Uganda - HIPC Debt Initiative Project

Document of The World Bank FOR OFFICIAL USE ()NLY Report No.P7 109-UG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON ASSISTANCE TO THE REPUBLIC OF G(GANDA UNDER THE HIPC DEBT INITIATIVE APRIL 11, 1997 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ABBREVIATIONS AND ACIRONYMS AfDB African Development Bank CAS Country Assistance Strategy DSA Debt Sustainability Analysis ESAF Enhanced Structural Adjustment Facility HIPC Heavily Indebted Poor Countries IDA International Development Association IMF International Monietary Fund N1'V Net Present Value SAC Structural Adjustment Credit UplE' Universal Primary Education UCB Uganda Commercial Bank UDB Uganda Development Bank Vice President Callisto Madavo Director James W. Adams Division Chief/Manager Roger Grawe Staff Member David Yuravlivkcr/Axel van Trotsenburg  FOR OFFICIAL USE ONLY ASSISTANCE TO THE REPUBLIC OF UGANDA UNDER THE HEAVILY INDEBTED POOR COUNTRIES DEBT INITIATIVE Table of Contents Page Proposed Debt Relief ......................................................... 1 Interim Measures ............................................. 2 Completion Point Measures ...............................2.............. 2 Impact of Interim and Completion Point Measures ............ ........ 3 IDA Assistance Strategy ......................................................... 4 The Proposed Structural and Social Development Performance Criteria ........... 5 Objective of the Proposed Assistance ......................................... 5 Proposed Monitoring Criteria ..............................................5 Recommendation ........................................................7 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON ASSISTANCE TO THE REPUBLIC OF UGANDA UNDER THE HIPC DEBT INITIATIVE 1. I submit for your approval the following report and recommendation on the assistance to be provided to the Republic of Uganda under the Heavily Indebted Poor Countries (HIPC) Debt Initiative in respect of debt owed by it to the International Development Association (IDA). This report and recommendation address: (i) the assistance that is proposed to be provided by IDA in the form of IDA grants during the interim period; (ii) the relief that is proposed to be provided in respect of debt owed to IDA at the completion point; and (iii) the structural and social development performance criteria that Uganda would need to have satisfied at the completion point in order for the assistance under the HIPC Debt Initiative to be provided at that time. 2. This document complements the paper entitled "Uganda: Final Document on the Initiative for Heavily Indebted Poor Countries (HIPC)" which is being circulated in parallel to the Board. The final HIPC document reports on consultations with creditors, provides an update on the status of the debt reconciliation process, and includes the debt sustainability analysis (DSA) that was jointly prepared by the Ugandan authorities and Bank and Fund staff. It also contains recommendations on: (i) Uganda's eligibility for assistance under the HIPC Debt Initiative; (ii) the timing of the decision point and the completion point; (iii) the targets for the net present value (NPV) debt-to-export ratio and the debt-service ratio at the completion point; (iv) envisaged debt relief from bilateral and commercial creditors; (v) proposed actions by multilateral creditors to achieve the target NPV debt-to-exports ratio at the completion point, and (vi) key performance criteria for Uganda under the Initiative. It should be noted that the final HIPC document builds on the Preliminary Document (IDA/SecM97-41, 2/14/97) and the Joint Staff Statement (IDA/SecM97-66, 3/7/97), and should be read in conjunction with them. PROPOSED DEBT RELIEF 3. As set forth in the final HIPC document, to bring Uganda's debt to the target of a 202% of NPV debt-to-exports ratio by the proposed completion date of April 1998, the multilateral creditors' share of debt relief for Uganda would amount to US$285.4 million in NPV terms, of which US$160 million would be provided on debts owed to IDA. It is proposed that the Executive Directors approve, in principle, the provision of relief in an  -2- amount having a net present value of US$160 million in respect of debts owed by Uganda to IDA, subject to confirmation of other multilateral creditors that they will provide proportional relief on their claims. Relief on debts owed to IDA would be provided through a combination of IDA grants during the interim period and actions at the completion point, as described in the following paragraphs. Interim Measures 4. During the Board discussion of the Preliminary Document on March 10, 1997, a number of Directors urged the use of interim measures to support adjustment efforts to ease the burden of debt during the period between the decision and completion points. Since the projected NPV debt-to-exports ratio at the April 1998 completion point would be at about 250 percent, within the agreed framework Uganda would be eligible to receive 1/3 of its IDA program funding level in grant form during the interim period