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Africa > Uganda

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Cover FinTech Notes
Tokenization and Financial Market Inefficiencies
Itai Agur
,
German Villegas Bauer
,
Tommaso Mancini-Griffoli
,
Maria Soledad Martinez Peria
, and
Brandon Tan
Most financial assets are digital today. Tomorrow, they may be tokenized. Tokenization implies recording and transferring assets on a widely shared and trusted digital ledger that can be programmed. Interest in tokenization is strong and experiments abound, but what are the consequences of this new trend for financial markets? This note introduces a taxonomy and a conceptual framework centered on market inefficiencies to evaluate this question. Some inefficiencies could decline across the asset life cycle. Others would remain, however, and new ones could emerge. Issuing, servicing, and redeeming assets might involve fewer intermediaries and thus become cheaper. The costs of trading assets may also decrease as tokenization lowers some counterparty risks and search frictions and offers flexibility in settlement. Additionally, greater competition among brokers could lower transaction fees. However, tokenization may amplify shocks if it induces institutions to become more interconnected and hold lower liquidity buffers or higher leverage, potentially jeopardizing financial stability. Programs themselves may introduce new risks related to strings of contingent contracts or faulty code. While competition may grow among financial intermediaries, the provision of market infrastructure could become more concentrated due to network effects.
Keywords:
Tokenization; central banks; asset lifecycle; financial markets; financial asset market friction; B. market infrastructure investment externality; financial market inefficiency; IMF Library; Note 2025/001; D. knowledge externality; Bonds; Smart contracts; Securities markets; Liquidity; Blockchain and DLT; Global
Cover Technical Assistance Reports
Uganda: Technical Assistance Report-The Cost of Meeting the Sustainable Development Goals in Human Capital and Infrastructure Development
International Monetary Fund. Fiscal Affairs Dept.
The mission estimates that making substantial progress in critical SDG sectors in Uganda would require additional annual spending of about 18.4 percent of gross domestic product (GDP) by 2030. Relative to low-income developing countries (LIDCs), additional spending in Uganda is higher in the social sectors and lower in the infrastructure sectors (Figure). Overall, Uganda’s additional spending is above the median LIDC and similar to the median Sub-Saharan African (SSA) country. (This analysis is an assessment of the spending to achieve a high performance in selected SDGs in Uganda and does not include an examination of options to finance the spending needs.) • Health—expanding the supply of medical staff. Total health care spending is low (4.2 percent of GDP) relative to peers, and there is substantial room to increase the efficiency of spending: health outcomes are below those of several other countries with similar spending. Overall, we estimate that total health care spending would have to gradually increase by an additional 7.4 percent of GDP in 2030 relative to today’s spending, to deliver superior health care outcomes. A major contributor to the additional cost is the need to substantially increase the supply of doctors—more than 16-fold—and to nearly triple the number of other health personnel. • Education—strengthening both quality and quantity of services. Uganda’s young population—60 percent are school-aged, a higher share than in the East African Community (EAC) and LIDC peers—combined with a relatively low enrollment rate, means that the country needs to invest in getting its children into schools. However, just as important is improving the currently low level of educational quality. Toward this goal, class sizes need to fall by hiring more teachers, thus bringing the student-teacher ratio down from 28 to 19. Public spending, currently well below LIDC and EAC averages, would need to triple as a share of GDP to help deliver on these goals. We estimate that Uganda’s total expenditures on education would need to increase by an additional 6.7 percent of GDP from its current level of 7.1 percent of GDP. • Water and sanitation—aiming at safely managed water and sanitation for all. Uganda is below regional and income-group peers in water and sanitation standards. In particular, while there has been progress in water provision, sanitation services have hardly improved in the past two decades, and its provision is lower than most countries in the subregion. Closing the water and sanitation gaps will require an additional annual spending of 1.1 percent of GDP, including maintenance costs to counteract depreciation. The bulk of the cost burden comes from safely managed water in rural areas, given the relatively high unit cost of such facilities and the large rural population unserved by this type of facility. • Electricity—investing in transmission and distribution networks to increase access. The vast majority of Uganda’s electricity is generated by renewable energy (hydropower). Overall electricity consumption per capita, at 83kilowatt-hour (kWh), strongly lags LIDCs and is below what would be expected given its level of GDP per capita. Transmission and distribution networks need to catch up with installed capacity, which, at 1,347 megawatts (MW), is far ahead of peak demand at 793 MW. We estimate that expanding current access, serving the future population through 2030, and increasing consumption in line with economic growth, will require annual investments reaching 0.4 percent of GDP in 2030. • Roads—gradually increasing rural access. Raising access to roads from its current level of 53 percent of the rural population to 75 percent by 2030 will require about 20.4 thousand additional kilometers of all-weather roads. While rural road access is higher than LIDCs, road quality lags subregional peers, thus the expansion of access will also need to include upgrading of roads in that are in poor condition. We estimate that this will require annual investments of 2.8 percent of GDP in 2030.
