Uganda and the IMF
1. Uganda has achieved strong economic growth and macroeconomic stability in the last decade, owing largely to the implementation since the late1980s of an ambitious program of macroeconomic adjustment and structural reform. The strong growth has been accompanied by a reduction in the proportion of Ugandans living in absolute poverty. Despite the reduction in head count poverty, Uganda remains one of the poorest countries in the world. Moreover, the distribution of welfare gains has varied across regions, sectors, and social/economic groups. As noted in the Poverty Eradication Action Plan (PEAP), the government is aware that although economic growth is essential to reducing poverty, it is crucial to put the right policy framework in place to ensure that all citizens, particularly the poorest members of the community, benefit from economic growth. The government is therefore taking advantage of debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative, along with other forms of donor support, to increase public expenditures on growth-oriented and antipoverty programs and accelerate the implementation of the PEAP. High economic growth and poverty eradication, in the context of continued macroeconomic stability underpinned by appropriate fiscal, monetary, and structural policies, will continue to be the government's principal economic and social objectives. This document outlines the government's policies and strategies for the three-year period 1999/2000–2001/02 (July–June) and their impact on poverty reduction.
2. Uganda has achieved strong, broad-based economic growth, with low inflation and an improved balance of payments, through the implementation of a wide range of important macroeconomic policies and structural reforms. Moreover, the improvement in the underlying fiscal situation, as well as increased donor assistance, has facilitated a reduction of bank financing of the government deficit and adequate provision of credit to a growing private sector. During the period 1994/95–1998/99, annual real GDP growth averaged 7.4 percent, and the overall fiscal and current account deficits (excluding grants) averaged 6.9 percent and 7.8 percent, respectively. By 1998/99, the rate of consumer price inflation had been brought down to 5 percent a year.
3. In 1997, the government launched the PEAP, which has in recent years gained substantial momentum, building upon recent successes and rectifying problems. The PEAP sets forth the objective of reducing the incidence of poverty to 10 percent by 2017. In recent years, the incidence of poverty fell from 56 percent of the population in 1992/93 to 44 percent in 1996/97,1 owing primarily to strong economic growth, particularly in the cash crop sector. Poverty fell across all income groups, regions, and districts. Nevertheless, despite these encouraging trends, poverty remains endemic in Uganda. While strong economic growth is a major force in reducing poverty, it is not sufficient to ensure that all segments in society benefit fully. In this regard, the decline in poverty has been far more pronounced in urban than in the rural areas where the poor are concentrated. Poverty remains more severe in the northern and the eastern regions. Several factors account for the current disparities in the incidence of regional poverty, including insecurity, climate, type of agricultural activity, and access to markets, inputs, and credit. Among sectors, people engaged in cash crop farming, manufacturing, public utilities, and transport and communications have experienced the largest improvement in living standards. However, those engaged in food crop production, a majority of whom are women, have not witnessed a significant improvement in living conditions. Despite the impressive overall economic growth, the incidence of poverty among the poorest 10 percent of the population increased in some years.2 Finally, insecurity, vulnerability to external shocks (such as drought or unexpected illness), and erosion of traditional networks of support continue to prevent the poor from living long, healthy lives. In particular, the prevalence of HIV/AIDS has further weakened traditional networks of support and has contributed to a worsening in the conditions of the poor.
4. The government has continued its three-pronged approach to reducing poverty by taking actions to (i) increase incomes of the poor households, (ii) improve the quality of life of the poor, and (iii) reestablish peaceful conditions throughout the country and strengthen governance structures. The first approach focuses on income-augmenting activities—roads, land, agriculture, rural markets, employment and labor productivity, and rural financial services. The second targets the provision of basic social services—primary health care, education, water and environmental sanitation, and disaster management. The third element stresses actions to improve security and reforms of state and government organs to strengthen transparency and accountability. In this context, outlays on Priority Program Areas (PPAs), which incorporate the core antipoverty components of expenditures on health, education, infrastructure, agriculture, and public institutions, increased by 60 percent in nominal terms in 1998/99 and accounted for 20 percent of domestic nondebt expenditures, up from 15 percent a year earlier. Moreover, in 1998/99 the government established the Poverty Action Fund (PAF) to enhance the monitoring of the use and impact of donor funds targeted for specific PEAP programs.
