What you need to know:
- Other reforms focus on creating fiscal space for priority social spending, preserving debt sustainability, strengthening governance, reducing corruption, and enhancing the monetary and financial sector frameworks.
Uganda has received continuous support for Covid-19 economic recovery, with the International Monetary Fund (IMF) providing Special Drawing Rights of $120 million (about Shs435b), as committed in June 2021.
The IMF granted Uganda a 36-month arrangement under the Extended Credit Facility (ECF) on June 28, 2021. The approved amount is equivalent to Special Drawing Right (SDR722 million) (approximately $1 billion), which represents 200 percent of Uganda’s quota.
On June 21, 2023, the IMF concluded the fourth review of ECF. This completion enables the immediate disbursement of the $ 120 million. The funds aim to facilitate increase in household income and foster inclusive growth in the private sector.
Other reforms focus on creating fiscal space for priority social spending, preserving debt sustainability, strengthening governance, reducing corruption, and enhancing the monetary and financial sector frameworks.
“The Ugandan authorities remain firmly committed to their economic programme amid a challenging environment. Most quantitative targets were met in December 2022 and March 2023. The Quantitative Performance Criterion (QPC) on the ceiling on the Bank of Uganda (BoU) net credit to government (NCG) was missed by a very small margin in March 2023. All structural benchmarks due between March and June 2023 have been met,” said the executive board of the IMF.
The executive board explained that the full implementation of the Domestic Revenue Mobilisation Strategy (DRMS), including the additional tax administrative measures, is crucial to maintain the debt-to-GDP ratio.
Increasing the pace of Public Financial Management (PFM) reforms is essential to enhance the capacity to execute social spending in a timely manner. The tax exemption rationalisation plan remains an important component of the revenue mobilisation effort.
The fund’s executive board further pointed out that the banking system is well-capitalised and liquidity has rebounded, but the asset quality of some banks has deteriorated. Against this backdrop, safeguarding financial stability and strengthening the supervisory framework remains paramount.
The current monetary policy stance is appropriate, but the BoU should stand ready to resume its tightening if signs emerge of a slower-than-expected disinflation. Exchange rate flexibility remains crucial to preserve external buffers.
“Accelerating the momentum on structural reforms is essential to unlock Uganda’s growth potential and require more proactive efforts. Priorities include enhancing domestic revenue mobilisation, strengthening the anti-corruption framework and the AML/CFT regime, advancing the financial inclusion agenda, and climate adaptation measures. The authorities should sustain efforts to improve transparency of implementation of the asset declaration framework including sanctions enforcement for violations,” the IMF executive board said.
In regards to fiscal policy, the IMF executive board Fiscal consolidation, tight monetary policy, and continued exchange rate flexibility, remain essential to keep debt on a sustainable path, reduce the current account deficit and protect foreign exchange buffers.
The executive board structural reforms will need to continue focusing on strengthening governance and anti-corruption frameworks, enhancing domestic revenue mobilisation – including through more ambitious rollback of tax expenditures, and boosting financial inclusion.
Presenting the National Budget for the Fiscal Year 2023/2024, the Minister of Finance, Planning and Economic Development, Mr Matia Kasaija, in June said the next financial year prioritises enhancing revenue collection, the rationalisation of public expenditure and ensuring long term debt sustainability. This, he said, would reduce reliance on external financing for socio-economic transformation.
“Therefore, the fiscal strategy will focus on the following, continuing effective implementation of the domestic revenue mobilisation strategy; repurposing the national budget to achieve high multiplier effect of government interventions on the economy, and improve the efficiency and effectiveness of government programmes and projects; Mobilising external concessional loans and utilising non-concessional loans for projects with high economic and financial returns,” he said.