Uganda: Selected Issues and Statistical Appendix

This Selected Issues paper and Statistical Appendix analyzes poverty and social development in Uganda. The paper reviews recent poverty and inequality trends, examines how poor people are coping with risk and vulnerability, analyzes the relationship between economic growth, structural reform and poverty, and describes the government policies in these areas. The paper also provides a brief overview of major institutional developments in Uganda’s financial sector since 1993 with regard to the legal, accounting, and general regulatory framework in which financial institutions operate.

Abstract

This Selected Issues paper and Statistical Appendix analyzes poverty and social development in Uganda. The paper reviews recent poverty and inequality trends, examines how poor people are coping with risk and vulnerability, analyzes the relationship between economic growth, structural reform and poverty, and describes the government policies in these areas. The paper also provides a brief overview of major institutional developments in Uganda’s financial sector since 1993 with regard to the legal, accounting, and general regulatory framework in which financial institutions operate.

V. Developments in Uganda’s Export Sector43

114. In 1998/99 (July-June) Uganda’s exports are estimated to have amounted to about 9.5 percent of GDP, which is broadly in line with their performance during the previous four years, when they averaged annually about 10 percent of GDP (Figure 10 and Table 21). This performance, however, masks the impact on exports of exogenous factors, such as sharp variations in commodity prices and severe fluctuations in weather conditions, as well as sound economic policies, which have led to a low inflation rate, stable macroeconomic conditions, and a significant depreciation of the Uganda shilling in the context of trade and market liberalization efforts. Uganda’s strategy of export-led economic growth appears to have been relatively successful, since in volume terms exports increased annually by an average of almost 15.5 percent during the five years ended 1998/99; the annual increase in noncoffee exports averaged over 27 percent; and real GDP growth annually averaged about 7.2 percent (Figure 11).

Figure 10.
Figure 10.

Uganda: Ratio of Exports to GDP, 1994/95–1998/99

(In percent of GDP)

Citation: IMF Staff Country Reports 1999, 116; 10.5089/9781451838633.002.A005

Sources: Bank of Uganda; and Fund staff estimates.1/ Fiscal years (July-June).2/ Export data through March 1999.
Table 21.

Uganda: Export Indicators, 1994/95–1998/99 1/

(In percent)

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Sources: Bank of Uganda; and Fund staff estimates.

Fiscal year begins in July.

July-March export data.

Exports other than coffee, tea, tobacco, and cotton.

Agricultural commodity exports exclude cigarettes, fish and fish products, hides and skins, gold, base metals and products, electricity, petroleum products, plastic products, soap, and other undefined exports.

Figure 11.
Figure 11.

Uganda: Real Growth of Exports and GDP, 1994/95–1998/99 1/

(1993/94 = 100)

Citation: IMF Staff Country Reports 1999, 116; 10.5089/9781451838633.002.A005

Sources: Bank of Uganda; and Fund staff estimates.1/ Fiscal years (July-June).2/ Export data through March 1999.

A. Composition of Exports

115. The bulk of Uganda’s exports is from the agricultural sector. Indeed, during the period 1994/95–1998/99, agricultural products accounted on average for almost four-fifths of Uganda’s total annual exports (Figure 12).44 This factor indicates the vulnerability of Uganda’s exports to weather conditions and agricultural commodity prices. Indeed, over the period under review, the only year in which there was a sharp decline in export volumes was 1997/98, when adverse weather conditions—particularly during the first half of the year—affected the agricultural sector. In addition, given the importance of coffee exports, which over the period in question amounted to almost 65 percent of Uganda’s total export receipts, Uganda has been particularly vulnerable to changes in international coffee prices, as well as vagaries of weather (Table 22). However, it should also be noted that, during the period 1994/95–1998/99, noncoffee exports steadily increased from about 22 percent of exports in 1994/95 to about 40 percent in 1998/99, while agricultural exports declined from almost 90 percent of exports in 1994/95 to about 76 percent in 1997/98, and to about 82 percent during the first nine months of 1998/99. At the same time, noncoffee exports were recording significant volume increases.

