How pandemic increased IMF, World Bank funding to Uganda

The Development Initiative says external aid flows form an important sources of financing for Uganda, where Official Development Assistance (ODA) supports several projects and programmes across various sectors. Aid, especially loans from IFIs, has helped Uganda to cover budget deficits and shortfalls in revenue collection.

“Budget deficits were exacerbated by the impact of the Covid-19 pandemic, and were estimated at Shs3.592 trillion or 18 percent of the government’s target revenue for FY2019-20,” said Bernard Sabiti, the senior strategic partnerships and engagement manager at Development Initiative.

The Development Initiative says IFIs increased aid disbursements in 2020, driven by the World Bank.

However, total aid disbursements to the health sector declined in 2020, while disbursements to the governance and security sector by IFIs and bilateral donors increased significantly.

While the share of grants in aid disbursements to Uganda fell in 2020, the share of loans increased. This change in aid composition is driven by rising IFI loans against declining bilateral grant disbursements.

“More ODA could be directed at supporting reforms in tax policy and revenue administration geared towards improving overall revenue collection. For example, widening the tax base through implementing progressive measures, as well as improving efficiency in tax collection, would significantly reduce shortfalls in revenue collection and the need to borrow from IFIs,” said Development Initiative.  

It adds: “The sector focus of external aid flows needs to be balanced, with particular attention given to economic recovery and addressing the impact of Covid-19, especially on the poorest. In this regard, the health, humanitarian, education and social services sectors, which saw cuts in allocations from bilateral donors in 2020, could be the focus of increased allocations in subsequent disbursements.”

Special Drawing Rights

The Covid-19 pandemic saw calls for a new Special Drawing Rights (SDR) allocation of $650 billion.

In April 2021, the International Monetary and Finance Committee (IMFC) called on the IMF to make a comprehensive proposal on a new SDR general allocation of $650 billion to help meet the long-term global need to supplement reserves, while enhancing transparency and accountability in reporting and using SDRs.

To save countries from the economic turmoil of the Covid-19 pandemic, the IMF also approved the establishment of a short-term Liquidity Line (SLL) to further strengthen the global financial safety net.

In April 2021 during the during the World Bank/IMF Spring Meetings in Washington DC, the IMF managing director Kristalina Georgieva said since the beginning of the Covid-19 crisis, the IMF has supported 86 countries including Uganda with over $110 billion, using a variety of instruments.

“Lending to Sub-Saharan Africa last year, for example, was 13 times more than the annual average over the previous decade,” she said.

In an interview with Proper Magazine last week, the resident representative of the International Monetary Fund in Uganda, Ms Izabela Karpowicz said the IMF has provided financing during the pandemic in various ways.

Ms Karpowicz said first, in May 2020 it provided about $500 million in emergency financing under the Rapid Credit Facility instrument. This was a one-time disbursement for which the government spent the money on fighting Covid-19, tracking expenditures, and publishing procurement contracts. An ex-post audit of spending was required which was published in June last year.

“Last June, the IMF and the authorities agreed on a reform programme, drawing from NDPIII commitments that is supported by a three-year loan under the Extended Credit Facility amounting to about $1 billion. Disbursements under this arrangement are aligned with programme reviews and follow a semi-annual schedule. About $250 million was availed in June at the time of programme approval,” she said.

Ms Karpowicz added: “Third, the IMF has allocated to Uganda about $485 million in Special Drawing Rights in August. The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF to supplement other reserve assets of member countries. It is not a loan from the IMF - it is an unconditional resource. Of the total of about $650 billion in SDRs allocated globally, $275 billion went to emerging and developing countries, of which low-income countries received about $21 billion.”

Expenditure cuts

She explained that the financing made available by the IMF, but also other international organisations and the donor community, was instrumental in sheltering the budget from deeper expenditure cuts amid revenue shortfalls resulting from lower growth and the economic lockdown.

“It made possible for the government to extend cash transfers to the affected population and preserve priority spending including for procuring vaccines and enforcing SOPs. These measures added to time-bounded interventions extended by the Bank of Uganda to troubled businesses through liquidity provision and rescheduling of loan obligations, the lower monetary policy rate, and, more recently, the establishment of a fund to facilitate SME lending,” she said.

The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response, increase disease surveillance, improve public health interventions, and help the private sector continue to operate and sustain jobs. Since the start of the Covid-19 crisis, the Bank Group has committed over $157 billion to fight the impacts of the pandemic, which includes more than $39 billion for African countries to help them strengthen health systems and services, establish and expand social safety nets, and weather the economic impacts of the crisis.

The funds provided by the World Bank from April 2020 to June 2021 includes over $50 billion of IDA resources on grant and highly concessional terms.

Its response efforts are focused around four main areas: saving lives, protecting poor people, protecting and creating jobs, and building back better.

Specifically to Uganda, on June 29, 2020 – the World Bank Board of Directors approved a $300 million budget support for Uganda to boost the government’s capacity to prevent, detect and treat the coronavirus, protect the poor and vulnerable population, and support economic recovery.  

The Uganda Covid-19 Economic Crisis and Recovery Development Policy Financing is the first budget support operation in more than six years and will address the fiscal financing gap while supporting reforms that will provide immediate relief to individuals and businesses that have been most affected by the pandemic. 

The World Bank country manager then said: “The Covid-19 pandemic has had a significant impact on the economy and livelihoods. This budget support operation will enable the government to provide vital services, social safety nets and a more robust shock-responsive system for the long term, and the economy to recover faster.”

On December 16, 2021 the World Bank approved $180.3 million in additional financing for the Uganda Covid-19 Response and Emergency Preparedness Project to expand affordable and equitable access to Covid-19 vaccines and build a more resilient health system.

Of the $180 million, $164.3 million is an International Development Association (IDA)* grant which includes $27 million from the Covid-19 IDA Sub-window for host communities and refugees and a $16 million grant from the Global Financing Facility (GFF) to support continuity of essential health services and the rollout of Covid-19 tools.

 “This upfront financing will help Uganda acquire vaccines from a range of sources to support the country’s objective to acquire a portfolio of vaccines under the right conditions, which include value-for-money, with appropriate regulatory approvals, and a swift delivery time,” said Ms Mukami Kariuki, World Bank Country Manager for Uganda. “The project will finance the deployment of the vaccines across the country to citizens and refugees free of cost.”