IMF concludes review mission to Uganda

The International Monetary Fund (IMF) recently conducted a visit to Kampala to carry out the 2017 Article IV consultation and discussions on the eighth review under the Policy Support Instrument (PSI). This visit was prompted by a revision of Uganda's growth projection to between three and a half to four percent, coupled with a regional drought that has hindered economic activity in the country in the initial months of the year. Mira Clara, the resident representative of the IMF in Uganda, shed light on various critical aspects during a recent interview with CNBC Africa. Clara emphasized the importance of the PSI's performance, highlighting that while there have been challenges, overall, Uganda has been meeting the requirements set under the PSI. The impending board endorsement will provide further validation of Uganda's compliance and progress under the program. A significant issue discussed was the state of credit in Uganda, particularly following the turmoil in the banking sector that saw the collapse of Crane Bank in the previous year. Clara noted that the decreased availability of credit was not solely due to a reduced number of banks but was primarily a result of mounting non-performing loans. The risk aversion among banks due to high levels of non-performing loans has led to stricter lending standards, making them hesitant to extend credit to the private sector. Addressing this challenge will require a gradual reduction in non-performing loans to restore confidence in the banking sector. The adverse effects of the regional drought on Uganda's economy were also a focal point of the discussion. Clara highlighted that the drought had not only impacted growth but also led to a significant increase in food inflation, with rates soaring from 5.5 percent in September 2016 to 22 percent in April 2017. The drought has shaved off an estimated one percentage point of Uganda's GDP growth this year. However, there is optimism regarding a potential improvement in the weather conditions, which could help mitigate further economic repercussions. Despite the spike in food price inflation in April, there has been a relatively lower pass-through effect on core inflation, easing concerns about sustained high inflation. Clara's insights provided a detailed overview of the current economic challenges facing Uganda and the measures needed to address them. The IMF's engagement and assessments will play a crucial role in guiding Uganda's economic policies and strategies moving forward, particularly in navigating the impact of the regional drought and ensuring sustainable growth and stability in the country.