Uganda growth remains strong despite global economic shocks - IMF

In the review completed and released on December 15 2009; the Board noted that the country’s Core inflation has declined in spite of an increase in headline inflation driven by higher food prices.

In the face of a slowdown in economic activity, Uganda’s growth remains strong by regional and international standards the International Monetary fund has said.

Mr Takatoshi Kato, Deputy Managing Director and Acting Chair IMF reacting to Uganda’s sixth review under a three-year Policy Support Instrument (PSI) said: “Prudent economic management and strong fundamentals have enabled Uganda to weather the global crisis relatively well”.

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.

In the review completed and released on December 15 2009; the Board noted that the country’s Core inflation has declined in spite of an increase in headline inflation driven by higher food prices.

“The external current account has performed better than expected, buoyed by strong cross-border exports, and international reserves remain adequate. Also Uganda’s flexible exchange rate regime has facilitated adjustment to external shocks,” the review said.

The financial sector has been largely spared by the crisis and remains sound. Looking forward, macroeconomic policies in 2009/10 continue to aim at overcoming infrastructure bottlenecks while mitigating the impact of external shocks on domestic activity. Addressing technical and administrative capacity constraints is key to improving budget execution, providing a healthy stimulus to the economy.

The executive board also approved an extension of the PSI for one year through December 14, 2010 to align a possible successor arrangement with the budget cycle and the National Development Plan currently under preparation.

The programme goals include macroeconomic stability, sustainable economic growth, poverty reduction, financial sector deepening, and improved public sector financial management. Plans to step up public investment will help address Uganda’s large infrastructure deficit. At the same time, the board said caution is needed to preserve fiscal and debt sustainability, and leave space for private sector growth.

“More generally, borrowing to finance infrastructure projects should be evaluated on a case-by-case basis in terms of cost effectiveness and the impact on debt and fiscal sustainability,” the board said.
Adding that; it will be essential to embed borrowing decisions in a well-articulated debt management strategy and sound medium-term public expenditure management framework.

“On the monetary side; increased flexibility in the liquidity management framework should allow the central bank to support private demand while bringing down inflation. In this regard, the Bank of Uganda should closely monitor incipient inflationary pressures and stand ready to make policy adjustments should inflation fail to decline as expected,” the Board added.

The board advised that a renewed emphasis on a comprehensive and well-coordinated structural reform agenda would raise both the implementation and absorptive capacity of Uganda. In particular, strengthened public financial management would help improve the quality and efficiency of fiscal spending.