The Executive Board of the International Monetary Fund (IMF) has approved US$1 billion for Uganda under the Extended Credit Facility (ECF) to support the post-COVID-19 recovery.
The approval of the ECF arrangement will enable immediate disbursement of about US$258 million to support the budget. The recent approval follows US$491.5 million emergency support to Uganda under the Rapid Credit Facility (RCF) in May 2020.
The IMF indicated that Uganda’s economy was hit hard by the pandemic, reversing a decade-long gains in poverty reduction. Moreover, fiscal balances have deteriorated, and pressures on external buffers have intensified.
Luckily, the Fund indicated that a mild recovery is underway in some sectors, with growth forecast at 4.3% in 2021. Meanwhile, the IMF expects growth to return to pre-pandemic rates of 6-7% in the medium term.
Nevertheless, the Fund warns that the outlook remains highly uncertain, with risks tilted to the downside. This is mainly due a resurgence of tighter containment measures due to rising COVID-19 cases.
Third National Development Plan
The credit facility will support the third National Development Plan (NDPIII) which focus on private sector-led inclusive growth. It also emphasis public sector reforms to strengthen governance and transparency.
Mr. Tao Zhang, Acting Chair of the Executive Board of the IMF, indicated that the facility will focus on keeping public debt on a sustainable path. It aims at improving the composition of spending and advancing structural reforms to create space to finance private investment. By so doing, it will help foster growth and reduce poverty.
Furthermore, Mr. Zhang highlighted the direction of the government’s Fiscal consolidation. According to him, both revenue and expenditure measures during the first year of the program seeks to stabilize the public debt ratio while increasing social spending, including for vaccines.
Moreover, he expects the implementation of the government’s Domestic Revenue Mobilization Strategy to support the fiscal strategy. Also, better management of public investment, control of domestic arrears and advances in cash management are all expected to enhance fiscal consolidation.
Fiscal measures
Meanwhile, the IMF has outlined several fiscal measures that the government of Uganda must commit to under the program.
“Prudent debt management is important to reduce vulnerabilities, particularly given Uganda’s moderate risk of debt distress. Every effort should continue to be made to seek concessional financing and pursue relief under the Debt Service Suspension Initiative. Contingency plans put in place would help mitigate risks.
“An accommodative monetary policy stance remains appropriate and the exchange rate should continue to function as a shock absorber. Efforts to increase central bank independence should also be sustained. Flexible use of banks’ capital buffers should be considered to address uncertainties surrounding the COVID-19 pandemic”.
Also, the IMF urged the Ugandan government to pay close attention to minimizing financial stability risks by strictly adhering to accounting and prudential standards. Similarly, the Fund calls for the need to modernize the banking resolution and emergency liquidity assistance frameworks.
Furthermore, the IMF calls for the advancement of governance reforms to support transparency and private sector development. The Fund commended the Ugandan government for publishing information on the use of COVID-19 funds. But added that further work is necessary to strengthen the accountability of high-level officials.
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