Front Matter

Front Matter Page

© 2009 International Monetary Fund

March 2009

IMF Country Report No. 09/79

Uganda: 2008 Article IV Consultation and Fourth Review Under the Policy Support Instrument—Staff Report; Staff Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Uganda

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2008 Article IV consultation with Uganda and the fourth review under the Policy Support Instrument, the following documents have been released and are included in this package:

  • The staff report for the combined 2008 Article IV Consultation and Fourth Review Under the Policy Support Instrument, prepared by a staff team of the IMF, following discussions that ended on October 31, 2008, with the officials of Uganda on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 19, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • A staff supplement of the Joint IMF/World Bank Debt Sustainability Analysis.

  • A Press Release and a Public Information Notice (PIN), summarizing the views of the Executive Board as expressed during its January 7, 2009, discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.

  • A statement by the Executive Director for Uganda.

The documents listed below have been or will be separately released.

  • Selected Issues Paper

  • Letter of Intent sent to the IMF by the authorities of Uganda*

  • Memorandum of Economic and Financial Policies by the authorities of Uganda*

  • Technical Memorandum of Understanding*

  • *Also included in Staff Report

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

700 19th Street, N.W. • Washington, D.C. 20431

Telephone: (202) 623-7430 • Telefax: (202) 623-7201

E-mail: publications@imf.org • Internet: http://www.imf.org

International Monetary Fund

Washington, D.C.

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INTERNATIONAL MONETARY FUND

UGANDA

Staff Report for the 2008 Article IV Consultation And Fourth Review Under the Policy Support Instrument

Prepared by the African Department

(In consultation with other departments)

Approved by Robert Corker and Dominique Desruelle

December 19, 2008

Discussions on the fourth review under the Policy Support Instrument were held in Kampala during October 20–31, 2008. The staff team comprised Messrs. Nord (head), Gershenson, Saenz (all AFR), and Mmes. Brunschwig (SPR), Jacobs (FAD), and Lukonga (MCM). The team met with Finance, Planning, and Economic Development Minister Suruma, Minister of Energy and Mineral Development Migereko, Bank of Uganda Governor Tumusiime Mutebile, Permanent Secretary/Secretary of the Treasury Kassami, Chairman of the Budget Committee of Parliament Oketcho, other senior officials, representatives of civil society, international and business communities, and the media. Mr. Selassie, senior resident representative, and his staff provided valuable assistance. Mr. Musinguzi, Senior Advisor to the Executive Director, participated in the discussions.

Uganda has accepted the obligations under Article VIII, sections 2, 3, and 4 and maintains an exchange system free of restrictions on the making of payments for current international transactions.

Contents

  • Executive Summary

  • I. Introduction

  • II. Performance Under the PSI

  • III. Global Turmoil: The Impact on the Ugandan Economy

  • IV. Tackling the Crisis: Policies in the Short Term

  • V. Maintaining Momentum: Medium-term Outlook and Challenges

    • A. Fiscal performance, infrastructure, and the financial sector

    • B. Real exchange rate and competitiveness

    • C. Other Issues

  • VI. Program Implementation and Monitoring

  • VII. Staff Appraisal

  • Tables

  • 1. Uganda: Selected Economic and Financial Indicators, 2006/07–2012/13.

  • 2. Uganda: Fiscal Operations of the Central Government, 2006/07–2012/13

  • 3. Uganda: Monetary Account, 2006/07–2012/13

  • 4. Uganda: Balance of Payments, 2006/07–2012/13

  • 5. Uganda: Quantitative Assessment Criteria and Indicative Targets for end-June 2008–end-June 2009

  • 6. Uganda: Structural Assessment Criterion and Benchmark1

  • 7. Uganda: Selected Banking Sector Information, June 2005–June 2008

  • 8. Uganda: Millenium Development Goals

  • Figures

  • 1. Real GDP Per Capita Growth

  • 2. Percentage of Population Below Poverty Line

  • 3. Evolution of Capital Inflows and Net International Reserves

  • 4. Exchange Rate of Selected Currencies to the US $

  • 5. Contribution to Core Inflation

  • 6. Inflation Rates, January 1994–October 2008

  • 7. Effective Exchange Rates

  • 8. T-Bill Rates, January 2006–October 2008

  • 9. Nominal Exchange Rates, January 2002–October 2008

  • 10. BOU Policy Response, August 2006–October 2008

  • 11. Fiscal Revenue in 2007/08

  • 12. Tax Revenue.

