Prime
IMF to give Uganda Shs870b for economic recovery
Mr Jim Muganga, the spokesperson of the Ministry of Finance.
What you need to know:
- The fund to be discussed and approved by the IMF executive board is in line with the IMF three-year Extended Credit Facility arrangement of $1 billion (about Shs3.6 trillion) approved by the IMF on June 28, 2021.
The International Monetary and the government have reached an agreement to give Uganda $240 million (Shs870.9b) next year to help the country attain economic recovery from the Covid-19 pandemic.
This is contained in the combined Second and Third Reviews under the Extended Credit Facility (ECF) arrangement.
The fund to be discussed and approved by the IMF executive board is in line with the IMF three-year Extended Credit Facility arrangement of $1 billion (about Shs3.6 trillion) approved by the IMF on June 28, 2021.
The financing package will support the short-term response to the Covid-19 crisis and help sustain a post-crisis inclusive recovery and for instituting structural reforms needed to drive Uganda’s economic development.
Speaking virtually from Washington DC, US yesterday, the head of the IMF mission to Uganda, Mr Malhar Nabar, said the agreement is subject to the approval of IMF management and the executive board in the coming weeks.
Upon completion of the executive board review, Uganda would have access to Special Drawing Rights (SDR) 180.5 million (equivalent to about $240 million), which is about Shs734.5 billion, bringing the total IMF financial support under the ECF-financed programme to SDR451.3 million (equivalent to about $625 million), which is about Shs2.3 trillion.
According to the IMF, SDR is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries.
“Structural reforms remain key to unlocking Uganda’s growth potential. Priorities include strengthening the anti-corruption framework and the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) regime, improving the social safety net, advancing the financial inclusion agenda, and adapting to climate change,” he said.
However, Mr Malhar was quick to observe that the anti-corruption agenda is progressing with the Companies Act amended to prepare the ground for the implementation of a beneficial ownership register allowing timely access to information.
“Tools for AML/CFT risk-based supervision for the financial sector are being developed and implemented. The authorities published information on compliance statistics for asset declarations and on applications to access the declarations, on the Inspectorate of Government’s website,” he said.
In regard to domestic revenue collection and increasing the level of tax to the Gross domestic product (GDP) ratio, Mr Malhar said revenue-based fiscal consolidation enshrined in the authorities’ domestic revenue mobilisation strategy remains crucial for keeping debt at a sustainable level and providing much-needed funds for Sustainable Development Goals.
Mr Malhar said: “To this end, the authorities have adopted a plan to rationalise inefficient and costly tax expenditures. Expenditure prioritisation will continue but a small widening of the fiscal deficit this year, relative to the target set in the first review of the ECF, is necessary to account for additional needs to support the vulnerable, including subsistence households while remaining focused on fiscal consolidation. Uganda’s debt remains sustainable, with a moderate risk of debt distress.”
On economic growth, he said growth is projected at 5.3 percent in Financial Year 2022/2023, 0.7 percentage points lower than at the time of the first review in March reflecting weaker global demand and the impact of rising inflation and interest rates on domestic demand. Medium-term prospects remain favourable with oil production coming on board by Financial Year 2024/2025.
Headline inflation is expected to rise to 8.3 percent this fiscal year due to elevated commodity prices and higher imported input costs and is anticipated to decline thereafter reflecting the expected easing of commodity price pressures and the impact of monetary tightening.
He, however, said risks to the outlook are elevated and include lower global growth, persistently higher inflation in advanced economies and associated tighter global financial conditions; intensification of the Ebola outbreak; and more frequent disruptions in activity due to climate change.
Addressing the question of monetary policy and Uganda’s financial sector, Malhar said the banking sector is well-capitalised, yet existing vulnerabilities point to the need for continued monitoring and strengthening of financial stability.
He said the Bank of Uganda (BoU) is improving its supervisory framework but stressed that implementation of the safeguards assessment recommendations will help solidify independence and that the new risk management framework will address governance and contain risks.
The Permanent Secretary/Secretary to the Treasury, Mr Ramathan Ggoobi, said they have agreed with the IMF on 11 key structural reforms which are all critical for Uganda’s economy and will be implemented within the three-year programme.
Among the 11 key structural reforms agreed upon is to increase domestic revenue, foster public sector efficiency and strengthen governance while preparing the ground for sound management of oil revenues. Strengthen the monetary policy and financial sector frameworks while fostering development, including through financial inclusion.
The deputy governor of BoU, Dr Michael Atingi-Ego, said in the proposal for amending the BoU Act, there is a need to ensure the autonomy of BoU in its policy execution and economic management.
Dr Atingi-Ego, the BoU monetary policy committee and the financial stability aspects should be clearly defined and be included in the legislation.
“The central bank will continue to uphold its monetary policy agenda of price stability and prompting the social economic transformation in the country,” he said.
Hinting at the fiscal policy, Dr Atingi Ego said the fiscal deficit has persisted because the revenue collection is not growing at the same rate as government expenditure.
The acting director of economic affairs at the Ministry of Finance, Mr Moses Kaggwa, said historically Uganda’s tax to the GDP remained far below the country’s potential of collecting domestic revenue to finance government programmes.
“We have been collecting between 12 and 14 percent yet we have the potential to collect between 18 and 20 percent so there is still a gap to be fielded, and this is where our domestic revenue mobilisation of 0.5 percent every financial year has been instituted in the tax policy to help us realise increased domestic revenue collection,” he said.
He said Uganda is losing 2.1 percent in tax exemption and as such the Ministry of Finance, Planning and Economic Development is working to reduce tax expenditure by 0.2 percent annually.