between the decision and completion points'. Based on the level of IDA lending set out in the most recent Uganda Country Assistance Strategy (CAS) paper and the proposed one year interim period, Management recommends that a total of US$75 million equivalent of the IDA program in Uganda be provided as grants during the interim period, subject to the availability of donor resources under the Eleventh Replenishment of IDA. Approval by the Executive Directors of the provision of IDA grants for a specific project will be sought at the time the Executive Directors are requested to approve IDA funding for such project. The reduction in the NPV debt resulting from such grants (compared to credits they replace) will provide debt relief to Uganda equivalent to US$22 million (in NPV terms) and will be counted toward the HIPC IDA contribution for Uganda identified above. Completion Point Measures 5. The remainder of the relief to be provided on debt owed to IDA, equivalent to US$138 million in NPV terms, will be delivered through utilization of the HIPC Trust Fund. The HIPC Trust Fund will be asked to set aside for this purpose the amount equal to the required remaining NPV debt reduction that will need to be undertaken on IDA debt, after taking into account the debt reduction provided by IDA grant funding. For this IDA debt relief the HIPC Trust Fund will utilize resources available in the World Bank Creditor component of the HIPC Trust Fund (to be provided through the planned $500 million transfer from IBRD, subject to Board approval of such transfer). With these resources the I See World Bank Participation in the Heavily Indebted Poor Countries' Debt Initiative (SecM96-926), August 26, 1996. 2 If the amount of IDA grants in the interim period is less than projected in para. 4, the amount of relief to be provided at the completion point would be increased accordingly, and the arrangements with the HIPC Trust Fund will provide for this contingency.  -3- Trust Fund is expected to, at the completion point, purchase IDA credits at a price equal to the value of such credits established according to the principles agreed upon by the World Bank and the IMF for calculating the NPV of debt in the DSA.3 These IDA credits will then be promptly canceled by the HIPC Trust Fund and it will inform the debtor that the debt is no longer due. The Trust Fund will enter into an agreement to this effect with IDA as soon as possible following the decision point. Impact of Interim and Completion Point Measures 6. As indicated above, the total relief to be provided with respect to IDA credits will amount to the equivalent to US$160 million in NPV terms, of which US$22 million is expected to be provided in the form of IDA grants to be made available during the interim period and US$138 million equivalent through the operation of the HIPC Trust Fund. The extent of relief on the principal of IDA debt is illustrated in Chart 1. Chart 1- IDA Debt Relief (Estimate in millions of NPV and nominal US$) 400 Purchase of IDA 350 credits1/: $300 mil. 300 250 Purchase of IDA 200 credits1/: $138 mill. 150 Grant: ! 100 Grant: $75 mil. 50 $22 mil. 01 Total: $160 million (NPV) Total: $375 million (nominal) 1/ Assumes that the HIPC Trust Fund would purchase the oldest IDA credits Source: Staff estimates. 7. The estimated cumulative debt service reduction would amount to about US$430 million, of which US$375 million would be a reduction of principal repayments and US$55 million in reduced service charges. For illustrative purposes, Chart 2 shows the 3 The principals for the calculation were described in detail in SecM96-927 entitled "The HIPC Debt Initiative-Elaboration of Key Features and Possible Procedural Steps," page 11.  -4- impact of the debt relief on Uganda's debt service obligations to IDA between FY98 and FY2010. During that period, the reduction of Uganda's debt service to IDA would average about US$11 million per year or about 20 percent of debt service due to IDA. Chart 2 - Implications for IDA Debt Service through FY 2010 (Expressed as percentage reduction of debt service due) 30 25 20 15 1 0 5 FY98 FY99 FYOO FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Source: Staffestimates IDA ASSISTANCE STRATEGY 8. The most recent CAS paper for Uganda was discussed by the Board in 1995, and the next CAS is expected to distributed to the Board in early May. The central theme of the work program in Uganda has been on reducing poverty through sustained economic growth. Uganda has been a consistent high performner on economic reform since the Museveni Government assumed power in 1986 and has achieved an average annual growth in GDP of over 6% during this period. An acceleration of economic reform since 1992 has been reflected in even higher economic growth and the reduction of inflation to single digits. The reform program has been continuously supported by IMF programs and IDA adjustment assistance throughout this period. 