Uganda and the IMF
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Poverty Reduction Strategy Paper
Annex Tables and Chart 1 (212 KB)
2. National vision and overall goals
3. The Poverty Eradication Strategy
4. Macroeconomic stability, medium- and long-term expenditure implications
of the PEAP
Annex Table 1: Goals, targets and indicators in the PEAP 2000
This paper is a synthesis of the main features of the Government of Uganda's Poverty Eradication Action Plan (PEAP). The PEAP has guided the formulation of government policy since its inception in 1997, and is currently being revised. Under this plan, Uganda is being transformed into a modern economy in which people in all sectors can participate in economic growth. This implies a number of conditions:
Uganda's Poverty Eradication Action Plan (PEAP) is established on four major pillars:
The revision of the PEAP in 2000 draws on the progress made since 1997, including the development of sector-wide approaches, the participatory research carried out by the Uganda Participatory Poverty Assessment Project (UPPAP), the constraints identified in the Poverty Status Report, and the development of costings of public actions and monitorable indicators in key, poverty-oriented sectors. It will also place a greater emphasis than the 1997 document on the actions which promote private sector development and therefore contribute indirectly to poverty-reduction. The revised PEAP is Uganda's Comprehensive Development Framework.Uganda's planning framework
There have been a number of initiatives to strengthen the planning process in recent years. This includes major consultative exercises concerning Uganda's long term goals and objectives, such as Vision 2025, describing national aspirations, and the 1997 Poverty Eradication Action Plan as a national planning framework to guide detailed medium term sector plans, district plans, and the budget process. In turn, detailed sector-wide plans and investment programmes have reached varying stages of completion, set within an overall medium term expenditure framework. A programme of strengthening district capacity to prepare medium term expenditure frameworks is also underway.
The modern approach to planning involves ensuring that the right framework has been established to enable effective programming, implementation and monitoring. Chart 1 describes the flows and relationships between different plan/policy processes in Uganda. The most important point to note is that these elements interact in an ongoing process. Uganda's over-arching national planning document is the Poverty Eradication Action Plan, signalling poverty eradication as the fundamental goal of the Government. Chart 1 shows the relations between the PEAP and other plans. The PEAP is not a blueprint for sector activities. It provides a framework for the development of detailed sector plans and investment programmes. Implementation of the PEAP demands sector-wide programming to determine sector objectives, outputs and outcomes expected from sector expenditures, and the activities which the expenditures will fund in order to achieve the desired outputs and outcomes.
Thus the 1997 PEAP has guided the preparation of detailed sector plans. Capacity constraints within line ministries, which have been a serious limitation in sector planning, are being overcome by support from our donor and NGO communities in a spirit of partnership and teamwork. In recent years, major advances have been recorded in production of the Ten Year Road Sector Development Programme, the Education Strategic Investment Plan and the Health Sector Plan, and the Plan for the Modernisation of Agriculture. Also underway are plans for the energy sector and the justice sector. Eventually all sectors will be covered by up-to-date, resource constrained sector plans and investment programmes which focus on achieving the goals of the PEAP.
In turn, the PEAP and the sector plans set the framework for preparation of district plans (although these are still at an early stage of development). Under Uganda's decentralised system of governance, the local authorities are responsible for determining the implementation plan for sector programmes based on local priorities. Involvement of communities in the planning framework is also being strengthened. Under the Uganda Participatory Poverty Assessment Project (UPPAP), the second phase will include dissemination of the perspectives of the poor in order to help guide policy at both national and district levels, and there will be further work in nine pilot districts to enhance community-level participatory planning and monitoring capacities.
It is important to note that the relationship between both the PEAP and sector plans, and between sector and district plans, and between district and lower local council plans, is an iterative one. The PEAP sets the framework for other plans, but is also a product of those plans. For example, the current PEAP revision reflects the policy statements made in various sector plans, and tries to balance the sector objectives within a national framework. In turn, revisions of sector plans should take note of national priorities and constraints as outlined in the PEAP in refining their own sector strategies. The National Planning Authority, according to its mandate in the Constitution, will have the role of ensuring that the different plans are consistent. The same principle applies to the relationship between sector and district plans.
While medium term plans establish a policy framework and desired outputs and outcomes, they are meaningless unless disciplined by hard budget constraints. Therefore another critical element of the planning framework is the medium term expenditure framework (MTEF). Since 1992, MFPED has been developing an MTEF, which is presented to Cabinet as part of the annual "Budget Framework Paper" (BFP), covering three fiscal years.
Preparation of the annual BFP includes detailed discussions with sector working groups each year to monitor performance of current programmes and projects. These discussions identify implementation bottlenecks, inefficiencies in existing operations, and potentially unsustainable imbalances in the size of the recurrent and development programmes. The discussions also take account of any upcoming policy initiatives in order to ensure that all new policies are comprehensively costed to reveal the full extent of their fiscal implications, and in order to propose how the Government's expenditure programme can be adjusted in light of new policy priorities, both within and between sectors. The important point is that, in the medium term, public resources can be redeployed in accordance with changing strategic priorities; it only requires development of the capacity and willingness to reprioritise spending needs and reallocate expenditures in a disciplined way.
More recently, there have been attempts to broaden the consultation of the BFP process by increased discussion with donors, especially on the sectoral priorities of Government expenditure and on the consistency of Government assumptions regarding external financing with actual donor financing plans. Steps are also being taken to involve civil society in the consultation process. An abbreviated version of the BFP (the version that goes to Cabinet before the expenditure allocations are approved by Cabinet) is published in the annual "Background to the Budget", and a detailed summary of the composition of expenditure for all sectors for the three year MTEF is published as an appendix table in the Budget Speech document.
In 1999, a start was made on extending the BFP process to the districts, when training workshops were organised for the local Governments. Technical expertise is being provided by the central ministries to help district administrations to prepare their own three year expenditure planning frameworks consistent with resource availability. Government hopes that in due course this capacity can be extended to lower level local councils.
