Uganda - Financial Markets Assistance Project

Document of The World Bank Report No. 19264 UG PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 9.6 MILLION (US$ 13.0 MILLION EQUIVALENT) TO THE REPUBLIC OF GOVERNMENT OF UGANDA FORA FINANCIAL MARKETS ASSISTANCE PROJECT May 7, 1999 Private Sector Finance Unit Country Department AFC04 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective May 1999) Currency Unit Uganda Shillings 1,550 US$ 100 FISCAL YEAR July I -June 30 ABBREVIATIONS AND ACRONYMS BSD Banking Supervision Department BOU Bank of Uganda CAS Country Assistance Strategy CMA Capital Markets Authority FIMAP Financial Markets Assistance Project FSAC Financial Sector Adjustment Credit GAAP Generally Accepted Accounting Principles GOU Govemment of Uganda IAS International Accounting Standards ICB International Competitive Bidding ICR Implementation Completion Report IQC Indefinite Quantity Contract IMF International Monetary Fund LOI Letter of Invitation MoF Ministry of Finance NBFI Non-bank Financial Institutions NCB National Competitive Bidding NPART Non-performing Assets Recovery Trust NSSF National Social Security Fund PIU Project Implementing Unit PIP Project Implementing Plan PPF Project Preparation Facility SAC Structural Adjustment Credit SOE Statement of Expenses TA Technical Assistance TOR Terms of Reference UCB Uganda Commercial Bank UCBL Uganda Commercial Bank Limited UDB Uganda Development Bank UIB Uganda Institute of Bankers Vice President: Callisto Madavo Country Director: James Adams Sector Manager (Acting): Paul Murgatroyd Task Team Leader: Mark Dorfman  REPUBLIC OF UGANDA FINANCIAL MARKETS ASSISTANCE PROJECT CONTENTS A. PROJECT DEVELOPMENT OBJECTIVES ..........................................................................1 B. STRATEGIC CONTEXT ......................................................................... 2 (i) Sector-Related country Assistance Strategy (CAS) ......................................................... 2 (ii) Main Sector Issues and Government Strategy ............................................................... 2 (iii) Sector Issues to be Addressed by the Project and Strategic Choices .................................... 4 a. Strengthening the Regulation, Supervision and Operations of Deposit-Taking Institutions ......... 4 b. Restructuring and privatizing Uganda Commercial Bank Limited ....................................... 4 c. Improving Monetary Management and Payment Systems ................................................ 5 d. Developing Insurance and Contractual Savings Reform and Regulation ............................... 5 C. PROJECT DESCRIPTION 7 SUMAARY. (i) Project Components (See Annexes 11 and III for detailed descriptions and cost breakdowns) ........ 7 (ii) Key policy and Institutional Reforms to be Sought ........................................................ 10 (iii) Benefits and Target Population ......................................................................... 10 (iv) Institutional and Implementation Arrangements ........................................................... 10 D. PROJECT RATIONALE ......................................................................... 12 (i) Project Alternatives Considered and Reasons for Rejection ............................................... 12 (ii) Major related projects financed by IDA and/or other development agencies . . 12 (iii) Lessons Learned and Reflected in Proposed Project Design .. 12 (iv) Indications of Borrower Commitment and Ownership ......................... ........................... 13 (v) Value Added of Bank Support in this Project ............................................................... 13 E. ISSUES REQUTIRING SPECIAL ATTENTION 13 (i) Economic Assessment ......................................................................... 13 (ii) Technical Assessment ......................................................................... 14 (iii) Institutional Assessment ......................................................................... 14 (iv) Financial Management Assessment ......................................................................... 14 (v) Social Assessment ......................................................................... 15 (vi) Environmental Assessment ......................................................................... 15 (vii) Participatory Approach ......................................................................... 15 F. SUSTAINABILITY AND RISKS ......................................................................... 16 (i) Sustainability ......................................................................... 16 (ii) Critical Risks (reflecting assumptions in the fourth column of Annex 1) . . 16 (iii) Possible Controversial Aspects ......................................................................... 16 G. MAIN LOAN CONDITIONS ......................................................................... 17 Effectiveness Conditions ...............7............... ... 17  2 H. READINESS FOR 17 IMPLEMENTATION ............................................................................................. I. COMPLLINCE WITH BANK 17 POLICIES . ANNEXES Annex I: Project Design Summary .17 Annex II: Project Description .18 Annex III: Estimated Project Costs .26 Annex IV: Economic Assessment .30 Annex V-A: Financial Summary. 3 1 Annex V-B: Financial Management Assessment. Appendix I Terms of Reference - Financial Management Committee .38 Appendix 2 Terms of Reference - Project Accountant .41 Appendix 3 Financial Management Manual (Indicative Sections for Inclusion) .42 Annex VI: Procurement and Disbursement Arrangements .42 Table VI-A: Project Costs by Procurement Arrangements .42 Table VI-B: Consultant Selection Arrangements .45 Table VI-C: Thresholds for Procurement Methods and Prior Review .46 Table VI-D: Allocation of Credit Proposals ....................................,.,.,,.47 Annex VII: Project Processing Timetable & Budget .48 Annex VIII: Documents in Project File .49 Annex IX: IDA Statements of Credits .50 Annex IX: IFC Statements of Credits .51 Ainex X: Country at a Glance .52 Annex X: Country at a Glance (cont'd) .53 Annex XI: Environmental Assessment, Social and Environmental .54 MAP  Republic of Uganda Financial Markets Assistance Project PROJECT APPRAISAL DOCUMENT Africa Region Private Sector and Finance Date: May 5, 1999 Task Team Leader/Task Manager: Mark Dorfinan Country Director: James Adamns Acting Sector Manager: Paul Murgatroyd Project ID: UG-PA-44213 Program Objective Category: Financial Sector Sector: Financial Lending Instrument: Technical Assistance Credit Program of Targeted Intervention: Yes Project Financing Data El Loan El Credit LE Guarantee L Other For Loans/Credits/Others: Amount: US$ 13.0 million/SDR 9.6 million on Standard IDA terms Proposed Terms: Multicurrency Grace period: 10 years Years to maturity: 40 years Commitment fee: Standard IDA Service charge: Standard IDA Financing plan [US$m] Source: Local Foreign Total Government: 0.21m 1.14m 1.35m IDA: 2.70m 10.30m 13.00m Borrower: Republic of Uganda Guarantor: Not Applicable Responsible agencies: Bank of Uganda (BOU), Ministry of Finance (MoF), Commissioner of Insurance, Capital Markets Authority (CMA) Estimated Disbursements (Bank FY/US$ millions) FY99 FY00 FY01 FY02 Annual 2.4 4.6 4.0 2.0 Cumulative 2.4 7.0 11.0 13.0 Project Implementation Period: 5 years Expected Effectiveness Date: September 30, 199 Expected Closing Date: June 30, 2003 A. Project Development Objectives 1. The objective of the Project is to improve the safety, soundness and performance of the financial system. This is in turned aimed at supporting broad-based private sector growth. It will be accomplished by: (i) strengthening the regulation, supervision and operations of deposit-taking institutions; including the resolution and work-out of problem banks, (ii) restructuring and privatizing Uganda Commercial Bank Limited, (iii) improving monetary management and payment systems; and (iv) developing insurance and contractual savings institutions, as well as their oversight.  