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Press Release No. 98/56
November 11, 1998
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Approves Second Annual ESAF Loan for Uganda

The International Monetary Fund (IMF) approved today the second annual loan for Uganda under the Enhanced Structural Adjustment Facility (ESAF),1 equivalent to SDR 33.5 million (about US$46 million), to support the government’s economic program for 1998/99 (July-June). The loan is available in two semiannual installments, the first of which, equivalent to SDR 16.7 million (about US$23 million), will be disbursed on November 25, 1998.

Background

On November 10, 1997, the IMF approved a three-year ESAF arrangement for Uganda in an amount equivalent to SDR 100.4 million (see Press Release No. 97/52). Macroeconomic performance in 1997/98 was generally in line with the program. Real GDP growth, which was adversely affected by El Nino weather conditions in the first half of the year, recovered in the second half, rising by 5.5 percent for the year. The performance was aided by a strong rebound in food production amid the return of normal weather conditions during the second half of the year. Inflation was low, and underlying inflation has been held for some time near industrial country levels. International reserves have been built to a relatively comfortable level, providing Uganda with a cushion to weather future external shocks. Notable progress was made in 1997/98 in a number of structural areas, particularly trade liberalization, civil service reform, tax administration, and financial sector reform, although privatization targets were not fully achieved. Under the first annual ESAF loan, Uganda reached the completion point under the Initiative for Heavily Indebted Poor Countries, or HIPC,2 (see Press Information Notice No. 98/37).

Medium-Term Strategy and the Program for 1998/99-2000/01

The government’s medium-term economic strategy is aimed at realizing average real growth of 7 percent a year, containing inflation at 5 percent, and maintaining gross international reserves at a level equivalent to about five months of imports of goods and nonfactor services. The overall fiscal deficit (excluding grants) would increase moderately to 6.7 percent of GDP during 1998/99, and decline gradually to 6.0 percent by 2000/01. Fiscal revenue would rise to12.1 percent of GDP in 1998/99 from 11.4 percent in 1997/98, and would increase to 13 percent of GDP by 2000/01. As reform of excise and trade taxes would be revenue reducing, targeted increases in the revenue-to-GDP ratio will depend crucially on improvements in tax and customs administration, for which the government is receiving technical assistance.

Revenue enhancement remains a key element of fiscal sustainability. While tax administration has improved revenue performance, it is imperative that the government implement further revenue measures, including steps to combat smuggling and enforce penalties for tax evasion. On the expenditure side, weaknesses in expenditure control and the accumulation of domestic arrears are a concern. Other areas of concern have emerged, such as the health of some smaller banks. Further strengthening of payroll management, pension reform and a restructuring of public utilities are also warranted. However, Uganda’s favorable macroeconomic environment and external outlook allow some flexibility in fiscal policy, and provide an opportunity to accelerate urgent social and other priority spending.

Structural Reforms

The authorities’ program envisages a deepening and strengthening of structural reforms in the financial sector, with emphasis on bank supervision and enforcement of prudential regulations. An important stage of financial sector reform has been completed with the recapitalization and privatization of several banks. The next stage must deal with strengthening bank supervision and enforcing the prudential and regulatory framework. Public enterprise reform and reforms within the civil service and pension system are among additional measures seen. Also envisaged is a shift in the structure of public expenditures in favor of social programs and other priority areas.

The Challenge Ahead

Debt relief for Uganda will continue to be required in the period ahead, even with support under the HIPC Initiative. It will be important for non-Paris Club bilateral creditors, in particular, to provide relief as generous as that granted by Uganda’s Paris Club creditors. Additionally, a deterioration in regional and internal security could adversely impact donor assistance and foreign direct investment. Therefore, close monitoring of defense spending by the authorities is warranted.

Uganda joined the IMF on September 27, 1963. Its quota3 is SDR 133.9 million (about US$186 million). As of September 30, 1998, Uganda’s outstanding use of IMF resources totaled SDR 272 million (about US$377 million).


Uganda: Selected Economic and Financial Indicators, 1994/95-2000/011











1994/95

1995/96

1996/97

1997/98

1998/99

1999/00

2000/01





Prog.

Prov.





(Annual percentage changes, unless otherwise indicated)

National income and prices









GDP at constant prices

10.5

8.1

5.2

5.0

5.5

7.0

7.0

7.0

GDP deflator

9.2

6.2

6.5

8.8

4.4

5.0

5.0

5.0

GDP at factor cost









(in billions of Uganda shillings)

4,915

5,640

6,323

7,207

6,964

7,824

8,790

9,875

Consumer prices









End of period

3.4

5.4

10.4

7.5

-1.4

5.0

5.0

5.0

Nonfood

6.2

7.2

1.7

...

3.5

5.0

5.0

5.0

Annual average

6.1

7.5

7.8

8.8

5.8

5.0

5.0

5.0

External sector (in U.S. dollars)









Exports, f.o.b.

134.5

-0.8

13.6

-22.5

-30.6

16.5

16.4

13.2

Imports, c.i.f.

