IMF Executive Board approves US $ 1 billion ECF deal for Uganda
Washington, DC: On June 28, 2021, the Executive Board of the International Monetary Fund (IMF) approved a 36-month Extended Credit Facility (ECF) agreement for Uganda for an amount equivalent to $ 722 million. SDR (200% of quota or about $ 1 billion) to support the post-COVID-19 recovery and the authorities’ plan to increase household incomes and inclusive growth by fostering private sector development.
The approval of the ECF arrangement allows an immediate disbursement of approximately US $ 258 million, which can be used for budget support. This follows the Fund’s emergency assistance to Uganda under the Rapid Credit Facility (RCF) in May 2020 of SDR 361 million (100% of quota or SDR 491.5 million). dollars, see Press Release 20/206).
Uganda’s economy has been hit hard by the COVID-19 crisis. Ten-year gains in poverty reduction have been reversed, fiscal balances have deteriorated, and pressures on external reserves have intensified. A slight recovery is underway in some sectors, with economic growth in FY 21/22 expected to hit 4.3% before returning to pre-pandemic rates of 6-7% in the medium term. The outlook remains very uncertain, with downside risks, especially due to a resurgence of stricter containment measures linked to higher COVID-19 positivity rates.
The authorities’ program, enshrined in the Third National Development Plan (NDPIII), revolves around the principles of inclusive growth led by the private sector and public sector reforms to strengthen governance and transparency. It envisions multi-year fiscal consolidation while increasing priority and high-quality infrastructure spending. The program will include reforms aimed at increasing domestic revenues, fostering public sector efficiency and strengthening governance while laying the groundwork for sound management of oil revenues. The program will strengthen monetary policy and financial sector frameworks while fostering development, including through financial inclusion.
Following the Board discussion, Mr. Tao Zhang, Deputy Managing Director and Acting Chairman, made the following statement:
“The Ugandan economy has been severely affected by the global COVID-19 pandemic, which reversed ten-year gains in poverty reduction and widened fiscal and external financing deficits. The authorities’ program, supported by a new Extended Credit Facility arrangement, aims to keep public debt on a sustainable path while improving the composition of spending and advancing structural reforms to create space to finance debt. private investment, promote growth and reduce poverty.
“Fiscal consolidation, appropriately based on revenue and expenditure measures in the first year of the authorities’ program, aims to stabilize the public debt ratio while increasing social spending, including on vaccines. . The implementation of the authorities’ domestic revenue mobilization strategy, better management of public investment, control of domestic arrears and cash management advances will support the budget strategy.
“Prudent debt management is important to reduce vulnerabilities, especially given Uganda’s moderate risk of debt distress. All efforts should continue to be made to seek concessional financing and seek relief under the Debt Service Suspension Initiative. Contingency plans in place would help mitigate the risks.
“An accommodating monetary policy remains appropriate and the exchange rate should continue to function as a shock absorber. Efforts to increase the independence of the central bank should also be continued. Flexible use of bank capital buffers should be considered to address uncertainties surrounding the COVID-19 pandemic. Particular attention should be paid to minimizing risks to financial stability, in particular through strict compliance with accounting and prudential standards, and modernizing frameworks for bank resolution and emergency liquidity assistance.
“Advancing governance reforms remains crucial to support transparency and private sector development. Authorities have made progress in publishing information on audits and the use of COVID-19 funds, but more work is needed to improve the AML / CFT framework and strengthen the accountability of senior officials. Promoting human capital development and financial inclusion, including through broader coverage of credit bureaus and collateral requirements, will further support the authorities’ inclusive growth agenda. Accelerating digitization would strengthen these efforts.