Govt seeks new IMF programme to unlock cheap financing

Uganda is pushing for a new Extended Credit Facility (ECF) programme with the International Monetary Fund (IMF) to unlock cheap, long-term financing and rebuild investor confidence at a time when the shilling is under pressure, borrowing costs are rising and its credit rating is on the edge.

Finance State Minister Henry Musasizi told the IMF's Director for Africa, Zeine Zeidane, at the 2026 IMF-World Bank Annual Meetings in Bangkok, Thailand, that Kampala is ready to implement the agreed prior actions to secure the new programme, arguing it will not only anchor policy credibility but also help improve Uganda's sovereign rating.

The meeting, also attended by Permanent Secretary and Secretary to Treasury Ramathan Ggoobi and Bank of Uganda Governor Michael Atingi-Ego, comes just months after Uganda's previous 3-year ECF arrangement expired, leaving the country without an active Fund-backed reform anchor as global financing conditions tightened.

According to a statement from the Ministry of Finance, the discussions centred on Uganda's bid to secure more concessional financing amid a widening external gap. Musasizi said the programme, if approved, would strengthen confidence in Uganda's economic policies and improve its credit standing with rating agencies and commercial lenders.

Officials clarified several issues raised by the IMF director, including fiscal consolidation, monetary policy, domestic revenue mobilisation and tax policy, expenditure and budgetary discipline including the handling of supplementary budgets, expenditure composition, governance and structural reforms.

Dr Ggoobi said government is committed to undertaking all necessary reforms to raise the tax-to-GDP ratio from the current 14 percent to at least 20 percent, adding that any tax measures required to support that ambition will be incorporated in the Budget Framework Paper for Financial Year 2027/28.

The tax ratio target has long been a sticking point in IMF reviews, with the Fund arguing that Uganda collects too little to sustainably finance its development needs without resorting to expensive domestic borrowing.

The push for a new ECF is significant because it unlocks more than just IMF money. Under the Fund's architecture, an ECF is often a catalyst for other concessional lenders, including the World Bank and African Development Bank, who peg their budget support to a country having an active IMF programme. For Uganda, which has seen offshore investors exit local debt and Eurobond yields rise, concessional financing is seen as a cheaper alternative to keep debt sustainable.

Uganda's public debt has crossed Shs107 trillion, with interest payments now consuming more than a third of domestic revenue, forcing government to borrow more to service old debt. The shilling's recent slide past Shs4,000 and BoU's emergency hike of the Central Bank Rate to 12 percent have further raised the cost of domestic borrowing, making external concessional windows more attractive.

During the IMF Africa Group 3 Constituency meeting to which Uganda belongs, discussions focused on global economic challenges, debt and fiscal adjustment, exchange rate flexibility, subsidy reforms and strengthening Africa's voice in global financial governance.

The Fund's Africa director urged policymakers to balance adjustment with protection of vulnerable households, warning against reforms that sacrifice growth.

"Policy makers should not lose sight of growth and reforms that make economies more resilient to future shocks," Zeidane said, asking authorities to protect vulnerable households, ensure economic stability and unlock investment and jobs.

The constituency agreed to prioritise reliable electricity, better digital connectivity, stronger skills, predictable business environment, private sector growth and job creation as key focus areas for building resilience.

If concluded, the new ECF would require Uganda to demonstrate stronger discipline on supplementary budgets, which have in the past breached appropriation limits and unsettled donors, improved composition of spending away from consumptive outlays toward productive infrastructure, and governance reforms including in procurement and state-owned enterprises.

For now, the signal from Bangkok is that Kampala wants to be back under a Fund programme quickly to calm markets after the shilling's record low and to secure cheaper money to finance next year's budget without further squeezing the private sector.