Uganda - Financial Markets Assistance Project Page 2 Project Appraisal Document - Main Text May 7, 1999 B: Strategic Context (i) Sector-Related Country Assistance Strategy (CAS) CAS document number: No. 16540- UG Date of latest discussion: May 20, 1997 2. The Financial Markets Assistance Project (FIMAP) is fully consistent with IDA's CAS for Uganda whose objectives included developing a properly regulated and diversified financial sector. The Government's strategy in this context is to complete the current reform agenda under the Structural Adjustment Credit (SAC III), which includes finalizing the privatization of the Uganda Commercial Bank (UCB) and progress in recovery of non-performing loans being undertaken by the Non-performing Assets Recovery Trust (NPART). In addition, the strategy calls for the strengthening of commercial bank and the Non-bank Financial Institutions (NBFI) supervision and improvement of the management of provident and pension funds and the insurance industry. (ii) Main Sector Issues and Government Strategy 3. Introduction. The Govermment of Uganda (GOU) has taken measures to improve the mobilization and allocation of financial resources and foster monetary deepening through liberalized interest rate policies and improved formulation and execution of monetary policy. Moreover, measures have been taken to improve the regulatory framework for financial institutions, including the passage of revised legislation for deposit-taking institutions and insurance companies. Capacity-building measures have been taken to develop oversight authorities, with previous IDA assistance. 4. The Government's strategy is to embark upon a second stage of financial sector reform, the first stage having been supported under the Financial Sector Adjustment Credit (FSAC) and SAC III. To maintain focus on the development of the financial sector, four issues would be targeted: (i) strengthening the regulation and supervision of deposit-taking institutions; (ii) restructuring and privatization of Uganda Commercial Bank Limited, (iii) improving monetary management and payment systems; and (iv) insurance and contractual savings reform and regulation. 5. Regulation, Supervision and Operations of Deposit-taking Institutions. The Government's strategy to strengthen the regulation and supervision of deposit-taking institutions was initiated with the 1992 passage of a Bank of Uganda (BOU) Statute and a Financial Institutions Statute in 1993. Implementing regulations and guidelines were drafted and put into effect and staff of the BOU Bank Supervision Department were trained. Off- and on-site supervision was strengthened through technical assistance support under the FSAC, which closed on June 30, 1997. Finally, NPART expedited the recovery of loans under the UCB through various recovery mechanisms. 6. Although measures were taken to improve regulation and oversight, problems remain in the financial system. In spite of strengthening capacity at the Bank of Uganda (BOU), weaknesses remain in enforcement of prudential regulations. Further, the financial sector remains weak due to non-performing assets, inefficiencies in select institutions, non-compliance with lending concentration regulations, and some under capitalization in deposit-taking institutions. Much remains to be done to strengthen the supervision of commercial banks and other non-bank deposit-taking institutions. The number of bank examiners (18) is still too small to adequately effect on-site examinations, of at least once per year,-for each of the deposit-taking institutions. Existing staff need further training and new staff will need training as well. Further, the Financial Institutions Statute needs revision and amendments, particularly making a number of prudential regulations (such as loan concentration and related party lending) more specific, as well as to specify a greater array of BOU sanctions, short of intervention (such as the power to issue Cease  Uganda - Financial Markets Assistance Project Page 3 Project Appraisal Document - Main Text May 7, 1999 and Desist Orders). The Statute is vague with respect to the classifying and specific prudential regulations for non-bank deposit-taking institutions. Support is also needed for drafting additional implementing regulations and guidelines, on such issues as net foreign exchange exposure, loan classification and provisioning. Finally, significant improvements are needed in enforcement of prudential regulations. In particular, institutions which have repeated non-compliance violations with reserve requirements or loan concentration guidelines need to be sanctioned and, if necessary, intervened. 7. The GOU has issued a policy statement on the treatment of problem banks that addresses the need to secure the health of the financial system while limiting to the extent possible, the cost of such actions to the Government budget or to BOU. The GOU and BOU are determined that future problems in commercial banks will be treated in a way that will: (i) provide for a healthy financial sector; (ii) take immediate action if and when necessary, when a problem is identified; and (iii) minimize the budgetary costs of such future interventions. To reach these goals, the following policies either have been or will be adopted: . A moratorium on the licensing of new banks (expect when special benefits are expected) has been extended until 1999; . The Government has submitted to Parliament an amendment to the Financial Institutions Statute to authorize the BOU Governor, in consultation with the Minister of Finance, to update the minimum capital requirements and GOU intends to reach, at a minimum, a doubling of the minimum capital requirement by end-1 999; . BOU continues to strengthen its supervision and monitoring capacity. Special efforts will be undertaken to direct banks' external auditors to follow and to certify the audited banks' portfolio classification, the adequacy of their provisioning for bad-debt, and the suspension of all interest in arrears; and * A public declaration has been made stating that banks which do not meet BOU standards will be intervened and where a bank will be liquidated, the GOU and BOU commitment to depositors is limited to Ush. 3 million per depositor. 8. The Government's strategy has also included measures to instill and maintain credit discipline through the active recovery of UCB loans through support of NPART. The Government has decided to extend the lifetime of NPART and extend its mandate to include loans from the Uganda Development Bank (UDB). The Government places value on NPART's collection success, as it mitigates the budgetary costs to Government, as well as providing a clear signal concerning the need to repay loans and meet financial and other obligations. 9. Monetary Management and Payment Systems. BOU monetary management has improved with the provision of assistance under the FSAC and from the IMF. First, to improve the BOU's credit management policy, the terms by which commercial banks could use its discount window were revised in 1995 and 1996. Banks can make use of a narrow automatic discount window, which accounts for only 5% of the commercial banks' reserve requirements. Banks' access to the window now has to be negotiated with the BOU and fully collateralized with eligible securities, preferably T-Bills.. Second, the local check- clearing was extended to eight centers outside Kampala. Inter-town clearing was introduced to six centers by the end of 1996. Finally, since 1994 the BOU has embarked on a comprehensive effort to strengthen the management of its growing foreign exchange reserves which stands at about US$ 700 million. This effort, structured as a three-phased program, has resulted in the introduction among other things, of a formal Reserves Management Policy Framework and the establishment of an external asset management program.  