Governor of the BoU, Prof. Emmanuel Tumusiime-Mutebile
A staff team from the International Monetary Fund (IMF) led by Mr. Amine Mati conducted a virtual mission to Uganda from September 27 to October 14, 2021 to discuss the economic outlook, the budget strategy for FY2021/22, and progress with the implementation of reforms under the Extended Credit Facility (ECF) – supported program.
At the conclusion of the mission, Mr. Mati issued the following statement:
“Uganda’s recovery remains slow, with the recent COVID-19 lockdown further impacting recovery efforts, particularly in the manufacturing and services industries. Inflation is subdued, despite increases in global energy and food prices. The current account deficit is at an elevated level amid foreign inflows-triggered exchange rate appreciation that helped keep reserves above 4 months import cover. Private sector credit is weak despite ample liquidity in the well-capitalized banking system as both banks and borrowers remain cautious about prospects.
“The FY 20/21 fiscal deficit was lower than planned thanks to higher-than-expected tax revenues and low spending execution. Helped by exchange rate appreciation and delays in repaying advances to Bank of Uganda (BoU), central government debt remained sustainable and comfortably below the authorities’ 50 percent of GDP target.
“Going forward, higher vaccination rates, gradual reopening of the economy and a recovery in external demand are expected to aid activity. Notwithstanding increases in global commodity prices, an accommodative monetary policy will help core inflation converge gradually towards the BoU’s central target, while the elevated current account deficit is expected to decline progressively over the medium term helped by greater exchange rate flexibility. Maintaining the hard-earned credibility of BoU’s inflation targeting framework is critical, including by clarifying limits on advances to government.
“Risks are tilted to the downside, including from further COVID-19 waves, a less benign external environment, and slow reform implementation.
“In view of existing financing constraints, fiscal policy in the near term should remain focused on accommodating additional priority social spending needs—including for vaccine facilitation to support reopening of the economy—while staying within the programmed fiscal target. Mobilizing domestic revenues, limiting arrears accumulation, improving budget composition (including through cuts-in non-priority spending while supporting social spending) and strengthening public investment management would help support the fiscal consolidation strategy in both the near and medium term.
“Generating more inclusive growth that can create jobs would require further progress on the authorities’ structural reform agenda supported by the ECF-supported program. This requires implementing the governance pillars—accounting for the use of COVID-19 funds, strengthening of Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) legal framework and improving accountability of high-level officials—strengthening financial inclusion and fostering greater trade integration.
“The mission team is thankful to the authorities and all stakeholders it met for the candid and productive discussions.
“The team met with the Minister of State for Finance, Planning and Economic Development (in charge of Planning), Mr. Lugoloobi, Governor of the BoU, Mr. Mutebile; Permanent Secretary and Secretary to the Treasury, Mr. Ggoobi; Deputy Governor of the BoU, Mr. Atingi-Ego; and other senior officials. The team also had constructive discussions with representatives of the private sector, civil society organizations, and development partners.”