The economy has performed reasonably well in a complex environment. Growth slowed marginally in FY15/16, reflecting muted sentiment in an election year and adverse global and regional developments. Growth should nudge up in FY16/17 to 5 percent, low compared to past performance and regional peers. Credit to the private sector has stalled, and non-performing loans (NPLs) have increased, also reflecting domestic government arrears. The current account deficit is fully financed. The Shilling has stabilized after a sharp depreciation in 2015, and international reserve coverage remains adequate.

Abstract

The economy has performed reasonably well in a complex environment. Growth slowed marginally in FY15/16, reflecting muted sentiment in an election year and adverse global and regional developments. Growth should nudge up in FY16/17 to 5 percent, low compared to past performance and regional peers. Credit to the private sector has stalled, and non-performing loans (NPLs) have increased, also reflecting domestic government arrears. The current account deficit is fully financed. The Shilling has stabilized after a sharp depreciation in 2015, and international reserve coverage remains adequate.

Background and Recent Developments

1. The political cycle has complicated policy making. The February 2016 presidential and parliamentary elections and the subsequent events weighed on sentiment. The elections also contributed to fiscal slippages. President Museveni was declared winner with 61 percent of the votes, and is now in his fifth term. Parliament and cabinet took office in June. The new government has reiterated the objective of reaching middle-income status by 2020 through infrastructure investment, agricultural growth, and supporting private sector job creation.

2. The economy has performed reasonably well in a complex environment. Growth slowed marginally to 4.8 percent in FY2015/16 from 5 percent in the previous year (Figure 1), as the elections and adverse global and regional developments, particularly in neighboring South Sudan, contributed to a slowdown in investments and exports. After a sharp depreciation in 2015, the shilling appreciated and stabilized as market sentiment improved. High frequency indicators suggest a strengthening of economic activity, with growth projected to nudge up to 5 percent in FY2016/17, supported by rising private and public investments. Nevertheless, growth lags behind the rates achieved in Uganda’s recent past and those of regional peers.

Figure 1.
Figure 1.

Uganda: Real Sector Developments

Citation: IMF Staff Country Reports 2017, 007; 10.5089/9781475565225.002.A001

Sources: Bank of Uganda, Uganda Bureau of Statistics, and IMF staff calculations.
A01ufig1

Per capita real GDP growth*

(percent)

Citation: IMF Staff Country Reports 2017, 007; 10.5089/9781475565225.002.A001

* Refer to FY data or calculated equivalents.

3. Despite significant progress over the last decade, poverty remains elevated. The poverty rate has come down from 62.2 percent in 2003 to about 34.6 percent in 2013, under the international poverty line.1 Vulnerability to poverty also remains high, with about 43 percent of Ugandans classified as insecure non-poor. During 2005–09, two out of three non-poor fell back into poverty. Reducing poverty further also calls for higher and more inclusive growth. This challenge notwithstanding, Uganda is hosting refugees from South Sudan through a commendable integration model (Box I).

4. The current account deficit narrowed by 1 percentage point to 5.9 percent of GDP in FY2015/16, but is expected to widen again. Imports dropped sharply, mainly due to lower oil price and delayed investments. This more than offset a decline in exports on account of weak global and regional demand, including from South Sudan (Figure 2). In all, the overall balance recorded a small surplus. For FY2016/17, the current account deficit is projected to widen again, reflecting higher investments in infrastructure projects.

Figure 2.
Figure 2.

Uganda: External Sector Developments

Citation: IMF Staff Country Reports 2017, 007; 10.5089/9781475565225.002.A001

Sources: Bank of Uganda and IMF staff calculations.

5. The underlying private sector sentiment appears more muted than the headline numbers suggest. Export weakness, a virtual standstill in private sector credit expansion and problems in the banking sector, domestic government arrears, and arrears from South Sudan to Ugandan businesses who had been active there, are all creating an air of uneasiness and uncertainty. Morever, concerns of a possible drought also affect expectations.

Uganda’s Humanitarian Response

Uganda has become one of the top refugee-hosting countries in Africa. The latest influx comes from conflict-torn South Sudan and about ten other countries. The total number of refugees in Uganda is estimated at over 922,000 (about 2¼ percent of the population), of which about 553,000 come from South Sudan. This has made Uganda one of the top countries hosting refugees in Africa.1 Since September 2016, a record number of refugees have been arriving—about 2,000 to 3,000 per day—the majority of which are women and children.

