IMF Executive Board 2019 Article IV Consultation with Uganda
Uganda’s economy continues its robust recovery with projected growth of 6.3 percent in FY2018/19. Timely implementation of public infrastructure and oil-related projects would support growth in the medium term, according to the IMF’s latest assessment of the Ugandan economy.
Uganda is among the countries with the fastest growing population in Africa and remains on course to exceed 60 million by 2030. This challenges the country to create more than 600,000 jobs a year for its expanding labor force and to ensure that the benefits of growth are shared fairly.
Uganda’s economy continues its recovery. The economy grew by 6.1 percent in FY17/18, with a strong services sector and a rebound in agriculture from the previous year’s drought. Investor surveys suggest that business conditions and sentiment are strong, while credit to the private sector has improved, helped by an accommodative monetary policy stance. Over the medium term, growth could range from 6 to 7 percent if infrastructure and oil sector investments proceed as planned.
Uganda’s development strategy prioritizes scaling up public investment to address critical infrastructure bottlenecks. Long-term sustainability of the development strategy also depends on strong investment in people. Given limited budget resources, the government must find a balance between infrastructure needs and supporting social sectors, such as health and education.
Vulnerabilities are increasing. Uganda has relied on external borrowing to finance its large-scale infrastructure projects, which contributed to rising debt, putting more strain on the budget as more resources need to be allocated for interest payments. Nevertheless, the country remains at low risk of debt distress. To help keep debt at manageable levels, the government is finalizing a 5-year domestic revenue mobilization strategy.
The current account deficit widened to 6.1 percent of GDP in FY17/18, somewhat weaker than desirable. With gross international reserves of $3.4 billion (4.2 months of next year’s imports) at end-February, Uganda has a sound buffer against external shocks. The main risks to the outlook are unfavorable weather conditions, domestic and regional political tensions, and further delays in the start of oil production.
Executive Board Assessment
Executive Directors agreed with the thrust of the staff appraisal. They commended Uganda’s macroeconomic performance and development gains over the last three decades, including halving its poverty rate. Noting Uganda’s growing population and job creation needs, Directors encouraged further progress towards poverty reduction and shared prosperity, through strong macroeconomic policies, human capital development, and improvements in institutions and governance with continued IMF capacity development support.
Directors welcomed the authorities’ intention to develop a fiscal rule to manage future oil revenues and encouraged the authorities to consider adopting an interim debt ceiling to guide fiscal policy. Directors also stressed the need to improve fiscal policy formulation and implementation including through a more binding approach to the annual budget process and encouraged the authorities to promptly adopt and implement the Domestic Revenue Mobilization Strategy given Uganda’s still low revenue collection.
Directors noted that a more balanced expenditure composition between infrastructure and social development (especially for the youth, women and low‑skilled workers) would better support inclusive growth and highlighted the need for spending prioritization, addressing domestic arrears and continued efforts to strengthen public finance and investment management practices.
While Uganda’s debt level remains at low risk of debt distress, Directors cautioned that debt metrics had weakened, some investment projects may not generate the envisaged return, and interest payments are rising. Directors thus called on the authorities to keep debt below 50 percent of GDP in nominal terms over the medium term to safeguard the hard‑earned favorable debt sustainability rating.
Directors agreed that inflation targeting continues to serve Uganda well under the central bank’s stewardship. They indicated that monetary policy could remain supportive for now and agreed on building reserves opportunistically under a flexible exchange rate regime given external vulnerabilities. Directors also urged the authorities to strengthen the Bank of Uganda’s financial position through recapitalization and expenditure measures.
Directors concurred that bank supervision and regulation are generally sound and noted the importance of a more favorable business environment and greater access to finance for a private sector‑led growth.
Finally, Directors welcomed the improvements in Uganda’s compliance with the AML/CFT standards and its decision to begin accession to the Extractive Industries Transparency Initiative. They called for further efforts to strengthen governance and reduce corruption, including addressing weak implementation of the relevant legal framework.