DEVELOPMENT PARTNERS REMARKS NATIONAL BUDGET WORKSHOP 25-26 February 2010 (As prepared for delivery) Your Excellency, the President of the Republic of Uganda, Right Honorable Prime Minister, Honorable Minister of Finance, Planning and Economic Development, Honorable Ministers, Honorable Members of Parliament, Representatives of civil society organizations and the private sector, Members of the diplomatic community, Distinguished participants, Ladies and Gentlemen,
On behalf of the development partners, I wish to thank the Ministry of Finance, Planning and Economic Development for organizing this budget workshop.
We recognize that the 2010/11 budget is being developed in tandem with the National Development Plan. This provides an opportunity to focus the budget on Uganda’s development priorities.
Let me take this opportunity to commend the Government of Uganda on its continued macroeconomic achievements.
Sustained economic growth has translated into a significant decline in poverty levels. Moreover, the economy is weathering the impact of the global financial crisis better than anticipated and headline inflation has returned to single digits.
We also welcome the introduction, by the Ministry of Finance, Planning and Economic Development, of performance based budgeting, quarterly release of funds to spending agencies, and allocation of more resources to monitoring of results.
The Office of the Prime Minister has improved reporting on government performance. This will help to improve accountability. And we congratulate the Government for its efforts to bring peace to Northern Uganda and championing reconstruction of that region.
Your Excellency, past accomplishments by the government of Uganda have been remarkable. However, the real test of prudent and effective government lies in how you will address the challenges of the future.
The vision for Uganda laid out by your Excellency is inspiring and clear: Uganda has to become a middle income country over the next 15 years. Consequently, this statement by development partners has only one theme: what will it take for Uganda to achieve this goal?
There are three challenges that Uganda needs to tackle. The first challenge: Uganda needs higher economic growth and lower population growth. For Uganda to attain middle income status over the next 15 years, per capita income growth needs to be 6% per year, meaning the economy has to grow at close to 10% per year.
Is this possible? Yes, it is: Thailand had the same GDP per capita as Uganda in 1963; it became a middle income country 18 years later. Indonesia had the same GDP per capita as Uganda in 1978; it became a middle income country 17 years later.
And, Malaysia grew 135% in per capita terms over 20 years from 1960. These three countries have one common factor: during the period of dramatically rising per capita incomes, fertility rates fell between 40 to 50%.
This is no coincidence. These countries were basically “harvesting the demographic dividend” - the period where falling fertility rates leads to a falling dependency ratio: that means a larger proportion of the population is in their working age, compared to children and the elderly.
At 3.2% growth per year, Uganda has one of the fastest rates of population growth in the world. Uganda’s population is projected to reach 38 million by 2015 and close to 100 million by 2050. This has serious implications for livelihoods, food security, maternal and child mortality, and the environment.
Providing social services such as education and healthcare to a rapidly growing population will put enormous strains on both households and the public purse.
Despite economic growth over the last 20 years, profound inequality in incomes, living standards and life expectancy persist within and across regions. Making economic growth more inclusive should therefore be a priority.
The second challenge: Uganda can only attain middle income status with a healthy and educated labor force.
Uganda needs to accelerate progress towards achieving the Millennium Development Goals for health and education. The NDP states unequivocally that the health and education MDG indicators will only “marginally improve”.
Only slightly more than half of the children that enter primary one, reach primary five. This is well short of the goal that all children, boys and girls alike, should complete a full course of primary education.
In addition, the targets for child and infant mortality and maternal health are also unlikely to be reached and Uganda still has one of the highest rates of maternal mortality in the world.
Building an effective and accountable state is the third crucial challenge Uganda is faced with. The fast growing countries of Asia mentioned earlier are not free of corruption.
But corruption in these countries has not affected the effectiveness of the state to the extent that it affects the Ugandan state. Development partners are particularly concerned about Government failure to take effective action against high level corruption.
A recent example is CHOGM, where there has been minimal follow-up on recommendations in the audit reports, which have been known since 2008.
The PAC hearings have publicized the issues surrounding the leakage and abuse of CHOGM funds. Yet, government administrative action to sanction offenders or recover funds has so far been inadequate.
Your Excellency, corruption in Uganda is endemic and we have seen no signs of improvement. The costs of corruption, stealing and leakages are staggering: $1.6 million lost in the global fund to fight aids, tuberculosis and malaria; $4.6 million lost in the GAVI immunization scam; at least $27 million lost in connection with CHOGM; billions of Shillings lost in the NAADS scam and the NSSF Temangalo scandal; and the loss in procurement corruption is estimated by the PPDA to be more than $100m per year.
However, government effectiveness is not only undermined by corruption. There remain fundamental gaps in public financial and public sector management. Basic rules are not adhered to. Lines of accountability are confused, mandates of central and local governments are not clear.
This has created a fundamental lack of accountability in Government. How else to explain high levels of absenteeism of teachers and health workers estimated at causing losses of up to $70 million per year?
Last but surely not least, only effective and accountable states are able to turn oil into a blessing for a country. Without an effective and accountable government, Uganda could easily become the next African country where oil has become a curse.
Your Excellency, let me now address the concrete steps that can be taken to ensure Uganda becomes a middle income country.