The final element of the planning framework is an assessment of the impact of plans and budgets on civil society and beneficiaries, shown at the bottom of Chart 1 as "civil society". There are a variety of monitoring techniques, such as technical assessments of project/programme performance, statistical surveys, and more participatory methods to complement the traditional household survey methods such as the Uganda Participatory Poverty Assessment Project, which is attempting to bring the voice of the poor into national, district, and lower level planning. The results of monitoring activities provide feedback at all levels of the planning system.The revision of the PEAP
While the basic principles behind the 1997 PEAP remain valid, there have been significant developments since its preparation both in outcomes—such as the huge increase in educational enrolments—and in the preparation of sectoral plans and the information available about poverty. Hence, to remain relevant, the plan has to be revised. It is envisaged that the revision of the PEAP will be a regular process carried out every two years, drawing on the results of the Poverty Status Report which will also be prepared every two years.
Preparation of the revised PEAP remains a highly participatory process. Government recognises that the planning system does not consist of decision-making by a single institution at the centre. Rather, the system involves the interaction of a number of processes within an overall framework. As such, the process is much more dynamic and responsive to changes in policy priorities and/or resource constraints. The involvement of a much larger number of agencies in the planning process makes it important that planning linkages are clearly specified and understood. Substantial effort is being made to improve the partnership process in Uganda. As mentioned above, participatory approaches have increasingly been adopted both for sector plan preparation and monitoring and appraisal exercises.
In revising the PEAP we have summarised and consolidated the results of previous consultations and research findings. The revised PEAP builds on an ongoing process of consultation. An initial "discussion draft" was circulated to a wide range of stakeholders to stimulate dialogue and debate. Later drafts incorporate the results of this wide consultation. In order to ensure reasonable levels of participation in preparation of the revised PEAP, the editorial team prepared a Participatory Action Plan. This includes consultations at the central government level as well as with local governments, with donors, with Parliamentarians, and with civil society, as well as the development of adequate feedback mechanisms to ensure that all stakeholders have contributed effectively to the drafting process.
General consultative workshops: the revision process includes two major consultative meetings involving wide representation of stakeholders (politicians; ministries; donors; NGOs; private sector; civil society; urban and local authority representatives, media). The objective of these workshops is to review current drafts and to provide detailed comments on policy issues arising from the drafts.
Regional meetings for district officials: MFPED, working with the Ministry of Local Government, has already undertaken some regional work to explain the PEAP, UPPAP findings and budget issues. District officials will be presented with drafts of the revised PEAP at a series of regional workshops. As mentioned above, the CSO Task Force will also be promoting discussion of PEAP related issues within districts and communities.
Donor consultations: in addition to participation in the general consultative workshops, the current draft has been presented at the Donor Consultative Group meetings in March 2000.
Political consultation: In addition to attendance at the general consultative workshops, another meeting for members of all Parliamentary sessional committees was held in February 2000. This will be followed by further briefing sessions for specific sessional committees on issues relevant to their sector.
Feedback mechanisms: It is very important to ensure that there is adequate time for written responses and contributions. Drafts have been widely circulated for the consultative workshops in February and April. There will be active follow-up, especially at the district level, to ensure that written responses are received from every district and sector ministry.
Building on existing consultative processes: Issues raised during the revision process will not only be followed up at the general consultative meetings, but also raised through existing consultative fora (such as the sector working groups for the budget framework process; NGO consultative meetings; and regular donor meetings).2. National vision and overall goals
Poverty has many dimensions including low and highly variable levels of income and consumption, physical insecurity, poor health, low levels of education, disempowerment, a heavy burden of work or unemployment, and isolation (both social and geographical). Drawing on recent evidence (including household surveys and the Uganda Participatory Poverty Assessment Project), the PEAP highlights the many dimensions of poverty in the Ugandan context. It recognises the importance of increasing income to poor households, and places a high priority on eradicating income poverty. It also views ignorance as a particularly constraining feature of the lives of poor people, and is concerned to improve literacy and educational achievement among the population at large. Health is another central concern for the poor, and the Government has established clear goals for improving the health of Ugandans. It is essential that poor people have an effective voice in the design and implementation of public policy. The objective of the PEAP is to marshal public effort at improving these dimensions of household wellbeing.Reducing absolute income poverty:
Income levels are low in Uganda, and large sections of its population are unable to buy the basic necessities of life—food, clothing, and shelter. Low incomes also lead to poor health and limited education. Consumption poverty levels are high. In 1997, 44 percent of the population was estimated to consume less than what is required to meet the basic needs of life.
Low rates of economic growth, and the effects of civil disorder, are important historical factors causing poverty in Uganda. Incomes are also highly unequally distributed, which reduces the impact of economic growth on poverty reduction. At the level of the household, poverty is related to rural residence (specifically to living in the north or the east), to land shortage, to low levels of education, to being headed by a female widow or by someone old, and to limited access to markets. Unequal sharing of resources within the household reflects not only cultural factors but unequal access to education and physical assets such as land, in which women are disadvantaged. Poverty also reflects society-wide phenomena including insecurity, the quality of public services, the availability of productive employment, macroeconomic stability and the functioning of markets, health information, and the technical information available throughout society.
But there are clear signs of improvement:
These data are encouraging: incomes are rising without a significant increase in inequality, and therefore poverty is falling. However, not all groups participated equally in the growth in incomes. Although poverty fell in all regions, average incomes grew faster in the regions which were initially better off. So although overall inequality did not increase, regional inequality increased significantly (Table 2.1).
The income group which benefited most dramatically was cash crop farmers, reflecting the increase in cash crop prices. Poverty in this group fell from 60 percent to 44 percent between 1992 and 1996 (Table 2.2). Income poverty among food crop farmers remained largely unchanged (falling marginally from 64 percent to 62 percent).
Participatory data from the UPPAP indicate that many communities consider that poverty is increasing. This probably reflects two differences from the household survey. First, the participatory assessment was confined to poor, mainly food-producing communities, which gained the least from recent improvements. And the perceptions of poor people covered in the UPPAP were probably based on a broader view of poverty, encompassing more than simply low income.
The Government of Uganda considers that absolute poverty must be eradicated. It has set itself the objective of reducing the headcount of income poverty to 10 percent of the population by 2017.Raising educational achievement of Ugandans
The PEAP aims to raise educational achievement of the Ugandan population, especially among children of poor households. The significance of education is that it increases incomes and economic growth, and it offers an intrinsic benefit in itself. In 1997, the policy of free education for four children in every family was introduced and primary enrolment increased enormously from 2.6 million in 1996 to 6.5 million currently. Almost three million children entered the schooling system and the gross enrolment rate, using school-based data, rose to 128 percent in 1997 and 145 percent in 1999. Participatory evidence clearly shows that this increase is greatly appreciated by poor people.