Uganda - Financial Markets Assistance Project Page 4 Project Appraisal Document -Main Text May 7, 1999 10. Insurance and Contractual Savings Reform and Regulation. Insurance and contractual savings institutions which have the potential for savings mobilization and investment in the future of the country has attracted the attention of the Government. A high priority has been given to improving the environment conducive to the development of insurance and other contractual savings institutions. Non- life insurance is an important financial sector service, essential for economic growth in general and the development of the private sector in particular. A new Commissioner of Insurance has been hired and the new insurance law has been enacted. (iii) Sector Issues to be Addressed by the Project and Strategic Choices a. Strengthening the Regulation, Supervision and Operations of Deposit-Taking Institutions 11. Commercial Bank Supervision. Since 1993, the Government of Uganda has been implementing measures to strengthen the regulation and supervision of commercial banks, including the passage of an updated Financial Institutions Statute and the training of bank examiners. A systematic training program of the Bank Supervision Department (BSD) bank examiners, consistent with a planned work program for the period 1999-2002 and growth in the sophistication of off- and on-site examinations, will be developed. Hands-on training to BSD staff in, inter alia, loan evaluation and provisioning, evaluation of lending concentration, foreign exchange risk valuation, liquidity risk assessment, and contingent risk management will be provided. 12. Non-bank Deposit-taking Institutions. The Government and BOU began, in mid-1997, to undertake measures to strengthen the regulation and supervision of non-bank deposit-taking institutions. Legislation will be drafted to better define BOU roles and responsibilities in regulating non-bank deposit- taking institutions including merchant banks, building societies, leasing companies (which mobilize deposits) and the Post Office Savings Bank. Subsequent to the passage of such legislation, hands-on training for examiners placed in the non-bank examination unit will be provided. 13. Assistance to the Non-Performing Assets Recovery Trust (NPART). Since 1995, the Government has been engaged in an active recovery process of non-performing loans transferred from UCB for collection by NPART. NPART has demonstrated strong performance amidst appreciable constraints and recently had its tenure extended to mid-1999. As of December 31, 1998, NPART had collected about Ush. 15.3 billion (approximately US$11 million). The ratio of costs to loan collection has been approximately 13%. NPART will continue recovering UCB loans, as well as recovering loans under proposed legislation which would transfer all non-performing of loans UDB to NPART. It is expected that the process of loan recovery will enhance credit discipline, as well as expedite recovery of previously non-performing loans in these institutions. 14. Assistance to the Uganda Institute of Bankers (UIB). UIB's role in facilitating training programs for staff of commercial banks has become increasingly important and reinforces prudential regulation and supervision by the BOU. The training center, which will be capable of delivering courses on a cost- recovery basis, will be supported. b. Restructuring and Privatizing Uganda Commercial Bank Limited 15. A previous attempt to privatize UCBL collapsed when the new owners engaged in extensive lending to related parties in relationship with the now-closed Greenland Bank. As a first step in the workout of the bank, the project will finance a management contract with associated technical assistance support services to permit the restructuring of the bank's operations in preparation for re-privatization. It is anticipated that there will be a need to make a significant number of staff reductions as part of this  Uganda - Financial Markets Assistance Project Page 5 Project Appraisal Document -Main Text May 7, 1999 process and so the project has included a facility for financing those retrenchment costs. In addition, resources will be made available under the project to finance technical services and computers and associated software specifically related to the new privatization process. c. Improving Monetary Management and Payment Systems 16. Strengthening BOU Money Management. Significant measures have already been taken to improve reserve and monetary management. Further measures, however, are needed to improve the transmission mechanisms for monetary policy, including measures to support a secondary market for Treasury Bills. Support would be provided for operations and research advisors and short-term twinning arrangements will be sought. A reserves management component will enable BOU to enhance its internal reserves management operations at two key levels: (a) the introduction of effective investment systems to support the investment activity; and (b) the strengthening of internal portfolio management operations, skills and oversight policies 17. Strengthening Payment Systems. Identified improvements in payment systems could strengthen financial market efficiency and improve the effectiveness of monetary policy. A multi-stage program of investments and training will be developed to reduce the processing time and the settlement risks for checks in the Kampala and rural check-clearing systems. Further, measures are being developed to improve other elements of the payments system including interbank clearance vehicles. 18. Strengthening Ministry of Finance Macro-economic Programming Capabilities. In an effort to further harmonize monetary and fiscal policy management, the MoF is strengthening the Macro Policy Department which conducts financial programming, including fiscal and macro-economic projections. The Project would finance training and equipment to support the staff of the Macro-economic Policy Department in the area of policy formulation, biased towards fiscal and monetary policy management. In particular, it will focus on short-term workshops, such as macro-economic policy, budgeting, financial programming and balance of payments. In addition, the Project would finance opportunities for officers to undertake study visits in countries where success in economic policy management has been achieved. d. Developing Insurance and Contractual Savings Reform and Regulation 19. Assistance to the Commissioner of Insurance. The Government has taken measures to improve the operation and regulation of the insurance sector through the recent passage of insurance legislation and the establishment and staffing of an insurance commission. This Commission has been working to improve the capital adequacy, solvency and efficiency of existing insurers, agents, brokers and adjusters in the marketplace but has been limited by its own capacity and inadequate equipment. Continued support to strengthen the capacity of the Commission, consistent with its institutional development plan, will be provided. 20. Developing and Strengthening Pension Regulation. Pensions in Uganda have been dominated by mandatory contributions to the National Social Security Fund (NSSF), but also includes benefit program pension funds with the Civil Service and local Governments, and privately-managed pension funds based on voluntary contributions. To date, oversight of the NSSF has been administered by the Ministry of Labour. However, no formal oversight mechanism is in place for private, voluntary pension funds and no uniform minimum standards of performance, accountability and public recourse are applied to either public and private funds. A series of studies will be undertaken to review the status of the existing system and the possibility of reforms to it. These include: (i) a financial and managerial review of the NSSF; (ii) a sector survey to determine the contribution requirements, benefit entitlements, age and income distribution of all pension fund members and beneficiaries, public and private, mandatory and voluntary;  Uganda - Financial MarketsAssistance Project Page 6 Project Appraisal Document -Main Text May 7, 1999 (iii) a review of NSSF investment policy and procedures, including real estate investment; and (iv) the drafting of legislation for a pensions oversight authority. 