Document of The World Bank

Report No: 28838

IMPLEMENTATION COMPLETION REPORT(GRTD-H0630)

ON A

GRANT

IN THE AMOUNT OF US$ 150 MILLION

TO THE

REPUBLIC OF UGANDA

FOR A FIRST SERIES OF

POVERTY REDUCTION SUPPORT CREDITS (PRSC1-3)

MARCH 10, 2005

Human Development 1Country Department 4Africa Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 30, 2004)

Currency Unit = Uganda Shillings (Ush) Ush 1174 = US$ 1:00

US$ 1:00 = Ush 1909

FISCAL YEARJuly 1 June 30

ABBREVIATIONS AND ACRONYMSAfDB African Development Bank AG Auditor General AGO Accountant General's Office BFP Budget Framework Paper BoU Bank of Uganda CAS Country Assistance Strategy CCS Commitment and Control System CDF Comprehensive Development Framework CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Report CTB Central Tender Board DA Directorate of Accounts DEI Directorate of Ethics and Integrity DFID Department for International Development (UK) DFS District Forestry Services DHS Demographic and Health Survey DMFI The Deposit Taking Micro Finance Institutions DWD Directorate of Water Development DWO District Water Offices DWST District Water and Sanitation Team EFA Education for All EFMP II Second Economic and Financial Management Project EHD Environmental Health Department EIA Environmental Impact Assessment EPI Expanded Program for Immunization ESIP Education Sector Investment Plan ESR Education Sector Review EMIS Education Management Information Systems ESW Economic Sector Work FID Forestry Inspection Division GAAP Generally Accepted Accounting Practice GDP Gross Domestic Product GoU Government of Uganda GNI Gross National Income HIPC Heavily Indebted Poor Countries HIV Human Immunodeficiency Virus HPPG Harmonized Participatory Planning Guide

HSSP Health Sector Strategic Plan ICC Implementation Coordination Committee ICPAU Institute of Certified Public Accountants of Uganda ICRG International Country Risk Guide ICT Information and Communications Technology IDA International Development Association IFAC International Federation of Accountants IFMS Integrated Financial Management Systems IMF International Monetary Fund IPPS Integrated Pay and Personal System KfW Kredit fur Wiederaufbau LLO Justice, Law and Order LGDP Local Government Development Project LSSP Land Sector Strategic Plan MAAIF Ministry of Agriculture, Animal Industry and Fisheries MAPS Marketing and Agro Processing Strategy MDG Millennium Development Goals M&E Monitoring and Evaluation MFI Micro Finance Institutions MMR Maternal Mortality Ratio MOD Ministry of Defense MoES Ministry of Education and Sports MoFPED Ministry of Finance, Planning and Economic Development MoH Ministry of Health MoI Ministry of InformationMoIA Ministry of Internal AffairsMoJCA Ministry of Justice and Constitution AffairsMoLG Ministry of Local GovernmentMoPS Ministry of Public ServiceMSEI Minister of State for Ethics and Integrity MoTTI Ministry of Tourism, Trade and IndustryMoWHC Ministry of Works, Housing and CommunicationsMoWLE Ministry of Water, Lands and EnvironmentMTBF Medium Term Budget FrameworkMTCS Medium Term Competitiveness StrategyMTEF Medium Term Expenditure FrameworkNAADS National Agricultural Advisory ServicesNAPE National Assessment of Progress in EducationNARO National Agricultural Research OrganizationNBFI Non-Bank Financial InstitutionsNEMA National Environmental Management AgencyNGO Non-Governmental OrganizationNHP National Health PolicyNMS National Medical StoresNPV Net-Present-ValueNSDS National Service Delivery SurveyNSSF National Social Security FundNWSC National Water and Sewerage CorporationO&M Operation and Maintenance

OAG Office of Auditor GeneralOPD Out Patient DepartmentOPM Office of the Prime MinisterOOB Output Oriented BudgetingPAF Poverty Action FundPCC Policy Coordination CommitteePEAP Poverty Eradication Action PlanPEMCOM Public Expenditure Management CommitteePEAP Poverty Eradication Action PlanPER Public Expenditure ReviewPIU Project Implementation UnitPMA Plan for Modernization of AgriculturePNFP Private Not-For-ProfitPPA Participatory Poverty AssessmentPPDA Public Procurement and Disposal of Asset AuthorityPPET Post Primary Education and TrainingPRGF Poverty Reduction and Growth FacilityPRSC Poverty Reduction Support CreditPRSP Poverty Reduction Strategy PaperPSC Procurement units under Circular StandingPSIA Poverty and Social Impact AssessmentRAFU Road Agency Formation UnitRCTB Reformed Central Tender BoardROM Results-Oriented ManagementSWG Sector Working GroupTDMS Teacher Development and Management SystemTFR Total Fertility RateTSU Technical Support UnitTB TuberculosisUBOS Uganda Bureau of StatisticsUCDA Uganda Coffee Development AuthorityUN United NationsUNDP United Nations Development ProgramUPE Universal Primary EducationUPPAP Uganda Participatory Poverty Assessment ProjectURA Uganda Revenue AuthorityUSAID United States Agency for International DevelopmentVAT Value Added Tax WSS Water Supply and Sanitation

Vice President: Gobind NankaniCountry Director: Judy M. O'ConnorSector Manager: Dzingai B. Mutumbuka

Task Team Leader/Task Manager: Bruno Boccara

UGANDAFirst Series of Poverty Reduction Support Credits (PRSC 1-3)

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 165. Major Factors Affecting Implementation and Outcome 316. Sustainability 327. Bank and Borrower Performance 338. Lessons Learned 359. Partner Comments 3710. Additional Information 48Annex 1. Key Performance Indicators/Log Frame Matrix 49Annex 2. Project Costs and Financing 50Annex 3. Economic Costs and Benefits 51Annex 4. Bank Inputs 52Annex 5. Ratings for Achievement of Objectives/Outputs of Components 55Annex 6. Ratings of Bank and Borrower Performance 56Annex 7. List of Supporting Documents 57Annex 8. Detailed Project Data 59Annex 9. Poverty Reduction Support Credit in Uganda -Results of a Stocking Paper

Table 1. The Consolidated Objectives and Expected Outcomes for PRSC-III

61

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Map IBRD 31802

Project ID: P074081 Project Name: Third Poverty Reduction Support CreditTeam Leader: Bruno Boccara TL Unit: AFTP3ICR Type: Core ICR Report Date: March 11, 2005

1. Project DataName: Third Poverty Reduction Support Credit L/C/TF Number: GRTD-H0630

Country/Department: UGANDA Region: Africa Regional Office

Sector/subsector: General public administration sector (40%); General education sector (15%); General water, sanitation and flood protection sector (15%); General agriculture, fishing and forestry sector (15%); Health (15%)

Theme: Public expenditure, financial management and procurement (P); Administrative and civil service reform (P); Environmental policies and institutions (S); Health system performance (S); Education for all (S)

KEY DATES Original Revised/ActualPCD: 10/03/2002 Effective: 02/11/2004 02/11/2004

Appraisal: 06/12/2003 MTR:Approval: 09/09/2003 Closing: 09/30/2004

Borrower/Implementing Agency: THE REPUBLIC OF UGANDAOther Partners:

STAFF Current At AppraisalVice President: Gobind T. Nankani Callisto E. MadavoCountry Director: Judy M. O'Connor Judy M. O'ConnorSector Manager: Dzingai B. Mutumbuka Robert R. BlakeTeam Leader at ICR: Bruno Boccara Satu Kristiina KahkonenICR Primary Author: Peter Miovic

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: M

Bank Performance: HS

Borrower Performance: S

QAG (if available) ICRQuality at Entry:

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:3.1.1. Background. By the year 2000, when the first PRSC was prepared, Uganda had achieved much in reversing massive capital flight, establishing macroeconomic stability, rebuilding key public institutions, and revitalizing local civic participation. However, despite a significant reduction in the percentage of those living in poverty, about a third of the population still fell below the poverty line (headcount of income poverty was 34%), and most of the poor had grossly inadequate access to basic services. Reducing poverty in all its dimensions had become the Governments top priority with the preparation of the first Poverty Eradication Action Plan (PEAP) in 1997. The plan was to utilize an approach which combined economic growth, particularly by stimulating agriculture and enterprise, while significantly increasing social sector spending. While Uganda’s performance at the macroeconomic level had been impressive, the transition from a post-conflict “bounce-back” in growth to a sustained rapid expansion had been elusive, and Uganda’s social indicators were in 2000 still mostly below Sub-Saharan African country averages. The Government also had to struggle with high levels of corruption at all levels of the public service.

3.1.2. In 2000, a number of years of analytical work (including a series of household surveys and the Uganda Participatory Poverty Assessment Project (UPPAP), and the experience gained in designing and implementing PEAP I. This culminated in the publication of the second Poverty Eradication Action Plan (PEAP II), a medium term strategy organized around four “pillars” with the objectives to “create an enabling environment for economic growth and structural transformation (Pillar 1); ensure good governance and security (Pillar 2); directly increase the ability of the poor to raise their incomes through rural development and expansion of non-farm activities (Pillar 3); and directly increase the quality of life of the poor through the provision of primary education, health care, and water and sanitation services (Pillar 4)”.

3.1.3. With the introduction of the Universal Primary Education Program in 1997, primary school enrolments rose dramatically from 3.1 million children in 1996, to 6.6 million, by 2000, with virtual equity between boys and girls. However, educational quality and performance could not keep up with enrolment successes, due to the limits on how quickly new teachers could be trained (still averaging some 63 pupils per teacher in 2000, although down from 100:1 in 1997), inadequate number of classrooms (average of 121 students per classroom in 1999), and insufficient teaching materials (average of 6.7 students per textbook in core subjects). Poor educational quality was evident in low student test scores and high drop-out rates. Enrolments at secondary level were also low, with fewer than 20% of school age children entering high school, and a significant proportion of these (63%) came from the wealthiest 20% households, with girls strongly under-represented. One of the perennial problems plaguing Uganda’s education system had been the weakness and corruption in the district educational system responsible for the transfer of funds. By 2000, the Government had made significant improvements, increasing the proportion of funds reaching schools from 20% in 1995, to over 90%. However, there were still long delays in allocated funds arriving, and many problems related to utilization.

3.1.4. Although many efforts had been made over the years to improve its health profile, Uganda’s indicators were in 2000 still quite poor. Mostly due to the impact of HIV/AIDS, life expectancy at birth had declined from 48 years in the mid-1980's to 42 years by 1993/2000 (compared to a Sub-Sahara African average of 50 years). Infant mortality rates showed some improvement (88 live births per 1000 babies by 2000, as shown by the DHS which is conducted only every 5 years, compared to 104 in 1970/75). However, the mortality rate for children under five remained at 147 by

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2000, only a little better than the Sub-Saharan African average of 151, and maternal mortality at 505 per 100,000 live births was among the worst in Africa. While a 1995 study identified HIV/AIDS as the cause of 9% of premature deaths, the major killer was peri-natal and maternal trauma (20%), followed by malaria (15%), acute lower respiratory tract infections (11%), and diarrhea (8%). By 2000, Uganda had lost 800,000 victims to HIV/AIDS, resulting in over a million orphans, and social and economic devastation for the worst affected communities. Although a large proportion of the rural population had minimal health care, even in terms of the most essential services, there has been improvement. For example, in 2000, only 46% of children had been immunized before their first birthday and the outpatient utilization rate was 0.43 visits per capita. Public health facilities were plagued by quality problems. A 1999 study showed that public health facilities had high levels of vacancies and heavy reliance on staff that lacked the minimum qualifications. Only 40% of the posts at clinics were filled by qualified personnel. De-motivation among medical staff due to delays in salary payments, backlogs in delivery of medicines and materials, delays in transfer of allocated funds, and sub-standard facilities, further eroded quality. Discontent with public health services has resulted in a greater reliance on private (especially in the urban areas) and NGO health centers.

3.1.5. In 2000, about 52% of Uganda’s population was connected to the National Water and Sewerage Corporation’s services, with a bias towards urban areas, and unequal access among regions. Capital expenditure for the system depends on donor financing, and Government funds for operation and maintenance were inadequate. The result was that many services were erratic, and up to 30 % in rural areas were non-functional. The administration and financial management of the sector had been marked by inefficiency and waste. The National Water Policy published in 1999, focused on community driven demand in rural areas, along with improved district management, and private sector involvement. In urban areas, the policy emphasized private sector participation to commercialize and improve the efficiency of the sector, professionalize the public management of the sector, and introduce an independent regulatory system.

3.1.6. PEAP II, prepared in 2000, focused on reducing income (headcount) poverty by supporting direct measures to maintain a high rate of growth of the economy. It also focused on improving people’s welfare through delivery of services, a number of which would improve people’s productivity and incomes in the longer run. The World Bank Group’s Country Assistance Strategy (CAS) 2000 supported the goals of the PEAP by providing projects in electric power, roads, and capacity building, giving programmatic support to basic social services, and delivering the first Poverty Reduction Support Credit (PRSC), which was a new Bank instrument at that time. It was designed to provide direct budget support to Uganda to help it implement its reform program. The World Bank support in the case of the PRSCs thus became financial in nature, with attendant doses of expert knowledge but no assistance in direct implementation (as was the case with projects).

3.1.7. Objectives. The three annual PRSCs were designed as an integrated program, with each PRSC broadening and deepening its focus with respect to the various aspects of the PEAP, as well as drawing on the experience as the PRSC process evolved. Goals for PRSC-I were designed to be achieved at the end of the three year process, with specific benchmarks for each operation as prior actions for presentation to the World Bank Executive Board along the way. In addition to introducing its own specific goals, PRSC-II continued the second phase of accomplishment of PRSC-I goals; and this cumulative process was continued in PRSC-III. By that time, however, the nature of the game had changed in the sense that the program supported by the PRSCs was a rolling 3-year program. The program was aligned with the rolling 3-year Medium Term Expenditure Framework. Each year a previous year was dropped and a new one added in the future. As a result there has been some expansion of the goal posts, making it harder to define precise objectives.

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3.1.8. PRSC-I. The goal of PRSC-I was to support selective areas prioritized in the PEAP rather than the PEAP as a whole. PRSC-I focused on improving the delivery of basic services in health, education, and water supply and sanitation. This was to be achieved by (i) raising the productivity and cost-efficiency of public investment and expenditures; (ii) strengthening public sector performance through revision of the public salary structure and improved human resource management practices; (iii) improving governance through reforms in procurement, financial management, and monitoring and evaluation; (iv) increasing transparency and participation in public administration, and fighting corruption; and (v) initiating processes by which sector constraints could be identified and removed through collaboration across sectoral ministries and agencies.

3.1.9. PRSC-II. PRSC-II incorporated the goals of PRSC-I along with updates and refinements based on the experience of PRSC-I. In addition, PRSC-II, focused on the Third Pillar of the PEAP, i.e. directly increasing the ability of the poor to raise their incomes. As 85 percent of Ugandans (and 96 percent of Uganda’s poor) live in rural areas, Uganda’s core strategy to directly increase incomes is the Plan for the Modernization of Agriculture (PMA) which aims to transform subsistence agriculture to commercial agriculture. In accordance with the PMA framework, PRSC-II aimed to (i) improve the responsiveness and impact of publicly funded agricultural research; (ii) increase access and effectiveness of agricultural advisory services; (iii) stimulate financially sustainable microfinance institutions with greater access for the poor to financial services; (iv) provide for the more effective use and management of land resources, more secure tenure rights, and access to land for women and orphans; (v) reduce the level and risk of environmental degradation by integrating environmental priorities in sector-wide government programs; and (vi) increase access to markets in rural areas through improvement of the network of district roads.

3.1.10. PRSC-III. PRSC-III updated, refined and consolidated all of the goals of PRSC-I and II, focusing on actions to deepen reforms in most of the sectors covered in the first two PRSCs, and incorporating additional financial sector issues such as pensions. PRSC-III, therefore, has the most comprehensive statement of goals for the three-year PRSC cycle, although it also began to outline what was to be achieved in PRSC IV and beyond. The goals and expected outcomes of the first 3-year PRSC cycle are summarized in Table 1. Details are found in the full policy matrix in the PRSC documentation.

Table 1: The Consolidated Objectives and Expected Outcomes for PRSC-III

PEAP Pillar Objectives Areas Results IndicatorsFramework for economic growth and transformation

Improve efficiency and equity in use of public resources

Allocations and actual expenditure

· Better alignment of public expenditures with PEAP priorities· MTEF includes donor-financed projects and wage bill· Timely and predictable resource flows· Publication of periodic budget performance reports

Inter-governmental transfers

Streamlined inter-governmental transfers

Results-oriented monitoring and evaluation (M&E)

· Enhanced results-orientation of sector programs· Strengthened responsibilities and methods

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of M&EStrengthen financial sector

Improved functioning of pension and insurance system

Ensuring good governance and security

Improve public sector management system and practices

Public service management

· Reformed public sector pay system· Improved payroll and personnel management· Controlled expansion of public administration· New phase of public service reform launched

Public procurement

· Reformed public procurement system including legal and regulatory framework, and planning· Strengthened enforcement of procurement rules and regulations

Financial management

· Updated legal and regulatory framework· Improved central and district accounting and reporting· Strengthened audit structures and practices

Enhancing transparency, participation, and anti-corruption

Transparency Improved access to public information

Detection, investigation, and prosecution

Improved detection, investigation, and prosecution of corruption cases

Civil society participation

Strengthened NGO legal and regulatory frameworkHarmonized use of participatory approaches

Legal and Judicial Reform

Reformed judicial enforcement of commercial contracts

Increasing ability of the poor to raise incomes

Promoting enabling environment for rural development

Agricultural research and technology

Improved responsiveness and effectiveness of publicly funded agricultural research

Agricultural advisory services

Increased access to improved agricultural advisory services

Rural finance Improved capacity and outreach for micro-finance institutions

Agro-processing and marketing

Reduced constraints to agro-processing and marketing

Natural resource management of land

Prioritized implementation of 1998 Land ActBetter access for women and orphans to land

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Environmental management

Environmental sustainability priorities integrated into all government programs

District Roads Improved network of district roadsDirectly increasing the quality of life for the poor

Improving access to and quality of education

Primary Education Pupil-teacher ratio reduced to 50:1Pupil-textbook ratio reduced to 3:1 in P4Pupil-classroom ratio reduced to 88:1

Post-primary education

Strategy for expansion of post-primary education implemented

Improving access to and quality of health care

Health care financing

Rationalized health care financing

Drug procurement and management

Strengthened procurement and management of drugs and medical supplies

Human resources Increased health human resourcesHealth infrastructure

Improved health infrastructure

Improving access to and equity of water and sanitation services(WSS)

Rural WSS Strengthened, decentralized planning, implementation, and management of rural WSS

Improved central government provision of WSS technical assistance to local governmentsIncreased use of local private sector for WSS construction, spare part distribution, and maintenanceCompleted strategy for national hygiene promotion, sanitation, and communication

Small towns WSS

New WSS management framework implemented for small townsCommercialized WSS operations introduced

Urban WSS Improved financial sustainability of urban WSS delivery

3.2 Revised Objective:3.2.1. As indicated above, PRSC-III incorporated and consolidated the objectives and outcomes for PRSC-I and PRSC-II, while introducing some additional focus areas, all of them within the original framework laid out by the two previous operations. Where progress had been stalled or new issues had emerged, PRSC-III refined the statement of goals and introduced additional measures. However, as these remain consistent with the original goals, they do not constitute revised objectives.