Uganda’s refugee policy provides for integration with the local communities, widely acclaimed as an international best practice.2 The UNHCR has praised Uganda’s “non-camp” approach in the 2006 Refugee Act as “progressive and forward-thinking.” Under the Refugee and Host Population Empowerment program, refugees are given similar rights as nationals—including the right to work and establish businesses, free schooling and healthcare, freedom of movement, and allocation of agricultural land. By allowing refugees to work, the approach benefits host communities and facilitates deeper and faster refugee transitions.3 Ugandan authorities work closely with the UNHCR and UN partner agencies, in collaboration with the World Bank, and local and international NGOs. Refugee settlement has been included in Uganda’s National Development Plan II, thereby bringing together the humanitarian and the development aspects, and the government is promoting social service delivery in refugee-hosting areas.

A01ufig2

Top African Countries in Hosting Refugees1

(percent)

Citation: IMF Staff Country Reports 2017, 007; 10.5089/9781475565225.002.A001

Sources: Amnesty International, UNHCR, IMF World Economic Outlook, and staff calculations.1 Data are as of end-October 2016 for Uganda and end-2015for other countries.

The cost of hosting refugees has been largely absorbed within existing programs, but challenges have emerged with the recent surge of refugees. The government’s refugee outlays are partly covered by the allocations for disaster preparedness, which were approved before the recent conflict in South Sudan erupted. The government’s contributions also include the allocation of communal land to newly arrived refugees and the enrollment of child refugees in schools. Other donor-financed programs include: access to training and general support for rural livelihoods, cash-based food assistance, healthcare services, and provision of water, sanitation and hygiene facilities, and other essential non-food items. With an increasing number of refugees, local government service delivery systems are being strained, not least because of shortfalls in donor funding. The continued high influx of refugees is also likely to constrain the size of available agricultural plots for refugees, which potentially threatens their food security and increases the burden placed on humanitarian assistance.

1 See the UNHCR’s Revised South Sudan Regional Refugee Response Plan, January-December 2016.2 See http://www.worldbank.org/en/topic/fragilityconflictviolence/brief/ugandas-progressive-approach-refugee-management.3 See https://www.wfp.org/news/news-release/new-research-finds-humanitarian-assistance-refugees-boosts-ugandas-economy.

Performance Under the PSI

6. Performance under the PSI through end-June 2016 was mixed (Memorandum of Economic and Financial Policies (MEFP), para. 11-18). The BoU kept core inflation inside its inflation target band. Softer growth and election effects led to the non-observances of fiscal targets, though it is important to note that these were more muted than during the previous presidential elections. Structural reforms progressed, albeit with many delays.

7. The BoU kept inflation within the target band and exceeded its reserve accumulation target at end-June (MEFP Table 1.1). Tight monetary policy through April 2016 helped contain core inflation within the BoU’s target range. Core inflation decelerated to 5.1 percent year-on-year in October from its peak of 7.5 percent in December 2015, remaining well within the inner band of the inflation consultation clause at end-June. In the same period, headline inflation decelerated to 4.1 percent year-on-year from its peak of 8.4 percent. The BoU seized the favorable balance of payments developments and accumulated about US$170 million gross international reserves to US$2.96 billion (about 4½ months of next year’s imports), exceeding the end-June target.

8. Most fiscal targets were missed due to a confluence of temporary factors (MEFP Table 1.1). The authorities met the targets on the zero ceiling of external payment arrears and on the deposit of oil revenues in the Petroleum Fund. They also protected poverty-alleviating spending, meeting their FY15/16 program objective. However, tax revenue fell short of target by 0.3 percent of GDP, reflecting lower nominal growth. In addition, higher than anticipated election-related spending led to an overrun of current expenditure of 0.1 percent of GDP. Thus, the program fiscal deficit target (QAC) was missed by 0.5 percent of GDP, and the government partly relied on BoU advances for its financing needs.2 Staff supports a waiver on the basis that the non-observance was temporary. Externally-financed development spending (including hydro power projects) was under-executed by 2.4 percent of GDP, and the overall fiscal deficit was 1.2 percent of GDP lower than anticipated, partly because the necessary domestic contribution was not budgeted for. While the authorities have cleared domestic arrears of about 0.1 percent of GDP in FY16/17 so far, they are still reconciling estimates of the stock, which has complicated assessment of the associated indicative target. The preliminary estimates put the stock of domestic arrears as of June 2016 at 3.2 percent of GDP.