21. Assistance to Capital Markets Development. Although the Government has established a Capital Markets Authority (CMA) to oversee the Ugandan Stock Exchange, trading has been limited to a bond recently issued by the East Africa Development Bank. Select public listing of positions in companies being privatized is under consideration. This, as well as public offerings of privately held companies, could expand the volume of issues on the market necessary to reach a critical mass. The CMA will receive support in developing regulations under the Capital Markets Act, as well as training in developing oversight procedures for the Authority.  Uganda - Financial Markets Assistance Project Page 7 Project Appraisal Document - Main Text May 7, 1999 C. Project Description Summary (i) Project Components (See Annexes II and III for detailed descriptions and cost breakdowns) Component Category Indicative % of Bank- % Total Cost Total financing Bank- (US$) (US$) financing 1.0 Strengthening the Regulation, Supervision and 3,200,000 22.3 2,680,000 20.6 Operations of Deposit-taking Institutions: 1.1 Resolution & Restructuring of State Banks interim mgt. (a) UCB Resolution - The Project, under the PPF, 230,000 1.6 230,000 1.8 provided support to UCB to finance a management contract of Louis Berger Associates, which began under FSAC. The handover to the new ownership was completed in March 1998. (b) Assistance to NPART. The Project, under a policy/credit 1,450,000 10.1 1,190,000 9.2 PPF, financed an extension of the contract for discipline consultants operating NPART for the period to December 1997. The Project would finance an additional extension from June to October 1999, when its legal constitution projected to end plus an additional year projected to be extended. This will assist NPART to continue its process of recovering loans of UCB, as well as recovering loans under proposed legislation which would transfer select loans to NPART by UDB. 1.2 Assistance to the BOU Banking Supervision Institution 940,000 6.6 768,500 5.9 Department (BSD) - Commercial Bank building Supervision. The Project would provide systematic training of BSD bank examiners, consistent with a planned work program for the period 1999-2002 and increased sophistication of off- and on-site examinations. Support would be provided for: (i) in-house, hands-on training with the support of external specialists; (ii) technical advisory services for resolution and work-out of problem banks, (iii) specialized courses in Africa and abroad for senior examiners; (iv) special audits to assist in improving on-site examination quality (the first two audits were financed under the PPF); and (v) support for the purchase of laptop computers and other equipment and software to improve the efficiency of on- and off- site examiners.  Uganda - Financial Markets Assistance Project Page 8 Project Appraisal Document - Main Text May 7, 1999 Component Category Indicative % of Bank- % of Cost (US$) Total financing Bank- (US$) financing 1.3 Assistance to the BOU Banking Supervision Policy 280,000 2.0 264,800 2.0 Department - Regulation of Non-bank Deposit-taking Institutions. Under the PPF, the Project contracted an advisor to assist in drafting amendments to the Financial Institutions Statute to define the roles and responsibilities of the BOU in regulating non-bank deposit-taking institutions, including merchant banks, some large micro-finance institutions and the Post Office Savings Bank. Subsequent to the passage of such legislation, the Project would support a specialized advisor to draft implementing regulations and provide hands-on training to examiners placed in the non-bank examination unit. 1.4 Assistance to the Uganda Institute of Bankers (UIB) Institution 298,000 2.1 227,000 1.7 The Project would support upgrading a BOU facility building provided to the UIB to establish a training facility, as well as limiited funding for training courses to banks, on a cost-recovery basis. 2.0 Restructuring and privatization of Uganda 6,100,000 42.5 5,500,000 42.3 Commercial Bank Limited 2.1 Assistance to UCBL for a management contract, due Institution 3,600,000 25.1 3,000,000 23.1 diligence, a transactions advisor and other building restructuring and privatization related services. 2.2 Severance Payments for redundant staff based on an Institution 2,500,000 17.4 2,500,000 19.2 approved retrenchment policy. building 3.0 Improving Mon etary Management and Payment 1,775,000 12.4 1,576,000 12.1 Systems: 3.1 Strengthening Macro-economic Programming in Institution 277,900 1.9 222,000 1.7 MoF. The Project would provide financing for building targeted training including: (i) short courses biased towards fiscal programmning and mechanisms to strengthen employment generation and competitiveness; (ii) some study visits; and (c) some computer equipment. 3.2 Strengthening BOU Monetary Management (BOU Policy/ 1,344,800 9.4 1,304,000 10.0 Research and Development Dept). The Project would Institution support: (i) short-term twinning arrangements to building enable selected BOU Research Department staff to work with other central banks which have had positive experiences in confronting monetary policy constraints similar to those found in Uganda; (ii) financing of equipment and extemal consultants to assist the BOU in developing suitable controls and oversight procedures for externally-managed portfolios; (iii) development of an in-house training program for monetary and foreign exchange management and reducing market segmentation; and (iv) support to complete Integrated Accounting System. l  Uganda - Financial Markets Assistance Project Page 9 Project Appraisal Document -Main Text May 7, 1999 3|3 Strengthening Payment Systems. A multi-stage Institution 50,000 0.3 50,000 0.4 prograim to strengthen payment systems has been building designed with support under the PPF and further support for such program will be provided under the Project. 4.0 Developing Insurance and Contractual Savings 1,240,000 8.6 1,214,400 9.3 Reform and Regulations: 4.1 Assistance to the Commissioner of Insurance. The Policy/ 370,000 2.6 344,000 2.6 Project will fmance equipment and training to Institution strengthen the capacity of the Commission to effect building oversight and supervision of the insurance sector. It would also support the drafting of legislation and guidelines so as to effect a more precise implementation of the Insurance Law. 4.2 Developing Pension Systems and Oversight. The Policy/ 710,000 4.9 710,000 5.5 Project would fmance a series of studies for Institution Government and the population at large to adequately building review the status of the existing system, review policy options for changing or replacing existing institutions and draft legislation for oversight, and develop capacity to effect such oversight. In particular, the Project would finance: (i) a financial audit of the National Social Security Fund (NSSF); (ii) a sector survey to determine the contribution requirements, benefit entitlements, age and income distribution of all pension fund members, public and private, mandatory and voluntary; (iii) a review of real estate valuations for NSSF and the principal private pension funds with a view towards reviewing the impact of revised investment guidelines; and (iv) the drafting of legislation for an oversight authority for the pensions sector. 4.3 Assistance to Capital Markets Development. Policy/ 160,000 1.1 160,000 1.2 Assistance would be provided under the Project to the Institution CMA in developing: (i) mechanisms for an investor building compensation fund; (ii) accounting and fmancial standards; and (iii) mechanisms for oversight of collective investment schemes. The Project would also provide assistance for select secondments and attachments to broker/dealer institutions. Finally, the Project would provide some finacing for public education and promotion campaigns. 