Uganda WT/TPR/S/4
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I. THE ECONOMIC AND TRADE ENVIRONMENT
1. TheRepublicofUganda,amemberoftheCommonwealth,becameindependentinOctober1962.
Between the1970s andtheentry intooffice ofPresident Yoweri Museveni in1986, itsuffered extended
periods ofsevere political turbulence, marked byfrequent changes ingovernment, military coups and
civilwar. Since 1986 stability hasbeenrestored, andtheeconomy isnowrecovering from avery
lowbase.
(1) Major Features oftheUgandan Economy
2. Withapercapita income ofsome US$200, Uganda currently ranks among thepoorest countries
intheworld (Table I.1). However, thisisattributable mainly tointernal problems ofthepastand,
thus,amenable topolitical andeconomic reform. Capitalizing onreforms since 1987andonmassive
foreign support forinfrastructural rehabilitation, theUgandan economy hasexpanded rapidly inrecent
years, withaverage GDP growth exceeding 5percent(Table I.2).
3. Withanequatorial climate moderated byaltitude, regular andreliable rainfall, andfertile soils,
Uganda offers advantageous conditions forfarming. About 80percent ofthecountry 's
240thousand sq.km. ispotentially arable.
WT/TPR/S/4
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4. Agriculture currently absorbs 80percentofthecountry 'slabour force, contributes 50percent
ofGDP and90percentofexport earnings. Cultivation offoodcrops -bananas (matoke ),cassava,
sweet potatoes, millet andmaize -isbyfarthemostimportant domestic activity, while coffee dominates
exports. Agricultural processing industries (coffee, beverages, textiles, leather) arethemainstay of
Uganda 'ssmall manufacturing sector, whose share inGDP islessthan10percent. Manufacturing
activities may, however, increase inscope asinfrastructural bottlenecks areeased andeconomic
integration withneighbouring countries proceeds (Chapter II(5)(ii)). Thesame holds forthetourist
industry, which seeks toregain itsprevious rôleasthecountry 'ssecond mostimportant export earner.
Table I.1
Main social andeconomic indicators, 1993
Area 241,038 sq.km. Share inGDP atfactor cost(1991 prices)
Land 197,097 sq.km. Agriculture 49.9
Water andswamps 43,942 sq.km. Industry 7.1
Services 39.3
Population 18.0million Construction 6.1
Population growth (1980/93) 2.7percent Wholesale andretail trade 12.1
Birth rate(perthousand) 7percentaHotels andrestaurants 1.4
Lifeexpectancy 43yearsaTransport andcommunication 4.2
Primary school enrolment ratio 71percentaCommunity services 15.5
Other (owner-occupied dwellings) 2.9
Labour force (share inpopulation) 49.4percent
Share inemploymentb
Nominal GDP USh4,019.4 billion Agriculture 80.1
Monetary economy USh2,926.5 billion Industry 3.3
Non-monetary economy USh1,092.9 billion Services 16.6
GDP percapita USh219,103 (US$200)
Merchandise exports f.o.b. US$201.2 million
Consumer price index (1990 =100) 207 Merchandise imports f.o.b. US$597.1 million
Exports ofgoods andservices/GDP 6.2percent
Exchange rate(perUS$) USh1,195 Imports ofgoods andservices/GDP 21.1percent
a 1992 figures.
b 1991 figures.
Source: World Bank, IMFandBank ofUganda.
5.Uganda 'slarge informal sector -accounting forabout one-third ofofficial GDP estimates -is
based mainly onsmall-scale cropproduction andlivestock farming (Table AV.2).1During thepast
periods ofpolitical unrest, itprovided large parts ofthepopulation withthemeans ofsurvival and
today combines withsmall-scale cash-economy operations toform thebasis ofmuch ofUganda 's
economy. While thedynamism ofsuchsmall-scale operations isanessential element ofUganda 's
economic recovery, itmayinthemedium-term alsoactasadragoneconomic expansion, limiting
boththedomestic resource base(taxes andprivate funds) forfuture investment andthedemand potential
forfledgling manufacturing services activities.
