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Uganda: Fifth Review Under the Policy Support Instrument and Request For Waiver of an Assessment Criterion and Modification of Assessment Criteria—Debt Sustainability Analysis

Author(s):
International Monetary Fund. African Dept.
Published Date:
November 2015
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Recent Developments

1. A large shilling depreciation and a downgrade in Uganda’s CPIA rating from strong to medium performer have raised the external debt burden and lowered its sustainability thresholds. A real exchange rate depreciation of about 10 percent (y/y) resulted in an increase in the ratio of public and publicly guaranteed (PPG) external debt-to-GDP to 19 percent at end-FY2014/15 (18 percent in the previous DSA). At the same time, the change in the CPIA rating—mainly due to slow improvement in the index that measures transparency, accountability and corruption in the public sector since 2012—lowered the thresholds for external debt indicators, leading to reduced borrowing capacity (Box 1).

2. Weak export performance, relatively low tax revenues, and the short-term nature of domestic debt add to the debt burden. While medium-term gains from the real depreciation could be expected, the value of exports of goods has not recovered, owing to weak demand from trading partners and falling commodity prices. Government revenues have significantly improved and are expected to further benefit from planned administration gains, but remain low by regional standards. The average maturity of domestic debt remains short, reflecting structural market inefficiencies and an increased preference for short-term financial investments in the run-up to elections.

3. In response to these developments, the authorities have decided to adjust their medium-term borrowing plan to keep the risk of debt distress low. To this end, they have committed to postpone some externally-financed investments (amounting on average to about ½ percent of GDP annually) between FY2016/17 and FY2019/20 while protecting high priority projects and those that have already started, including the hydropower plant projects (HPPs).

Box 1.Uganda CPIA Rating

The CPIA downgrade took place in July 2015 because average ratings over 2012–2014, compiled by the World Bank, remained below the threshold. The Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries (www.imf.org) sets a three-year CPIA average to determine the threshold used for the DSA. In the case of Uganda, the improvement in the 2014 CPIA rating was not enough to bring the average for 2012–2014 above the threshold, prompting the use of more stringent thresholds for the external debt indicators (Box Table 1).

Box Table 1.PPG External Debt Thresholds
Strong performerMedium performer
PV of debt in percent ofExports200150
GDP5040
Revenue300250
Debt service in percent ofExports2520
Revenue2220

The CPIA downgrade highlights the importance of reinforcing ongoing efforts to address governance issues. The deterioration of the overall CPIA index was triggered by declines in 2012 in (1) the quality of budgetary and financial management; and (2) the level of transparency, accountability, and corruption in the public sector. Although the former index improved in 2014, the latter stayed constant since its decline in 2012. Improvements in governance, transparency, and financial management, notably when the government implements large investment projects, are essential.

Changes in the Underlying Macroeconomic Assumptions

4. The macroeconomic assumptions used in this DSA are aligned to those corresponding to the authorities’ framework supported by the PSI. The baseline scenario assumes implementation of the authorities’ economic policies and structural reforms. Compared to the previous DSA, the main changes are (1) a decline over the projection period in nominal GDP measured in U.S. dollars reflecting the base effect of the recent depreciation; (2) the planned adjustment in the authorities’ fiscal investment plan; and (3) lower estimates for oil-related revenue following a downward revision in oil price assumptions from 74 to 63 dollars per barrel in FY2020/21, in line with the latest WEO projections (Text Table 1).