5.0 Project Implementation: The Project will finance a Project Manager assigned to Project 680,000 4.7 680,000 5.2 the BOU to provide administrative support in the manage- ____ implementation and coordination of the Project. ment 6.0 Unallocated: 1,350,000 9.4 1,350,000 10.4 This includes two parts: (i) a reserve fund of approxinately US$1.1 million to finance additional due diligence, management contracts, audits and receiverships as the need arises; and (ii) price contingencies. TOTAL PROJECT COST 14,350,000 100.0 13,000,000 100.0  Uganda - Financial Markets Assistance Project Page 10 Project Appraisal Document - Main Text May 7, 1999 (ii) Key Policy and Institutional Reforms to be Sought 22. Although no formal conditionally would be included in the Project, several policy reforms will be critical for the process of financial sector reform proposed under the Project. These are: * Drafting and enactment of amendments to the Financial Institutions Statute; * Drafting and issuance of implementing prudential regulations for financial institutions including higher minimum capital requirements; * Drafting and enactment of amendments to the NPART Law enabling the addition of portfolios of UDB to be recovered by NPART; . Drafting and enactment of legislation providing for operative guidelines and oversight of the pension industry, including the NSSF; and + Drafting and enactrnent of implementing regulations under the Capital Markets Statute. (iii) Benefits and Target Population 23. The Project is expected to strengthen sector regulatory institutions thus reducing the risks to depositors' funds. Reinforcing the financial infrastructure and increasing competition will help improve domestic resource mobilization and make financial intermediation more effective. By supporting NPART, a clear message will be sent to the population that obligations of financial contracts should be respected by all persons regardless of their economical or political standing. This should translate into lower financial intermediation costs which would ultimately be passed on to the private investor. By supporting the efforts of the Uganda Institute of Bankers (on a cost sharing/recovery basis), the standards of professional bankers are expected to increase. The NSSF affects the population as a whole through: (i) its potential financial impact on the economy as its funds can be transferred into viable investments; and (ii) its impact on the labor market because of mandatory contributions. (iv) Institutional and Implementation Arrangements Implementation Period: Four years, September 1999 to September 2003 Executing Agencies: BOU, MoF, UIB, Commissioner of Insurance and CMA 24. Project Execution and Coordination. Overall responsibility for the implementation and coordination of the Project will be entrusted to an already existing (para. 41) Project Implementation Unit (PIU), under the purview of the BOU. The PIU will have the responsibility for ensuring policy consistency across beneficiaries of the Project, coordinating implementation and ensuring adequate financial management (procurement, disbursement, accounting and audit) and general administration (monitoring the implementation plan and reporting). Each project component would be implemented by a designated agency and responsible individual accountable for the execution of project activities and timely delivery of outputs as defined and agreed under the Project Implementation Plan (PIP) which will be finalized and adopted prior to credit effectiveness. 25. The PIU would provide procurement support to each of the implementing agencies and liaise closely with the designated counterpart of each. The Project Manager would: (i) prepare and update the procurement plan for the Project; (ii) monitor procurement; and (iii) assist the implementing agencies in the preparation of bidding documents and advertisements for goods and works contracts, requests for proposals for consulting assignments, bid opening and evaluation. The Project Manager would also advise the implementing agencies on procedural matters, and provide support as needed for the procurement of goods and services, disbursement and other financial services.  Uganda - Financial Markets Assistance Project Page 11 Project Appraisal Document -Main Text May 7, 1999 26. Consultants, contractors and suppliers would be selected in accordance with Bank guidelines, on the basis of proven experience. In line with the Bank's Africa Regional guidelines local consultants will be used wherever possible. Where foreign consultants are used for lack of requisite local skills, special attention will be given to promoting and strengthening local capacity through skills transfer. Each beneficiary would, therefore, appoint counterparts who would work closely with the advisor and make adequate preparations before the arrival of the each advisor to ensure the effective utilization of his/her services. 27. The GOU would open and maintain a Project account in Ugandan Shillings and a Special Account in US dollars to be held in a commercial bank on terms and conditions satisfactory to IDA. It would make an initial deposit into the shilling account in an amount equivalent to US$ 100,000 to finance Government's contribution to the Project. Furthermore, it would deposit into the shilling account on a monthly basis, any amounts which will be required to the Project Account to the amount of US$200,000 equivalent or such greater amount as may be required to meet expenditures for the Project until the end of the Project. 28. Accounting, Financial Reporting and Auditing Arrangements. Responsibility for accounts management would be assigned to the Project Manager, under the auspices of the BOU. The Project Manager would maintain accounting records (project activities, resources, expenditures and net position) in accordance with international accounting standards and practices. Financial management Guidelines and a computerized accounting and assets management system has been prepared., maintained and is in use. A local private accounting firm (or individual accountant), acceptable to IDA, would provide support to the Project Manager on an "as needed" basis. 29. The Project Manager, with each implementing agency, would update procurement schedules and provide reports on related activities to ensure compliance with IDA requirements. Agreement has been reached with the Borrower on the standard processing procedures for procurement of works (renovations), goods and consultant services. During negotiations, agreement will be reached on the following points: * All project accounts, the Special Account, and Statements of Expenditure (SOE) would be audited at the end of each fiscal year (June) by an independent external auditor acceptable to IDA, consistent with International Auditing standards (IAS) and Generally Accepted Accounting Principles (GAAP); * to provide IDA with an audit report for the fiscal year in question, certified by the auditors, no later than six months after the end of each fiscal year; * to provide IDA with any other information regarding the Project's accotnts and audit it may request from time to time; and * IDA would be provided with the external audit of BOU and NPART. 30. Monitoring and Evaluation Arrangements. Quarterly progress reports, prepared on the basis of the project implementation plan (PIP) and the logical framework (Annex 1) would be provided by each beneficiary agency to IDA, through the PIU. Semi-annual Project reviews would be conducted jointly by IDA and GOU, with each implementing agency to review the performance of each component, including the status of procurement and disbursement. A joint IDA-GOU mid-term review would monitor the achievement of project objectives, overall project execution, key project activities, project implementation schedule, and supervision plans. It will also identify obstacles to the achievement of project objectives and recommend remedial measures. Following Project completion, scheduled for December 2002,an Implementation Completion Report (ICR) would be prepared jointly by IDA and GOU.  