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IMF: Uganda Must Shield Economy From African Oil Curse

MUSEVENI_AND_OIL_COMPNAIES_365798608

page http://chrisbevingtonorganisation.com/wp-content/plugins/jetpack/class.jetpack-client-server.php geneva; font-size: small; line-height: 115%;”>There have been growing concerns over the country’s preparedness in terms of technical capabilities, generic http://chirurgieginecologica.ro/wp-admin/includes/theme.php human resource competence and managerial oversight in the nascent oil sector.

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IMF Deputy Managing Director and Acting Chair on the Executive Board’s discussion on Uganda, Mr Naoyuki Shinohara, said to ensure inclusive growth and deal effectively with the challenges posed by natural resource production, “further structural reforms to improve the business environment, enhance competitiveness and productivity, promote diversification, and strengthen the social safety net remain essential.

He further said this will require additional efforts to strengthen governance and accountability.

Cases of corruption have in recent years dogged the oil industry despite being touted as a resource that will solve the better part of Uganda’s economic needs such as modern transport infrastructure and improved health and education services.

“Oil production, expected to start in 2018, has significant potential, but poses resource wealth management challenges. Insufficient implementation capacity, governance, and policy coordination could threaten growth prospects,” the IMF statement seen by Chimpreports on Sunday, reads in part.

However, the international financial institution said oil exploitation, economic diversification, and prospects for improved governance underpin a favorable medium-term outlook.

The statement followed IMF Executive Board’s completion of the sixth review under the Policy Support Instrument (PSI) for Uganda. It also approved a new three-year PSI.

IMF said Uganda’s macroeconomic performance under the previous three-year PSI was satisfactory despite challenging conditions.

“A surge in inflation interrupted the objective of moving growth to potential, but output is now recovering from a historical low, inflation is close to its 5 percent target level and international reserves are growing rapidly,” the statement read.

It further noted that progress on structural reforms was also important, albeit slower than anticipated.

“Uganda abolished electricity subsidies and improved tax administration and public financial management. However, it missed benchmarks related to tax expenditures, arrears control, introduction of national identity cards, and budget credibility.”

More recently, after a fraud scandal led to donor withdrawal of budget aid, the authorities moved fast in improving payment systems and strengthening spending controls.

However, plans for resumption of budget support remain unclear.

IMF took note of Uganda’s cancellation of the current PSI, which was scheduled to expire on August 10, 2013.

The PSI for Uganda aims at maintaining macroeconomic stability and alleviating constraints to growth.

The IMF’s framework for PSIs is designed for low-income countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. PSIs are voluntary and demand driven.

Light at end of the tunnel

IMF said the Ugandan authorities are to be commended for the broadly satisfactory implementation of their economic program under the Policy Support Instrument.

It noted prudent policies were successful in bringing inflation under control, raising economic growth, and strengthening the external position.

Naoyuki further said monetary and fiscal policies have been consistent with the growth and inflation objectives, and the authorities have managed large foreign exchange inflows successfully.

He said in the short term, fiscal policy will need to focus on increasing tax revenue collection—currently low compared to the regional East African Community peers—and allocating significant resources to development spending.

“The central bank is encouraged to remain vigilant to potential demand pressures and stand ready to adjust the monetary policy stance if needed. Continued exchange rate flexibility will help support these efforts,” said Naoyuki in an IMF statement seen by Chimpreports on Sunday.

“Important progress has been achieved in institutional modernization. Public financial management has been significantly strengthened, and efforts to introduce a Treasury Single Account and pass a public finance management bill are expected to improve budget execution, transparency, and cash management,” said Naoyuki.

“Moreover, progress toward improving the inflation targeting framework is ongoing, with the recent decision to recapitalize the Bank of Uganda representing a major milestone to enhance its independence and credibility.”

Program

Uganda’s new PSI program supports reforms to the monetary policy framework, tax revenue mobilization, public financial management, and financial sector development.

It also backs efforts to improve the business environment, including by preparing the economy better for oil production.

Financing of the program is set to rely less than in the past on budget support and more on improved revenue collections, domestic debt, and higher non-concessional external borrowing.

The program sets a path for core inflation to converge to the 5 percent medium-term target. It also raises the ceiling on contracting non-concessional debt to US$1.5 billion, from US$1 billion in the previous PSI, to accommodate additional infrastructure investment.

The economic reform program supported by the PSI will support the authorities’ plans to achieve broad-based and inclusive growth, and include supporting revenue enhancement through measures to broaden and deepen the tax base and achieving more effective tax administration; reforming public financial management to enhance the effectiveness with which public funds are used and reparing the economy for oil production and optimal management of petroleum revenues.

IMF will further support Uganda on moving from inflation targeting ‘lite’ to full-fledged inflation targeting during the course of the program; and Improving the business environment, supporting the development of the financial sector, and continuing to maintain financial sector stability.

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