9. The CAS under preparation places a greater emphasis on increasing the impact of the economic reforms on poverty reduction. It supports increased analytic work to trace the links between increased growth and poverty reduction. The proposed IDA program would reflect this poverty focus. In addition to underlining the importance of sustaining economic growth, it highlights the importance of improved infrastructure (especially roads), the critical need for better performing social services (particularly in health and education) and suggests increased Government and IDA efforts in those regions (in the North and East) that have not benefited proportionately from past growth. The recommended program has benefited greatly from a joint Government/NGO/donor effort at  -5- producing a Poverty Reduction Action Program which is now being fully reflected in Government budgetary decisions. 10. The debt issue has been a constant focus of concern in developing the Uganda country strategies. Uganda has been long recognized as "debt distressed," and two years ago the Government established a special program, funded by bilateral donors, to set aside resources to assist in financing its large debt obligations. In developing this program the Government committed itself to ensuring that the funds released by this effort would be used to build up their programs for poverty reduction. This theme has been sustained in the discussion of the HIPC Initiative and provides the context for the social development criteria to be monitored under that Initiative. THE PROPOSED STRUCTURAL AND SOCIAL DEVELOPMENT PERFORMANCE CRITERIA Objective of the Proposed Assistance 11. With the proposed HIPC assistance, IDA would support the implementation of the Government's economic and social program as spelled out in the Policy Framework Paper and provide, in conjunction with other creditors, special assistance that would allow Uganda to reach a sustainable debt position by the completion point. Proposed Monitoring Criteria 12. The delivery of debt relief at the completion point would be contingent on the monitorable actions specified in the final HIPC document and on the additional actions specified below. Before reaching the completion point, the Government would need to make satisfactory progress in the implementation of the following: (i) structural policy actions to be included in the proposed Structural Adjustment Credit III (SAC III):4 Reduction of the maximum import duty to 20 percent and satisfactory implementation of further trade liberalization measures aimed at reducing the anti-export bias of the present trade regime; 4 Negotiations on SAC III have been completed and this credit is expected to be presented to the Executive Directors for approval in May, 1997.  -6- * As most social services are now provided by district Government, the adoption of rules to facilitate the effective delivery of the conditional and equalization grants that the central Government provides to the districts following agreed criteria, along with the establishment of an appropriate monitoring program; * Action plan to improve financial accounting and auditing for central and local Governments; and Program to sell the Ugandan Commercial Bank (UCB) and action plan to stop losses and minimize budgetary costs of the Uganda Development Bank (UDB); (ii) social programs that will be monitored in parallel by ongoing and new IDA projects, including the Primary Education project, the District Health project, the proposed Nutrition and Early Childhood Development project, the proposed policy-based operation supporting Universal Primary Education (UPE), and the proposed SACIII (in respect to budgetary allocations): - Definition of the minimum package of health and education services to all; - Development and operationalization of an effective monitoring system of public spending on health and education at the district level, including service delivery surveys; o Completion of a sector strategy for education; * Finalization of an implementation plan for Universal Primary Education (UPE), including costing, timing, and sequencing of planned investments; * Increases in budgetary allocations, beginning in July 1997, for agriculture research and extension, primary health, and primary education (especially adequate funding for UPE) at least at the growth rate of nominal GDP; and * Preparation of a strategy on micro and rural finance. These criteria would be set out in more detail and agreed by Uganda in the legal agreement referred to in paragraph 13 below.  -7- RECOMMENDATION 13. Once Uganda's other creditors have confirmed their agreement to provide the debt relief envisioned in the final HIPC document, the Executive Directors will be so informed and confirmation from the Executive Directors will be sought, on a no-objection basis, of the actions approved by them in principle at this time. Following such confirmation, IDA would enter into a legal agreement with Uganda for the provision of the agreed relief on debts owed to IDA, subject to satisfaction by Uganda on the conditions approved by the Executive Directors. 