| Summary: | "Economic performance has been broadly favorable. Despite difficult conditions, real GDP growth has proved resilient in the context of low inflation and strong international reserves. The policy mix has deviated from program expectations. Significant revenue shortfalls and expenditure overruns raised the fiscal deficit and domestic borrowing needs, and hindered an opportunity to ease monetary policy more markedly. Policies are set to return to the envisaged path. To reverse course, the authorities intend to adopt a package of tax measures, efficiency gains, rationalization of spending, and reduction of arrears. The tighter fiscal stance would create space for further interest rate declines and support private sector credit expansion. However, with deteriorating bank asset quality, strengthening financial oversight will be crucial. Progress has been made on structural reforms, but further steps are needed. Starting the construction of the two hydropower projects without further delay, approving and regulating the Public Financial Management Bill, and strengthening accounting controls are crucial steps in the reform effort. The expected amendments to the Bank of Uganda Act should support the inflation targeting regime. Downside risks to the program are significant. Success of the adjustment efforts will depend critically on parliament's approval of the entire revenue package and government's subsequent ability to enforce tax collections and resist further spending pressures in a pre-electoral year. Based on the proposed policies, staff supports completion of the second PSI review. Quantitative assessment criteria were met with the exception of the ceiling on net domestic financing, missed by a small margin, to which staff supports a waiver. The PFM- related structural benchmarks were observed, and others are proposed to be redefined or postponed given their good prospects for completion"--Abstract.
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