Figure 12.
Figure 12.

Uganda: Composition of Exports, 1994/95–1998/99 1/

(In percent of total exports)

Citation: IMF Staff Country Reports 1999, 116; 10.5089/9781451838633.002.A005

Source: Bank of Uganda.1/ Fiscal years (July-June).2/ Export data through March 1999.
Table 22.

Uganda: Exports, 1994/95–1998/99 1/

(In percent of total exports)

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Source: Bank of Uganda.

Fiscal year beings in July.

July-March.

For 1994/95 gold exports are included in base metals and products.

Others include basins, cooking oil, cattle gallstones, waragi, motor vehicles, day-old chicks, eggs, jerricans, pints, building materials, hoes, etc.

116. Coffee exports, consisting roughly of 90 percent robusta coffee and the remainder arabica coffee, increased in volume annually by about 10.5 percent during 1994/95–1998/99. Exports grew from 3.0 million (60-kilogram) bags in 1994/95 to 4.4 million bags in 1996/97, before declining to 2.9 million bags in 1997/98 owing to adverse weather developments. In 1998/99, coffee exports are estimated to have recovered to about 3.6 million bags. Simultaneously, during the period under review, coffee prices fluctuated extensively, falling from a peak of US$2.57 per kilogram in 1994/95 to a trough of US$1.38 per kilogram in 1996/97; in 1998/99, they are estimated to have been about US$1.40 per kilogram. In 1994/95, there was an unprecedented increase in coffee export receipts, reflecting to a large extent the average rise in coffee prices of 125 percent from previous year—which represented a gain of 213 percent from the prices in 1992/93. Uganda’s second major foreign exchange earner during this period was a nontraditional export commodity—gold—which varied sharply and unpredictably in magnitude, peaking at US$109 million in 1996/97 (Figure 13).45 Gold is smuggled into Uganda; Uganda does not produce gold. After gold, the third major export item during 1994/95–1998/99 was fish and fish products, accounting for less than 5 percent of total export earnings during the period under review. This export product, which has significant potential, has been adversely affected in recent years by restrictions imposed at its major import market for health reasons and, more recently, by a ban on such exports by the Uganda National Bureau of Standards46 owing to the fishermen’s use of poison to catch fish. The other important export products during 1994/95–1998/99 (the latter for the first nine months) were in descending order, tea (2.9 percent of total exports), tobacco (2.5 percent), maize (2.0 percent), fruits and vegetables (1.6 percent), cotton (1.5 percent), hides and skin (1.4 percent), and electricity, petroleum products, and beans (the latter three at about 1.1 percent each of total exports). Uganda’s traditional exports accounted for about 72 percent of total exports during the period under review.

Figure 13.
Figure 13.

Uganda: Noncoffee Exports, 1994/95–1998/99 1/

(In percent of total)

Citation: IMF Staff Country Reports 1999, 116; 10.5089/9781451838633.002.A005

Source: Bank of Uganda.1/ Fiscal years (July-June).2/ Data through March 1999.

117. As noted above, only in 1997/98 did the volume of noncoffee exports fall sharply (on average by about 43 percent), owing primarily to adverse weather conditions.47 Noncoffee export prices averaged an annual increase of about 4.4 percent over 1994/95–1998/99, with annual increases varying between 12.7 percent and 2.4 percent and a decline of about 5.7 percent in 1998/99, when commodity prices throughout the world fell sharply.

118. The vulnerability and the variability of Uganda’s exports during the last five years are also reflected in their impact on Uganda’s external debt indicators. For example, in early 1998 when Uganda reached its completion point under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative), its net present value of debt-to-exports ratio (based on a three-year average of exports of goods and nonfactor services) after HIPC Initiative assistance was calculated as 201.8 percent for 1997/98 and 207.3 percent for 1998/99. (See Box 7 for recent external debt developments.) The ratios for 1997/98 and 1998/99, using the same net present value of external debt as before, are at present 207.5 percent and 218.6 percent, respectively. The earlier projected export receipts had incorporated neither the unfavorable weather conditions of 1997/98, nor the sharp drop in gold exports.

