The International Monetary Fund has offered a $240 million three-year loan to Uganda to support a radical public sector reform agenda anchored on fighting corruption, cutting financial waste and promoting financial inclusion while sending positive signals to international creditors and credit rating agencies about the country’s debt burden.

The loan offer comes in the wake of a staff-level agreement reached between the Fund and the Uganda government over a new public sector reform plan that covers 11 broad areas.

Disbursement of the loan is subject to IMF Executive Board's approval that is expected in two weeks’ time, according to IMF sources. The new funding package represents a slight shift from previous IMF loans acquired by Uganda since the onset of the Covid-19 pandemic in early 2020.

Public sector reforms

Whereas the latter were procured for direct budget support required for the settlement of government’s operating expenses, Covid-19 healthcare-related costs and provision of financial stimulus packages for the most affected sectors, the former is targeted towards public sector administrative reforms.

Uganda received a $471 million loan from the IMF in late 2020 and another $1 billion loan in 2021 for budget support purposes.

Increased IMF support to Uganda is apparently driven by prolonged economic shocks triggered by the Covid-19 pandemic and associated lockdown measures.

“Uganda’s economy has been growing below its full potential over the past three years. We are looking at previous growth rates of 3.8 percent, 4.8 percent and 5.3 percent and this limits our ability to collect tax revenues. The Russia-Ukraine war has certainly complicated matters and this means getting additional IMF support is inevitable at this time,” said Mr Michael Atingi-Ego, the deputy governor of Bank of Uganda.

Stronger anti-corruption enforcement measures, increased investments in financial inclusion initiatives aimed at expanding access to financial services within the population, introduction of tighter financial management controls, rollout of beneficial ownership disclosure regimes across different sectors, bigger investments in social spending programmes such as the Social Assistance Grant for the Elderly scheme and deeper enforcement of Anti-Money Laundering and Combating of the Financing of Terrorism regulations among others are cited in the ambitious reform plan.

These reforms are to be implemented over a period of 12 months starting December 2022.

Implementation of the reform package includes the publication of names of public leaders that fail to declare wealth within statutory deadlines, publication of names of accounting officers that authorise illegal government expenditure and installation of a new tax revenue management system at the Uganda Revenue Authority.

Improve fiscal position

“The IMF support is meant to facilitate new policy reforms that will in turn promote private sector growth, stimulate tax revenues and eventually improve the government’s fiscal position. Going forward, the government ought to focus more on macroeconomic stability, fighting corruption, promoting financial inclusion and cutting financial waste within government’s operations,” said Malhar Nabar, IMF Mission Chief for Uganda.

The latest IMF loan offer is likely to stimulate a sense of relief among international lenders and credit ratings agencies worried about Uganda’s fast growing public debt portfolio. An official endorsement of a country’s economic policies or provision of a loan facility by the IMF is considered a positive financial indicator in the international credit market and also attracts favourable terms for borrower countries, experts say.

Uganda’s total public debt is currently estimated at more than $20 billion while headline inflation stood at 10.6 percent in November. Local prime lending rates offered by commercial banks averaged 20.8 percent last month, a sign of relatively stiff monetary policy actions pursued by the Central Bank and prohibitive costs of credit incurred by Ugandan borrowers.

“We are considering bigger social spending and minimising financial wastage through penalising public accounting officers who engage in unauthorised expenditure,” observed Ramathan Goobi, Permanent Secretary and Secretary to the Treasury at Uganda’s Finance Ministry.