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3.3 Original Components:The three PRSCs were conceived and implemented as parts of a three year PRSC Program. Therefore, this ICR will consider all of the components together, as a single package implemented over a three year period. Each component responded to a key Pillar of the PEAP. Again, it should be kept in mind that each PRSC was prepared on a rolling basis, a new one replacing the old, with some refinement of objectives. Separate “simplified” ICRs have been prepared for PRSC 1 and 2. The ratings are identical.

3.3.1. PEAP Pillar I: Framework for Economic Growth and Transformation. The components under this Pillar were concerned with enhancing the efficient and equitable use of public resources, and strengthening the financial sector. This includes reaching annual agreements between the GOU and key stake-holders (including donors) on the allocations of strategic expenditures in the MTEF to ensure adequate provision of direct poverty-reducing funds. The MTEF would also incorporate all donor-funded projects and the GOU wage bill. Some components focused on improved delivery of financial resources, including measures taken to streamline the timeliness and predictability of intergovernmental transfers through merging the delivery of development and recurrent transfers, and strengthening decentralized fiscal management capacity. Further measures were taken to strengthen financial management performance in terms of soundness, efficiency, and access, focusing especially on pension reform, and enforcing compliance of new insurance regulations. Finally, some components focused on the monitoring, evaluation, and follow-up processes concerned with public expenditure. These included a component to improve the tracking of regular expenditures, especially in the social sectors. This component also included actions to strengthen the Monitoring and Evaluation procedures and accountabilities, based upon an enhancement of results-orientation of sector programs (by refining output and outcome goals and targets). Another component, aimed at reducing the deviations between budgeted and actual expenditures introduced semi-annual budget performance reports (quarterly, if requested).

3.3.2. PEAP Pillar II: Ensuring Good Governance and Security. The components under this Pillar were concerned with ensuring the level of governance needed to support the effective delivery of public services. These components were designed within the framework of strengthening decentralization, reducing Uganda’s seemingly chronic corruption problems, and providing the necessary level of law, order and security. Some components focused specifically on the Public Service, and included measures to implement a government pay reform strategy consistent with the MTEF, and supportive of improved service delivery goals. This included upgrading the incentive structure for the groups of civil servants identified as associated with the most important reforms needed to remove constraints on effective service delivery. Alongside, a component focused on improving payroll and personnel management to reduce the delays in incorporating new government recruits into the government payroll (which has been creating morale problems), strengthening internal payroll controls to eliminate fraud, and instituting a computerized Integrated Pay and Personnel System (IPPS). Another companion component was the launching of a new phase of public service reform, based on substantial gains made by Uganda’s previous public sector capacity building efforts in the early 1990's. A macro-level component focused on measures to control the significant expansion that has taken place in the public service since 1997.

3.3.3 A second group of components focused on the problem of tackling Uganda’s weak public procurement system which has lacked adequate planning, efficiency, transparency, and inspection. One component focused on updating the legal and regulatory framework for public procurement through the establishment of a Public Procurement and Disposal of Public Assets Authority (PPDA) to replace the old Central Tender Board. This was to be supported by the establishment of

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procurement units to provide technical support to all procurement functions in central government, and eventually local government, along with capacity building to ensure these units would have the required expertise. The PPDA was to issue quarterly reports on all contracting over $200,000, and carry out independent procurement audits of all central government procurements and at least 30% of local government procurement.

3.3.4. A third group of components focused on strengthening governmental financial management to ensure effective transfer of allocated resources, and strengthen financial discipline and fiduciary responsibility, especially at the local government level. These components were to be implemented within the context of an updated legal and institutional framework for financial management under a new Public Finance and Accountability Act, and a Public Expenditure Management Committee (PEMCOM) to oversee public expenditure reforms. Other measures focused on improving accounting and reporting practices both within central and district government, by increasing the percentage of districts and urban authorities that produce their annual accounts within the statutory four month deadline, from 40 percent (in 2002/3) to 90 percent (in 2003/4); reconciling previously un-reconciled public accounts; issuing quarterly interim financial statements; clearing the backlog of Treasury memoranda; strengthening the capacity of the Public Accounts Committee; launching of capacity building programs for financial management and budget staff within central and local government agencies; and the implementation, on a pilot basis, of a new Integrated Financial Management System (IFMS) in six central ministries and four local governments.

3.3.5. These financial management strengthening components were accompanied by a number of measures aimed at strengthening audit structures and practices. These included the appointment of an Auditor General with international accounting qualifications, with measures to ensure that the Office of the Auditor General (OAG) has full independence and unfettered access to public expenditure information, and the appointment of quality assurance managers to work with sharpened guidelines to improve the quality of audits. The audit components set the target of increasing the percentage of district and urban authority annual accounts audited from 46% (in 2002/3) to 90 percent (in 2003/4). 3.3.6. Finally, under Pillar II, the PRSC program included components aimed at improving transparency and participation in governmental operations, and reducing corruption. These components included measures to improve the access of the population to public information through the implementation of a communications strategy relating to fiscal policy and the budget; and open public access to facts relating to the income and assets of senior government officials under a new Leadership Code. Other measures aimed at strengthening the detection, investigation, and prosecution of corruption cases through the consolidation of several tiers of anti-corruption legislation into a comprehensive Anticorruption Act to provide a more effective basis for fighting corruption and misappropriation of public assets, barring individuals and companies found guilty of corrupt practices from access to government contracts, and recovering stolen assets. IGG’s enforcement capacity was to be sharpened through improved quantitative indicators to assess progress in the fight against corruption. A companion Whistleblower Bill was to be enacted to provide necessary whistleblower protections. Measures were designed to enhance the enforcement of commercial contracts through a commercial justice reform program which included strengthening the access and case processing of the Commercial Court; the establishment of a center for Alternative Dispute Resolution; the strengthening of land and company registries; and the revision of commercial laws.

3.3.7. The measures aimed at strengthening public participation, focused on the implementation of a harmonized framework for community participation in service delivery, supported by a computerized data-base of NGOs and faith-based organizations. Surveys were carried out on the functions and

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capacities of Ugandan NGOs to form the basis of the NGO Act aimed at strengthening the participative role of NGOs in Uganda’s development program.

3.3.8. PEAP Pillar III: Directly Increasing the Ability of the Poor to Raise their Incomes. Under this pillar, the PRSC program (which was a new component added in PRSC II) focused on measures to help increase the rate of agricultural growth, diversify agricultural production, and expand non-farm employment. A number of components addressed improvements in the responsiveness of agricultural research (through the implementation of a new strategy for agricultural research); and increasing farmers’ access to and the effectiveness of agricultural advisory services (through the implementation of the National Agricultural Advisory services (NAADS) Program, a demand-driven program giving farmers, and especially women’s groups, access to needed agricultural services. Components aimed at improving agro-processing and marketing, included the production and implementation of an integrated Marketing and Agro-processing Strategy to remove existing constraints, and a redefinition the role of the Uganda Coffee Development Authority (UCDA) to support niche-market development and market-oriented quality standards. A Warehouse Receipt System Act was aimed at providing the legal framework for the system of warehouse bonding and the issuance of warehouse receipts. Support to especially poor and marginal farmers was addressed in a component to implement the 1998 Land Act in a manner that promotes the access to land of women and orphans, through implementation of an action plan to increase awareness of land rights among women and other marginal groups, and implementation of pilot schemes to strengthen common property management systems through registration of communal land associations, and provision of model constitutions for their operation.

3.3.9. Companion components addressed the need to upgrade the network of district roads, including the endorsement of an improved national policy for the planning, construction, and maintenance of district roads, to form the basis of a ten-year district roads investment program ready for implementation by April 2004, supported by the establishment of technical offices to assist district government implementation. Other components addressed the need to integrate environmental sustainability priorities in government programs, supported by the implementation of improved National Environmental Management Agency (NEMA) guidelines (including environmental monitoring indicators). These were to be accompanied by manuals and guidelines for use of local governments in preparing district environmental action plans, and an increase of government funding to NEMA to cover 50 percent of their recurrent budget. To ensure effective attention to forestry assets, the environmental components included the launching of a National Forestry Plan supported by the National Forestry and Tree Planting Act, and the launching of the National Forestry Authority and district forestry services.

3.3.10. Strengthening of non-farm employment was to be supported by measures aimed at improving the operating capacity of micro-finance institutions, within the implementation of the Microfinance Deposit-taking Institutions Act, that would license micro-finance institutions to operate as financial intermediaries. This was to be supported by a government outreach program to strengthen the capacity of these institutions.

3.3.11. PEAP Pillar IV: Directly Increasing the Quality of Life of the Poor. To contribute to the achievement of the goals of this Pillar, the PRSC program focused on improvements in primary education, health care, and access to safe water and sanitation. The primary education components were designed within the framework of semi-annual government-led education sector reviews involving all major stakeholders (government, donors, NGOs) to monitor progress, set quantitative targets, and track quality through key indicators. The components aimed at increasing the net rate of

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enrolment in the final (P7) primary grade; increasing the primary completion rate; and maintaining gender balance in primary enrollments. One set of measures focused on reducing the pupil-teacher ratio from 63:1 in 2000, to 50:1 in 2003/4, by launching a national recruitment drive for primary school teachers, improve incentives for teachers to go to remote areas, improve payroll management for teachers, and provide in-service training for unqualified teachers through the Teacher Development and Management System (TDMS). A second set focused on reducing the pupil-textbook ratio from 6.7:1 in 2000, to 3:1 in 2003/4, by new procurement arrangements to improve quality and reduce unit costs of text books. These were to be supported by a base-line assessment to facilitate the measurement of progress, the procurement of a wide-range of non-textbook materials, and the training of teachers to use new instructional materials. A third set of measures focused on reducing the pupil-classroom ration from 121:1 in 1999, to 88:1 in 2003/4, through implementation of a classroom construction program under a national plan for expansion of school facilities. To improve monitoring of progress under these primary education components, measures were to include the implementation of a framework for monitoring educational quality outcomes, which includes indicators to monitor student progress in literacy and numeracy. Finally, the education components included a focus on improving post-primary educational expansion through launching the implementation of a strategic framework for post-primary education.

3.3.12. The PRSC health care components focused on improving the quality and effectiveness of health care service delivery, based on goals of the Health Sector Strategic Plan (HSSP). The HSSP, which emphasizes the delivery of a minimum health care package of cost effective interventions, and is implemented under a sector-wide approach involving semi-annual joint sector reviews that monitor progress, identify and address constraints, and establish targets. The implementation of HSSP is monitored against 20 key health indicators. The PRSC components focused on rationalizing the financing of health care by channeling donor financing through the government budget in order to improve the effectiveness and efficiency of health care spending. Specific components addressed the actions needed to strengthen logistics and management of drugs and medical supplies through the implementation of a National Drug Policy and Pharmaceutical Strategic Plan (based on tracking studies that identified key ways of improving drug management and supply). Other supportive measures included the establishment of a fund to provide credit to districts to procure drugs, consolidation of the health sector payroll into one under the PHC conditional grant and formation of an inter-ministerial committee to coordinate actions relevant for the training of health care staff by both public and privately run health schools, within a new human resource development policy for the health sector. Finally, PRSC health components focused on the need to improve Uganda’s rundown health infrastructure through the implementation of a National Health Infrastructure Development and Maintenance Plan, which aims to rationalize the distribution of health facilities, rehabilitate existing structures, and to speed the construction of facilities to under-served areas through the use of minimum new construction standards and improved flow of funds for construction and maintenance. These components were included to help raise to 47% the proportion of health facilities staffed by qualified health workers, increase the DPT3 vaccination coverage for infants from 63% (2000) to 75% (2003/4); increase the utilization of out-patient facilities from 0.40 per capita (2000) to 0.65 per capita (2003/4); reduce the adult HIV prevalence from 6.5% (2000) to 5% (2003/4); ensure that 28 percent of deliveries take place assisted by trained health workers (from 21% in year 2000); and reduce the rates of infant and maternal mortality.

3.3.13. The WSS components of the PRSC program were aimed at achieving a sector wide approach that would increase the supply of WSS services, reduce the rural-urban and regional inequalities, increase utilization of facilities, and improve the sustainability of services. The goals of these components were governed by the Government’s National Water Policy of 1999, and the subsequent

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formulation of rural and urban sub-sector strategies. At the center, PRSC components supported efforts to strengthen the effectiveness of the Directorate of Water Department (DWD) through the implementation of a reorganization plan for DWD. Accompanying PRSC components included measures to strengthen decentralized local government planning, implementation, and management of WSS, through the establishment of District Water and Sanitation Teams (DWSTs) to cover all districts, the implementation of a revised structure and staffing for the District Water Offices (DWOs), and the implementation of a WSS operational manual and implementation guidelines for districts assisted by eight Technical Support Units. Another component supported the goal of developing and utilizing local private contractors for engineering, construction, spare-part distribution, and maintenance of local WSS facilities under the implementation of a National Maintenance Strategy. PRSC also supported the development and implementation of a national hygiene promotion, sanitation, and communications strategy for implementation through trained community extension workers, and the distribution of a Community Resource Handbook to strengthen community management and utilization of WSS services. These rural WSS PRSC components were aimed at increasing rural access to safe water and sanitation from 55 percent (2000) to 65 percent by April 2005, at an average investment of US$50 per capita. Functionality of WSS facilities was to be maintained at a minimum of 80 percent; and the average time spent fetching water, reduced to below 30 minutes (2000).

3.3.14. The PRSC urban WSS components included measures to introduce local or international private operators under a clear contractual relationship with government, to include a management contract for the operations of the National Water and Sewerage Corporation (NWSC), and the implementation of an Urban WSS Policy and Investment Program, which would result in WSS systems being transferred to an asset holding authority, and privatized operations management. To strengthen the financial sustainability of NWSC and attract private investment, PRSC included measures by which the government would settle NWSC’s outstanding arrears of Ush 7.58 billion; and the adoption of a simplified tariff structure which includes a pro-poor focus. For small urban areas, PRSC supported the development of small towns WSS management strategy, and privatised operations management. These urban WSS PRSC components were aimed at increasing urban access to safe water and sanitation from 55 percent (2000) to 70 percent by April 2005, at an average investment of US$150 per capita.

3.4 Revised Components:Because the three PRSCs were conceived and implemented as part of a three-year PRSC Program, the intention was to ensure continuity while learning from experience and refining and adding to the various components as needed. This approach was an integral part of the PRSC implementation strategy, and therefore the various refinements and improvements do not constitute revisions to PRSC components.

3.5 Quality at Entry:3.5.1. Rating. The overall quality at entry for PRSC I was not carried out. However, there was an assessment by QAG (the Quality Assurance Group of the World Bank) of PRSC II.(Quality at Entry Assessment (QEA6) by of PRSC-II (dated 7/23/2002). This assessment was taken into account in designing PRSC III. The assessment rated the overall quality at entry of the PRSC II as Satisfactory, and Highly Satisfactory in Strategic Relevance and Approach, Fiduciary Aspects, and in Bank Inputs and Processes. The operation was well focused on the priority PEAP reform areas, and a high level of Government involvement and ownership which increased the prospects for successful implementation. PRSC-II was described as a major step forward in helping the Ugandan government escape the institutional fragmentation that has usually accompanied project financing. It was found that PRSC II systematically built on reforms initiated under PRSC-I, providing a clear road map for the reform

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process over the remaining PRSC Program time horizon. The assessment also regarded the PRSC as a useful means to improve donor partnership and coordination.

3.5.3. The assessment also found that many of the PRSC II actions were either procedural steps to be taken by various government bodies (e.g., preparation of strategies, proposals or Cabinet submissions) or inputs (hiring of consultants and staff, creation of new organizational units), and were not necessarily closely linked with the end results desired in terms of improvements on the ground in the performance of government agencies and the delivery of public services. The assessment found the descriptions of some of the actions in Schedule 1 vague, which would make it difficult to monitor the quality of achievements and their real impact. The operation was judged not to have reflected consistently good judgments about the likely time required to complete some required actions.

3.5.4. The assessment of PRSC II found that the PAD did not provide adequate analysis of key macroeconomic issues such as the desired characteristics of the medium term fiscal framework or the risks that large aid inflows will cause excessive exchange rate appreciation. Neither did the PAD provide indication of the fiscal costs of the proposed reforms. In its view, it would therefore be difficult to judge whether the MTEF would allow the Government to actually incur expenditures at the level necessary to ensure achievement of established target outcomes. In the event, this continued to be the case in PRSCs III and IV and it is only in PEAP III, currently under preparation, that a costing exercise is supposed to be carried out.

3.5.5. The assessment of PRSC II stated that there is little evidence in the PAD that consultations or other analysis have been carried out as part of the PRSC process to determine the views of stakeholders about some of these politically sensitive reform measures supported by the PRSC, and to gauge the likelihood of policy reversals due to adverse reactions of vested interests. The report also observed that given the complexity and difficulty of the many institution-building reforms in the PRSC, along with the fact that the Ugandan Government lacked strong human resource capability, substantial technical assistance would be needed, over an extended period of time, for successful implementation. The PAD did not provide a systematic assessment of technical assistance needs and how these would be met, and that the absence of needed technical assistance could pose a risk for the quality and timely completion of the reform process.