External Debt Developments

Uganda’s external debt-to-GDP ratio has been declining steadily over time, reflecting not only debt relief from its creditors but also the pursuit of a prudent external debt strategy. From June 1994 to June 1998, Uganda’s outstanding stock of external debt increased from about US$3.0 billion to US$3.6 billion, with the debt-to-GDP ratio declining from 71.5 percent to 63.0 percent (Table 23). Meanwhile, the debt-service ratio declined from 49 percent of exports of goods and nonfactor services in 1993/94 to 23.5 percent in 1994/95, and to about 14.7 percent in 1998/99.

Uganda’s outstanding stock of debt reflects to a large extent a prudent external debt-management strategy based on limiting access to donor support to grants or highly concessional loans. Indeed, the composition of Uganda’s outstanding stock of external debt shows a marked increase in liabilities to multilateral institutions and a steady decline in debt to bilateral creditors. In particular, Uganda’s liabilities to multilateral creditors amounted at end-June 1994 to about 72 percent of total outstanding liabilities; by end June 1998, this ratio had steadily increased to almost 78 percent. The International Development Association (IDA), which accounted for 66 percent of multilateral loans to Uganda at end-June 1994, increased its share of lending (all on concessional terms) to almost 71 percent by end-June 1998. Over the same period, Uganda’s outstanding stock of external debt to its bilateral creditors declined from 24 percent of outstanding stock of debt to less than 21 percent. This latter outcome reflected reschedulings and restructuring of Uganda’s bilateral debt with its Paris Club creditors, as well as attempts to apply comparable terms of rescheduling to its non-Paris Club creditors.

Uganda’s liabilities to Paris Club creditors fell from 11 percent of outstanding stock of debt at end-June 1994 to about 9 percent at end-June 1998. Outstanding loans to non-Paris Club creditors declined over the same period from over 13 percent to less than 12 percent. This outcome with non-Paris Club creditors incorporates significant amounts of outstanding external payments arrears (Table 24). Indeed, over the five-year period, such arrears accounted on average annually for about 43 percent of the outstanding stock of debt to non-Paris Club creditors, increasing from 35 percent at end-June 1994 to 54 percent at end-June 1998. Despite considerable efforts to eliminate these arrears through rescheduling or restructuring agreements on terms at least comparable to those with Uganda’s Paris Club creditors, there has been little success thus far. Uganda’s outstanding stock of debt to other creditors (commercial banks, commercial nonbanks, and others), which also includes arrears, has declined over time to account for less than 2 percent of Uganda’s outstanding stock of debt from almost 4 percent at end-June 1994.

1/ In February 1995, Uganda was the first country to receive from the Paris Club a stock-of-debt operation under Naples terms, with a 67 percent net present value reduction of all eligible debt. Earlier, Uganda had benefited from various reschedulings from the Paris Club, including in 1989 under Toronto terms. In April 1998, after reaching its completion point under the Initiative for Heavily Indebted Poor Countries (HIPC Initiative), Paris Club creditors agreed to provide Uganda with an 80 percent net present value stock-of-debt reduction under the HIPC Initiative. The data through end-June 1998 do not reflect the impact of this Paris Club restructuring at Lyon terms nor generally other debt relief under the HIPC Initiative.2/ One tangible success was a debt-buyback agreement with Tanzania, which came into effect in late September 1998.
Table 23.

Uganda: External Debt Outstanding, 1994–98

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Sources: Ugandan authorities; and Fund staff estimates.

AfDB, African Development Bank; AfDF, African Development Fund; BADEA, Arab Bank for Economic Development in Africa; EIB, European Investment Bank; IBRD, International Bank for Reconstruction and Development; IDA, International Development Association; IDB, Islamic Development Bank; IFAD, International Fund for Agricultural Development; IMF, International Monetary Fund.

Bank of Uganda estimate of disbursements from multilateral institutions is understated for 1993/94 (July-June).

