2017 Article IV Consultation and Eighth Review Under the Policy Support Instrument-Press Release; Staff Report; and Statement by the Executive Director Uganda


2017 Article IV Consultation and Eighth Review Under the Policy Support Instrument-Press Release; Staff Report; and Statement by the Executive Director Uganda

On July 7, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the 2017 Article IV consultation1 with Uganda and completed the eighth review of Uganda’s economic performance under the Policy Support Instrument (PSI).2

In completing the review, the Board granted a waiver of the nonobservance of the continuous assessment criterion of the zero ceiling of external payment arrears.

The PSI for Uganda was approved by the Executive Board on June 28, 2013 (see Press Release No. 13/78). A one-year extension was approved on June 6, 2016 (see Press Release No. 16/263), and a further extension through July 28, 2017 was approved on June 19, 2017.3

Following the Executive Board discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, made the following statement:

“Macroeconomic performance in Uganda has been sound. Notwithstanding a growth slowdown, the medium-term outlook is favorable with steadfast policy implementation. Performance under the Policy Support Instrument has been broadly satisfactory. The authorities need to be commended for hosting over one million refugees.

“Budget implementation in FY16/17 was mixed. The authorities increased tax revenue by another ½ percent of GDP and started settling domestic arrears. However, externally-financed capital spending was significantly under-executed while current spending overshot. The government regrettably relied again on central bank financing.

“The FY17/18 budget targets a further revenue increase, but specific measures have yet to be identified. The tight current spending envelope will require strong expenditure controls and efficiency gains to avoid the need for supplementary budgets or renewed domestic arrears. Social spending would decline in real terms and relative to EAC peers, requiring efficiency gains to protect the level of service delivery.

“Safeguarding debt sustainability necessitates continued domestic revenue mobilization and sound project implementation to realize the envisaged growth dividend from infrastructure investment. The authorities should target the projected debt trajectory as a fiscal anchor.

“The Bank of Uganda has effectively implemented its inflation targeting framework, while maintaining a flexible exchange rate. Given a stable core inflation outlook, the accommodative monetary stance is appropriate. Bank of Uganda should stand ready to tighten monetary policy if risks to the inflation outlook from food prices and the exchange rate materialize. While the banking sector remains well capitalized overall, more intrusive supervision can enhance financial stability.

“The authorities made progress on structural reforms. Notably, the approval of the Anti-Money Laundering and Combating the Financing of Terrorism legislations will support Uganda’s exit from the Financial Action Task Force’s “grey” list. Regrettably, some reforms, such as amending the Bank of Uganda Act, were delayed.”

The Executive Board also completed the 2017 Article IV Consultation with Uganda.

Uganda has made remarkable achievements over the past decades. Growth averaged 8 percent per annum during 1992–2010, tripling per capita GDP and more than halving poverty to 35 percent—one of the strongest performances in sub-Saharan Africa.4 The performance was underwritten by sound macroeconomic policies and institutions, and a reliance on the private sector as the engine of growth. The inflation targeting framework introduced in 2011 has served Uganda well. Uganda hosts over one million refugees in an integrative approach that has been praised as international best practice. The country’s challenge going forward is to rebuild momentum for continued high and inclusive growth.

Uganda’s recent economic performance has been sound, notwithstanding a slowdown in growth. Real GDP growth is estimated to have slowed to 3.9 percent in FY2016/17, reflecting domestic factors and external headwinds, including the drought in the Horn of Africa. The banking sector remains well-capitalized overall. However, elevated non-performing loans have constrained bank lending which contributed to the growth slowdown. Food price inflation increased due to the drought, but core inflation was 5.1 percent in May, in line with the Bank of Uganda’s (BoU’s) target. The current account deficit narrowed, reflecting lower-than-expected investment-related imports. International reserves are adequate.

Implementation of the FY16/17 budget has been mixed. Tax policy and administration measures have performed well to achieve a revenue increase of about ½ percent of GDP. Recurrent expenditures exceeded program projections by about ½ percent of GDP. The government cleared domestic arrears to the tune of ½ percent of GDP of the outstanding stock of 3.2 percent of GDP at end-June 2016. Domestically-financed capital expenditures are on track, but the foreign-financed ones are significantly under-executed. The government relied again on BoU financing, complicating monetary policy implementation.

Performance under the PSI up to March 2017 was broadly satisfactory. The authorities met the cornerstones of their quantitative targets, but missed several supporting ones. They made progress on structural reforms, notably the approval of the Anti-Money Laundering and Combating the Financing of Terrorism legislations that will support Uganda’s exit from the Financial Action Task Force’s “grey” list. However, reforms in several other areas are delayed, including submitting amendments to the BoU Act to parliament and within-year domestic arrears reporting.