3.5.6. Consistency with the CAS. The PRSC Program has been consistent with the Bank Group’s Country Assistance Strategy for Uganda, November 16, 2000 (Report 20886-UG). The CAS priorities were to maintain macroeconomic stability, but to shift the focus increasingly to sector-level and cross-cutting public sector management issues. The goal was to replicate within sector management the excellent policy and implementation record established at the macroeconomic level. The PRSC program was regarded as the Bank’s key instrument in supporting this effort. In terms of the Bank strategy, the PRSC program was also a response to the fact that Bank-supported sector investment projects were not always well integrated with other sector activities, and suffered from low sustainability. Because other donors focused on their own aid delivery mechanisms, the development of government systems for managing sector development had received only limited support. The initiation of the PRSC process was also a response to requests by GOU for a change in donor lending modalities, on these grounds: that macroeconomic progress had reduced the need for traditional structural adjustment lending; Uganda’s improved planning and budget management provided confidence that public resources, augmented by those provided by the PRSCs and associated donor funding, would be allocated to PEAP priorities; there was a need to enact comprehensive reforms both across sectors and across the system as a whole, for which investment projects were sometimes too narrow; and there was a need to improve coordination of donor support for a country-owned program.

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The shift to the PRSC was consistent with the principles of the Comprehensive Development Framework (CDF) and acted as a bridge between the CAS and the PEAP. The Bank strategy therefore envisaged, with the inception of the PRSC mechanism, a decline in the relative weight of investment projects in the Bank portfolio for Uganda, with investment projects thereafter concentrating mainly on infrastructure and capacity building.

3.5.7. Coordination with African Development Bank (AfDB). The World Bank and AfDB cooperate under a joint memorandum of understanding. The preparation of each phase of the PRSC program ensured consistency between Bank and AfDB, the support programs of both organizations focusing on key PEAP goals of strengthening agriculture and rural development, and equitable access to basic services in education, health, and WSS. AfDB provided a Poverty Reduction Support Loan (PRSL) which was consistent with the PRSC, and with the reduction of World Bank support through investment projects, AfDB projects filled some of that gap.

3.5.8. Coordination with IMF. With the adoption of the PRSC modality, the IMF was to continue its focus on macroeconomic and financial sector issues, especially short-term macroeconomic stability, financial sector regulation and supervision, and factors influencing long-term financial sustainability. It was agreed that World Bank and IMF staff would continue to work together in areas of fiscal decentralization and financial sector and governance priorities, on the updating of the Uganda’s Debt Sustainability Analysis, and in joint assessments of PRSPs. In September 2002, the IMF approved a new three year Poverty Reduction and Growth Facility (PRGF) which was closely coordinated with the PRSC Program, the PRSC focusing on social, structural, and governance priorities, and the PRGF concentrating on monetary and exchange rate policy, expenditure management, local government accountability, financial sector supervision, and tax administration.

3.5.9. Coordination with Other Donors. The World Bank worked closely with the donor group in Uganda on the development of the PRSC priorities and prior actions. Several donors (Germany, Ireland, the Netherlands, Norway, SIDA and the UK), agreed to support the PEAP with programmatic grants utilizing progress against the PRSC policy matrix and prior actions as an important, but not necessarily the only, trigger for their disbursements. Other donors (EU, AfDB)) agreed to align their own support programs with the PRSC and participate in l appraisals and reviews. The cooperation of the donor group was established in accordance with the agreed Partnership Principles governing government-donor relations.

3.5.10. Bank Safeguard Policies. Because of the strong sectoral orientation of the program, the PRSCs were subject to the safeguard requirements for SECACs (OP 4.01). As a Category B operation, PRSC-III incorporated the environmental assessments conducted for PRSC-I and PRSC-II for health, water and sanitation, and rural development. The detailed analysis was included as Annex 6 in the PRSC-III Program Document (Report No. 26078-UG). The analysis identified potential environmental risks linked to medical waste, construction of school facilities, design and sustainability of WSS facilities, and agricultural pesticide usage. Social concerns included access to safe water among those who cannot afford such services, community role in selecting, operating and maintaining water services, and potential conflict over land use and common property resources. The government and implementing agencies, with the help of the World Bank and other donors, worked to create a viable framework to improve environmental sustainability in the sectors covered by PRSC, and to identify and monitor key safeguard issues. It might be noted that in a typical World Bank project safeguard issues such as management of fiduciary risks or environmental aspects, there are typically a set of actions that are implemented under the guidance of a Project Implementation Unit. Since PRSCs are just a funding instrument, safeguards are supposedly implemented within the overall reform

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program of the PEAP (supported by the PRSC). It is not clear that in the area of environment nearly as many actions were taken as in the fiduciary area, starting with inadequate support of the recurrent costs of NEMA by the Government.

3.5.11. Design. The three PRSC operations constituting the PRSC Program, were all one-year, single tranche operations, with disbursements taking place at project effectiveness based on the government’s satisfactory accomplishment of Prior Actions. This simple design ensured that key essential reforms needed to support the goals of each phase of the PRSC program would be enacted up-front, thus giving the PRSC lending modality strong advantages compared to SACs, which had a history of protracted negotiations and sometimes disputes in Uganda over the satisfaction of tranche release triggers. Prior Actions, taken as a package, show a consistent unfolding of a reform package designed to assist the accomplishment of PEAP objectives. The design ensured a high level of continuity from PRSC-I to PRSC-III, with opportunities at each stage to take stock, learn from experience, and refine the project components and Prior Actions as needed. In principle, therefore, the design of PRSC instrument in Uganda supports the strengthening of national self-reliance, encourages continuous monitoring and learning from experience, and facilitates coordination across government agencies, between government and donors, and among donors.

3.5.12. There are, however, some potential problems in the design of all three PRSC operations. The first has been referred to above in the QAG assessment (3.5.3 above), namely the way the various goals have been couched. In many cases, what are described as results or outputs, are in fact simply procedural or process outputs which are pre-requisites perhaps for actions that may ultimately lead to poverty-reducing impacts. These would, of course, be valuable accomplishments for the project and potentially for the country. The contribution of the accomplishment of these actions to poverty reduction could have been made clearer. It may make sense for future PRSCs to define in what way they will reduce poverty (e.g. from the welfare point of view by improving service delivery to the lowest quintiles; or by reducing income poverty, etc.) in order to allow for sharper focus in the measures to be taken. For example, PRSC I discusses poverty both in income terms (paragraph 14-17) and in terms of how social and human development improve future income earning capacity of the population and how poor public sector performance (ability to deliver the services for social and human development) is one of the main constraints to economic development and poverty reduction. And while the objectives of the PRSCs were focused largely on improved service delivery, the overall outcome was to be verified through a headcount of poverty as well as satisfaction with service delivery. If headcount poverty was really to be one of the outcomes, the PRSCs should probably have been more focused on supporting areas of the PEAP that were more concerned with the achievement of growth and (income) poverty reduction. On the other hand, while the income/consumption poverty intervention model was not particularly well articulated at the time the first PRSC was being prepared, there had been a considerable body of findings in what needed doing to improve service delivery and how that could be accomplished. The path taken in the end, i.e. that of focusing the PRSCs on service delivery, thus makes sense, it is just that the ex ante case was not argued in a particularly convincing way. Ex post everyone agrees that the PRSCs so far have been focused on the dimensions of poverty that can be reduced through better service delivery, rather than on the reduction in income poverty.

3.5.13. The question of the counter-factual also arises. The World Bank assistance strategy in 1999/2000 was to move from largely project instruments which in a number of cases were not working (education, health, water and sanitation), to sector-based policy instruments, especially in the social areas. These would be complemented by projects in power and roads to underpin growth and by supporting the development of capacity at the local government level. In retrospect, the success in service delivery in education, water and sanitation, and less so in health, suggests that the PRSC

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sector-wide, across-the-board, approach has been successful. It also lowered the transaction costs and helped strengthen the strategic focus in a number of other sectors. It seems a reasonable conclusion that the PRSC approach was better than the counter-factual.

3.5.14. The other design issue, is the vague way many of the results are couched. A few examples are given here (references are to paragraph numbers in the PRSC-III Program Document Report No. 26078-UG): “improved performance of the pension system and insurance industry” (92); “increased efficiency, transparency and reduced corruption in public procurement, and better management of expenditure programs” (107); “reduced fiduciary risk at central and local government level” (116); “harmonized framework for community participation in service delivery” (122); reduced level and risk of environmental degradation” (137); “improved learning outcomes” (151); “rationalized financing of the health sector” (158). There are many more like these. This approach poses a number of problems. Firstly, it is not clear in these and other examples how much the PRSC program intended to accomplish. The second problem is that because of the lack of specificity, the government does not have clear expectations of what needs to be accomplished within a given time-frame. This encourages slippages. Thirdly, it is almost impossible, given the generality of results like these, to evaluate not only whether the PRSC has accomplished its goals, but also the extent and value of that accomplishment. How, for example, is it possible to measure “reduced level and risk of environmental degradation”? What aspects of this huge problem are supposed to have been impacted by the actions prescribed in the PRSC? How would one recognize an improvement? How much of an improvement would one expect to detect? And so on.

3.5.15. Risks. The overall development program of Uganda faces a variety of risks, chief among them, limited institutional capacity and scarce expertise. This is especially true at the local level which has assumed a huge responsibility for both planning and implementation as a result of Uganda’s incremental process of decentralization. Uganda has over the years instituted some well-designed capacity building programs, which have in many ways transformed the performance of a state that was hardly functional in 1986, to a public sector that functions well in many respects, particularly in terms of macro-economic management, and core economic agencies including the Ministry of Finance, Planning and Economic Development (MFPED) and the Central Bank. These improvements have been mirrored in a stable macroeconomic environment and one of the strongest economic growth performances in Africa over the last decade. However, these achievements pertain mainly to the capacity at the center while most of the implementation of service delivery occurs through the sectors at the local level.

3.5.16. Continuing weakness in public sector capacity is aggravated by ubiquitous corruption, which the government has confronted, but which endures in small ways throughout the system, and has presented an even greater hazard with the decentralization to local government. The government has a clear understanding of these problems and has enacted many measures to deal with them. Some progress is being made, but the risks persist, as shown by recurring scandals and in public perception surveys. Both corruption and weaknesses in institutional capacity at the local (service delivery) level were bound to make fiduciary risks of the PRSCs high.

3.5.17. Finally, Uganda’s external trade structure in year 2000 was fairly undiversified and neither its industrial sector not commercialized agriculture had been growing sufficiently fast during the 1990's to help with the needed transformation of the economy. It was by no means clear then, that in the near future (2000-2003), Uganda could achieve an overall rate of economic growth that was high enough and of the kind that would result in a significant reduction in (income) poverty. In fact, data from the recent household survey suggest that, in terms of private consumption, economic growth seems to have

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mainly benefited the wealthiest, urban sectors of the economy, and increased the gap between rich and poor, with an actual increase in the income/consumption poverty head-count over the past three years. Uganda today remains largely dependent on subsistence agriculture, with only modest progress in the development of non-agricultural enterprise and the export basket is still highly dependent on coffee. This, along with the surprisingly high population growth numbers that came out of the recent census, have triggered some serious rethinking of what is to be done. However, the risks had been evident (and were identified) at the start of the PRSC cycle.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:4.1.1. The PRSC program outcome is assessed as Satisfactory for the reasons explained below. First comes a section evaluating the broad program objectives, followed by an evaluation of component objectives broadly following the Results Indicators in the right-most column of Table 1. In addition, all Prior Actions for the three operations had been substantially taken, although in a number of cases with some delay.

4.1.2. Contribution to Macroeconomic Stability and Financial Resource Management. While Uganda maintained its macroeconomic stability and kept inflation below PEAP targets, the country’s recent GDP growth rate has been too slow to continue the trend in (income) poverty reduction of the 1990's. Some of the slowdown is attributable to the weakened terms of trade over the period in question, and to the continued conflict in the North. Some, however, as indicated in the Risks section above (3.5.15-17), may be due to other factors.

4.1.3. PRSCs (along with linked donor transfers) constitute the largest single source of transfers to the national budget. The PRSC Program also contained a number of measures to improve expenditure management, ensuring more effective transfers of allocated funds, and to reduce the deviations between budgeted and annual expenditures. In terms of modality for funneling aid, the PRSC mechanism has improved the predictability of donor resource flows, and therefore directly supported the continuity of budget transfers, while reducing transaction costs. This aspect of PRSC has been a success. Utilization of aid provided in support of the budget has steadily improved, with the ratio of actual disbursements to amounts allocated increasing from 39.6% in 1998/99 to 85.6% in 2002/03.

4.1.4. Uganda is heavily aid dependent (donors fund half the national budget), with poor domestic revenue collection (12.3 percent of GDP compared to the Sub-Saharan African countries’ average of about 18 percent). While heavy donor dependency may, in theory, be a tolerable interim arrangement while the country is still so heavily dependent on subsistence agriculture, it is not a fiscally sustainable basis for longer term growth and poverty reduction. The current patterns of economic growth show only slow change in the sectoral shares of GDP, indicating that the structural changes sought by the Government have not been occurring. The positive feature of efficient transfer of donor aid through PRSC (and related modalities) is also creating a problem of absorption capacity, driving up unit labor costs in the non-traded goods sectors. Monetary authorities, in an attempt to control these inflationary pressures, have had to cut back on the rate of growth of money supply. Such large foreign aid inflows create pressures to either allow the exchange rate to rise (which is a disincentive for exports), or real interest rates to rise (which is bad for investment).

4.1.5. Contribution to Poverty Reduction. Uganda made impressive progress in reducing poverty between 1992 and 2000, during which period the poverty headcount declined from 56 percent to 34 percent. However, since 2000, the year that the PRSC program was initiated, the poverty headcount has

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increased to 38 percent (Household Survey 2002/03). Income disparities have also increased in the last few years, with the income growth benefits accruing to only the top (wealthiest) quintile of the population. The other four quintiles report declines in real household consumption per capita between 2000 and 2002. The deterioration in poverty also has an urban-rural and regional bias, with the worst poverty levels recorded in the North, and with Eastern Uganda experiencing a sharp worsening of its headcount poverty level. The country’s GDP per-capita is about US$250, and Uganda ranks 147 out of 175 countries (Human Development Index (HDI) UNDP, 2003).

4.1.6 The Joint IDA-IMF Poverty Reduction Strategy Paper Annual Progress Report (August 13, 2003, Report No.:26567-UG), written before the results of the 2002/03 Household Survey were released, cites as important reasons for reduced income among the poor, the problem of access to land, combined with the impact of environmental degradation and the fragmentation of the size of landholdings. Added to this, is the uneven progress in providing the poor the essential infrastructure and facilities required for increases in income, especially rural roads, energy, markets, and financial services. Delays in implementing a National Land Policy and Land Use Policy have prevented effective action to improve land distribution, especially to women, orphans and other marginal groups, as well as hindering efforts to provide environmental protection. While much has been done to address gender inequalities, remaining disparities still hinder the productivity of women farmers. Insecurity, especially severe in the north, has all but destroyed the means of livelihood for many communities. In urban areas, a continued high rate of unemployment and underemployment contribute to urban poverty. The high population growth rate puts additional pressure on poor families whose income is already below poverty levels.

4.1.7. On the welfare side of poverty reduction (delivery of social services) the picture is brighter according to recent assessments (Mpuga and Canagarajah, April 2004, and Fox, 2004) as well as data cited on service delivery in various sections of this ICR. Since the abolition of user fees at health centers in 2001 the distribution of government subsidies (expenditures) has shifted in favor of the poor. However, the poor still face constraints in terms of distance to health units and the quality of some of the public health centers available to them still seem questionable since the richer segments of the population positively avoided these facilities even after the user fees were abolished. In education, the introduction of UPE has been followed by a big shift in the distribution of public expenditures (subsidies) towards the poor and in favor of girls, something not seen in the case of secondary and tertiary education. Recently developed strategies for both secondary and tertiary education have a clear focus on equity of access, including in terms of gender. In access to water, the situation has improved overall, but the poorer segments of the urban population as well as those living in the countryside still have to mostly use open unprotected sources of water and have to travel long distances to safe water sources (about an hours walk). The walking is mostly done by women. In agricultural extension, while the new NAADS program is being vigorously implemented, the richer farmers have disproportionately good access to these services.

4.1.8. It is difficult to rate the PRSC Program’s role in the deteriorating (income) poverty picture, uncovered by the 2002/03 household survey, a task which is much easier when looking at other dimensions of poverty such as access to various services. Few of the objectives of the PRSC directly addressed income improvement. The components related to improved responsiveness of agricultural research and advisory services, would have had little bearing over the short-term on the poorest cadre of Uganda’s farmers. Plans to expand district roads would not have produced results within the time-frame of the PRSC Program (and in any case faced delays since no technical offices that were supposed to have been established to assist District governments to implement the strategy for district road construction and maintenance have been put in place so far). It may also be true that in the first stage of connecting farms to markets it will be the richer farmers who are able to produce a surplus that will benefit first. Components related to improving access by women and orphans and other marginal groups to land ownership, and those supporting better

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environmental stewardship, are relevant to poverty reduction at the lowest quintile range, but have moved slowly and their impact is still many years away, and it is not yet clear what impact these measures will have in practice. One other aspect that seems to have been missed was the increase in the population growth rate that (after the census of 2002) turned out to have been 3.4% for the previous decade rather than the assumed 2.8%. Given that the fertility rate in the Demographic and Health Survey of 2000 was 6.9 children per woman and that 50% of women gave birth to their first child by age 19, and that there had been a slow-down in the prevalence of HIV/AIDS, was the population assumption of 2.8% plausible? A different assumption might have raised alarm bells sooner.

4.1.9. In sum, on the service delivery side the focus of the PRSCs has been clear and there are a series of accomplishments as discussed above. If the PRSCs were not supposed to support the income poverty reduction objectives, perhaps that should have been made clear so that other parts of the World Bank’s assistance strategy could focus more insistently on that aspect. This will presumably be taken into account in the new PEAP and the new donor Joint Assistance Strategy that are now both in the last stages of preparation.

4.2 Outputs by components:4.2.1.1. Budget Performance and Allocations. The Ugandan budget is gradually becoming more predictable in execution. However, the still weak state of budget monitoring in many key sectors means that donor requirements for adequate fiduciary assurance have not yet been met, which may slow down additional budgetary support commitments.

4.2.1.2. Despite many improvements in budget allocations, there remain some important problems. Government expenditures increased from 16.7 percent of GDP in 1997/98 to 23.5 percent in 2002/03. While most of this reflects increased budgetary support, some of it also is due to large increases in defense expenditures (18 percent above budget level) and public administration (3 percent above budgeted level – apparently mostly at the state house and district level), and domestic interest payments. Meanwhile, the most stable element in the budget was the Poverty Action Fund (PAF) whose allocations increased from 17% of the budget in 1997/98 to 37% in 2002/03. Actual PAF expenditures closely matched PAF budgeted amounts, and the PAF was protected during this period from other budget pressures. Increased defense and public administration spending was met by cutting expenditures in areas outside the Poverty Action Fund by 23%, negatively impacting roads, agriculture (especially the inadequate funding for the PMA), natural resource management, and environment. This resulted in non-PAF development expenditures 15 percent below originally budgeted levels. The existing separate technical assistance projects in some areas that did not fall directly under the PAF umbrella, but were important to the overall success of the budget support operations, such as financial management and capacity development at the district level, apparently cushioned the impact of the sudden cuts in non-PAF budget categories in a number of instances.