Text Table 1.Selected Macroeconomic Indicators – Compared to the Previous DSA
FY2016FY2017–21

Average
FY2022–26

Average
FY2027–31

Average
FY2032–36

Average
Real GDP growth (percent)
Baseline5.06.68.05.44.9
excl. oil production5.06.37.25.75.3
Previous DSA5.87.08.15.34.8
Inflation (GDP deflator, national currency, percent)
Baseline8.24.04.63.93.9
excl. oil production8.23.84.44.04.0
Previous DSA5.14.54.63.93.9
Nominal GDP (US$ billion)
Baseline22.832.257.595.6145.0
excl. oil production22.832.054.089.4138.9
Previous DSA27.034.562.8104.2149.3
Current account balance (percent of GDP)
Baseline−9.6−11.0−5.7−4.9−4.4
excl. oil production−9.6−5.7−8.0−7.3−5.8
Previous DSA−11.0−12.0−5.0−3.8−4.2
Overall fiscal balance (percent of GDP)
Baseline−6.6−5.3−2.0−1.1−1.3
excl. oil production−6.6−5.4−3.5−3.0−2.8
Previous DSA−7.0−5.5−1.8−0.8−1.2
Oil-related Revenue (percent of GDP)
Baseline0.00.42.63.42.6
excl. oil production0.00.00.00.00.0
Previous DSA0.00.43.04.23.2
Source: IMF staff projections.
  • Growth is projected at 6½ percent, on average, over the medium term (½ percentage point lower than in the previous DSA) reflecting the re-phasing of investment projects. Oil production is projected to raise real GDP growth by 0.8 percentage points, on average, during FY2022–2026 (compared to 0.9 percent in the previous DSA). Oil production would now account for 7 percent of Uganda’s GDP during the peak extraction period (previously, 10 percent).

  • The GDP deflator is projected at 4 percent over the medium term. It is lower than in the last DSA because the higher-than-projected depreciation is offset by improvements in terms-of-trade projections stemming from weaker commodity prices. The deflator is projected to pick up as growth recovers over the medium term, while converging to 4 percent in the long run.

  • The external current account deficit is estimated at 11 percent of GDP, on average, over the medium term (1 percent of GDP lower than in the last DSA). This reflects the combined impact of the real effective exchange rate depreciation and the planned reductions in investment. Oil exports are projected to narrow the current account balance by 2 percent of GDP, on average, in the next 20 years, compared to 2½ percent in the last DSA.

  • The fiscal deficit is estimated to average 5½ percent of GDP a year over the long run—a decline of ¼ percentage point compared to the last DSA. The re-phasing of the public investment projects is projected to push the deficit down through FY2019/20 (by ½ percent of GDP) and raise it afterwards. In addition, over the long term, the deficit is set to increase by ¼ percent of GDP to account for the oil price decline. Conservatively, oil revenue projections have been revised down by ¾ percentage point to 3 percent of GDP, on average, once oil production reaches full capacity.

  • Nonconcessional borrowing is projected to remain unchanged at about $8 billion over the medium term (cumulative from June 28, 2013), but disbursements before FY2019/20 are now anticipated to be lower due to the re-phasing of some non-essential projects (Text Table 2). Debt to be contracted by end-December 2015 ($3 billion) will finance the construction of the Karuma and Isimba dams, industrial substations, the Entebbe Airport rehabilitation, and road construction projects.

Text Table 2.Summary Table on External Borrowing Program
PPG external debt contracted or guaranteedVolume of new debt1Present value of new debt1
Year 1: FY2015/16(Millions of U.S. dollars)
Source of debt financing2,6841,862
Concessional debt, of which21,8451,107
Multilateral debt1,414848
Bilateral debt432259
Non-concessional debt, of which2839755
Semi-concessional debt3839755
Commercial-term debt4
Use of debt financing2,6841,862
Infrastructure2,6841,862
Budget financing
Memorandum items
Indicative projections
Year 2: FY2016/17821723
Year 3: FY2017/182,3712,134
Sources: Ugandan authorities and IMF staff projections.

External Debt Sustainability

5. Public and publicly guaranteed (PPG) external debt is assessed to be sustainable over the projection period. The PV of PPG external debt-to-GDP ratio is expected to peak at 27 percent in FY2020/21, while nominal PPG external debt would stay below 36 percent of GDP in the projection period. All debt burden indicators—under the baseline scenario and the standardized stress tests—are projected to remain below Uganda’s country-specific debt burden thresholds (Figure 1, Tables 1, and 3). Compared to the last full DSA, the debt burden indicators remain at similar levels, after taking into account the authorities’ policy response to the increased risks.

