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IMF: How Uganda Is Protecting The Economy, Jobs & People During COVID-19 Pandemic

Uganda has 264 confirmed cases of COVID-19 as of May 19, 2020, with 65 patients having already recovered and no deaths reported. The recent spike in covid-19 cases is attributed to imported cases from cross border cargo truck drivers, which led to a new directive only allowing drivers that test negative for covid-19 to enter the country (with the exception for those from South Sudan). The measures that were earlier adopted to manage cross border drivers remain in force: (i) increased covid-19 testing at the border points; (ii) strengthened security to manage the porous border points, (iii) designated stop areas for trucks with a maximum of three per route with no diversions allowed; (iv) having each transit truck to be manned by only one driver; (v) increased use of the regional electronic cargo tracking system; and (vi) encouraging rail and water transport for fuel and other dry cargo.

The Consultative Meeting of the East African Community (EAC) heads of state held on May 12th agreed on a harmonized regional response to the Covid-19 pandemic that includes: (i) adopting a harmonized system for certification and sharing of covid-19 test results; (ii) establishing a regional mechanism for testing and certifying truck drivers and the adoption of an EAC digital surveillance and tracking system for drivers and crew; and (iii) supporting agro-processing and value chains and establishing ‘special purpose financing schemes’ for small and medium enterprises to cushion them from the negative effects of the covid-19 pandemic.

The covid-19 pandemic has resulted in volatility in the domestic foreign exchange market. The shilling depreciated by 6.2 percent between mid-February and late March 2020, leading BoU to intervene in the market, although the situation has stabilized more recently. Increased capital outflows and the decline in international trade, tourism receipts, remittances and foreign direct investment worsened the external position. Annual headline and core inflation increased to 3.2 and 3.4 percent in April 2020 from 3 and 2.5 percent in March 2020 because of higher food prices linked to panic buying at the start of the lockdown.

Reopening of the economy

On May 18th, the President announced some measures to ease the ongoing lockdown while most measures will be maintained for another 21 days. The easing measures take effect on May 26th and others on June 4th. The June 4th easing measures are dependent on government providing free face masks to all Ugandans above the age of 6. Measures to be eased on May 26th include: (i) allowing movement of private cars to a maximum of 3 people, including the driver; (ii) opening up of general merchandise shops that are not in shopping malls and arcades or food markets. Measures to be eased on June 4th include: (i) opening up public transport with strict regulation on reduced passenger capacity to half; (ii) reopening of education for students in their final year of study across all institutions. The measures that have been maintained for the 21 days include: (i) closure of international borders and the airport to passengers; (ii) bars, night-clubs, gyms, saunas, swimming pools and hair-salons will also stay closed; (iii) curfew from 1900hours until 0630 hours, remains in place; (iv) motorcycles will not carry passengers yet and will continue to carry only cargo; (v) public and private transport will remain prohibited in the 40 border districts to minimise spread from the neighbouring countries.

Key Policy Responses as of May 20, 2020

Fiscal

  • The authorities have used part of their Contingency Fund in the FY2019/20 budget to finance approximately $1.3million from the Ministry of Health Preparedness and Response Plan from January to June 2020. In addition, the government has passed a supplementary budget of about US$80 million to support critical sectors such as health and security as well as the vulnerable population. The government has increased health spending and announced a package of measures to mitigate the social impact of the pandemic. It is also finalizing the details of the stimulus package expected to cushion the impact of the crisis in the private sector.

Key measures adopted and under consideration include: (i) a food distribution campaign to the vulnerable in the urban areas; (ii) expedited repayment of domestic government arrears to the private sector suppliers; (iii) boosting the lending capacity of the state-owned Uganda Development Bank (UDB) to provide affordable credit to support private sector companies to reorient their production towards covid-19 response related items; (iv) the deferment of tax payment obligations for the most affected sectors; (v) the introduction of tax exemptions for items used for medical use(vi) the support with water and electricity utilities; and (vii) the expansion of labor-intensive public works programs. Close collaboration and contributions to the crisis response both in cash and kind are being provided the private sector, intergovernmental agencies, individuals and other stakeholders.

Monetary and macro-financial

  • Bank of Uganda (BoU) issued a statement on March 20th listing the following measures: (i) BoU’s commitment to provide exceptional liquidity assistance for a period of up to one year to financial institutions that might need it; (ii) ensuring that the contingency plans of the supervised financial institutions guarantee the safety of customers and staff; (iii) putting in place a mechanism to minimize the likelihood of sound business going into insolvency due to lack of credit; (iv) waiving limitations on restructuring of credit facilities at financial institutions that may be at risk of going into distress. BoU has also worked with mobile money providers and commercial banks to ensure they reduce charges on mobile money transactions and other digital payment charges.

During its April 2020 MPC meeting, BoU reduced its Central Bank Rate (CBR) by 1 percentage point to 8 percent to counter the deteriorating economy, provide adequate access to credit and ensure the smooth functioning of financial markets. Other concrete measures introduced include: (i) directing all Supervised Financial Institutions (SFIs) to defer the payments of dividends and bonuses for at least 90 days effective March 2020 to ensure adequate capital buffers are maintained; (ii) providing liquidity to commercial banks for a longer period through issuance of reverse Repurchase Agreements (REPOs) of up to 60 days at the CBR, with opportunity to roll over; (iii) purchasing Treasury Bonds held by Microfinance Deposit taking Institutions (MDIs) and Credit Institutions (CIs) in order to ease their liquidity distress; and (iv) granting exceptional permission to SFIs to restructure loans of corporate and individual customers that have been affected by the pandemic, on a case by case basis effective April 2020.

On April 17th, Bank of Uganda provided more guidelines to be followed by SFIs to safeguard financial sector stability. These include: (i) loan repayment holidays for a maximum of 12 months; (ii) granting credit reliefs only within the 12 month period with effect from April 01, 2020 –these should be in the best interest of customers and with full disclosure; (iii) the credit status at the time of granting a repayment holiday shall remain unchanged for the duration of the said repayment holiday; (iv) prepayment of arrears as a condition for restructuring a credit facility is suspended for 12 months with effect from April 01, 2020; (v) credit status at the time of granting a repayment holiday shall remain unchanged for the duration of the said repayment holiday; and (vi) borrowers are encouraged to request, and SFIs may offer, credit relief.

Exchange rate and balance of payments

  • Bank of Uganda has announced that it stands ready to intervene in the foreign exchange market to smooth out excess volatility of the exchange rate.

Uganda secured US$491.5 million in emergency financing from the IMF on May 6, 2020 under the Rapid Credit Facility.

Credit: IMF

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Taddewo William Senyonyi
https://www.facebook.com/senyonyi.taddewo
William is a seasoned business and finance journalist. He is also an agripreneur and a coffee enthusiast.

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