4.2.1.3. MTEF Process and Integration. In general terms, there is progress in making the budgeting process more transparent and accountable. Parliament, especially, has been playing a more active role. PER workshops have been held each year, open to all stakeholders, to review the MTEF allocation priorities and debate budget execution. The government has also been issuing regular reports reviewing budget performance. The MTEF has improved budget predictability. Increased transparency has improved the quality of budget planning, budget choices, and budget discipline. Integration of project aid in the MTEF is still weak, and donor disbursements are still falling short of commitments. The lack of incorporation of all donor funding into the MTEF, as well as some instances of inadequate donor cooperation, provides an opportunity for line Ministries and donors to bypass and undermine the aims of the MTEF processes. There is still not effective synchronization of project aid with various sector and

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local government budget ceilings. It is also proving difficult to incorporate into the MTEF cross-cutting reforms and broadly based capacity building initiatives.

4.2.1.4. Resource Flows to Sectors. Despite some efficiency improvements, there is still an irregular flow of funds to some sectors with overall transfers at less than 92 percent (86 percent for roads and works; 87 percent for justice, law, and order; 87 percent for water and sanitation; 89 percent for agriculture; 90 percent for health; 91 percent for education; and 90.5 percent for economic functions and social services). Performance by broad expenditure categories shows that wage and non-wage expenditures were above target, while development expenditure fell short by almost 20 percent in most sectors.

4.2.1.5. Resource Flows to Districts. The government has substantially increased allocations to local governments.. Self-generated revenues of most local governments amount to less than 15 percent of their expenditures. While the largest per capita increases are going to poverty prioritized districts in the north and east, there are doubts about how much is reaching intended beneficiaries because of continued governance problems. Education received the highest increase, followed by health and economic functions and social services. Although transfers increased, they were less than was targeted.

4.2.1.6. Enhanced Results Orientation in Sector Expenditure Programs. There have been improvements the adoption of output-oriented budgeting (OOB) methods, and results-oriented management (ROM). The most recent budget workshop, provided the Sector Working Groups which provide critical input to a successful MTEF process, with guidelines on OOB and ROM, and sectors have set ROM as an operational objective at the institutional level, attempting to match these with goals at the sectoral level. Many sectors are, however, still experiencing difficulties distinguishing between outputs and outcomes and struggling with defining results that are in their power to achieve so that their performance could be judged by the achievement of results.

4.2.1.7. Budget Monitoring and Evaluation. Although some of the PRSC initiatives have been launched, budget monitoring and reporting have been assessed as weak and uncoordinated by the March 2003 HIPC tracking report. The problem is particularly severe at the local level, where monitoring and evaluation is often perfunctory and in the worst cases, hardly present. In central government improvements have been made through the preparation of a quarterly budget performance report (within 30 days of the end of a quarter), and a half-yearly report, which is published and distributed. The goal is for the final annual report to be produced within 90 days of the end of the fiscal year. While improvements in OOB and ROM have also facilitated better monitoring of outputs and outcomes, there are still many sectors where such information is difficult to obtain. Actions are underway to solve some of these problems through the MFPED’s Poverty Monitoring and Evaluation Strategy (PMES) and the commitment to undertake NIMES. Notwithstanding slow progress, improved budget performance reports have helped to identify and reduce the budget discrepancy between allocation and outturns, to less than 10 percent in the last few years.

4.2.2. PEAP Pillar II: Ensure Good Governance and Security

4.2.2.1. Public Service Management. The pace of public service reform targeted in the PRSC program has not been realized. Some goals have been largely achieved, such as the constraints in recruiting teachers and health workers, and changes made to improve the integrity of the payroll. Work has commenced in some areas highlighted in the PRSCs, but has not advanced to the level of results, however generalized, stated in the PRSC. Planned PRSC-linked actions to improve efficiencies and effectiveness within the public service have been postponed, and the public service reform strategy is stalled at the conceptual stage, with no action despite the fact that reform needs had been clearly analyzed in the Public Administration Study. Some initial progress has been made in introducing a new Performance Appraisal

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Scheme that is based on defined service and output targets, but it is too early to determine whether this scheme will bring about the results and service oriented culture change envisaged by the introduction. In 2002/03, Ush 15 billion was earmarked for salary increases for middle to senior level professionals.

4.2.2.2 There has been an additional problem of controlling expenditures in the budget sector called Public Administration. This budget chapter is not the whole public service. It includes primarily political administrations as well as transfer grants to the districts. The problems have been primarily with the political administrations were Uganda’s PA sector remains very large by Sub-Saharan African standards, and has been growing rapidly. PRSC containment goals have not been achieved, and 2002/03 expenditures on PA in 2002/03 reached 17.6 percent of total government expenditures. It is programmed to reduce them to 15.9 percent in 2003/04. Targeted efficiencies do not seem to have been accomplished either, and many departments of government have budget overruns. While the average overrun was about 2 percent, it is significantly higher for some functions (State House, Electoral Commission). Part of the expansion has been due to the addition of political appointments, the establishment of commissions, and the creation of additional administrative units especially in local government. These are mostly not front-line service delivery posts and one could question whether they deliver “value for money”.

4.2.2.3. Public Procurement. Some important advances have occurred towards achieving the PRSC goals, especially the enactment of the new Public Procurement Law, which establishes the legal and regulatory framework for public procurement. The Public Procurement and Disposal of Assets Authority, set up by the act, has yet to be empowered with adequate staffing and budgets. Procurement units have been set up in all central government procuring ministries, departments, and agencies. At a local level, the institutions required by law to operate the new system have been established, most importantly the tender boards and technical evaluations committees, which have already produced procurement plans and have established routines to deal with procurement matters. The majority of districts and municipalities have produced lists of pre-qualified contractors (which are supposed to be updated annually), and are including evaluation criteria for bid assessment in the tender documents. The PPDA has begun to track the impact of these reforms, and has launched reviews of procurement in the education and WSS sectors. Not unexpectedly, the system often runs into difficulties at a local level in terms of vested interests and potential corruption. There have been reported cases of hidden tenders, and political appointments of tender board members. There is still insufficient transparency and cases when tender boards reverse positions taken by technical evaluation committees without explanation. Clearly, much needs to be done to ensure that the governance aspects of public procurement keep pace with the technical improvements, and it is anticipated that these issues will be a priority for the next version of the Country Procurement Assessment Report. Other areas problem areas include: (i) weak linkages between procurement plans and cash flow projections, which can lead to over-commitments at the Local Government (LG) level; (ii) failure to publish minutes of tender board meetings; (iii) a lack, at the district level, of quarterly returns of purchases; (iv) weaknesses in the way winning bids are followed up; and (v) delays in updating the list of pre-qualified contractors.

4.2.2.4. Financial Management. Progress has been made towards achieving the PRSC goals of strengthening the country’s systems of accounting for and auditing public expenditure, which has been a long-standing weakness in Uganda, posing significant fiduciary risks. As is the case with many of the reform objectives supported by the PRSC, the key bottlenecks are at the local level and this is were progress has been the slowest. The strengthening of the overall national legal and regulatory framework for financial management, as envisaged in the PRSC program, has been largely achieved; and considerable training has taken place to improve accounting and auditing skills, making it possible to upgrade the quality of recruitment. Progress has also been made in implementing the Integrated Financial Management System (IFMS). The GOU has been active in sensitizing users on matters related to IFMS and has implemented a comprehensive training program. Live running commenced in February 2004 at pilot sites which includes 6 ministries and 4 local authorities. However, despite many actions, the main governmental structures

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responsible for financial management control and oversight (OAG, Ministry of Local Government, MFPED, IGG, line ministries) are not yet operating at an optimal level, according to the most recent Public Expenditure Review 2003, Report No. 27135-UG: “Their activities need to be synchronized and streamlined in terms of inspection, monitoring, review and analysis, reporting and accountability, follow-up, and, if necessary, sanctions.” (paragraph 5.70, page 86).

4.2.2.5. Progress has been slow at the local government level, where, apart from the Local Government Financial and Accounting Regulations, there is still a lack of effective written procedures and standards for internal controls. This makes it difficult to maintain quality control, and to identify and handle instances of corruption. Some progress has been made in establishing local government internal audit units, and some have professionally qualified staff. The delay in local government audits has shortened considerably over the last few years, although on average they are still about six months behind schedule. Most internal audits are pre-audit, and unannounced post-audits are rare. As internal audit visits seldom exceed twice a year, they have, at present, little impact on local government financial management. The internal audit units have to deal with many obstacles, such as insufficient organizational authority and perceived independence because they do not have a separate directorate structure. This perception is worsened by the lack of attention and follow-up to audit reports offered by district councils and core central government stakeholders, including the Ministry of Local Government, the MFPED, and the OAG. The units are often out of the communication loop, not up-to-date with the latest developments, and are often not trained on how to handle the many new guidelines covering conditional grants. Because the units are financed largely out of local revenues, they operate in a financially constrained context where there are inadequate funds for fundamental necessities such as transport, computers, and administrative support. The Local Government Public Accounts Committees (LGPACs), whose job it is to review internal audit reports, suffer from similar problems, especially weak authority and support, and lack of financing. It is rare that a negative LGPAC report leads to punitive follow-up. As the LGPACs lack capacity, their reports are almost entirely dependent on the internal audit reports they receive, which does not help build credibility. In addition, the backlog in these reports, sometimes a number of years, severely limits their utility. A recently created Parliamentary Local Government Public Accounts Committee is supposed to oversee local government financial management, but has so far led only to threats and accusations where discrepancies have been found, with little effective remedial action.

4.2.2.6. What are meant to be annual external audit reports on local government accounts, have been lagging two or more years behind. This has been due in part to long delays between the submission and approval of draft final accounts, procedures which suffer as well from lack of transparency and too much negotiation on discrepancies. These time delays are shortening recently, and much progress has been made at the Higher Local Government level. A recent OAG report shows that only 4 of the 129 HLGs lacked audited accounts by July 2002. The situation is far worse at the sub-county level, where, over the last three years, less than 50 percent of sub-counties have even submitted accounts to OAG; and by mid-2002, only 110 out of 3,000 sub-county accounts had been audited for the past three years. The OAG has now proposed an audit strategy for submission to the Ministry of Local Government (MOLG) which outlines the appropriate approach, including financial and staffing resources required, for annual audit of sub-county accounts (there are close to 900 sub-county governments in Uganda).

4.2.2.7. Corruption, Transparency, and Participation. The situation involving corruption in Uganda remains highly problematic, and while PRSC may have made some progress at the level of enacting regulations (such as the Leadership Code) and through high-level statements of commitment and principle, there has been little progress in terms of prosecuting and punishing the culprits. Uganda continues to rank among the world’s most corrupt ten countries in international indices. It is not eligible for the US

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government’s Millennium Challenge Program funding because of the continued perception of corruption. Under the requirements of the Leadership Code, most officials during the first high-level phase, voluntarily submitted their asset declarations to IGG. However, controversy developed around attacks on the IGG for attempting to dismiss a Presidential Advisor for non-compliance. This coincided with a decision of the Constitutional Court to reduce the powers of the ombudsman of government to investigate complaints about misuse of powers and financial resources in public administration. The second National Integrity Survey (NIS), published by the IGG in April 2003, found large-scale corruption and embezzlement at the top, which because it is not addressed aggressively is encouraging administrative corruption at the grassroots, and threatens to undermine and perhaps derail some of the reforms. According to the Auditor General’s annual reports to Parliament, Ush 200 billion is unaccounted for, lost, or misused annually, 7.5% of the GOU budget. The NIS identified the police force as the most corrupt of all government institutions, which poses a major governance and security problem for the country. Others found especially corrupt include health units, magistrate courts, and the Ugandan Revenue Authority, whose poor revenue generation is partly to blame for Uganda’s dependency on donors and growing debt. Progress has been inadequate on a number of PRSC targets, including enactment of the consolidated Prevention of Corruption Bill; revision of the Official Secrets Act; enactment of the Freedom of Access to Government Information Bill; and enactment of the Whistleblower Protection Bill. Given these trends, and the fact that GOU, allocates only 1.1 percent of its budget to accountability institutions (according to Transparency International), it is questionable whether an operation like the PRSC is able to make much impact on corruption issues.

4.2.2.8. Many efforts have been made to improve transparency and public information at the central level, especially in budgeting and planning matters, such as publishing financial transfers to the districts. However these are insufficient without the promised legislation to improve the limited access to government information, which has not emerged. With decentralization, transparency at the local level has become a prime focus, and here the situation is promising but uneven. Most local governments have yet to start publishing plans, budgets, work plans, accounts, and audit reports. There is little done as yet to encourage civic participation in these mainstream financial management functions, beyond some recent progress in providing at least formal but limited opportunity for civic involvement at yearly budget conferences. Better progress has been made in including civic groups in local project management committees, and in some cases, in service delivery activities. Many local governments are posting public notices of LGDP and other development grants at administration buildings; and some local authorities have begun to use local radio to provide information and allow exchange of views on new developments.

4.2.2.9. Community and NGO Participation. Some progress has been made in the development by the government of a Community Mobilization Strategy aimed at helping communities to better understand government development programs and policies, and to participate in the implementation and management of such programs. The post of Community Development Worker has been established within the local government structure. A number of sector ministries and local government offices have started recruiting mobilizers to help increase community awareness, but these efforts have been hampered by weak coordination. Local governments are still poor at reporting to community beneficiaries on financial matters, output, activities, and performance measures. Apart from the chance to participate in yearly budget conferences, citizens still have few contacts with the daily implementation of the district development program.

4.2.2.10. The Uganda process for preparing the PEAP has been widely accepted as a model of participatory consultation. There was significant involvement of NGOs and other civic groups in the PEAP and in Participatory Poverty Assessments. Stakeholders are regularly involved in discussing the

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progress and funding of the PAF, and NGOs are active in the implementation of programs such as micro-financing. For a long time, however, NGOs have been pressing for a clear framework for participatory planning between government and civil society. This was the goal of the NGOs Amendment Bill, the enactment of which was a PRSC target, and which has hardly been discussed in Parliament. Controversy rages about whether statutory security agencies should be represented on the NGO Registration Board. NGO responses to the PRSP process have been mixed. They welcome the chance to participate, but report that their capacity constraints limits their ability to debate policies and strategies, and therefore influence the process. Some claim that their involvement is symbolic rather than substantive, and that without some type of organizing framework and statutory status, their influence will continue to be limited. There are also issues with lack of government transparency and accountability at the local level. The Local Government Act does not sufficiently provide access and influence for NGO’s. There is also a strong desire to be better informed about the donor agendas, and to be able to debate and influence these agendas. Currently, therefore, while NGOs are active and vocal, their influencing and oversight role is limited, and they continue to operate mainly as implementers. While the PRSC process has helped NGOs strengthen their platform, the PRSCs have fallen short of achieving the goals of achieving “a better operating environment for government-NGO partnerships and self monitoring by NGOs”.

4.2.3. PEAP Pillar III: Directly Increasing the Ability of the Poor to Raise their Incomes.

4.2.3.1. The PRSC process has accomplished relatively little to support this PEAP goal. This is in part due to the fact that the support to this Pillar was only introduced in PRSC II, and partly because PRSC goals and objectives, which while clearly helpful in the long-term to raising the incomes of the poor, were too indirect to have any feasible impact over the program period. In terms of the specific PRSC components and expected results, progress has been mixed.

4.2.3.2. Improved Quality of and Access to Agricultural Advisory Services. PRSC has effectively supported the Government in achieving the goal of extending the National Agricultural Advisory Service (NAADS) program to 153 sub-counties in 21 districts. While NAADS has made an energetic and impressive start, progress in terms of tangible results is inevitably slow, partly because of the two-year pilot nature of this approach, and partly because of limited resources. Because of the huge demand and limited supply, it is not yet clear whether and how NAADS will reach the poorest farmers most in need, and how NAADS can realistically respond to those needs. NAADS has acknowledged the need to move rapidly after the completion of the pilot, to achieve tangible results, by selecting within each district, a priority “strategic enterprise”, to be developed and promoted with the support of the Secretariat and the private sector. There is still some work to be completed by MOPS to strengthen local government structures and capacities to meet NAADS requirements. Progress has been made in adapting the NAADS M&E framework to district requirements. Outcome indicators for NAADS have been adopted by all the districts. The NAADS-district organizational relationship is based on M&E technical committees, that have been set up at district levels, and are now being extended to sub-county level.

4.2.3.3. Improved Responsiveness of Agricultural Research. The recently completed review of the National Agricultural Research System (NARS) proposed a restructuring of the system to ensure greater participation by lower level groups in both local government and communities. In terms of progress, a new National Agricultural Research System Bill has been prepared establishing the National Agricultural Research Council (NARO) as the coordinating body. The law will change only the institutional structure, not the substantive program of NARO. NARO’s services have recently been highly rated by independent international institutions, showing the impact of NARO investment in agricultural research, yielding a benefit/cost ratio of 12.38, and the third highest rate of return in Africa (50%) behind Ethiopia (58%) and Morocco (57%). However, in terms of the PEAP/PRSC goals, NARO has not yet carried out a full

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nation-wide impact study to determine the exact contribution of its technologies to poverty eradication, income generation and food security. NARO also continues to face constraints: that many parts of PMA are lagging behind; the lack of effective farmer organizations engaged in commercial farming; and the lack of organized and sustainable marketing at the national, regional, and international levels. The new research program, which was to be the outcome of the research strategy completed some years ago, is yet to emerge, and is now targeted for the end of 2004. While NARO is making impressive progress and contribution, it is not yet clear how NARS can be better focused on raising the incomes of the rural poor. The desired PRSC result, “increased responsiveness and effectiveness of publicly supported agricultural research” is too vague to allow judgment

4.2.3.4. Reduce Constraints to Agro-Processing and Marketing. Little has been achieved in terms of improving access for the poor to agricultural markets. In fact, there is a clear trend, according to a recent MFPED study (Uganda Participatory Poverty Assessment National Report, 2003) for farmers to abandon formal markets altogether because of the burdens presented by licenses and taxes. The identification of the importance of this issue prior to the commencement of the PRSC cycle, is simply being reconfirmed. The same MoPFED study says that widely diverse groups (rural and urban farmers, and those in remote areas, farmers in villages with good infrastructure) cite lack of markets was one of the main causes of poverty. Diversification of crops has progressed in recent times, and is playing an important part in exports, especially fish (which reached US$78 million in 2002), cut flowers (which reached US$21 million in exports in 2002) and vanilla and spices. However quantities of production have yet to rise to the level where they can replace loss of foreign exchange earnings from coffee, and it is not clear that fish exports at that level are sustainable. In any event, while this progress is clearly valuable from a national growth point of view, it has yet to be shown to have had any real impact on raising the incomes of poor farmers. While there have been input-side improvements in strategies and services, the main constraints to increasing incomes of poor farmers, remain largely unaddressed: such as lack of financial resources to adopt improved technologies, and the high costs of transport and marketing. In principle, conditional grants could help fill some of the resource gaps, but these have yet to be effectively integrated into local agricultural promotion programs despite the efforts of the PMA.