These data show that the main issue in primary education is no longer increasing quantity, but maintaining quantity while enhancing quality. It is generally agreed that the quality of education in Uganda declined seriously between the mid-1970s and the late 1980s, and the increased enrolment is now straining the system. While the 1998 National Integrity Survey found that 60 percent of parents were satisfied with the quality of their children's education, the UPPAP investigation found widespread concern with schooling quality among the poor communities contacted. This is borne out by more formal investigations of schooling quality. The heavily burdened primary schooling system cannot meet the immediate demands for classrooms, teachers, and teaching/learning materials.
Educational policy thus faces two central challenges: first, how to keep the increased number of children in school: and secondly, how to ensure that quality is maintained and improved given the expansion in the system.
Enrolment rates in secondary and tertiary education remain low, although they have increased in recent years. Total secondary enrolment rose from 336,022 in 1997 to 427,592 in 1999. The draft strategic plan for secondary education estimates that only 10 percent of the secondary school age population is in school and that only 6 percent of the poorest 25 percent complete secondary education whereas 22 percent of the best-off 25 percent do so. Whereas Uganda is now well ahead of most countries in Africa in primary education, it is behind the others in secondary education. Although current policy will be focussed on achieving sustainable universal primary education, the requirements of a growing modern economy will place increasing emphasis on secondary schooling, and such schooling is certain to figure prominently in future PEAP revisions.
The Government of Uganda has achieved its objective of universal primary education. The challenge it now faces is to encourage children to remain in school, and to acquire relevant skills for adult life. This implies the following objectives:
Life expectancy in Uganda has been estimated at just 42 years in 1997 (World Development Indicators). This is exceptionally low, mainly because of the AIDS epidemic. Child mortality is high, though it fell significantly from 180 per thousand in 1989 to 147 in 1994. In addition to increasing mortality, illnesses such as AIDS and malaria incapacitate large numbers of people. Trends in AIDS incidence are presented in the Poverty Status Report; there is a marked fall in incidence in urban areas, where the range of prevalence rates in ante-natal clinic attenders in six urban centers fell from 12–28 percent in 1991 to 7–15 percent in 1997. In rural areas there is no clear trend.
Illness is a dimension of poverty which affects all income groups in Uganda, although it affects the poor particularly badly. Health outcomes depend on at least six factors: incomes, education, information, health services, water supply and sanitation. Studies of household data in Uganda have shown that both education and specific information about the causes of illness significantly reduce child mortality. For instance, one study (using 1992 data) found that if a mother has good information about malaria and diarrhea, this reduces the under-five mortality of her children by 0.045, compared with the overall mortality rate of 0.18. The same study found that child mortality was much more strongly related to education than to incomes. Mothers in the top expenditure quartile had lost almost the same proportion of their children as mothers in the bottom expenditure quartile, but child mortality dropped at every level of maternal education and mothers with further education had only a quarter as high a rate of child mortality as mothers with no education.
More recent data suggests that the link between incomes and mortality has grown stronger (Table 2.3). Between 1988 and 1995, while under-three mortality fell by 6 percentage points for the poorest 20 percent, it declined by almost 60 points for the richest quintile.
Adult mortality may be more powerfully affected than child mortality by income and access to curative services. The most commonly named consequence of poverty in the UPPAP study was ill health, and the third most commonly named was death. It may also be more powerfully affected by the presence of health services, especially for maternal mortality. In the case of AIDS, cultural factors interact with poverty. In some parts of the country, single women cannot get access to land; finding a partner then becomes a matter of survival and people in these circumstances take risks which they would otherwise avoid.
A World Bank study has developed projections of under-five mortality in Uganda. Using international data, it has been shown that child mortality responds to the effects of technical progress in preventive and curative care over time, and to female education and income growth within the economy. Using relationships estimated using international data, the following projections are derived:
These projections show that child mortality could be halved by the end of the period. However, there are three caveats:
Improving the health of the Ugandan population is a priority objective of the Government of Uganda. The Health Sector Strategy sets targets of reducing child mortality from 147 to 103 per thousand, maternal mortality from 506 to 354 per 100,000, to reduce HIV prevalence by 35%, reducing the total fertility rate to 5.4, and reducing stunting to 28% by 2004/5.Giving voice to poor communities
Poor people suffer directly from being disempowered. Powerlessness, described as inability to affect things around one, was reflected in the findings of UPPAP. The National Integrity Survey also found that 40 percent of the users of public services had to pay bribes. Such experiences are not only materially impoverishing; they are also demoralising. More broadly, people experience frustration when they cannot perceive their influence over public policy. UPPAP reported, for instance, that poor people saw no effective mechanisms to hold service deliverers accountable.
The Government of Uganda aims to implement further administrative and political reforms which will increase poor people's control over their own lives and the policies and services which affect them.3. The Poverty Eradication Strategy
The overall poverty eradication strategy is based on the following principles:
Strategic public action for poverty eradication is established on four pillars:
It is important to note that these four elements interact. For instance, although primary education is discussed under `quality of life', it also has implications for all the other three goals. The distinction between the goals helps to focus attention on the actions which most directly affect poverty, but the interactions between the objectives need to be borne in mind.Creating a framework for economic growth and transformation.
Economic growth and employment-generation are necessary conditions for poverty-eradication. The PEAP must be based on an understanding of the growth potential of the Ugandan economy, and of the public interventions needed to achieve it. .Work at Uganda's Economic Policy Research Centre has projected the growth of incomes and investment over the next twenty years. The EPRC's model has three main components; an investment function, a balance-of-payments constraint, and a production function. Economic growth in the model is driven by three main factors; the accumulation of human and physical capital, and the shift of labour from agriculture to manufacturing, in which it is assumed to be more productive. Estimates of the coefficients are derived from a sixteen-country panel data set. The projections for Uganda include a low-case, based on existing trends, giving 5.5–6.5 percent annual growth in GDP over the period (giving a GDP per capita of $550 in constant prices in 2020). They also provide a high-case, based on an increase in the productivity of aid and the diversification of the productive structure. This yields 7–8 percent per annum growth, giving a GDP per capita of $700 in 2020. This model therefore gives potential annual per capita GDP growth of between 2.5 percent and 4 percent.