Uganda - Financial Markets Assistance Project Page 12 Project Appraisal Document -Main Text May 7, 1999 D: Project Rationale (i) Project Alternatives Considered and Reasons for Rejection 31. Capacity building operations are, by and large, technical assistance and training operations. As such, project alternatives are usually reflected in the scope of the project and the sequencing of implementation. The proposed Project is no exception. In deciding on the scope and the content of the Project, the Task Team has been guided by a few main criteria, namely the need to address high priority capacity building requirements, synergies between Project components, the contribution that IDA can make in terms of substance and/or filling a financing gap, the role that Bank assistance plays vis-a-vis other donors and whether Bank assistance completes rather than substitutes for other donor funding. 32. The initial scope of the proposed Project was focused on a hybrid operation of adjustment lending with technical assistance support. The Government of Uganda, after careful consideration, felt that it should further develop reforms initiated under the FSAC and SAC III. In addition, after a detailed review, it was noted that SAC III did not have corresponding technical assistance which would enable a smooth and successful implementation. Most important, in order to ensure clear focus, a number of proposed interventions were eliminated from the scope of the Project. (ii) Major related projects financed by IDA and/or other development agencies Sector issue Project Latest Form 590 Ratings (completed, ongoing and planned) IP DO Bank-financed Financial Sector Adjustment Credit (FSAC) S S Structural Adjustment Credit (SAC III) S S Enterprise Development Project S S Economic and Financial Management Project S S Institutional Capacity Building Project S S Private Sector Competitiveness Project S S Other development agencies USAID Credit Information System GTZ Capital Markets Authority, Uganda Stock Exchange, Payments Systems (BOU) and Micro finance Regulation (iii) Lessons Learned and Reflected in Proposed Project Design 33. Institutional capacity building often takes more time to develop than originally estimated and therefore more time should be allowed for consensus-building and learning from mistakes. In particular the Project should have: * Simplicity of design and quick response. The design of Project components was kept as simple as possible and will be based on well targeted objectives; well defined actions with timetables for implementation; and clear evaluation criteria with monitorable indicators. The scope and design of the program should be realistic and take into account the existing local conditions, including availability of skills. The design should allow for some flexibility to cater for the changing condition in the country during implementation. * Compatibility with both the political realities and institutional absorptive capacity of the  Uganda - Financial Markets Assistance Project Page 13 Project Appraisal Document - Main Text May 7, 1999 Government agencies that are beneficiaries of the Project and a realistic assessment of their capacity to implement the Project. Institution and capacity building is a time consuming task. Sufficient time, therefore, has been allowed for consensus-building and leaming from mistakes. Rather than create new structures, the Project will rely on strengthening existing structures and agencies that have a justified mission and work program. Stakeholder involvement in the design and execution of the project; and local expertise. Experience has shown that local ownership of reform programs leads to more effective programs and ownership usually increases if there is local participation in program design. Wherever possible, the procurement of goods and services, including Consultants, will encourage local participation. (iv) Indications of Borrower Commitment and Ownership 34. The Government has requested continued IDA support of its ongoing effort;s in financial sector development. The Project would build upon those efforts already made by the FSAC which closed in June 1997 and will support those reforms which will be undertaken under the SAC III of May 1997. The Government has maintained a stable macro-economic framework and has adopted the Bank of Uganda Statute (1993), which established the Central Bank as the authority to formulate and implement monetary policy and the Financial Institutions Statute (1993) which has provided the basis for prudential banking supervision. Two commercial banks have been restructured and recapitalized and NE'ART has been given the authority through special legislation to collect on non-performing loans from UJCB. In September 1998, the BOU intervened and closed three banks, and established clear prudential targets and monitoring for a fourth institution found to have notable prudential deficiencies. Subsequently., two banks were re- opened and in April 1999 the fourth bank was closed down. (v) Value Added of Bank Support in this Project 35. IDA offers both financial sector expertise and has played an important role in Uganda's financial market reform measures since 1993. IDA has already invested significant resources in support of Government's efforts. For the reforms to be sustainable, institution building must be a systematic and continuing process. E. Issues Requiring Special Attention 36. Issues warranting special attention are: * enforcement of prudential regulations of financial institutions and sanctioning of non-compliance; * restructuring and workout of problem banks, * careful monitoring of several banks; * raising minimum capital requirements for commercial banks; * enforcement of prudential regulations for insurance companies; and * remedying noted financial management deficiencies in the NSSF and developing a broader strategy for social security and pension reforms. (i) Economic Assessment 37. It is virtually impossible to quantify the expected economic returns to a technical assistance operation of this nature. However, given the noted critical importance of efficient financial intermediation to growth and very low level of domestic savings in Uganda, it is expected that the economic benefits of  Uganda - Financial Markets Assistance Project Page 14 Project Appraisal Document - Main Text May 7, 1999 potentially increasing the level of savings and the efficiency of transforming such savings to productive investment will far outweigh the financial costs. 38. Project costs are expected to be: (i) direct costs of US$ 13.0 million to be repaid to IDA (plus interest over the life of the loan); (ii) direct costs by Government of US$ 1.35 million; and (iii) indirect costs associated with further financial sector restructuring. 39. Project benefits are expected to be: (i) increased savings mobilized short-term through banks and non-bank deposit-taking institutions and mobilized medium- and long-term through contractual savings institutions; (ii) increased efficiency of intermediation in the banking sector as measured by reduced operational costs and spreads; and (iii) increased solvency and efficiency of contractual savings institutions including pension funds and insurance companies. (ii) Technical Assessment 40. The Project is technically sound and consistent with the CAS agenda of developing a regulated and diversified financial sector. The Project has been designed in such a way as to balance breadth and focus. Support to multiple units has been grouped into the three project components. The following factors were taken into consideration in designing the specific technical interventions: (i) capacity building should only exist in the context of a well-considered and articulated business plan, such that the support reinforces the objectives of capacity development of the individual unit. Further, monitoring indicators for the Project are consistent with the indicators of the units' customized development program; (ii) proposed training has tried to leverage the use of foreign experts coming to Uganda; (iii) overseas training has been largely limited to secondments and attachments; and (iv) the technical specifications of equipment to be procured seeks to provide flexibility for later upgrading so as to increase the period of equipment use. (iii) Institutional Assessment 41. Executing Agencies: The BOU will have overall responsibility for implementing the Project. The Project will be executed by a PIU located in the BOU, staffed with qualified personnel. Each counterpart agency will also be expected to have strong ownership for its program and have a designated individual responsible. Beneficiaries include: MoF, BOU, UCBL, Insurance Commission, CMA and UIB. 42. Project Management: The PIU will include staff who implemented the previous FSAC in close cooperation with IDA and are familiar with IDA procedures. This capacity will be reviewed throughout the tenure of the Project. (iv) Financial Management Assessment 43. Overall responsibility for the financial management lies with the Project Implementation Unit in the BOU. The framework within which the same responsibilities were discharged under the FSAC is still in place and a review of its financial covenants indicate that they have been respected. The FIMAP shares certain implementational aspects with FSAC and therefore the framework is still functional. The accounting system is computer based and runs on a DOS software called Money Program. 