4.2.3.5. In terms of the broader national effort to strengthen agricultural marketing and agro-processing, progress has been made on a number of fronts, including the start to implementation of the Strategy for Agricultural Marketing and Agro-processing under PMA, and the operation of the Warehouse Receipt System Act. Various other measures have been taken in terms of international trade, (such as participation in the US African Growth and Opportunity Act), and financial markets (registration of the Uganda Commodity Exchange).

4.2.3.6. Promote Access to Land by Poor Farmers, Women and Orphans. The PEAP and PRSC analyses highlighted lack of access to land as one of the most vital priorities to be addressed if incomes of the poor were to be improved. This was confirmed after the PRSC cycle was launched, by the 2001/02 participatory poverty assessment, where shortage of land was identified as the second most important cause of poverty (after poor health). The village census and other studies show that during the PRSC cycle, instead of poor households increasing their land-holding, the opposite has been happening (continuing a trend that started in 1996). The MFED/UPAP analysis of 2002 shows that landholding among the wealthiest households has continued to increase, and landholding among the poorest households has continued to decrease. The single most likely contributory factor has been the continued high population growth rate and large family size, leading to fragmentation and subdivision of property. Loss of usable land due to environmental degradation is also an important cause in some areas of the country. Land is also lost when poor families have no choice but to sell and move to urban areas. Inadequate land use planning, evictions, and inroads made by commercial farming, are also frequently cited as causes. PRSC II

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emphasized the slow progress in implementing the 1998 Land Act as a significant obstacle, and made this a key focus of the PRSC program. Some initial steps have been achieved, including the approval of a Land Sector Strategic Plan (LSSP) in 2001. Its implementation was due to start in 2002/3, but progress has been slow. Guidelines have also been approved for the flow of funds to land boards, Ministry of Water, Lands and Environment (MoWLE) has drafted proposals on gender and common property issues to be addressed, and a Land Use Policy Working Group has been established to lead the formulation of a National Land Policy and a Land Use Policy.

4.2.3.7. These are useful preparatory achievements. However they do not provide confidence that any significant results will be achieved in the near future in terms of reversing the land-loss trends among the poor. The participative poverty assessment of 2003 reconfirmed that what has been the case for some time remains the current situation: that intra-household poverty is increased through a combination of land loss and the subordinate status of women; that abandoned, divorced and widowed women are especially vulnerable; and that those poor women who do have access to land have little incentive to grow cash crops because they cannot exercise control over their own income. A recent LSSP study showed that legal changes in the Land Act to protect the land rights of married women, dependent children, and orphans, have had little practical effect to date.

4.2.3.8. Reduce the Level and Risk of Environmental Degradation. The Participatory Poverty Assessment shows that the environmental degradation trends have continued and perhaps worsened during the PRSC cycle, and that there is no evidence as yet that either the level or the risks have been reduced (the PRSC goal: see PRSC-III Program Document, paragraph 137, page 41). Losses due to environmental degradation have been estimated to lie within the range of 4 to 12 percent of GDP. Significant causes continue to be loss of forest cover, water pollution due to industrial and domestic waste, over-fishing, destruction of native fish species by introduction of foreign species, over-grazing, and encroachment on wildlife areas and wetlands. PRSC focused on strengthening institutional structures (chiefly NEMA), designing conservation and protection strategies, and training (especially at the local government level). Progress has been made in many aspects of this component as it was designed, although progress in achieving the stated PRSC goal is some way off. A number of environmental policies have been put in place: for forests (2001); wetlands (2001); and soil (2003). Responsibility for environmental management has been formally devolved to district and lower governments. An Environmental and Natural Resources Sector Working Group was established in 2001 to prepare and harmonize sector plans and budgets. Environmental training and manuals have been given to relevant government agencies, NGOs, and district and sub-district officials. An Environmental Governance Review has been launched, and the first steps taken to establish a National Forestry Authority. The viability of this approach to reducing environmental degradation depends on the adequacy of capacity and resources at the levels of primary responsibility, namely district and sub-district governments. It is clear that at present, neither the resources nor the capacity are adequate, and the sustainability of the decentralized approach remains uncertain. The policies themselves have also not been adequately funded, so implementation will be slow and uneven until they are. At the moment the Government funds only 10% of the recurrent budget of NEMA, with the rest supplied by donors. Environmental management depends to a large degree on voluntary adoption of effective practices and avoidance of harmful ones, and this requires a strongly participative approach to decision-making and a clear awareness of rights. Progress on this front is slow and there have been complaints of people being excluded from the decision-making process.

4.2.3.9. Improve the Network of District Roads. The 10-year District and Urban Road Investment Program has progressed to the completion of the detailed engineering design and preparation of tender documents for the first 1000 kilometers. AFRICON has also recently completed a revised strategy and action plan for the maintenance and rehabilitation of all secondary roads in Uganda including district roads.

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The strategy covers some 22500km of district roads, between 30000 and 50000km of community access roads and approximately 2000km of urban roads. At present, some 50 percent of the district and urban roads, and 85 percent of the community access roads are in a poor condition.

4.2.3.10. Strengthen Micro-financing. Progress is being made to support off-farm enterprise through the passage of the Micro-Finance Deposit Taking Institutions Act in November 2002. Two donor funded programs are moving forward to support the implementation of the goals of this act: the cabinet has approved a three year Rural Financial Services Outreach Program for implementation to begin in 2004, with Ush 16 billion financing from donors; and an IFAD-funded seven year Rural Financial Services Program has been negotiated. These programs will help build the capacity of MFIs, and promote product development, and business awareness among rural clients. The PRSC result stated simply: “financially sustainable micro-finance institutions, and greater access to financial services by the rural poor” (PRSC-III Program Document, paragraph 137, page 41). In terms of the former, no indicators are spelt out by which financial sustainability can be judged, nor are there any time scales or pace of progress described. In terms of greater access to financial services by the rural poor, similarly neither descriptive indicators, nor timescales/pace of progress, have been included. At present, most MFIs are located in urban areas that have good infrastructure, and they are scarce in rural areas, and especially in the poorest parts of the country, namely the north and east, and in newly created districts. All in all, while there has undoubtedly been progress in improving Uganda’s micro-finance sector, it is not yet clear how much of an impact these current measures will have in terms of reaching the rural poor and helping to increase their incomes. The PRSC objectives are stated so generally for the micro-finance sector that it is not possible to determine what the PRSC has achieved in this component beyond some overall forward movement. In addition, leaving aside the impact on the rural poor, there are also concerns about whether the MoTTI will provide an adequate supervisory structure for MFIs in the future, and it may well be that capacity will need to be built and alternative structures considered.

4.2.4. PEAP Pillar IV: Directly Increasing the Quality of Life of the Poor. PRSC did not focus on all the factors which are currently deficient in terms of the quality of life for the poor in Uganda. Instead the PRSC selected three of the most important: primary education, health, and WSS. The ICR will therefore not attempt to judge the progress made in terms of the overall PEAP Pillar IV, given that the PRSC coverage was only partial, and will focus only on the three sub-components.

4.2.4.1. Improving the Quality of Education. The PRSC targets were stated in terms of four indicators (pupil-teacher ratio; pupil-textbook ratio; pupil-classroom ratio; and proportion of age-appropriate children in the last year of primary school) and improvement in monitoring and evaluation in the education sector. Two other targets were set (gender balance in primary enrollment; and improved learning outcomes, for which no indicators or measures were provided). These are all important measures of progress when looking at the primary education sector as such, but they constitute possible inputs into increasing the quality of life of the poor, and not output measures as to how that quality has improved as a result of these inputs. So while it is possible to assess the progress made with these specific components, it would be largely conjecture, in the absence of indicators, to judge their contribution to the fourth pillar of the PEAP.

4.2.4.2. In pursuit of universal primary education, government has raised the primary school gross enrollment rate to 126.3 percent; numbers of primary 7 leavers grew to 461,788 in 2003 (an increase of 15 percent over 2002); and the net enrollment of the poorest quintile has increased to 83 percent, with almost equal numbers of boys and girls. While gender balance is being maintained at the primary school level, it is still unequal at secondary level. The cohort survival rate to Grade 5 increased from 36 percent in 2001 to 57 percent in 2003. The Pupil-Teacher Ratio has not quite reached the PRSC target of 50:1, and remains at 54:1 in 2002/03. The Pupil-Classroom Ratio did not quite reach the PRSC target of 88:1, the ratio being 94:1 in 2003/04. The pupil-textbook ratio (P3/4) exceeded the PRSC target of 3:1, achieving a ratio

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of 2:1 by 2003/04. The Government is also making special efforts to extend primary education to poor remote areas, such as Karamoja and Kalangala. Clearly, the rate of provision of education inputs has had a hard time keeping up with the extremely rapid increase in enrollments. At the secondary education level, studies on how to extend access led to the development and discussion of a secondary education review framework. Emphasis has also been given to the rehabilitation of secondary education school buildings. The sector still experiences problems in filling vacant teacher positions, and a lack of instructional materials in science and vocational subjects.

4.2.4.3. This progress has been achieved through very large budget allocations to the primary education sector; over 30 percent of total government recurrent discretionary budget is being devoted to the education sector, and almost 70 percent of that is being allocated to primary education. The September 2003 Public Expenditure Review (Report No. 27135-UG, paragraph 4.60) questions the sustainability of such large sector and intra-sector allocations (in terms both of capital and recurrent resource allocations), and whether it is possible through the current strategy to improve both primary and secondary enrolments at the same time. It is clear that goals to improve the quality of and access to secondary education are being hampered by inadequate budget allocations. This has led to an emphasis on private sector partnerships as a way to implement secondary and tertiary education strategies.

4.2.4.4. There are indications that learning outcomes had not improved much until recently. It is likely that rapid expansion, coinciding with decentralization of responsibility to under-prepared district governments, has taken place at the cost of quality, and at a time, where in any case, monitoring and evaluation are still too weak to provide adequate insight as to what effects the massive expansion has been having. Parents play a significant role in the success of any major education program reform, and it does not seem that enough has been done to sustain the interest and role of parent-teacher associations after school fees were eliminated. Above all, there are inadequate measures of whether, as justified under the PEAP, the families and children most in need are gaining significant or even equitable, benefits under this massive expansion. It is known that the quality is poorest in remoter rural areas, where teacher recruitment has been least successful and where school construction is especially costly, making it difficult to achieve national standards in such areas.

4.2.4.5. Improving the Quality of Health Care. Important steps have been taken in tackling some of the most problematic aspects of Uganda’s poor health status, although these steps are still preliminary analytical and administrative inputs rather than substantive outputs, and fall short of many of the results indicators stated in the PRSC. The government appointed a task force to tackle Uganda’s continued high infant and maternal mortality. The task force proposed: universal access to effective primary health package, improvement in access and quality of emergency outpatient care, expansion of family planning programs, intensification of adolescent health interventions and nutrition. These would go hand in hand with provision of universal education for girls and gender empowerment at the household and community levels. These are accompanied by efforts to encourage greater community involvement in Reproductive Health/Maternal and Child Care; increasing the supply of skilled birth attendees; expanding access to emergency obstetric care; prioritizing family planning; and enforcing the reporting of maternal and infant deaths to the District Councils. Pilot programs on maternal and child health have been taking place in Jinja, and Mulago, and a number of donors including WHO and UNICEF are actively assisting measures aimed at reducing the risks to maternal and child health. At the current rate of improvement, Uganda is unlikely to achieve the goal of reducing the maternal mortality rate (MMR) to the millennium goal target of 200/100,000 by 2015, or even the 2005 goal of 354/100,000. The Uganda Health and Demographic survey, estimates the maternal mortality ratio currently as 505/100,000. An inter-ministerial Task Force was constituted under PRSC-III to develop an integrated multi-sectoral strategy to address this continuing problem.

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4.2.4.6. Progress on other PRSC health indicators shows more positive trends. DPT3 immunization coverage rose from 63 percent in 2002 to 84 percent in 2003, exceeding the PRSC target of 75 percent. (Immunization coverage of children below one year of age increased from 46 percent in 2001 to 63 percent in 2002). The proportion of deliveries in health facilities was projected to increase from 22.6 percent in 2001/02, to 25 percent in 2003, but has not improved so far. Out-patient utilization increased from 0.6 visits per-capita in 2002 to 0.72 in 2003, to above the PRSC target of 0.65. The proportion of approved posts filled by trained health workers rose from 42 percent to 67 percent, or 55 percent using the new staffing norms. (The PRSC stated the target differently: the percentage of health facilities with qualified staff). The HIV-infection rate is projected at 6.3 percent in 2003, higher than the PRSC 5 percent target.

4.2.4.7. In terms of the goals of improving the supply of essential drugs, a drug tracking study was undertaken in 2002, and MOH has improved the efficiency and rationalization of drug procurement based on the recommendations of this study. A health sector PER analyzing efficiency at the district level was carried out in 2002/03; and MOH has embarked on a tracking study of the PHC conditional grant for shared services.

4.2.4.8. The PRSC emphasizes the results of rationalised financing of the health sector, although there are only some hints as to what standards rationalised financing would satisfy. Three years implementation of the Health Sector Strategic Plan (HSSP) have now occurred, and although funding has increased by an average rate of nine percent a year, financing levels are still below planned goals, resulting in continued shortage of trained health personnel, inadequate network of functional health infrastructure, and serious drug shortages. Much of the increase in allocations for the health sector continue to be carried by donors, contrary to one of the PRSC financial rationalization goals. However, there have been a number of important steps forward in terms of making the budget process more consultative and transparent, and in improving the poverty targeting of health allocations. The result is proportionately higher allocations to poor districts and regions of the country, and more channeling of resources to rural health sub-districts and lower-level administrative units. It is not yet clear if and how poor families are benefiting from these allocations, but this is the subject of a current district public expenditure review. One clear policy success has been the removal of user charges in all government health facilities in 2001, which has significantly improved the use of health services by the poor.

4.2.4.9. Improving Access to and Equity in Water and Sanitation. There has been important but uneven progress in the pursuit of PRSC WSS goals, especially in terms of input processes. As in the case of education, the outcomes are less certain. The government launched the third Joint Government/Development Partners Sector Review in September 2003, which confirmed the achievements to date, including 3,000 water points in rural areas and over 10,000 water points in urban areas. The review concluded that the WSS sector is on track to meet MDG goals of 65 percent water supply and 80 percent sanitation coverage in 2015. Financing to the sector has increased substantially, from Ush 47.4 billion in FY 1996/97 to Ush 126.0 billion in FY 2002/03.

4.2.4.10. At an institutional level, impressive progress has been made by the National Water and Sewerage Corporation, which has increased monthly water production from an average of 28 mm to 66.6 mm; increased water meter coverage by 12 percent; reduced unaccounted for water from 49 percent to 33 percent; reduced sewerage blockages and overflows; increased monthly collections by 13 percent and reduced arrears by 3 percent; decreased monthly expenses by 18.8 percent; and reduced response times to customer complaints to less than 48 hours. While urban institutional capacity has improved, capacity is still very weak at the district level and in rural areas. There are some positive signs, however, of greater involvement by women in community WSS decision-making. At least a third of the members of water committees are women, and women most often fill the role of treasurer of these committees. This local

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progress is not matched at the central policy-making, management, and technical levels, where participants remain predominantly male.

4.2.4.11. The latest figures show that the sector has achieved a total 61.5 percent national coverage in providing safe water, but with substantial continuing inequalities between urban (89.3 percent coverage) and rural (55.4 percent coverage), with small towns making especially noteworthy progress (70 percent in 2002, representing an increase of 18 percent since 2000). Some efforts have been made to remove obstacles to the participation of the poor when the “half inch” connection fee was reduced from an average of Ush 162,000 to Ush 50,000 in 2000. There is no doubting the greater complexity and expense of providing access to safe water in rural areas. However, while the figures show important progress in rural areas (a three percent increase since 2000), it is also clear that the poor have benefitted at a slower pace than the better-off segments of the population from the PRSC WSS component. This pattern is the inevitable consequences of the bias within intra-sectoral allocations, which still disproportionately favor urban areas. While 90 percent of beneficiaries live in rural areas, there has been no substantial change since 2001 in the pattern that half the WSS budget is spent at the center because of the biased attention given to activities directly implemented by the Ministry of Water Lands and Environment (MWLE),Directorate of Water Department,. A sector review by donors (2002/03) concluded that these allocations demonstrate an inadequate alignment with PEAP objectives.

4.2.4.12. The bias in WSS allocations is strongly demonstrated by the program regarding small towns, which currently absorb 24 percent of the total WSS budget, although they represent only 3 percent of the total population. There are also questions about the operational efficiency of small towns’ operations, given the large allocated resources relative to outputs. As WSS operations in all small towns other than Wobulenzi are being implemented by private operators, this tests the claim that privatization will inevitably lead to greater efficiencies and increased value-for-money. The growth in small towns’ connections is far less than the projected goals, and in fact, these privatized operations have had to be subsidized by the sector to break even.

4.2.4.13. Doubts have also been raised by MFPED and others concerning disparities between larger financial allocations and the actual achievements. One conclusion is that the sector’s large allocations to capacity building and maintenance activities at the district level, have not so far produced the level of increase in water points justifying the larger allocations.