5. The PEAP evolved in the context of a participatory process that involved local communities, civil society, the donor community, and the government. In this connection, in November 1995, the government of Uganda held, in partnership with the World Bank, a seminar on poverty eradication, attended by representatives from the government, nongovernmental organizations (NGOs), and the donor community. As a follow-up to the seminar, the government established the National Task Force on Poverty Eradication, which developed an action plan in consultation with sector ministries, donors, and civil society to ensure the widest possible participation. This work culminated in the government's announcement in June 1997 of its PEAP.
6. In addition, NGOs participate actively in the review of programs and projects to be included in the annual PAF budget, while select NGOs and donors are invited to take part in the working groups, which are responsible for the development of sector spending projects. Moreover, district councils are envisaged to play an important role in the selection of projects included in district budgets. Meanwhile, the pace of implementation of projects funded under the PAF is monitored on a quarterly basis by a committee comprising parliamentarians, donors, select NGOs, the media, and the government.
7. In the period ahead, Uganda still faces many challenges. While important initial steps have been taken to implement a broad-based poverty reduction program, indications are that recent actions, as well as the high economic growth rates achieved, have not consistently improved the well-being of the poorest 20 percent of the population. Moreover, the differences in the incidence of poverty among the regions and between the rural and urban areas remain large. In addition, the role of the budget as a poverty reduction instrument needs to be strengthened through closer alignment of the central and district budget systems, greater involvement of local communities in the development and selection of projects and programs, and improved monitoring of operations. Furthermore, sustaining high economic growth will require a deepening of structural reform, particularly in the financial and parastatal sectors, and a building up of an effective public service delivery system, particularly at the district level. There is also a need to develop and regularly update a comprehensive database for planning and poverty-monitoring purposes for all districts.
8. The principal objective of the government is, as set forth in the PEAP, to reduce poverty. Attainment of this goal will require sustained high economic growth in a context of macroeconomic stability. Accordingly, the government is determined to implement sound financial policies and structural and institutional reforms to support high, broad-based economic growth and improve the quality of public services. In this regard, the overall medium-term macroeconomic objectives that were set forth in the last policy framework paper (PFP) remain appropriate: annual real GDP growth of 7 percent, annual inflation of about 5 percent, and gross international reserves equivalent to about five months of imports of goods and services.
9. Achievement of the government's objectives will also require continuing prudent monetary and fiscal policies, increasing expenditures on growth-oriented and social programs, and strengthening structural reforms to promote higher private sector investment and improve the delivery of public services. Regarding private sector investment, a recent survey of firms in Uganda found that the constraints faced by firms include poor quality of utility services, corruption, deficiencies in tax administration, weaknesses in the legal system, and lack of long-term finance. In the 1999 Uganda Participatory Poverty Assessment (UPPA),3 poor communities identified the following priority areas: improving security and access to clean water, eliminating corruption, overcoming lack of information about, and access to, markets, upgrading road and transport systems, improving access to family planning services, and improving nutritional levels.4 Actions and strategies to tackle the constraints to private investment and address poverty issues are embedded in the government's sector-specific policies contained in this paper.
10. The government's medium-term fiscal program is geared toward sustaining financial stability and high rates of economic growth, as well as supporting the PEAP. Accordingly, against the background of the present financial environment—in particular, the success in achieving low and stable inflation, an adequate level of foreign reserves, and a relatively favorable outlook for the balance of payments—and in conjunction with the increased availability of donor support earmarked for social and priority sectors—the government considers it important not to miss the opportunity to finance its social program through fiscal deficits somewhat larger than the earlier PFP targets. As previously mentioned, public expenditures will focus on (i) increasing the incomes of the poor through the provision of roads and support for the modernization of agriculture; (ii) improving the quality of life for the poor through increased provision of health, education, and water services; and (iii) strengthen-ing good governance through transparency and accountability. Nonwage recurrent expendi-tures on PPAs (including development expenditures under the Universal Primary Education (UPE) program) are budgeted to increase from 2.3 percent of GDP in 1998/99 to 2.7 percent in 1999/2000, and 2.9 percent in 2001/02. The government is committed to containing defense expenditures at 2.0 percent of GDP throughout the three-year period and recognizes that any overruns in this area could endanger its antipoverty expenditure program. Total expenditures are projected, on the basis of current donor commitments, to increase by about 2.1 percent of GDP to 20.6 percent of GDP in 1999/2000, and then decline gradually to 19.8 percent of GDP in 2001/02. The fiscal deficit would rise initially to 8.1 percent of GDP and decline gradually to 6.4 percent of GDP in 2002—this would entail a decline in development outlays. The projected figures do not take into account any possible additional support under the enhanced HIPC Initiative, which would likely result in higher public expenditures on social programs and larger fiscal deficits than are presently envisaged.