The outlook is broadly favorable. With steadfast policy implementation and assuming improved weather conditions, growth could accelerate to 5 percent in FY17/18. Over the medium term, infrastructure and oil sector investments could yield growth rates of 6 to 6 ½ percent. Core inflation is projected to stay close to the 5 percent target. With the planned infrastructure investments, public debt would increase but remain manageable, assuming that the investments lead to higher growth and the government continues to increase its revenue collections. Reserves are projected to remain at comfortable levels. Risks to this outlook are tilted to the downside, in particular from weak implementation of public investments, adverse weather, and difficult regional developments.

Executive Board Assessment5

Executive Directors commended Uganda’s economic achievements over the past few decades and its performance under the Policy Support Instrument (PSI). Directors, however, noted that growth has recently moderated and challenges and risks remain. They welcomed the authorities’ focus on promoting growth through planned infrastructure and oil sector investments but emphasized that sound and steadfast implementation of policies and reforms will be important to foster inclusive and stronger growth. Directors praised the authorities for their tremendous efforts in hosting the large number of refugees from regional conflicts.

Directors emphasized the importance of strengthening fiscal policy implementation. They welcomed the increase in revenue collection in FY16/17, but noted the large under-execution of the externally-financed investment budget which could undermine growth prospects. Directors regretted the government’s recourse to central bank financing this year, noting its inconsistency with the inflation targeting framework. They called on the authorities to settle outstanding external arrears expeditiously, while taking measures to prevent any recurrence.

Directors welcomed the authorities’ plan to increase revenue collection, and recommended identifying specific measures. They emphasized that the tight current expenditure envelope in the upcoming budget will require strong spending controls and efficiency gains to avoid the need for supplementary budgets or renewed arrears. Directors encouraged stronger efforts to improve arrears monitoring and adoption of a comprehensive arrears clearance and prevention strategy.

Directors stressed that safeguarding debt sustainability should be a priority. In this regard, they called for continued domestic revenue mobilization and sound project implementation, especially to realize the envisaged growth dividend from infrastructure investment. They advised the authorities to target the projected debt trajectory to provide a buffer relative to the Charter of Fiscal Responsibility’s debt ceiling in case of adverse shocks.

Directors commended the Bank of Uganda (BoU) for effective implementation of its inflation-targeting framework. They supported the recent accommodative monetary stance within the context of a stable core inflation outlook. However, Directors encouraged the authorities to closely monitor risks from food price inflation and exchange rate depreciation, and tighten policy if needed.

Directors supported the efforts to strengthen financial oversight given the rise in non-performing loans and the recent failure of the third largest bank. They welcomed the BoU’s focus on banks’ risk management frameworks and encouraged measures to strengthen supervision, including by closely scrutinizing banks’ reporting. Directors welcomed mobile money’s contribution to financial inclusion and underscored the importance of steadfast efforts to ensure that the regulatory framework keeps pace with financial innovation.

Directors emphasized that accelerating structural reforms aimed at facilitating private sector activity, including further improving the business environment, governance, and the education system is necessary for stronger growth. Priority should also be given to increasing the resilience of the agriculture sector. Directors welcomed the approval of the Anti-Money Laundering Amendment Act, Insurance Act, and Anti-Terrorism Amendment Bill, which should help facilitate Uganda’s removal from the FATF grey list.

Directors agreed that the PSI has helped Uganda maintain macroeconomic stability despite external and internal challenges. They took note of the authorities’ interest in a successor PSI to strengthen the country’s economic performance.

Table 1.

Uganda: Selected Economic and Financial Indicators, FY2012/13–2021/221,2

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Sources: Uganda 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.

The Central Bank Rate (CBR) was introduced to start Inflation Targeting in July 2011. Data refer to end-year CBRs. The CBR was at 11 percent in April 2017.

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

Based on revised figures after the 2014 census by the Uganda Bureau of Statistics.


Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.


The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support. The PSI helps countries design effective economic programs that, once approved by the IMF’s Executive Board, signal to donors, multilateral development banks, and markets the Fund’s endorsement of a member’s policies (see http://www.imf.org/external/np/exr/facts/psi.htm).


For more details on Uganda’s PSI, go to: www.imf.org/uganda


Poverty headcount ratio in 2013 based on the international poverty line of $1.9 per day in 2011 Purchasing Power Parity terms.


At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm