COVID-19: Uganda to Inject Shs 1tn in UDB as IMF Approves Shs 1.8tb Loan

WASHINGTON, DC – The Executive Board of the International Monetary Fund (IMF) this Wednesday approved a disbursement of  US$491.5m (Shs 1.8tn) for Uganda under the Rapid Credit Facility (RCF) to deal with the impact of Coronavirus.

Officials said the disbursement will help finance the health, social protection and macroeconomic stabilization measures, meet the urgent balance-of-payments and fiscal needs arising from the COVID-19 outbreak and catalyze additional support from the international community.

The Ugandan economy is being severely hit by the COVID-19 pandemic and, in particular, such key sectors as services (tourism), transport, construction, manufacturing and agriculture.

IMF said the challenging external environment is curtailing remittances and foreign direct investments.

“The pandemic has also exacerbated the challenges posed by heavy rains in early 2020 and the ongoing locust invasion,” said IMF in a statement today.

The Ministry of Health has confirmed two new COVID-19 cases, bringing the total number of infections in Uganda to 100.

President Museveni this Monday ordered 14 more days of a national lockdown to prevent further spread of the virus.

IMF said to contain the impact of the pandemic, the authorities have increased health spending, strengthened social protection to the most vulnerable, and enhanced their support to the private sector. The Bank of Uganda has reduced interest rates and provided liquidity to safeguard financial stability, while maintaining exchange rate flexibility.

“The weakening economic conditions emanating from the Covid-19 pandemic have put significant pressures on revenue collection, expenditure, reserves and the exchange rate, creating urgent large external and fiscal financing needs,” said IMF.

“The IMF continues to monitor Uganda’s situation closely and stands ready to provide policy advice and further support as needed. The authorities have also committed to put in place targeted transparency and accountability measures to ensure the appropriate use of emergency financing.”

The Minister Finance in charge of Planning, David Bahati, recently presented to Parliament a loan request from IMF to finance Uganda Development Bank (UDB) with Shs 1tb; Uganda Development Corporation with Shs 200bn.

Uganda Industrial Research Institute (UIRI) will take Shs 26 billion while Shs 300bn will go to agriculture sector to take advantage of the opportunities out of this COVID-19 crisis.

Mr. Tao Zhang, IMF’s Deputy Managing Director and Acting Chair, said, the global COVID-19 pandemic is expected to severely hit the Ugandan economy through several channels, with detrimental effects on economic activity and social indicators.

“The external and fiscal accounts are expected to deteriorate, creating substantial urgent external and fiscal financing needs.

To limit the pandemic’s human and economic impact, the authorities have promptly adopted bold preventive measures to contain the spread of the virus, and scaled up health spending to strengthen the health system’s capacity. Interventions to support the more vulnerable have also been introduced.”

Tao told Ugandan authorities to continue to step up social protection programs to cushion the impact on the vulnerable population and to protect health spending allocations over the medium term.

“A temporary widening of the fiscal deficit is warranted in the short term to allow for the implementation of the response plan. Despite a temporary worsening of debt indicators and heightened vulnerabilities, public debt is expected to remain sustainable. The authorities remain committed to ensuring debt sustainability, including through their efforts to enhance revenue collection and strengthen public investment management,” he observed.

The IMF’s emergency financial support under the Rapid Credit Facility, along with the additional donor financing is expected to help catalyze, will help address Uganda’s urgent balance of payments and budget support needs.