Figure 1.Uganda: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2016–2036 1/

Sources: Ugandan authorities; and IMF staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2026. In figure b. it corresponds to a One-time depreciation shock; in c. to a Exports shock; in d. to a One-time depreciation shock; in e. to a Exports shock; and in figure f. to a One-time depreciation shock.

Table 1.Uganda: External Debt Sustainability Framework, Baseline Scenario, 2012–2036 1/(In percent of GDP, unless otherwise indicated)
ActualHistorical6/ AverageStandard 6/ DeviationProjections
20122013201420152016201720182019202020212016–2021 Average202620362022–2036 Average
External debt (nominal) 1/26.629.330.836.845.643.947.050.653.151.432.325.0
of which: public and publicly guaranteed (PPG)13.215.216.119.325.825.529.332.434.035.527.220.8
Change in external debt−1.32.81.46.08.9−1.83.13.62.6−1.7−0.9−0.1
Identified net debt-creating flows2.23.12.56.54.84.34.74.03.4−1.9−0.30.2
Non-interest current account deficit8.16.36.76.95.72.57.48.28.09.610.76.04.23.53.7
Deficit in balance of goods and services12.910.29.911.312.212.311.612.913.98.73.85.6
Exports20.220.518.818.823.121.820.821.521.725.327.725.6
Imports33.130.728.830.135.434.232.434.435.734.031.531.2
Net current transfers (negative = inflow)−5.3−4.9−4.0−5.0−6.21.7−5.6−5.0−4.6−4.4−4.2−4.0−3.4−3.1−3.3
of which: official−1.7−0.3−0.3−0.5−0.5−0.4−0.3−0.3−0.2−0.2−0.20.0
Other current account flows (negative = net inflow)0.60.90.80.60.80.91.01.11.01.23.81.0
Net FDI (negative = inflow)−3.9−2.9−3.8−3.3−3.71.1−2.8−4.0−3.3−5.3−6.9−6.4−4.1−3.2−4.1
Endogenous debt dynamics 2/−2.1−0.3−0.42.90.30.10.0−0.2−0.4−1.5−0.5−0.1
Contribution from nominal interest rate1.51.22.12.32.42.42.32.52.62.61.31.0
Contribution from real GDP growth−1.1−0.8−1.2−1.6−2.1−2.3−2.4−2.7−3.0−4.1−1.8−1.1
Contribution from price and exchange rate changes−2.5−0.7−1.22.1
Residual (3–4) 3/−3.5−0.3−1.1−0.54.0−6.1−1.6−0.4−0.90.2−0.6−0.3
of which: exceptional financing0.00.00.00.00.00.00.00.00.00.00.00.0
PV of external debt 4/28.436.435.538.641.944.542.825.819.8
In percent of exports150.9157.1162.3185.6194.8204.6169.593.177.2
PV of PPG external debt10.916.517.120.923.725.326.920.615.6
In percent of exports58.171.278.1100.7110.2116.5106.374.560.7
In percent of government revenues80.7120.1119.5141.4154.8160.1154.7114.786.8
Debt service-to-exports ratio (in percent)9.79.015.115.817.218.516.218.217.314.911.811.8
PPG debt service-to-exports ratio (in percent)2.42.32.82.53.24.04.95.66.45.36.76.5
PPG debt service-to-revenue ratio (in percent)4.34.14.53.55.46.16.97.88.87.710.49.2
Total gross financing need (billions of U.S. dollars)1.71.61.82.12.32.52.72.92.91.52.96.7
Non-interest current account deficit that stabilizes debt ratio9.53.55.30.9−1.510.04.96.08.27.75.23.6
Key macroeconomic assumptions
Real GDP growth (in percent)4.43.34.65.06.72.65.05.86.16.36.58.56.45.84.86.1
GDP deflator in US dollar terms (change in percent)9.82.84.4−6.54.59.7−17.98.26.91.91.91.60.44.33.54.1
Effective interest rate (percent) 5/6.25.07.77.37.12.35.76.16.05.85.55.45.74.34.44.3
Growth of exports of G&S (US dollar terms, in percent)22.77.50.3−1.914.811.96.18.18.012.19.428.212.012.56.810.6
Growth of imports of G&S (US dollar terms, in percent)12.3−1.42.22.814.812.81.210.77.415.212.35.08.710.38.49.8
Grant element of new public sector borrowing (in percent)14.722.912.118.719.217.717.622.316.820.1
Government revenues (excluding grants, in percent of GDP)11.211.411.913.513.714.314.815.315.817.418.017.918.3
Aid flows (in billions of US dollars) 7/0.81.00.50.30.70.90.60.80.70.70.81.1
of which: Grants0.40.40.30.30.40.40.30.20.20.20.10.0
of which: Concessional loans0.30.60.20.00.30.50.30.50.50.50.71.1
Grant-equivalent financing (in percent of GDP) 8/2.82.81.71.81.51.30.80.40.7
Grant-equivalent financing (in percent of external financing) 8/36.039.924.227.829.226.027.216.823.0
Memorandum items:
Nominal GDP (Billions of US dollars)23.224.726.926.422.826.129.632.134.838.371.6169.7
