Real GDP growth, which was adversely affected by El Nino weather conditions in the first half of the year, recovered in the second half, rising by 5.5 percent for the year. The performance was aided by a strong rebound in food production amid the return of normal weather conditions during the second half of the year. Inflation was low, and underlying inflation has been held for some time near industrial country levels. International reserves have been built to a relatively comfortable level, providing Uganda with a cushion to weather future external shocks. The government's medium-term economic strategy is aimed at realizing average real growth of 7 percent a year, containing inflation at 5 percent, and maintaining gross international reserves at a level equivalent to about five months of imports of goods and nonfactor services.
Revenue enhancement remains a key element of fiscal sustainability.
While tax administration has improved revenue performance, it is imperative that the government implement further revenue measures, including steps to combat smuggling and enforce penalties for tax evasion. On the expenditure side, weaknesses in expenditure control and the accumulation of domestic arrears are a concern. Other areas of concern have emerged, such as the health of some smaller banks. Further strengthening of payroll management, pension reform and a restructuring of public utilities are also warranted. However, Uganda's favorable macroeconomic environment and external outlook allow some flexibility in fiscal policy, and provide an opportunity to accelerate urgent social and other priority spending.