IMF Staff Approve UGX 800 Billion Financing to Uganda

The International Monetary Fund (IMF) staff have reached an agreement with the Ugandan government for a release of about 240 million US Dollars (873.8 billion Shillings) in financing to the country.

The agreement, which is subject to approval by the IMF Board, is part of the Extended Credit Facility arrangement worth 1 billion US Dollars, which was approved in May 2021 to be disbursed over a three-year period. The facility’s overall aim is to help to develop and least-developed countries’ economies overcome the effects of the COVID-19 pandemic. 

Uganda will have access to the funding once the review is formally completed by the executive board of the IMF in the coming weeks, according to the Fund. The approval by the staff follows a mission to Uganda led by Malhar Nabar, the head of the World Economic Studies division in the IMF’s Research Department.

In his statement, Nabar said the staff were convinced by the reforms that the government of Uganda was implementing, including the Domestic Revenue Mobilisation Strategy aimed at growing local revenues to reduce the reliance on foreign debt, as well as measures aimed at enhancing transparency and accountability.

Others considerations were the prospective growth rates amidst the lagging effects of COVID-19, the high inflation rate caused by the high international commodity prices as well as the war on Ukraine. Ramathan Ggoobi, the Permanent Secretary at the Ministry of Finance, Planning and Economic Development said this should not be mistaken as an IMF reform initiative for Uganda.

He noted the growth rate that is expected at 5.5 per cent next financial year as impressive though it is a slight downward forecast from the previous projection, adding that there is a need to protect this growth that is also facing risks.

The new projected growth figure would still be higher than last year’s 4.7 per cent as economic activity picks up after the effects of COVID-19-related lockdowns in 2020 and 2021. Risks to its growth outlook, the statement said, include persistently higher inflation in advanced economies and associated tighter global financial conditions as well as more frequent disruptions in activity due to climate change.

“To this end, the authorities have adopted a plan to rationalize inefficient and costly tax expenditures. 

Expenditure prioritization 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,” Nabar said.

He also hailed the Bank of Uganda’s aggressive measures against rising inflation, where the Central Bank Rate was raised to 10 per cent from 6 per cent between April and October 2022.

Bank of Uganda’s Deputy Governor, Michael Atingi-Ego said he was particularly relieved that the IMF staff had to bear with the Bank’s policies which obviously affected household and other incomes, for the sake of ensuring inflation is controlled.

Ggoobi said the IMF approval gives them the confidence to continue implementing the reforms that are mainly aimed at strengthening revenue mobilization and protecting the revenues from leakages.

Moses Kaggwa, the Director of Economic Affairs said the reforms are aimed at enabling the economy to meet its revenue mobilization potential of 20 Shillings in revenues to be collected for every 100 Shillings collected. Currently, it is about just 13 Shillings, and the strategy provides for an increase of about half a shilling per year.

He explains that this is one of the reasons that the tax exemption policy is being reviewed to see whether the exemptions have negative or positive impacts on the economy.

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