Nominal dollar GDP growth14.76.19.2−1.8−13.814.513.48.48.410.26.910.48.410.4
PV of PPG external debt (in billions of US dollars)2.53.64.66.27.58.710.114.826.4
(PVt-PVt-1)/GDPt-1 (in percent)4.24.75.84.73.74.04.51.41.11.3
Gross workers’ remittances (billions of US dollars)0.81.11.01.21.21.21.31.31.41.42.86.0
PV of PPG external debt (in percent of GDP + remittances)10.515.716.320.122.824.425.919.815.0
PV of PPG external debt (in percent of exports + remittances)47.058.364.383.592.698.592.665.253.3
Debt service of PPG external debt (in percent of exports + remittances)2.12.63.34.14.75.44.65.95.7
Sources: Ugandan authorities; and IMF staff estimates and projections.
Table 2.Uganda: Public Sector Debt Sustainability Framework, Baseline Scenario, 2013–2036(In percent of GDP, unless otherwise indicated)
ActualAverage 5/Standard 5/ DeviationEstimateProjections
2013201420152016201720182019202020212016–21 Average202620362022–36 Average
Public sector debt 1/23.326.431.137.937.342.044.947.650.036.726.5
of which: foreign-currency denominated15.216.119.325.825.529.332.434.035.527.220.8
Change in public sector debt1.13.04.76.8−0.64.72.92.82.4−1.5−0.4
Identified debt-creating flows2.62.66.76.31.24.04.53.3−0.3−2.0−0.6
Primary deficit2.22.73.01.71.24.64.43.93.62.41.53.4−0.30.3−0.3
Revenue and grants12.913.014.815.715.815.816.016.517.918.217.9
of which: grants1.51.01.21.91.61.00.70.60.50.20.0
Primary (noninterest) expenditure15.115.717.820.220.319.719.618.819.417.918.2
Automatic debt dynamics0.4−0.13.31.4−4.2−0.6−1.1−1.4−2.3−1.7−0.9
Contribution from interest rate/growth differential0.10.0−0.3−0.5−0.7−0.7−1.2−1.5−2.7−1.2−0.6
of which: contribution from average real interest rate0.81.01.01.01.41.51.31.21.01.00.6
of which: contribution from real GDP growth−0.7−1.0−1.3−1.5−2.1−2.2−2.5−2.7−3.7−2.1−1.2
Contribution from real exchange rate depreciation0.3−0.13.62.0−3.50.10.10.10.4
Other identified debt-creating flows0.00.00.30.21.00.72.02.30.50.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.60.61.92.30.50.00.0
Debt relief (HIPC and other)0.00.00.00.00.00.00.00.00.00.00.0
Other (e.g., bank recapitalization)0.00.00.30.20.40.10.10.00.00.00.0
Residual, including asset changes−1.50.4−1.90.5−1.90.7−1.6−0.52.60.40.3
Other Sustainability Indicators
PV of public sector debt22.728.628.933.636.339.041.430.121.2
of which: foreign-currency denominated10.916.517.120.923.725.326.920.615.6
of which: external10.916.517.120.923.725.326.920.615.6
PV of contingent liabilities (not included in public sector debt)
Gross financing need 2/6.510.311.714.114.413.914.113.212.18.25.7
PV of public sector debt-to-revenue and grants ratio (in percent)153.6182.8182.2212.9226.0236.8231.5166.0118.4
PV of public sector debt-to-revenue ratio (in percent)167.7208.6202.3226.9236.5246.5238.4167.7118.4
of which: external 3/80.7120.1119.5141.4154.8160.1154.7114.786.8
Debt service-to-revenue and grants ratio (in percent) 4/31.635.333.434.335.736.638.139.733.528.321.0
Debt service-to-revenue ratio (in percent) 4/35.738.336.539.139.639.039.941.334.528.621.0
Primary deficit that stabilizes the debt-to-GDP ratio1.1−0.3−1.7−2.25.0−0.80.7−0.4−0.81.20.6
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)3.34.65.06.72.65.05.86.16.36.58.56.45.84.86.1
Average nominal interest rate on forex debt (in percent)1.21.30.91.20.41.52.12.62.93.03.22.53.23.33.2
Average real interest rate on domestic debt (in percent)10.113.810.75.36.38.111.011.89.18.15.48.96.66.97.0
Real exchange rate depreciation (in percent, + indicates depreciation2.5−0.423.5−1.416.810.6
Inflation rate (GDP deflator, in percent)4.12.34.29.56.98.24.03.23.84.04.84.73.93.84.1
Growth of real primary spending (deflated by GDP deflator, in percen6.68.619.43.56.419.55.83.35.82.112.08.17.63.95.7
Grant element of new external borrowing (in percent)14.722.912.118.719.217.717.622.316.8
Sources: Ugandan authorities; and IMF staff estimates and projections.
Table 3.Uganda: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2016–2036(In percent)