A very recent study at the World Bank takes a larger cross section to explain why growth rates vary across countries, and focuses more on institutional determinants. It identifies a number of factors which constrain growth, and assesses by how much economic growth could be raised if Uganda could close the gap in these factors compared with average values for developing countries (controlling for income levels). Some factors (such as trade openness and macroeconomic stability) are already better than average, and cannot yield higher future growth. Uganda must maintain the good performance of these indicators. But others—closing the gap in educational attainment, deepening financial institutions, and improving property and contract rights—can yield significant gains. The study estimates such gains could produce an additional GDP annual growth per capita of 1.7 percentage points. Mean per capita growth of 3.2 percent per annum (which is what was achieved in the 1990s) could be raised to around 4.9 percent (assuming no deterioration in the external terms of trade). This translates into a GDP growth rate of 7.8 percent per annum.
These studies show that GDP growth of the order of 7 percent per annum is feasible over the longer term in Uganda. But such economic growth will not be automatic. It will call for public action today to build the institutions needed for higher growth. Economic growth in Uganda requires a framework within which the private sector can expand. The first essential element is macroeconomic stability. Without this, economic growth will not be sustainable. The revised PEAP therefore includes a commitment to maintain macroeconomic discipline which has underpinned the fast economic growth of recent years.
The second key element is setting appropriate macroeconomic incentives. This involves economic openness, which encourages exports and labor-intensive investments. The future for Ugandan industry is not reliance on a wall of high tariff protection—which encourages capital-intensive investment which does little for employment—but open competition in a market which is being expanded by rising incomes from agricultural modernisation.
Thirdly, the framework for economic development also includes the equitable and efficient collection and use of public resources. On the revenue side, independent research has shown that recent tax reforms, including the introduction of VAT have made the incidence of taxes more progressive. Local taxation, however, may need review in order to make it more progressive. The use of the savings made available by external debt relief for poverty-reducing purposes and the development of a sound strategy for external borrowing are essential. On the expenditure side, the Poverty Action Fund has been used to reallocate expenditures to directly poverty-reducing services - primary education, primary health, agricultural extension, feeder roads. Equalisation grants are gradually being introduced; these are designed to make the delivery of services more equals across the country. The aim is that a poor woman in a remote rural area should be able to demand the same standard of service from the public sector as a man in the most affluent urban setting. The budgetary reform under the MTEF is central to implementing the PEAP.
Finally, in order to promote economic transformation, the constraints on private sector competitiveness need to be removed. Surveys of business people in Uganda have shown that they face severe constraints on their operations. Infrastructure is a major constraint; firms' experience of power cuts significantly reduces their investment, and the development of internal markets is impeded by the limitations of the road network. Hence the sector-wide transport strategy and the ongoing process of utility reform are key. Another constraint is the difficulty that business people experience in enforcing contracts; this will be addressed by the programme of commercial justice reform which the government is beginning. The weakness of the financial sector is also a serious constraint. Reform of these sectors is essential for the development of the private sector. This is a poverty issue, because the expansion of formal employment is a central part of the strategy.
A crucial component of the PEAP is accelerating economic growth. The actions outlined above can be expected to raise GDP growth performance to a potential as high as almost 5 percent per capita per year.Good governance and security
Good governance is increasingly recognised as a prerequisite to economic growth and development. In Uganda, consultations with the poor have shown that insecurity is among their most pressing concerns. Work by the Human Rights Commission, the Law and Order Sector Working Group and the Governance Action Plan project has identified the main priority areas in this sector. Conflict resolution and effective support to conflict-afflicted areas are essential. Armed conflict has been a decisive factor in the impoverishment of the North and the East. In 1999 the internally displaced population of Uganda is estimated at 622,000, and in addition insecurity affects many people who are not actually displaced. So the successful resolution of conflicts is a necessary part of poverty-eradication.
The democratisation of Uganda has been pursued in a context of decentralisation. The process involves the transfer of responsibilities to district level. Participatory work has shown that the most highly appreciated level is the Local Council 1 or Village Council (LC1), the level which is closest to the people. The implications of decentralisation for ministries of central government have been reflected in the government restructuring, but the extent to which they are now ready to fulfil their new role needs to be assessed.
Good governance involves making public expenditure transparent and efficient. Many reforms have been undertaken to make it harder to misuse public funds with impunity, including the establishment of the Ministry of Ethics and Integrity and the design of a new regulatory structure for procurement. Service delivery on the ground urgently needs improvement, as various surveys have shown. This is to be addressed by the introduction of results-orientated management, by pay reform designed to increase and simplify public sector remuneration, and by strengthening bottom-up accountability; communities must be able to hold service deliverers accountable through the Village Councils. Law and order is being addressed by the introduction of a sector-wide approach in which reforms proposed for the criminal justice sector will be costed. The poor reputation of the police needs to be addressed by an improvement in service delivery. The relatively good reputations of LDUs and LC courts can be built upon.
Public information is central to good governance and innovative methods of disseminating information should be explored by inter-sectoral cooperation. The special needs of the disabled require a community-based approach which deserves priority. Disaster management, which includes the handling of drought, floods, earthquakes and conflict, requires both preparedness and response; the recently established Ministry within the Prime Minister's Office has prepared a national strategy.Actions which directly increase the ability of the poor to raise their incomes
Recent empirical work (mentioned above) has established that GDP growth rates of over 7 percent per annum are feasible for Uganda, providing the needed public actions are taken. What does such growth mean for household income and poverty? The Government has prepared projections for GDP growth and other key macroeconomic variables. The model forecasts real GDP and real per capita private consumption up to fiscal year 2019/20, on the basis of a national accounts format. In these scenarios private incomes grow less fast than Government income. As a result, private consumption growth is slower than GDP growth. In real terms, consumption per capita grows by 3.2 percent per annum for the high projection and 2.5 percent per annum for the low one. How much poverty reduction are such consumption growth rates likely to yield?