11. Revenue enhancement is a key element of fiscal sustainability. As the government does not foresee any major change in tax rates, the envisaged increase in the revenue-to-GDP ratio of about 0.5 percentage of GDP a year is expected to stem primarily from improvement in tax and customs administration, enhanced tax compliance, and a committed effort to combat fraud and smuggling. Beyond the policies for 1999/2000, which are described in the memorandum of economic and financial policies (MEFP), the Uganda Revenue Authority (URA) will introduce a new information technology that will integrate the different computer systems used by its departments, continue its customs modernization efforts, extend direct banking procedures to domestic excise and withholding taxes, intensify training programs, and establish a performance monitoring system in all departments.
12. Expenditure monitoring and control will be strengthened at both the central and district government levels. In this regard, domestic development outlays will be brought under the Commitment Control System (CCS) by July 2000, at the latest. The medium-term budget framework also incorporates the elimination of all currently identified domestic arrears by June 2002. Consistent with the objectives of shifting the delivery of most public services to the districts, the government will transfer an increasing volume of budgetary resources to districts, enhance their capacity to provide services effectively, and monitor their physical and financial operations. Local government capacities for planning, budgeting, and monitoring are being enhanced under the Local Government Development Program with donor support. In addition, PEAP projects financed through the Poverty Action Fund are subject to quarterly reviews by the government, donors, and NGOs.5 The PAF also provides resources to develop local government capacities to implement and monitor programs.
13. Full implementation of an effective anticorruption strategy will be essential to the realization of the poverty reduction objective. Corruption impedes the effective delivery of public services to the poor and has been identified by firms as a constraint on private sector investment. Good governance and the rule of law are crucial to enhance accountability and transparency in government operations and to boost private sector confidence. The government recognizes the need to enhance the integrity and accountability of its institutions by (i) increasing public oversight through increased transparency, education and awareness; (ii) promoting capacity building; and (iii) strengthening enforcement of laws and penalties. To this end, the government is preparing an overall strategic framework to guide its actions in the governance area. In the meantime, the government is strengthening existing anticorruption institutions (the Inspector General of Government, Auditor General, and Department of Public Prosecution), in part through the provision of additional budgetary resources, and will intensify investigations into suspected fraud and apply stricter penalties on all government officials misusing public funds. The government will also submit to parliament amendments for an improved Leadership Code and implement changes in public procurement procedures. In addition, the government will disseminate audited accounts of the budgets of the central and district governments and other economic and social statistics in a more timely fashion.Monetary and financial sector policies
14. Monetary policy will continue to aim at maintaining low and stable inflation. To this end, the Bank of Uganda (BOU) will continue to conduct monetary policy through the implementation of a reserve money program, taking into account a broad array of financial indicators. Low and stable inflation will contribute to poverty reduction by encouraging long-term domestic investment and attracting foreign direct investment on assurance that the viability of investment would not be jeopardized by macroeconomic instability. Moreover, low inflation would also help to prevent a deterioration of living standards by preserving the real value of wages and assets. The main near-term challenge of monetary policy will be the management of the liquidity impacts of recent bank closures and restructuring. Other challenges include managing the excess liquidity of commercial banks and reacting to flows emanating from the functioning of a fully liberalized capital account. The BOU has been provided with its own stock of government securities. These, in conjunction with the recently introduced electronic central depository system, will facilitate the development of interbank money and securities markets, and provide the BOU with greater flexibility in managing bank liquidity. The government's policy remains to allow interest rates to be determined through market forces.
