Public Information Notice No. 06/06

Public Information Notice: IMF Executive Board Reviews Uganda's Performance Under Past Fund-Supported Programs

January 26, 2006

On July 8, 2005, the Executive Board of the International Monetary Fund discussed Uganda's experience with IMF-supported programs since 1994, based on an ex post assessment of long-term program engagement. Ex post assessments are prepared for countries with a longer-term history of Fund-supported programs in order to evaluate the success of past programs and draw lessons for possible future IMF involvement.¹

Background

The Ugandan economy has posted an impressive postconflict recovery since the late 1980s with the return to stable political conditions and implementation of sound macroeconomic policies. During this time, the Fund has supported Uganda's ambitious reform program on an almost continuous basis. In the mid-1990s, with the stabilization effort largely complete and a comfortable international reserve position established, the primary focus of Uganda's economic policies shifted from macroeconomic stabilization toward poverty reduction. Since then Fund assistance to Uganda has declined, while donor support has risen gradually. Uganda's annual average growth rate of about 6½ percent over the past decade has been commendable, given that Uganda is a landlocked country and has been adversely affected by deteriorating terms of trade since the mid-1990s. The rise in incomes and poverty reducing expenditures contributed to a significant decline in poverty.

The sequencing of the authorities' reforms for achieving macroeconomic stabilization and growth has been largely appropriate. These efforts have resulted in an open and liberalized economic environment with a relatively sound public expenditure management system. The health of the financial system has also substantially improved and a comfortable level of international reserves helped cushion exogenous shocks. The design of quantitative conditionality in Fund-supported programs was sufficiently flexible. However, the total number of structural conditions in all Uganda's Fund-supported programs was high, suggesting room for streamlining.

While macroeconomic developments have been broadly in line with program projections and quantitative targets generally met, fiscal outcomes and structural measures have shown a deteriorating performance, particularly after debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative completion point in 2000. This suggests an erosion in the government's commitment to reforms despite a well-articulated Poverty Eradication Action Plan (PEAP). A recent slowdown in growth and setback to poverty reduction calls for a second wave of reforms to sustain high growth. Over time, corruption has also cut into government revenues and led to wasteful spending, thereby affecting Uganda's macroeconomic performance.

Executive Board Assessment

Directors thought that the ex post assessment (EPA) of Uganda's performance under Fund-supported programs provides a candid assessment and useful lessons for future program design and implementation. Directors agreed that the main medium-term challenge for Uganda is to sustain growth so as to reduce poverty. Given the magnitude of the social and infrastructure spending needs and the importance of reducing aid dependency, further effort is needed to efficiently expand domestic tax revenues. Directors also emphasized the need for careful sequencing of structural reforms to ease supply constraints and deepen domestic financial markets to enhance the economy's capacity to absorb large donor inflows.

Directors supported the staff's assessment that, given Uganda's growth challenges, there is a case for continued Fund engagement after the expiration of the current PRGF.

¹ This PIN summarizes the views of the Executive Board as expressed during the discussion based on the staff report.