9. Structural reforms have progressed, with two out of five completed on time (MEFP Table 1.2). The government has issued regulations for implementing the PFM Act, though some key elements (e.g., the management of oil revenues) have not been incorporated and are partly expected to be covered in the corresponding instructions under preparation. The government also sent the charter of fiscal responsibility to Parliament. The charter includes measurable fiscal objectives to guide Uganda’s fiscal framework and strong commitments to transparency, though it could have usefully included a requirement to explain how deviations from the measurable objectives will be corrected. There have been delays in the publication of quarterly reports on unpaid bills and domestic arrears. The publication of reconciled reports on the stock of domestic arrears for June 2015 and June 2016 has been rescheduled to December 2016 to allow sufficient time for the authorities to validate the data. The authorities will no longer be able to publish a reconciled report on the stock of unpaid bills for December 2015 as this interim data is superseded by the end-fiscal year report. Similarly, a delay occurred in the passage of the amended Anti-Money Laundering (AML) Bill and the Insurance Regulatory Bill, intended to help ensure Uganda’s prompt exit of the Financial Action Task Force (FATF) “gray list.” There was also a delay in the approval of the Amendments to the BoU Act, designed to enhance the legislative framework for strengthening BoU’s capital and operational independence.

Policy Discussions

10. With the elections over, the authorities aim to refocus macroeconomic policies on their medium-term objectives. Fiscal policy will emphasize improving the quality of spending and continued increases in domestic revenues to create space for the scaled up infrastructure drive and preserve debt sustainability. Monetary policy has scope for further easing, if the favorable inflation forecast remains in place. The authorities will also push ahead with their structural reform agenda, though some measures may take more time than initially hoped for. The medium-term growth outlook remains favorable. The authorities expect growth to reach 6½ percent over the medium-term, as infrastructure bottlenecks are eased and more investments for oil production commence. After some delays, oil production licenses have now been awarded, and the pipeline route through Tanzania has been agreed on.

11. While the baseline outlook is favorable, risks are tilted to the downside. As other countries, Uganda remains exposed to risks from lower global growth and trade as well as tighter global financing conditions. Negative spillovers from the conflict in South Sudan could further weigh on exports and growth, while the growing refugee influx could entail budget pressures. Rainfalls have been late this year, and an unfolding drought could adversely affect food security and add to fiscal pressures. There also appears to be a negative sentiment in the private sector that is not yet captured in the headline numbers, but may forewarn of a potential deterioration in economic conditions.

A. Fiscal Policy

12. The authorities aim for a slightly tighter fiscal stance in FY16/17 compared with the sixth review and their budget to ensure Uganda remains at low risk of debt distress—the cornerstone of the program—and minimize crowding out of the private sector. They target the overall deficit to widen by ¾ percentage points to 6 percent of GDP (¼ percentage point lower than envisaged in the sixth review). The authorities have taken tax policy and administration measures to increase revenue collection by ½ percent of GDP.3 However, the budget is under pressure from three directions: (i) revenue collection could be lower in shilling terms, reflecting the downward revision of nominal growth; (ii) the authorities had underestimated debt service by about 0.2 percent of GDP, which they intend to accommodate within the existing envelope; (iii) and the authorities do not want to significantly increase their reliance on bank financing, with private sector credit growth already near zero. Staff acknowledges the authorities’ ambition, but cautions that this will require strict expenditure control which may be difficult to achieve, given that about 55 percent of the budget has been released in Q1 and Q2. There is, thus, a risk that the government could miss its deficit target. In this case, they may have to consider additional domestic financing to avoid relying on BoU advances again.

13. The authorities’ financing strategy is guided by the objective to limit reliance on domestic bank financing. The government will utilize a US$200 million non-concessional loan to replace World Bank budget support and repay the outstanding BoU advances from FY15/16.4 The Bank’s budget support has been affected by the decision to withhold new lending to Uganda to address performance issues in the portfolio, and the authorities are engaging closely with the Bank to address these concerns, including by improving social safeguards and project supervision (MEFP, para. 34). The authorities remain committed to using BoU advances only for cash-flow management. Taken together, the authorities expect to reduce their reliance on bank financing compared with last year and thus facilitate a recovery in private sector credit.

