On June 28, 2021, the Executive Board of the International Monetary Fund (IMF) approved a 36-month arrangement under the Extended Credit Facility (ECF) for Uganda in an amount equivalent to SDR722 million (200 percent of quota or about US$1 billion) to support the post-COVID-19 recovery and the authorities’ plan to increase households’ incomes and inclusive growth by fostering private sector development.
Approval of the ECF arrangement enables immediate disbursement of about US$258 million, usable for budget support. This follows Fund emergency support to Uganda under the Rapid Credit Facility (RCF) in May 2020 of SDR361 million (100 percent of quota or US$491.5 million, see Press Release No 20/206 ).
Uganda’s economy was hit hard by the COVID-19 crisis. Decade-long gains in poverty reduction were reversed, fiscal balances have deteriorated, and pressures on external buffers have intensified. A mild recovery is underway in some sectors, with economic growth in FY 21/22 expected to reach 4.3 percent before returning to pre-pandemic rates of 6-7 percent in the medium term. The outlook remains highly uncertain, with risks tilted to the downside, including from a resurgence of tighter containment measures linked to higher COVID-19 positivity rates.
The authorities’ program, enshrined in the third National Development Plan (NDPIII), is built around the principles of private sector-led inclusive growth and public sector reforms to strengthen governance and transparency. It envisages multi-year fiscal consolidation while increasing priority and high-quality infrastructure spending. The program will include reforms to increase domestic revenue, foster public sector efficiency and strengthen governance while preparing the ground for sound management of oil revenues. The program will strengthen the monetary policy and financial sectors frameworks while fostering development, including through financial inclusion.
At the conclusion of the Executive Board’s discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, made the following statement:
“Uganda’s economy has been severely impacted by the COVID-19 global pandemic, which reversed decade-long gains in poverty alleviation and opened up fiscal and external financing gaps. The authorities’ program, supported by a new arrangement under the Extended Credit Facility, focuses on keeping public debt on a sustainable path while improving the composition of spending and advancing structural reforms to create space to finance private investment, foster growth and reduce poverty.
“Fiscal consolidation, appropriately based on both revenue and expenditure measures during the first year of the authorities’ program, seeks to stabilize the public debt ratio while increasing social spending, including for vaccines. The implementation of the authorities’ Domestic Revenue Mobilization Strategy, better management of public investment, control of domestic arrears and advances in cash management will support the fiscal strategy.
“Prudent debt management is important to reduce vulnerabilities, particularly given Uganda’s moderate risk of debt distress. Every effort should continue to be made to seek concessional financing and pursue relief under the Debt Service Suspension Initiative. Contingency plans put in place would help mitigate risks.
“An accommodative monetary policy stance remains appropriate and the exchange rate should continue to function as a shock absorber. Efforts to increase central bank independence should also be sustained. Flexible use of banks’ capital buffers should be considered to address uncertainties surrounding the COVID-19 pandemic. Close attention should be paid to minimizing financial stability risks, including through strict adherence to accounting and prudential standards, and modernizing the banking resolution and emergency liquidity assistance frameworks.
“Advancing governance reforms remains crucial to support transparency and private sector development. The authorities have made progress in publishing information on audits and the use of COVID-19 funds, but further work is necessary to enhance the AML/CFT framework and strengthen the accountability of high-level officials. Promoting human capital development and financial inclusion, including through wider credit bureau coverage and collateral requirements will further support the authorities’ inclusive growth agenda. Accelerating digitalization would enhance these efforts.”
