IMF to roll out Sh440 billion loan in response to reforms for Uganda

The IMF Executive Board on Wednesday, June 21, concluded the fourth review of Uganda's ECF thus enabling the immediate disbursement of cash equal to 90.25 Special Drawing Rights (SDR).

In June 2021, the IMF board approved the ECF Arrangement for Uganda for a total of SDR722 million (200 per cent of quota) to support the response to the COVID-19 pandemic and boost more inclusive private sector-led long-term growth.

The new instalment has been made after a review of the performance of the previous one and the steps the government is taking in reforming public finance management.

Reforms

Stipulated 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.

The board has also approved Uganda's waiver of non-observance of a performance criterion on the ceiling on net credit to the central government from the Bank of Uganda.

In 2022, IMF threatened to suspend its financial operation with Uganda until the government reduced its debt obligation of up to Shs8 trillion to the central bank at the time. However, in a statement to the media, BoU denied the allegations that the government had failed to clear its debt.

More reforms in public finance management include measures to curb corruption, increase domestic revenue mobilisation, enhancing private sector growth and fiscal consolidation (reducing budget deficits and stabilising or reducing public debt), among others.

“Uganda is on a steady path to full recovery, sustained growth and reform for socio-economic transformation. Thank you my team at Finance and BOU,” said Permanent Secretary Finance Ramathan Ggoobi when the IMF board decision was announced.

The Board lauded Uganda’s performance as well as the economic situation despite the many shocks it faced over the last year, with growth expected at 5.5 per cent this financial and 6 per cent next year.

“The improved near-term outlook has been revised up slightly, and inflation projections are marked down for financial year 23/24, reflecting the impact of more favourable 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,” the IMF says.

Recommendation and financial forecast

The IMF however, warns that a stronger tightening of global financial conditions would constrain the availability of syndicated loans which could affect the stability of the financial sector. This calls for sustained fiscal consolidation and tight monetary policy to help keep debt on a sustainable path, as well as maintain the structural reforms.

“Together with these initiatives, efforts to increase social spending will also improve prospects for achieving a more inclusive, sustainable, private sector-led long-term growth.”

The IMF urged the government through Uganda Revenue Authority (URA) to fully implement the Domestic Revenue Mobilisation Strategy, including the additional tax administrative measures identified by the authorities, to help reduce the debt-to-GDP ratio and allow for an increase in social spending.

Further recommendations include fast-tracking the tax exemption rationalisation plan to boost revenue mobilization efforts, as well as safeguard the financial sector stability through stronger supervision as the asset quality of some banks is deteriorating.