  • 13. Interest Rates, January 2006–July 2008

  • 14. Private Sector Credit

  • 15. Exports

  • 16. Export Performance by Product

  • Boxes

  • 1. Key Fund Policy Recommendations and Implementation

  • 2. Infrastructure needs

  • 3. Analysis of real exchange rate fundamentals

  • Appendixes

  • I. Letter of Intent

    • Attachment I. Memorandum of Economic and Financial Policies

      • Table 1. Uganda: Quantitative Assessment Criteria and Indicative Targets for December 2008-June 2008

      • Table 2. Uganda: Structural Assessment Criterion and Benchmark

    • Attachment II. Technical Memorandum of Understanding

      • Table 1. Summary of Reporting Requirements

Executive Summary

Uganda’s economy has been among the fastest-growing in Sub-Saharan Africa. Building on a foundation of two decades of sound policies, Uganda achieved an impressive economic performance, with high growth, low inflation, and steady poverty reduction. The PSI-supported program remains on track, all assessment criteria for the fourth review have been met, and the staff recommends completion of the review.

But in 2008 Uganda has been buffeted by two major shocks. First, the global surge in food and fuel prices has caused domestic inflation to rise above 15 percent, well beyond traditional comfort levels. Second, the global economic downturn is likely to affect both the demand for Uganda’s exports and, more significantly, the availability of financing for critical investment projects.

Economic growth in 2008/09 is expected to decline, but remain high by global and regional standards. Staff estimates that growth will fall to 7–7½ percent in the current year, as activity in the construction and services sectors slows down. In addition, the downside risks for economic growth are significant. At the same time, core inflation will benefit from falling international food and fuel prices, reaching an estimated 7 percent by June 2009.

Uganda’s financial system has been relatively insulated from the global financial crisis, although vulnerabilities exist in some areas. The deteriorating economic environment could expose weaknesses in banks’ risk management practices, gaps in home-host supervisory arrangements, operational risks as financial innovation outpaces banks’ systems and controls, and increasing risk appetite due to intensifying competition from the surge of new banks. Stress tests suggest that credit risk, rather than direct foreign exposure, represents the main risk for the banking system.

How should macroeconomic policies react in the short term? For monetary policy, the crucial challenge will be to sustain confidence in the currency and support the disinflation process. Meanwhile, fiscal policy should aim at maintaining the orientation of the 2008/09 budget and take a measured response to any cyclical weakening of tax revenues.

The medium-term outlook for Uganda remains favorable, but constraints on growth are likely to become more binding. Scaling up investment in transport and energy infrastructure is a critical priority for sustaining and indeed raising Uganda’s medium-term growth potential. However, the international environment will be more challenging, perhaps for some years to come, which could affect the financing of investment projects. This places an additional premium on broadening the domestic revenue base and ensuring value for money in public spending. Staff’s analysis suggests that Uganda’s exchange rate is broadly in line with fundamentals.

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INTERNATIONAL MONETARY FUND

UGANDA

2008 Article IV Consultation And Fourth Review Under the Policy Support Instrument—Informational Annex

Prepared by the African Department

(In consultation with other departments)

December 19, 2008

  • Relations with the Fund. Describes financial and technical assistance by the IMF and provides information on the safeguards assessment and exchange system. Outstanding Fund credit was SDR 6 million (3 percent of quota) at end-October 2008.

  • Joint Bank-Fund Work Program. Describes Bank-Fund collaboration through December 2009.

  • Statistical Issues. Assesses the quality of statistical data. Economic data are generally adequate for surveillance purposes, although some shortcomings remain.

Contents

  • I. Relations with the Fund

  • II. Joint Bank-Fund Work Program

  • III. Statistical Issues

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INTERNATIONAL MONETARY FUND AND

INTERNATIONAL DEVELOPMENT ASSOCIATION

UGANDA

Joint IMF/World Bank Debt Sustainability Analysis 1

Prepared by the Staffs of the International Monetary Fund and the International Development Association

Approved by Robert Corker and Dominique Desruelle (IMF) and Sudhir Shetty and Carlos Alberto Braga (IDA)

December 19, 2008

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Public Information Notice (PIN) No. 09/23

FOR IMMEDIATE RELEASE

February 17, 2009

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

Telephone 202-623-7100

Fax 202-623-6772

www.imf.org

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Press Release No. 09/02

FOR IMMEDIATE RELEASE

January 9, 2009

Washington, D.C. 20431 USA

International Monetary Fund

Uganda: 2008 Article IV Consultation and Fourth Review Under the Policy Support Instrument: Staff Report; Staff Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Uganda
Author: International Monetary Fund