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© 2009 International Monetary Fund
January 2010
IMF Country Report No. 10/1
Uganda: Sixth Review Under the Policy Support Instrument and Request for an Extension of the Policy Support Instrument—Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Uganda.
In the context of the sixth review under the policy support instrument, the following documents have been released and are included in this package:
The staff report for the Sixth Review Under the Policy Support Instrument and Request for an Extension of the Policy Support Instrument, prepared by a staff team of the IMF, following discussions that ended on October 27, 2009, 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 1, 2009. 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 Press Release summarizing the views of the Executive Board as expressed during its December 22, 2009 discussion of the staff report that completed the request and/or review.
A statement by the Executive Director for Uganda.
The documents listed below have been or will be separately released.
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
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Washington, D.C.
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INTERNATIONAL MONETARY FUND
UGANDA
Sixth Review Under the Policy Support Instrument and Request for an Extension of the Policy Support Instrument
Prepared by the African Department
(In consultation with other departments)
Approved by Saul Lizondo and Dominique Desruelle
December 1, 2009
Fund relations. The Executive Board approved a three-year Policy Support Instrument (PSI) on December 15, 2006. Outstanding Fund credit amounts to SDR6 million (3.32 percent of quota).
The authorities request an extension of the current PSI to December 14, 2010 to align a possible successor PSI with their budget cycle and the National Development Plan currently under preparation.
Uganda received an allocation of Special Drawing Rights of SDR 133.8 million in the context of the general allocation on August 28, 2009, and a special one-time allocation of SDR 9.9 million on September 9, 2009.
Staff team. Martine Guerguil (head), Nabil Ben Ltaifa, Stella Kaendera (all AFR), Amina Lahreche (SPR), Jack Grigg (FAD), and Thomas Richardson (Senior Resident Representative).
Mission. Discussions for the sixth review under the PSI took place in Kampala during October 14-27, 2009. The mission met with the Minister of Finance, Planning and Economic Development, Ms. Bbumba; Bank of Uganda Governor Tumusiime Mutebile; and other senior officials. The staff in the resident representative office provided valuable support to the mission.
Outreach activity. The mission met with the press, representatives of the civil society, the parliament budget office, members of the business community, and representatives of the donor community.
Contents
Executive Summary
I. Recent Developments and Outlook
II. Policy Discussions
A. Fiscal policy
B. Monetary and financial policies
III. Medium-Term Issues
A. Infrastructure investment and challenges
B. Oil prospects
IV. Program Monitoring
V. Staff Appraisal
Boxes
1. The Spillovers of the Global Financial Crisis in the EAC
2. Reserve Adequacy in The East African Community
3. The impact of the Global Financial Crisis on Exchange Rate Developments and Policies in Uganda
4. Uganda’s Infrastructure Needs
Tables
1. Selected Economic and Financial Indicators, FY 2007/08-2013/14
2. Fiscal Operations of the Central Government, FY2007/08-2013/14
3. Monetary Accounts, FY2007/08-2013/14
4. Balance of Payments, FY2006/07-2013/14
5. Quantitative Assessment Criteria and Indicative Targets for June 2009
6. Structural Benchmarks
7. Financial Soundness Indicators, 2006-2009
Appendix I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies (MEFP)
Attachment II. Technical Memorandum of Understanding
Executive Summary
The Ugandan economy is weathering the impact of the global financial crisis better than anticipated. Despite a slowdown in economic activity, real GDP growth (at 7 percent) has remained strong by regional and international standards. Core inflation has been easing in spite of an increase in headline inflation due to higher food prices. The external current account performed better than expected, buoyed by strong cross-border exports. The shilling has regained strength as investor confidence has reversed the sudden portfolio outflows and the decline in FDI observed earlier in 2008/09. Gross international reserves remain strong.
Structural rigidities continue to pose challenges to macroeconomic management. Persistent weaknesses in project implementation coupled with rigidities in domestic financial markets limited the scope for fiscal and monetary stimulus in 2008/09. Progress with structural reforms has been uneven and may not have kept pace with the needs raised by the public investment drive. A renewed, more comprehensive structural reform agenda is needed to increase absorptive capacity as well as policy effectiveness.
Macroeconomic policies will continue to aim at overcoming infrastructure bottlenecks while mitigating the impact of external shocks on domestic activity. Full execution of the 2009/10 budget would provide a healthy stimulus to the economy but is contingent upon successful efforts to alleviate technical and administrative capacity constraints. The new, more flexible liquidity management framework should allow the central bank to support private demand while continuing to bring down inflation, although a tightening of the monetary stance may be required if food price pressures were to spill over to core inflation.
Preliminary plans to further step up public investment over the coming years seem justified in view of Uganda’s large infrastructure deficit. However, considerable caution will be required to preserve fiscal and debt sustainability and leave space for private sector growth. The commercial exploitation of oil, although still distant in time, will raise additional challenges. The authorities are committed to manage oil revenue carefully and transparently through the budget process. A full assessment of the macroeconomic impact of oil production is planned for 2010.
The PSI-supported program remains on track and staff recommends completion of the 6th review. Staff support the authorities’ request to extend the PSI to December 14, 2010 to align a possible successor PSI with the budget cycle and the new National Development Plan.
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INTERNATIONAL MONETARY FUND
UGANDA
Sixth Review Under the Policy Support Instrument and Request for an Extension of the Policy Support Instrument—Informational Annex
Prepared by the African Department
(In consultation with other departments)
December 1, 2009
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 (3.3 percent of quota) at end-October, 2009.
Joint Bank-Fund Work Program. Describes Bank-Fund collaboration through June 2010.
Contents
I. Relations with the Fund
II. Joint Bank-Fund Work Program
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Press Release No. 09/476
FOR IMMEDIATE RELEASE
December 22, 2009