Table 24.

Uganda: External Payments Arrears, 1994–99

(In millions of U.S. dollars)

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Sources: Ugandan authorities; and Fund staff estimates.

Includes the International Fund for Agricultural Development, the European Development Fund, the Arab Bank for Economic Development in Africa, the OPEC Fund, the Shelter Afrique, and the Nordic Development Fund.

Arrears to Italy stemming from breakdown in communication with respect to payments will be included in the April 1998 Paris Club Lyon terms debt restructuring.

Following debt reconciliation in 1997/98 (July-June), arrears to Tanzania were increased as at end-June 1997. In September 1998 a debt-buyback agreement was reached, settling the arrears at a significant discount.

Following debt reconciliation, arrears on public enterprise debt reassigned or swapped to private entities following privatization/restitution have been taken off the stock of arrears.

B. Growth of Exports

120. Over the period 1994/95–1998/99, Uganda’s exports performed admirably, growing on an average annual basis in volume terms by about 15.5 percent, with noncoffee exports growing by over 27 percent. Leaving aside the impact of variations in weather and international commodity prices, this favorable export performance may be attributed to Uganda’s market-oriented production and marketing base, liberal trade regime, and macroeconomic stability.

120. There is no state intervention in production or marketing of goods in Uganda. An open trade regime is maintained with the rest of the world, contributing to the competitiveness of exports.48 A simple duty drawback system has been used to reimburse exporters for import duties paid on their inputs. Exports are promoted by the Uganda Export Promotion Board (UEPB) and the Uganda Investment Authority; the latter has encouraged investors to undertake export-related activities. The UEPB, established by parliament in 1996, promotes diversification of Uganda’s exports, particularly into high-value-added products and away from raw materials. It develops and advocates export policies, gathers trade information, tries to help develop export skills (for example, through seminars), and attempts to assist exporters by disseminating information to ensure exporters’ products are in compliance with importers’ requirements. In addition, the Bank of Uganda has for the assistance of exporters established an Export Finance Scheme, Export Guarantee Facility, and an Export Promotion Fund; these facilities, however, have not been extensively utilized.

121. The Uganda shilling, which is market determined, has depreciated over the 1994/95–1998/99 period by about 19.4 percent in terms of the U.S. dollar. After appreciating sharply by 18.3 percent in 1994/95 with the coffee boom, it steadily depreciated until 1998/99; in that year, the depreciation accelerated to almost 16 percent, owing to the banking crisis and to an insufficiently tight monetary policy. Since more than half of Uganda’s exports are to Europe and almost a third to African countries, Uganda’s exports appear to have maintained their competitiveness. Indeed, Uganda’s consumer price index (CPI)-based real effective exchange rate (REER) vis-à-vis its major trading partners, after appreciating slightly after the coffee boom, remained relatively stable during 1994/95–1997/98; however, since 1997/98 there has been a marked depreciation (Figure 14).49 This suggests that Uganda’s competitiveness remained relatively stable during 1994/95–1997/98. The depreciation during the first 11 months of 1998/99 seems to explain the sharp increase in some of Uganda’s nontraditional exports (see below) and the improved competitiveness of Uganda’s exports. This conclusion is further strengthened when Uganda’s competitiveness is compared with some of its neighboring countries, such as Kenya, Tanzania, and Rwanda (Figure 15).

Figure 14.
Figure 14.

Uganda: Terms of Trade and Real Effective Exchange Rate, 1993/94–1998/99 1/

(1993/94 = 100)

Citation: IMF Staff Country Reports 1999, 116; 10.5089/9781451838633.002.A005

Sources: Bank of Uganda; IMF, Information Notice System; and Fund staff estimates.1/ Fiscal years (July-June).
Figure 15.
Figure 15.

Uganda and Neighboring Countries: Real Effective Exchange Rates, 1993/94–1998/99 1/

(1993/94:Q4 = 100)

Citation: IMF Staff Country Reports 1999, 116; 10.5089/9781451838633.002.A005

Source: IMF, Information Notice System.1/ Fiscal years (July-June).

