- Uganda has navigated the post pandemic recovery well due to sound macroeconomic policies. The economic recovery is strengthening with low inflation, favorable agricultural production, and strong industrial and services activity.
- Uganda should continue its efforts to create fiscal space through revenue mobilization and better expenditure discipline, vigilant monetary policy, and exchange rate flexibility, using future oil revenue to address growth impediments and improve social development while advancing governance reform and financial inclusion.
Washington DC: On September 6, the Executive Board of the International Monetary Fund (IMF) concluded the 2024 Article IV Consultation[1] with Uganda.
Uganda has navigated the post-pandemic recovery well due to sound macroeconomic policies. The economic recovery is strengthening with low inflation, favorable agricultural production, and strong industrial and services activity. Growth is estimated at 6 percent in FY23/24, up from 5.3 percent in FY22/23. Headline inflation has increased to 3.9 percent by June 2024, driven by rising energy prices and core inflation, though the latter remains below the Bank of Uganda's (BoU) target of 5 percent.
Elevated current account deficit and limited capital inflows have weighed on Uganda's international reserves. Despite strong coffee and gold exports, the current deficit remains high due to rising oil project-related imports. Tight global financial conditions and reduced external project and budget support have driven down gross international reserves, covering only 2.9 months of imports at the end of 2024 (excluding oil-project related imports).
The overall fiscal deficit continued to decline in FY23/24 but was less than planned due to revenue underperformance and higher current spending, while development spending fell short of expectations, worsening expenditure composition.
Looking ahead, growth is expected to strengthen, boosted by the start of oil production, which will make lasting improvement in the fiscal and current account balances. Inflation is expected to rise near the BoU's target of 5 percent in FY24/25. Risks are mostly on the downside, including continued fallout from the Anti-Homosexuality Act, which complicates the already tight external financing conditions, potential delays in oil production, and climate-related shocks. Upside risks to inflation come from commodity price volatility, weather conditions, and exchange rate depreciation pressures stemming from limited capital inflows.
The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Uganda:
"Executive Directors agreed with the thrust of the staff appraisal. They welcomed Uganda's robust post‑pandemic recovery underpinned by sound macroeconomic policies and the favorable medium‑term outlook due to the anticipated start of oil production. At the same time, they noted pressures on international reserves amid tight global financial conditions, as well as the elevated debt servicing costs accompanied by a shortfall in the country's development spending. Directors also highlighted the significant downside risks, including from the continued fallout from the "Anti‑Homosexuality Act", which could exacerbate already tight external financing conditions, potential delays in oil production, sluggish reform implementation, and climate‑related shocks. Against this background, they encouraged continued reforms, including those envisaged under the expired ECF arrangement, to rebuild fiscal and external buffers and boost inclusive and sustainable growth, supported by technical assistance from the Fund and other partners as needed.
"Directors encouraged strong efforts to create durable fiscal space, emphasizing the need to address significant spending demands in human capital, infrastructure, and climate resilience. They recommended continued revenue‑based fiscal consolidation, improved expenditure discipline, and a prudent fiscal management framework to ensure effective use of oil revenues once production begins.
"Directors commended the Bank of Uganda's commitment to price stability and agreed with its tight monetary policy stance to anchor inflation expectations. They advised keeping monetary policy data dependent and emphasized the importance of continued exchange rate flexibility to help build up buffers and improve competitiveness. Directors called for continued efforts to enhance monetary transmission and central bank independence, including through full implementation of the 2021 Safeguards Assessment recommendations.
"While recognizing the resilience of Uganda's financial system, Directors called for vigilant monitoring of the rapid increase in the sovereign‑bank nexus and significant cross‑border exposure of the nonfinancial corporate sector, alongside multifaceted efforts to enhance financial inclusion.
"Directors stressed that accelerating structural reforms is crucial for achieving inclusive, sustainable, and private sector‑led growth. They supported further efforts to strengthen enforcement of the anti‑corruption framework, address remaining shortcomings in AML/CFT, enhance fiscal transparency, introduce regulatory reforms to support businesses, and implement an ambitious climate resilience agenda drawing on the recommendations of the C‑PIMA.
The next Article IV consultation with Uganda will be held on the standard 12‑month cycle."
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
