Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Uganda

Abstract

Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Uganda

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Uganda’s debt is sustainable, with a low risk of external and overall debt distress under the Covid pandemic macro-framework.2 So far, the impact of the pandemic on Uganda’s economy is felt through supply chain disruptions; and lower commodity export prices, remittances, tourism, and capital inflows leading to a deterioration in the current and financial accounts. In addition, as a response to the crisis, the fiscal position is expected to deteriorate and be financed with debt. Updates with respect to the economic impact of Covid are rapidly evolving, and risks are tilted to the downside. As a result, the debt-to-GDP burden trajectories are higher than anticipated in the last Debt Sustainability Analysis (DSA) despite the recent rebasing of the national accounts that have increased nominal GDP. All external debt and total public debt burden trajectories remain below their respective indicative thresholds under the baseline scenarios. However, the higher debt burden has let multiple indicators to nearly breach their indicative thresholds under the stress test scenario. Debt service-to-revenue remains elevated and indicate heightened vulnerabilities, especially as budget revenues decline due to the pandemic. In FY2019/20, financing needs are expected to be fully met through reserves drawdown, use of Fund credit under the Rapid Credit Facility (RCF), and World Bank financial support. In addition, the Ugandan authorities are interested in seeking debt service relief under the G-20 Covid debt service relief initiative. They have initiated steps to contact their bilateral creditors, and have noted their intention to adhere to the needed commitments. Large near-term external financing needs are assumed to be covered by drawing down existing reserve buffers, IMF resources, World Bank resources, and resources from other development partners still under discussion. Considering the country’s significant vulnerability to shocks, sound fiscal management over the medium term remains critical to ensure fiscal sustainability.

Table 1.

Uganda: External Debt Sustainability Framework, Baseline Scenario, 2016/17–2029/30

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.1/ Includes both public and private sector external debt.2/ Derived as [r – g – ρ(1 +g) + Ɛα (1 +r)]/(1 +g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α = share of local currency-denominated external debt in total external debt.3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.4/ Current-year interest payments divided by previous period debt stock.5/ Defined as grants, concessional loans, and debt relief.6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).7/ Assumes that PV of private sector debt is equivalent to its face value.8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 2.

Uganda: Public Sector Debt Sustainability Framework, Baseline Scenario, 2016/17–2029/30

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.1/ Coverage of debt: The central, state, and local governments plus social security, central bank, government-guaranteed debt. Definition of external debt is Residency-based.2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 3.

Uganda: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2019/20–2029/30

(In percent)

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Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 4.

Uganda: Sensitivity Analysis for Key Indicators of Public Debt 2019/20–2029/30

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Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

Figure 1.
Figure 1.

Uganda: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2019/20–2029/30 1/

Citation: IMF Staff Country Reports 2020, 165; 10.5089/9781513544274.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Figure 2.
Figure 2.

Uganda: Indicators of Public Debt Under Alternative Scenarios, 2019/20–2029/30

Citation: IMF Staff Country Reports 2020, 165; 10.5089/9781513544274.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
1

Uganda’s Composite Indicator signals a strong debt-carrying capacity based on the October 2019 WEO and CPIA 2019.

2

This DSA updates the joint World Bank-IMF analysis of May 2019 (2019 Article IV consultation) using the post COVID pandemic macro-framework as the new baseline. The debt coverage remains the same as in the 2019 DSA, and includes central, state and local governments plus social security, central bank and government guaranteed debt.

Uganda: Request for Disbursement under the Rapid Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Uganda
Author: International Monetary Fund. African Dept.
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    Uganda: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2019/20–2029/30 1/

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    Uganda: Indicators of Public Debt Under Alternative Scenarios, 2019/20–2029/30