Vehicles ply Gulu-Atiak road recently. According to International
Monetary Fund Uganda needs to be cautious of its growing debt. FILE
PHOTO
What is the future of the Policy Support Instrument (PSI) arrangement?
The team was here discussing with the government on the recent developments and going forward what the policy priorities should be.
These discussions are very much on going. As you know Uganda has had continuous engagement with IMF. We have been supporting Uganda’s economic policy reforms and macro programmes for quite a long while on a sustained basis.
We are at a point where the government is developing and working on new programmes and if it requires our support, we shall be very happy to support.
The team was here discussing with the government on the recent developments and going forward what the policy priorities should be.
These discussions are very much on going. As you know Uganda has had continuous engagement with IMF. We have been supporting Uganda’s economic policy reforms and macro programmes for quite a long while on a sustained basis.
We are at a point where the government is developing and working on new programmes and if it requires our support, we shall be very happy to support.
So right now there is nothing conclusive?
This one just ended and we are currently in discussions and most of these will tell us how to move forward.
This one just ended and we are currently in discussions and most of these will tell us how to move forward.
We have a situation on infrastructure ramp up, what is the IMF view on acquiring debt yet taxation is not in tandem?
The key is how to strike the right balance. Uganda has a lot of infrastructure development needs, and a lot of spending needs in health, education and other social development priority areas.
The key is how to strike the right balance. Uganda has a lot of infrastructure development needs, and a lot of spending needs in health, education and other social development priority areas.
We
are strongly of the view that those need to be addressed but you want
to try and do this without going too much into debt, by having
unsustainable increase in debt. One healthy and important macro economic
priority at the moment is to mobilise revenue to be able to continue
striking the right balance as in the past.
There is need to raise the expenditure over the medium term to invest more in infrastructure to look at spending on social areas such as health and education, which is exactly why we think it is a very important priority for the government to mobilise each year between a half and one percentage point of GDP in tax revenue.
There is need to raise the expenditure over the medium term to invest more in infrastructure to look at spending on social areas such as health and education, which is exactly why we think it is a very important priority for the government to mobilise each year between a half and one percentage point of GDP in tax revenue.
That will help create the room that you
need to help address those spending needs while at the same time
avoiding debt increase.
In the past, IMF advised that government stops or reduces its incentives and it seems to have done that, yet we see certain development needs are running away unmatched by from the revenue it self.
In the past, IMF advised that government stops or reduces its incentives and it seems to have done that, yet we see certain development needs are running away unmatched by from the revenue it self.
As in most areas of life, it is about
continuing to update the tax systems, make sure you are capturing new
areas of economic activities, broadening the tax base and looking for
new tax handles. The Ugandan economy today is different compared to 15 –
20 years ago.
So the tax system also needs to evolve to make sure that it is capturing new sources of growth and these new activities need to be contributing to government revenue. It is an on-going process and we need to continue cultivating new sources of revenue and that’s where a lot of the work lies.
In some cases, it is better administration, for example, broadening the base to capture new businesses. But in other cases you may have to consider new tax handles.
So the tax system also needs to evolve to make sure that it is capturing new sources of growth and these new activities need to be contributing to government revenue. It is an on-going process and we need to continue cultivating new sources of revenue and that’s where a lot of the work lies.
In some cases, it is better administration, for example, broadening the base to capture new businesses. But in other cases you may have to consider new tax handles.
Uganda’s
monetary policy has tried to respond to sluggish growth and the CBR
went down to 9 per cent. However, we continue to see transmission
challenges, what are the IMF views on that?
The monetary policy response to declining inflation has been very much what you want to see as inflation has decelerated including forward-looking inflation.
The monetary policy response to declining inflation has been very much what you want to see as inflation has decelerated including forward-looking inflation.
The policy rate has reduced but it is
always the case that lending rates are sticky going down, but we have
started to see already some decline in prime lending rates. I also
understand there is also dispersion now that borrowers are able to
borrow below the prime lending rate. This is something that we hope to
see going forward in the coming months.
