The Executive Board of the International Monetary Fund (IMF) has approved the disbursement of SDR361 million (about US$491.5 million or 100 percent of quota) for Uganda under the Rapid Credit Facility (RCF). It will help finance the health, social protection and macroeconomic stabilization measures, meet the urgent balance-of-payments and fiscal needs arising from the COVID-19 outbreak and catalyze additional support from the international community.
The Ugandan economy is being severely hit by the COVID-19 pandemic and, in particular, such key sectors as services (tourism), transport, construction, manufacturing and agriculture. The challenging external environment is curtailing remittances and foreign direct investments. The pandemic has also exacerbated the challenges posed by heavy rains in early 2020 and the ongoing locust invasion.
To contain the impact of the pandemic, the authorities have increased health spending, strengthened social protection to the most vulnerable, and enhanced their support to the private sector. The Bank of Uganda has appropriately reduced interest rates and provided liquidity to safeguard financial stability, while maintaining exchange rate flexibility.
The weakening economic conditions emanating from the Covid-19 pandemic have put significant pressures on revenue collection, expenditure, reserves and the exchange rate, creating urgent large external and fiscal financing needs.
The IMF continues to monitor Uganda’s situation closely and stands ready to provide policy advice and further support as needed. The authorities have also committed to put in place targeted transparency and accountability measures to ensure the appropriate use of emergency financing.
Following the Executive Board’s discussion on Uganda, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:
“The global COVID-19 pandemic is expected to severely hit the Ugandan economy through several channels, with detrimental effects on economic activity and social indicators. The external and fiscal accounts are expected to deteriorate, creating substantial urgent external and fiscal financing needs.
“To limit the pandemic’s human and economic impact, the authorities have promptly adopted bold preventive measures to contain the spread of the virus, and scaled up health spending to strengthen the health system’s capacity. Interventions to support the more vulnerable have also been introduced. In addition, the Bank of Uganda has swiftly introduced policy measures to support liquidity, preserve financial stability and support economic activity. The authorities are encouraged to continue to step up social protection programs to cushion the impact on the vulnerable population and to protect health spending allocations over the medium term.
“A temporary widening of the fiscal deficit is warranted in the short term to allow for the implementation of the response plan. Despite a temporary worsening of debt indicators and heightened vulnerabilities, public debt is expected to remain sustainable. The authorities remain committed to ensuring debt sustainability, including through their efforts to enhance revenue collection and strengthen public investment management.
“The authorities are committed to managing transparently the resources received and will strengthen transparency and accountability. They plan to report separately on the use of the funds, undertake and publish an independent audit of crisis-mitigation spending and publish large procurement contracts.
“The IMF’s emergency financial support under the Rapid Credit Facility, along with the additional donor financing it is expected to help catalyze, will help address Uganda’s urgent balance of payments and budget support needs.”
