Supporting Uganda's Recovery from the Crisis

IMF News, July 12, 2021

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The IMF has approved a three-year financing arrangement for Uganda under the Extended Credit Facility (ECF).
Loan amount: about $1 billion, disbursed in tranches.
Loan terms: zero-interest rate; grace period of 5½ years; final maturity of 10 years.
First disbursement: around $258 million when the program was approved in June of this year.
Disbursements are subject to half-yearly reviews of the government’s progress in implementing its economic reforms.
Available funds will be used to finance the budget.

Pre-pandemic average economic growth: about 6 percent.
Real GDP growth halved to only 3 percent in fiscal year 2019/20.
Per capita income growth had started to slow before the pandemic because of high population growth.
Poverty is estimated to have increased by 7.5 percent nationally by early 2021.
A second wave of the pandemic triggered a new lockdown in June, expected to exacerbate already high unemployment and financing constraints.

Main goals: support Uganda’s recovery from COVID-19, counteract crisis effects, and generate more inclusive, sustainable growth through private sector development.
Fiscal consolidation is required to create space for the private sector while improving spending composition, maintaining debt sustainability, and strengthening governance.
The program builds upon reforms in the authorities’ National Development Plan.
Consolidation approach: broad-based fiscal consolidation in the first year, with adjustment driven mostly by an increase in domestic revenues in subsequent years.
The increased fiscal resources will allow higher priority social spending, including on vaccines and protecting vulnerable households, and will facilitate more efficient investment in infrastructure.
Monetary policy stance: accommodative given subdued inflation and growth below potential.
Strengthening measures: stronger financial sector and robust governance to support the fiscal strategy.

Projected growth for fiscal year 2021-22: around 4.3 percent.
Expected return to pre-pandemic levels: around 6 percent by fiscal year 2022-23.
Fiscal strategy aims to reduce the country’s deficit and put public debt on a declining path, moving closer to the target of 50 percent of GDP.
Strategy relies on higher domestic revenue, including from a broader revenue base.
Social spending is budgeted to be higher while also contributing to deficit reduction.

Authorities committed to strict governance measures to ensure appropriate use of resources.
Under the earlier IMF Rapid Credit Facility (RCF) loan, authorities:
- Reported COVID-19 spending (and cash releases for fiscal year 20/21).
- Published on-line summaries of large COVID-19-related procurement contracts (above USh500 million for works contracts, and above USh200 million for goods and services), together with the names of awarded companies.
- Published an independent audit of COVID-19 expenditures for fiscal year 2019/20.
A special audit of COVID-19 spending related to the first three quarters of fiscal year 2020/21 was finalized in June this year; it will be discussed in Parliament and updated when end-year results become available.
New measures going forward:
- A new procurement template for COVID-19 projects including information on beneficial owners of awarded companies.
- A stronger asset declaration regime.
- Enhanced scrutiny of financial transactions of politically exposed persons.
- Financial sector supervision that is risk-based and focused on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT).
These reforms could contribute to Uganda's exit from the Financial Action Task Force’s (FATF) “grey list” of jurisdictions with deficiencies in AML/CFT frameworks.

First objective: protect livelihoods in the near term and secure sufficient funding for human capital development and job creation for a rapidly growing population.
Fiscal year 2021/22 budget includes financing for COVID-19 vaccines and ring-fenced resources for social protection, education and health.
Social spending is monitored under the program through two indicative targets that set minimum amounts for total social spending and targeted social assistance programs.

International Monetary Fund