14. The authorities are stepping up efforts to reduce domestic arrears. They have reported preliminary data on the stock of domestic arrears as of June 2016 and committed to provide fully reconciled data by December 2016 after completing an ongoing internal reconciliation exercise. In addition, they have made a specific front-loaded allocation for domestic arrears clearance in FY16/17 and additional allocations in their medium-term budget framework, and issued guidance to provide arrears repayment the first call on budgetary resources. Furthermore, they have requested technical assistance from AFRITAC East to improve expenditure commitment controls and prevent future domestic arrears.

B. Monetary Policy and Financial Stability

15. With a favorable inflation outlook, the BoU has entered an easing cycle since April. The Monetary Policy Committee reduced the central bank rate (CBR) by 100 basis points to 13 percent in its last meeting in October, resulting in a cumulative reduction of 400 basis points since April (Figure 4). While treasury bill rates have continued to decline across all tenors since the elections, the reduction in the CBR has been slow to transmit to lending rates, possibly reflecting a tightening of lending standards and the asymmetry in transmission of monetary policy.

Figure 3.
Figure 3.

Uganda: Fiscal Sector Developments

Citation: IMF Staff Country Reports 2017, 007; 10.5089/9781475565225.002.A001

Sources: Ministry of Finance and IMF staff calculations.
Figure 4.
Figure 4.

Uganda: Monetary Sector Developments

Citation: IMF Staff Country Reports 2017, 007; 10.5089/9781475565225.002.A001

Sources: Bank of Uganda and IMF staff calculations.
Figure 5.
Figure 5.

Uganda: Financial Sector Developments

Citation: IMF Staff Country Reports 2017, 007; 10.5089/9781475565225.002.A001

Sources: Bank of Uganda and IMF staff calculations.
Figure 6.
Figure 6.

Uganda: Other Financial Sector Developments

Citation: IMF Staff Country Reports 2017, 007; 10.5089/9781475565225.002.A001

Sources: Bank of Uganda and IMF staff calculations.

16. The scope for further monetary policy easing is guided by the BoU’s inflation forecast. The BoU considers that food prices are subject to considerable risks from unfavorable weather, while Shilling depreciation could also pose inflation risks. The scope for further easing of monetary policy also depends on fiscal policy implementation. The BoU’s inflation model—which has been developed with Fund support—projects core inflation to converge to its target. Staff agrees that the BoU may have further space to ease monetary policy, if the inflation outlook remains benign, and concurs with their risk assessment.

17. The BoU appropriately took over management of the third largest domestic bank. The Crane Bank had become undercapitalized when it had to recognize underreported NPLs earlier this year. Facing a steady deposit outflow, the bank was close to being illiquid, and there were signs of asset stripping. Deposit outflows have reportedly stopped, and the authorities aim to find a strategic investor. Staff welcomes these steps, but cautions that the authorities should also consider contingency plans.

18. The remaining banking system is, in general, well-capitalized, but rising NPLs have constrained private sector credit. Most banks already meet the increased Basel III capital requirements, and the BoU’s top-down stress tests point to the sector’s resilience.5 However, NPLs rose to 8.3 percent in June 2016 from 4 percent a year ago, ascribed to the slowdown of economic activities and government domestic arrears. NPLs declined to 7.7 percent in September based on preliminary figures. Some smaller banks struggle with profitability and have been subject to social media rumors. Heightened credit risk and elevated provisioning costs have prompted a tightening of lending standards. The government’s recent efforts in clearing domestic arrears is expected to reduce NPLs and improve private sector credit conditions (MEFP, para. 7).

19. The BoU continues to strengthen prudential oversight. To address potential vulnerabilities in real estate lending, the BoU implemented a new cap on the loan-to-value ratio in May 2016. In addition, to mitigate risks around mobile money, the BoU has commissioned an international firm to study the industry and provide recommendations for strengthening supervision. Furthermore, the BoU collaborated with other central banks to conduct regional stress tests and assessed the cross-border operations of banks with a regional presence. Finally, to enhance the supervision of nonbanks, Parliament approved the Tier IV Microfinance Institutions Act in July 2016, which supports the establishment of a Microfinance Regulatory Authority to complement the BoU in supervising the sector.

