Press Release No. 03/96

Press Release: IMF Completes the First Review Under Uganda's PRGF Arrangement and Approves US$2.8 Million Disbursement

June 25, 2003

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Uganda's economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. As a result, Uganda will be able to draw up to SDR 2 million (about US$2.8 million) under the arrangement immediately.

The Board also granted waivers for the nonobservance of the performance criteria pertaining to the accumulation of new domestic arrears, the submission to cabinet of a plan to reduce government expenditures, and the submission to parliament of a bill to repeal the National Social Security Fund Statute.

Uganda's three-year PRGF 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 1.5 million (about US$2.1 million).

The PRGF is the IMF's most concessional facility for low-income countries. It is intended that PRGF-supported programs will in time be 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 PRGF-supported programs are 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.

In commenting on the Board's discussion on Uganda, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, stated:

"Uganda's continued pursuit of macroeconomic stability and a comprehensive poverty reduction strategy has resulted in low inflation and high rates of economic growth and poverty reduction. Improved revenue performance has contributed to substantial fiscal adjustment, and the health of the financial sector continues to improve.

"In the year ahead, the authorities aim to support economic growth and low inflation by containing the fiscal deficit at around the present level. Given the limited availability of budgetary resources and in light of higher defense spending to face the security situation in northern Uganda, it will be critical to meet the budget's revenue target and curb nonpriority spending while increasing poverty-related expenditures. The effectiveness of government spending could be enhanced by strengthening expenditure management systems and streamlining expenditure on public administration.

"Monetary policy will continue to aim at keeping inflation low. A flexible exchange rate policy will be maintained to help protect Uganda's international competitiveness and absorb potential terms of trade shocks. Continued vigilant supervision will be necessary to maintain a healthy financial sector. The recently-approved Financial Institutions Bill and Microfinance Deposit-Taking Bill will be important in this regard. Reform of the pension system and a broadening of the nonbank financial sector would help to mobilize substantial domestic resources for investment.

"Efforts to improve the infrastructure, expand financial intermediation, protect property rights and enforce contracts, and enhance governance are important to improve the investment climate and encourage private sector-led investment and growth," Mr. Sugisaki stated.