Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698930738122.pdf (Uganda)
THE REPUBLIC OF UGANDA BRIEF TO PARLIAMENT THE PROPOSAL TO BORROW UP TO UA 23 .O MILLION (EQUTVALENT TO USD 31.64 MTLLTON) FROM AFRICAN DEVELOPMENT FUND TO FINANCE THE REVENUE SHORTFALLS (Brief by the Minister of Finance, Planning and Economic Development) 1.0 PURPOSE 1.1 Rt.

Hon.

Speaker, this brief is to seek the approval of Parliament to borrow up to UA 23 million (equiv.
to USD 3t.64 million) from the African Development Fund to finance the revenue shortfall as well as additional expenditure pressures during the outbreak of Covid-19 in Uganda.

2.0 BACKGROUND 2.L Rt.

Hon.


Speaker, you will recall that in March 2020,I presented to you the risks of the Corona virus pandemic (COVID 19) on the economy of Uganda; the impact of the outbreak on Uganda's budgetary operations and the balance of payments (external sector) for FY 2019120 and the medium term; and emphasized the need for additional resources to deal with the pandemic.

2.2 Rt.

Hon.
2.2 Rt.

Hon.

Speaker, through that paper, I requested to source for funding from both multilateral and bilateral development partners that offer highly concessional financing to provide sufficient financial resources to the 1 health sector and mitigate the effects of the Corona Virus on the economy of Uganda.

2.3 Since then the Ministry continued to mobilise external resources to combat the effects of COVID 19 in the economy hence the current proposal to borrow up to UA 23 million (equiv.
to USD 3t.64 million) from the African Development Fund to finance the revenue shortfall as well as additional expenditure pressures during the outbreak of Covid-19 in Uganda.

2.4 Rt.

Hon.

Speaker, as you are well aware, the Corona virus has continued to spread with far reaching effects on the economy.
As at 27th January 2021, the number of confirmed COVID-19 cases in Uganda stood at over 39,000 people, however it is important to note that over 13,000 people with COVID-19 disease have been managed and have fully recovered.

Currently 317 deaths have so far been registered.

2.5 During June 2020, Government continued with easing some of the measures announced in March 2020 to curb the spread of COVID-19.
These included allowing public transportation (with strict operating procedures), re-opening of non-food stores (except those located in arcades), and hotels and food restaurants.

The easing of these measures has allowed resumption of economic activities in several sectors.

However, the strict operating procedures, especially for public transportation has necessitated increases in transportation charges, which feeds-through to higher production costs and subsequently to higher costs of goods and seruices.
The lagged effects of the lockdown 2 for the previous more than four months on the economy continued to be felt, as reflected by the high frequency indicators of economic activi$(Stanbic's Purchasing Managers Index(PMI), Business Tendency Index(BTI) among others).

2.6The Stanbic's Purchasing Managers Index (PMI) fell for the second month running in December, being registered at 51.2 from 53.9 in November 2020.
This came as a result of a decrease in employment, and lengthened supplier delivery time due to material shortages and delay when importing goods.

Despite the reduction, the PMI remained above the threshold of 50, signalling an improvement in overall business conditions.

This signalled sustained growth in the private sector.
z.7lt is also impoftant to note that, during the month of December 2020, the Uganda Shilling appreciated by t.2o/o against the US Dollar trading at a mid rate of 3,7t0.68 shillings compared to Shs 3,7L9.92/USD in November 2020.

This appreciation was attributed to steady inflows from remittances and offshore investment inflows into the domestic securities market.

2.8 Rt.

Hon.
2.8 Rt.

Hon.

Speaker, Revenue Shortfalls as projected for FY 20L9120 stood at Shs 3.64 trillion resulting from the weak pace of economic activity, which has been partially offset by a disbursement of a budget support loan equivalent to Shs 557.45 billion from the International Monetary Fund (IMF)'s Rapid Credit Facility to aid the government's economic recovery efforts.
3 2.9 It is also important to note that, the World Bank approved a budget support loan of US$ 300 million geared to boosting the coronavirus pandemic response capacities and mitigate the impact on the vulnerable population and the economy.