1According totheauthorities, theterm "non-monetary" sector, usedinofficial statistics, generally refers
toeconomic activities carried outbysmall-scale production units (lessthan5employees) producing goods and
services primarily forself-consumption. Thesizeofthesector isestimated onthebasis ofconsumption surveys
involving some 10,000 households.Uganda WT/TPR/S/4
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6.Reflectingtheprevailingsectoralpattern,Uganda'spopulationofaround19millionispredominantly
rural. Lessthan10percentlivesintowns ofmore than1,000 inhabitants. Thestructure ofthelabour
force isinfluenced bothbyahighbirthrate(2.7percent) and,increasingly, bytheAIDS epidemic
anditsmounting tollonworking capacity andlifeexpectancy.2
Table I.2
Performance ofUganda 'seconomy, 1986-94a
1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993/94b
Annual percentage change
RealGDP atmarket prices 1.0 7.7 6.5 5.5 4.4 2.6 7.2 4.5
Exports (inU.S. dollars) 1.0 -22.2 -7.0 -14.2 -2.9 -1.9 -8.7 51.1
Imports (inU.S. dollars) 30.0 4.7 1.1 -7.4 -6.2 -17.3 27.2 22.6
Terms oftrade -11.0 -28.0 -25.0 -24.0 -14.0 -14.2 -1.9 38.6
Inflation rate n.a. 199.1 76.8 2.9 32.0 62.9 -0.6 16.1
Money supply (M2) n.a. n.a. 22.4 56.0 46.8 53.4 42.0 33.4
Percent
Interest rates(onsavings deposits) n.a. 28.0 33.0 30.0 32.0 21.0 15.0 2.0
Index 1990 =100(Period averages, calendar year)c
Realeffective exchange rate 558 435 482 569 931 1,215 1,333 ...
PercentofGDP
Gross domestic investment 9.2 11.6 12.7 13.0 16.3 16.5 16.3 16.4
Gross domestic savings -12.6 -10.6 -8.4 -3.4 -1.1 1.0 -0.7 2.2
Balance oncurrent account
(excluding grants)-1.3
(-1.8)-9.6
(-14.0)-9.8
(-16.9)-10.5
(-16.7)-8.1
(-19.4)-5.2
(-13.3)-3.2
(-11.7)-2.2
(-8.8)
Public sector balance -4.6 -5.8 -5.2 -6.4 -7.9 -14.5 -12.6 -10.9
Netforeign financing 0.5 2.2 2.2 6.6 3.6 5.2 5.2 6.4
Domestic bank financing 4.3 2.0 1.4 -1.4 0.2 1.9 -0.4 -0.8
Domestic non-bank financing - - 0.1 -0.2 0.3 0.2 -0.2 0.2
Percentofexports ofgoods andnon-factor services
External debtd309.0 563.0 626.0 895.0 1,246.2 1,357.8 1,300.7 909.5
Debt service ratiod54.0 62.0 74.0 81.0 95.9 127.7 85.1 56.5
Inmonths ofimports ofgoods andnon-factor services
Foreign exchange reserves 0.7 0.7 0.8 0.5 1.3 2.2 1.8 2.9
a Uganda 'sfiscal yearstarts on1July.
b Estimates.
c Anincrease signifies adepreciation.
d Including Fund obligations.
Source: IMF(1995), Uganda: Adjustment withGrowth 1987/94, Washington D.C.; World Bank (1994), Macroeconomic Reform and
Growth inAfrica, Policy Research Working Paper 1394, Washington D.C.
2AccordingtoaGovernmentestimate,around5percentofthepopulation(565,000adultsand250,000children)
maydieoftheepidemic by1998. Marchés tropicaux, 18November 1994.WT/TPR/S/4
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(2) Economic Performance
(i) Developments uptothemid-1980s
7. Onindependence in1962, Uganda 'seconomic fortunes appeared solidly based onafavourable
natural environment andrelatively welldeveloped infrastructure. However, thepolitical system, based
ontheco-existence ofacentral republican régime andtraditional kingdoms, proved toofragile. Under
theAmin régime (1971-79) thecountry degenerated intocivilwarandethnic strife. Theexpulsion
ofUgandan Asians deprived thecountry ofmanagerial andtechnical expertise; mass expropriations
deterred foreign investors anddonors; andcontinued fighting devastated thecountry 'sphysical
infrastructureandundermineditshumancapitalbase.ThesecondOboteGovernment(1980-85)launched
aneconomic recovery plan(Reconstruction Programme), hinging oncurrency devaluation, cutsin
government spending, price deregulation, andprice incentives forfarmers. Restoration ofprevious
ownership under theExpropriated Properties Actwasintended toregain investors 'confidence.3
Economic improvements, however, were short-lived ascivilturmoil wasrekindled.
