Uganda needs to be ‘gifted with profits’ to grow â€" IMF
Mar 29, 2006
MARKET MOVER<br><br>The newly-elected government will face several challenges to maintain the growth momentum. <b>Sylvia Juuko</b> interviewed Peter Allum, the resident representative of the International Monetary Fund (IMF) on issues that the Government should give priority to propel Uganda’s
MARKET MOVER
The newly-elected government will face several challenges to maintain the growth momentum. Sylvia Juuko interviewed Peter Allum, the resident representative of the International Monetary Fund (IMF) on issues that the Government should give priority to propel Uganda’s economy.
QUESTION: Will the projected 6% growth be achieved especially in the face of the drought and production constraints arising from the energy crisis?
ANSWER: Large parts of the economy will continue to grow despite the recent loadshedding. But loadshedding is a particular concern for the manufacturing sector, where growth has been closely linked to electricity supply in the past. It is too early to revise the 6% growth target: much will depend on how businesses respond to the loadshedding, and how quickly the Government can install thermal capacity.
What critical areas apart from energy should the newly-elected government tackle?
From an economic perspective, faster growth must be the main goal. International experience shows that sustained strong growth accounts for 99% of poverty reduction. The recipe for growth is not the same in all countries, or in one country over time. For Uganda, a key ingredient is currently energy. Other ingredients include macro-economic stability (low inflation and good control of public spending), investments in transport and other key infrastructure, further modernisation of the financial sector (credit access at more favourable interest rates), and reducing the burden for businesses by removing public sector bureaucracy. To grow, Uganda needs to be “gifted with profits.â€
Has the Government improved management of the economy in areas like revenue collection?
Revenue collection is important because pro-growth programmes (energy, roads) are expensive. Uganda collects domestic revenues of just 12% of gross domestic product (GDP), a figure that should be 15% or higher. The Uganda Revenue Authority (URA) is doing an excellent job of modernisation, which should pay off in additional tax collections in future. Public expenditure management needs to be strengthened in parallel, focusing on realistic budgeting and avoidance of arrears.
The shilling has held ground against the dollar for the most part this year, yet market sentiment was for depreciation of the local currency. What is your take on this?
The exchange rate is influenced by many factors, and “market sentiments†are often wrong! Perhaps there is also too much focus on the exchange rate as the best measure of competitiveness. Businesses are generally more competitive than a decade ago, reflecting improvements in the overall business climate, better infrastructure, increased access to credit and others.
The IMF has called for a new series of policy reforms that could take Uganda’s economy to another level, what areas need reform?
We have already mentioned three priorities for the new government: growth, growth, and growth! Policies need to be driven by this agenda, with a strong input from the private sector.
Will expenditure saving that you have recommended in the recent past be achieved especially with spending on concluded elections?
Completion of the 2006 elections will produce some savings in 2006/07 (for example in the Electoral Commission). At the same time, recent campaign commitments have created new spending priorities. This is normal, and need not destabilise the Budget, provided spending is appropriately prioritised and limited to what is affordable.
Have you concluded the discussion with the Government regarding the IMF’s multi-year Policy Support Instrument (PSI) programme. If so, what was agreed upon?
We have had initial discussions with the Government on the merits of moving to a multi-year PSI. Further discussions will be held at the time of the first review of the current PSI facility, probably in September.
The newly-elected government will face several challenges to maintain the growth momentum. Sylvia Juuko interviewed Peter Allum, the resident representative of the International Monetary Fund (IMF) on issues that the Government should give priority to propel Uganda’s economy.
QUESTION: Will the projected 6% growth be achieved especially in the face of the drought and production constraints arising from the energy crisis?
ANSWER: Large parts of the economy will continue to grow despite the recent loadshedding. But loadshedding is a particular concern for the manufacturing sector, where growth has been closely linked to electricity supply in the past. It is too early to revise the 6% growth target: much will depend on how businesses respond to the loadshedding, and how quickly the Government can install thermal capacity.
What critical areas apart from energy should the newly-elected government tackle?
From an economic perspective, faster growth must be the main goal. International experience shows that sustained strong growth accounts for 99% of poverty reduction. The recipe for growth is not the same in all countries, or in one country over time. For Uganda, a key ingredient is currently energy. Other ingredients include macro-economic stability (low inflation and good control of public spending), investments in transport and other key infrastructure, further modernisation of the financial sector (credit access at more favourable interest rates), and reducing the burden for businesses by removing public sector bureaucracy. To grow, Uganda needs to be “gifted with profits.â€
Has the Government improved management of the economy in areas like revenue collection?
Revenue collection is important because pro-growth programmes (energy, roads) are expensive. Uganda collects domestic revenues of just 12% of gross domestic product (GDP), a figure that should be 15% or higher. The Uganda Revenue Authority (URA) is doing an excellent job of modernisation, which should pay off in additional tax collections in future. Public expenditure management needs to be strengthened in parallel, focusing on realistic budgeting and avoidance of arrears.
The shilling has held ground against the dollar for the most part this year, yet market sentiment was for depreciation of the local currency. What is your take on this?
The exchange rate is influenced by many factors, and “market sentiments†are often wrong! Perhaps there is also too much focus on the exchange rate as the best measure of competitiveness. Businesses are generally more competitive than a decade ago, reflecting improvements in the overall business climate, better infrastructure, increased access to credit and others.
The IMF has called for a new series of policy reforms that could take Uganda’s economy to another level, what areas need reform?
We have already mentioned three priorities for the new government: growth, growth, and growth! Policies need to be driven by this agenda, with a strong input from the private sector.
Will expenditure saving that you have recommended in the recent past be achieved especially with spending on concluded elections?
Completion of the 2006 elections will produce some savings in 2006/07 (for example in the Electoral Commission). At the same time, recent campaign commitments have created new spending priorities. This is normal, and need not destabilise the Budget, provided spending is appropriately prioritised and limited to what is affordable.
Have you concluded the discussion with the Government regarding the IMF’s multi-year Policy Support Instrument (PSI) programme. If so, what was agreed upon?
We have had initial discussions with the Government on the merits of moving to a multi-year PSI. Further discussions will be held at the time of the first review of the current PSI facility, probably in September.