14. I recommend that the Executive Directors approve, in principle, the recommendations contained in the final HIPC document concerning Uganda's eligibility for assistance under the HIPC Debt Initiative, the decision and completion points for Uganda, the NPV debt-to-exports ratio and debt-service ratio to be achieved at the completion point, the proposed actions by multilateral creditors to achieve these targets and the performance criteria to be met by Uganda. 15. I further recommend that the Executive Directors approve, in principle, the recommendations contained in this paper on the amount and manner of debt relief to be provided in respect of debts owed by Uganda, including the provision of IDA grants during the interim period and the remaining NPV debt reduction on IDA debt through the HIPC Trust Fund, and the structural and social development performance criteria conditions that Uganda would be required to satisfy at the completion point in order to receive debt relief under the HIPC Debt Initiative. James D. Wolfensohn President By: Sven Sandstrom Managing Director Washington, D.C. April 11, 1997   CONFIDENTIAL THE INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION UGANDA Final Document on the Initiative for Heavily Indebted Poor Countries (HIPC) Prepared by the Staffs of the Fund and the IDA' April 11, 1997 Contents I. Introduction ................................ 2 II. Summary of Debt Sustainability Analysis ................................ 3 III. Policy Reform and Conditionality . ................................ 3 IV. Debt Reconciliation ................................ 12 V. Consultations With Creditors ............... ................. 12 A. Multilateral Creditors . ................................ 12 B. Bilateral Creditors ............ .................... 13 VI. Debt Sustainability Targets and Debt Relief .............................. 13 VII. Issues for Discussion ................................ 16 Text Boxes 1. Assumptions Used in the Debt Sustainability Analysis (DSA). 4 2. Selected Structural Reforms in Uganda, 1997/98-1999/2000. 6 3. Social Development Performance Indicators ... ... 7 Tables 1. Long-Term Balance of Payments, 1992/93-2015/16 .. 18 2. Nominal and Net Present Value (NPV) of Debt ............. . 21 3 . Assistance, Net Present Value (NPV) of Debt/Exports Targets and Burden Sharing ................ 22 'Approved by Anupam Basu and Chanpen Puckahtikom (IMF), and Masood Ahmed and James Adams (IDA).   - 2 - I. INTRODUCTION 1. This paper presents an assessment of Uganda's eligibility for assistance under the Heavily Indebted Poor Countries (HIPC) Initiative. It summarizes the debt sustainability analysis (DSA) discussed earlier by the Fund and IDA Boards, describes the policy reforms to be pursued by Uganda and monitored under Fund- and IDA-supported programs, and reports on consultations with creditors and the status of the debt reconciliation process. The paper proposes that the Boards of the Fund and the IDA take decisions regarding Uganda's qualification for assistance, its "decision" and "completion" points, debt sustainability targets, and the level of assistance to be provided by the Fund and the IDA to Uganda, subject to the commitments of bilateral and other multilateral creditors. 2. In the discussions in the IDA and Fund Boards on the preliminary HIPC Initiative documents,2 Executive Directors were in broad agreement that Uganda be considered eligible for assistance under the HIPC Initiative in view of its high level of indebtedness and external vulnerability, its strong track record of adjustment over a long period, its receipt of Paris Club debt relief on Naples terms, and its status as an ESAF-eligible and IDA-only country. Some Directors stressed the truly exceptional nature of the treatment of Uganda under the HIPC Initiative. Regarding the timing of the "decision point," Executive Directors of the IDA were in agreement that April 1997 would be appropriate, as were most Directors of the Fund. Directors generally supported the staff recommendation of a target for the NPV of debt/export ratio in the range of 200 to 220 percent, with most favoring a target at the lower end of that range. The point was made that the target should be low enough to provide a credible exit from the rescheduling process. Directors were more diverse in their views on the possible timing of the "completion point." Some Directors argued that Uganda's long record of adjustment justified a very substantial shortening of the interval between the "decision" and "completion" points and suggested a "completion point" as early as September 1997. Some Directors noted that a three-year interval would normally be expected between the "decision" and "completion" points, that any shortening of the interval should be viewed as highly exceptional, and argued for a "completion point" in April 1999. Many Directors supported a "completion point" in April 1998, suggesting that, on balance, it may be considered an acceptable compromise. A number of Directors emphasized that, notwithstanding Uganda's exceptional track record, there should be a link between the delivery of the assistance under the HIPC Initiative and substantial further progress on remaining major structural reforms. 