Uganda: 2008 Article IV Consultation And Fourth Review Under the Policy Support Instrument—Informational Annext
Author:
International Monetary Fund
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Publication Date:
05 Mar 2009
eISBN:
9781451838879
Language:
English
Keywords:
ISCR; CR; pose downside risk; Uganda; debt; monetary policy; safeguards policy; macroeconomic statistics; Sta mission; ROSC mission; X. exchange rate arrangement; Government finance statistics; Financial statistics; Balance of payments statistics
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The staff report for Uganda’s combined 2008 Article IV Consultation and Fourth Review Under the Policy Support Instrument is presented. 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 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 owing to intensifying competition from the surge of new banks.

Abstract

The staff report for Uganda’s combined 2008 Article IV Consultation and Fourth Review Under the Policy Support Instrument is presented. 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 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 owing to intensifying competition from the surge of new banks.

Appendix I. Uganda: Relations with the Fund

(As of October 31, 2008)

I. Membership Status: Joined 09/27/1963; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Financial Arrangements:

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VI. Projected Payments to Fund

(based on existing use of resources and present holdings of SDRs)

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VII. Implementation of HIPC Initiative:

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VIII. Implementation of MDRI Assistance

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IX. Safeguards Assessments

Under the Fund’s safeguards policy, assessments with respect to the PSI are voluntary. An update assessment of the Bank of Uganda (BOU) was completed on April 10, 2007 and concluded that the BOU had strengthened its safeguards framework since the 2003 assessment. The main developments included implementation of International Financial Reporting Standards, publication of financial statements, establishment of an audit committee, and strengthening of the internal audit function. Staff made recommendations to address remaining vulnerabilities in the legal and internal control areas.

X. Exchange Rate Arrangement

The official exchange rate is determined on the interbank market for foreign exchange. As of October 31, 2008, the official exchange rate was U Sh 1,881 per U.S. dollar. The exchange system is free of restrictions on the making of payments and transfers for current international transactions. Uganda’s exchange rate regime is classified as managed float without predetermined path.

XI. Article IV Consultation

The Executive Board concluded the last Article IV consultation on December 15, 2006. The next Article IV consultation with Uganda will be held on the 24-month cycle, subject to the provisions of the decision on consultation cycles approved on July 15, 2002.

In February and April 2001, joint World Bank/Fund missions visited Kampala as part of the Financial Sector Assessment Program (FSAP). A final report was provided to the authorities in November 2001, and an MFD mission discussed the report with the authorities during the Article IV consultation discussion in November 2002, and the Financial System Stability Assessment was prepared for Board discussion in February 2003. In November 2004, a joint World Bank/Fund missions visited Kampala for a FSAP update.

XII. Policy Support Instrument (PSI)

Uganda initiated a 16-month PSI with the Fund in January 2006. The 16-month PSI was replaced by a new three-year PSI in December 2006.

XIII. Technical Assistance

Uganda has received extensive technical assistance from the Fund in recent years.4

An FAD mission visited Kampala in April 1998 to advise the authorities on public service pension reform issues, and another mission visited Kampala in September 1998 to assist the authorities in improving customs administration procedures. A resident advisor in the area of local government budgeting began a six-month assignment in August 1998, which was subsequently extended to October 1999. An FAD resident advisor on budgeting and commitment control commenced a six-month assignment in November 1998, which was extended until June 2002. In October 2000, an FAD mission visited Kampala to provide technical assistance in tax policy and administration. A joint Bank/Fund TA mission visited Kampala in October 2003 to help harmonize tax investment incentives among the member countries of the EAC. An FAD TA mission on tax administration also visited Uganda in October 2004 to develop a comprehensive reform plan for the Uganda Revenue Authority (URA), followed by visits in April 2005 and April – May 2006. Two FAD resident advisors (coordinated through AFRITAC-East) assisted the implementation of a CCS at the local government level and the Fiscal Decentralization Strategy between June 2004 and February 2005. In the upcoming joint FAD-WB mission, the FAD will be represented by AFRITAC East, which would follow up on the recommendations of the 2005 FAD arrears mission and check whether the new financial and physical reporting system for local governments has been implemented.

