IMF Executive Board Concludes the Fourth Review Under the Extended Credit Facility Arrangement with Uganda
IMF News, June 21, 2023
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- Published: June 21, 2023
Review outcome and financing
- The Executive Board concluded the fourth review of Uganda’s Extended Credit Facility (ECF) Arrangement.
- A waiver of nonobservance was granted for a performance criterion on the ceiling on net credit to the government from the Bank of Uganda (BoU).
- The completion of the fourth review enables the immediate disbursement of the equivalent of SDR 90.25 million (about US$ 120 million).
- Aggregate disbursement under the ECF arrangement now stands at SDR 541.5 million (about US$750 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.
Macroeconomic projections and recent revisions
- Real GDP growth:
- Projected at 5.5 percent in FY 22/23.
- Projected at 6 percent in FY 23/24.
- Inflation:
- Has been declining and is expected to reach the Bank of Uganda’s medium-term target of 5% core inflation by end-2023.
- Near-term outlook changes:
- Growth in FY 22/23 has been revised up slightly.
- Inflation projections are marked down for FY 23/24.
- Factors supporting the improved near-term outlook:
- More favorable weather conditions on domestic harvests.
- Softening of global commodity prices and easing of global demand-supply imbalances.
- Lagged effects of monetary and fiscal policy tightening.
Risks to the outlook
- Elevated risks include:
- Further tightening of external financial conditions.
- A renewed pickup in inflation leading to additional monetary tightening and higher borrowing costs.
- Stronger-than-expected drag of higher borrowing costs on private sector credit and investment.
- Potential negative impact on exports from the conflict in Sudan.
- A stronger tightening of global financial conditions could constrain syndicated loans and weigh on financial sector stability, given that foreign exchange credit accounts for around 30 percent of bank loans.
- The signing into law of the ’Anti-Homosexuality Bill, 2023’ could have a larger-than-anticipated impact on the availability of grants and external loans from development partners, as well as Foreign Direct Investment (FDI) flows and tourism.
Policy priorities and structural reforms
- Fiscal and monetary stance:
- Fiscal consolidation and tight monetary policy remain essential to keep debt on a sustainable path, reduce the current account deficit and protect foreign exchange buffers.
- Exchange rate flexibility remains crucial to preserve external buffers.
- Revenue and public financial management:
- Full implementation of the Domestic Revenue Mobilization Strategy (DRMS), including additional tax administrative measures, is crucial to help maintain the debt-to-GDP ratio on a declining path and allow for an increase in social spending over the medium term.
- Increasing the pace of Public Financial Management (PFM) reforms is essential to enhance the capacity to execute social spending in a timely manner.
- The tax exemption rationalization plan remains an important component of the revenue mobilization effort.
- Financial sector and stability:
- Safeguarding financial stability and strengthening the supervisory framework remain paramount.
- The banking system is well-capitalized and liquidity has rebounded, but the asset quality of some banks has deteriorated.
- The BoU should stand ready to resume tightening if signs emerge of a slower-than-expected disinflation.
- Governance, inclusion, and climate:
- Priorities include strengthening the anti-corruption framework and the AML/CFT regime, advancing the financial inclusion agenda, and climate adaptation measures.
- Authorities should sustain efforts to improve transparency of implementation of the asset declaration framework including sanctions enforcement for violations.
- Social spending:
- Efforts to increase social spending, alongside revenue mobilization and governance reforms, will improve prospects for achieving more inclusive, sustainable, private sector led long-term growth.
Key quantitative outcomes and indicators (Table 1: Uganda: Selected Economic Indicators, FY2020/21-FY2023/24)
- Real GDP Growth (%)
- FY2020/21: 3.5
- FY2021/22: 4.7
- FY2022/23: 5.5
- FY2023/24: 6.0
- Headline Inflation - average (%)
- FY2020/21: 2.5
- FY2021/22: 3.4
- FY2022/23: 9.2
- FY2023/24: 5.7
- Core Inflation - average (%)
- FY2020/21: 3.2
- FY2021/22: 7.7
- FY2022/23: 5.3
- Revenue and grants (% of GDP)
- FY2020/21: 14.3
- FY2021/22: 14.1
- FY2022/23: 14.7
- FY2023/24: 15.8
- Expenditure (% of GDP)
- FY2020/21: 23.7
- FY2021/22: 21.5
- FY2022/23: 19.8
- FY2023/24: 19.3
- Primary Balance (% of GDP)
- FY2020/21: -6.7
- FY2021/22: -4.3
- FY2022/23: -1.9
- FY2023/24: -0.5
- Fiscal Balance (% of GDP)
- FY2020/21: -9.4
- FY2021/22: -7.4
- FY2022/23: -5.1
- FY2023/24: -3.4
- Public Debt (% of GDP)
- FY2020/21: 49.0
- FY2021/22: 50.6
- FY2022/23: 48.6
- FY2023/24: 47.8
- Broad Money (% change)
- FY2020/21: 8.5
- FY2021/22: 10.0
- FY2022/23: 11.3
- FY2023/24: 11.2
- Credit to Private Sector (% change)
- FY2020/21: 8.3
- FY2021/22: 11.0
- FY2022/23: 8.9
- FY2023/24: 10.4
- Policy Rate, EOP (%)
- FY2020/21: 6.5
- FY2021/22: 7.5
- FY2022/23: …
- Current Account Balance (% of GDP)
- FY2020/21: -9.5
- FY2021/22: -7.9
- FY2022/23: -8.6
- FY2023/24: -8.9
- Reserves (in months of next year's imports)
- FY2020/21: 4.9
- FY2021/22: 4.1
- FY2022/23: 3.1
- External Public Debt (% of GDP)
- FY2020/21: 31.6
- FY2021/22: 31.3
- FY2022/23: 30.9
- FY2023/24: 31.2
- REER (% change)
- FY2020/21: 0.6
- FY2021/22: 3.7
IMF Communications Department; Press Release No. 23/223. Washington, DC: June 21, 2023.