All the support we are sourcing is aligned to the Government's commitment to povefty reduction as enunciated in the NDPIII and in the Government's short-term plan to address COVID- 19 crisis.
Government will therefore require additional financing to meet the inevitable extra revenue shortfall; the increased health sector financing requirement to further manage and control the COVID-19 outbreak; as well as provision of support to the ailing private sector, individual households and areas affected by COVID-19 in line the comprehensive COVID-19 Preparedness and Response Plan.
3.0 THE PROPOSED PROGRAM SUPPORT FROM AFRICAN DEVELOPMENT BANK 3.1 PROGRAM GOATS AND PURPOSE The goal of the proposed operation is to support Uganda's National COVID-19 Preparedness and Response Plan to strengthen the COVID- 19 outbreak response mechanisms and mitigate the social and economic impacts of the pandemic.
The program consists of three broad reinforcing components namely: (i) strengthening the COVID- 19 outbreak health response mechanisms; (ii) strengthening livelihoods and social protection against COVID-19; and (iii) protecting economic activities against COVID-19 shocks.
4 3.2 PROGRAM COMPONENTS 3.2.L Component 1: Strengthening the COVID-19 outbreak health response mechanisms by; (i) Scaling up of laboratory testing capacity and diagnosis by at least 5o/o through provision of testing kits, consumables and accessories.
(ii) Strengthening and increasing the current ICU capacity with at least an additional 140 ICU beds equally distributed in the 14 Regional Referral Hospitals, and (iii) Strengthening infection prevention and control measures and areas of mass gatherings, including the borders and airport, through provision of adequate and appropriate personal protective equipment; 3.2.2 Component 2z Strengthening livelihoods and social protection against COVID-19 There is projection that low activity in industry and seruices sectors will result into loss of jobs further leading to a decline in economic growth and an increase in the level of povefty.
The informal sector, which is a key sector of Uganda's economy and employs a critical mass of over four million people is the most vulnerable because a lot of their work has been brought to a halt by the lock-down and the various social distancing interventions.

Another vulnerable group of workers employed in the private sector may lose jobs as companies scale down or close due to the redundancy resulting from the COVID-19 pandemic.
COVID-19 has also coincided with the country's invasion by desert locusts which pose a great 5 threat to food security and livelihoods as approximately B0o/o of the population directly depends on agricultural production.

Government has however in the recent past supported the enhancement of social protection and cushioned the poor and vulnerable groups against the impacts of the pandemic.
This suppoft included: (i) supplementary budget for additional social expenditure of UGX 284 bn (USD 76 million); (ii) introduction of tax exemptions for items used for medical support to COVID 19 pandemic; (iii) coverage expansion of social assistance to new vulnerable populations such as urban poor and informal sector workers; including food distribution campaign (maize flour and beans) to vulnerable people in Kampala and Wakiso; (iv) increase access to essential hygiene supplies and clean water to vulnerable populations; and (v) reduction of fees on mobile money transactions and other electronic payment charges.
Therefore this proposed operation will support a range of measures geared towards strengthening livelihoods and social protection.

These include (i) approval of COVID-19 soclal protection response plan and targeting guidelines; (ii) development of response plans for education to ensure continuous learning; (iii) approval of an investment plan to increase access to essentia!
hygiene supplies and clean water to vulnerable populations; (iv) development of a plan to expand coverage of social assistance to vulnerable populations and informa!

sector workers; Expected Results: The measures supported by the program will help to increase population covered by social protection from 3o/o to at least 7olo.

The COVID-19 pandemic has heightened vulnerabilities and significant 6 expansion of the social protection has become critical to save lives and livelihoods.
3.2.3 Component 3: Protecting economic activities against COVID- 19 shocks The proposed operation will support a range of measures aimed at protecting the economy to cope with the effects of Covid-19 not limited to allowing corporations, including small and medium sized enterprises (SMEs), to delay payment of corporation tax or presumptive tax for taxes due between April and June 202A and for tourism, manufacturing, horticulture and floriculture to defer until September 2020 among others Expected Results: The program measures will help to support private sector, protect economic a resilience, and provide some certainty for business.
The measures will reduce the high risks to women's economic position by increasing their resilience to cope with the shocks.

With women being the backbone of the economy and food security, the social protection schemes targeting women will provide market-stimulating responses to meet basic needs and have significant positive impact on communities'adaptation to the effect of Covid-19 .

Details are in annex f as the Program Appraisal Document.
3.3 BENEFICIARIES OF THE PROGRAM The program will benefit the poor and vulnerable through rapid diagnosis, isolation and management of infected persons, strengthened livelihoods and expanded social protection coverage which includes vulnerable 7 households and the urban poor.

The program will also benefit households, private sector, financial sector actors through a faster and more inclusive economic recovery on the back of a more resilient businesses and workforce.
Program Appraisal Document is attached as Annex f for further reference, 4.O THE PROBLEM AND JUSTIFICATION FOR THE LOAN 4.t As a result of the anticipated slowdown in the econoffiy, economic growth projections have been revised downwards from 6.30/o this year to 3.9o/o, and from 6.00/o to 4.5o/o next financial year.

However, if the Government provides an economic stimulus in time, the impact of the disease on economic growth can be minimised and jobs protected.
4.2 To prevent the economy from coming to a halt as a result of the COVID_19 pandemic, additional resources will be required to stimulate economic growth and to make the economy more resilient to this shock.

4.3 To provide impetus to economic activity and support the private sector to sustain employment creation, providing a stimulus through Government investment in infrastructure is required in the short to medium term.
The best avenue for providing an economic stimulus with such a shock is by increasing public spending in infrastructure.

Whereas the best and cheap way of financing this investment is by using domestic revenue, one of the fiscal impacts of COVID-19 is a reduction in domestic revenue, which is on top of the revenue shortfall that occurred prior to the global outbreak of the disease.

The total revenue shortfall for FY 8 2019l2O is at 3.64 Trillion.
Therefore, domestic revenue financing is not available to provide the required fiscal stimulus to the economy, and to strengthen fufther the resilience of our economy.

