IMF Executive Board Completes the First Review under the Policy Support Instrument for UgandaPress Release No. 07/133
June 15, 2007
The Executive Board of the International Monetary Fund (IMF) today completed the first review under the three-year Policy Support Instrument (PSI) for Uganda. The PSI was approved on December 15, 2006 (see Press Release No. 06/281). The program objectives included macroeconomic stability, debt sustainability, financial sector deepening, and improved public sector financial management.
The IMF's framework for PSIs is designed for low-income countries that may not need IMF financial assistance, but still seek close cooperation with the IMF in preparation and endorsement of their policy frameworks. PSI-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners. This is intended to ensure that PSI-supported programs are consistent with a comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty. Members' performance under a PSI is reviewed semi-annually, irrespective of the status of the program (see Public Information Notice No. 05/145).
Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, made the following statement:
"Uganda's economic performance has been strong, and poverty indicators are improving. The authorities remain committed to the program, as demonstrated by their prudent fiscal and monetary policies and determined effort on the structural front. The economic outlook continues to be positive.
"Prudent control over current nonpriority spending and strengthening of tax administration will be essential to achieve the government's goal of increasing public savings. It will be important to limit wasteful spending and supplementary budget reallocations in nonpriority areas, and to continue modernization of the Uganda Revenue Authority. Caution in introducing tax incentives to attract investment is warranted, given the budgetary impact and distortionary effects.
"The budget appropriately sets aside increased resources to repay domestic arrears. Success in preventing new arrears will require full funding of statutory obligations and a commitment to budget principles at all levels of government. The government's plan to strengthen public expenditure management will also be important.
"The authorities are committed to maintaining debt sustainability, following substantial debt relief. The new debt management strategy is an important step in this direction and should be faithfully implemented.
"A series of temporary shocks has led to a spike in inflation. While monetary tightening is not necessary at this stage, the central bank needs to watch carefully for signs of underlying price pressures.
"Uganda's competitiveness and ability to diversify its exports depend crucially on investment in education and infrastructure, financial sector development, and enhancements to the business environment. Current efforts to resolve the electricity crisis are particularly welcome, while continued action to improve governance will be crucial to attract private investment and unlock additional donor assistance," Mr. Kato said.