Uganda: IMF Executive Board Concludes 2019 Article IV Consultation With Uganda

document

On May 1, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Uganda.

Uganda needs to create over 600,000 jobs per year to match annual population growth of over 3 percent. After two decades of formidable gains on poverty reduction, progress has stalled in the last available household survey for 2016/17. Growth needs to become more inclusive again, and prospects are closely linked to the growth dividend from public investment and investments in human capital.

Uganda's economy continues its recovery. The economy grew by 6.1 percent in FY17/18, with a strong services sector and a rebound in agriculture from the previous year's drought. Investor surveys suggest that business conditions and sentiment are strong, while credit to the private sector has improved, helped by an accommodative monetary policy stance. Growth could reach 6.3 percent in FY18/19, though slow rainfalls and regional tensions are a risk to the outlook. Over the medium term, growth could range from 6 to 7 percent if infrastructure and oil sector investments proceed as planned.

Macroeconomic policies are supportive of economic activity. The government continues its policy of scaling up infrastructure investment. Investment reached 8.9 percent of GDP in FY17/18 and is envisaged to increase further this year and next. As a result, public debt grew further to 41.3 percent of GDP at end-FY17/18. Headline inflation stood at 3 percent and core inflation at 4.6 percent year-on-year in March. The monetary policy stand remains accommodative, even with the 100 bps policy rate increase last October that ended the previous easing cycle. Inflation is projected to converge to Bank of Uganda's 5 percent target over the next 1½ years mainly driven by food prices and fiscal spending.

Vulnerabilities are increasing. Uganda remains at low risk of debt distress, even though debt metrics have deteriorated and one in five Ugandan shillings collected in revenue will be spent on interest in FY19/20. The current account deficit widened to 6.1 percent of GDP in FY17/18, somewhat weaker than desirable. With gross international reserves of $3.4 billion (4.2 months of next year's imports) at end-February, Uganda has a sound buffer against external shocks. The main risks to the outlook are unfavorable weather conditions, domestic and regional political tensions, and further delays in the start of oil production.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They commended Uganda's macroeconomic performance and development gains over the last three decades, including halving its poverty rate. Noting Uganda's growing population and job creation needs, Directors encouraged further progress towards poverty reduction and shared prosperity, through strong macroeconomic policies, human capital development, and improvements in institutions and governance with continued IMF capacity development support.

Directors welcomed the authorities' intention to develop a fiscal rule to manage future oil revenues and encouraged the authorities to consider adopting an interim debt ceiling to guide fiscal policy. Directors also stressed the need to improve fiscal policy formulation and implementation including through a more binding approach to the annual budget process and encouraged the authorities to promptly adopt and implement the Domestic Revenue Mobilization Strategy given Uganda's still low revenue collection.

Directors noted that a more balanced expenditure composition between infrastructure and social development (especially for the youth, women and low‑skilled workers) would better support inclusive growth and highlighted the need for spending prioritization, addressing domestic arrears and continued efforts to strengthen public finance and investment management practices.

While Uganda's debt level remains at low risk of debt distress, Directors cautioned that debt metrics had weakened, some investment projects may not generate the envisaged return, and interest payments are rising. Directors thus called on the authorities to keep debt below 50 percent of GDP in nominal terms over the medium term to safeguard the hard‑earned favorable debt sustainability rating.

Directors agreed that inflation targeting continues to serve Uganda well under the central bank's stewardship. They indicated that monetary policy could remain supportive for now and agreed on building reserves opportunistically under a flexible exchange rate regime given external vulnerabilities. Directors also urged the authorities to strengthen the Bank of Uganda's financial position through recapitalization and expenditure measures.

Directors concurred that bank supervision and regulation are generally sound and noted the importance of a more favorable business environment and greater access to finance for a private sector‑led growth.

Finally, Directors welcomed the improvements in Uganda's compliance with the AML/CFT standards and its decision to begin accession to the Extractive Industries Transparency Initiative. They called for further efforts to strengthen governance and reduce corruption, including addressing weak implementation of the relevant legal framework.

Uganda: Selected Economic and Financial Indicators, FY2016/17-2023/241

2016/17

2017/18

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

Est.