8. Erraticandinconsistentpolicymanagementdiscouragedformaleconomicactivities,inparticular
production forexports: administered producer prices forcashcrops wererarely raised inlinewith
inflation andresulted inasharp fallinrealfarmreturns; State-owned tradeandprocessing monopolies
further stifled farmers 'initiatives; rising fiscal deficits, coupled withanarrow taxbase, increased
theGovernment 'sdependence onexport taxes, particularly oncoffee; andtightforeign exchange
allocation procedures discouraged anyalternative international activities. Theanti-export biaswas
compounded byarequirement onmajor cashcropexporters tosurrender export proceeds attheover-
valued official rate.
9. Bythemid-1980s, aoncevibrant economy withastrong export sector hadvirtually ground
toahalt,saveforsmall-scale coffee growing andsubsistence farming intheinformal sector. External
trade collapsed (Chart I.1),realGDP tumbled and-fuelled byincreased government borrowing and
anaccommodating monetary policy -inflation reached annual ratesof200percent.
3EIU(1993); Europa (1993).Uganda WT/TPR/S/4
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(ii) Reform andrehabilitation since 1987
(a) Objectives andstrategy
10. InMay1987, theUganda Government launched anEconomic Recovery Programme (ERP),
centring onthefollowing objectives andmeasures:
(i) export competitiveness (narrowing thegapbetween official andfreemarket exchange
rates, liberalizing foreign exchange surrender requirements, andreplacing restrictive
export licensing requirements byacertification scheme);
(ii) agricultural policy reform (restoring incentives forproducers through theabolition
ofprice controls andinefficient marketing monopolies);
(iii) foreign investment promotion (introducing investment incentives andguarantees under
theInvestment Code, returning expropriated properties);
(iv) Budgetary reform (increasing revenue mobilization andenhancing expenditure control);
(v) reduction ofinflation (preventing excessive monetary expansion, through increased
budget discipline anddevolution oftheBankofUganda 'scommercial banking activities
intheareaofcropfinance).WT/TPR/S/4
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Reflecting thepolicy changes, theeconomy rebounded strongly in1987 (Chart I.6).
11. Building onprogress under theERP, theGovernment announced asuccessor programme -
theRehabilitation andDevelopment Plan(RDP) -in1993. Itsobjectives weretoincrease economic
growth toanannual rateofatleast5percent; bring down inflation to5percent; further reduce
macroeconomic imbalances andimprove theexternal position; andeliminate existing pricedistortions
inproduct andfinancial markets.4Implementation focused ondevelopment anddiversification ofthe
export base; mobilization ofdomestic savings bystimulating private savings andreducing government
deficits; investment promotion; reduction offoreign debt; reform oftheGovernment budget with
aviewtoenhancing economic andsocial effectiveness; andmore efficient useoflabour andlandin
rural areas foragricultural production.
(b) Fiscal policy andpublic sector reform
12. Variousinitiativeshavebeentakentostreamlineandrationalizethebudgetprocessandgradually
redress Uganda 'spersistent fiscal imbalance. Thedevelopment budget wasdivided intoacoresector
receiving fullfunding, andnon-core projects tobeexecuted onthebasis ofresource availability.5
Thecivilservice, including thearmy, wasreduced insizeandanumber ofpoorly-performing public
enterprises wereprivatized, restructured ordisbanded (Chapter IV(4)(i)).6Export taxeswereabolished
andefforts made torebalance thetaxsystem byamove fromtrade- towards consumption- andincome-
related taxes (Chart IV.1) andclosing taxloopholes. TheUganda Revenue Authority, setupin1991,
isexpected tostrengthen revenue collection andcuttaxandtariff evasion.
13. While fiscal revenue increased significantly from 2.4percentofGDP in1987 toaround
7percentin1991(Chart I.2),ithasremained farbelow theaverage ofcomparable African countries
(about 18percent).7Moreover, despite allefforts torestrict spending, theshare ofpublic expenditure
inGDP hasofnecessity expanded rapidly, driven bytheneedtofinance infrastructure rehabilitation
andmodernization. Aconsiderable partofthedeficit isfinanced byforeign aidflows, which represent
over10percentofGDP. Further progress infiscal adjustment depends largely onthebroadening
oftherevenue base, including through the"monetization" oftheinformal sector; theintroduction
ofavalue-added taxisenvisaged for1996 (Chapter IV(2)(iii)).