15. The government will continue its efforts to develop a sound financial sector. Central to these efforts will be the submission to parliament in 1999/2000 of a revised Financial Institutions Statute. The proposed statute contains provisions for mandatory prompt corrective action by the BOU; an increase in the minimum required capital from U Sh 500 million (U Sh 1 billion for foreign-owned banks) to U Sh 2 billion by January 2000 and subsequently to U Sh 4 billion by January 2003 for all banks; and stricter limits on insider lending and concentration of loans and share ownership. Meanwhile, the BOU will continue to enforce the provisions of the existing statute as explained in the MEFP. Moreover, the BOU will strengthen its supervisory capacity through staff increases, upgrading of skills, and technical assistance, with a view to developing the capacity to examine all banks, at least once a year, by 2000/01. To maintain the momentum gained to date with regard to the recovery of commercial bank nonperforming assets, the mandate of the Non-Performing Asset Recovery Trust (NPART) has been extended for two years beyond the previous expiration date of October 1, 1999.External sector policies
16. Uganda will continue to operate a market-determined foreign exchange system, as well as a free trade regime. The government will continue to implement monetary and fiscal policies consistent with stability in the foreign exchange and domestic money markets. In this context, the BOU will maintain its policy of intervening in the foreign exchange market in response to temporary and reversible shocks, mindful of its inflation and international reserves objectives.
17. Recognizing the links between poverty reduction, economic growth, and international trade, the government will continue its trade liberalization program. In line with this approach, an automatic system of duty drawback payments will be implemented in 1999/2000, and the waiting period for normal refunds will be shortened. The temporary additional tariffs on beer, soft drinks, and automobile batteries will be completely phased out by March 2001, while the discriminatory excise taxes on imported cigarettes and other tobacco products will be fully eliminated by June 2001, with interim steps taking place in year 2000. In the context of the Cross-Border Initiative (CBI), the Common Market for Eastern and Southern Africa (COMESA), and East African Community (EAC), Uganda will continue to reduce tariffs and nontariff barriers to regional trade and is committed to avoiding any discriminatory tariff increases. In this regard, discriminatory excise taxes, as well as other measures granting protection to local industries, will be removed in the context of trade liberalization undertaken within the EAC.
18. Capital account transactions were fully liberalized effective July 1, 1997. The new Foreign Exchange Bill, which will supersede the Exchange Control Act and formalize the legal framework for the liberalization of international capital transactions, has been submitted to the cabinet and is expected to come into force by end-June 2000.Other structural and institutional reforms
Public enterprise reform
19. Public enterprises will be rationalized through the privatization and/or restructuring of key public enterprises. With respect to financial discipline, in 1999/2000 the government will stop accumulating arrears to public enterprises as part of the package of measures envisaged to eliminate the accumulation of domestic budgetary arrears. It is also committed to ensuring that by 2001 enterprises remaining in its portfolio are financially restructured and put on a sound footing to limit their burden on the budget. To this end, the government will set financial targets for the largest public enterprises, in order to better monitor their operating efficiency. Restructuring public enterprises, particularly the utilities, to make them cost-efficient and viable, will contribute to poverty eradication by (i) freeing up resources to finance social programs; (ii) boosting private sector investment; and (iii) increasing the availability of services that matter to the poor, such as water supply and transportation. The government's strategy is to introduce private sector participation and competition in the infrastructure sectors and to regulate utilities independently and cost-effectively.
20. With respect to privatization, the government will ensure that the Privatization Unit moves expeditiously with divestiture actions, immediately following parliamentary approval of proposed amendments to the Public Enterprise Reform and Divestiture (PERD) Statute. Meanwhile, in consultation with the World Bank, the government has begun to implement a new strategy whereby commercial enterprises are prioritized for privatization according to their impact on the economy and the budget.Public service reform and decentralization
21. Civil service reform and decentralization continue to be pursued within the context of the government's public service reform strategy, which aims at (i) optimizing the size and structure of the civil service; (ii) enhancing skills by improving training and evaluation and introducing pay reform; (iii) strengthening control systems; and (iv) monitoring and improving operating efficiency and effectiveness. Beginning in 1999/2000, the government will sharpen its focus on the effective delivery of services through the continued implementation of the results-oriented management (ROM) and the outcome-oriented budgeting (OOB) programs, and it will conduct the first National Service Delivery Survey (NSDS). Building on the substan-tive progress already made in civil service ministerial restructuring, the government will eliminate excess staffing. Upon completion of the ministerial restructuring, ministries will be allocated block cash grants for the payment of their wage bills. The agreed restructuring of the public service has been extended to commissions, secondary and tertiary education, police, prisons, other semiautonomous and autonomous bodies, and delegated staff, and the sizes of their establishments will be fully streamlined by June 2000. The government recognizes the importance of adequate remuneration of civil servants for the effective delivery of social services.
