KAMPALA – Uganda will receive an emergency loan worth $491.5 million from the International Monetary Fund-IMF to help cushion its economy from the impact of the novel coronavirus, the fund said on Wednesday.
In a statetement dated May 6, Mr. Tao Zhang, the Deputy Managing Director and Acting IMF Board 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.
He noted that Uganda’s 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, Mr. Zhang said government of Uganda has promptly adopted bold preventive measures to contain the spread of the virus, and scaled up health spending to strengthen the health system’s capacity.
In addition, he said that Bank of Uganda has swiftly introduced policy measures to support liquidity, preserve financial stability and support economic activity.
However, he said that a temporary widening of the fiscal deficit is warranted in the short term to allow for the implementation of the response plan.
The Executive Board of the International Monetary Fund (IMF) approved today a disbursement of SDR361 million (about US$491.5 million or 100 percent of quota) for Uganda under the Rapid Credit Facility (RCF). It 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. 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.
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 appropriately 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.
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.