Keywords:
Uganda; Sustainable Development Goals; Social Spending; Infrastructure Spending.; EU-International Monetary Fund; IMF resident Representative; IMF team; FAD department; SDG index; Sustainable Development Goals (SDG); Global; Sub-Saharan Africa
Cover IMF How To Notes
How to Develop and Implement a Medium-Term Fiscal Framework
Teresa R Curristine
,
Isabell Adenauer
,
Virginia Alonso-Albarran
,
John Grinyer
,
Koon Hui Tee
,
Claude P Wendling
, and
Delphine Moretti
This Note provides guidance on developing and implementing a medium-term fiscal framework (MTFF). MTFFs aim to promote fiscal discipline and sustainability, transparency, and better-informed fiscal decisions. An MTFF comprises a set of institutional arrangements for prioritizing, presenting, reporting, and managing fiscal aggregates - revenue, expenditure, balance, and debt - generally over a three-to-five-year period. It incorporates a fiscal strategy, medium-term projections of key macroeconomic variables and fiscal aggregates, and ceilings on total expenditure to guide subsequent annual budgets. By introducing a medium-term perspective into fiscal and budgetary decision making, MTFFs provide a clearer understanding of the impact, trade-offs, and risks of policy choices. MTFFs contribute to enhancing transparency and accountability by communicating the government’s medium-term fiscal goals, policies, and fiscal performance. Ultimately, clarity on medium-term fiscal plans and on their effective implementation can bolster confidence in the government’s ability to manage its finances prudently and competently. In addition to providing guidance on how to design an MTFF and the institutional and technical arrangements needed to support implementation, the Note discusses key challenges and presents country examples from across the globe by income group and concludes with lessons learned.
Keywords:
fiscal frameworks; fiscal planning; budget cycles; MTFF; medium-term fiscal framework; emerging market economy country example; MTFF specification; koon hui tee; MTFF projection Tool; MTFF time horizon; Budget planning and preparation; Fiscal rules; Fiscal risks; Caribbean
Cover IMF Working Papers
Aggregate Shocks and the Formation of Preferences and Beliefs
Paola Giuliano
and
Antonio Spilimbergo
A growing body of work has shown that aggregate shocks affect the formation of preferences and beliefs. This article reviews evidence from sociology, social psychology, and economics to assess the relevance of aggregate shocks, whether the period in which they are experienced matters, and whether they alter preferences and beliefs permanently. We review the literature on recessions, inflation experiences, trade shocks, and aggregate non-economic shocks including migrations, wars, terrorist attacks, pandemics, and natural disasters. For each aggregate shock, we discuss the main empirical methodologies, their limitations, and their comparability across studies, outlining possible mechanisms whenever available. A few conclusions emerge consistently across the reviewed papers. First, aggregate shocks impact many preferences and beliefs, including political preferences, risk attitudes, and trust in institutions. Second, the effect of shocks experienced during young adulthood is stronger and longer lasting. Third, negative aggregate economic shocks generally move preferences and beliefs to the right of the political spectrum, while the effects of non-economic adverse shocks are more heterogeneous and depend on the context.
