UGANDA

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<strong>UGANDA</strong> 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.
<strong>UGANDA</strong> Approved By Roger Nord (AFR) and Zuzana Murgasova (SPR) IMF team: A. Schimmelpfennig (head), R. Randall and Q. Cui (all AFR), A. Hodge (FAD), J. Bersch and F. Narita (SPR). C. Mira (resident representative) and L. Samula (local economist) also participated. E. Tawiah and T. Gursoy provided administrative and research support respectively. Discussions were held in Kampala during October 12–26, 2016. The mission met with President Museveni, Minister of Finance Kasaija, Bank of Uganda Governor Tumusiime-Mutebile, other senior government officials, as well as representatives from the private sector, civil society, and the international community. CONTENTS BACKGROUND AND RECENT DEVELOPMENTS ________________________________________________ 4 PERFORMANCE UNDER THE PSI _______________________________________________________________ 12 POLICY DISCUSSIONS __________________________________________________________________________ 13 A. Fiscal Policy ____________________________________________________________________________________ 13 B. Monetary Policy and Financial Stability ________________________________________________________ 14 C. Financial Sector Development and Inclusion __________________________________________________ 16 D. Debt Sustainability ____________________________________________________________________________ 17 E. Program Design________________________________________________________________________________ 18 STAFF APPRAISAL ______________________________________________________________________________ 18 BOX 1. Uganda’s Humanitarian Response _______________________________________________________________5 FIGURES 1. Real Sector Developments _______________________________________________________________________6 2. External Sector Developments ___________________________________________________________________7 3. Fiscal Sector Developments ______________________________________________________________________8 4. Monetary Sector Developments _________________________________________________________________9 5. Financial Sector Developments ________________________________________________________________ 10 6. Other Financial Sector Developments _________________________________________________________ 11 TABLES 1. Selected Economic and Financial Indicators, FY2012/13–2020/21 _____________________________ 20 2a. Fiscal Operations of the Central Government, FY2012/13–2017/18 (Billions of Shillings) ____ 21 2b. Fiscal Operations of the Central Government, FY2012/13–2017/18 (Percent of GDP) ________ 22 2 INTERNATIONAL MONETARY FUND
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Page 3: 2 The banking sector remains overal
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UGANDA Adjustor related to other re
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UGANDA Attachment Table II.1. Summa
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December 16, 2016 UGANDA SEVENTH RE
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UGANDA Assistance committed by all
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UGANDA mining and oil resource mana
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UGANDA Programmatic technical assis
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UGANDA STATISTICAL ISSUES (as of No
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UGANDA December 16, 2016 SEVENTH RE
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UGANDA Chart 1. Public Debt (Percen
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UGANDA finances the construction of
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UGANDA longer term bonds to 30:70.
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UGANDA Figure 2. Uganda: Indicators
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Table 2. Uganda: Public Sector Debt
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UGANDA Table 3. Uganda: Sensitivity
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