4MFEP (1993b).
5IMF(1994b). Inrecent years, development expenditure accounted forslightly more thanhalfoftotalCentral
Government spending orsome 10percentofGDP.
6Military expenditure fellfrom 2.4percentofGDP in1991/92 to1.3percentin1993/94.
7UNDP/IBRD (1990); EIU(1995). Thedecline intheshare ofrevenue for1992 noted inChart I.2reflects
theremoval ofcoffee export tax.Uganda WT/TPR/S/4
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(c) Monetary policy andfinancial sector reform.
14. Regaining monetary control hasbeenamajor achievement onthemacroeconomic front. The
growth ofmoney supply (M2) wasbrought down fromover150percentin1987tobelow 50percent
in1992 and,initswake, consumer-price inflation; since 1992, consumer prices havebeenstable,
withannual inflation onayear-end basis around 4percentin1993 and7percentin1994. Tight
control hasbeenmaintained ondomestic credit, withamarked fallingovernment borrowing allowing
private sector borrowing toexpand. Changes inbanking legislation havebeenaimed atenhancing
therôleoftheCentral Bankandrationalizing itsuseofinterest ratesandminimum reserve requirements
asthestandard instruments ofmonetary policy.8
8TheBank ofUganda Statute 1993 strengthens theautonomy oftheCentral Bank initsinternal management
andregulatorycontroloverthebankingsector.TheBOU'sstatedfunctionsincludeensuring"monetarystability";
maintaining adequate reserves ofexternal assets; operating asthebanker totheGovernment andfinancial
institutions; advising theGovernment onmonetary policy; andsupervising financial institutions, insurance
companies andpension funds. TheBank isgoverned byaBoard ofDirectors, consisting oftheGovernor and
theDeputy Governor, bothappointed bythePresident; theSecretary totheTreasury; andfourtosixDirectors
appointed bytheMinister ofFinance andEconomic Planning. TheMinister may, after consultation withthe
Governor, give"directions ofageneral nature". Besides, iftheMinister considers thatpolicies are"notadequate
for,orconducive to,theachievement ofthefunctions oftheBank", hemay, withCabinet approval, issue a
directive determining specific policies. Thedirective must besubmitted totheLegislature within 15days.WT/TPR/S/4
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Uganda WT/TPR/S/4
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15. Withlower inflation, realinterest ratesturned positive in1990forthefirsttimeinmany years
andhaveremained sosince then. However, while investment hasrecovered sharply inamore stable
andremunerative economic environment, domestic savings havenotyetresponded significantly, leading
tothedeterioration inthecurrent account since 1986 (Charts I.3andI.4).
16. TheGovernment hasstepped upefforts toenhance theefficiency ofthebanking sector with
aview, interalia,tomobilizing additional savings andusing itefficiently forupgrading andexpanding
thecountry 'scapital stock. Inaddition, much isbeing done, including through incentives under the
1991 Investment Code, toattract private foreign investors (Chapter III(2)(ii)).
(d) Exchange rateandexternal accounts
17. Uganda 'sfixed exchange-rate régime ofthe1980s, inaninflationary environment, ledto
significant over-valuation oftheofficial rate. Thepremium overtheparallel market rateexceeded
600percentin1986.9Asafirststeptowardsexchangerateunification,theparallelmarketwaslegalized
inJuly1990 andhanded overtoauthorized foreign exchange bureaux. InJanuary 1992, anauction
system wasintroduced forofficial foreign exchange and,finally, inNovember 1993aninterbank foreign
exchange market established totakeoverboththeofficial andparallel markets within aunified floating
exchange ratesystem. Today, according totheauthorities, theBOU intervenes onlytosmooth wide
fluctuations orachieve clearly defined policy objectives.
18. Since adevaluation ofsome 70percent inMay1987, setting theexchange rateat
USh60perU.S.dollar, theshilling 'sexternal value felltoabout USh1,200 byDecember 1993.