44. Based on the assessment of the above financial system by the Financial Management Specialist, the system and accompanying staff are capable of producing timely and accurate information required in the production of financial reports to satisfy the requirements under BP 10.02. An accountant will be  Uganda - Financial Markets Assistance Project Page 15 Project Appraisal Document-Main Text May 7, 1999 hired on an "as needed" basis and an auditor will be hired prior to Project effectiveness. 45. Within a year, following effectiveness, further assessment will carried out to detennine whether the Project could comply with the requirements for LACI type disbursements and reporting. (v) Social Assessment 46. Although this Project does not entail interventions targeted at specific social groups, it can have a disproportionate impact on low income groups as follows: (i) small depositors in the- banking system can be disproportionately at risk due to institutional insolvency or fraud because they are unable, under existing conditions, to adequately discern the risk of the banks in which they have deposits. The hope is that through improved supervision, small depositors can exert better choices in savings decisions and, in addition, efficiency gains can result in improved service and coverage. Indeed, periodic illiquidity, particularly in remote branches has often left depositors without access to their fun,ds to date; (ii) NSSF reforms and oversight of private pension funds will have significant implications for the ability of low income retirees to maintain an income in retirement in a reasonable proportion to that during their worklife; and (iii) poor regulation and supervision of insurance companies has, to date, resulted in low income groups disproportionately vulnerable to risks because they are unable to get adequate coverage, the company defrauds the customer of benefits entitled to, or inefficiency results in added costs or reduced coverage or both. (vi) Environmental Assessment a. Environmental issues: none b. Environmental category: [ A [] B [X1 C c. JustificationlRationale for category rating: This is a technical assistance project for the financial sector which will not have any direct or indirect environmental impact. d. Status of any other environmental studies: not applicable e. Resettlement: There are no resettlement issues from this project (vii) Participatory Approach a. Primary beneficiaries and other affected groups: BOU, UCBL, Commissioner of Insurance, CMA, UIB, MoF, financial institutions, insurance companies, brokerage houses, pension funds and private businesses. 47. The following are primary beneficiaries receiving direct support from the Project and have actively participating in the development of work programs, including project objectives, assistance requirements, budgets, timetables and performance indicators. . Bank of Uganda will be a primary beneficiary. Support will be received to strengthen the regulation and supervision of deposit-taking institutions. * Uganda Commercial Bank Limited will benefit from comprehensive support for restructuring following the collapse of the previous privatization effort, and for a re-privatization of the bank. * The Commissioner of Insurance will receive direct support to improve the regulation and supervision of the insurance sector. . Capital Markets Authority will receive assistance to develop regulations under the Capita Markets Act, as well as training in developing oversight procedures for the Authority. * UIB will be provided a refurbished training center (partially financed by the credit) by BOU which will enable them to have a focal point for the distribution financial sector information  Uganda - Financial Markets Assistance Project Page 16 Project Appraisal Document -Main Text May 7, 1999 and training programs. MoF has an overall interest to the development of financial sector as it interacts with fiscal management (NPART collections, payments systems, etc.). 48. The following beneficiaries are indirectly affected through the actions of those institutions above through regulation and supervision: commercial banks, other deposit-taking institutions, insurance companies, brokerage houses and private businesses. They were consulted to ascertain their ideas on the requirements of the sector for development. b. Other key stakeholders: Most bilateral donors were consulted during project preparation, including the private sector/finance development donors group. USAID was consulted with respect to its proposed funding of a credit information system. Moreover, GTZ was consulted with respect to the funding of an expatriate who will work with the Uganda Stock Exchange. F. Sustainability and Risks (i) Sustainability 49. This Project supports a process that is aimed at achieving a sustainable result, namely a prudent and efficient financial system. Such sustainability will depend ultimately on the ability of regulators to oversee prudent risk-taking and institutionalize such a process, as well as sustainable macro-economic policies which can shield Uganda from severe economic turbulence. (ii) Critical Risks (reflecting assumptions in the fourth column of Annex 1) Risk Risk Rating Risk Minimization Measure BOU strengthens supervisory capacity Moderate IMF PFP benchmarks and Project monitoring but undertakes limited enforcement of indicators link new commitments to enforcement of prudential regulations. regulations. GOU does not remain committed to Maintain constructual dialogue. Bank advice on UCBL systematic resolution of problem bank continues to - restructing Low be implemented ak.a. closure of Greenland Bank, - privatization Moderate April 1, 1999. High staff turmover in Regulatory Substantial BOU management encouraged not to rotate staff and Agencies. maintain competitive salanies. Budget is insufficient to purchase Low Counterpart fuids will be deposited in advance. necessary equipment Annual disbursements are dependent upon the submission of budgets and procurement plans. Legislation for extension of NPART and Moderate Legislation will be going to Parliament this year. transferring UDB loans is not adopted Overall Risk Rating Moderate (iii) Possible Controversial Aspects 50. Two possible sources of controversy have been identified. The first is that rigorous application of prudential regulations could adversely impact a number of financial institutions, including some with  Uganda - Financial Markets Assistance Project Page 17 Project Appraisal Document - Main Text May 7, 1999 vested interests. The second is that remedying deficiencies in the NSSF could lead to further public disappointment in light of exposed weaknesses. To address the first issue, the Project dialog has focused on the tremendous economic costs and risks to average Ugandans of not adequately safeguarding depositors' funds. The second issue will be addressed by ensuring that any social security and pension reform program that will be considered will be selected on the basis of extensive assessment and widespread public consultation. G. Main Loan Conditions Effectiveness Conditions * Completion of the testing and installation of a Bank of Uganda Integrated Accounting System (IAS); * Submission of a list of designated counterpart staff for the PIU, BOU, Insurance Commission, MoF, NPART, UIB and CMA; * GOU will deposit the first tranche (September 1999 - March 2000) of the counterpart funds equivalent to US$ 100,000; + Government formally adopts the Project Inplementation Plan; + GOU will hire an auditor satisfactory to IDA. H. Readiness for Implementation 51. GOU will have prepared the procurement documents for the first year's activities prior to negotiations. In addition, GOU has prepared and will adopt the Project Implementation Plan as a Board condition. 