Taking the structure and distribution of income (measured by household consumption) as given in the 1997 Poverty Monitoring Survey, an assessment can be made of the effect of such growth on income poverty. If we assume that every Ugandan household experiences per capita income growth of 3.3 percent per annum, the income poverty headcount would fall to 10 percent by 2017. The MOFEP higher growth scenario (a growth of household consumption of 6.2 percent per annum, or 3.3 percent in per capita terms) is therefore consistent with the poverty goal of the PEAP, so long as such growth is distributionally neutral (all households benefit proportionately).
Not all sectors, however, will experience such high growth. Taking past experience as a guide, a growth rate of 6.2 percent in aggregate consumption might involve agricultural incomes growing at only 4.7 percent per annum (with services and manufacturing growth being respectively 7.9 percent and 12.4 percent). If households are locked in their sectors of employment (as reported in the 1997 household survey), those employed in agriculture would experience slower income growth. We estimate that in this limiting case, headcount poverty would only fall to 22 percent, even if aggregate household income growth were 6.2 percent per annum. Low agricultural growth constrains the poverty reducing impact of economic growth. These conditional projections of potential poverty reduction under the Gvovernment's assumptions for economic growth highlight the need for more targeted interventions, the effect of which would be to accelerate the incomes of the poor directly. Two main lessons emerge: first, poverty reduction calls for higher agricultural growth rates; and non-farm employment must be increased in the rural areas where most poor people live.
Most Ugandans are self-employed, mainly in agriculture. This gives the Plan for the Modernisation of Agriculture a central role in poverty-eradication. Despite the constraints of limited technology and market access, the potential of raising agricultural incomes is considerable. The PMA identifies six core areas for public action in agriculture: research and technology, advisory services, education for agriculture, access to rural finance, access to markets, and sustainable natural resource utilisation and management. Employment outside agriculture can be promoted by microfinance, advisory services, and vocational training.
Feeder roads remain a central priority as in the 1997 PEAP, since when maintenance expenditure has tripled. Labour-intensive methods have been found to be financially cheaper than other methods of road-building and will contribute to employment generation.
Research on land shows considerable inequality, often resulting from administrative and political factors more than the operation of the market. The Land Act is designed to strengthen the land rights of the poor. Women's land rights need to be strengthened further; public sensitisation for the purpose of the Land Act is needed: a cost-effective structure for land administration is needed; and the Land Fund needs to be operationalised, targeting the landless poor. The restocking programme for rural livestock has the potential to reduce poverty by restoring economically valuable assets, provided mechanisms are identified to target the poor.
The Government is establishing a new regulatory and supervisory structure for microfinance in order to increase poor people's access to financial services. The Government has withdrawn from the provision of capital for credit but will still provide support for capacity-building.
Publicly supported research is coordinated by NARO. Research is to be decentralised, and stakeholders are to be involved. The appropriate mix between national and international research needs consideration. The potential benefits of publicly provided advisory services vastly outweigh their costs. Strategy is now being reviewed. The advisory service must address issues relevant to poor farmers, using ideas developed by NGOs for low-input technologies which the poor can afford. The services need to address productivity-enhancing techniques for farmers at different levels of resources, drought-resistant crops where needed, nutritional issues, marketing, storage and processing, and soil-conservation. Livestock, fisheries and agroforestry will also be covered by the advisory services.
The management of markets is a private sector role under the PMA. The public sector has a role in ensuring that market access is affordable for vendors, in improving access to market information throughout the country, and in formulating policy on genetic modification and on organic farming.
Sustainable resource use will be promoted by raising awareness, including the encouragement of communal initiatives to protect common property resources. Forestry needs to be promoted by a mixture of public protection and investment in private forests. Valley dam schemes will be reviewed; this is an important priority for addressing the poverty of the Karimojong and the insecurity associated with cattle-rustling.
Energy for the poor will be promoted by encouraging the use of more efficient cooking technologies and by smart subsidies for rural electrification, which will encourage entrepreneurs to invest in power infrastructure in rural growth centres. This will make it easier for the rural poor to have their output processed, increasing their effective access to the market; it will also enable more households to gain access to electricity in their homes.Actions which directly improve the quality of life of the poor
Human development outcomes in Uganda have been transformed by the introduction of free primary education for four children in each family, which has lead to a massive increase in enrolment. Primary education is a central element of the PEAP. Now that quantity has increased so much, quality is critical. Challenges include the implementation of low-cost classroom construction and the management of the gap between teachers and classrooms including the use of double shifts where appropriate, measures for bottom-up accountability, and the possibility of using school gardens to educate children about agriculture while also providing some food. In secondary education, a strategy is in draft. Targeting gifted children from poor backgrounds is a poverty issue.
Health care is being coordinated by the new health strategic plan. At the heart of this is the minimum health package. Service delivery is being improved by a number of mechanisms including better remuneration and training, better infrastructure, and better accountability to consumers through village health committees. The pro-poor implementation of cost-recovery will require the successful identification of targeting mechanisms, perhaps geographically based. AIDS and population growth raise cross-cutting issues.
Water and sanitation are being supported by major public interventions, with communities paying a small proportion of the investment costs and being responsible for the maintenance of the facilities. Community sensitisation on water-borne disease and on the need for maintenance is therefore critical.
Adult literacy is likely to be made an element of PAF from this year; its benefits are potentially very considerable, as literacy has been directly found to increase agricultural productivity and evidence suggests it will also influence health outcomes. Housing is a private sector responsibility, but the state can encourage the availability of low-cost housing.4. Macroeconomic stability, medium- and long-term expenditure implications of the PEAP Macroeconomic stability and the macroeconomic framework
In the medium term (three years), Government's strategy for fighting poverty is reflected in the Medium Term Expenditure Framework (MTEF) and the expenditure priorities which are incorporated into the MTEF. The MTEF is itself fully integrated into a macroeconomic framework which is designed to ensure low inflation of no more than 5% and to support rapid broad based real GDP growth of 7% per annum. (In the first year of the MTEF, 2000/01, inflation may be higher and growth lower than the medium term targets because of the lagged impact of the external terms of trade shock which Uganda suffered in 1999/2000). The exchange rate will continue to be market determined, with the Bank of Uganda intervening only to dampen excessive volatility in the exchange rate and to maintain net international reserves at a level which is consistent with the targets in the PRGF programme (these targets will be based on the objective of maintaining gross foreign reserves at a minimum of five months of imports of goods and non factor services). Macroeconomic policy will be accompanied by a deepening of structural reforms in key areas including the banking and financial system, public utilities and the transport infrastructure, which are aimed at removing key constraints to private sector growth, and reforms to improve the efficiency and quality of public services.