Proj.

Proj.

Proj.

Proj.

Proj.

Proj.

(Annual percentage change, unless otherwise indicated)

Output, prices, and exchange rate

Real GDP

3.9

6.1

6.3

6.3

6.2

6.1

6.0

6.6

GDP deflator

6.3

3.3

3.0

4.2

5.2

5.2

4.9

4.9

CPI (period average)

5.7

3.4

3.2

4.0

4.8

5.0

5.0

5.0

Core inflation (end of period)

5.1

2.7

3.9

4.8

4.9

5.0

5.0

5.0

Terms of trade ("-"= deterioration)

0.0

0.7

-2.7

1.1

0.5

0.3

0.5

0.2

Exchange Rate (Ugandan Shilling/US$)2

(Ugandan Shilling/US$)2

2.5

3.0

1.3

...

...

...

...

...

...

Real effective exchange rate

("-"= depreciation)2

-1.4

-2.8

-1.2

...

...

...

...

...

Money and credit

M3/GDP (percent)

21.7

22.4

23.1

23.6

24.1

24.8

25.3

26.0

Credit to non-government sector

5.7

10.5

13.6

11.2

10.2

13.7

13.0

10.4

Bank of Uganda policy rate2

10.0

9.0

10.0

...

...

...

...

...

NPLs (percent of total loans)2

6.2

4.4

4.7

...

...

...

...

...

(Percent of GDP, unless otherwise indicated)

General government budget

Revenue and grants

15.2

15.3

16.1

17.6

17.5

17.6

17.9

19.0

of which : grants

1.0

0.8

1.1

1.6

1.2

0.9

0.7

0.6

Expenditure

19.0

20.1

21.5

24.8

24.9

23.6

21.9

22.5

Current

10.9

10.9

11.5

12.0

12.5

12.3

12.2

12.6

Capital3

7.8

8.9

9.6

12.1

11.9

10.8

9.3

9.5

Overall balance

-3.5

-5.0

-5.4

-7.2

-7.4

-6.0

-4.0

-3.6

Public debt

Public gross nominal debt

38.0

41.3

42.2

45.7

49.0

50.7

50.4

49.7

of which : external public debt

24.3

27.8

27.7

29.9

32.2

33.9

33.8

33.5

Investment and savings

Investment

24.4

25.8

26.9

29.5

29.8

29.0

27.0

26.9

Public

7.8

8.9

9.6

12.1

11.9

10.8

9.3

9.5

Private

16.6

16.9

17.3

17.5

17.9

18.2

17.7

17.3

Savings

20.5

19.5

18.9

19.8

19.6

19.6

19.7

21.9

Public

3.2

3.6

3.4

4.0

3.9

4.4

4.9

5.7

Private

17.3

15.8

15.5

15.8

15.7

15.2

14.7

16.2

External sector

Current account balance (incl. grants)

-3.7

-6.1

-7.2

-8.9

-9.6

-8.9

-7.0

-4.7

Exports (goods and services)

19.0

19.5

19.3

19.1

19.1

19.0

19.0

20.5

Imports (goods and services)

25.9

28.7

29.6

30.5

30.5

29.2

27.0

26.2

Gross international reserves

In billions of US$

3.4

3.2

3.3

3.5

3.7

4.0

4.2

4.6

In months of next year imports

5.2

4.5

4.1

4.0

4.0

4.2

4.3

4.6

Memorandum items:

GDP at current market prices

Ush. billion

91,718

100,531

110,048

121,892

136,159

151,942

168,955

188,940

US$ million

26.0

27.5

...

...

...

...

...

...

GDP per capita (Nominal US$)

704

724

742

784

840

888

935

991

Population (million)

36.9

37.8

...

...

...

...

...

...

.

Sources: Ugandan authorities and IMF staff estimates and projections.

1 Fiscal year runs from July 1 to June 30.

2 Latest available data as of April 16, 2019.

3 Capital expenditures include net lending and investment on hydropower projects and exclude BoU recapitalization.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .

See What Everyone is Watching

More From: IMF

Don't Miss

AllAfrica publishes around 700 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.