4.4 The option of borrowing domestically would constrain the fiscal space further due to increased cost of servicing the debt, and would hurt the private sector more through higher interest rates.

It is therefore not a preferred method of financing the economic stimulus.
4.5 In view of the above, the best option available now is to borrow externally on concessional terms.

The source of this external financing is the African Development Fund.

4.5 LOAN TERMS AND CONDITIONS 4.5.1 The terms and conditions of the loan from African Development Fund is to finance the revenue shortfall as well as additional expenditure pressure during the outbreak of Covid-19 in Uganda are as follows: Loan Amount UA 23.0 million (equiv.
to Loan Maturity Period Grace period Service Charge USD 31.64 million) 40 years 10 years 0.75o/o p.a on the withdrawn credit balance Commitment fee 0.5 o/o p.a on the unwithdrawn financing balance.

9 4.5.2 The loan financing has the following conditions; (a) Approval by Parliament; (ii) Legal opinion of the Attorney General on the loan documentation; (iii) Letter to the bank authorising persons to sign withdrawal applications together with specimen signatures.
4.6 THE LOAN AND THE CURRENT DEBT SITUATION OF THE COUNTRY 4.6.1 Rt.

Hon.

Speaker, for the period ending June 2020, Uganda's total public debt stock (external Debt outstanding and Disbursed (DOD) + domestic debt) stood at USD L5.29 billion or UGX 56.9 Trillion.

External debt contributed 68.020/o (USD 10.aBn) while domestic debt contributed 31.98o/o (USD 4.89 bn) of the total debt.

The debt levels will remain sustainable.


(Source: Directorate of Debt and Cash Policy, MoFPED) 4.6.2 This support from the African Development Bank is designed to support the Government's crisis response plan to address the challenges of sound business, protect jobs and incomes.
The operation is in alignment with the Government of Uganda's development objectives and priorities as stated in the National Development Plan (NDPII) (20L51L6- 20L9120), the NDPIII for the next five years starting with 20201202L and with the Government's COVID-19 response plan.

The operation is also aligned with the Country's Nationally Determined Contributions (NDC) 10 adaptation strategy which seek to reduce vulnerabilities in the health systems.
4.6.2 OTHER ISSUES TO NOTE 4.6.3 Implementation, Monitoring and Evaluation 4.6.4 Implementation: The overall responsibility for the implementation of the program will remain with the MOFPED, in close collaboration with the Ministry of Trade, Industry and Cooperatives, Ministry of Gender, Labour and Social Development, Ministry of Health, Ministry of Water and Environment, and other relevant ministries, as well as UBOS.
4.6.5 Monitoring and Evaluation Arrangements: The program has a built-in M&E system designed to help in generating and reporting reliable and accurate data required to report on performance and effectiveness of measures.

Program Results Based Logical Framework will be used to monitor program performance.

A program completion report will be prepared to evaluate progress against the Results-Based Logical Framework and draw lessons for follow-up operations.
4.6.6 Financial Management, Disbursement and Procurement 4.6.7 Procurement: Procurements to support activities under the program will be carried out using the Government of Uganda's Procurement System.

A Procurement audit of all COVID-19 related activities under the Program will be undertaken for the fiscal year during which disbursement occurred.
The procurement audit report shall be shared with all the L1 stakeholders including the African Development Bank no later than six (6) months after the end of Three months after closing the operation.

4.6.8 Financial management and Disbursement arrangements: The funds will be disbursed by the African Development Bank, in a single tranche, into a foreign currency account at the Bank of Uganda, as a transit into the Treasury Account (UCF) of the Government that is used to finance budget expenditures.
As an acknowledgement of funds received, MOFPED will report to the Bank within thirty (30) days of receipt on the amounts deposited in the foreign currency account and credited in local currency to the Treasury Account (UCF) of the Government including the exchange rate applied.

4.6.9 Audit: Audit will be conducted by the Office of the Auditor General (OAG) and the MOFPED will share the Audit Report of the Consolidated financial statements within nine (9) months after statutory approval.
The OAG will also be required to conduct a flow of funds audit to confirm the timing, correct conversion of the funds (from US Dollars into Uganda Shillings), and transfer into the Government Treasury Account.

The audit report will be shared with stakeholders including the African Development Bank within six (6) months after the end of the financial year during which the disbursement occurs.

5.0 coNcLusroN 5.1 In light of the foregoing, I shall request Hon.
Members to: T2 (i) Endorse the request by Government to borrow up to UA 23.0 million (equiv.

to USD 3t.64 million) from the African Development Fund to finance the revenue shortfalls as well as additional expenditure pressure during the outbreak of Covid- 19 in Uganda; (ia) Authorize the Government by passing a Resolution in line with the requirements of Article 159 of the Constitution, to borrow up to UA 23.0 million (equiv.
to USD 3t.64 million) from the African Development Fund to finance the revenue shortfalls as well as additional expenditure pressure during the outbreak of Covid-19 in Uganda.

Ministry of Finance, Planning and Economic Development P. O.

BOX 8t47 KAMPALA JANUARY 2O2I 13