IMF Executive Board Concludes the Combined Second and Third Reviews under the Extended Credit Facility Arrangement for Uganda

IMF News, January 17, 2023

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Canonical URL: IMF Executive Board Concludes the Combined Second and Third Reviews under the Extended Credit Facility Arrangement for Uganda

The Executive Board completed the combined second and third reviews under the Extended Credit Facility (ECF) Arrangement for Uganda.
Approval of the combined second and third reviews enables the immediate disbursement of the equivalent of SDR 180.5 million, about US$240 million.
The completion of the combined 2nd and 3rd reviews brought the aggregate disbursement-to-date to US$625 million.
The ECF Arrangement for Uganda totals SDR 722 million (200 percent of quota) or about US$1billion and was approved on June 28, 2021.

Economic growth:
- The economy is projected to grow by 5.3 percent in FY 22/23 (revised down from 6 percent at the time of the 1st review in March 2022).
Inflation:
- Headline inflation is expected to rise to 8.3 percent (marked up from 4.6 percent at the 1st review).
- Core Inflation - average: 6.8 percent (FY2022/23, table).
Drivers of forecast revisions:
- Impact of the war in Ukraine, tighter external financial conditions, drought, and rising domestic borrowing costs.
Risks to the outlook:
- Higher imported inflation, lower external demand, climate change, and public health outlook.

Fiscal policy:
- Return to programmed fiscal consolidation to keep debt sustainable and maintain external buffers.
- Enhance domestic revenue mobilization, including via the elimination of inefficient tax exemptions and adoption of the tax expenditure rationalization plan.
- Rationalize non-priority spending and shift composition of spending towards priority social areas.
Monetary and external:
- Monetary policy should continue to tighten to achieve the core inflation target.
- Continued exchange rate flexibility is needed to preserve external buffers; foreign exchange interventions should be limited to smoothing excessive exchange rate fluctuations.
- Tight macro policies and continued exchange rate flexibility to strengthen external buffers, reduce the current account deficit, and contain the decline in reserves.

Progress reported:
- All but one quantitative performance criterion and most indicative targets for March, June and September 2022 were met.
- Six of the twelve structural benchmarks due between March and December 2022 have been completed.
- A structural benchmark on the asset declaration regime was converted into a prior action for the review and has been met.
Governance and anti-corruption measures taken:
- Amending the regulations to include assets that are beneficially owned in the asset declarations.
- Publishing information on compliance with the Leadership Code Act and on applications to access the declarations.
- Amending the law to establish a central registry for beneficial ownership information of legal entities, with forthcoming regulations expected to allow timely access to the beneficial ownership registry.
Other structural priorities highlighted:
- Strengthening governance, transparency, and the anti-corruption framework and the AML/CFT regime.
- Advancing the financial inclusion agenda and climate adaptation measures.
- Accelerating momentum on structural reforms to help move Uganda towards attaining its goal of middle-income status.
- The introduction of the Parish Development Model was noted as a welcome development.

Program implementation:
- The Ugandan authorities remain committed to their economic program amidst a challenging environment.
- Sound program implementation in the period ahead remains important to ensure economic resilience and support social and developmental objectives.
Fiscal deviation and reserve cover:
- The slight relaxation of the fiscal deficit in fiscal year 2022/23 relative to the programmed target was necessary to support vulnerable households and introduce cost-of-living adjustments in the public sector.
- The temporary deviation of the reserve cover is appropriate given tighter global financial conditions and the authorities’ commitment to continued successful program implementation.
Financial sector:
- The banking system is well-capitalized and financial stability risks should continue to be minimized.
- Continued improvements in Bank of Uganda’s autonomy and governance framework would be important.

Output
- Real GDP Growth (%): FY2020/21 Act. 3.5; FY2021/22 Rev. 4.7; FY2022/23 Prog. 5.3; FY2023/24 6.0
Prices
- Headline Inflation - average (%): FY2020/21 2.5; FY2021/22 3.4; FY2022/23 8.3; FY2023/24 7.2
- Core Inflation - average (%): FY2020/21 3.2; FY2021/22 7.5; FY2022/23 6.8
Central Government Finances (% of GDP)
- Revenue and Grants: FY2020/21 14.3; FY2021/22 14.1; FY2022/23 15.1; FY2023/24 15.5
- Expenditure: FY2020/21 23.7; FY2021/22 21.5; FY2022/23 20.2; FY2023/24 19.0
- Primary Balance: FY2020/21 -6.7; FY2021/22 -4.3; FY2022/23 -1.8; FY2023/24 -0.3
- Fiscal Balance: FY2020/21 -9.4; FY2021/22 -7.4; FY2022/23 -5.1; FY2023/24 -3.5
- Public Debt (% of GDP): FY2020/21 49.0; FY2021/22 50.6; FY2022/23 50.9; FY2023/24 49.6
Money and Credit
- Broad money (% change): FY2020/21 8.5; FY2021/22 10.0; FY2022/23 14.5; FY2023/24 12.6
- Credit to Private Sector (% change): FY2020/21 11.0; FY2021/22 12.8
- Policy Rate, EOP (%): FY2020/21 6.5; FY2021/22 …
Balance of Payments
- Current Account Balance (% of GDP): FY2020/21 -9.5; FY2021/22 -7.9; FY2022/23 -9.2; FY2023/24 -10.7
- Reserves (in months of next year's imports): FY2020/21 4.9; FY2021/22 3.7; FY2022/23 3.0; FY2023/24 3.1
- External Public Debt (% of GDP): FY2020/21 31.6; FY2021/22 31.3; FY2022/23 31.9; FY2023/24 32.4
Exchange Rate
- REER (% change): FY2020/21 0.6

Press Release No. 23/04 — IMF Communications Department, January 17, 2023