Projections
20162017201820192020202120262036
PV of debt-to GDP ratio
Baseline1617212425272116
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016–2036 1/1616171818213130
A2. New public sector loans on less favorable terms in 2016–2036 2/1619232730322826
A3. Alternative Scenario: No Oil Scenario1618212325262524
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017–20181618222426272116
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/1619232627292216
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–20181620273032342620
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017–2018 4/1619232627282216
B5. Combination of B1-B4 using one-half standard deviation shocks1620262931322518
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/1625293235362821
PV of debt-to-exports ratio
Baseline71781011101171067561
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016–2036 1/717184838185112115
A2. New public sector loans on less favorable terms in 2016–2036 2/7188113128138128102102
A3. Alternative Scenario: No Oil Scenario71819910811311811299
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017–201871811001091151047461
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/71901241331391248768
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–201871811001091151047461
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017–2018 4/71891111191251127862
B5. Combination of B1-B4 using one-half standard deviation shocks71851041131191077560
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/71811001091151047461
PV of debt-to-revenue ratio
Baseline12011914115516015511587
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016–2036 1/120109118117112124172165
A2. New public sector loans on less favorable terms in 2016–2036 2/120135158179190186157146
A3. Alternative Scenario: No Oil Scenario120124139151156150139134
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017–201812012614515916415711990
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/12013115716917316412188
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–2018120142180197204195147111
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017–2018 4/12013615616817216312188
B5. Combination of B1-B4 using one-half standard deviation shocks120143175189195186139103
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/120172194212219210159120
Debt service-to-exports ratio
Baseline34566576
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016–2036 1/345554710
A2. New public sector loans on less favorable terms in 2016–2036 2/34456579
A3. Alternative Scenario: No Oil Scenario345666910
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017–201834566576
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/34678687
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–201834566576
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017–2018 4/34567677
B5. Combination of B1-B4 using one-half standard deviation shocks34567576
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/34566576
Debt service-to-revenue ratio
Baseline567898109
A. Alternative Scenarios
A1. Key variables at their historical averages in 2016–2036 1/5677761114
A2. New public sector loans on less favorable terms in 2016–2036 2/5667981113
A3. Alternative Scenario: No Oil Scenario5678981214
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2017–20185678981110
B2. Export value growth at historical average minus one standard deviation in 2017–2018 3/5678981110
B3. US dollar GDP deflator at historical average minus one standard deviation in 2017–20185791011101312
B4. Net non-debt creating flows at historical average minus one standard deviation in 2017–2018 4/5678981110
B5. Combination of B1-B4 using one-half standard deviation shocks578101191311
B6. One-time 30 percent nominal depreciation relative to the baseline in 2017 5/58101112111413
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/1313131313131313
Sources: Ugandan authorities; and IMF staff estimates and projections.

