11-04-2011 11:54 Uganda
Uganda's economy growing at 9% - IMF
KAMPALA, April 11 (NNN-NEW VISION) -- Uganda’s economy has been growing at 9% in the first half of this financial year, the International Monetary Fund (IMF) has said. The growth will, however, be affected by the rising price of food and fuel, coupled with growing inflation and exchange rate depreciation.
“Uganda’s economic performance continues to be strong, with growth of 9% in the first half of the fiscal year, but there will be significant policy challenges in the coming months,” said IMF mission chief and senior resident representative for Uganda, Thomas Richardson.
The Fund noted that Uganda has strong prospects for economic growth in the coming years, particularly if the authorities can successfully manage the macroeconomic challenges associated with Uganda’s planned acceleration in infrastructure spending.
The Ugandan economy grew by 5.8% in the 2009/10 financial year, which was 1.4% less than the 7.2% growth rate achieved in 2008/2009.
The country’s economic growth has been supported by growth in the construction, manufacturing and service sector.
The IMF chief, however, noted that expansionary fiscal spending has increased the importance of rebuilding of cushions in fiscal balances and international reserves.
An expansionary fiscal policy is when government spending is higher than the taxes.
Richardson made the remarks during a visit of the IMF mission two weeks ago.
The team met finance minister Syda Bbumba, Bank of Uganda governor Tumusiime Mutebile, and other senior officials. They also met representatives of Parliament, the private sector, civil society and development partners.
The discussions focused on measures to enhance domestic revenues in order to create resources for public investment in infrastructure, which is critically important for enhancing growth.
IMF noted that Uganda’s tax revenues, at about 12Ѕ% of gross domestic product (GDP), are low by regional standards and insufficient to permit the infrastructure investment needed to boost growth.
“Thus, measures to broaden tax bases, particularly by eliminating exemptions, are urgently needed,” said Richardson.
The Fund also cautioned government on its excessive spending, especially above the approved budget, saying it would negatively affect the Central Bank’s effort to bring inflation down.
By January 2011 (in a space of six months), government had spent 85% of its budget.
Inflation has increased in recent months from a single figure to11.4%.
IMF called on the Government to tighten its budgetary spending in the coming financial year.
“It will be important to reinforce the Government’s expenditure commitment control system going forward, and to ensure that budgets are executed as approved to prevent the accumulation of expenditure arrears,” Richardson cautioned.
The two-week visit, which ended on March 31, agreed that the Government focuses on laying a foundation for continued macroeconomic stability, while providing the fiscal space to expand needed infrastructure investment.
“In particular, the agreed stance of fiscal policies will aim at bringing the budget back in line with the Policy Support Instrument (PSI). On the basis of this understanding, we expect to bring the papers on the second review of Uganda’s programme supported by the PSI for consideration by the IMF executive board before the end of June.”
The executive board decided in February not to complete the first review of the programme due to a supplementary budget passed in early January, which put programme objectives at risk.
IMF said in a statement that government agreed that revenues related to oil exploration and external borrowing on commercial terms would be reserved for financing large infrastructure projects with high returns to growth.
“The oil revenues are to be handled transparently, subject to parliamentary approval as part of the formal budget process. At the same time, steps are to be taken to improve the management of public finances in order to reduce the risk of accumulating government expenditure arrears,’ Richardson said.