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Museveni, IMF, Finance, BoU officials in emergency meeting on falling economy

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Museveni receives IMF delegation at State House Entebbe

President Yoweri Museveni has met with officials from the Finance ministry, Bank of Uganda and International Monetary Fund [IMF] to seek ways of rescuing the Ugandan economy which is currently on its knees.

The emergency meeting got underway Wednesday afternoon at State House Entebbe.

It was attended by officials from the central bank headed by governor Tumusiime Mutebile and the ministry of Finance which was represented by Keith Muhakanizi, the Permanent Secretary and Secretary to the Treasury, Ministry of Finance, Planning and Economic Development.

The team from the International Monetary Fund (IMF) was led by Axel Schimmelpfennig, IMF Mission Chief for Uganda.

After the meeting, Museveni said the discussion focused on areas that can catalyze growth; infrastructure, value addition and market integration.

“I assured them [IMF delegation] that Uganda is on a steady path of progress, especially now that we’ve solved a lot of our infrastructure concerns.”

He added: “We have laid a firm foundation for Uganda’s growth.”

IMF and World Bank have been monitoring Uganda since 2014 and throughout the election period.

IMF officials have been in Kampala since October 12 [they concluded their visit yesterday October 26, 2016] to conduct the seventh review of the country’s economic program under the Policy Support Instrument (PSI) [1].

February elections muted growth

At the end of the mission, Mr. Schimmelpfennig said “Uganda’s economy performed well in a complex environment”.

According to Mr. Schimmelpfennig, the February 2016 elections, muted global growth, and regional developments weighed on sentiment, and growth declined to 4.8 percent in FY15/16.

It was during this period that many politicians borrowed money from banks [including Crane bank] which was wasted more on consumption than production.

A single legislator spent Shs1bn to win a parliamentary seat in the February 2016 elections, according to the Alliance for Campaign Finance Monitoring (ACFIM), a non- governmental election watch organisation.

A tleast 113 legislators alone spent about Shs 25bn to win their seats.

According to the report, NRM MPs spent Shs 233m, opposition MPs spent Shs 187m while independents spent Shs 189m.

An earlier report by ACFIM on campaign financing revealed that President Museveni spent Shs 27bn, Amama Mbabazi spent Shs 1.3bn, Dr Kizza Besigye spent Shs 976m, Prof Venansius Baryamureeba spent Shs 95.7m, Dr Abed Bwanika Shs 34.3m while Joseph Mabirizi spent Shs 26.4m.

Inflation

According to IMF, more recently, high frequency indicators suggest an improvement, and growth is projected at a solid 5 percent this fiscal year and 5.5 percent in FY17/18, supported by the scaling up of infrastructure spending.

With the timely tightening of monetary policy in 2015 and a stabilizing shilling, core inflation printed at 4.1 percent year-on-year in September.

“Performance under the PSI has been mixed. The Bank of Uganda (BoU) successfully steered core inflation toward its target of 5 percent and increased its international reserves buffer. The government further strengthened its public financial management framework. Poverty-alleviating expenditures were in line with program objectives. However, key fiscal targets for FY15/16 were missed,” said Mr. Schimmelpfennig.

The mission noted the difficult environment for fiscal policy in FY15/16.

While revenue collection increased as a share of GDP, it fell short of program expectations, reflecting lower than projected nominal GDP growth. At the same time, current spending was higher than anticipated.

Taken together, the overall deficit target was missed by 0.4 percent of GDP, and the government did not repay outstanding BoU advances at year-end.

The execution of externally financed projects lagged behind target.

“Looking ahead, the mission welcomes the authorities’ intention to adhere to their FY16/17 fiscal objectives outlined during the sixth review under the PSI. In particular, this includes raising the tax-to-GDP ratio by ½ percent of GDP and prioritization of social and development spending within a tight envelope.”

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Mr. Schimmelpfennig  went on: “Strengthening project management to ensure sound project selection and improve spending efficiency are critical to ensure value-for-money. The mission urges the authorities to step up ongoing efforts to reduce and improve monitoring of government spending arrears, which undermine the budget process.”

He added: “Over the medium-term, the government needs to ensure that scaled-up infrastructure investment yields the targeted increase in GDP growth to improve the lives of all citizens and maintain Uganda’s low risk of debt distress. In parallel, efforts to enhance the effectiveness of social spending are equally important.”

The mission also commended the BoU’s October 2016 decision to reduce the monetary policy rate by another 100 basis points.

With incipient inflation pressures, the BoU had tightened monetary policy in 2015, successfully keeping core inflation in the target band.

Since April of this year, the BoU has entered an easing cycle, with core inflation forecast to stay close to the 5 percent target.

Rising food prices, financial instability  

The mission agreed with the BoU’s assessment that food prices and shilling depreciation are the main risks to the inflation outlook.

Overall, the financial sector remains well capitalized, though non-performing loans have edged up. This has prompted a tightening of lending standards and a slowdown in credit to the private sector.

The third largest domestic bank had become undercapitalized, and the BoU appropriately took over its management to protect deposits and safeguard financial sector stability.

As a next step, the financial position of the bank needs to be established, and BoU will look for a strategic investor.

The mission welcomed the government’s progress on strengthening public financial management.

The Ministry of Finance, Planning and Economic Development issued PFM Act regulations to strengthen the budget process.

A Charter of Fiscal Responsibility was sent to Parliament in August, setting measurable fiscal objectives to guide budgeting and codifying Uganda’s strong commitment to fiscal transparency.

The mission encourages the authorities to submit the amendments to the BoU Act to parliament which will strengthen the central bank’s independence.

The mission discussed ongoing efforts to ensure Uganda’s prompt exit from the Financial Action Task-Force’s list of jurisdictions with strategic deficiencies in the legal framework for combating money laundering and the financing of terrorism (AML/CFT).

Way forward

The mission urged the authorities to take the necessary steps to facilitate the prompt exit, including by-passing the amendments to the Anti-Money Laundering Act and the Insurance Act before December 2016.

“IMF Executive Board consideration of the seventh review of the PSI-supported program is expected by end-December 2016.”

The mission met with Hon. Mr. Matia Kasaija, Minister of Finance, Planning and Economic Development; Professor Emmanuel Tumusiime-Mutebile, Governor of the Bank of Uganda; Mr. Keith Muhakanizi, Permanent Secretary/Secretary of Treasury, and other senior government officials, as well as representatives from the private sector, civil society, and the international community.

 

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