3. The rest of the paper is organized as follows. Section II presents a brief summary of the DSA highlighting the major assumptions and conclusions. Section III outlines the major remaining structural reforms to be implemented and to be monitored under Fund- and 2The preliminary document was issued in the Fund as EBS/97/24, 2/14/97, and in the IDA as IDA/SecM97-41, 2/14/97. A joint staff statement was issued in the Fund as EBS/97/40, 3/10/97, and in the IDA as IDA/SecM97-66, 3/7/97. Executive Board discussions on Uganda's case were held in the IDA on March 10, 1997, and in the Fund on March 12, 1997.  - 3 - IDA-supported programs. Section IV presents an update on the debt reconciliation process with Uganda's creditors and assesses the implications for the Boards' decisions on assistance under the HIPC Initiative. Section V reports on the consultations with Uganda's creditors and their commitments to deliver on the intended assistance by the "completion point." Section VI presents the contributions of multilateral and bilateral creditors at an NPV of debt/exports target in the range of 200-220 percent, and with "completion points" in April 1998 and April 1999. Section VII presents staff recommendations and issues for discussion. H. SUMMARY OF DEBT SUSTAINABILITY ANALYSIS 4. The long-term balance of payments prospects for Uganda are described in detail in the preliminary HIPC Initiative document for Uganda (EBS/97/24, 2/14/97 and IDA/SecM97-41, 2/14/97), and the major revisions were summarized in the staff statement issued for the Fund and IDA Board discussions of that document (EBS/97/40, 3/10/97 and IDA/SecM97-66, 3/7/97). This section presents a summary of the key assumptions and conclusions of the DSA. 5. The baseline scenario for the DSA agreed with the Ugandan authorities assumes the continuation of adjustment policies, and a relatively favorable external environment. The main assumptions of the 20-year baseline scenario are shown in Box 1 and the results in Table I. 6. The main conclusion of the DSA is that under the baseline scenario, the overall balance of payments would record diminishing surpluses until 2011/12 (July-June), and subsequently face rising deficits. The baseline scenario assumes that gross international reserves would accumulate steadily to reach a high of 7.6 months of imports of goods and nonfactor services in 2006/07, from 3.6 months in 1995/96. Thereafter, they would decline gradually, falling to about 4.1 months of imports of goods and nonfactor services by 2015/16. The economy will become more diversified over time (noncoffee exports will constitute 66 percent of total merchandise exports by 2015/16 compared with 32 percent in 1995/96). As regards the debt indicators, the NPV of debt/exports ratio (with exports calculated as a three-year average) would decline from 294 percent in 1995/96 to about 250 percent in 1996/97 and to 247 percent in 1997/98; it would fall below 200 percent in 2008/09. The debt service ratio (after rescheduling) would decline from about 22 percent to 20 percent in 1996/97 and to 19 percent in 1997/98. 7. The vulnerability analysis undertaken in the preliminary HIPC document for Uganda continues to remain valid. The analysis concluded that Uganda could be considered to face above average vulnerability, when account is taken of differences in the stages of adjustment in the reference group and Uganda's extreme vulnerability in the areas of export concentration and export variability. MII. POLICY REFORM AND CONDITIONALITY 8. Policy reforms and conditionality will be monitored under a new three-year ESAF arrangement in support of a program covering fiscal years 1997/98-1999/2000 to be negoti- ated in the summer, and the third structural adjustment credit (SAC III) that has been negotiated with the IDA. A successful completion of the midterm review under the current  - 4 - Box 1. Assumptions Used in the Debt Sustainability Analysis (DSA) * An annual average real GDP growth of 7 percent in 1996/97-1998/99 and 5 percent thereaf- ter. Per capita GDP rises from US$280 in 1995/96 to US$480 in 2015/16. * An average real export growth of 5.7 percent a year throughout the projection period. Noncoffee exports are projected to grow on average by 8.6 percent in real terms per annum over the period, and prices are assumed to increase in line with world inflation (about 2.3 percent per annum). Coffee exports are projected to grow in volume terms by 2 percent per annum from 1997/98 onward, following the sharp upturn in 1995/96 and 1996/97 (32.4 percent and 12.2 percent, respectively). Coffee prices are projected to decline to US$1.26 per kg. in 1996/97, rise to US$1.35 per kg in 1997/98, and to remain broadly constant in real terms thereafter. * Import growth is projected to rise after 1996/97 to a level close to, or just below, the growth rate of real GDP. The income elasticity of imports is assumed to be 0.6 in 1996/97, 1.0 in 1997/98-1998/99, and 0.95 thereafter. * An average increase in private transfers in real terms by 12 percent over the next three years. Thereafter, growth of private transfers in real terms is projected at about 4 percent per annum. These projections assume that most of these transfers constitute foreign