20. The authorities are addressing deficiencies in Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) to secure Uganda’s swift exit from the FATF “gray list.” Building on an earlier action plan to improve Uganda’s AML/CFT regime, the authorities have included additional measures to address the deficiencies identified in a 2016 Mutual Evaluation Report by the Eastern and Southern Africa AML Group. These measures include, among others: (a) adequately criminalizing the financing of terrorism; (b) expanding the scope of record-keeping requirements to all financial institutions; and (c) designating supervisory bodies with necessary powers to enforce compliance, including proportionate and dissuasive sanctions. The authorities expect to take the key legal steps by December 2016 (structural benchmark (SB)).

21. The authorities acknowledged the delays with the proposed Amendments to the BoU Act. Discussions between the Ministry of Finance and the BoU are advanced, and should be concluded soon. With that, the authorities expect to submit the amendments to the Act to parliament by end-March 2017. Staff regrets the delays and encourages the authorities to follow international best practices in the outstanding areas.

C. Financial Sector Development and Inclusion

22. The authorities have continued reforms to deepen financial markets. The authoriies are reviewing which banks should be allowed to act as primary dealers, since not all current primary dealers are delivering on their responsbiliities which affects the functioning of the secondary market. In parallel, the BoU is developing a master repo agreement to facilitate a deepening of the interbank market.

23. The authorities are pursuing financial inclusion through several fronts. Passage of the Amended Financial Institutions Act in 2016 allows for Agency Banking, bancassurance, and Islamic banking, which enhances financial inclusion by greatly expanding the network of service providers. The regulations for Agency Banking are expected to be approved by the Ministry of Finance later this year; the draft regulations for bancassurance have been shared with the industry for review; and the draft regulations for Islamic Banking are under review with support from the Islamic Development Bank. The mobile banking industry continues its expansion, with over 21 million registered users. Building on the 2013 Mobile Money Guidelines, a comprehensive regulatory framework is under preparation to safeguard this important part of the financial market (proposed new SB).

24. The BoU is also strengthening consumer protection. BoU has continued to enforce through annual onsite inspections the financial protection guidelines to protect consumers while also promoting financial literacy programs. Banks are required to issue key financial facts to consumers for all loan products at their inception and whenever there are changes in the contractual terms.

D. Debt Sustainability

25. The authorities are committed to ensuring that their debt remains at low risk of debt distress. The Debt Sustainability Analysis (DSA, Annex 2) continues to show a low risk of debt distress, but also indicates that vulnerabilities have increased. The authorities acknowledged the vulnerability to export shocks and the importance of realizing the envisaged growth dividend. They expected the level and resilience of exports to improve over time, supported by infrastructure investment and regional integration.

26. Further progress on domestic revenue mobilization is key to maintaining Uganda’s favorable risk rating. The authorities recognize that Uganda’s tax revenue significantly underperforms compared to regional peers and are committed to increasing tax revenue by at least ½ percentage point of GDP per year. They remain focused on revenue administration reforms to boost tax collection.6 In addition, the authorities have requested FAD technical assistance on tax policy to assess priority areas for further reforms. Staff welcomes these efforts and suggests that the authorities also monitor tax expenditures and their effectiveness.

A01ufig3

Tax revenues*

(percent of GDP)

Citation: IMF Staff Country Reports 2017, 007; 10.5089/9781475565225.002.A001

* Refer to FY data or calculated equivalents.

27. Likewise, enhancing the efficiency of public investment is key to realizing the growth dividend which underpins debt sustainability. The authorities are concerned about persistent investment under-execution and will continue with reforms to strengthen public investment management, in particular, requiring more rigorous feasibility studies and ensuring that the required budget allocations for counterparty funding are made before loans are contracted. They aim to finalize an Appraisal User Manual by December and make it mandatory for all new projects (structural benchmark). They have requested FAD technical assistance to help set reform priorities in public investment management going forward.

