Press Release No. 03/220

Press Release: IMF Completes Second Review Under Uganda's PRGF Arrangement, Grants Waivers, and Approves US$3 Million Disbursement

December 17, 2003

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Uganda's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement and approved the disbursement of an amount equivalent to SDR 2 million (about US$3 million). In completing the review, the Executive Board granted Uganda's request for waivers on nonobservance of performance criteria pertaining to the accumulation of new domestic arrears, the development of a plan to clear the outstanding stock of domestic arrears, and the privatization of the Uganda Development Bank.

Uganda's three-year arrangement was approved on September 13, 2002 (see Press Release No. 02/41) for SDR 13.5 million (about US$19 million). So far, Uganda has drawn SDR 3.5 million (about US$5 million).

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.

Following the Executive Board's discussion on Uganda's request, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, stated:

"Uganda has continued to demonstrate a strong commitment to macroeconomic stability and the pursuit of a comprehensive poverty reduction strategy. Notwithstanding the impact of adverse weather conditions on agricultural production, economic growth was robust in 2002/03 and underlying inflation was subdued. Improved revenue performance and expenditure restraint contributed to a substantial fiscal adjustment. However, after several years of marked improvements, there has been an increase in the measured incidence of poverty and inequality in the distribution of income. The authorities are committed to strengthening their policies for boosting and broadening the bases of economic growth and reducing poverty in the context of the forthcoming revision of the Poverty Eradication Action Plan.

"In the current fiscal year, the authorities aim to support a sustained pickup in economic growth by further reducing the fiscal deficit. This would help alleviate ongoing pressures on real interest rates and the real exchange rate. To this end, it will be critical to adhere to measures to raise revenue and improve tax administration, and enhance the effectiveness of government spending at both the national and local levels by strengthening expenditure management systems. Curtailing expenditures for public administration, nonproductive purposes, and low priority items would provide additional scope for social spending.

"Monetary policy will be aimed at keeping inflation low, and a flexible exchange rate policy will help to maintain Uganda's international competitiveness. The recent passage of the new Financial Institutions Bill and the Microfinance Deposit-Taking Institutions Act will facilitate improvements in regulatory supervision and encourage a sound expansion of financial intermediation. At the same time, the planned reform of the pension system and a broadening of the nonbank financial sector are essential to the mobilization of additional domestic resources for investment. Restructuring of the Uganda Development Bank Limited would ensure its sound financial management and provide long-term financing for development purposes.

"Improvements to transportation networks and other infrastructure, as well as good governance, would underpin the authorities' efforts to encourage private sector-led investment and growth. In addition, strong implementation of programs to raise agricultural productivity and diversify exports, such as the Plan for the Modernization of Agriculture, would enhance Uganda's international competitiveness and its resilience to shocks, and would raise the incomes of the rural poor," Mr. Sugisaki stated.