IMF Executive Board Concludes the 2024 Article IV Consultation with Uganda

IMF News, September 9, 2024

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Press Release No. 24/322
Date: September 9, 2024
The Executive Board concluded the 2024 Article IV Consultation with Uganda on September 6.
Key judgment: Uganda has navigated the post-pandemic recovery well due to sound macroeconomic policies; recovery is strengthening with low inflation, favorable agricultural production, and strong industrial and services activity.

Growth is estimated at 6 percent in FY23/24, up from 5.3 percent in FY22/23.
Headline inflation increased to 3.9 percent by June 2024, driven by rising energy prices and core inflation.
Core inflation remains below the Bank of Uganda’s (BoU) target of 5 percent.
Directors commended the BoU’s commitment to price stability and agreed with its tight monetary policy stance to anchor inflation expectations.
Recommendation: keep monetary policy data dependent and maintain exchange rate flexibility to build buffers and improve competitiveness.
Recommendation: continue efforts to enhance monetary transmission and central bank independence, including full implementation of the 2021 Safeguards Assessment recommendations.

Elevated current account deficit and limited capital inflows have weighed on Uganda’s international reserves.
Despite strong coffee and gold exports, the current deficit remains high due to rising oil project-related imports.
Gross international reserves covered only 2.9 months of imports at the end of 2024 (excluding oil-project related imports).
Tight global financial conditions and reduced external project and budget support have driven down reserves.
Directors noted pressures on international reserves amid tight global financial conditions.

The overall fiscal deficit continued to decline in FY23/24 but was less than planned due to revenue underperformance and higher current spending.
Development spending fell short of expectations, worsening expenditure composition.
Directors highlighted elevated debt servicing costs accompanied by a shortfall in the country’s development spending.
Recommendation: create durable fiscal space through revenue mobilization and better expenditure discipline.
Recommendation: continued revenue-based fiscal consolidation, improved expenditure discipline, and a prudent fiscal management framework to ensure effective use of oil revenues once production begins.
Emphasis on addressing significant spending demands in human capital, infrastructure, and climate resilience.

Growth is expected to strengthen, boosted by the start of oil production, which will make lasting improvement in the fiscal and current account balances.
Inflation is expected to rise near the BoU’s target of 5 percent in FY24/25.
Risks are mostly on the downside:
- Continued fallout from the Anti-Homosexuality Act, which could exacerbate already tight external financing conditions.
- Potential delays in oil production.
- Sluggish reform implementation.
- Climate-related shocks.
Upside risks to inflation:
- Commodity price volatility.
- Weather conditions.
- Exchange rate depreciation pressures stemming from limited capital inflows.

Accelerate structural reforms to achieve inclusive, sustainable, and private sector-led growth.
Strengthen enforcement of the anti-corruption framework.
Address remaining shortcomings in AML/CFT.
Enhance fiscal transparency.
Introduce regulatory reforms to support businesses.
Implement an ambitious climate resilience agenda drawing on the recommendations of the C-PIMA.
Financial sector: vigilant monitoring of the rapid increase in the sovereign‑bank nexus and significant cross‑border exposure of the nonfinancial corporate sector; pursue multifaceted efforts to enhance financial inclusion.

Executive Directors agreed with the thrust of the staff appraisal, welcoming Uganda’s robust post‑pandemic recovery and favorable medium‑term outlook due to anticipated start of oil production.
Directors encouraged continued reforms, including those envisaged under the expired ECF arrangement, to rebuild fiscal and external buffers and boost inclusive and sustainable growth, supported by technical assistance from the Fund and other partners as needed.
The next Article IV consultation with Uganda will be held on the standard 12‑month cycle.

IMF Executive Board Concludes the 2024 Article IV Consultation with Uganda — Press Release No. 24/322 (September 9, 2024).