UGANDA

UGANDA
PERFORMANCE UNDER THE PSI
6. Performance under the PSI through end-June 2016 was mixed (Memorandum of
Economic and Financial Policies (MEFP), para. 11-18). The BoU kept core inflation inside its inflation
target band. Softer growth and election effects led to the non-observances of fiscal targets, though it is
important to note that these were more muted than during the previous presidential elections.
Structural reforms progressed, albeit with many delays.
7. The BoU kept inflation within the target band and exceeded its reserve accumulation
target at end-June (MEFP Table 1.1). Tight monetary policy through April 2016 helped contain core
inflation within the BoU’s target range. Core inflation decelerated to 5.1 percent year-on-year in
October from its peak of 7.5 percent in December 2015, remaining well within the inner band of the
inflation consultation clause at end-June. In the same period, headline inflation decelerated to
4.1 percent year-on-year from its peak of 8.4 percent. The BoU seized the favorable balance of
payments developments and accumulated about US$170 million gross international reserves to
US$2.96 billion (about 4½ months of next year’s imports), exceeding the end-June target.
8. Most fiscal targets were missed due to a confluence of temporary factors (MEFP Table
1.1). The authorities met the targets on the zero ceiling of external payment arrears and on the deposit
of oil revenues in the Petroleum Fund. They also protected poverty-alleviating spending, meeting their
FY15/16 program objective. However, tax revenue fell short of target by 0.3 percent of GDP, reflecting
lower nominal growth. In addition, higher than anticipated
election-related spending led to an overrun of current expenditure of 0.1 percent of GDP. Thus, the
program fiscal deficit target (QAC) was missed by 0.5 percent of GDP, and the government partly relied
on BoU advances for its financing needs. 2 Staff supports a waiver on the basis that the
non-observance was temporary. Externally-financed development spending (including hydro power
projects) was under-executed by 2.4 percent of GDP, and the overall fiscal deficit was 1.2 percent of
GDP lower than anticipated, partly because the necessary domestic contribution was not budgeted for.
While the authorities have cleared domestic arrears of about 0.1 percent of GDP in FY16/17 so far, they
are still reconciling estimates of the stock, which has complicated assessment of the associated
indicative target. The preliminary estimates put the stock of domestic arrears as of June 2016 at
3.2 percent of GDP.
9. Structural reforms have progressed, with two out of five completed on time
(MEFP Table 1.2). The government has issued regulations for implementing the PFM Act, though
some key elements (e.g., the management of oil revenues) have not been incorporated and are partly
expected to be covered in the corresponding instructions under preparation. The government also sent
the charter of fiscal responsibility to Parliament. The charter includes measurable fiscal objectives to
guide Uganda’s fiscal framework and strong commitments to transparency, though it could have
usefully included a requirement to explain how deviations from the measurable objectives will be
2
BoU advances are intended only for within-year cash flow management.
12 INTERNATIONAL MONETARY FUND