The key linkages between the MTEF and the macroeconomic framework are via the domestic borrowing requirement and the projected net inflows of external financing. The MTEF is consistent with both the levels of donor support projected over the medium term, relatively conservative projections of domestic revenue mobilisation and domestic bank borrowing which is consistent with the monetary objectives discussed in the next paragraph. The increased expenditures on programmes and projects specifically targeted on poverty reduction (for example, expenditures under the Poverty Action Fund (PAF) are projected to increase from 2.9% of GDP in 1998/99 to 4.6% of GDP in 2000/01) are fully consistent with the Government's macroeconomic objectives. Increased expenditures on the PAF will be funded by increased donor support, including debt relief made available under the enhanced HIPC initiative, and by restraint in the growth of non priority expenditures. The overall fiscal deficit, excluding grants, is projected to rise from the programmed 8.1% of GDP in 1999/2000 to 9.7% of GDP in 2000/01, before declining to 8.7% and 8.2% of GDP in 2001/02 and 2002/03 respectively. Donor support, net of external amortisation, is projected at 10.4%, 10.1% and 9.3% of GDP respectively in 2000/01, 2001/02 and 2002/03, and will therefore more than cover the projected fiscal deficits, allowing Government to accumulate savings with the domestic banking system and the non bank private sector. Annex Table 2.1 refers.
The medium term monetary objectives are to maintain a rate of growth of broad money (M2) of 15% per annum which is required to hold core inflation (which excludes food crop and fuel prices) to no more than 5% per annum. This rate of money supply growth is consistent with the projected increase in money demand given projected growth of nominal GDP (averaging 12.9% per annum) and a decline in the velocity of circulation of circulation of an average of 2.2% per annum. Private sector credit is projected to expand by 15% per annum in nominal terms. This will allow private sector credit to gradually increase as a share of GDP. The growth in the net foreign assets of the Bank of Uganda will be determined primarily by the objective of maintaining gross foreign reserves at a minimum of five months of imports. Consistent with these objectives, Government is projected to accumulate savings in the domestic banking system of Shs 14 billion (0.14% of GDP) in 2000/01, Shs 89 billion (0.81% of GDP) in 2001/02 and Shs 95 billion (0.77% of GDP) in 2002/03. Annex Table 2.4 refers.
The trade deficit (denominated in dollars) is projected to widen in 2000/01 because of the impact of the external terms of trade shock, which will depress export earnings. However the increase in the trade deficit will be largely offset by the projected rise in official and private transfers. As a percentage of GDP, the current account deficit (including transfers and FDI) will rise from the outturn of 4.1% in 1998/99 to a projected 4.6% of GDP in 2000/01, before declining to 3.8% and 3.6% of GDP in the following two years. The capital account is projected to remain in surplus, which together with the debt relief provided under the HIPC and enhanced HIPC initiatives, will enable the Bank of Uganda to accumulate net international reserves of $58 million in 2000/01, $108 million in 2001/02, and $116 million in 2002/03. This is sufficient to maintain gross reserves at the target level of five months of imports of goods and non factor services. Annex Table 2.3 refers.
Annex Table 2.1 summarises projected investment and savings. Public investment is projected at 7.4% of GDP in 1999/2000 and 7.8%, 7.3% and 7.0% in the next three years. Public savings are projected at 5.1% of GDP in 1999/2000 and 5.0%, 5.0% and 4.7% in the next three years. Private investment is projected at 10.3% of GDP in 1999/2000, rising to 10.5%, 12.8% and 12.9% in the next three years. Finally, private savings are projected to fall to 8.1% of GDP in 1999/2000, recovering to 8.7%, 11.2% and 11.5% in the next three years.The Medium-Term Expenditure Framework
Those aspects of the PEAP which have implications for public expenditure will be implemented through the medium-term expenditure framework. This framework is presented to Cabinet as part of the annual "Budget Framework Paper (BFP)", covering three fiscal years.
The objective of the MTEF is the design of all public expenditure by a clear analysis of the link between inputs, outputs and outcomes, in a framework which ensures consistency of sectoral expenditure levels with the overall resource constraint in order to ensure macroeconomic stability and to maximise the efficiency of public expenditure in attaining predetermined outcomes. Ultimately, these medium-term objectives need to be consistent with the longer-term objectives defined by the PEAP; so the PEAP will be used to guide reallocations of expenditure. The sectoral implications of the PEAP objectives are reflected in the design of sectoral strategies which in turn guide the expenditure allocations made each year under the MTEF.
The MTEF is intended to guide all public expenditure including the use of resources committed by donors. For this reason, the Government is introducing a sector-wide approach wherever feasible, under which government and donors contribute to a common pool of resources used to achieve the sectoral objectives. The flexibility which this arrangement allows is essential to the efficient use of public expenditure,. because only in a sector-wide approach can the overall implications of a national programme within each sector be considered, and because a sector-wide approach can reduce duplications of effort by different projects and divergences of cost structure between projects and other public activities.Using the PAF to prioritise public expenditure
The PEAP of 1997 drew particular attention to the need for increased expenditure on the delivery of those services which directly benefit the poor. It was recognised that in Uganda, as in most other countries, there could be a tendency to neglect the interests of the poor unless a conscious effort was made; this is one implication of the observation that powerlessness is one aspect of poverty. Since 1997, the institution of the Poverty Action Fund has been used to achieve the planned reallocations. The PAF has three essential elements for this objective. First, no expenditure is included in PAF unless its direct poverty benefits are clearly demonstrated. Secondly, the use of funds in the PAF is subject to particularly stringent monitoring procedures in which civil society actively participates. Thirdly, the use of funds for PAF activities is clearly additional to the levels achieved in the 1997/8 budget.