But the fundamental way to lower lending rates is to foster more competition in the banking system to ensure that you have a strong and sound banking system, which is competitive, but also to facilitate financial deepening looking at what can be done to foster more Fintech, things that can help to reduce the overhead costs that banks sometimes face even in mobilising deposits. That’s the kind of area where reforms need to be considered.
But the fundamental way to lower lending rates is to foster more competition in the banking system to ensure that you have a strong and sound banking system, which is competitive, but also to facilitate financial deepening looking at what can be done to foster more Fintech, things that can help to reduce the overhead costs that banks sometimes face even in mobilising deposits. That’s the kind of area where reforms need to be considered.
What is the East African regional outlook?
The whole East Africa region has been spared significant commodity slowdown in the wake of the sharp commodity price crush that we have seen. The other four countries apart from South Sudan and Burundi have had significant healthy growth somewhat small from what they had four to five years ago but still sustained growth at 5-6 per cent.
Going forward, we see that being maintained but what we would like to see is higher growth. The requirements in each country vary but broadly on the macroeconomic side it is trying to continue striking this healthy balance between addressing our countries development needs and avoiding unsustainable increase in debt. In each country you have a lot of structural reforms that are needed to remove the binding constraints on economic growth.
The whole East Africa region has been spared significant commodity slowdown in the wake of the sharp commodity price crush that we have seen. The other four countries apart from South Sudan and Burundi have had significant healthy growth somewhat small from what they had four to five years ago but still sustained growth at 5-6 per cent.
Going forward, we see that being maintained but what we would like to see is higher growth. The requirements in each country vary but broadly on the macroeconomic side it is trying to continue striking this healthy balance between addressing our countries development needs and avoiding unsustainable increase in debt. In each country you have a lot of structural reforms that are needed to remove the binding constraints on economic growth.
For Uganda’s case what are some of the structural issues to tackle first?
The fact that inflation is contained is not a bad thing but if it is a sign of weaker economic conditions that would be unwelcome but the tentative signs of business confidence are at least beginning to improve. So I am not sure that the continued low core inflation is particularly associated with weaker economic conditions. We think that a lot of reforms revolve around trying to get better value for money on government investments, trying to generate revenues to be able to identify new infrastructural projects that can help to unlock and facilitate private sector investments. More investment in health and education is necessary to continue improving development outcomes as they have in the last set of years.
The fact that inflation is contained is not a bad thing but if it is a sign of weaker economic conditions that would be unwelcome but the tentative signs of business confidence are at least beginning to improve. So I am not sure that the continued low core inflation is particularly associated with weaker economic conditions. We think that a lot of reforms revolve around trying to get better value for money on government investments, trying to generate revenues to be able to identify new infrastructural projects that can help to unlock and facilitate private sector investments. More investment in health and education is necessary to continue improving development outcomes as they have in the last set of years.
In terms of balancing social development and infrastructural needs, what would you tell government?
Uganda is in the fortunate position where the debt level is not high that you have to begin to worry, but of course if you don’t begin to curb the deficits that will become the case. You are in a position where debt remains sustainable and the risk of debt distress at the moment is low so maintaining this debt requires continued sustained growth first and foremost but more important is trying to mobilise more revenues to continue to address the investment requirements and part of the increasing revenues can also go to helping to reduce the deficits.
The macro policy setting is healthy, but going forward you have to make sure it remains healthy.
Uganda is in the fortunate position where the debt level is not high that you have to begin to worry, but of course if you don’t begin to curb the deficits that will become the case. You are in a position where debt remains sustainable and the risk of debt distress at the moment is low so maintaining this debt requires continued sustained growth first and foremost but more important is trying to mobilise more revenues to continue to address the investment requirements and part of the increasing revenues can also go to helping to reduce the deficits.
The macro policy setting is healthy, but going forward you have to make sure it remains healthy.
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