Press Release No. 12/8

Press Release: IMF Executive Board Completes Third Review Under Policy Support Instrument for Uganda

January 13, 2012

The Executive Board of the International Monetary Fund (IMF) today completed the third review under the Policy Support Instrument (PSI) for Uganda. In completing the review, the Board approved a waiver of nonobservance of the ceiling on net credit to government and the modification of quantitative assessment criteria.

The PSI for Uganda was approved on May 12, 2010 (see Press Release No. 10/195) and aims at maintaining macroeconomic stability and alleviating constraints to growth. The IMF's framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven (see Public Information Notice No. 05/145).

Following the Executive Board’s discussion on Uganda, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, stated:

“The Ugandan authorities have appropriately tightened monetary policy to help reverse the acceleration in inflation over the past nine months, in light of increasing evidence that external events have spilled over into underlying domestic inflation. Restrained fiscal policy will support disinflation efforts. The tighter policy stance should facilitate a rebuilding of international reserves and reduce exchange rate volatility. Given higher interest rates and inflation, the Bank of Uganda will also reinforce financial sector supervision.

“Growth is likely to slow in 2012 in light of tighter policies combined with a weaker global growth outlook. However, rapid disinflation is critical to restore the stable macroeconomic environment that has been a necessary foundation for Uganda’s strong and inclusive growth over the past decade.

“Subsidies to the power sector have grown quite large and consume resources urgently needed to implement Uganda’s National Development Plan. The authorities have announced a significant increase in tariffs, which will contain subsidy costs this fiscal year. For the future, they are committed to establishing a system to adjust tariffs automatically in line with changes in underlying costs.

“Over the medium term, the authorities plan to bring their revenue effort in line with other East African countries, mainly by eliminating tax exemptions and incentives. They are also taking steps to put in place a more robust budget management system, including a prudent petroleum revenue management framework”, Mr. Shinohara added.