Uganda's economy is set to grow by 6.25 percent this year on the back of low inflation and significant investment in hydropower and roads that would also create jobs, the IMF said on Monday.
In September, Uganda revised its full year growth rate to 5.8 percent from 5.1 percent previously stated in a budget reading in June.
"With low inflation and higher growth, market confidence is set to induce some recovery in credit to the private sector," a team from the International Monetary Fund said in a statement after a two-week visit.
"Growth is projected to reach 6¼ percent this year, inflation to stay within the program target band, and debt to remain sustainable notwithstanding increased borrowing requirements."
The IMF said to support this outlook the authorities had to find the right balance between encouraging growth and avoiding crowding out private sector activity by resisting rising spending pressures and strictly adhering to the budget.
The IMF mission said it backed plans by the BoU to maintain a neutral monetary policy stance and its readiness to adjust it in either direction in line with its inflation target.
Uganda's central bank held its key lending rate at 12 percent on Nov. 4, saying economic growth was near its long-term potential, while upside and downside risks to inflation were balanced.
Core inflation, which excludes food crops, fuel, electricity and metered water, was seen at 6.5-7.5 percent in the next 12 months before falling towards the bank's medium-term target of 5 percent in 2015.
However, the IMF team said tax revenue collection "remains low by regional standards and needs to improve".
It encouraged a review of the tax system to eliminate the numerous tax exemptions that have outlived their usefulness.
The mission said it supports the government to implement its action plan to enforce compliance.
Under pressure to boost tax receipts, Uganda plans to amend banking laws to give the state revenue collector greater access to depositors' bank accounts to verify tax compliance.