Most of the areas included in the PAF consist of service delivery which directly benefits poor people, rather than administration. In order to achieve the increase in spending on service delivery and on infrastructure, it is necessary to keep administration lean. Government will continue to endeavour to make its administrative elements as lean as possible and to avoid the proliferation of administrative structures which can impose serious fiscal costs.Poverty priorities and the PAF
The PAF (summarised in Table 4.1) includes the most high-priority public expenditures from the poverty-eradication perspective. Inclusion of a particular sector or programme in the PAF is justified by the high economic and/or social returns to the form of expenditure, by the fact that a substantial proportion of the benefits of expenditure in that area are received by the poor, and by the priority which participatory work has shown the poor themselves attach to that area. Areas already included in the PAF include rural roads, agricultural extension, primary health, primary education, water supply, and equalisation grants whose purpose (defined in the Constitution) is to make the quality of service delivery more even across different districts. Within this group of services, the priority attached to water supply was increased as a direct result of the finding from participatory work that the poor themselves regarded water supply as a high priority. Areas which are being introduced this year include adult literacy.
The priorities embodied in the PAF will evolve as the PEAP is implemented and the economic and social structure of the country evolves. For instance, secondary education will become a higher priority as more students graduate from the universal primary education programme, especially from poorer backgrounds. Equally, there are areas of high priority which are not included in PAF because their benefits for the poor are indirect rather than direct.
The development of sectoral and intersectoral strategies such as the Plan for the Modernisation of Agriculture and the strategy for law and order and for social welfare will make it possible to identify more precisely spending needs for agricultural advisory services, environmental protection, basic legal and policing services, support for the disabled, vocational education, and strategic communications. Government priorities can therefore be expected to evolve as this analytical work is done. The regular revision of the PEAP will allow strategy to adjust accordingly.
Most spending under the PAF is undertaken at district level. The main mechanism used to ensure that national priorities are observed at district level has so far been conditional grants. Over time, as planning capacity is built up, it is envisaged that the bottom-up setting of priorities by communities will become more important, reducing the need for top-down determination of priorities and allowing more scope for local diversity to be reflected in local expenditure allocations. In the short run, it is envisaged that the proposed introduction of a non-sectoral conditional grant at subcounty level (LC3) will allow more flexible attention to local priorities.Additionality
Government appreciates that development partners wish to ensure that the resources they commit to particular sectors lead to increases in the total resources committed to these sectors. Hence the presentation of spending plans in the PAF makes it clear that government and donor funds committed to the PAF are additional to the government's resources spent in the 1997/8 budget, which is being used as a baseline. On the donor side, we are seeing an increasing commitment by our development partners to the provision of budgetary support through the PAF mechanism; this is extremely welcome.
It is therefore clear that far from making fungibility easier, the injection of budget support through the PAF mechanism allows a more transparent understanding of the additionality of donor resources than was ever possible with the funding of individual projects.Accountability of PAF resources
As discussed above, the strengthening of accountability for all public expenditure is a central part of the overall objective of improving governance. Special measures have been taken to strengthen the accountability of the high-priority expenditures managed under PAF. Funds are released either as conditional grants to the Districts or through the development budget. Five percent of PAF resources are set aside for enhancing existing monitoring, accounting and auditing procedures.
To enhance transparency, all releases of PAF resources are published regularly and are discussed at quarterly PAF meetings, chaired by the Government. A large number of donor agencies have been represented. Officers from the relevant line ministries and district level officials are invited to attend and report on implementation issues. Local and international NGOs are invited to attend in order to exchange information, discuss policy issues, and, where applicable, report on programme implementation and/or accountability issues. The media are also invited to these meetings in order to enhance accountability through sharing information with the public.The overall allocation of expenditures within the MTEF
The MTEF is kept under constant review as macroeconomic events and the budgetary process unfold. In this sense, there is no `final' MTEF. However, the current state of the MTEF reflects the Government's best estimate of its spending plans over the next three years. Under the review of the Government's existing programme with the IFIs, the macroeconomic framework and the associated MTEF have just been revised and are fully consistent(see Annex Tables 2 and 3). A summary is provided in Table 4.2. It can be seen that the share of the programmes included under PAF in the government's budget has risen significantly since the introduction of the PAF in 1998/9, and will rise further as HIPC-2 resources are devoted to PAF programmes. By 2002/3, the share of PAF programmes in the government budget will have doubled since 1997/8 from 16.3% to 32.5%. Outside the PAF, the increase in the share of the roads sector is also considerable, and the share of public administration has fallen in line with Government priorities. The reallocation towards direct poverty-reduction has been achieved by focusing on the poverty impact of spending within as well as between sectors. A more detailed summary is provided in Annex Table 3. Note also that the PAF projections in Table 4.1 represent a subset of the MTEF presented in Annex Table 3
Intermediate output targets in the medium-term
Under the MTEF, a number of sectoral working groups have been formed. Each group drafts a sectoral budget framework paper, which feeds into the national budget framework paper which is co-ordinated by MFDEP. These papers give a wide range of input, output and outcome indicators for each sector.
For the purposes of monitoring the evolution of the PRSP, the following targets have been identified as performance indicators for the whole programme. They are considered to be achievable within the resource ceilings under the MTEF. The sectors selected reflect both the high priority Government attaches to these sectors and the relatively well-developed strategies available in these sectors.
While the MTEF depends on a precise (albeit constantly evolving) set of projections for the next three years, the overall design of policy needs to take a longer perspective. For this we need long-term outcome targets, costings of the public expenditures needed to achieve these targets, and long-term projections of resource availability. Work on all three of these components is ongoing and will be reflected more fully in the final draft of the PEAP in May. But much has already been accomplished. Annex Table 1 provides a summary.
Under the first goal of the revised PEAP, the creation of a framework for economic growth and structural transformation, major elements of public expenditure will be main roads, commercial justice, power sector reform and tertiary education. The main roads programme has been costed subject to a resource ceiling of $1500 billion over ten years. A recent update also provides costings for additional projects which would be justified by their rate of return in the absence of a resource constraint.In the long run, privatisation will transfer the need for major investment expenditures on power to the private sector; in the short run, there is a major project for the Owen Falls Extension to power capacity.. A programme for commercial justice reform has been costed at $8 million over five years; it is expected not to add to recurrent costs in the long run. For tertiary education, the strategy is yet to be defined and costed.
