By Njirani Muchra | Daily Monitor, Uganda
What brings you to Uganda and what is your message to the country?
Let me start by thanking you for this interview with Daily Monitor. This is my first visit to Uganda and I welcome the opportunity to see firsthand the progress that Uganda is making and to focus on the challenges ahead.
I look forward to engaging with President Yoweri Museveni, your policymakers, business leaders, legislators, women leaders, and representatives of civil society. I want to share the IMF’s views, but first and foremost, I am here to listen.
There are several important issues I wish to discuss during my visit. What is Uganda’s growth strategy? How can it address domestic issues such as poverty and inequality?
There is also the challenge of having to carefully balance spending on infrastructure and on social areas, such as health and education.
These are issues that are also faced by other countries in the region and, indeed, globally.
IMF Relations with Uganda
Uganda has had Policy Support Instrument (PSI) programmes with the IMF since 2006.
These programmes aim to support low-income countries that do not need IMF financing, but want close engagement with us via monitoring and policy support.
Uganda has made significant progress in a number of areas under the current programme.
For example, the tax-to-GDP ratio has increased by 2 per cent of GDP over the last three years along with improvements in the collection and administration of taxes.
This helps pay for the increased investment in infrastructure and will contribute to keeping public debt at a manageable level.
Moreover, the programme has helped to provide a framework for economic policies and reforms that can boost medium-term growth.
The PSI also integrates IMF capacity development and training in support of these efforts.
This includes visits by teams from IMF headquarters and our Africa Regional Technical Assistance Centre in Dar es Salaam (East AFRITAC), as well as participation by Ugandan officials in training courses in Washington and at our Africa Training Institute in Mauritius.
Some of the areas in which we have provided this type of support include public finance management and inflation targeting to help guide monetary policy.
IMF’s Growth Outlook for Uganda
Uganda is a vibrant and diverse economy. It has experienced impressive growth and poverty reduction over the last three decades.
Robust and finely balanced macroeconomic policies have enhanced the collection of more domestic revenue, kept inflation in check, and facilitated more spending on key sectors such as energy and transport.
We forecast growth will be about 5 per cent in 2017, broadly similar to the last few years.
Over the medium term, we expect growth to accelerate to over 6 per cent, as the ongoing infrastructure developments bear fruit, investments in the oil sector pick up, and integration in the East African Community creates new opportunities.
It is essential that there be sufficient money allocated for high-quality social spending so that Uganda can make further progress on reducing poverty, raising living standards for all its citizens, and creating more jobs for its young people. This will be crucial in the country’s efforts to achieving the Sustainable Development Goals.
Uganda’s Infrastructure Spending
Based on the fiscal framework that the government outlined in December, our assessment is that Uganda remains at low risk of debt distress. This means that Uganda’s debt is projected to remain at manageable levels, even in the case of shocks.
Over the next few years, Uganda’s debt-to-GDP ratio will continue to rise as the government carries out large infrastructure investment projects. But once these projects are completed and contribute to growth, exports, and fiscal revenues, the debt level is projected to decline again.
Uganda needs to borrow to raise funds for key projects and can afford to do so as long as this external financing is at low interest rates, and preferably on concessional terms (low interest rates and long maturities).
The financing available domestically is not sufficient for the government and the private sector to carry out the necessary investments in a reasonable timeframe.
External borrowing thus allows for higher rates of investment than otherwise possible. It is important that the investment projects that are being financed are implemented in a cost-effective manner, and chosen to generate the biggest possible return in terms of higher growth while keeping debt at manageable levels.
Lastly, how can we ensure that recently-found oil resources benefit all Ugandans?
The oil price movements over the last few years underscore how important it is to have a sound fiscal framework for managing oil revenues.
An effective framework should allow the sustainable use of oil revenues without exposing the government to the risk of having to adjust spending dramatically from year to year, depending on whether prices are up or down.
Strong institutions are critical, and along with prioritisation in the budget process, can help ensure that oil resources, just like all other resources available to the government, benefit all Ugandans, including future generations. The IMF stands ready to work with the government in this area.