Uganda convinced the International Monetary Fund to approve a $1 billion, or about Shs3.5 trillion, loan that the East African nation will inject into economic recovery following the slump occasioned by restrictions put in place to stave off the coronavirus.
The loan, which was secured under the Extended Credit Facility (ECF), will be released in a 36-month arrangement, the Fund announced in a June 28 statement.
$258 million, according to the statement, will be released immediately to support the 2021/20 financial year budget which starts on July 1.
Uganda’s economy has been hit hard by the COVID-19 pandemic that eroded people’s livelihoods, reversing decade-long gains in wealth creation and inclusion despite the support measures introduced by the authorities.
A mild recovery is underway in some sectors, with economic growth in FY 21/22 expected to reach 4.3 percent before returning to pre-pandemic rates of 6-7 percent in the medium term.
On the back of a dramatic rise in Covid-19 cases, President Museveni announced a new lockdown which is expected to run up to mid-July or longer depending on the situation.
The incoming budget, which will operate on ideas enshrined in the third National Development Plan (NDPIII), is built around the principles of private sector-led inclusive growth and public sector reforms to strengthen governance and transparency.
The government eyes increase in infrastructure spending and reforms have been aligned to boost domestic revenue, foster public sector efficiency and strengthen governance while preparing the ground for sound management of oil revenues.
The NPDIII aims to strengthen the monetary policy and financial sectors frameworks while fostering development, including through financial inclusion.
“Uganda’s economy has been severely impacted by the COVID-19 global pandemic, which reversed decade-long gains in poverty alleviation and opened up fiscal and external financing gaps. The authorities’ program, supported by a new arrangement under the Extended Credit Facility, focuses on keeping public debt on a sustainable path while improving the composition of spending and advancing structural reforms to create space to finance private investment, foster growth and reduce poverty,” IMF Deputy Managing Director Tao Zhang said.
“Fiscal consolidation, appropriately based on both revenue and expenditure measures during the first year of the authorities’ program, seeks to stabilize the public debt ratio while increasing social spending, including for vaccines. The implementation of the authorities’ Domestic Revenue Mobilization Strategy, better management of public investment, control of domestic arrears and advances in cash management will support the fiscal strategy,” the director went on.
“Prudent debt management is important to reduce vulnerabilities, particularly given Uganda’s moderate risk of debt distress. Every effort should continue to be made to seek concessional financing and pursue relief under the Debt Service Suspension Initiative. Contingency plans put in place would help mitigate risks.”
This is the second loan Uganda is scoring from the Fund, having secured an emergency support of $491.5 million at on the onset of the pandemic. .