Keywords:
trade shock; inflation experience; effect of shock; economic shock; beliefs to the right; Economic recession; Natural disasters; Migration; Inflation; Global; Europe
Cover IMF Staff Country Reports
Uganda: Selected Issues
International Monetary Fund. African Dept.
This Selected Issues Paper analyzes potential macro-financial risks from cross-sectoral exposures in Uganda by leveraging on the Balance Sheet Approach framework. It presents evidence on the macro-financial linkages in Uganda using the Network Map and Financial Input-Output approaches. On the one hand, the Network Map analysis shows the cross-sectoral exposures in which potential build-up of macro-financial vulnerabilities may arise. On the other hand, the Financial Input-Output tool simulates relevant scenarios in the context of Ugandan economy such as currency depreciation and increases in government interest payments on debt held by banks. The purpose of the scenario exercises is to strengthen the monitoring of the developments in key economic sectors in Uganda. While the banking sector, which dominates the Ugandan financial system, remains fundamentally sound, there are pockets of vulnerabilities resulting from the growing sovereign-bank nexus and cross-border exposures of the Near Field Communication technology sector which require close vigilance.
Keywords:
B. monetary policy framework; reducing job search time; policy rate; youth employment trend; NFC sector; C. youth employment trend; Policy rate response; bank Lending rate; Central bank policy rate; Exchange rates; Women; Sub-Saharan Africa
Cover IMF Staff Country Reports
Uganda: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Uganda
International Monetary Fund. African Dept.
The 2024 Article IV Consultation highlights that Uganda has navigated the post pandemic recovery well due to sound macroeconomic policies. The economic recovery is strengthening with low inflation, favorable agricultural production, and strong industrial and services activity. While public debt is sustainable, low tax revenues constrain Uganda’s fiscal policy space. Strengthening domestic revenue mobilization and budgetary and cash management practices are key to securing a durable fiscal space. The Bank of Uganda’s tight monetary policy stance has helped anchor inflation expectations and counter external sector pressures. Going forward, monetary policy should remain data driven to ensure price stability and further financial deepening. Continued flexibility of the exchange rate is important to build up adequate foreign exchange reserves. Uganda should continue its efforts to create fiscal space through revenue mobilization and better expenditure discipline, vigilant monetary policy, and exchange rate flexibility, using future oil revenue to address growth impediments and improve social development while advancing governance reform and financial inclusion. Addressing governance deficiencies and regulatory burdens and enhancing regional trade integration are critical to unlocking Uganda’s growth potential.
Keywords:
IMF staff calculation; NDP IV; inflation expectation; fiscal consolidation effort; core inflation; data dependent; headline inflation; Anti-money laundering and combating the financing of terrorism (AML/CFT); Debt sustainability; Global; Africa; Middle East
Cover Policy Papers
Macroeconomic Developments and Prospects For Low-Income Countries—2024
International Monetary Fund
and
World Bank
The outlook for Low-Income Countries (LICs) is gradually improving, but they face persistent macroeconomic vulnerabilities, including liquidity challenges due to high debt service. There is significant heterogeneity among LICs: the poorest and most fragile countries have faced deep scarring from the pandemic, while those with diversified economies and Frontier Markets are faring better. Achieving inclusive growth and building resilience are essential for LICs to converge with more advanced economies and meet the Sustainable Development Goals (SDGs). Building resilience will also be critical in the context of a more shock-prone world. This requires both decisive domestic actions, including expanding and better targeting Social Safety Nets (SSNs), and substantial external support, including adequate financing, policy advice, capacity development and, where needed, debt relief. The Fund is further stepping up its support through targeted policy advice, capacity building, and financing.
