Press Release No. 16/154

Press Release: IMF Staff Completes Review Mission to Uganda

April 6, 2016

A team from the International Monetary Fund (IMF) led by Roger Nord, IMF Mission Chief and Deputy Director of the African Department, visited Kampala from March 21 to April 6, to conduct the sixth review of Uganda’s economic program supported by the Policy Support Instrument (PSI).¹

At the end of the mission, Mr. Nord issued the following statement:

“In a complex global, regional, and domestic environment, affected by election-related uncertainties, Uganda’s economy continued to perform well. Economic growth is expected to reach 5 percent in the current fiscal year and accelerate to 5½ percent in FY2016/17, supported by the scaling up of infrastructure investment. Following a sharp depreciation of the shilling, inflation increased, with core inflation reaching 7.6 percent in December 2015, though it has since then decelerated to 6.9 percent.

“Performance under the PSI has been mixed. There has been progress on increasing tax revenue, strengthening international reserves, extending the Treasury Single Account to local governments, and establishing public investment management guidelines. The decisive monetary policy response, in the context of appropriate exchange rate flexibility, contributed to the stabilization of the shilling and successfully curbed inflation expectations. However, the end-December 2015 overall deficit target was not met, poverty reducing expenditures were below target, and some structural reforms suffered delays.

“The mission commends the authorities for the steadfast implementation of fiscal policy in a complex electoral environment. Revenue over-performed through end-December 2015 and expenditure pressures were reasonably well controlled. While some fiscal tightening had been envisaged in late 2015 in the face of significant exchange rate pressures, the economy subsequently stabilized more rapidly than expected, leading the authorities to revert to the original budget targets. However, there were some renewed fiscal pressures in early 2016, including a slowdown in revenue and some additional spending. The mission welcomes that the supplementary budget currently before parliament aims at minimizing year-end slippages. The mission encourages the authorities to strengthen efforts to boost taxpayer compliance to compensate for the revenue shortfall.

“The mission welcomes the 2016/17 budget currently before parliament, which envisages a continued scaling-up of infrastructure investment while boosting domestic revenue by 0.5 percent of GDP, in line with the objective to raise Uganda’s revenue performance to levels observed in regional and other peers. The mission encourages the authorities to continue building capacity and controls to manage large public investment projects. It will also be important to avoid within-year reallocations from public investment to less productive government spending.

“The mission welcomes the decision by the Bank of Uganda (BOU) to lower the central bank rate, consistent with the forecast of core inflation returning to its medium-term target. The mission commends the BOU for its effective communication strategy, which contributed to well-anchored inflation expectations, reflected in sharply falling yields in recent weeks. The appropriate easing of monetary policy should provide a welcome boost to private sector credit growth and support economic activity.

“The mission welcomes the approval of the amendments to the Financial Institutions Act, expected to foster credit expansion and deepen the financial sector. The mission encourages the authorities to expedite the adoption of appropriate regulations to implement the new Public Finance Management Act in line with international best practice. The mission also urges the authorities to complete the reconciliation and validation of the stock of domestic payment arrears and take all necessary measures to avoid their recurrence.

“The mission is reassured by ongoing efforts to ensure Uganda’s prompt exit from the Financial Action Task-Force’s list of jurisdictions with strategic deficiencies in the legal framework for combating money laundering and the financing of terrorism (AML/CFT). The mission urges the authorities to take the necessary steps to facilitate the prompt exit, including by passing the amendments to the Anti-Money Laundering Act and the Insurance Act before May 2016.

“The mission met with Hon. Mr. Matia Kasaija, Minister of Finance, Planning and Economic Development; Professor Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda; Mr. Keith Muhakanizi, Permanent Secretary/Secretary of Treasury; and other senior government officials, and representatives from the business, and international communities. The mission thanks all counterparts for their collaboration.

“IMF Executive Board consideration of the sixth review of the PSI-supported program is expected by end-June 2016.”

¹ The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a member's policies (see http://www.imf.org/external/np/exr/facts/psi.htm). Details on Uganda’s current PSI are available at www.imf.org/uganda.