61.6

12.2

2.3

7.1

11.8

8.1

8.0

9.2

Terms of trade (deterioration - )

72.2

-29.3

-11.4

4.0

15.0

-1.8

0.6

1.2

Average exchange rate









(Uganda shillings per U.S. dollar)

933

1,013

1,058

...

1,150

...

...

...

Nominal effective exchange rate









(end of period; depreciation -)

-6.8

-0.1

1.6

...

-7.1

...

...

...

Real effective exchange rate









(end of period; depreciation -)

-7.9

0.6

7.2

...

-11.5

...

...

...

Government budget









Total revenue and grants

37.3

15.2

16.9

11.0

16.5

17.0

11.1

11.1

Revenue

44.7

19.1

16.6

10.9

8.8

19.1

16.1

16.8

Expenditure and net lending

34.3

10.3

15.7

8.0

8.3

18.7

12.9

12.9











(Annual changes in percent of beginning-of-period broad money,unless otherwise indicated)

Money and credit









Net foreign assets

33.9

22.9

33.0

12.2

38.7

15.0

11.1

13.8

Net domestic assets2

-3.4

-0.6

-12.5

4.3

-10.9

3.4

4.8

2.1

Domestic credit

-12.3

21.2

2.7

4.4

-1.0

3.4

4.8

2.1

Central government

-23.7

6.0

0.0

-5.6

-9.6

-8.6

-6.9

-8.9

Credit to the private sector

11.4

15.2

2.6

10.0

8.6

12.0

11.8

11.0

Money and quasi money

25.3

20.7

15.8

15.0

21.7

17.0

15.0

15.0

Velocity (GDP/M2)3

10.8

10.1

9.6

9.5

8.9

8.4

8.1

8.0

Interest rate (in percent)4

8.0

10.8

11.9

...

12.3

...

...

..











(In percent of GDP at factor cost)

National income accounts









Gross domestic investment

18.4

16.7

17.1

20.5

16.9

17.1

17.1

17.1

Gross national savings (including grants)

15.7

14.7

16.2

17.9

14.9

13.4

14.4

14.7

External sector









Current account balance









(including official grants)

-2.7

-2.0

-0.9

-2.6

-2.0

-3.7

-2.7

-2.4

(excluding official grants)

-8.4

-6.9

-6.0

-7.7

-8.3

-9.2

-7.6

-6.7

External debt (including Fund)

62.4

61.1

56.4

56.7

54.2

52.2

49.0

45.9

Government budget









Revenue

10.7

11.1

11.6

11.4

11.4

12.1

12.5

13.0

Grants

4.8

4.4

4.6

4.5

5.7

5.7

5.1

4.4

Total expenditure and net lending

18.3

17.6

18.1

17.2

17.8

18.8

18.9

19.0

Government balance (excluding grants)

-7.6

-6.5

-6.6

-5.8

-6.4

-6.7

-6.4

-6.0

Government balance (including grants)

-2.8

-2.0

-1.9

-1.3

-0.7

-1.0

-1.3

-1.6

Net foreign financing

4.8

3.5

3.3

2.9

2.8

3.3

2.4

2.6

Domestic bank financing

-1.9

-0.5

-1.1

-0.5

-1.0

-0.9

-0.8

-1.0

Domestic nonbank financing

-0.0

-0.9

-0.2

-1.0

-1.1

-1.4

-0.3

0.0











(In percent of exports of goods and nonfactor services)

Debt-service ratio5









Including Fund obligations

23.5

21.8

17.9

26.9

26.7

15.6

16.2

12.7

Excluding Fund obligations

18.8

15.6

10.6

17.7

16.9

7.4

10.2

7.9











(In millions of U.S. dollars, unless otherwise indicated)

Overall balance of payments

125.2

59.6

111.2

44.5

109.7

47.1

43.2

78.6

External payments arrears (end of period)

234.6

255.0

314.2

0.0

273.5

0.0

-0.0

-0.0

Foreign exchange reserves

388.2

479.7

621.9

693.4

750.5

832.7

900.7

974.8

Gross foreign exchange reserves (in months of imports of goods and nonfactor services)

3.4

3.6

4.5

4.7

4.9

5.0

5.0

5.0










Sources: Ugandan authorities; and IMF staff estimates and projections.











1Fiscal year begins in July.

2Change in net domestic assets for 1998/99 through 2000/01 is calculated using constant exchange rate of U Sh 1,232 per U.S. dollar.

3Nominal GDP divided by average of current year and previous year end-period money stocks.

4End-period rate on 7-12 month time deposits.

5The debt-service ratio incorporates estimates of the effects of the April 1998 Paris Club stock-of-debt operation and assumes rescheduling with non-Paris Club bilateral and commercial creditors on comparable terms.


1The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 512-year grace period.

2The HIPC Initiative entails coordinated action by the international financial community, including multilateral institutions, to reduce to sustainable levels the external debt burden of heavily indebted poor countries that pursue IMF- and World Bank-supported adjustment and reform programs, but for whom traditional debt relief mechanisms are insufficient.

3A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.


IMF EXTERNAL RELATIONS DEPARTMENT

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