4.2.4.14. Other concerns include reports that water quality does not measure up to stated goals. In addition, the well-documented provision of facilities (inputs) does not automatically translate into an actual increase in the use of safe water by the poor (outputs). The UPPAP II revealed that despite the provision of facilities in their general locale, many poor people still experience major problems gaining access to safe water and continue to use unprotected water as a consequence. The study quoted community members who had to travel up to 16 Km to get to safe water points, and were additionally discouraged by cost and congestion at the points. A strategy which monitors mainly the delivery of inputs without a proper focus on the impact, will experience great difficulty reaching PEAP goals in reality. Another concern is that, while high priority has been given to sanitation in the PEAP and in the health, education, and WSS sectoral strategies, very limited resources have been allocated, and progress has been accordingly slow. National coverage stands at 48 percent, far short of the PRSC goal of 60 percent. Part of the problem lies in the fact that there is no lead agency to take responsibility for this subsector.

4.2.4.15. From a broad sectoral point of view, Uganda’s WSS program is making strides although there are still clear inefficiencies. From a PEAP/ PRSC point of view, the situation is far less satisfactory, especially given the devastating impact of unsafe water on the health of the rural poor, and the urgency of

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action in this area. How much these trends will change in future as decentralization continues is unclear. The impact of privatization on better alignment to PEAP goals is equally unclear. All that can be said, at the closing of this phase of the PRSC, is that the trends are not adequately in the direction of the stated PEAP goals.

4.3 Net Present Value/Economic rate of return:Not applicable

4.4 Financial rate of return:Not applicable

4.5 Institutional development impact:4.5.1. The PRSC has had, indirectly, a substantial institutional development impact in a number of areas, continuing the trends that have been the basis of capacity building in Uganda for almost two decades. Strengthening of institutional capacity has been one of the aspects of Uganda’s overall development program that has been quite successful. This does not imply that either the PRSC or previous capacity building programs have left behind fully functioning, fully competent institutions; but given the almost total institutional collapse which greeted the new regime in 1985, the progress has been impressive, especially among the macroeconomic and financial institutions (always excepting the revenue authority which, despite its revamping in the early 1990's has failed to keep pace). As there were a number of institutional capacity programs and initiatives already in train during the PRSC, it is not easy to ascribe specific impact to the PRSC. The most notable institutional progress in recent years has been in the three social sectors, health, education, and WSS. The PRSC focus on these three sectors probably helped to sharpen the institutional progress that is being made. There were a number of institutions restructured as part of the components to achieve PEAP goals, such as the National Water and Sewerage Corp., and the National Agricultural Research Council. Probably one of the more important contributions made under the PRSC, has been the introduction of a new inter-ministerial coordination mechanism, above the MFPED placed in the Office of the Prime Minister (OPM, 2003), to oversee both the PRSC and PEAP. Another important institutional process encouraged by PRSC has been the 14 Sector Working Groups set up by the Government to prepare sector Budget Framework Papers (MFPED, 2003) and to provide an avenue for continuous policy dialogue and reviews of progress in their respective sectors. Especially important are the cross-sectoral groups which have allowed for important poverty-reduction goals to be handled in a more comprehensive fashion. The group established to deal with the continuing problem of maternal and infant mortality is a promising example of these.

4.5.2. As indicated above, PRSC is an enabler rather than a mechanism for institutional development, and the PRSC is (like the PEAP) highly dependent on the effectiveness of Uganda’s organizations. Despite the promising progress, the size of the PEAP task (along with other sectoral and targeted reforms) is probably beyond Uganda’s current capacity. That leads to two results: one is chronic slowness in carrying out reform (which is often, not always fairly, seen as a lack of government commitment). The reality is that the system is over-burdened, partly because of the commendable readiness of the Government to take on reforms. The second result is the steady growth of the size of public administration, as new specialized units are added or old ones enlarged. And decentralization, despite its important potential benefits, has put an additional strain on the system.

4.5.3. The single weakest aspect of Uganda’s institutional framework is the one on which the success of the PEAP and PRSC most strongly depends: the district and sub-district government structures. There have been a number of capacity building interventions at the local government level running alongside the PRSC, many of which began some years prior to the PRSC inception and were supported by several

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donor-financed projects. PRSC itself included comparatively few measures that focused directly on building local government capacity. That was left to complementary projects by both the World Bank and a couple of donors. There is also a more subtle and complex aspect which was not adequately addressed in the PRSC: namely the type of capacity building and strengthening that helps make institutions more responsive to PEAP beneficiaries. There is no reason why a more effectively functioning organization would inevitably be more responsive to the poor. Uganda’s institutions, like those in many other countries, are subject to capture by vested interests.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:5.1.1. The most disruptive factor to the achievement of PRSC goals has been the continuing violence and insecurity in the North of the country and on Uganda’s North and West borders (covering 18 districts comprising almost a quarter of the entire country). Progress was made in reaching a peace pact with the Ugandan National Redemption Front in 2000, and since then, many rebels have surrendered under the amnesty. The same progress has not been achieved in the North, despite the initiation of peace talks with the Lord’s Resistance Army in July 2002. Since then, the violence has continued, resulting in the abduction of thousands of civilians, with an estimated 1,000 killed in Kitgum alone over a 4 month period in the middle of 2002. The violence has displaced tens of thousands of civilians. For example, in 2001, more than 150,000 had to be housed in displacement camps in the Rwenzori Region, and the following year, 88,000 in the Katakwi Region. Surveys have shown that these displaced people have insufficient land on which to subsist, suffer food shortages, and have inadequate health facilities. The burden of this continuing conflict on the poor of the North, is added to by the presence of more than 200,000 refugees from Sudan, DR Congo, and Rwanda. Two–thirds of these are currently in the North, adding further to the strain on already inadequate emergency services, and resulting in further environmental damage.

5.1.2. During the PRSC period, cattle rustling from Karamoja and from across the Kenyan border has seriously impoverished tens of thousands of Ugandan livestock farmers in Acholi, Bugisu, Kapchorwa, Karamoja, Lango, and Teso. These raids have often completely destroyed the social and economic lives of communities, leading to displacement into camps (up to 88,000 in Katakwi alone). The government has embarked on an intensive disarmament exercise to limit these problems, but so far the exercise has been only partially effective. Cross-border raids continue as does lawlessness in Karamoja. Other forms of local crime remain at high levels in certain districts, severely disrupting community life and economic activity.

5.1.3. During the PRSC period, there were two different weather patterns that had an impact on farming and therefore the incomes of the poor. The period 2001/02 was especially favorable, leading to a bumper harvest. However, because demand for food is relatively inelastic, food crop prices fell significantly, hurting the incomes of those farmers who rely on selling their surplus, but benefiting the urban poor who buy their food. When the usual weather patterns returned in 2002/03, crops reduced in size and prices increased, reversing the harm and benefits described above. Environmental degradation is, under current circumstances, beyond the practical everyday control of government. Loss of farming land is a significant factor that reduces the incomes and security of the poor in Uganda, and has probably added to impoverishment during the PRSC period. However, given the lack of data, this factor can only be identified and not measured.

5.1.4. The drop in international commodity prices after 1998/99 affected Uganda’s exports during this period. There was a drop of $222 million in coffee earnings alone by 2002. Slight improvements since then have restored coffee prices to about 50 percent of their 1998/99 levels. Because Uganda has only recently

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begun to diversify agricultural exports, this vulnerability to changes in world prices reduced Uganda’s GDP growth and probably contributed to the increase in income poverty that occurred since the 1999 household survey.

5.2 Factors generally subject to government control:The factors generally under government control that are likely to have had the most detrimental impact, are the continuing levels of corruption, the impact on development budgets of increasing defense spending, and the loss of government income due to the continued poor performance of the revenue authority. Expenditures on Public Administration could also have been controlled better. Although problematic, all of these lie generally within government control. They have been discussed in other portions of this report.

5.3 Factors generally subject to implementing agency control:Because of the nature of the PRSC which does not have an implementation phase beyond the satisfaction of prior requirements, there is no single implementation agency for the PRSC reforms. Responsibility is divided among many ministries, district governments, and specialized agencies. The role of the recently established PEAP coordinating office in the Office of the Prime Minister has yet to mature, and in any case, is unlikely to fulfill what is usually meant by the term “implementing agency”. Collectively, the performance of the government has been uneven, with many bottlenecks in approving bills and strategies. This has undoubtedly had an impact on the progress made under the PRSC. However, it was clear at the outset of the PRSC process that the reforms envisaged constituted an enormous task; and if the deadlines envisaged for results under the PRSC are taken into account, it is also clear that the expectations were unrealistic given the limited capacity of government and the burdens it already carries, implementation agency for the PRSC reforms. Responsibility is divided among many ministries, district governments, and specialized agencies.

5.4 Costs and financing:PRSC 1, 2 and 3 were each in the amount of $150 million. PRSC 3 was provided fully as a grant for debt vulnerable countries.

6. Sustainability

6.1 Rationale for sustainability rating:The sustainability of the PRSC is rated as Likely.

6.1.1. The PRSC has created a momentum, strong focus on the PEAP, many institutional structures and processes, the start of decentralization of responsibility, the initiation of participative processes, and an effective instrument for direct budget support. None of these are ideal or fully formed, but all represent powerful ingredients for eventual sustainability. This will not be so much sustainability of what this PRSC cycle has achieved so far, which in terms of the PEAP goals is mostly preliminary. However, as it is planned to continue the PRSC 3-year rolling cycle, building on the goals and achievements so far, the PRSC has constructed some powerful factors to support future sustainability. This will depend on a number of factors. The first is a much closer realignment of PRSC goals and components with the new PEAP (under preparation), so that future PRSCs respond more fully to the needs of the poor. The second is the success in creating the necessary capacity at a district and sub-district level, while combating local corruption through a combination of better oversight and improved incentives. The third will be an upturn in revenue collection, because a poverty reduction program which depends on donor funding is not fiscally sustainable in the longer run. In the short term, as donor funding will be critical, the continued willingness of donors to provide the levels of financing provided so far, will be vital to sustainability. There needs to be a concrete agreed strategy for reducing donor dependency and replacing loans and grants with investments and revenue. The fourth factor will be a significant and lasting containment of defense

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spending. And finally, future sustainability will depend on an end to conflicts and crime, and the restitution of the type of social order that makes income improvement possible.

6.2 Transition arrangement to regular operations:By moving from project lending and grants, to the PRSC framework, the PRSC has already created the transition to regular operations. The PRSC has no implementation component beyond the prior agreements, and therefore all the actions taken under the PRSC are part of the government’s regular program of PEAP activities. The PRSC is the means by which donors support the PEAP. Education, health and water supply have already become sector programs and therefore part of regular operations. There are still a number of key projects that have important contributions to the achievement of PEAP goals. It is not clear how these will be integrated with the PRSC in future. Hopefully this will be laid out in the new Country Assistance Strategy currently under preparation.

7. Bank and Borrower Performance

Bank7.1 Lending:7.1.1. Perhaps the two most important things that the Bank did was (i) to take the risk of moving to a budget support operation; and (ii) to use Uganda's "home grown" poverty reduction program (the PEAP) as a PRSP. The Uganda PRSC was the first World Bank operation in Africa in which there was direct "across-the-board" support to a country's annual budget. There were clear risks due to pervasive institutional and human capacity weaknesses, to corruption, and in the area of financial accountability and procurement. In the end, all of the challenges were successfully managed, which is a tribute to the Bank, other donors and the GOU. Most of the risks still exist but in a less virulent form, due to the efforts supported by the PRSC and "hands on" technical assistance in the fiduciary area (via several complementary World Bank and donor projects), and through the support to the sectors via SWAPs (trust funded sector work was instrumental in informing sector strategies). Using the "home grown" PEAP for a PRSP, which then played a role in the development of the PRSC instrument as well as in the debt reduction through the HIPC process, was also fortuitous. It played an important role in holding the strategic focus on the various dimensions of poverty and helped facilitate the coordination among Government Ministries and agencies which was crucial in making progress in areas that needed cross-cutting approaches.

7.1.2. The Bank’s delivery of the PRSC program was effective, given the goals and the priorities selected for Prior Actions. The Bank also effectively facilitated donor collaboration, some through direct contributions, some by alignment of their programs with the PRSC, and all in terms of participation. The PRSCs reduced the transfer costs for the Bank as well as the Government (see results of the Stocktaking exercise, 2004 in Annex 9) although there were complaints on the GOU's side about the size and timing of missions, the quantity of paperwork, and the size of the policy matrix which presented periodic burdens that were heavier than any single project preparation mission. Nevertheless the Government clearly prefers the PRSC route to a series of projects that would aim to accomplish the same objectives. There were some changes in task responsibilities within the Bank team. However, these did not significantly disrupt the operations. There was an effective integration of sector staff within the PRSC team. Because the PRSC does not have an implementation role beyond the identification and agreement of Prior Actions, there was no formal supervision. Most of the supervision seems to have taken place through the dozen or so Sector Working Groups that met in Kampala on a regular basis, supplemented by intensive discussions with these groups when PRSC missions (3 to 4 per year) were in town. The fact that the PRSC was task managed from headquarters, with most of the team also headquarters based, reduced the detailed day-to-day support and monitoring that the PEAP implementation might have benefited from, although there were competent and knowledgeable World Bank people based in Kampala who were fully aware of what was going on and participated in all the processes surrounding the PRSC. Still, it is worth considering whether a shift of the

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Task Team Leader for future PRSCs to the field would be the better option, as donors are requesting. The ongoing, parallel capacity building programs by the World Bank as well as a number of bilateral donors helped to strengthen many of the structures needed for effective PRSC/PEAP implementation. However, these were not perfectly aligned and, in retrospect, greater emphasis could have been given to increasing capacity at the district and sub-district levels during the life of the PRSC. There was excellent coordination with the IMF, who were co-partners in the Poverty Reduction Strategy Paper Annual Progress Report, August 2003. The Bank delivery of the PRSC financial package, although usually coming after the start of the budget year, was sufficiently well aligned with the budget cycle and, because there was confidence that it would be forthcoming, helped create greater predictability and improved budget performance in terms of allocations and expenditures. However, the total transfers of credits and grants by the donors created absorption problems for the Government and resulted in higher exchange and interest rates than would otherwise have been the case, and (because of supply side problems) in higher unit labor costs in the non-traded good sectors. Whether this would have been less of a problem if a comparable amount of assistance had been delivered through projects is arguable, but the weaknesses on Uganda's supply side in both the public and the private sector are serious and need attention. There was also, noticeably, little improvement in local revenue collection and it is an open question whether the provision of large direct budget support by donors has not decreased incentives to improve tax collection.

7.1.3 The PRSC was more effective at delivering direct budget support than in achieving the PEAP-related goals stated in the PRSC. This is mostly a problem of the way the program presented its goals, which was arguably too ambitious, and too generalized. Too few outcomes were stated in concrete and measurable terms, and too little data and information was available upon which to make judgments about progress and impact. This was known at the time the first PRSC operation was appraised, but improvements have been slow in coming in subsequent PRSCs despite observations about these weaknesses from a number of donors (this is being addressed in PEAP 3 and the new cycle of PRSCs starting with the current PRSC 4). On the other hand, this is surely easier said and done. The agenda of the PRSCs was vast and it was a huge task to keep track of just what was being done, so issues of how well it was being done were pushed into the background.

7.2 Supervision:Because the PRSC is not a project, there is no supervision in the "classical" sense in which the word is applied to projects. However, execution of the year's budget which the PRSCs support, is monitored closely. In particular, the regular budget execution review, budget framework papers, the annual public expenditure review, budget performance reports, and the PER workshop groups and IMF missions, keep track of budget performance and execution, in effect supervising the PRSCs. The preparation of the next PRSC following the fulfillment of Prior Actions and disbursement of the preceding PRSC, provided opportunities to track the progress the government was making towards agreed PRSC goals. In addition, as pointed out in the previous section, progress in the various sectors was continuously monitored in Kampala-based Sector Working Groups. Also, many of the World Bank sector staff made their own supervision trips related to their own sector work, many of which were integrated into the PRSC. As indicated above, this form of supervision was sporadic and often burdensome to the government, and not especially well aligned to timetables for achieving PRSC goals. In the future, task management and supervision based at the country office may well provide greater continuity, opportunities for problem solving and facilitation, and improved consultation with local donors, some of whom were in a better position than the Bank team to follow the PRSC on a day-to-day basis.

7.3 Overall Bank performance:Based on the factors described above, the overall Bank performance is rated as Very Satisfactory.

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Borrower7.4 Preparation:The Government’s preparation of the PEAP provided the basis for the entire PRSC. This document was based on extensive consultation, participative poverty assessments, household surveys, census data, and in-depth sectoral analyses. The PEAP has been highly praised within the Bank and the donor community as providing a sound framework and strategy for poverty reduction. The Government has been vigilant in identifying weaknesses and gaps, and revising the PEAP as needed. The PEAP covers all of the critical elements needed in terms of institutional, environmental, economic, and social factors, as well as civic participation and community development.

7.5 Government implementation performance:The Government implementation performance was uneven. In some components, especially those concerned with the delivery of essential services (health, primary education, and water supply) there was a higher level of both effectiveness and efficiency than has been seen in the past, although quality and direct poverty-targeting sometimes suffered. The enactment of strategies, laws, and oversight measures (including auditing) has moved forward slowly, and in some cases ponderously, with some cases of significant delay. This has been largely a function of the complexity of the Government’s reform program, the limited capacity within government, the already significant burden being carried by public administration, and a degree of political conflict surrounding certain governance measures. In the areas of corruption and defense spending, government performance has been disappointing, and has tended to color perceptions about overall government commitment.

7.6 Implementing Agency:There was no specific implementing agency for the PRSC, as it is a cross-sectoral program involving many agencies of government, frequently meeting in cross-sectoral groups. MFPED as the lead agency, however, should be commended for competent handling of coordinating a very complex cross-ministerial program, in which its “authority” to push for performance across the board was ambiguous. This has been changed for the next cycle of PRSCs, with the Office of the Prime Minister taking over at the overall policy level, but MFPED staff continuing to be relied on for their expertise.

7.7 Overall Borrower performance:Based on the factors stated above, the overall borrower performance is rated as Satisfactory.

8. Lessons Learned

The PRSC program has provided the basis for a continuation of the PRSC approach with a high degree of continuity. Therefore it provides an excellent basis for learning from experience and translating these lessons into improved focus, strategies, and mechanisms for future PRSC operations. Many of the lessons are probably of interest beyond Uganda. A few, such as points (vi) through (viii) below may be of a more Uganda-specific nature. For those looking for lessons from the Uganda PRSCs it may also be of interest to look at the lessons and recommendations of a companion, but broader, stocktaking exercise of the Uganda PRSC process (P. Miovic, May 2004, attached as Annex 9). The most important lessons that can be drawn from this first phase of the PRSC approach in support of Uganda’s PEAP are as follows:

(i) The most vital element in poverty reduction is arguably the improvement of incomes of the poor. While strengthening the economic enabling environment for poverty reduction is essential, it is not sufficient and too slow to translate into direct improvements in incomes. Future PRSC operations may wish to consider more direct interventions that target income improvements. These will need significant community participation and local action, rather than depending on government as the vehicle for delivery.