Reflecting thecomposition ofUganda 'sexport andimport baskets (coffee versus equipment and
machinery), andtheimpact ofthecoffee price slump, themerchandise trade deficit widened despite
strong nominal andrealdepreciation (Table I.2). Concurrently, thecurrent account deteriorated until
recently asdomestic savings continued tofallshort ofthecountry 'sinvestment needs (Chart I.5).
19. Inearly1995,theexchangeratereboundedtoaroundUSh1,000perU.Sdollar.Theauthorities
attribute theriseinparticular tothestrengthening ofinternational coffee prices, lowinflation with
positive interest rates, investors 'growing confidence intheUgandan economy, repatriation offunds
fortherehabilitation ofreturned Asian properties, andforeign aidflows channelled through Uganda
towards Rwanda. While therecent surge inworld coffee prices islikely toimprove Uganda 'sexternal
accounts, atleasttemporarily, theGovernment isconcerned thattheaccompanying upward pressure
ontheshilling mayhinder export diversification. ACoffee Stabilization Taxwasintroduced inOctober
1994, inparttorelieve suchappreciation (Chapter IV(3)(ii), BoxI.1).
9Kasekende andSsemogerere (1994). SeealsoBouton etal.(1994).WT/TPR/S/4
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(e) Trade liberalization andmarket deregulation
20. Structuralreform,througheconomicliberalizationandderegulation,isattherootoftheUgandan
authorities 'strategy toenhance theintensity andefficiency ofresource useandencourage diversification
intonon-traditional industries. Thedissolution oflong-entrenched State marketing andprocessing
monopolies hasthusbeenaccompanied bytheabolition ofpricecontrols, thetermination ofmostimport
bans,gradualtariffliberalization,andtheintroductionofmorestreamlinedimportandexportprocedures
(Chapter IV(2)).
(f) Recent economic expansion
21. Theperformance oftheUgandan economy under theEconomic Recovery Programme andits
1993successor (Rehabilitation andDevelopment Plan) hasbeenimpressive (Chart I.6). Theeconomy
started expanding rapidly in1987, culminating toarecord 7.2percentgrowth in1992/93. In1993/94,
GDPgrowth slowed down to4.5percent,duemainly totheimpact ofdrought onfoodcropgrowing;
theindustrial sector expanded vigorously, recording 15percentincrease intheproduction index.10
10MFEP (1994a); MFEP (1994b).Uganda WT/TPR/S/4
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BoxI.1
Export booms, currency revaluation andstate intervention
Asudden sector-specific export boom, causing significant foreign reserve inflows andupward pressure
onthereal exchange rate, may putother export sectors andimport-competing industries under
unexpected adjustment pressure. Theboom maybetriggered bysuch events astheexploitation ofnew
oilfields ormineral deposits, orbyworld price surges. Concurrently, thebenefiting sectors maybe
petroleum andgas(Netherlands, United Kingdom, Nigeria, OPEC countries), mining (Australia) or
coffee growing (Kenya, Uganda). Theactivities placed under pressure may include conventional
manufacturing sectors butalsoagriculture, particularly inthecaseofdeveloping countries. (Such sudden
changes arenottobeconfounded withmore regular, non-disruptive shifts infactor endowment, demand
andrelative prices which, forexample, areattherootofthedecline offarming inmost industrial
countries.)
Theadjustment pressure onsectors notsubject totheexport boom generally results from three effects:
(i) Spending effect: Theextra income generated inthebenefiting industry isspent onboth
tradeable andnon-tradeable goods. While increased demand fornon-tradeables will
raise prices intheinternal sector, prices fortradeables -determined byworld market
conditions -willremain unchanged. Theconsequent appreciation oftherealexchange
rate(asmeasured bytheprices ofnon-tradeables relative totradeables) willtendto
lower theoutput ofthetraditional tradeables sector.
(ii) Direct resource movement effect: Theboom could translate intofactor price increases
(e.g. wages) inthebenefiting sectors and, thus, induce resource movements towards
these sectors from thetraditional tradeables industries.
(iii) Indirect resource movement effect: Similar movements from thenon-tradeables
industries willencourage further price increases inthese industries and,thus, strengthen
theinitial spending effect onthetraditional export sector (further exchange rate
appreciation andoutput contraction).
