Uganda’s economy remains vulnerable to shocks because of corruption and incomplete regulatory safeguards, the International Monetary Fund has said.
In its latest assessment of Uganda’s economy, the IMF said [on paper], the country’s macroeconomic performance has been satisfactory but it lowered the country’s growth forecasts for 2011/12 financial year.
The monetary fund warned that the recovery will be slow unless the government deals with theft of public funds and other bottlenecks.
The IMF review states that Uganda’s economic growth rate declined from 6.6 per cent in financial year 2010/11 to 3.4 per cent in financial year 2011/12, due to a confluence of a difficult international environment, contractionary monetary policies implemented in response to high inflation, and a tighter–than-budgeted fiscal stance.
While the IMF team has commended the government efforts in addressing the double-digit inflation that hit the country in 2011/12 financial year, Mr Naoyuki Shinohara, the IMF deputy managing director, said: “The recent theft of donor funds, resulting in a suspension of aid, signals governance problems and the need for a more radical fight against corruption.”
The IMF places great emphasis on promoting accountability and good governance when providing policy advice, financial support, and technical assistance to its member countries. The IMF also has strong measures in place to ensure integrity, impartiality, and honesty in the discharge of its professional obligations.
The government’s action plan to strengthen public financial management to reinforce controls and increase transparency of public sector operations, Mr Shinohara said, is key to rebuilding confidence of the population and development partners.
“Forceful implementation of this plan is essential to prevent reoccurrence of misappropriation of public funds, restore budget financing and facilitate growth enhancing development spending,” he said.
The IMF team visited Kampala from October 24 to November 6, 2012 to conduct discussions with the Ugandan authorities for its fifth review of the economic and financial programme.
The team met with Finance Minister Maria Kiwanuka and Central Bank Governor Emanuel Tumusiime-Mutebile, as well as other senior government officials, development partners, and representatives of the private sector and civil society.
At the end of the mission, Ms Ana Lucía Coronel, IMF senior resident representative and mission chief for Uganda said: “Going forward, the key goals are to maintain macroeconomic stability and to accelerate economic growth to reduce unemployment and poverty.”
The policy mix to achieve these objectives according to IMF should entail a continuation of the accommodating monetary policy stance, a small expansion of the fiscal deficit, some front loading of development spending, and maintenance of a flexible, market driven, exchange rate.
Based on this policy mix, the IMF said GDP growth is projected to increase to five per cent this fiscal year, with core inflation averaging about six per cent.
Ms Coronel added: “Uganda’s macroeconomic performance under their policy support instrument has been satisfactory. The anti-inflationary strategy underpinned by tight monetary policy and under-execution of budget spending brought inflation under control—an important policy achievement. The tightened stance, however, sharply slowed economic growth.”
The country review by IMF aims at maintaining macroeconomic stability and alleviating constraints to growth. Medium-term growth is set to converge to its potential level of 6-7 per cent, the IMF said this objective needs to be underpinned by a higher contribution of private investment, which in turn requires improvements in the business environment.