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(ii) While many efforts have been made to ensure civic involvement and participation, especially in the preparation of the PEAP and in carrying out participatory poverty assessments, work remains to be done at the district level. Achievement of the PEAP goals at the local level is lagging in a number of respects. The role of committed and motivated civic and NGO participation is likely to be a vital factor in implementing the PEAP at the local level (in partnership with more capable local governments).

(iii) Future PRSCs should avoid being over-reaching, stating goals and results that cannot be achieved rapidly. More realistic account should be taken of the implementation capacity of government, and special attention should be given to boosting this capacity at a local government level. Given Uganda’s commitment to decentralization, progress with the PEAP will take place at the pace possible at the weakest link in the chain.

(iv) Future PRSCs need to state results and outcomes in more concrete and measurable terms, although this is much easier said than done. The vague, generalized outcomes that persisted throughout the PRSC cycle, despite many observations about their inadequacy, makes it difficult to select the most strategic interventions needed to bring about progress in the speediest and most economic way. Future PRSC results and outcomes should be based on the data and information systems available to measure progress and impact. There is little point in stating results and outcomes that are not measurable. Where there are essential goals for which monitoring and evaluation information is not available, the PRSC must help put in place in government, the information and data systems needed to make such monitoring and evaluation possible. It may be useful to revisit the PEAP as a whole with the purpose of determining the extent to which the program is amenable to monitoring and evaluation. A strong effort was made in the preparation of the current PRSC 4 to address this issue.

(v) Because of the learning-from-experience potential of the PRSC, and because of its lack of formal implementation beyond the agreement and enactment of Prior Actions, it is essential that the Bank provide government with improved on-going support and facilitation. This is hard to achieve through large, periodic missions. Given that the PRSC is the heart of the Bank CAS, serious consideration should be given to moving future PRSC Task Team leaders to the field and place them under direct supervision of the resident Country Manager, and that a sufficient number of the core project staff are located in Uganda.

(vi) As the PRSC instrument evolved, there has been a clear improvement in the understanding of what needs to be done and of the most effective ways of doing it. At the same time the number of issues that have to be considered has increased and there is some question whether the scope of the PRSC has reached its practical limits.

(vii) Because Uganda is highly dependent on donor aid for its poverty reduction efforts, and because the more efficient delivery of aid through the PRSC has resulted in absorption problems, it is essential that the Bank, donors, and government develop and agree on a long-term financing strategy which should govern and coordinate future levels of donor aid. This strategy should be based on an up-to-date analysis of the potential for Uganda to achieve greater financial self-reliance, the pace at which this may be feasible, the conditions and incentives needed, and the disciplines required within the donor community. The over-riding priority for this framework would be the future fiscal sustainability of a poverty reduction program, which is at present heavily dependent on donor support.

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(viii) The two most problematic aspects of the PRSC, namely corruption and defense spending, need to be translated more effectively into essential requirements and pre-requisites for the entire Bank program of support, and not left to the PRSC as a burden to carry.

9. Partner Comments

(a) Borrower/implementing agency:

POVERTY REDUCTION SUPPORT CREDIT (PRSC I, II&III) IMPLEMENTATION COMPLETION REPORTS

Introduction

1. The first poverty eradication action plan (PEAP) was prepared in 1997 as the over-arching document setting out Government poverty reduction strategy. This document has been subsequently reviewed in 2000, with far broader consultation, including a participatory poverty assessment to ascertain the views of the poor themselves.

2. Uganda pioneered the use of budget support operations knows as Poverty Reduction Support Credits (PRSCs) in the World Bank. The first PRSC for Uganda was approved by the World Bank Board in May 2001, the second (PRSC2) in July 2002, and the third (PRSC3) in September 2003. PRSC4 is now under preparation and is scheduled for Board presentation in June/July 2004.

Overview of PRSCs

3. PRSCs have been designed to do programmatic lending to support policy and institutional reforms that support the achievement of the country’s Poverty Reduction Strategy, usually presented in the form of a Poverty Reduction Strategy Paper (PRSP). The PRSCs have been designed as a series of annual credits supporting a three-year rolling program of reforms.

4. The specific objectives of the Uganda PRSCs are to:Improve public service deliverylStrengthen government processes and systems, while avoiding parallel donor systemslImprove predictability of resource flows, andlReduce transaction costs of aid delivery, as compared to transferring a similar level of resources lthrough a series of projects

5. Whereas the PEAP has been reviewed to revolve around five pillars, the PRSC’s (I, II&III) have selectively supported the Government’s Poverty Eradication Action Plan (PEAP), which was used instead of a PRSP, originally built around four pillars namely:

Developing a framework for economic growth and transformationlEnsuring good governance and securitylIncreasing the ability of the poor to raise incomeslDirectly increasing the quality of life of the poorl

6. The reform program supported by the PRSCs is typically laid out in a log-frame type Policy Matrix that sets out the objectives to be reached in each area, actions to be taken and a marker that supposedly allows an evaluation of whether the actions were successful. Among these a subset of about

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10-12 is chosen as particularly critical and is labeled as Prior Actions. Prior Actions as stated in a PRSC have to be taken before the next PRSC (which lays out prior actions for a subsequent period) goes to the Board of the World Bank for approval. Since the PRSCs are annual and the timing is tight, non-fulfillment of Prior Actions (typically required by April of the budget year ending in June) can affect the flow of resources to the budget in the next fiscal year.

Specific Areas of Action

7. The PRSC I, II and III have focused on improving:

Public expenditure management and monitoring and evaluationlGovernance (public service management, public procurement, financial management, legal and ljudicial reform and civil society participation)Rural development such as:lAgricultural extensionlAgricultural research and developmentlRural financelLand tenurelNatural resource management, and Rural roadslDelivery of social services (education, health, water and sanitation)l

Achievements Under the PRSC Reform Process

Some of the specific achievement arising out of the reform supported by the PRSC process is described as follows:

PEAP/PRSP PILLAR I: Creating a Framework for Economic Growth and Structural Transformation

Budget Planning and Implementation

8. Planning and Budgeting is being promoted through the Sector Wide Approach spearheaded by the Sector Working Groups which bring together all stakeholders in the sector including development partners and the civil society. In the medium to long term the sector wide approach will have to be developed for all sectors including, public administration and security to justify their call on the resources.

9. Government through the PRSC process has continued to promoted the Medium Term Expenditure Framework as the tool for linking planning to budgeting. In view of this government has consistently ensured that the budget is implemented as agreed and all stakeholders despite the increasing additional expenditure needs. In view of this the Budget discrepancy has declined to less than 6 percent from double figures before the implementation of the Budget Act 2001 1990s. During the previous PRSCs, Government has released supplementary expenditures of about 3% of the total budgeted expenditure (excluding donor projects) as required by the Budget Act 2001. These supplementary expenditures reflect budget overruns in some votes, especially Public Administration

Fiscal Decentralisatioin

10. In terms of local government financial management, the key laws are the Local Government Act (LGA), Cap 243 and the 1998 Local Government Financial and Accounting Regulations (LGFAR) which

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set out an elaborate, and comprehensive legal framework for development planning, budgeting, collecting revenue, effecting expenditures, accounting and audit in local governments.

11. In response to the increasing concerns over the limited autonomy available to local governments and the need to streamline the systems of government transfers to local governments, a Fiscal Decentralisation Strategy (FDS) has been developed and is being piloted in 15 local governments. Under the FDS the number of central grants is being reduced significantly, and Local Governments (LGs) are provided with flexibility to reallocate recurrent conditional grants within and between sectors. The LGFAR are due to be revised this year to bring them in line with the new PFAA, the FDS provisions and other initiatives.

PEAP/PRSP PILLAR II: Strengthening Good Governance and Security

Public Service Management

12. An important component of the public sector strategy to improve service delivery has been the improvement of the payroll management, the introduction of the Results Oriented Management (ROM) system and the development of the Public Service Reform Strategy 2002-2007. Since 2001/02, significant steps were undertaken in the area of payroll management leading to a reduction in the average time taken to access health workers and primary teachers on the payroll from seven months to one month. Over the period 2000/1-2002/03, the pay reform, was focused on areas where Government was experiencing problems of recruitment, retention and poor performance, that is, health which coincided with the scrapping of cost sharing, and middle to senior level managers and professionals.

13. A ten-year public sector and pay reform initiative was launched in 2001 and in the first three years of implementation, some notable achievements have been made including the reduction in pay differentials between higher-level and middle level civil servants..

14. Government is committed to the implementation of the Pay reform. Since FY 2001/2002, Government has on average annually set aside Ushs.15 bn for the pay reform .The creation of executive agencies that provide excessive differentials in the pay has exacerbated recruitment and retention problems in the public service. The recent demand to enhance salaries and provide lunch allowances to health workers is another setback to a holistic implementation of the pay reform strategy. The challenge therefore is to harmonize the implementation of the pay reform into a holistic approach. 15. Government has also prepared a draft policy paper on issues, measures and modalities for controlling the size of public administration to address concerns of all stakeholders. The recommendations are to be considered by Government in light of the various studies on the reduction of PA costs that have been undertaken yet been debated by the Cabinet.

16. The implementation of results oriented management (ROM) will be supported by pay reform, capacity enhancement, and pension reform, strengthening of records, personnel and payroll systems, management of organizational structures and coordination, and monitoring and evaluation of cross cutting reforms. The logical implication of ROM is that established human resources levels could be reduced and the proportion of higher caliber, results oriented professional staff in operations could be increased. Over the medium-term, Government will continue to undertake National Service Delivery Surveys in order to support implementation of the PEAP and monitor and evaluate performance of the various public servants against targets.

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Financial Management

17. Over the past three years, Government has undertaken concerted efforts to introduce further changes to improve its efficiency and effectiveness in service delivery. The reform measures undertaken cover a wide range of areas including repealing the Public Finance Act of 1964 and enacting a new one plus enacting of the Budget Act which increased accountability by the Executive to Parliament and the citizens, establishing commissions of inquiry in alleged breaches of standards and accountability, strengthening financial controls and monitoring systems, and strengthening the legal framework through legislations on moral principles and uprightness in the public service.

18. The Government has registered significant improvements in Public sector accounting and reporting in recent years. The annual public accounts of central government have been reviewed to comply with the new PFAA 2003 and internationally accepted standards of public sector financial reporting. The central government annual accounts are now regularly being produced within the statutory period. Most of the local governments are now producing annual accounts and these are being audited within the stipulated time.

19. To support the improvement of Public Sector Budgeting and Accounting in order to achieve timelier, transparent, and accurate financial and accounting information for both local and Central government, Government has introduced the Integrated Financial Management System (IFMS). The system has been implemented in two phases, starting with six pilot ministries and four pilot districts selected on the basis of the size of their business and the readiness for the system for ministries and districts respectively. It also provides for interface with Bank of Uganda, and Uganda Revenue Authority. The rollout phase is to cover 16 Ministries and Commissions and 6 local governments for financial year 2004/2005.

20. In the budget for FY 2004/05, provisions for recurrent costs as a result of operating the IFMS have been made and captured in the respective budgets of the pilot ministries and local governments as a way of ensuring ownership and sustainability of system. Some of the benefits of the system that will be realized consist of efficiency gains and cost savings are: a reduction in budget execution time through the automation; unification of the financial tracking and reporting between central and local government departments; much quicker and more accurate accounting (including immediate bank reconciliation), reporting and auditing; Virtual elimination of arrears through automation of the Commitment Control System, which would allow instantaneous checking of reported commitments against commitment ceilings and tracking of expenditures against commitments; more accurate representation of the Government fiscal position as a result of the move towards international accounting standards, enabling better fiscal management both at the budget preparation phase and during the budget execution stage.

21. Legal ground has been broken in establishing corporate Governance in Uganda by the enactment of the Financial Institutions Act, 2002, which lays the foundation for legal consequences for modern thinking of corporate Governance in Uganda. The Uganda Capital Markets Authority issued the Capital Markets Corporate Governance guidelines in 2003 that apply to public companies and issuers of corporate debt in Uganda. The institute of corporate Governance of Uganda has developed guidelines for use by all corporate bodies in Uganda irrespective of form of ownership and size of entity to meet the unique mix of corporate bodies in Uganda that tend to be family owned and small and medium enterprises (SMEs).

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Transparency

22. Good governance is a cornerstone in the fight against poverty. The Government is committed to implementing strategies for zero tolerance of corruption in society. The following has been achieved through the reforms in this area:

The Hon Minister of State for Ethics and Integrity (MSEI) tabled and Parliament passed, the lInspectorate of Government (IG) Bill, which was then assented to by H.E the President in March 2002. The IG Act 2001 puts into effect the improved powers and procedures required by the Inspectorate of Government to fight corruption more effectively as provided for in the 1995 constitution;The Inspector General of Government’s report is now regularly discussed by the Sessional lCommittee on Legal and Parliamentary Affairs;The new Leadership Code assented to by H.E the President in July 2002. The Leadership Code lcaters for a wide group of key leaders and closes the loopholes in the previous Code. It also provides avenues for citizens to access leaders’ asset declarations and for sanctions for non-compliance, including disqualification from office.

23. As a result of these interventions, the 2003 National Integrity Survey based on a sample of public perceptions indicates that there has been progress in reducing the incidence of corruption in Uganda. However, while the rate of bribery has somewhat fallen in recent years for those institutions where comparison is possible, unofficial payments remain prevalent in some institutions with varying amounts being paid. Corruption is particularly noted in the allocation of tenders that is responsible for driving up costs of public sector investments and often leads to failure to achieve poverty reduction objectives.

Justice Law and Order

24. There has been significant progress towards clearing the case backlog with the introduction of facilitation of Police and Prisons officers to transport witnesses and suspects, the Judiciary and Directorate of Public Prosecutions to schedule extra court sessions and the government Laboratory under the Poverty Action Fund (PAF). This led to a reduction in case backlog by 15% in 2000/01 with cases dating back to 1995 completed. The Chain Linked Initiative that was piloted in Masaka district demonstrated that cooperation between the police and prisons in scheduling criminal cases is effective in reducing backlog and the initiative has been rolled out to all the 29 magisterial areas.

25. While the Constitution limits time to be spent on remand, only the High Court has the jurisdiction to hear capital offences. Consequently, a large proportion of suspects on capital offences stay on remand for longer period before their cases can be heard. Limited knowledge of rights and obligations by the public remain major constraints to improving access to justice.

26. Significant improvements have also been registered in areas of law reform. However, some laws of Uganda are obsolete and some discriminate against the poor and women. Progress has been made towards amending such laws, with the most recent path-breaking action being the ruling in favour of amending the law on divorce. In the medium term, Government will focus on two strategic areas for reform, that is, the criminal and commercial justice reform. The criminal justice reform program focuses on legal services reform; improved administration of justice, improved civic and legal education and law reform, while the commercial justice reform program focuses on commercial court reform, companies and land registries reform, reform of key commercial laws and strengthening commercial lawyers.

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PEAP/PRSP PILLAR III: Increasing the Ability of the Poor to Raise their Incomes

Financial Services

27. Government over the past years has developed supportive policies to the development of financial services. Considering that Micro-Finance services address the financial needs of the poor, especially the rural poor who account for over 80% of the country’s population, Government has developed policies to support the development of microfinance services. The key features related to the adoption of international best practices have been in putting in place a supportive policy framework; commercial orientation of microfinance to ensure sustainability in its provision; better coordination among stakeholders, capacity building of Micro-Finance Institutions (MFIs); the development of an outreach plan; and improving the product mix. Through the Micro Finance Forum, district microfinance committees are to strengthen micro finance coordination. The micro finance outreach plan has introduced incentives for MFIs to reach rural areas and offer products tailored to the needs of communities.

28. In order to regulate micro-finance services, a Microfinance Deposit-taking Institutions Act 2003 is in place. This law allows eligible institutions to mobilise and intermediate savings from the public under the supervision of Bank of Uganda. This will go along way in integrating rural and microfinance as part of the financial system. A performance monitoring and consumer protection system for MFIs has been developed and accepted by the practitioners and donors in the industry. This system is gaining countrywide recognition and is likely to be adopted as a standard in other countries. Strategic alliances of MFIs with commercial banks and insurance companies are emerging as distinctive elements of Ugandan microfinance.

29. The future plans for the Microfinance industry will mainly revolve around strengthening the institutional capacity of MFIs and capacity building through training. Government will ensure that its programmes are rationalised and that there is no interference in the market of the microfinance operators. More work will be done to study the best ways to finance Agriculture and to also create linkages between the formal sector and the microfinance industry.

Agriculture

30. It is probably too early to say much about outcomes in the delivery of services to agriculture. However the following has been undertaken under the pervious PRSCs, NAADS programme implementation that effectively started in July 2001 in 24 sub-Counties in six “trail-blazing” districts, namely Arua, Kabale, Kibaale, Mukono, Soroti and Tororo, now covers 21 districts and 153 sub-Counties located in all regions of the country. The geographical expansion of the Programme has been phased to ensure that sufficient capacity – of both the staff and the target group – is developed guaranteeing its successful implementation. It is planned that all Districts will be incorporated by the end of 2007/08.

31. As at March 2004, 9,078 farmer groups to be supported under NAADS had registered with the programme, while a further 4,124 had been identified and were waiting to register. Approximately 60 per cent of the members of these groups were female. As at the same date, 796 advisory service contracts had been issued by farmers forum, while contracts for a further 109 enterprises were under preparation. There were approximately 3 enterprises per sub-County. The contracts were for such diverse enterprises that include agro-forestry, bee-keeping, aquaculture, livestock and vegetable cultivation - 39 different ones in total.

32. By mid March 2004, 3116 technology development sites being used by 158,424 farmers, had been established. The sites were demonstrating 38 different improved technologies relating to a range of

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enterprises, including vanilla , temperate fruit trees, apiary, livestock and fish, and labour saving technologies, such as animal traction for land opening and weeding.

33. The capacity of approximately 720 existing and potential service providers is being developed in various areas, in tandem with those of the farmers and enable them meet the increasing demand for advisory services from farmers.

34. The agricultural sector still faces severe constraints that partly explain the increase in income poverty, especially among crop farmers as highlighted above. Key among these is the relatively low price levels for agricultural produce associated with production of low-value crops and limited end-products. Apart from limited access to agricultural support services such as crop and veterinary extension services and food processing technology, the limited access to infrastructure such as electricity and water infrastructure, limited market information and proliferation of local taxes inhibit the development of a vibrant agricultural sector with linkages to other sectors of the economy.

