Every good thing comes to an end-and so has Abebe Aemro Selassie’s time at the IMF. For 32 years, the Ethiopian national held various positions within the Fund, culminating in his role as Director of the African Department. Selassie previously served as the IMF’s Senior Resident Representative to Uganda. The outgoing Director sat down with Mark Kidamba for a candid conversation about the current state of Uganda’s economy and to address what he described as false narratives surrounding the IMF. Decades later, Uganda and Africa’s economic problems have been faulted on the IMF’s structural adjustment programs. Is this blame valid? “The narrative that whatever happens in Africa is because of external entities undermines what we (Africans) do for our countries. If you want to blame everything bad on the IMF, what about when you have very high economic growth? Is that also on account of the IMF? Economic development is a function of policies, the political environment, and the broader social context. I am not shirking responsibility for the 1980s and 90s. Far from it. We are a learning organisation. Christine Lagarde used to say, ‘This is not your grandfather’s IMF.’ The IMF of today is very different from the IMF of the 1980s and 90s.” In recent years, the IMF has faced criticism because of its policy recommendations. How is the IMF managing this? What is it doing to harmonize its policies with its African members? “The last six years have been difficult for African economies. We have been assailed by the pandemic, global food and supply chain disruptions, and tightening financing conditions. Yet, our countries don’t have deep domestic financial markets to turn to when these kinds of global conditions unfold. Countries only turn to the IMF once they have run out of financing options and are in deep crises. That is why we are associated with difficult economic times. We are like the fire brigade. We get called to work with governments after a fire has broken out. When countries are in a tough situation, difficult policy decisions have to be made. Nonetheless, we believe that these decisions should be subject to domestic and political processes. Over the years, we have learnt to pay heed to the political economy considerations of our members-to humbly approach difficulties in countries, giving more space to leaders to navigate hardships. We advise members only where they want our advice and listen to their arguments about why certain policies are not possible.” There is a perception that African countries are heavily indebted to the IMF. Is that true? What is Uganda’s current debt with the IMF? “For sub-Saharan Africa, the median exposure to the IMF is about 3 percent of GDP. The average level of debt to GDP in the region is roughly 60 percent of GDP, and only 3 percent of that is owed to the IMF. In the specific case of Uganda, the debt- to-GDP ratio is about 53 percent. Of that, 2.5 percent of GDP is owed to the IMF. Less than 5 percent of Uganda’s total debt is owed to the IMF. The financing that we provide to the vast majority of countries on the continent is at zero interest rate.” Central banks in Africa have their reserves mostly in US dollars. With the dollar’s current struggles, what economic remedy is there for them to navigate this uncertain period? “Countries have dollars in their reserves because it is the most traded currency globally. Despite the dollar’s current struggles, it is stronger than it has been in the last 30– 40 years. While it has slightly depreciated against other currencies, the US dollar remains very strong. For as long as oil imports and our exports are denominated in the dollar, it will continue to play an important role as a reserve currency.” BRICS is an alternative economic bloc to the status quo overseen by the West. What is the IMF’s official position on its members joining BRICS? “BRICS economies play a major role in our institution. For example, China is the third-largest shareholder of the IMF, whereas Brazil and India are significantly represented on our board. On how member countries engage with each other, if a country in the region has important trade relations with China, South Africa, or India, that is commonplace. It is standard practice for countries to engage diplomatically, financially, and economically. We are supportive of that.” In Uganda, there is growing interest in Treasury Bills and Bonds, which aggravate the national debt. Is this appetite for bonds good for the economy? “The purpose of bonds and bills issued by the government is to raise money because tax revenues are not sufficient to cover public expenses. However, what you want to be paying attention to is the cost of servicing the debt. There are strong arguments to support issuing bonds in local currencies-it allows for broader financial sector development. Unfortunately, in Africa, only governments issue bonds. The cost of borrowing through bonds in Uganda is on the high side because national savings are limited, given that the lion’s share of the population is not of working age. National savings are low relative to the investment demands that Uganda has as a developing country. Limited savings create higher financing costs because incomes go toward consumption rather than savings due to the demographic composition. Increased national savings lead to lower borrowing costs.” Besides taxation, what policy recommendations has the IMF given countries in sub-Saharan Africa as alternatives to raise revenue? “We acknowledge the government’s need to invest more in health and education. Because of the high population growth rates, a lot of people are in need of advanced education. There is need for more electricity production and better infrastructure. At the same time, the debt level is on the higher side. But to the best of our knowledge, the best way to boost the resource envelope is by increasing tax collections. At 13 per cent, Uganda’s tax-to-GDP ratio is extremely low. To build the kind of economy that Uganda aspires to become, the tax-to-GDP ratio needs to rise to the 20 per cent mark. Government needs to reduce exemptions which cost it a lot of money—in our estimates, about 3 per cent of GDP a year.” Do African governments follow the economic recommendations you give? “Countries have policies and objectives that they want to pursue. That is the starting point of our engagement with them. Our role is to advise on whether the proposed policies are consistent with maintaining macroeconomic stability. We advise, but it is up to governments to pursue our recommendations, or not.” Per the IMF, Uganda’s economy is experiencing growth of up to 6 per cent. But there is nothing to justify this growth seeing as oil production has not started. “We rely on data that is provided by UBOS. This data is broadly consistent with a lot of other indicators in the economy, like the number of businesses being created. The Ugandan economy is diverse and vibrant and has been relatively macroeconomically stable over the years. Inflation is contained. There has been minimal dislocation in the foreign exchange market, and the business environment has been conducive. Unlike many other countries such as Nigeria, which are dependent on oil, Uganda has achieved this with agriculture. The fact that oil production has not started does not negate what has been happening over the last 15 to 20 years. The broad-based nature of Uganda’s economy is its strength.” You spent time in Uganda as the Senior Resident Representative of the IMF. What pleasant memories of your time here linger? “I have very fond memories of my time here. This is where my family size grew. I came to Uganda with two children and left with three. My youngest son was born here. My family and I have very happy memories of Uganda. Back then, the economy was relatively vibrant and broad-based. It is nice to see that this approach to development has been sustained over the years.” After holding a high-flying non-tenured position at the IMF where your knowledge is put to full use, why leave now? What is next for you? “I have been at the IMF for 32 years, and it is time for me to go and do other things. My main inflection point was when my youngest son (who was born in Uganda) turned 18 and went to university last summer. My wife and I then decided that now is a good time for us to move back to the region. The first order for me is to take a break, then look for interesting things to do later. Now, I am a big Arsenal fan, and there are rumours that I could be joining the squad next season.” kidambamark3@gmail.comThe post IMF’s Abebe advices gov’t to reduce tax exemptions appeared first on The Observer.