A STA multisector statistics mission visited Kampala in December 1998 to conduct a comprehensive assessment of Uganda’s macroeconomic statistics, including data compilation and dissemination, and to provide recommendations for improvements. Follow-up STA missions in national accounts and money and banking statistics visited Kampala in March–April 2000 to examine the status of implementation of the previous recommendations. A STA mission on government financial statistics (GFS) visited Uganda in December 2001 to assist authorities in improving fiscal reporting by establishing regular reporting systems that are aligned with the GFS Manual 2001, as well as ensuring consistency within monetary sector data for the government. A follow-up mission on GFS visited Uganda in May 2003. A mission visited Uganda during February–March 2002 to review balance of payment statistics and the progress in implementing the recommendations of the multisector mission of 1998 and of the national accounts mission of 2000 with respect to the measurement of goods imports. A follow-up mission on balance of payments statistics visited Uganda in August 2003. Uganda is participating in the General Data Dissemination System (GDDS) and its metadata were initially posted on the Fund’s Dissemination Standards Bulletin Board in May 2000. A STA mission was in Uganda during February 2005 to prepare a data ROSC.

Since the 2001 FSAP, MFD’s TA to Uganda has focused on liquidity management, exchange rate intervention, central bank accounting and auditing, and banking supervision. The authorities have effectively used TA advice on these topics, and they have made good use of an MFD resident advisor, who took up her initial appointment in mid-July 2001. The advisor was fully integrated into the supervision function and has been involved in all aspects of the work, including participating in on-site examinations; she has subsequently been replaced by a second resident advisor. MFD has fielded two TA missions (July 2001 and January 2002) to assist the authorities with liquidity management and address the problems of interest rate volatility and exchange rate interventions. The BOU has started implementing the recommendations made in the report, and now clearly separates sterilization operations and liquidity management; however, they are still having problems with interest rate and exchange rate volatility and have requested follow-up TA in this area. In March and September–October 2002, MFD provided TA to improve central bank accounting and the Bank of Uganda’s accounting manual. A TA evaluation visit was conducted in June 2003, and an MFD mission following up on monetary and exchange rate operations, public debt, and liquidity management was conducted in March 2004. An FSAP update mission was conducted in November 2004 and focused on access, outreach, and stability issues, which also updated progress made since the last FSAP. A TA mission on enhancing the effectiveness of monetary policy implementation and developing financial markets was conducted in August 2005. Finally, a joint MCM/BOU workshop on financial market development was held in April 2006.

XIV. Future Technical Assistance Priorities

The priorities for Fund technical assistance in the next few years will be in the areas of tax administration, public expenditure management, especially control and monitoring of public arrears at both central and local government levels, monetary and exchange rate management, bank supervision, national accounts statistics, reporting standards for government finance statistics, monetary and balance of payments statistical reporting, central bank accounting, and audit and debt management.

XV. Resident Representative

The Fund has maintained a resident representative in Uganda since July 1982.

Appendix II. Joint Bank-Fund Work Program, January–June 2009

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Appendix III. Uganda: Statistical Issues

Data provision has some shortcomings, but is broadly adequate for surveillance. Uganda participates in the General Data Dissemination System (GDDS) and its metadata were initially posted on the Fund’s Dissemination Standards Bulletin Board in May 2000. Metadata updates were received in December 2008. Uganda is participating in three modules of the Fund’s GDDS Project for Anglophone Africa, including: preparation for subscription to the Fund’s Special Data Dissemination Standard (SDDS); government finance; and monetary and financial statistics. The project aims to assist participating countries to implement plans for improvement identified in their GDDS metadata, and is funded by the U.K. Department for International Development (DFID).

In February 2005 a STA mission prepared a data ROSC, with results published in July 2006. The ROSC mission assessed data compilation and dissemination practices against international standards in national accounts, prices, government finance, and balance of payments statistics; monetary and financial statistics were not assessed. In April 2007 a Special Data Dissemination Standard (SDDS) mission assesed dissemination practices vis-à-vis SDDS requirements for coverage, periodicity and timeliness.

Real sector statistics

Compilers have recently developed estimates of quarterly value added at constant 2002 prices using the International Standard Industrial Classification (ISIC) Rev III groups. However, methodological shortcomings remain relating to benchmarking and the use of appropriate indicator series. The Uganda Bureau of Statistics (UBOS) collects output data from a sample of manufacturing establishments in the industrial belt of the country to compile a Major and a Main Index of Industrial Production (IIP). Labor market indicators such as employment, unemployment, and wages/earnings are infrequently compiled and disseminated. UBOS aims to compile and disseminate labor market indicators on an annual basis, but due to resource and data unavailability, dissemination occurs with a two year lag. UBOS collects prices of consumer goods and services from six urban centers for computing inflation rates, which are disseminated on the last working day of every month. According to UBOS, there are plans to expand the coverage to include another urban center. UBOS collects producer prices from a sample of manufacturing establishments to compile the Producer Price Index for Manufacturing.