Thestrength ofthese effects depends onanumber offactors, including theuseoftheincome gains in
booming industries andthedegree ofsubstitutability between domestic andforeign goods. Import-
competing industries indeveloping countries, whose products areoften imperfect substitutes forimports,
maybelessaffected thansuchindustries inindustrial countries, while thenon-benefiting export sectors -
e.g.cashcrops other thancoffee inthecaseofUganda -maysuffer more.
Several government initiatives areconceivable toeaseadjustment pressures onaffected sectors. Oneline
ofaction isabsorption bytheCentral Bank ofcurrency inflows through foreign exchange purchases. To
avoid realappreciation viainflation, these purchases would need tobecoupled withmonetary action to
prevent anincrease inmoney supply, and/or with fiscal tightening. Thefirstapproach might prove
difficult intheabsence ofappropriate monetary instruments, andthesecond could behampered byan
inefficient taxcollection andenforcement system. While ataxtargeted specifically atthebooming
activities may offer theadvantage ofeasy implementation, inparticular ifthenumber ofoperators
(producers ortraders) islimited, italsorisks cementing relative prices. Such ataxwould bewarranted
onlyiftheboom istemporary, asopposed toalasting change inworld market conditions which would
allow permanent income gains.
BoxI.1(cont'd)WT/TPR/S/4
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Ifpassed through tothefarm level, thecoffee boom would provide awelcome opportunity formany
small Ugandan farmers toupgrade their assets after along period ofdepression anddisinvestment.
However, thiswould require current financial sector reforms tobeaccelerated withaview toimproving
financial intermediation, encouraging longer-term saving andinvestment decisions andimproving
resource efficiency.
Source: Benjamin (1990); Benjamin etal.(1989); Caves andJones (1985); Cooper etal.(1982);
Corden (1994); Corden andNeary (1982); Coussy (1991); GATT (1993); GATT (1995a);
MFEP (1994a); Sharer etal.(1995); SidAhmed (1987).
(3) Composition andDirection ofTrade
(i) Merchandise trade
22. Between 1985and1992, Uganda 'sexports halved invalue, reflecting inparticular thecollapse
ofworld coffee prices. Atthesame time, however, exports ofother traditional crops (tea,cotton,
tobacco) andofnon-traditional primary products (fish, cereals) picked up.Some increases alsotook
placeinmanufactured exports, although Uganda 'sexport basket hasremained dominated byagricultural
products, accounting for90percentofthetotalin1992. Thetrendtowards some export diversification
appears tohavebenefited fromthepastdevaluation oftheshilling, encouraging therecovery ofexport
cropproduction, aswellasrelief supplies toneighbouring countries and,more fundamentally, regional
trade liberalization under PTA/COMESA (Chapter II(5)(ii)(a)).Uganda WT/TPR/S/4
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WT/TPR/S/4
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23. Thechange incommodity trade patterns wenthandinhandwithageographical reorientation
ofUganda'sexports(ChartI.7,TableAI.3).Availabledata,whilesubjecttoconsiderableuncertainties11,
point toasharp decline ofexports totheUnited States overthepastdecade. Bycontrast, nolasting
changes arediscernible insupplies totheEuropean Union, Uganda 'smostimportant export destination.
Therecent increase innon-traditional exports coincided withtheemergence ofthePTA/COMESA
areaasUganda 'ssecond largest export market.
24. Buoyed bydonor financing aftertherestoration ofpeace in1987, imports jumped byalmost
50percent(Table AI.2). Theyweredriven mainly bysupplies ofmachinery andtransport equipment,
benefiting inparticular exporters inJapan andtheUnited States. TheEuropean Union hasremained
Uganda 'ssingle mostimportant source ofimports, while other traditional suppliers -Kenya andother
PTA/COMESA countries, India andPakistan -havelostshares.
(ii) Services trade
25. Uganda hasconsistently beenanetimporter ofservices (non-factor services). While tourist
receipts havegrown inrecent years, outflows expanded more rapidly duetoincreased payments for
technical assistance aswellasfortravel, educational, medical andotherservices.12Nodetailed statistics
areavailable.
(4) Outlook
26. Inlinewiththemacroeconomic targets promulgated intheRecovery andDevelopment Plan,
theauthorities forecast thatrealGDPwillexpand byover5percentin1994/95. Inflation isexpected
tocome down fromsome 16percentin1993/94 to7.5percentin1994/95 and5percentthereafter.
