1. Macroeconomic outlook. The economy is recovering from shocks induced by the war in Ukraine and the Ebola outbreak, which affected tourism. Robust industrial activity and services have supported growth while unfavorable weather conditions for agriculture have improved. Inflation appears to have peaked. Thanks to a strong public health effort, the recent Ebola outbreak was declared concluded in January. The growth outlook is slightly more favorable in the near-term relative to the combined 2nd and 3rd reviews, while the end-2023 and FY23/24 inflation projections have been marked down. The current account deficit remains elevated and external financial conditions continue to be tight, reflecting the uncertain outlook for global financial conditions and risk sentiment. The global financial market turmoil that began in March could further tighten external financial conditions if it persists, and the conflict in Sudan could hurt exports and exert further pressure on the balance of payments.
Economic growth has recovered, but higher food and fuel prices have sparked a sharp rise in inflation. Monetary policy has been tightened to contain core inflation and effects of the food and fuel price shocks. The government has allowed for scaling up of infrastructure investment spending. The programmed adjustment of fiscal and monetary policies will help put Uganda on a more sustainable medium-term trajectory. Eliminating tax exemptions and incentives will address the revenue gap. The planned oil revenue management framework is encouraging.
The concomitant external shocks experienced in 2008-09 by the East African Community (EAC) countries of Kenya, Rwanda, Tanzania, and Uganda and stepped-up support by the IMF—including the SDR allocation—and other donors, are likely to arouse renewed interest in the question of the adequate level of international reserves. This paper discusses the evolution of reserve holdings in EAC countries and uses several tools for assessing reserve adequacy in the region. The analysis suggests that reserve levels in most cases seem to include safety buffers, and thus, do not require immediate action. However, the situation could become tighter if export recovery is delayed or export prices do not pick up. Over the medium term, the desirable reserve path should also be adapted to regional and international integration.