IMF eases pressure on Uganda, demurs on fundamental reforms

Author: Mr Karoli Ssemogerere is an Attorney-at-Law and an Advocate.

The International Monetary Fund has returned to the centre of the global Covid-19 rescue with a $650 billion rapid credit facility. Uganda has accessed $1 billion of these funds. In the case of Uganda, IMF has said some interesting things about Uganda’s fiscal situation. 

First observation, Uganda’s rapid economic growth has halved in the last two years (2020-2021).  Second, Uganda is running short of fiscal space. According to the IMF representative who sits in Bank of Uganda, Uganda Debt/GDP ratio is 43 per cent rather than the publicly broached 50 per cent debt/GDP ratio. 

As a condition for accessing these funds, the IMF is requiring more social spending in the health, education and social sectors. It is little surprise that after implementing a monthly cash token for the very elderly, the Ministry in-charge of Social Affairs wants to increase the token from shs20,000 to shs50,000 and expand the safety net to a lower age. Covid emergency cash relief for 500,000 beneficiaries is also part of this social spending.  The IMF also made a startling revelation stating that Uganda will not see middle income status at least for another 10 years [being the last in the former EAC] to achieve this status. 

This low income status allows Uganda to access concessional loans but also factors into fiscal sustainability as revenue inflows remain fairly flat. Uganda’s entire tax base comprises of one million taxpayers or two per cent of Uganda’s nearly 50 million population. 

The IMF was silent on other features of Uganda’s trembling fiscal position. The high cost of doing business, and increasingly higher taxes and surcharges which have distorted investment. The IMF also failed to comment on key gaps in Uganda’s economic situation, high unemployment, low wages, low taxes and non-tariff barriers which have affected Uganda’s competitiveness in the international market. The IMF also failed to mention the depletion of the Petroleum Fund and factoring in how oil production would improve Uganda’s fiscal stability in the medium term. 

The IMF seemed happy to predict Uganda will return to its pre-Covid growth levels and approved the zero interest loans to boost liquidity at the central bank. In a number of instances, these predictions may come at great cost. Structurally, the economy remains centred on the metropolitan region. 

According to the Uganda Banker’s association, 90 per cent of credit transactions are in the metropolitan region. Uganda Revenue Authority reports about 80 per cent of its revenue is from the same area and GDP numbers post about 70 per cent in the same region. In fact in some districts, taxpayers don’t exist at all, a development that is informing some drastic measures to curtail key aspects of public administration like commissions at the district level. But when the politicians get an opportunity to right-size by reducing the number of districts, local governments and constituencies, the answer is always in the negative. 

Any political reform project which is a necessity should look at merging district local governments into regional authorities with a strong grassroots presence. A political reform project would also look into on a tiered basis levying property taxes and moderating the current concentration of income and indirect taxes. 

Political reform would also look at wealth creation for younger people who are locked out of the financial system. On average, it takes a high school or university graduate 10 years to climb the property ladder if they are in formal employment and as they enter peak earning years, face the daunting prospect of servicing Uganda’s notoriously large extended families. 

Many families during Covid, especially working class have realised the worthlessness of the private sector safety nets like health insurance when faced with ransom demands for acute care. The IMF should advise Uganda to restart proposals like a national health insurance system and expansion of free public tertiary education. The IMF noted there would be less spending on security, a statement that sounded unbelievable and unconvincing as the lady who was making it. 

Mr Ssemogerere is an Attorney-At-Law and an Advocate.