Government finance statistics

The Ministry of Finance, Planning and Economic Development (MoFPED) compiles the fiscal statistics on general government including budgetary central government and local governments but excluding extra budgetary institutions and the National Social Security Fund. A revised chart of accounts was implemented for use by all budgetary central government and local government units from July 1, 2003. Uganda reports Government Finance Statistics (GFS) data according to the GFSM 2001 framework for the GFS Yearbook, but institutional coverage are limited to budgetary central government and local governments. External debt for the public sector, external debt guaranteed by the public sector, and debt service schedule data are disseminated in millions of dollars and in Uganda shillings (using end of year exchange rates) for the fiscal year (July to June). Uganda does not report any high frequency data for inclusion in the IFS. In terms of the DFID Phase II project, a GFS mission visited Uganda in September 2008, to further assist with improving fiscal data.

Monetary and financial statistics

The March 2008 monetary and financial statistics mission found that substantial progress was made in reporting data to the Fund using standardized report forms (SRF) that align the monetary data in accordance with the Monetary and Financial Statistics Manual (MFSM). Beginning in May 2008, the commercial banks have begun reporting their data for monetary statistics purposes on the new system that provide clear identification of positions with nonresidents, and breakdowns by domestic sectors and financial instruments. The SRF-based monetary data will be introduced in International Financial Statistics (IFS) and the IFS Supplement in January 2009. The data on other depository corporations do not include yet the positions of credit institutions, and microfinance deposit institutions, which also accept deposits. No progress has been made yet on savings and credit cooperatives.

External sector statistics

The 2005 data ROSC mission found that the balance of payments statistics broadly follow the fifth edition of the Balance of Payments Manual (BPM5), but that there are some departures from recommended definitions, scope, and classifications. The mission urged completion of the conversion to the BPM5 and the development of new source data and estimation techniques in the following areas: exports of freight and imports of passenger transportation, compensation of employees, direct investment abroad, portfolio investment and financial derivatives. International trade data could be improved by incorporation of results from the Survey of Informal Cross-Border Trade and greater use of trade partner country data sources.

Quarterly and fiscal year data are disseminated in the BOU’s publications Quarterly Economic Report and Annual Report, as well as the UBOS annual Statistical Abstract. In principle, data cover the entire economy and include all transactions between residents and nonresidents. Quarterly balance of payments statistics are disseminated in an analytical format or on the basis of standard components, in accordance with the requirements of the IMF Balance of Payments Manual, Fifth Edition (BPM5).

A mission in April 2008 reviewed the private sector financial survey and an informal cross-border trade survey as well as estimation methods for remittances. Proposals were made for dealing with gaps in recording of transactions in the securities market by nonresidents through the secondary market and nominee accounts. It also proposed a priority program to cover developments in the oil industry and identified several alternative methods to improve the estimation of remittances. The mission also recommended a timely, small-scale quarterly survey of financial flows.

Uganda: Table of Common Indicators Required for Surveillance

(As of December 3, 2008)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

Including maturity composition.

International Investment Position

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Reflects the assessment provided in the data ROSC published on July 21, 2006 based on the findings of the mission that took place during February 9-22, 2005. For the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 6, except referring to international standards concerning source data, statistical techniques, assessment and validation of source data, assessment and validation of intermediate data and statistical outputs, and revision studies.

1

Net present value (NPV) terms at the completion point under the original framework, and NPV terms at the decision point under the enhanced framework.

2

Under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative), an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

3

The Multilateral Debt Relief Initiative (MDRI) provides 100 percent debt relief to eligible member countries that are qualified for the assistance. The debt relief covers the full stock of debt owed to the Fund as of end-2004 which remains outstanding at the time the member qualifies for such debt relief. The MDRI is financed by bilateral contributions and the Fund’s own resources, as well as the resources already disbursed to the member under the HIPC Initiative (see Section VII above).

4

For a description of technical assistance provided prior to 1998, see the staff report for Uganda’s request for a three-year arrangement under the PRGF (Country Report 02/213).

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Cover IMF Staff Country Reports
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
Volume/Issue:
Volume 2009: Issue 079
Publisher:
International Monetary Fund
ISBN:
9781451838879
ISSN:
1934-7685
Pages:
86
DOI:
https://doi.org/10.5089/9781451838879.002