Uganda's Infrastructure Investment Promise

IMF News, July 19, 2017

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Growth averaged 8 percent per year for two decades prior to recent slowdown.
IMF estimates growth at 3.9 percent for the 2016/17 fiscal year that ended in June.
IMF projects growth at 5 percent for the fiscal year that started in July.
Population growth is around 3 percent, implying per capita growth of only ½ percent.
Identified factors weighing on growth:
- Drought in the Horn of Africa.
- Slowdown of credit to the private sector.
- Indirect effects from regional conflict, such as reduced trade flows.
Social spending is set to decline as a share of GDP and is below average for the region.

Infrastructure and oil sector investment could boost growth over the next 3–5 years.
Government development strategy focuses on:
- Building hydropower plants.
- Developing a modern road network.
- Constructing railways.
- Developing oil fields in partnership with an international consortium of oil companies.
- Transporting crude oil to international markets via a pipeline through Tanzania.
- Supplying a planned domestic refinery.

The report stresses attention to social spending on health and education to ensure broad-based benefits from infrastructure and regional integration.
Example concern: primary school completion rates have recently declined and are lower than those of peers.

Ongoing economic integration in the East African Community provides opportunities for access to larger markets and better linkages.
Prerequisites for benefiting from integration:
- Good infrastructure.
- A skilled workforce.
- An enabling business environment.
Uganda’s business environment has improved over the last decade but lags other East African Community countries where more progress has been made.

Infrastructure investment is mostly financed through borrowing from abroad; public debt is on the rise.
Investment must yield a return in the form of higher growth to reverse the rising debt trend.
Government planning and execution of investment projects need improvement to ensure returns.
Uganda’s revenue collection is low relative to peers in the East African Community.
The report emphasizes continuing the strategy to increase tax revenues by ½ percent of GDP per year.
Over the medium term, the report projects that:
- Higher growth, increased tax collection, and completion of the infrastructure program will make the overall fiscal deficit converge to its 3 percent of GDP target.
- Convergence to the 3 percent of GDP target will ensure that public debt declines again.

Source: Uganda's Infrastructure Investment Promise (IMF Country Focus, July 19, 2017).