6. Nonetheless, more stringent thresholds limit the capacity for additional external borrowing. Extreme stress tests—mainly the 30 percent one-time depreciation scenario—now show that debt burden indicators peak close to the threshold. To increase the space for external borrowing while maintaining debt sustainability, it is important to strengthen the quality of reforms and institution building, in particular by making progress in governance, transparency, and public financial management issues.

7. Risks stemming from the uncertainty about oil production remain limited. A customized alternative scenario, where no oil revenues or oil exports materialize, shows a limited increase in the debt burden indicators, reflecting the authorities’ prudent debt accumulation plan. Given the high uncertainty, especially regarding oil prices, keeping a prudent fiscal plan that does not rely on oil proceeds is warranted.

Public Debt Sustainability

8. Total public debt (external and domestic) is assessed to be sustainable over the projection period. The PV of public debt-to-GDP ratio is projected to peak at about 41 percent in FY2020/21, well below the benchmark level of 56 percent associated with heightened public debt vulnerabilities for medium performers. However, the relatively short average maturity of domestic debt combined with a low revenue base continue to be a matter of concern, leading to a debt service-to-revenue ratio of about 41 percent in FY2019/20, among the highest in countries of Uganda’s level of income, and increasing rollover and interest rate risks. These risks need to be mitigated by a combination of stronger revenue mobilization and determined efforts to extend average maturities over the medium term.

9. Stress tests indicate the importance of fiscal consolidation over time. An illustrative scenario with a fixed primary deficit over the projection period indicates a significantly high PV of public debt-to-GDP ratio, breaching the benchmark level of 56 percent of GDP in FY2024/25 (Figure 2, Tables 2 and 4). This highlights the importance of reducing fiscal deficits immediately after the planned scaling up of public investment has been completed. The customized alternative scenario without oil flows indicate higher but limited risks stemming from uncertainty about oil revenues, as in the case for the external debt analysis.

Figure 2.Uganda: Indicators of Public Debt Under Alternative Scenarios, 2016–2036 1/

Sources: Ugandan authorities; and IMF staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2025.

2/ Revenues are defined inclusive of grants.