direct investment and other capital inflows, and that such inflows will continue to be attracted in the future. MInflows of donor assistance are projected to grow by about 7.5 percent in 1996/97, and to remain constant in real terms thereafter; such assistance is projected to gradually decline from 11 percent of GDP in 1996/97 to less than 5 percent at the end of the projection period. Also, general balance of payments support is assumed to be phased out over time. * New financing (i.e., financing above the amounts already committed before end-June 1996) is expected to continue to be highly concessional, with about 80 percent contracted on IDA terms (40-year maturity, 10-year grace period, and 3/4 percent interest rate), and the remain- ing 20 percent on less favorable but still highly concessional terms (23-year maturity, 6-year grace period, and 2 percent interest rate). * Following the stock-of-debt operation with the Paris Club in February 1995, the projections assume that non-Paris Club bilateral and commercial creditors provide debt restructuring on terms comparable to Naples terms. ESAF arrangement would be necessary to reach the "decision point." For a "completion point" in April 1998, Uganda would need to (i) obtain Fund Board approval of a new three-year ESAF arrangement; (ii) successfully complete the midterm review under the first annual arrangement under the new ESAF; (iii) obtain IDA Board approval of SAC III; and (iv) observe the social development targets as envisaged under SAC III and other IDA- supported programs. In the event of a "completion point" in April 1999, the conditionality  -5- additional to the above would constitute (i) approval of the second year arrangement under the new ESAF; (ii) completion of the midterm review of this second year ESAF arrangement; (iii) satisfactory implementation of SAC III; and (iv) satisfactory implementation of the social development targets as envisaged under the Initiative. 9. This section provides highlights of selected ongoing structural and social sector reforms, touching briefly on the recent past and including specific actions that could be monitored between the "decision" and "completion" points. Box 2 provides a summary of selected structural reforms and their timing to be monitored under the new ESAF arrangement and IDA-supported programs. Box 3 provides a summary of selected reforms in the social and rural sectors. Uganda's ongoing reform strategy focuses on poverty alleviation and growth by maintaining macroeconomic stability, liberalizing and diversifying the economy, increasing private sector participation, and improving the efficiency and impact of its poverty programs.3 In pursuit of this strategy, Uganda has made substantive progress across a broad range of structural areas. The strategy envisages that the deepening of structural reforms and the further improvement in the environment for private sector activity will increase economic efficiency, sustain high growth, and contribute to a reduction of poverty. The major areas of ongoing reforms to be accelerated and substantially completed in the new ESAF include the financial sector, the privatization and restructuring of public enterprises, the civil service, tax and expenditure management, and the external trade regime. 10. In the financial sector, the necessary legal and regulatory framework was substan- tially strengthened with the revision of the Bank of Uganda (BOU) Act and the enactment of a new Financial Institutions Act. The main areas of current policy focus are: (i) the recapitaliza- tion of the Bank of Uganda (BOU); (ii) the restructuring of weak banks; and (iii) the sale of the state-owned Uganda Commercial Bank (UCB). By the time of the midterm review of the first annual arrangement of the new ESAF for the "completion point" in April 1998, these financial sector reforms should be substantially completed, with an accelerated timetable on some of the key components. 11. The BOU received its first stage recapitalization in March 1996; an external audit was recently completed as an input into its final recapitalization and the findings are being reviewed; the government and the BOU will agree on the required further restructuring of the BOU by June 1997 so as to accelerate the completion of the recapitalization of the central bank by December 1997. On the weak banks, the BOU launched a far-reaching restructuring of the financial system, including the liquidation of one small bank and the restructuring of five others. The two banks taken over by the BOU were successfully restructured, recapitalized, and returned to the private sector (one in September 1996 and the other in February 1997). The restructuring of two additional banks is to be completed soon (one by June 1997 and the other by December 1997). 3The medium-term strategy is described in more detail in the latest policy framework paper (issued in the Fund as EBD/96/143, 11/4/96, and in the IDA as SecM96-1105).  -6- Box 2. Selected Structural Reforms in Uganda 1997/98-1999/2000 Timing Financial Reforms * Bank of Uganda (BOJU) recapitalization First stage Completed Second stage Dec.1997