Uganda’s economy on track – IMF

Thursday, 30th June, 2011

THE International Monetary Fund (IMF) has endorsed Uganda’s Policy Support Instrument (PSI), saying it aims at maintaining macroeconomic stability and alleviating constraints to growth.

The endorsement, which was announced yesterday after IMF’s executive board completed the second review under the PSI for Uganda, means that the country is on the right path towards economic development.

IMF deputy managing director and acting chairperson Naoyuki Shinohara in a statement said: “Thanks to generally sound macroeconomic policies, Uganda withstood the global financial crisis and other shocks. Economic growth has recovered and is expected to strengthen, although inflation risks, mostly related to rising food prices, have increased.”

He added that the modest intervention by the Central Bank had mitigated volatility of the exchange rate, helping the financial sector to remain sound.

Reacting to the endorsement, the finance ministry permanent secretary and secretary to the treasury, Chris Kassami, said the endorsement shows that the economy is being competently managed.

A successful policy support instrument, he added, was important for the credibility of Uganda’s budget and attracting foreign investment.

“This endorsement gives a signal to investors and donors. Even Ugandans living abroad have the confidence that the money they send back home is safe,” Kassami said yesterday.

Policy support instruments are designed for low-income countries that may not need, or want IMF assistance but still seek the organisation’s advice, monitoring and endorsement of their policies.

“A PSI review is, therefore, an important tool in giving signals to the international community and investors about soundness of the economic policy framework,” Kassami explained.

PSIs are voluntary and demand-driven. The PSI for Uganda was first given a green light on May 12, 2010.

Shinohara said the main challenge facing economic policy makers at present is to adjust fiscal and monetary policies to safeguard macro-economic stability and rebuild policy buffers, including international reserves.

He noted that scaling up infrastructure investment will be key to faster growth in Uganda over the medium term.

Kassami said the Government will continue to invest in infrastructure, value addition, agriculture and human resource to improve competitiveness and exports growth.

Commenting on the depreciation of the shilling against the dollar, Kassami said the current problems of the shilling were temporary and would be handled.

He said international factors had affected Uganda’s exports thereby reducing foreign exchange inflows.

The shilling hit an all-time low of sh2,725 against the dollar on Wednesday due to the increasing global demand for the dollar.

“The Government is taking measures to improve exports to increase foreign exchange inflows and resolve the shilling problem in the short term,” Kassami explained.

But, he said, redeeming the shilling was a collective responsibility where all Ugandans have a role to play through working hard and exporting more.

By Chris Kiwawulo: The New Vision Newspaper