Table 4.Uganda: Sensitivity Analysis for Key Indicators of Public Debt 2016–2036(In percent)
Projections
20162017201820192020202120262036
PV of Debt-to-GDP Ratio
Baseline2929343639413021
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages2926293032363735
A2. Primary balance is unchanged from 20162929343842475370
A3. Permanently lower GDP growth 1/2929343741443538
A4. Alternative Scenario: No Oil Scenario2929333538423427
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2017–20182930353942453529
B2. Primary balance is at historical average minus one standard deviations in 2017–20182928313437392921
B3. Combination of B1-B2 using one half standard deviation shocks2927313437393022
B4. One-time 30 percent real depreciation in 20172933384043453324
B5. 10 percent of GDP increase in other debt-creating flows in 20172938424447493524
PV of Debt-to-Revenue Ratio 2/
Baseline183182213226237231166118
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages183166184188197200201193
A2. Primary balance is unchanged from 2016183183217236258265291390
A3. Permanently lower GDP growth 1/183184216232246243195212
A4. Alternative Scenario: No Oil Scenario184181210221230253209165
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2017–2018183186224240254250192162
B2. Primary balance is at historical average minus one standard deviations in 2017–2018183174199213225221159114
B3. Combination of B1-B2 using one half standard deviation shocks183171194210223220163124
B4. One-time 30 percent real depreciation in 2017183211240250260253179134
B5. 10 percent of GDP increase in other debt-creating flows in 2017183237266276284273192134
Debt Service-to-Revenue Ratio 2/
Baseline3436373840342821
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages3435363638323024
A2. Primary balance is unchanged from 20163436373840343338
A3. Permanently lower GDP growth 1/3436373941353128
A4. Alternative Scenario: No Oil Scenario3436373840373426
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2017–20183436384041353024
B2. Primary balance is at historical average minus one standard deviations in 2017–20183436363839332821
B3. Combination of B1-B2 using one half standard deviation shocks3436363839332821
B4. One-time 30 percent real depreciation in 20173437394143363327
B5. 10 percent of GDP increase in other debt-creating flows in 20173436394142353123
Sources: Ugandan authorities; and IMF staff estimates and projections.

10. The authorities have made efforts to strengthen public debt management in recent years. With assistance from the World Bank, the authorities have developed a medium term debt management strategy and an assessment of debt management performance (Debt Management Performance Assessment, DeMPA). They are also establishing a Debt and Cash Management Directorate in the Ministry of Finance, Planning and Economic Development, with a plan to transfer debt management functions from the Bank of Uganda. Currently, the World Bank is providing technical assistance in drafting a debt management reform action plan, focusing on the internal organization of debt management and the establishment of a framework for managing contingent liabilities. Further technical assistance is planned by the end of CY2015 to update Uganda’s debt management strategy.

Conclusion

11. Uganda’s risk of external debt distress remains low. Although the recent large depreciation of the shilling raises the external debt burden, the planned reduction in the pace of public investment mitigates the increased risks. Adhering to this revised plan; carefully assessing projects’ financial and economic viability; selecting the best possible borrowing terms; and avoiding reliance on uncertain oil flows remain essential preconditions for debt sustainability. Making progress in governance issues is also critical considering that large public investments are coming on stream.

12. The authorities concurred with staff’s views. They remain committed to ensuring debt sustainability through long-term prudent debt management, as outlined in their Medium Term Debt Management Framework, which aims at minimizing costs and risks associated with public investment project financing. The authorities acknowledged the increased risks stemming from the exchange rate depreciation and weak exports as well as the challenges highlighted by the CPIA downgrading, and intend to stick to the revised investment plan, and closely monitor developments to assess if further policy adjustments are needed to ensure maintenance of debt sustainability. They also agreed to make progress in governance and transparency issues, and intend to continue to engage with IDA/IMF staff on debt management issues. The authorities continue to address the short maturity of domestic debt by building policy credibility, deepening the markets, and reforming auction modalities.

The last full Debt Sustainability Analysis (DSA) was conducted at the time of the 2015 Article IV Consultation and Fourth PSI Review in June 2015 (IMF Country Report No. 15/175). Under the Country Policy and Institutional Assessment (CPIA), Uganda was shifted from strong to medium performer in July 2015. All data refer to fiscal years running from July to June (e.g., FY2015/16 covers July 2015 to June 2016). External debt is defined as foreign-currency denominated debt.

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