Uganda has exhausted its quarter, this is 100 percent, is it the first time it’s happening, and is that way to tailor make the direction of this payment to go specifically for let’s say sectors?
Mira: Uganda is getting resources under the rapid credit facility. This is an emergency financing facility that the fund has available for countries that are experiencing an urgent balance of payment caused by unexpected shock, it can be weather related, it can be Covid related. So to respond to Covid, because of intensity and unprecedented nature of this crisis, the IMF changed the rules of access to this facility, which used to allow only for 100 per cent of quarter of access.
Countries can now access up to 100 per cent of the quarter, before it was 50 per cent for the specific facility. For Uganda, 100 per cent quarter, its USD361 million; this is the IMF basket of currency. Because the exchange rate fluctuates, we thought it was gonna USD490 million then at the end yesterday it was USD 491.5 million. That’s why it’s a funny figure but the amount is not unprecedented; it is in response to nature and the intensity of the shock so we do think that the COVID pandemic is creating a large shock for the Ugandan economy in balance of payments and in the fiscal accounts and therefore this level of access can contribute to fill this shock. About the use of these resources, the facility is put together to help countries around the world and in particular this facility, low income to countries income countries, deal with impact of Covid-19 pandemic.
In case of Uganda, authorities have decided that they would like to use most of the resources to buffer the central bank position to make sure that reserves stay at comfortable levels. So about 75% of these resources are going to go to support balance of payments in Bank of Uganda and the rest which is USD150 million will go to the budget to support government efforts to respond to the pandemic. What we understand is that the resources are going to be used partly to respond to the health pandemic; to acquire health supplies partly for the vulnerable population that really need to be cushioned to respond to this crisis and the greater part is most likely to go to the private sector and the thinking is that through Uganda Development Bank, some Ugandan companies are going to be supported so that they can produce domestically some resources that can be used to respond to the Covid-19 crisis.
On the side of the reserves, Africa department director Abebe Selasi recently eluded to the fact that countries that are running a flexible exchange regime could consider drawing down on the FX reserves. You mentioned earlier that Uganda could be having, before the crisis, the 4.5 months’ worth of FX cover. Where do you see us standing, is this facility coming in to actually mitigate some of the pressures that we are seeing on the FX reserves at they stand?
Mira: Absolutely, the pressures on the balance of payments caused by the crisis are quite significant. For example, remittances are expected to halve more or less, Foreign Direct Investment is also expected to halve, inflows coming from tourism and in general from exports are also going to decrease significantly. When you look at the dynamics in the balance of payments, indeed the balance of payment is going to take a large hit.
Without any kind of external support, reserves could decline to a concerning or not comfortable level. So the thinking of using part of these resources to cushion this impact is to ensure that the reserves can stay at least at 3.5 months of inputs. This is not a magic number but this is the number that according to our calculations and also according to the Bank of Uganda experience, can ensure that confidence is maintained, that the risk premium of country is not increased and that therefore bank of Uganda can do its job to ensure that there is macroeconomic stability and there is relative exchange rates stability.
Indeed Uganda is likely to draw down on its reserves because from 4.5 months of imports we are projecting that reserves are likely to go down to about 3.5 but with these resources coming from IMF and all those anticipated from other development partners at least, they will stay at around 3.5 months of imports which would guarantee this stability and confidence among the international community.
When someone hears that there is any facility from Bretton Woods institutions or even AfDB, they think Debt to GDP, debt to service. I understand this particular facility, like many others from the Fund to developing countries, is garnering an interest of zero. Factoring this facility; there is another from the World Bank in the works. What is our debt sustainability looking like away from the 37% debt to GDP that we are already bothering with?
Mira: The way we are look at things at the IMF these days and the way that we should be looking at things is that saving lives comes first, that we are on the run, unprecedented health crisis. People are really losing their lives, many people are also losing their sources of income; the key priorities should be responding to the health pandemic; saving lives and trying to ensure that the most vulnerable and private sector can also save keep livelihoods so that what can be liquidity crisis doesn’t turn into a solvency crisis.
Letters to My Younger Self: Winnie Nakimuli—"You Are Worthy Simply Because You Exist"Key consideration is to save lives, save livelihoods to the greatest times possible, but having said that, Uganda’s debt still remains sustainable. We have updated our debt sustainability analysis and these will be published in the next few days as part of this exercise. We have incorporated the thought that not only our resources but all will have to happen to fill the large financing gaps that are opening up. So with these developments, we see that the debt can go, we are at 37 as u mentioned, it can go to 45 this year and over three to four years we see it picking up to 60 percent so we do see that 59.5 close to 60 %.
However, when we do our whole debt sustainability, debt is still sustainable and Uganda remains at low risk of distress. This doesn’t mean that vulnerabilities have not increased because for example when you look at debt to revenue ratio, it is increasing which means the burden of repayment of this debt is becoming more important, and what this tells us is that the efforts that the authorities are already making need to be intensified once the crisis is over. These efforts go in the line of enhancing domestic revenue, domestic resource mobilisation, improving the public investment management so that the projects are really given a good growth dividend that would allow more resources to repay debt.
In general, the plan is that over the medium term, once this big scale up of infrastructural investment is over, there will be some consolidation and oil will start flowing. When you put all that to our debt sustainability analysis, vulnerabilities have increased, debt remains sustainable at risks but distress still remains low.
Countries like Uganda don’t have a good record when it comes to corruption, index money ends up in wrong pockets often. How do you make sure that this USD490 million plus gets to health care sector, gets to the health workers, gets to where it’s supposed to go?
Mira: We are of course very committed and look forward to transparent and accountable use of resources. What the authorities have agreed to do is take three lines of action which I think can be very useful to make sure that there is real materialism.
One is that there is going to be specific and separate reporting in a separate budget line for all Covid related expenditures for; it’s easy to monitor how the resources have been used.
The second one is that the authorities have agreed to publish all large procurement contracts that have been done with these resources to ensure transparency accountability.
And finally, in about a year, there will be an independent audit that will be conducted on the use of these resources and results of that audit will be published. We think that these are good mechanisms to ensure transparency and accountability.
