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The fund has also welcomed the 2016/17 Budget allocations.
KAMPALA. The The International Monetary Fund (IMF) has told government not to divert funds meant for social sectors to finance security or election activities as it has been the case this financial year.
The team led by Mr Roger Nord, the IMF Mission chief and deputy director of African department, was in the country from March 21 to April 6, to conduct the sixth review of Uganda’s economic programme supported by the IMF Policy Support Instrument (PSI) on the programme’s performance based on agreed principles.
Speaking at a joint news conference at the Ministry of Finance headquarters on Wednesday, Mr Nord, said performance under the PSI has been mixed with elements of positive and negative results.
“There was diversion of funds by government meant for social sectors like health and education to security and election. This expenditure is understandable but it is also regrettable expenditure which needs to be avoided. In the next programme, there should be no repeat of diverting funds meant for poverty reduction by the authorities,” he said.
He added: “By end of December 2015, overall deficit target was not met, poverty reducing expenditures were below target, and some structural reforms suffered delays.”
On the positive side, he said there has been progress on increasing tax revenue, strengthening of international reserves, and establishing public investment management guidelines.
Both monetary and fiscal policy has been tight this fiscal year.
Mr Nord said: “The decisive monetary policy response, in the context of appropriate exchange rate flexibility contributed to the stabilisation of the Shilling and successfully curbed inflation expectations.”
On the fiscal policy, he said the IMF commends the authorities for the steadfast implementation of fiscal policy in a complex electoral environment.
He stressed that revenue over-performed through end of December 2015 and expenditure pressures were reasonably well controlled.
He added that while some fiscal tightening had been envisaged in late 2015 in the face of significant exchange rate pressures, the economy subsequently stabilised more rapidly than expected, leading the authorities to revert to the original budget targets.
Recently, Parliament passed amendments to the Financial Institutions Act, to open more room for other financial services in the country in the spirit of deepening and developing the sector.
In this regard, Mr Nord said: “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.”
He also said 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 per cent of GDP, in line with the objective to raise Uganda’s revenue performance to levels observed in regional and other peers.
Finance minister Matia Kasaija, with specific response to the domestic arrears accumulations, said two things contribute to increase in the arrears: Not doing things on time such as recruiting and promoting of staff mid financial year. “The second one is lack of proper budgeting/asking for supplementary and revenue collection shortfall,” he said.
Going forward, Mr Kasaija said there is need to improve on budgeting in ministries, departments and agencies to avoid arrears and supplementary budgets.
The Policy Support Instrument offers low-income countries that do not want - or need - Fund financial assistance, a flexible tool that enables them to secure Fund advice and support without a borrowing arrangement. This non-financial instrument is a valuable complement to the IMF’s lending facilities under the Poverty Reduction and Growth Trust.