The International Monetary Fund (IMF) Executive Board approved a disbursement of $120 million to Uganda under the Extended Credit Facility arrangement despite the country not observing certain conditions.
The development brings the aggregate disbursement under the ECF arrangement to US$750 million
“The Executive Board of the International Monetary Fund (IMF) today concluded the fourth review of Uganda’s Extended Credit Facility (ECF) Arrangement,” the IMF said in a statement.
The Board said it granted a waiver of non-observance of a performance criterion on the ceiling on net credit to the government from the Bank of Uganda (BoU).
Mr. Kenji Okamura, Deputy Managing Director and Acting Chair, said Ugandan authorities remain firmly committed to their economic program amidst a challenging environment.
“Most quantitative targets were met in December 2022 and March 2023. The Quantitative Performance Criterion (QPC) on the ceiling on the Bank of Uganda (BoU) net credit to the government (NCG) was missed by a very small margin in March 2023. All structural benchmarks due between March and June 2023 have been met,” he said.
The ECF Arrangement for Uganda for about $ 1 billion was approved by the Executive Board on June 28, 2021, aiming to support the near-term response to the COVID-19 pandemic and boost more inclusive private sector-led long-term growth. Reforms focus on creating fiscal space for priority social spending, preserving debt sustainability, strengthening governance and reducing corruption, and enhancing the monetary and financial sector frameworks.
Despite repeated external shocks and tighter financial conditions, IMF observed that the economy is projected to grow by 5.5 percent in FY 22/23 and 6 percent in FY 23/24 and that inflation has been declining and is expected to reach the BoU’s medium-term target of 5% core inflation by end-2023.
“The improved near-term outlook (growth in FY 22/23 has been revised up slightly, and inflation projections are marked down for FY 23/24) reflects the impact of more favorable weather conditions on domestic harvests, the softening of global commodity prices and easing of global demand-supply imbalances, and the lagged effects of monetary and fiscal policy tightening,” IMF said.
Okamura said: “The full implementation of the Domestic Revenue Mobilization Strategy (DRMS), including the additional tax administrative measures identified by the authorities, is crucial to help maintain the debt-to-GDP ratio on a declining path and allow for an increase in social spending over the medium term. Increasing the pace of Public Financial Management (PFM) reforms is essential to enhance the capacity to execute social spending in a timely manner. The tax exemption rationalization plan remains an important component of the revenue mobilization effort.”
The IMF added that Uganda’s banking system is well-capitalized and liquidity has rebounded, but the asset quality of some banks has deteriorated. Against this backdrop, IMF said, safeguarding financial stability and strengthening the supervisory framework remain paramount.
“The current monetary policy stance is appropriate, but the BoU should stand ready to resume its tightening if signs emerge of a slower-than-expected disinflation. Exchange rate flexibility remains crucial to preserve external buffers,” the Fund said.
“Accelerating the momentum on structural reforms is essential to unlock Uganda’s growth potential and requires more proactive efforts. Priorities include enhancing domestic revenue mobilization, strengthening the anti-corruption framework and the AML/CFT regime, advancing the financial inclusion agenda, and climate adaptation measures. The authorities should sustain efforts to improve transparency of implementation of the asset declaration framework including sanctions enforcement for violations.”
Ramathan Ggoobi, the Permanent Secretary at the Ugandan Ministry of Finance said the loan spurs Uganda’s path to full recovery, sustained growth, and reform for socio-economic transformation.