22. The government will continue to focus on actions designed to improve the efficiency and effectiveness of the public service delivery system within the framework of the decentralization that is under way. The decentralization program aims at reinforcing poverty reduction by giving the local communities a bigger role in the planning and execution of projects. During the three-year period, the capacity of districts to provide services, implement projects, and monitor their physical operations will be expanded. Moreover, with effect from the current fiscal year, an equalization grant will be provided to the least-developed districts. The production of local government budget framework papers will be emphasized to improve the budget process and better meet local government priorities. With technical assistance from the Fund, the World Bank, and other donor agencies, efforts will continue to introduce by 2000/01 a harmonized district budget classification and accounting system.
23. The Ministry of Public Service (MPS) will commission an actuarial study to analyze the current pension system and assess its long-term financial requirements. The MPS is working on a proposed set of reforms in the public pension scheme, including revisions to the benefit formula. The proposed set of reforms will be incorporated in revised legislation to replace the current pay-as-you-go system with a defined benefit-contributory system in line with international standards.Sector policies
24. The government's vision for the agriculture sector is increased and sustainable agricultural production, with enhanced productivity that effectively contributes to poverty eradication and ensures food security without degrading the environment. The government is committed to transforming agriculture from a predominantly subsistence sector into a commercially oriented one. A Plan for Modernization of Agriculture (PMA) will be completed by December 1999. During the program period, the government is committed to increasing spending on agricultural research and extension services; reorienting the approach to agricultural extension services toward further decentralization; seeking some cost-sharing from districts, subcounties, and beneficiaries; and improving the environment for private sector investment in agriculture.Transportation
25. Recognizing the critical importance of rehabilitating and maintaining roads, the government is implementing the first phase of the ten-year Road Sector Development Program (1996/97–2005/06). The government's spending on this program has not been in line with its objectives and with donor funding, partly because of implementation capacity constraints. To address these constraints, a Road Agency Formation Unit (RAFU) has been established within the government as an interim measure to streamline project execution and supervision. In 1999/2000, the government will initiate a study of the institutional and financial arrangements necessary for the establishment of a fully independent roads agency by June 30, 2002.
26. Rural feeder roads are critical for increasing returns to farmers and are the main components of both the PEAP and the agriculture modernization plan. To guide its interventions in rural feeder roads, the government has completed a rural roads study and will in 1999/2000 develop a complete inventory of rural roads and prioritize their importance as the basis for a medium-term investment plan for maintaining and rehabilitating rural roads. This investment plan will address the relative balance between rehabilitation and maintenance, as well as strengthen institutional capacity.
27. The government will assist in the modernization of water transport where it is identified as the important means of transportation. At present, no conditional grants have been earmarked for water transport development, which is not identified specifically in the PEAP as critical for increasing incomes of the poor. However, the 1999 UPPA has revealed that water transport is the main transport mode in some areas. The government will address this problem by promoting local community involvement in the planning of district transport systems and by introducing flexibility in the conditional grants to allow districts to develop infrastructures that best fit their priorities.
28. The Uganda Railways Corporation (URC) receives large government subsidies. In August 1999, the cabinet approved a plan for increasing private sector involvement in the operation of the URC with the aim of improving its operating efficiency. Privatization and restructuring advisors will be appointed by June 2000 to evaluate the mechanisms for implementing the first stage of the restructuring. During the first stage, the URC will be under private sector management. Regarding aviation, the government is privatizing Uganda Airlines Corporation (UAC).Power
29. Significant progress has been achieved in laying the groundwork for reform of the power sector. On June 30, 1999, the cabinet approved a plan for reforming the power sector to improve operational efficiency through private sector competition. A revised electricity law has been passed by parliament that introduces private sector competition in the various segments of the industry (i.e., generation, transmission, and distribution). The power sector, as well as other utilities, will eventually be regulated by an independent, multisector Public Utilities Commission. In the interim, sector-specific regulatory bodies will oversee electricity and communications. Moreover, the recently created Utility Reform Unit is expected to take the lead in preparing for privatization all public utilities enterprises.