First: government needs to remove the binding constraints to growth and curb population growth. The dual challenge of increased economic growth and rapid job creation requires that the binding constraints on growth, such as poor transport infrastructure and insufficient supply of electricity are tackled.
The increased investments in the transport sector are therefore commendable. However, increased investments should be matched by an equal effort to improve governance and capacity of the sector to ensure that money is well spent.
We would like to urge the government to stick to the time-tested policy of trusting the private sector for implementing major works.
Only a vibrant private sector construction industry will provide Uganda with the roads that are so badly needed. The re-introduction of district force account operations was and still is a bad idea.
The current low level of absorption capacity in the private sector is a result of lack of investments in the past. The private sector will meet the challenges of road construction and maintenance only if investments by the Government are predictable.
Despite the huge increase in spending on road construction and maintenance, the government has yet to put in place a system for monitoring road conditions.
This leaves the sector open to fraud and undermines efforts to achieve value for money in the road sector. A big proportion of future oil revenues will surely be spent on the transport sector.
This makes it even more urgent to improve the governance framework for road construction and maintenance. The NDP has identified a reduction in fertility as a major strategy.
According to surveys, Ugandan women would like to have fewer children than they currently have. However, 41% of demands for family planning services are currently unmet.
Without a rapid expansion of family planning programs, Uganda will not be able to replicate the impressive growth rates in the Asian countries mentioned earlier.
What is needed, therefore, is a commitment on the part of government to increase its share in procurement of contraceptives, which is currently less than 10% of national requirements.
Equally important is increased focus on girls’ education and improvement in reproductive health, to address the shortfalls against the MDG indicators mentioned earlier.
Lastly, Mr. President, as demonstrated over the last 23 years, a stable political environment is the single most important factor for a good business climate.
Political upheaval is very bad for investment and doing business, as we have recently witnessed in Kenya. In turn, respect for the rule of law and human rights is essential to guarantee political stability.
Second: government needs to prioritize public spending while ensuring that Uganda’s labor force is healthy and educated.
Addressing the challenge of providing quality services to the growing Ugandan population necessitates prudent and efficient use of Uganda’s limited financial resources. Achieving value for money is therefore essential.
In addition to curbing waste and inefficiencies the government should prioritize public spending. Development partners share the concern of Uganda’s civil society and media about the high and increasing levels of spending on government’s administrative structures.
These are resources that could otherwise be invested in infrastructure and on providing basic education, health care and clean drinking water to the poor.
The sharp increase in the number of districts in recent years (and continued plans for new ones), diverts both human and financial resources from existing districts and undermines the capacity of local governments to effectively deliver services.
Starting at 36 districts, 80 districts last year, and now 91 districts: who can make a serious case that this expansion of the number of districts is good for service delivery?
I now turn to concrete suggestions to strengthen the capacity of the Ugandan state.
An effective and accountable state is needed to guarantee value for money in service delivery by tackling corruption, waste and inefficiencies. Oil will provide much of the resources needed to increase public and private investment in future years.
However, if these investments are to yield lasting results, the management of public finances has to improve.
While we recognize the Government of Uganda’s commitment to the value for money agenda, much more needs to be done. The NDP identifies public sector management and administration as the number one binding constraint to achieving Uganda’s development objectives.
The remaining gaps in some of the fundamental aspects of public financial management need urgent attention in order to improve spending capacity and efficiency.
For example, zero tolerance towards non-adherence to the Commitment Control Systems, or the circumvention of IFMIS, is required to address the long standing abuse of Public Financial Management (PFM) systems.
Making sure basic PFM systems work requires in the first place fundamental behavioral change. This change can only be brought about by the Government and each one of you sitting here.
Weak public sector management and administration is one of the main causes of absenteeism of teachers and health workers. This waste of public resources should not be allowed to continue.
Action should be taken to address absenteeism. This should include not only positive incentives, but also strong disciplinary measures. Lastly, Mr. President, the Government of Uganda has to start fighting corruption seriously.
The undeniable lack of government action to follow up on cases of grand corruption is a key area of development partner concern. Policies, laws and institutions are in place, but enforcement is limited, creating a culture of impunity.
Offenders should be sanctioned, money should be recovered and criminal investigations taken forward on key cases. We commend MoFPED on the recent initiative to develop an Action Plan for follow-up on CHOGM, which we hope will lead to concrete action being taken in the near future.
The Government’s failure to act on high level corruption will have implications, and donors under the Joint Budget Support Framework are currently considering a range of actions.
This may include withholding disbursements, reductions in aid, or re-programming away from direct budget support etc. These were all options discussed and agreed to with the Government in the 2007/08 budget appraisal.
In conclusion, Your Excellency, we would like to assure the government of Uganda that Development Cooperation will increasingly be a results-oriented partnership, where development partners can demonstrate to their own taxpayers that money is well spent.
We are committed to improving the predictability of aid and to working with Government to address the serious challenges Uganda faces to consolidate past gains and achieve lasting results for the people of Uganda. Thank you for your attention.
Kundhavi Kadiresan World Bank Country Manager Chair, Local Development Partners’ Group Co-Chair, Joint Budget Support Framework Policy Committee