IMF Executive Board Ends Article IV Consultations with Uganda for 2024

IMF Executive Board Ends Article IV Consultations with Uganda for 2024

September 9, 2024

• Uganda has fared well in its post-pandemic recovery thanks to sound macroeconomic policies. The economic recovery is underpinned by low inflation, favourable agricultural production and strong industrial and service activity.
• Uganda should continue efforts to create fiscal space through revenue mobilisation and improved expenditure discipline, vigilant monetary policy and exchange rate flexibility. In the future, oil revenues should be used to address bottlenecks to economic growth and improve social development, while promoting governance reform and financial integration.

Washington DC: September 6 The Executive Board of the International Monetary Fund (IMF) has concluded its Article IV consultations for 2024⁽¹⁾ from Uganda.

Uganda has fared well in its post-pandemic recovery thanks to sound macroeconomic policies. The economic recovery is underpinned by low inflation, favourable agricultural production and strong industrial and services activity. Growth is estimated at 6 per cent in FY23/24, up from 5.3 per cent in FY22/23. Core inflation rose to 3.9 per cent by June 2024, driven by rising energy prices and core inflation, although the latter remains below the Bank of Uganda’s (BoU) target of 5 per cent.

A high current account deficit and limited capital inflows have weighed on Uganda’s international reserves. Despite strong coffee and gold exports, the current deficit remains high due to rising imports related to oil projects. Tight global financial conditions and reduced external project and budget support have reduced gross international reserves, covering only 2.9 months of imports at the end of 2024 (excluding imports related to oil projects).

The overall budget deficit continued to decline in fiscal year 2023/24, but was lower than planned due to weaker revenues and higher current expenditure, while development spending was lower than expected, worsening the expenditure structure.

Looking ahead, growth is expected to strengthen, underpinned by the start of oil production, resulting in a sustained improvement in the fiscal and current account balances. Inflation is expected to rise close to the BoU target of 5 percent in FY24/25. Risks are mainly downside, including further impacts from the anti-homosexuality law, which complicates already tight external financing conditions, potential delays in oil production, and climate-related shocks. Upside risks to inflation come from commodity price volatility, weather conditions, and depreciating exchange rate pressures resulting from limited capital inflows.

The Executive Board of the International Monetary Fund (IMF) has concluded Article IV consultations with Uganda:

“The Executive Directors agreed with the main objective of the Staff Review. They welcomed Uganda’s solid economic recovery from the pandemic, supported by sound macroeconomic policies and a favourable medium-term outlook due to the expected start of oil production. At the same time, they noted the pressure on international reserves in the face of tight global financial conditions, as well as the high debt servicing costs accompanied by the shortfall in the country’s development expenditure. The Directors also highlighted significant downside risks, including those arising from the continuing effects of the Anti-Homosexuality Act, which could exacerbate already tight external financing conditions, potential delays in oil production, slow implementation of reforms and climate-related shocks. In this context, they encouraged further reforms, including those envisaged under the expired ECF arrangement, to rebuild fiscal and external buffers and boost inclusive and sustainable growth, supported by technical assistance from the Fund and other partners as needed.

“Directors encouraged strong efforts to create sustainable fiscal space, emphasizing the need to address significant spending needs for human capital, infrastructure, and climate resilience. They recommended further revenue-led fiscal consolidation, improved expenditure discipline, and a prudent fiscal management framework to ensure the efficient use of oil revenues once production begins.

“Directors praised the Bank of Uganda’s commitment to price stability and agreed with its tight monetary policy stance to anchor inflation expectations. They advised maintaining the data relevance of monetary policy and stressed the importance of continued exchange rate flexibility to help build buffers and improve competitiveness. Directors called for continued efforts to strengthen monetary transmission and the independence of the central bank, including through full implementation of the recommendations from the 2021 Collateral Assessment.

“Recognizing the resilience of Uganda’s financial system, the Directors called for vigilant monitoring of the rapid growth of sovereign-bank linkages and the significant engagement of the non-financial corporate sector across borders, and for multi-pronged efforts to enhance financial inclusion.

“Directors stressed that accelerating structural reforms is key to achieving inclusive, sustainable and private sector-led growth. They supported further efforts to strengthen enforcement of the anti-corruption framework, address remaining AML/CFT deficiencies, increase fiscal transparency, introduce regulatory reforms to support businesses and implement an ambitious climate resilience programme based on the C-PIMA recommendations.

The next Article IV consultations with Uganda will take place on the standard 12-month cycle.”

(1) Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually annually. A team of staff visits a country, collects economic and financial information, and discusses the country’s economic development and policies with officials. Upon returning to headquarters, the staff prepares a report that forms the basis for the Board’s discussions.