30. The government is pursuing a least-cost strategy for the development of the country's abundant hydroelectric potential. The first phase for the construction of the 20-megawatt Owen Falls Extension is scheduled to be completed in 2000. The government will continue to pursue agreements with independent power producers that are consistent with the potential growth of domestic and external demand and with the new structure of the sector, as defined in the new sector reform strategy and legislation, and it will establish a transparent process for evaluating the technical, financial, and environmental aspects of each project. The restructuring and reform of the energy sector is central to the provision of low-cost power to consumers and enterprises. As part of the government's commitment to introducing competition and private participation in the sector, it plans to unbundle the activities of the Uganda Electricity Board (UEB) to facilitate private sector involvement, in part through concessionary arrangements. The government is engaging technical experts to assist in the implementation of the strategy. Meanwhile, the government will continue to improve the operational performance of the UEB through actions designed to reduce energy losses, accounts receivable, lower the UEB's operational ratio, and further downsize its workforce.Water supply and environmental sanitation
31. Access to safe drinking water is still a problem for many Ugandans. The government continues to pursue its objective of universal provision of safe water by 2015. In order to achieve this objective and to ensure long-term sustainability, increased involvement of beneficiaries in the design and management of the systems is being sought. Because of the sizable investments required over the next four years and the importance of these investments for poverty eradication, the government is conducting a comprehensive review of its policies in the water sector. The review will be completed by end-1999 for rural areas and by June 2000 for urban areas. Budget provisions for the water sector (including lands and environment) will increase by 40 percent in 1999/2000 to U Sh 21 billion (excluding projects contained in the externally financed development budget) and to an average of U Sh 27 billion during the following two years. Reflecting this increased funding, over 214,000 people are expected to benefit from the completion of water supply projects in selected towns and rural growth centers during the year 1999/2000. Moreover, completion of ongoing construction work on freshwater sources (boreholes, springs, and shallow wells) will allow almost 720,000 people access to clean water. By end-2000, access to clean drinking water is expected to reach 50 percent in rural areas and 68 percent in urban areas. The government expects to increase funding in the water sector further. As budget outlays increase, efficiency improvements will be on the agenda. To this end, the government will restructure the National Water Supply and Sewerage Corporation (NWSC), which is responsible for supplying water and wastewater services to Kampala and ten other towns. The NWSC performance indicators are poor and its tariffs high. The government is investigating options to subcontract the NWSC's technical and commercial operations to a private operator within the framework of a medium-term contract that would provide incentives to improve performance. A decision on the appropriate approach will be made in 2000/01.Telecommunications
32. Within one year of licensing a second telecommunications provider—in addition to Uganda Telecommunications Limited (UTL)—the number of telephone lines in Uganda has increased by about 48 percent. In the period ahead, the government will focus on completing the privatization of the UTL, which is being retendered after two failed attempts. The Uganda Communications Commission (UCC) will be strengthened to provide a regulatory environment conducive to investment and competition. The UCC will later operate under a single regulatory body for all utilities to be established.
33. The government strategy regarding human resource development remains as spelled out in last year's PFP. Some specific measures are worthy of note regarding the focus on consolidating the Universal Primary Education (UPE) program and improving health indicators.
34. The government will ensure adequate funding for the education sector in line with the Education Sector Investment Program (ESIP). To improve the quality of teaching, the government will integrate the Teacher Development Monitoring System (TDMS) into the Ministry of Education and Sports and provide the TDMS with adequate funding to monitor and support the teaching-learning process in schools. The government will link the assignment of the number of teachers and the allocations of capitation grants to the number of pupils enrolled during the year in which resources are made available. The government plans to expand secondary education in order to meet the increasing demand for access to secondary school. Given the resource constraint and the number of stakeholders, the government will develop an expansion strategy involving partnerships with parents, communities, NGOs, and the private sector.