Thegrowth target isbased onnormal weather conditions, afavourable harvest andthemanufacturing
sector 'scontinued economic drive. While thecoffee boom maybuoy upexport earnings, estimated
atoverUS$500 million in1995, thestrength oftheshilling mayaffect thedevelopment ofalternative
activities.
27. High continued economic expansion depends essentially onthecountry 'sability topromote
agricultural production, encourage diversification within andoutside thefarmsector, gradually integrate
itslarge informal sector andeasethecurrent account constraint. This, inturn, presupposes apolicy
thatdiminishes anti-export biasinthestructure ofeffective protection andencourages bothdomestic
capital formation andnewinflows offoreign investment.
11Uncertainties arerelated, inter alia,totheattribution tofinal destinations ofshipments viaKenya.
12BOU, Economic Report 1986/1991.Uganda WT/TPR/S/4
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Annex I.1
Foreign Exchange Controls
Legal Framework
28. UndertheBankofUgandaStatuteof1993,theBOU,inconsultationwiththeMinister,prescribes
theframework fordetermining theexternal value oftheshilling. TheBank isempowered tobuyand
sellforeign currency atratesdetermined bymarket conditions oronterms thatmaybedecided by
itsBoard ofDirectors, andtoadminister anyexchange controls onbehalf oftheMinistry ofFinance
andEconomic Planning.13TheBOU mustmaintain areserve ofexternal assets atleastequal tofour
weeks 'import requirements (Section 32).
29. Following theintroduction ofafloating exchange ratesystem, Uganda accepted theobligations
ofArticle VIII, Sections 2,3,and4oftheIMFAgreement inApril 1994. Inaddition, likeother
participants intheCommon Market forEastern andSouthern Africa (COMESA), Uganda undertook
topermit thefreemovement ofcapital toandfrommembers. Controls onCOMESA-internal capital
transfers aretoberemoved inaccordance withatimetable determined bytheCouncil ofMinisters
(Article 81).
Exchange Arrangement
30. Theexchange value oftheUganda Shilling (USh)isdetermined freely intheinterbank foreign
exchange market. Theratesoffered byprivate foreign exchange bureaux atretail levelareslightly
lower thantheinterbank rate,reflecting trading margins.
31. Uganda maintains aregional payments arrangement forintra-COMESA trade
(Chapter II(5)(ii)(a)).14Exporters mayinvoice goods andservices intheirnational currency, inthe
importer 'scurrency, orinEastern andSouthern Africa Currency Units (ESACU). Import payments,
innational currency, aredebited totheexporter initsowncurrency. Thecentral banks ofthetwo
countries involved settle theaccounts withthecommercial banks oftheimporter andexporter.15
According totheauthorities, Uganda doesnotparticipate inanyother bilateral orregional payment
arrangements.
Foreign exchange allocation
32. Imports andimport payments aremonitored under anImport Certification System.16All
payments, except debt-service payments, arefinanced through theinterbank foreign exchange markets.
Purchase offoreign exchange atforeign exchange bureau must bereported totheBOU, withthe
13IMF (1994).
14Articles 73,74and174oftheTreaty.
15GATT (1995b).
16Import restrictions apply toafewitems specified ona"negative list"(Chapter IV(2)(vi)).WT/TPR/S/4
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exception forthefollowing payments: travel, uptoUS$4,000 pertrip; medical treatment, upto
US$20,000 perperson peryear; andeducation, uptoUS$15,000 perperson peryear.17
33. Likeimports, allexports aresubject tocertification (Chapter IV(4)(v)); exporters mayretain
theirproceeds andsellthemfreely intheinterbank market. Asurrender requirement, relating tocoffee
andother major exports, waseliminated in1993 (Chapter V(2)).18
34. Allinward capital transactions, including between residents andnon-residents, aresubject to
prior approval bytheBOU. Inward direct investments must belicensed bytheUganda Investment
Authority(ChapterIII(2)(i)).Tosecurelaterrepatriationofprofits,investorsmayapplyfora"certificate
ofincentives" under theInvestment Code of1991 (Chapter III(2)(ii)).
17IMF (1994).
18IMF (1994). Although coffee exporters arenolonger required tosurrender theirproceeds attheofficial
exchange rate, theymayberequired to"repatriate toUganda allforeign exchange earned inaccordance with
thelaws" (Coffee Regulations 1994, Section 26).