UGANDA

UGANDA
SEVENTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT
December 16, 2016
EXECUTIVE SUMMARY
The economy has performed reasonably well in a complex environment. Growth slowed
marginally in FY15/16, reflecting muted sentiment in an election year and adverse global and
regional developments. Growth should nudge up in FY16/17 to 5 percent, low compared to
past performance and regional peers. Credit to the private sector has stalled, and nonperforming
loans (NPLs) have increased, also reflecting domestic government arrears. The
current account deficit is fully financed. The Shilling has stabilized after a sharp depreciation
in 2015, and international reserve coverage remains adequate.
Program performance under the PSI has been mixed. Monetary policy tightening in 2015
has helped contain inflation in the target range, and the Bank of Uganda (BoU) commenced an
easing cycle in April. Lower than expected nominal growth and election-related spending
resulted in missed revenue and deficit targets. The government partly relied on BoU advances
for financing. Structural reforms have progressed, albeit with many delays.
The authorities’ strategy of scaling up infrastructure investment remains appropriate,
accompanied by supporting policies to safeguard debt sustainability. The debt
sustainability analysis shows a low risk of debt distress, but vulnerabilities have increased. The
authorities aim for a prudent deficit in FY16/17, supported by a ½ percent of GDP increase in
tax collections. Ongoing reforms to public investment management need to ensure that
infrastructure spending yields the intended growth dividend. The authorities’ emphasis on
reducing domestic arrears is welcome, and needs to be followed with concrete action.
The BoU is successfully steering inflation. Monetary policy has space for further easing, with
food prices and the exchange rate being the main risks to the outlook.
Overall, the banking sector remains well capitalized, despite elevated NPLs. The BoU has
appropriately taken over an under-capitalized systemically important bank. Effective and swift
resolution of this bank is a key priority.
Near-term risks are to the downside. Uganda remains exposed to risks from adverse
weather and global and regional developments. Continued problems with public investment
efficiency would undermine growth prospects and debt sustainability.
Staff recommends completing the seventh review under the PSI. Staff supports a waiver
of the non-observance of the Quantitative Assessment Criterion on the ceiling on the overall
deficit of the central government on the grounds that the non-observance was temporary.