What you need to know:
Advice. Uganda has been advised to enhance tax revenue in the medium term.
KAMPALA. The International Monetary Fund (IMF) has called on African policy makers to make adjustments to cope with the economic growth slowdown and other challenges affecting the continent.
IMF says fiscal policy makers need to strike an appropriate balance between debt sustainability considerations and addressing development needs.
Like in other regions of the world, sub-Saharan African countries are currently facing large current and fiscal deficits which have seen a shift from surplus to deficit.
The current IMF regional economic outlook for sub-Saharan Africa reveals that economic activity in the region has weakened markedly although growth remains stronger than in many other regions, with growth expected at 3.75 per cent in 2015 and 4.25 per cent in 2016.
This is due to decline in global economic growth of 3.1 per cent from 3.3 per cent resulting into slow global trade and capital flows.
Presenting the regional economic outlook from the global perspective in Kampala last week, Mr Leon Gene, the IMF resident representative in Nigeria said some global risks have spread into Africa.
They are tight financial conditions leading to high cost of available finance for investment, exacerbating impact of weak commodity prices on exporters, risk of sudden stop in financial flows to emerging markets, slower growth in China, lower potential output growth in emerging markets and risks of stagnation in advanced economies.
“Security-related risks still prevail in a number of African countries, commodity prices could fall further, especially in the event of a more rapid slowdown in China, and sharp global reallocation of financial assets could lead to rapid capital outflows from the region’s frontier markets,” he said.
Ms Ana Lucia Coronel, the senior IMF resident representative in Uganda, revealed the Uganda Shilling depreciated more than other currencies in the region by close to 40 per cent. On policy response, she said tightening monetary policy by Bank of Uganda before the rise in inflation was commendable.
However, she said the biggest manifestation of risks into Uganda’s economy has been in security, tourism, exports decline, uncertainty about elections and lack of confidence in the economic policies by Ugandans due to what happened in 2011, which has resulted in reduction in economic growth from 5.8 per cent to now 5 per cent but still above the regional average.
Ms Lucia said the key message in the medium-term for Uganda is the enhancing of tax revenue. Last year, tax ratio to the GDP was 12.7 per cent which is below the regional average.
“Government should enhance the ratio of tax to GDP at 15 per cent around 2019-2020, pursuing efficient spending with the right infrastructure component to ensure debt sustainability,” she said.
She added: “Uganda remains at a low sustainability based on the current infrastructure projects, but threshold for debt sustainability level has been reduced from 50 per cent of the GDP to 40 per cent. Should the politicians add one or two new projects then the debt level in Uganda could explode.”
Mr Simon Rutega; Managing Partner of Diaspo Capital Uganda Limited said: “We (investors) want to see low and stable inflation, there is to have independent central bank.”
Going forward, he added: “We would like to see government investment in areas of higher growth returns /inclusive growth and sustainable development.”