28. Safeguarding debt sustainability also requires better debt monitoring and management, including fiscal risks from extra-budgetary units and Public-Private Partnerships (PPPs). The authorities recognize that the increasing use of PPPs requires improved monitoring and management. While a PPP unit has been created at the Ministry of Finance, sufficient resources are yet to be provided. The authorities are also establishing a system for monitoring borrowing by government agencies and state-owned enterprises. Staff welcomes these efforts and encourages the authorities to make use of technical assistance from the Fund or development partners in this area.

E. Program Design

29. The authorities propose changes to their program, given developments in FY15/16 and the more muted economic outlook. The overall program objectives, in particular raising the revenue yield by ½ percent of GDP remain in place. However, reflecting base effects from FY15/16 and lower nominal growth as well as concerns over balance of payments inflows, the authorities propose to adjust two QACs (the ceiling on the overall deficit and the minimum accumulation of international reserves) and a few indicative targets for the remainder of the program period (MEFP Table 1.1). They also propose to reschedule those SBs for which they will require more time (MEFP Table 1.2).

30. In addition, the authorities propose four new SBs, including those on AML/CFT and public financial management (MEFP Table 1.2):

  • Ministry of Finance to further strengthen the AML/CFT framework in line with the international standard by liaising with Parliament to amend the Anti-Terrorism Act to adequately criminalize the financing of terrorism (SB, end-December 2016).

  • Ministry of Finance to establish a framework for following up and reporting on the implementation of the recommendations of value-for-money audits conducted by the Auditor General’s office (SB, end-March 2017).

  • Ministry of Finance to produce a manual setting out national parameters, shadow prices, and conversion factors to be used in all economic project appraisals prior to admission into the Public Investment Plan (SB, end-March 2017).

  • Ministry of Finance and BoU to prepare and submit to Cabinet a policy to regulate mobile money banking (SB, end-April 2017).

Staff Appraisal

31. The Ugandan authorities have managed well in a difficult election year. Fiscal slippages were contained compared with the 2011 election, and inflation was kept close to target. However, growth at 5 percent—2 percent in per-capita terms—falls short of past performance and aspirations and seems insufficient to shake an undercurrent of negative sentiment. The scaling up of infrastructure investment is intended to address growth bottlenecks, and will be most effective if combined with investments in human capital and improvements in the business environment. Staff commends Uganda for hosting refugees from neighboring countries and allowing them the opportunity to be economically active. The international community is called upon to provide financial assistance to mitigate the humanitarian crisis and support this integration model.

32. Staff notes the mixed performance under the authorities’ program through June 2016. Stable inflation and the build-up of international reserves are welcome, as is the protection of poverty-alleviating expenditures. The fiscal slippages were contained, and partly reflect lower nominal growth. However, expenditure composition has deteriorated, as externally financed development spending fell short of expectations and current, less productive expenditure increased. This points to weaknesses in the budget and public investment management processes that undermine the intended scaling up of infrastructure investment. The authorities met SBs aimed at improving public financial management and fiscal transparency, but other important initiatives were delayed. Staff supports the modification of QACs to update the authorities’ current program, the rescheduling of the dates for a few existing SBs, and the addition of the proposed new SBs in program monitoring.

33. Staff welcomes the authorities’ FY16/17 policy objectives. The inflation outlook has allowed monetary easing and remains benign, with the exchange rate and drought-related food price spikes being the main risks. Fiscal policy stays the course on increasing the revenue take by ½ percent of GDP, while seeking to contain expenditures within a tight ceiling. Achieving this expenditure restraint will be difficult, not least because line ministries have not always properly budgeted for the domestic component of development spending. Staff encourages the authorities to finalize reporting of domestic government arrears and follow through on plans to hold accounting officers responsible for arrears avoidance. Staff cautions that new policy proposals, however well-intended, need to be accommodated in a way that would not undermine revenue mobilization and debt sustainability.

34. The BoU appropriately intervened in a systemically important domestic bank. The search for a strategic investor has begun, and the BoU should in parallel consider contingency plans. A review of the episode could be useful to assess what potential lessons could be drawn for bank supervision. The implementation of Basel III capital standards and tightening of macro-prudential standards should enhance the resilience of the sector.

