IMF projects 6 percent growth rate for Uganda in 2014

By David Mugabe

The International Monetary Fund (IMF) will support a study to ascertain the extent of tax revenue missed through exemptions to investments in the country.

Ana Lucia Coronel, the IMF senior resident representative in Uganda, said the institution hopes to use the study which will be concluded in the next nine months to encourage the Government to gradually reduce exemptions and widen the tax base.

“More needs to be done to collect revenue. How much is the gap that they are not collecting-we have this suspicion that it comes from exemptions,” said Coronel.

Uganda’s tax to GDP ratio is the lowest in the region, at about 12.5%, compared to even smaller economies such as Burundi and Rwanda. Kenya’s tax to GDP ratio is at 24% while Tanzania’s is at 16%. Sub-Saharan average is 18%.

The low tax to GDP ratio illustrates the amount of money received from taxes compared to all the other economic activities in the country. Taxes remain the main source of revenue for government’s planned expenditure.

In the past, URA has blamed the lack of a national identity card for the small ratio citing difficulty in following defaulters.

But even major reforms and efficiency campaigns such as automation by Uganda Revenue Authority (URA) have not drastically improved the percentage of tax revenue to the country’s overall economic activity (GDP).

Meanwhile the IMF is projecting growth to rebound to 6% in 2014 as major reforms are expected in revenue management and budget discipline as well as reforms in the Central Bank’s Act, which will increase its capitalisation.

The 6% projection means the sum total of the economic activities will have almost doubled from last year’s growth and contracted economy that was at almost 3.2%.

“We see inflation falling and becoming sustainable, we can say inflation is close to that medium term target,” said Coronel.

Uganda’s reserves have increased to a buffer of about four months.

“This is a solid position that helps the economy prepare better and react to the shocks it could face in the future,” said Coronel.

She cited several projects such as road construction that have been faster than expected and electricity costs have come down as well.

Credit also started to recover although mainly in foreign currency.

The IMF is also optimistic that changes in the land registry will boost collateral, thus boosting domestic currency credit growth.

But the delayed Karuma dam project will cost the country, she warned.

In its new three-year programme and policy support instrument, Coronel says the IMF has promised to help the Central Bank with reforms as well as efforts in improving the business environment and financial sector development.

One of the key issues is helping to prevent the numerous leakages in public finance mainly through corruption.