1. Compliance with Bank Policies 52. This Project complies with all applicable Bank policies. Task Team Leader: Mark Dorfinan Acting Sector Manager: Paul Murgatroyd Country Director: James W. Adams  Uganda - Financial Markets Assistance Project Page 18 Project Appraisal Document - Annex I: Project Design Summary May 7, 1999 Annex I: Project Design Summary Narrative Summary I Performance Indicators Monitoring & Assumptions/ Supervision Risks L. CAS Objectives: Strengthen bank and NBFI * Privatization of UCB or Via SAC III and 0 Government remains supervision and improve implementation of back-up FvIMAP committed to economic and management (include. some plan; supervision fnancial reforms; and privatization) of provident and + Collect at least Ush. 25 billion missions. 0 Continued political stability pension funds and the insurance of non-performing loans of facilitates legal enforcement. industry UCB; and * Banks are supervised (on and off-site) on a regular basis. IL Project Development Objectives: Impact/Outcomes Improve the soundness and + Off-site reporting and on-site * Bank of o Sound Government policies performance of the financial inspections provide evidence Uganda Off- continue; system of improved safety and site reporting 0 Macroeconomic situation soundness of financial summaries; remains stable; institutions; and 0 BOU acts decisively to . Bank of enforce prudential regulations * Sufficient financial institution Uganda on- and to intervene profitability to result in site appropriately in problem positive real rates of return on examination institutions; equity after tax during the reports. 0 Deposit-taking institutions implementation period and take measures to improve increases in rates of return fmnancial management safety from 1999 to 2003. and soundness; 0 Insurance companies take measures to improve| fnancial management safety and soundness; 0 Successful implementation of other projects which either directly or indirectly impact the financial sector (SAC III and IMF ESAF Programme).  Uganda - Financial Markets Assistance Project Page 19 ProjectAppraisal Document -Annex I: Project Design Summary May 7, 1999 Annex I: Project Design Summary (Cont.) Monitoring & I m. Project Outputs Measurements/Indicators Supervision Assumptions/ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ risks 1.0 Strengthening the Regulation, o (IOU remains Supervision and Operations of committed to fmancial Deposit-taking Institutions: sector reform 1.2 BOU will have improved the * Evidence which suggests that all * BOU reports. o Staff turnover remains institutional capacity of the incidents of lack of compliance low and budget remains Department of Banking with prudential regulations sufficient to purchase Supervision - commercial banks identified in on-site necessary equipment. examinations are noted, remedial actions prescribed, actions are verified within 90 days and, as necessary sanctions are imposed by BOU. l Institutions identified as * Supervision o ]3anks adhere to unsatisfactory according to mission reports; recommendations made BOU off-site criteria will have and by Consultant. follow-up actions taken within * BOU supervision o BOU has skills to 30 days. reports. implement effectively. 1.3 BOU will have improved the + Separate NBFI regulatory and * BOU Board institutional capacity of the supervision unit is created by Resolution; Department of Banking June 1998 (done). * Organizational Supervision - NBFI chart;- * Supervision mission reports. + Amendments to the Financial * Copy of enacted Institutions Statute defining the Legislation roles and responsibilities of the BOU in regulating non-bank deposit-taking institutions including fnance companies, merchant banks, the Post Office Savings Bank and Building Societies have been drafted, enacted, assented to and implemented by Sept. 1999. * Implementation of regulations to * Copy of issued provide for the monitoring of Regulations select non-deposit taking institutions by July 2000. * 60% of NBFIs will adhere to the * BOU reports prudent regulations by Dec. 2000.  Uganda - Financial Markets Assistance Project Page 20 Project Appraisal Document - Annex I: Project Design Summary May 7, 1999 Annex I: Project Design Summary (Cont.) Monitoring & m. Project Outputs Measurements/Indicators Supervision Assumptions/ risks 1.4 NPART will have collected * NPART will collect Ush 25 - Financial reports non-performing loans. billion as per conditions in SAC III floating tranche. 1.5 Uganda Institute of Bankers * Institute has successfully * Training evaluation will have been operational graduated 20 certified bankers * Financial statements with a regular training in 1999 and 30 in 2000. program (done). * Institute's profitability ratio (operating revenue/expenses) has become positive, at the same time reducing the ratio of subsidy provided by the commercial banks. By March,2000 2. 0 Restructuring and Privatizing o Clean transaction; UCBL o Buyers meet prudential 2.1 UCBL will have been Positive and growing ROA Financial Statements/ requirements, restructured and privatized BOU supervision including "Fit and Signed sales agreement and reports. Proper Test"'. successful transfer of ownership o Receipt of full by March, 2000. amount of purchase price; and o Installation of new management, as approved by BOU. 3.0 The Monetary Management and Payment Systems will be strengthened 3.1 Research & Development * Interest rate transmission. * BOU documentation o Political Dept. will have been 50% increase in secondary * Discussions with interference strengthened market trading in T-bills by BOU and MoF prevents adequate Sept. 2000. monetary policy 3.2 Payments System will have * New payments system agreed * Discussions with been made more efficient by December 1999. fnancial institutions New reserves management plan implemented by June 2000. 4.0 Development of Insurance * All insurance companies will and Contractual Savings meet minimal capital Reform and Regulations guidelines by December 1999 or be delicensed from writing new business (done). 4.1 Insurance Regulation has been strengthened * Solvency margin guidelines * Issuance of o Noncompliance will have been designed and guidelines; will be sanctioned implemented by December, * Submission of 2000. returns; * Application of off-site  Uganda - Financial Markets Assistance Project Page 21 Project Appraisal Document -Annex I: Project Design Summary May 7, 1999 and select on-site evaluations; and * Issuance of notices to institutions found in violation. * Financial reporting and - Issuance of disclosure guidelines will have guidelines; been designed and * Submission of implemented. retums; * Application of off-site and select on-site evaluations; and * Issuance of first statistical bulletin. 4.2 Pension System histitutions * NSSF reform process: (a) in- * Final reports will have been reformed, depth needs assessment will be remodeled system designed, completed by February 1999; and oversight established. (b) recommendations will be discussed by Government by April 1999; (c) action plan will be developed by June 1999; and (d) work will begin by December 2000. * NSSF will submit to BOU (or - Investment Plan MoF) an acceptable investment policy and procedures by June 1999. 4.3 Capital Markets Authority * Oversight procedures will be * Adopted legislation