122. The impact of all these factors is evident in the growth of export receipts, as well as in the shifting composition of exports. Thus, for example, exports of fruits and vegetables, which accounted during 1994/95–1997/98 for less than 1 percent of noncoffee exports and increased from US$0.4 million in 1994/95 to US$1.6 million in 1997/98, came to account for 18 percent of noncoffee export receipts (US$30.6 million) during the first nine months of 1998/99. Other export items, such as tea, tobacco, electricity, flowers, base metals and metal products, and plastic products, have also increased steadily throughout the period, with the sharpest increases registered again during the first nine months of 1998/99. Nonagricultural exports increased from 10.4 percent of total exports in 1994/95 to 34.3 percent in 1996/97 and 24 percent in 1997/98. With respect to the latter ratios, even when gold exports are taken out of the calculation of total exports, the ratios are, respectively, 8.4 percent, 21.1 percent, and 19.2 percent. Uganda’s nontraditional exports have retained their share of GDP, at about 2 percent. In terms of total exports, nontraditional exports increased from 18 percent in 1994/95 to about 30 percent in both 1997/98 and 1998/99.50

C. Prospects

123. Export developments in Uganda will continue to depend on the evolution of international commodity prices (particularly coffee prices) and maintenance of an appropriate policy environment, including macroeconomic stability, a well-functioning banking system, development of an export-friendly financial system, removal of infrastructure constraints (such as the lack of roads, power supply, airport facilities, and storage and container facilities), and transparent rules for trade and investment. Such an approach would help contribute to diversifying exports. Assuming normal weather conditions, coffee export volumes are projected by the Uganda Coffee Development Authority51 to rise from 3.6 million bags in 1998/99 to 5.1 million in 2007/08, based on the continuation of current replacement/replanting rates through 2005, increased acreage under arabica coffee (which fetches a higher price in the world market than robusta coffee) and clonal coffee (which is disease resistant), and continued improvements in crop husbandry. Noncoffee exports are also likely to grow rapidly as a result of the efforts cited above to encourage exports, the envisaged improvements in the business environment stemming from macroeconomic stability, continuing structural reforms and infrastructure improvements, increased private sector investment in various sectors, and the hoped-for end of regional tensions (which, for example, are limiting cotton production and exports).

Table 25.

Uganda: Gross Domestic Product by Industry at Current Prices, 1992/93–1998/99

(In billions of Uganda shillings, unless otherwise indicated)

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Source: Ministry of Finance, Planning and Economic Development, Background to the Budget, 1999/20001/ Fiscal year begins in July.

In thousands of Uganda shillings.

Based on the 1991 census.

Table 26.

Uganda: Gross Domestic Product by Industry at Constant 1991 Prices, 1992/93–1997/98 1/

(In billions of Uganda shillings)

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Source: Ministry of Finance, Planning and Economic Development, Background to the Budget, 1999/2000

Fiscal year begins in July.

Table 27.

Uganda: Gross Domestic Product by Expenditure at Current Prices, 1992/93–1998/99 1/

(In billions of Uganda shillings)

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Sources: Ugandan authorities; and Fund staff estimates.

Fiscal year begins in July.

Includes change in stocks.

Includes transfers.

Table 28.

Uganda: Gross Domestic Product by Expenditure Shares at Current Prices, 1992/93–1998/99 1/

(As a percentage of GDP at market prices)

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Sources: Ugandan authorities; and Fund staff estimates.

Fiscal year begins in July.

Includes change in stocks.

Includes transfers.

Table 29.

Uganda: Growth of Gross Domestic Product by Sector at Constant 1991 Prices, 1992/93–1998/99

(Annual growth rates, in percent)

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Source: Ministry of Finance, Planning and Economic Development, Background to the Budget, 1999/2000.1/ Fiscal year begins in July.
Table 30.

Uganda: Composite Consumer Price Index, January 1993–June 1999

(September 1989 = 100)

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Source: Uganda Bureau of Statistics.

Percentage change in 12-month moving average.