IMF Staff Concludes Review Mission to Uganda

IMF News, October 26, 2016

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A team from the International Monetary Fund (IMF) led by Axel Schimmelpfennig visited Kampala from October 12 to 26, 2016 to conduct the seventh review of the country’s economic program under the Policy Support Instrument (PSI).
At the end of the mission, Mr. Schimmelpfennig issued a statement conveying preliminary findings; the views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
IMF Executive Board consideration of the seventh review of the PSI-supported program is expected by end-December 2016.
The mission met with H. E. President Museveni; Hon. Mr. Matia Kasaija, Minister of Finance, Planning and Economic Development; Professor Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda; Mr. Keith Muhakanizi, Permanent Secretary/Secretary of Treasury, and other senior officials, private sector, civil society, and international community representatives.

Findings:

Projections:

Growth is projected at a solid 5 percent this fiscal year and 5.5 percent in FY17/18, supported by the scaling up of infrastructure spending.
Core inflation printed at 4.1 percent year-on-year in September.
Core inflation forecast to stay close to the 5 percent target.

Findings:

“Performance under the PSI has been mixed.”
While revenue collection increased as a share of GDP, it fell short of program expectations due to lower than projected nominal GDP growth.
Current spending was higher than anticipated.
The overall deficit target was missed by 0.4 percent of GDP.
The government partly relied on Bank of Uganda advances for its financing needs.
The execution of externally financed projects lagged behind target.
Poverty-alleviating expenditures were in line with program objectives.

Policy recommendations and priorities:

Authorities intend to adhere to their FY16/17 fiscal objectives outlined during the sixth review under the PSI.
Raise the tax-to-GDP ratio by ½ percent of GDP.
Prioritization of social and development spending within a tight envelope.
Strengthen project management to ensure sound project selection and improve spending efficiency to ensure value-for-money.
Step up efforts to reduce and improve monitoring of government spending arrears, which undermine the budget process.
Over the medium-term, ensure that scaled-up infrastructure investment yields the targeted increase in GDP growth to improve citizens’ lives and maintain Uganda’s low risk of debt distress.
Enhance the effectiveness of social spending.

Findings:

The Bank of Uganda (BoU) successfully steered core inflation toward its target of 5 percent and increased its international reserves buffer.
The mission commends the BoU’s October 2016 decision to reduce the monetary policy rate by another 100 basis points.
With incipient inflation pressures, the BoU had tightened monetary policy in 2015, successfully keeping core inflation in the target band.
Since April of this year, the BoU has entered an easing cycle.
The mission agrees with the BoU’s assessment that food prices and shilling depreciation are the main risks to the inflation outlook.

Findings:

Overall, the financial sector remains well capitalized, though non-performing loans have edged up.
The increase in non-performing loans has prompted a tightening of lending standards and a slowdown in credit to the private sector.
The third largest domestic bank had become undercapitalized, and the BoU took over its management to protect deposits and safeguard financial sector stability.
Next steps for the undercapitalized bank: the financial position needs to be established, and BoU will look for a strategic investor.

Findings:

The government further strengthened its public financial management (PFM) framework.
The Ministry of Finance, Planning and Economic Development issued PFM Act regulations to strengthen the budget process.
A Charter of Fiscal Responsibility was sent to Parliament in August, setting measurable fiscal objectives to guide budgeting and codifying Uganda’s strong commitment to fiscal transparency.
The mission encourages the authorities to submit the amendments to the BoU Act to parliament to strengthen the central bank’s independence.

AML/CFT:

The mission discussed ongoing efforts to ensure Uganda’s prompt exit from the Financial Action Task-Force’s list of jurisdictions with strategic deficiencies in the legal framework for combating money laundering and the financing of terrorism (AML/CFT).
The mission urges the authorities to take the necessary steps to facilitate the prompt exit, including by passing the amendments to the Anti-Money Laundering Act and the Insurance Act before December 2016.

IMF Staff Concludes Review Mission to Uganda — Press Release No. 16/462