IMF Executive Board Concludes 2013 Article IV Consultation with Uganda
KAMPALA, Uganda, July 9, 2013/African Press Organization (APO)/ -- On June 28, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Uganda,1 completed the sixth and final review of the country's performance under an economic program supported by a Policy Support Instrument (PSI) arrangement and approved a three-year PSI (see Press Release No. 13/239).
Growth has started to pick up following the lowest rate of economic expansion in a decade, and—driven mainly by investment and trade—is projected to reach 5¼ percent this fiscal year. Private sector activity was boosted by a good harvest, by the inauguration of the Bujagali hydropower plant, which lowered manufacturing costs, and by a loosening of the fiscal stance towards the end of the year due to faster than expected implementation of road projects. Inflation was brought down to close to the 5 percent target level as a result of careful monetary management by the Bank of Uganda.
External performance was stronger than anticipated, owing to strong non-coffee exports and a temporary deceleration of imports. Aided by foreign exchange inflows attracted by high shilling rates, international reserves grew significantly and now stand at a comfortable level equivalent to four months of imports, providing a welcome buffer to the economy in the context of an uncertain international environment. Uganda is assessed at a low risk of debt distress, while the banking sector remains solvent, liquid and profitable despite some increase in the stock of nonperforming loans.
Growth is projected at 6–7 percent in the medium term in the context of low inflation. A moderate expansion in the underlying fiscal deficit to support growth, a flexible exchange rate, and monetary management supportive of low and stable inflation, underpin a favorable macroeconomic outlook.
Executive Board Assessment
Executive Directors welcomed the authorities' successful policies to reduce inflation, revive economic activity, and accumulate international reserves, while noting that progress on structural reform was mixed. They stressed the importance of maintaining prudent macroeconomic policies and stepping up governance and structural reforms to underpin plans for oil exploitation and economic diversification.
Directors endorsed the authorities' plans to boost infrastructure and development spending to support growth. They stressed the importance of decisive action to increase revenue collection through tax reform and improved revenue administration. They encouraged the authorities to prepare an action plan to reduce tax exemptions, including implementing the recommendations of the ongoing VAT gap analysis. This will underpin efforts to reduce reliance on donor support and external borrowing, and to limit nonconcessional borrowing to high-economic return projects.
Directors acknowledged the progress in strengthening public financial management. They encouraged the authorities to continue to tighten spending controls and to move swiftly toward introducing a Treasury Single Account to improve budget execution, transparency, and cash management. Directors welcomed submission to parliament of the draft public finance management bill and its amendments.
Directors commended the authorities' commitment to maintaining price stability and urged strong policy coordination to keep inflation under control. They advised the Bank of Uganda (BoU) to remain vigilant and adapt the monetary policy stance to domestic demand developments and possible external spillovers. Directors welcomed the authorities' decision to further strengthen the operational and institutional aspects of their inflation targeting framework and to formally introduce inflation as a program target. They supported the inter-institutional agreement to implement the first stage of the recapitalization of the BoU, as well as the plans to further strengthen the independence, accountability, and technical capacity of the central bank.
Directors noted staff's assessment that the real effective exchange rate is broadly in line with economic fundamentals, and supported the exchange rate flexibility that underpins the monetary framework. They welcomed the authorities' commitment to limiting interventions to smoothing excessive exchange rate volatility and maintaining reserve cover.
While the banking sector remains solvent, liquid, and profitable, Directors recommended strengthened bank supervision and regulation enforcement to mitigate vulnerabilities resulting from increased foreign currency lending. A few Directors suggested that macroprudential or capital flow management measures could be considered. Directors welcomed plans to expand financial deepening and inclusion.
Directors looked forward to the authorities' long-term development plan to promote inclusive growth. They underscored the importance of accelerating structural reforms and addressing governance weaknesses to strengthen the business environment, raise competitiveness, and maximize the benefits of integration in the East African Community. In preparation for oil production, Directors recommended setting a framework for efficient use of the resource wealth, and welcomed Uganda's plan to join the Extractive Industries Transparency Initiative. A well-tailored social safety net will be important to help vulnerable groups share in prosperity.
Uganda: Selected Economic Indicators1
2011/12 2012/13 2013/14 2014/15
GDP and prices (percent change)
3.4 5.3 6.0 7.0
23.2 7.3 5.8 4.4
CPI (end of period)
18.0 5.7 5.7 4.5
23.5 6.0 6.2 5.0
Core inflation (average)
24.6 6.8 6.3 5.0
Core inflation (end of period)
19.6 6.7 5.2 4.9
External sector (percent change)
Terms of trade (based on all exports, deterioration –)
1.8 -0.5 -1.7 -2.4
Real effective exchange rate (depreciation –)
… … … …
Money and credit (percent change)
Broad money (M2)
-4.3 20.2 15.4 15.8
Private sector credit
11.1 14.5 15.1 15.6
Savings and investment gap (excluding grants,
percent of GDP)
-13.1 -10.7 -12.6 -14.4
24.7 26.1 27.9 28.6
5.8 5.8 8.1 8.4
18.9 20.2 19.8 20.1
External sector (percent of GDP)
Current account balance (including grants)
-12.0 -10.4 -12.2 -14.1
Current account balance (excluding grants)
-13.1 -10.7 -12.6 -14.4
Net donor inflows
3.4 3.6 2.2 1.9
Public external debt (including IMF)
16.3 17.0 20.3 22.7
External debt service ratio2
1.4 1.6 1.8 1.9
Government budget and debt (percent GDP)
13.3 13.0 15.0 14.5
2.3 1.7 1.5 1.3
Total expenditure and net lending
18.6 18.6 20.2 21.2
Overall balance (including grants)
-3.0 -3.9 -3.6 -5.4
Overall balance (excluding grants)
-5.3 -5.6 -5.2 -6.7
Nominal GDP (Ush billions)
49,794 56,287 63,122 70,512
Nominal GDP (US$ millions)
19,472 … … …
Average exchange rate (Ush/US$)
2,557 … … …
End of period exchange rate (Ush/US$)
2,472 … … …
Gross foreign exchange reserves (US$ millions)
2,644 3,044 3,264 3,514
(months of next year's imports of goods and
4.2 4.2 4.1 4.1
Social and poverty indicators
Population: 34.5 million in 2011; GDP per capita: US$487 in 2011; Population below poverty line: 24.5 percent
Sources: Ugandan authorities and IMF staff estimates and projections.
1Fiscal year runs from July 1 to June 30.
2Percent of exports of goods and nonfactor services.
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.