In the governance sector, the long-run security needs are difficult to estimate. However, Government will aim to make its defence spending as efficient as possible and hopes to reduce the security burden by active participation in regional initiatives to resolve conflict. The costs of pay reform will be very significant; Government wishes to move to a holistic, transparent and simple pay structure with public sector wages equivalent to about 75% of private sector equivalents over a six-year period. Within the law and order sector, strategy will be defined over the next year; the review of the criminal justice sector has produced several policy initiatives, but costs and strategic priorities remain to be determined. Issues of significant fiscal implications include the size of the police force and the role given to LDUs. More work needs to be done on the costs of communication, which might be reduced by intersectoral cooperation.
Under actions which directly enable poor people to increase their incomes, a new strategy for feeder road programme is being drafted. The costs of rehabilitating and maintaining the network have already been estimated. For actions under the Plan for the Modernisation of Agriculture, costs will be developed as these actions are concretised. However, some costings are available for extension, research and the provision of capacity building (not capital) to microfinance institutions. As the reform of the advisory services proceeds, its costs will become clearer. Environmental actions such as the protection of forests and wetlands need to be costed. The implementation of the Land Act is proving expensive, and consideration is being given to methods of reducing these costs. The rural electrification strategy focuses on `smart subsidies' for private investment; the amount of subsidy needed to enable adequate private sector investment to achieve the 12% coverage target and, more important, to promote income-earning activities in rural areas will be estimated. Costings need to be developed for the promotion of improved cooking technologies. For vocational education, targets are defined in ESIP and have been approximately costed, but more work will be needed on the detailed costings.
Under actions which directly increase the quality of life of the poor, a costing of the health strategy consistent with national delivery of the minimum health care package has been developed. However, the costing is to some extent resource-constrained and it would certainly be possible to use additional resources constructively. There is also an unconstrained costing for the AIDS programme, which would be implemented through the various sectoral programmes. For primary education, precise costings of achieving given targets are available and are constantly updated. In the case of secondary education, ESPI defines targets and a strategy is in draft; initial estimates of costs have been made. For water supply, a costing has been prepared to reach the target of the maximum feasible coverage by 2015. For adult literacy, the costs of a national programme have been developed.Long-run resource availability
Long-run macroeconomic projections, described above in Section 3, are being developed to estimate the long-run availability of resources. There are four major uncertainties. First, revenue growth depends on GDP growth. Secondly, the share of revenues is intended to rise, but the speed at which this will be achieved in the medium term is hard to predict exactly. Thirdly, the foreign exchange rate will affect the domestic value of foreign inflows and will have different effects on the effective deflator for different sectors of government expenditure. Finally, the level of external flows will be important.
At this stage nothing definitive can be said about the overall relation between the priorities identified in the PEAP and the projected resource envelope. However, some initial estimates have been undertaken and it should be possible to give some estimates by the final draft of the PEAP in May. In any case, it must be emphasised that poverty reduction depends on economic growth; if there is a gap in the medium term between costs and resources, this is helpful information for the design of additional resource inflows, but it will not be used to justify taking risks with macroeconomic stability. It must also be emphasised that increasing the flexibility and efficiency of resource inflows by the shift from project aid to budgetary support may be as important in achieving the government's objectives as increasing the total volume of net flows.5. The Monitoring Strategy
The monitoring strategy of the PEAP is designed for two main purposes. First, it is essential to monitor progress in order to continually inform key agents involved in the process. Encouraging a two-way flow of information between beneficiaries, service providers and policy makers is an essential component of the PEAP. In this way, the design and implementation strategies can be continually modified to build on what works, and to avoid repeating mistakes. Second, the monitoring strategy will help to build accountability. Where targets are set, the Government will expect to account for its successes or failures in achieving them, though it is understood that these successes and failure sometimes depend on factors outside Government's control.
Poverty monitoring involves a large number of institutions including the Poverty Monitoring Unit in MFDEP, the Uganda Bureau of Statistics, and the Uganda Participatory Poverty Assessment Project. Five aspects of the system are worth noting.
First, the household surveys are being used to prepare high-quality estimates of trends in poverty and the published reports provide much useful information. There is scope for these data to be used more widely for a variety of studies; for instance, ministries could commission detailed studies of trends and determinants of service delivery, particularly among the poor. There is a need for an institutional mechanism to inform policymakers about the potential uses of the data and to provide incentives for the necessary work to be done.
Second, the participatory work has shed light on numerous aspects of poverty in Uganda and has immediately influenced budgetary allocations on water supply and the priority given to improving security. It is planned to extend the work to all districts.
Third, there is a need to develop indicators for performance in all sectors. This is being done by sectoral ministries under the MTEF, and the Poverty Monitoring Unit has also developed a list of indicators in cooperation with the districts. The matrix in Annex Table 1 gives an indication of progress.
Fourth, the institutional provision for monitoring the PEAP is found in the preparation of the Poverty Status Report. This was first prepared in 1999, and is to be repeated in 2001 and every two years thereafter. It will synthesise information on recent poverty trends, and make recommendations on the poverty eradication strategy, to be incorporated in future PEAP revisions. The PEAP will also be revised every two years.
Finally, there is a proposal for a Geographical Information System which would link existing sources of data and allow the spatial distribution of poverty to be studied in more detail. For this exercise, it is essential that the coming population census be completed on time. Census data not only enable detailed poverty maps to be compiled, but serve also to update the sampling frame of household surveys.
Monitoring will be structured at three main levels. First, the monitoring of PEAP outcomes. This will focus on progress in reducing income poverty, improving health, raising educational achievement and enhancing the voice and participation of the poor. Most of the information for such outcome monitoring will be drawn from household surveys and repeated exercises under the UPPAP.
Secondly, the strategy will entail monitoring actions or outputs intended to achieve these outcomes. The intermediate output indicators which have been defined for many sectors (reviewed above), will be tracked on a regular basis. Data sources will include both sample surveys and data from management information systems.
Thirdly, there will be regular monitoring of the inputs required for action against poverty. This is to consist mainly the tracking of public expenditures on poverty reducing activities. Such tracking will include periodic estimates of the benefit incidence of public spending, and of the effectiveness of the sectors in getting funds to institutions which actually deliver public services. In some instances, such monitoring will also involve information on key inputs needed in the sector to deliver its services effectively—teachers and books in education, or drugs supplies in health care facilities. It will also include continued monitoring, and public debate, about the composition of expenditures.
Annex Table 1 gives more information about indicators to be used in all sectors. The May draft of the PEAP will give more information about the methods of monitoring these indicators.