -4.3
- 2009/10 Proj.: 1.4
- 2010/11 Proj.: 2.9
- 2011/12 Proj.: 3.5
- Private sector credit (percent change):
- 2006/07: 22.9
- 2007/08: 31.4
- 2008/09 Est.: 56.1
- 2009/10 Proj.: 26.4
- 2010/11 Proj.: 19.9
- Domestic investment (percent of GDP):
- 2006/07: 22.1
- 2007/08: 24.1
- 2008/09 Est.: 23.6
- 2009/10 Proj.: 27.3
- 2010/11 Proj.: 29.7
- 2011/12 Proj.: 30.2
- 2012/13 Proj.: 31.0
- Public investment (percent of GDP):
- 2006/07: 4.9
- 2007/08: 9.2
- 2008/09 Est.: 11.1
- 2009/10 Proj.: 11.2
- 2010/11 Proj.: 10.6
- 2011/12 Proj.: 10.9
- 2012/13 Proj.: 11.1
- Private investment (percent of GDP):
- 2006/07: 17.2
- 2007/08: 19.2
- 2008/09 Est.: 18.1
- 2009/10 Proj.: 18.6
- 2010/11 Proj.: 19.1
- 2011/12 Proj.: 19.6
- 2012/13 Proj.: 20.1
- National savings (excluding grants, percent of GDP):
- 2006/07: 14.8
- 2007/08: 15.4
- 2008/09 Est.: 14.5
- 2009/10 Proj.: 17.7
- 2010/11 Proj.: 20.2
- 2011/12 Proj.: 21.3
- 2012/13 Proj.: 20.9
- 2013 Proj.: 22.2
- Current account balance (including grants, percent of GDP):
- 2006/07: -6.1
- 2007/08: -5.3
- 2008/09 Est.: -5.9
- 2009/10 Proj.: -5.5
- 2010/11 Proj.: -5.8
- 2011/12 Proj.: -5.4
- Net donor inflows (percent of GDP):
- 2006/07: 6.5
- 2007/08: 6.4
- 2008/09 Est.: 6.3
- 2009/10 Proj.: 6.1
- Current account balance (excluding grants, percent of GDP):
- 2006/07: -7.3
- 2007/08: -8.8
- 2008/09 Est.: -9.0
- 2009/10 Proj.: -9.6
- 2010/11 Proj.: -9.5
- 2011/12 Proj.: -9.3
- External debt (including Fund, percent of GDP):
- 2006/07: 11.0
- 2007/08: 14.3
- 2008/09 Est.: 12.3
- 2009/10 Proj.: 13.9
- 2010/11 Proj.: 15.6
- 2011/12 Proj.: 17.1
- 2012/13 Proj.: 18.3
- External debt-service ratio (percent of exports of goods and nonfactor services, including Fund obligations):
- 2006/07: 1.2
- 2007/08: 2.6
- 2008/09 Est.: 1.6
- 2009/10 Proj.: 1.8
- 2010/11 Proj.: 1.3
- 2011/12 Proj.: 1.1
- Government revenue (percent of GDP):
- 2006/07: 12.6
- 2007/08: 13.3
- 2008/09 Est.: 13.0
- 2009/10 Proj.: 12.9
- 2010/11 Proj.: 13.4
- 2011/12 Proj.: 14.4
- Grants (percent of GDP):
- 2006/07: 4.5
- 2007/08: 5.3
- 2008/09 Est.: 3.1
- 2009/10 Proj.: 3.0
- Total expenditure and net lending (percent of GDP):
- 2006/07: -18.2
- 2007/08: -21.0
- 2008/09 Est.: -17.8
- 2009/10 Proj.: -20.6
- 2010/11 Proj.: -20.4
- 2011/12 Proj.: -20.8
- 2012/13 Proj.: -21.4
- 2013 Proj.: -21.6
- Overall balance (including grants, percent of GDP):
- 2006/07: -1.1
- 2007/08: -2.4
- 2008/09 Est.: -2.1
- 2009/10 Proj.: -3.5
- 2010/11 Proj.: -4.0
- 2011/12 Proj.: -3.9
- 2012/13 Proj.: -3.8
- Overall balance (excluding grants, percent of GDP):
- 2006/07: -5.6
- 2007/08: -7.7
- 2008/09 Est.: -4.8
- 2009/10 Proj.: -7.0
- 2010/11 Proj.: -6.9
- 2011/12 Proj.: -6.8
- Stock of domestic debt (percent of GDP):
- 2006/07: 9.3
- 2007/08: 11.6
- 2008/09 Est.: 10.7
- 2009/10 Proj.: 5.9
- 2010/11 Proj.: 5.2
- Memorandum items:
- Nominal GDP (U Sh billions):
- 2006/07: 21,168
- 2007/08: 24,069
- 2008/09 Est.: 24,648
- 2009/10 Proj.: 30,782
- 2010/11 Proj.: 34,950
- 2011/12 Proj.: 38,363
- 2012/13 Proj.: 44,687
- 2013 Proj.: 51,287
- Average exchange rate (U Sh per US$): 1,778
- Treasury bill yield (percent): 9.4 (2006/07), 8.3 (2007/08)
- Overall balance of payments (US$ millions):
- 2006/07: 704
- 2007/08: 569
- 2008/09 Est.: 572
- 2009/10 Proj.: -92
- 2010/11 Proj.: 91
- 2011/12 Proj.: -78
- 2012/13 Proj.: -3
- 2013 Proj.: 61
- Gross foreign exchange reserves (months of next year's imports of goods and services):
- 2006/07: 6.0
- 2007/08: 5.7
- 2008/09 Est.: 5.6
- 2009/10 Proj.: 4.7
Public Information Notice (PIN) No. 09/23