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Uganda: IMF Staff Completes Combined 2015 Article IV and Fourth PSI Review Mission

Press Release No. 15/221 May 14, 2015

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

A team from the International Monetary Fund (IMF) led by Ana Lucía Coronel, IMF mission chief and senior resident representative for Uganda, visited Kampala to conduct the 2015 Article IV consultation and the fourth review of Uganda’s economic program supported by the Policy Support Instrument (PSI).

At the end of the mission, Ms. Coronel, issued the following statement:

“Uganda’s recent economic performance has been favorable. The GDP rebasing revealed an economy that is 17 percent bigger than earlier thought, although growth rates in the last few years have been more moderate. Nonetheless, real economic growth is projected to reach a robust 5.3 percent in the current fiscal year and 5.8 percent in FY2015/16 (compared to 4.5 percent in FY2013/14), led by scaled-up public investment and a recovery of private consumption supported by stronger credit growth. Average core inflation has gradually increased from 3.1 percent in December, but is projected to remain within the targets range of around 5 percent in the medium term.

“Strong growth and subdued inflation, alongside high international reserves (above 4 months of imports), a sound financial system, and relatively low government debt (currently at 30 percent of GDP) continue to provide buffers to shield the Ugandan economy against shocks. Nonetheless, there are risks to the outlook posed by domestic and regional uncertainties.

“Performance under the PSI was broadly satisfactory. The end-December 2014 fiscal and external targets were met. There was significant progress on increasing tax revenue, with the strong package introduced in the FY2014/15 budget expected to yield about 1 percent of GDP compared to a target of 0.5 percent. The stock of domestic arrears has declined considerably, although the end-December target was missed by a small margin.

“Fiscal and monetary policies have supported the growth and inflation objectives. The supplementary budget before parliament reallocates rather than increases spending, using savings from improvements in the payment and payroll systems to address emerging needs. This expenditure reallocation and procedural delays in the execution of the hydroelectric projects unfortunately tilted the expenditure envelope in favor of current outlays. However, at 4½ percent of GDP, the FY2014/15 overall deficit is envisaged to be below projections and total debt is expected to remain at low risk of distress. Monetary policy kept inflation low in spite of the recent large shilling depreciation.

“Fiscal prospects for FY2015/16 are encouraging. The mission welcomes the efforts underway to improve tax collections, and a combination of new measures and efficiency gains is projected to result in an additional tax-to-GDP ratio increase of about 0.5 percent. Perseverance in containing current expenditure pressures in the run up to the elections remains a key priority, and is essential to create space for the planned large increase in public investment without generating undue pressures on inflation and domestic debt.

“Reducing existing infrastructure bottlenecks is key to boosting potential growth and creating job opportunities. The mission welcomes the authorities’ commitment to sequencing the execution of their ambitious infrastructure investment plan—in the areas of energy and transport—to ensure consistency with the absorptive and implementation capacities of the economy and preserve debt sustainability. It remains crucial that the selected projects carry the best possible financial terms and are commercially viable and transparently executed.

“The approval of the Public Financial Management (PFM) Act represents a major milestone. Its application will allow for the FY2015/16 budget approval before the start of the fiscal year and improve the budget process helped by the necessary regulations currently being prepared. The adoption of a charter of fiscal responsibility will support fiscal policy formulation and transparency, including in preparation for petroleum revenue management.

“Ongoing initiatives to enhance financial deepening and expand access to bank services by improving financial literacy and consumer protection are welcome. The government should continue to strengthen policies to ensure that all segments of society, including the most vulnerable, share the benefits of growth.

“IMF Executive Board consideration of the 2015 Article IV consultation and fourth review of the PSI-supported program is expected by end-June 2015.”

The mission met with Hon. Mr. Matia Kasaija, Minister of Finance, Planning and Economic Development; Dr. Louis Kasekende, Deputy Governor of the Bank of Uganda; Mr. Keith Muhakanizi, Permanent Secretary/Secretary of Treasury; and other senior government officials, and representatives from the business, civil society and international communities.