35. In view of Uganda's poor health indicators, the government aims at improving health outcomes over the medium term. Measures to improve health indicators are contained in the new National Health Policy and Health Sector Strategic Plan (2000-05), both of which are in the final stages of preparation and ready for adoption in 2000/01. The overall purpose of the new health sector program is to reduce morbidity and mortality and the disparity in morbidity and mortality rates across the various groups and regions of the country. Under the new policy, the government's strategy for improving health outcomes will be based on (i) imple-mentation of cost-effective interventions through a minimum health care package targeted to major causes of ill health; (ii) adoption of a sector-wide approach (SWAP) for health; and (iii) establishment of functional coordination mechanisms, at the center and district levels, for the national multisectoral response to the HIV/AIDS epidemic. The implementation of SWAP is envisaged to commence during 2000/01. Furthermore, based on the decentralization program, the government will continue to support the centers' redefinition of its roles, strengthen the districts' coordination and delivery of health services, and prepare districts to adopt and implement the new National Health Policy and Health Sector Strategic Plan.
36. The current account deficit is expected to decline as a result of the rapid growth in noncoffee exports, the somewhat slower recovery of coffee export receipts, and the moderate increase in imports. In 1999/2000, the value of coffee exports is projected to stagnate, as the continued weakness of international prices will offset the gradual recovery of volumes. The slow pickup in prices from 2000/01 onward, combined with stronger volumes, will significantly improve coffee export receipts in the subsequent years. Noncoffee exports are projected to grow faster than coffee exports, reflecting the trends toward a more diversified economy. By 2001/02, noncoffee exports will account for more than half of total exports. By contrast, import growth is expected to remain close to, or slightly above, the growth of real GDP. Private transfers are projected to grow by an average of 8.6 percent per year until 2001/02, while inflows of foreign direct investment are expected to improve as the economy grows and the reform process is deepened. In the circumstances, Uganda's balance of payments is expected to record growing surpluses in the coming years.
37. The financing requirement for 1999/2000 amounts to US$1,047 million. It comprises a current account deficit of US$579 million, scheduled amortization payments of US$77 million, an IMF repayment of US$50 million, a programmed accumulation of US$99 million in gross reserves—which will keep import coverage at about five months of imports of goods and nonfactor services—and a reduction in external arrears of US$242 million. The financing requirement is expected to be met by the disbursement of official grants and loans for nonproject and project financing (US$300 million and US$390 million, respectively), net private capital inflows of US$13 million, along with a Fund disbursement of US$47 million and debt relief of US$297 million, including reschedulings and assistance received under the initial HIPC Initiative framework.6 The total financing requirement over the three-year period is projected at US$2.5 billion and is expected to be covered by nonproject loans and grants (US$769 million), project support (US$1.18 billion), IMF disbursements (US$59 million), net private capital inflows of US$98 million, and debt relief of US$416 million. Given Uganda's uncertain terms of trade, the government will continue to target a reserve cover of about five months of imports of goods and nonfactor services through 2001/02.
38. The government will continue its efforts to reduce Uganda's external debt burden, particularly in securing from non-Paris Club creditors debt relief on terms at least comparable to the April 1998 Paris Club rescheduling agreement. After accounting for debt relief under the first HIPC Initiative and an expected rescheduling with non-Paris Club creditors, Uganda's external debt-service ratio is expected to fall to 11.7 percent of exports of goods and services by 2001/02 (against 18.4 percent in 1998/99).
39. The government's debt strategy aims to secure grants wherever possible, or else to borrow on highly concessional terms, for projects that have high economic and social returns. The government will continue to improve its capacity to monitor its external debt, to enable it to meet all its external debt-service obligations in a timely and transparent manner. A permanent technical working group, comprising the debt and macroeconomic units of the Ministry of Finance, Planning and Economic Development and the Bank of Uganda, will continue its efforts to integrate debt analysis into policy formulation and to facilitate coordination through quarterly reports within the government and to donors. With external assistance, capacity-building and internal debt-management structures will be buttressed, and steps will be taken to ensure that debt-management skills are disseminated widely among the core economic agencies.
40. The government will continue to seek additional assistance as needed. With regard to fiscal operations, additional technical assistance is envisaged in the areas of tax and customs administration and expenditure management. Moreover, the Fund will continue to assist in implementing the improved financial management and accounting systems over the program period, especially at the district level. In the monetary and financial areas, the Bank of Uganda will seek technical assistance in improving financial sector supervision, the conduct of monetary policy, and monetary statistics. The government will also be seeking technical assistance from the World Bank in developing a detailed plan for the interim management and reprivatization of the Uganda Commercial Bank. Assistance will continue to be sought in the areas of the civil service, pensions, public enterprise reform, and preparation of economic and financial statistics.