35. The authorities are cooperating closely with FATF to ensure a swift exit from the “gray list.” The necessary legal changes to the Anti-Terrorism Act, the AML Law, and the Insurance Act are under way, but completing them on the timeline agreed with FATF will require deep engagement with parliament. Staff also calls on the authorities to submit the amendments to the BoU Act to parliament which will strengthen the central bank’s ability to deliver on its mandate.

36. The DSA update underscores the importance of further raising the revenue-to-GDP ratio and ensuring that public investment yields the intended growth dividend. Uganda remains at low risk of debt distress, and public debt would stabilize at about 42 percent of GDP after the current investment scaling-up is completed. However, the DSA shock scenarios indicate increased vulnerabilities compared with the previous update. The government could consider a more ambitious path of domestic revenue mobilization to mitigate these vulnerabilities. In parallel, strengthening public investment management will be instrumental to ensuring that projects are properly prepared, vetted, consistent with policy priorities, and executed efficiently to yield maximum value for money. Staff encourages the authorities to speed up reforms in this area.

37. Staff recommends completion of the seventh review of the PSI-supported program. The attached MEFP outlines the macroeconomic objectives and policies for the remainder of the program period. Staff supports a waiver of the nonobservance of the ceiling on the overall deficit of the central government on the grounds that the non-observance was temporary.

Table 1.

Uganda: Selected Economic and Financial Indicators, FY2012/13–2020/211,2

article image
Sources: Ugandan authorities and IMF staff estimates and projections.

Fiscal year runs from July 1 to June 30.

All figures are based on the 2009/10 rebased GDP provided by the authorities in October 2016.

The CBR was introduced following the start of Inflation Targeting in July 2011. Data refer to end-year CBRs.

Capital expenditures include net lending and investment on hydropower projects, and excludes BoU recapitalization and other spending.

Table 2a.

Uganda: Fiscal Operations of the Central Government, FY2012/13–2017/181,2

(Billions of Ugandan Shillings)

article image
Sources: Ugandan authorities and IMF staff estimates and projections.

Fiscal year runs from July 1 to June 30.

All figures are based on the 2009/10 rebased GDP provided by the authorities in October 2016.

Include mainly HIPC-related grants from FY 2013/14 onwards.

Expenditure categories in FY2013/14 include clearance of arrears totaling Shs. 544 billion, mainly in Government of Uganda investment and other current spending.

Reflects actual and projected issuances for the recapitalization of Bank of Uganda.

The overall deficit excluding large infrastructure projects financed by nonconcessional external borrowing (e.g. HPPs), BOU recapitalization, and oil revenue.

Net financing from the Bank of Uganda includes resources freed by MDRI relief.

The balances of the Oil Fund were transferred to the UCF and in line with the PFM Act, a new Petroleum Fund was opened with balances from recent oil revenue deposits.

Table 2b.

Uganda: Fiscal Operations of the Central Government, FY2012/13–2017/181, 2

(Percent of GDP)

article image
Sources: Ugandan authorities and IMF staff estimates and projections.

Fiscal year runs from July 1 to June 30.

All figures are based on the 2009/10 rebased GDP released in November 2014.

Include mainly HIPC-related grants from FY 2013/14 onwards.

Expenditure categories in FY2013/14 include clearance of arrears totaling 0.8 percent of GDP, mainly in Government of Uganda investment and other

The overall deficit excluding large infrastructure projects financed by nonconcessional external borrowing (e.g. HPPs), BOU recapitalization,

Net financing from the Bank of Uganda includes resources freed by MDRI relief.

The balances of the Oil Fund were transferred to the UCF and in line with the PFM Act, a new Petroleum Fund was opened with balances from recent oil revenue deposits.

Table 2c:

Uganda: Quarterly Fiscal Operations of the Central Government, 2015/16–2016/171, 2

(Billions of Ugandan Shillings)

article image
Sources: Ugandan authorities and IMF staff estimates and projections.

Fiscal year runs from July 1 to June 30.

All figures are based on the 2009/10 rebased GDP provided by the authorities in October 2016.

Include mainly HIPC-related grants from FY 2014/15 onwards.

The projections for the overall balance in FY17 are consistent with the adjusted ceiling on the overall balance, as defined in the TMU of the Staff Report for the Sixth Review of the PSI.

The overall deficit excluding large infrastructure projects financed by nonconcessional external borrowing (e.g. HPPs), BOU recapitalization, and oil revenue.