Keywords:
Low-Income Countries; Heterogeneity; Debt vulnerability; Resilience building; Inclusive growth towards SDGs; Financing needs and external support; Social Safety Nets; poverty rate; means testing; poverty gap; aggregate poverty gap; SSNS spending; prospects in low-income countries; poverty threshold exit poverty; reform scenario; transparency policy; FAD financing tool; financial support; Poverty reduction; Household consumption; Inflation; Global; Sub-Saharan Africa
Cover IMF Working Papers
E-Money and Monetary Policy Transmission
Zixuan Huang
,
Amina Lahreche
,
Mika Saito
, and
Ursula Wiriadinata
E-money development has important yet theoretically ambiguous consequences for monetary policy transmission, because nonbank deposit-taking e-money issuers (EMIs) (e.g., mobile network operators) can either complement or substitute banks. Case studies of e-money regulations point to complementarity of EMIs with banks, implying that the development of e-money could deepen financial intermediation and strengthen monetary policy transmission. The issue is further explored with panel data, on both monthly (covering 21 countries) and annual (covering 47 countries) frequencies, over 2001 to 2019. We use a two-way fixed effect estimator to estimate the causal effects of e-money development on monetary policy transmission. We find that e-money development has accompanied stronger monetary policy transmission (measured by the responsiveness of interest rates to the policy rate), growth in bank deposits and credit, and efficiency gains in financial intermediation (measured by the lending-to-deposit rate spread). Evidence is more pronounced in countries where e-money development takes off in a context of limited financial inclusion. This paper highlights the potential benefits of e-money development in strengthening monetary policy transmission, especially in countries with limited financial inclusion.
Keywords:
Monetary policy transmission; banks; nonbank financial institutions; e-money; panel data; e-money development; e-money issuer; e-money intensity; E-Money intensity; Financial inclusion; Central bank policy rate; Deposit rates; Bank credit; Sub-Saharan Africa; Africa
Cover IMF Staff Country Reports
Uganda: Fifth Review Under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Uganda
International Monetary Fund. African Dept.
This paper presents Uganda’s Fifth Review under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria. Economic recovery continues to gain strength following a rapid decline in inflation, favorable agriculture and robust industrial and services activity. Fiscal financing and foreign portfolio flows are facing headwinds amid tight global financial conditions and the passage of the Anti-Homosexuality Act in May 2023. The authorities are implementing fiscal consolidation to contain vulnerabilities, maintaining a moderately tight monetary stance in the face of upside risks to inflation and undertaking reforms to improve governance and reduce corruption. All September 2023 quantitative performance criteria were met, as well as most June 2023 indicative targets (ITs). Preliminary data suggest that the December 2023 IT for net credit to government and inflation were met but the IT for net international reserves was missed. Four out of seven structural benchmarks for the current review were met on or before test dates, and one was completed with a delay.
Keywords:
government debt service; inflation risk; excise duty regime; inflation outlook; authorities' effort; ECF program; financing risk; Inflation; Anti-money laundering and combating the financing of terrorism (AML/CFT); Credit; Imports; Global
Cover Technical Assistance Reports
Uganda: Technical Assistance Report-PFM Climate Assessment: Public Investment and Fiscal Risks Management
International Monetary Fund. Fiscal Affairs Dept.
Uganda has committed to an ambitious climate change mitigation and adaption agenda. To achieve this, the country has developed a sound framework to enhance climate change sensitivity across public financial and public investment management. The framework clearly allocates responsibilities, enhances coordination, and requires the identification of climate expenses in the budget documentation. However, gaps remain in some key regulations, primarily on project appraisal, and some initiatives are in early stages of implementation and need further guidance and training. The Climate Public Investment Management Assessment proposes reforms across multiple areas, underscoring as priority areas project appraisal and selection, and budgeting and portfolio management.
Keywords:
Uganda; public investment; climate change; public finance