35. Given the extent of the structural weaknesses that exist in the agricultural sector, and the implications for poverty eradication, prospects for reversing the income poverty trend lie in addressing these constraints. In the revised PEAP, the Government has identified more strategic approaches to enhance the provision of public goods for agricultural production in the areas of agricultural extension, research and technology development, marketing, and preservation of the natural resource base, particularly soil and forests as an emerging high priority. In order to further improve production, competitiveness and incomes in the country, the Government will focus on modernizing agriculture, preservation of the natural resource base particularly soils and forests and provision of the necessary infrastructure including roads, electricity and railways. This will all necessitate better implementation of the Plan for Modernization of Agriculture (PMA), the Medium-Term Competitive Strategy (MTCS) for the private sector that includes the Strategic Exports Program (SEP).

36. A National Agricultural Research Policy to promote the delivery of high quality and effective agricultural research services has been developed as well as the Marketing and Agro-Processing Strategy (MAPS). In line with this strategy, Government has established the Uganda Commodity Exchange (UCE) that provides a meeting place for commodity buyers and sellers and the Warehouse Receipt System in which a receipt of the holder of the commodity deposited in a certified and registered warehouse can be used as collateral for loans to enhance market access by farmers. In addition, the cooperative movement has been invigorated. So far, 25 Area Marketing Cooperative Enterprises (AMCEs) that bring together primary cooperative societies, farmer associations, and large-scale farmers in a given sub-county have been established. In some of these, farmers are reported to be realizing better prices than before.

37. To improve the prioritization and management of activities in agriculture, an Agricultural Sector Investment Plan (ASIP) is in advanced stages of development that will provide a coherent framework for public investments. As part of this framework, Government is investing heavily in the demand-driven agricultural extension service delivery and research into improved technologies and methods of production. The ASIP will address the issue of training farmers in areas such as agronomic practices, post-harvest handling and new techniques and technologies for farmers and fishermen as measures to improve agricultural productivity.

PEAP/PRSP PILLAR IV: Improving the Quality of Life of the Poor

Education

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38. In the provision of basic education, Government has prioritized improvement of the quality of UPE with results showing positive trends in select quality indicators. Provision of instructional materials has resulted in the reduction of the pupil/book ratio from 6:1 in 2000 to 3:1 in 2003. School sanitation and hygiene has also improved from 700:1 as estimated in 1997 to 96:1 in 2000 with 80% of the schools having separate facilities for girls. A policy for the educationally disadvantaged children was also put in place and provides, through programmes such as COPE, ABEK and BEUPA basic education for children who are experiencing barriers to learning and includes the programmes. There is empirical evidence now to show that the returns to education in Uganda increased in the 1990s for all sub-sectors and that were highest for primary education, followed by tertiary and secondary education. This evidence confirms Government policy of prioritizing delivering quality primary education and strengthening the performance of higher levels of education.

39. Government is also working on improving functional adult literacy programmes and vocationalizing the education system through inclusion of agriculture in the primary school curriculum to make UPE more practical and relevant. The focus will continue to be on improving quality and access to primary and secondary education, increasing the relevance of the curriculum at all levels, improving teacher quality and promoting recruitment and retention of high quality teachers by putting in place the right incentives. This will involve expansion of physical school facilities to cater for the increase in enrolment and creating a more conducive learning and teaching environment.

Health and Nutrition Services

40. The burden of disease in Uganda remains high. Prenatal and maternal conditions, malaria, acute respiratory tract infections and AIDS together account for over 60% of the total national death burden. Before 2001, the poor were paying for health services in Government health centers. Following the abolishment of cost sharing poor people’s access to health care has improved although the quality of services remains a challenge. Government recognizes the need to make improvements in the following areas:

Drug availabilitylPresence of qualified health stafflAccess to health services lTransport for referral patientslAccess to health services by disabled people especially family planning serviceslStrengthening preventive primary health care activities especially to prevent malaria, HIV/AIDS land poor sanitation diseases

41. The Health Sector Strategic Plan (HSSP) aims at achieving the delivery of the Ugandan Minimum Health Care Package (UMHCP) to all Ugandan households. The UMHCP has been phased to start with an affordable set of priorities including immunization, malaria control, information, education and communication, reproductive health and HIV/AIDS. Under the HSSP, Government has also built 400 new HC2s, upgraded 180 HC2s to HC3 status (including maternity services and is upgrading 150 HC4s to provide emergency obstetric and surgical services. In the area of nutrition, the Government with the support of the World Bank has since 1998 been implementing the Nutrition and Early Child Hood Development Project which ends in July 2004. The project covers 34 districts.

42. In recognition of the mortality that despite all these efforts, health outcomes in terms of the high infant and maternal rates remain poor, Government has prepared an Infant and Maternal Mortality Strategy to deal with this challenge. The strategy recognizes that health outcomes are not the sole responsibility of

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the health sector. Key interventions are in the areas of improving quality of health care and treatment of malaria, sanitation, community mobilization and family planning. To further improve nutrition, under the proposed Expanded School Feeding Program, the nutrition and health education component to be implemented by the Ministry of Health will cover aspects of the importance of food for growth using the life-cycle approach, vegetable gardening and school gardening to complement school meals.

Water and Sanitation

43. Since the inception of PRSC process rural water coverage has continued to improve from around 54.9% by the end of 2002/03 to about 60% today. Urban water coverage is estimated to have increased from 54% in 2000 to about 60-65% by now, although access rates have somehow fallen back because of the rapid growth in peri-urban and informal urban settlements. Piped sewerage services are accessible to an estimated 8% of the urban centers while the remainder of the urban population use on site systems, which are predominantly pit latrines.

44. Despite the progress in water coverage, the majority poor people still use unprotected water sources and travel long distances to both safe and unsafe sources. Other challenges to improving safe water provision and sanitation include maintaining the existing bore holes and providing hygienic water sources for both animals and humans; improving the construction, use and maintenance of latrine facilities, strengthening health education activities for the improvement of sanitation conditions; and strengthening the management and collection of garbage especially in urban areas and fish landing sites. Government will continue to increase access to safe drinking water through direct investment in infrastructure and strengthening private partnership in operations.

45. Challenges to the Reform under PRSC

The challenges ahead of the PRSC modality and targets include:

Budget Planning and Implementation

The key challenges on budget planning and implementation is the issues of prioritizing within the PEAP resources so that sectoral expenditure need fit within the resources available. It is hoped that with the finalization and approval of the revised PEAP, guidance will be provided on sectoral allocations to deliver the PEAP priorities. Related to this is the challenge of ensuring that all sectors adopt the sector wide approach with defined objectives, outputs and outcomes. Key among these sectors is Public Administration and the translation of the Defence review into a sectoral strategy and medium term plan.

46. The key challenge to budget execution is the need to minimize budget overruns of certain votes which result into supplementary expenditures. It is only when this achieved, that the deviations in the budget outturns will be minimized to only emergencies.

Intersectoral linkages

47. The promotion and realization of intersectoral linkages remains a challenge. This is demonstrated by some of the health outcomes that have stagnated or deteriorated despite the increased funding to the sector. This is because the realization of positive outcomes is not only dependents to the interventions of the health sector alone but also the actions of the education as well as the water and sanitation sectors.

Public Sector Pay:

48. Whereas government is committed to improving pay as evidenced by the Pay Reform Strategy, this

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commitment cannot be achieved as originally planned. This is basically due to the desire to improve delivery of social services which has increased in the staffing requirement for teachers and health workers as well as the creation of new districts, have led to the growth in employment. Therefore coupled with the generally low tax revenues, Government cannot afford to immediately pay enough to attract and retain staff while simultaneously meeting other priority expenditure needs.

Financial accountability

49. There are still concerns of weak financial accountability, whereby the financial rules are still widely ignored especially at local government level and audit reports are not followed up. These weaknesses are however being addressed through the implementation of the Integrated Financial Management Systems as well as procurement reforms. With the emphasis being directed to capacity building the government systems will be able to generate acceptable accounting and audit reports that give fiduciary assurance to the development partners.

Fiscal Decentralization

50. Whereas government decentralized and supports delivery of services through central government transfers, there is need to reconcile the focus on national policy priorities with decentralized budget management. This despite the significant improvements secured in the share of public expenditures reaching facility level, improvements in service access and quality, some of the grants (conditional) have been criticized for being unresponsive to local needs and overly bureaucratic, with a focus on nominal paper planning and accountability rather than a real focus on performance. The issues raised in here are being addressed through the fiscal decentralization strategy piloted in 15 local governments this financial year and is due for roll out in the FY2004/05. . This allows flexibility for local governments to allocate resources to the most pressing needs within the priorities of government. The experiences of the pilot phase are yet to be documented.

Lessons Learnt and Way Forward

51. Government ownership of the reform program is rising. Awareness is high at the technical level, although it varies across sectoral ministries. Sectors such as Education and Health that have had sector-wide programs before the PRSCs came along are leading the way. The institutionalization of the Justice Law and Order Sector programming which brings together over 10 different institutions is a remarkable achievement of these reforms. However the large, rapidly evolving reform agenda makes it harder for such efforts to succeed as one has to overcome the resistance of the weaker ministries to change. This is because they see gains in the switchover to budget support, which reduces on the resources available to them in the form of direct project aid. In light of this, new coordination mechanisms will help deepen the sense of ownership across sector

52. Whereas the level of Sector wide approach to planning and budgeting differs among sectors, the PRSC process has clearly improved the overall strategic vision of the Government.

53. The continues collection of views from the poor themselves through participatory poverty assessments as well as household survey assessments, have been influential in directing Government priorities. Whereas on the other hand the direct participation by communities in setting service standards and priorities is limited, the Local Government Development Programme (LGDP) modality has encouraged this and influenced disbursement modalities for other local government grants such as the PMA non sectoral grant.

54. Government’s resolve to actively to provide information to the population to enable them to hold

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officials to account through mandatory public notices as well as the citizen guide to the budget process, has encouraged and facilitated complaints through the IGG.

55. The involvement of Parliament and the NGOs in the budget process, and the provision of simplified information on the budget process to all stakeholders has enhanced the participation in monitoring as well as and provision of feedback on issues that concern the poor.

56. PRSCs have strengthened the Governments resolve to prioritise poverty as an overarching development concern in the national budget process in Uganda.

57. Government has committed itself to increase the level and share of total public expenditure to the Poverty Action Fund, and guarantees that PAF allocated funds are released in full.

58. Using the PAF, through the decentralised governance, Government has remarkably spent a third of its national budget via local authorities as conditional grants to improve and hasten service delivery. This has enabled Government to be more focused on poverty since the majority of the poor live in rural areas, to which the local authorities have greater proximity.

59. The need for efficient and effective utilization of resources has necessitated incorporation project donor flows within the budget. This is supported in the context of an agreement on the overall Medium Term Expenditure Framework (MTEF), plus crosscutting issues mainly in the areas of public sector management and accountability.

Conclusion

60. Despite the challenges, to the PRSC modality, there has been apparent success which is built on a strong emphasis on poverty by the leadership and the execution through an effective Ministry of Finance Planning and Economic Development. Therefore the critical and replicable aspects of this approach to poverty reduction focused budgeting include:(a) Preparation of a poverty strategy, which is informed by good evidence and analysis of the extent

and nature of the problems of the different groups within the poor. (b) The integration of planning and budgeting through the Medium Term Expenditure to facilitate a

process whereby plans prepared to implement the strategy reflect a realistic view of budget constraints.

(c) Building a credible budget process, which has progressed incrementally from ensuring overall macro stability leading to realistic in-year budgeting, to the introduction of a medium term framework, and a gradual extension of coverage to capture more of the donor flow (budget support and project aid) and facilitate medium term planning by local Governments.

(d) Using the PRSC strategy to identify public expenditures reforms, which are critical to achieving poverty reduction goals, and enhance service delivery.

(e) The need for fiduciary assurance has called for improved execution of the budget and quality of service delivery as well as formal accounting and reporting systems. Planning and accountability at local Government level is being reinforced through a combination of conditionalities for access to funds and capacity building support to help local Governments meet the criteria. Therefore government will continue to strengthen further the accounting and Audit processes as a way of improving financial management standards, and to guard against corrupt tendencies which may derail the poverty reduction process, and to help realise greater donor commitment to the cause of poverty reduction.

(f) The drive towards output and outcome oriented budgeting will enhance actions for poverty

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reduction, especially as additional resources for the budget are to be linked to transparent and monitorable commitments that are pro-poor.

(g) The objectives of the PRSC have been achieved and government expected to consolidate them during the future PRSCs.

(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

None

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Annex 1. Key Performance Indicators/Log Frame Matrix

See Table 1 in the text.

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Annex 2. Project Costs and Financing

NA

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Annex 3. Economic Costs and Benefits

NA

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation 4/02 21 1 Lead Economist, Mission

Leader1 Sr. Social Development Specialist1 Lead Financial Sector Specialist1 Sr. Public Sector Specialist3 Sr. Economists1 Lead Private Sector Development Specialist1 Lead Procurement Specialist1 Financial Management Specialist1 Sr. Financial Management Specialist1 Lead Operations Officer1 Rural Development Specialist1 Transport Cluster Leader1 Sr. Highway Engineer1 Highway Engineer1 Lead Counsel4 Consultants

9/02 13 1 Lead Economist, Mission Leader 1 Sr. Social Development Specialist1 Lead Financial Sector Specialist1 Sr. Public Sector Specialist1 Sr. Operations Officer1 Sr. Health Specialist1 Sr. Economist1 Lead Procurement Specialist1 Procurement Specialist1 Financial Management Specialist1 Rural Development Specialist1 Lead Education Specialist1 Sr. Management Consultant

10/02 33 1 Lead Economist, Mission Leader 1 Sr. Social Development Specialist1 Sr. Environmental Specialist1 Financial Management Specialist

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1 Lead Financial Sector Specialist4 Sr. Economists1 Lead Education Specialist1 Sr. Public Sector Specialist1 Sr. Operations Officer1 Health Specialist1 Sr. Health Specialist1 Private Sector Development Specialist1 Lead Private Sector Development Specialist1 Sr. Private Sector Development Specialist1 Lead Procurement Specialist1 Procurement Specialist1 Sr. Rural Development Specialist1 Lead Specialist1 Rural Development Specialist1 Transport Cluster Leader1 Highway Engineer1 Sr. Sanitary Engineer1 Sr. Financial Analyst1 Lead Counsel1 Sr. Evaluation Officer5 Consultant

2/03 9 1 Lead Economist, Mission Leader1 Financial Management Specialist1 Sr. Public Sector Specialist1 Sr. Economist1 Lead Procurement Specialist1 Rural Development Specialist3 Consultants

Appraisal/Negotiation 3/03 24 1 Lead Economist, Mission

Leader1 Sr. Social Development Specialist1 Lead Financial Sector Specialist1 Sr. Public Sector Specialist1 Sr. Operations Officer1 Sr. Health Specialist3 Sr. Economist1 Lead Procurement Specialist1 Procurement Specialist1 Financial Management Specialist

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1 Sr. Rural Development Specialist1 Lead Specialist1 Rural Development Specialist1 Transport Cluster Leader1 Sr. Sanitary Engineer1 Sr. Financial Analyst1 Lead Counsel5 Consultant

6/03 7 1 Lead Economist, Mission Leader1 Lead Counsel1 Sr. Management Consultant1 Adviser1 Consultant1 Program Assistant1 Team Assistant

Supervision10/04

ICR

(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation 61.6 189.9Appraisal/Negotiation 165.9 466.5SupervisionICRTotal

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

*Poverty reduction in the area of human welfare (education, health, water and sanitation); it does not refer to consumption/income poverty.

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

Uganda Poverty Reduction Support Credit 1, Report No.: 7442-UG, , World Bank, March 2001, Africa Region

Uganda Poverty Reduction Support Credit 2, Report No.: 24400 -UG, World Bank, May 31,2002, Africa Region

Uganda Poverty Reduction Support Credit 3, Report No.: 26078-UG, World Bank, July 28,2003, Africa Region

Uganda Poverty Reduction Support Credit 4, P074082 World Bank, June 2004, draft, Africa Region

Republic of Uganda: Poverty Reduction Strategy Paper Annual Progress Report and Joint IDA-IMF Staff Assessment, Report No.: 26567-UG, August 2003

Uganda Country Assistance Strategy F2001-2003, World Bank, Africa Region

Project Performance Assessment Report: UGANDA Primary Education and Teacher Development Project (Credit 2493), and Education Sector Adjustment Credit (Credit 3049); Report No: 27538 January 2004

Implementation Completion Report: (PPFI-P6601 PPFI-P6602 TF-20115 IDA-25830) on a Credit to The Republic of Uganda for the Small Towns Water and Sanitation Project, Report No: 27529, December 2003

Uganda Public Expenditure Review, Report No.: 27135, September 2003, World Bank, Africa Region

Uganda PRSC-II Quality at Entry Report, QAG, 2003

Statement of Uganda’s Development Partners on Governance and Anti-Corruption, Consultative Group Meeting, April 2003

Uganda Poverty Status Report, Ministry of Finance, Planning, & Economic Development, 2003

Uganda’s Progress in Attaining the PEAP Targets in the Context of the Millennium Development Goals: Background Paper for the Consultative Group Meeting, Kampala, May 2003, Ministry of Finance, Planning, & Economic Development, 2003

Poverty Monitoring and Evaluation Strategy, Ministry of Finance, Planning, & Economic Development, 2002

Revised Poverty Reduction Eradication Plan (PEAP), Ministry of Finance, Planning, & Economic Development, May 2000

Evaluation Capacity Development: The Development of Monitoring and Evaluation Capacities to Improve Government Performance in Uganda, Arild O. Hauge, ECD Working Paper Series, OED, October 2003

Evaluation Framework for Direct Budget Support (Report to the OECD-DAC Technical Working Group on Evaluation of Budgetary AID), Overseas Development Institute; European Commission), December 2003.

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Managing Fiduciary Risk When Providing Direct Budget Support, DFID, undated

Evaluating General Budget Support (Issues Emerging from DFID Evaluability Study and Proposals for Joint Evaluation Work), Aide Memoire, May 2003

Report on Allocative Budget Process and Work of the Sector Working Groups, August 2001

Information Paper on Changes in Poverty in Uganda ,1999-2003 (Paper Submitted to the Ministry of Finance, Planning, and Economic Development)

Uganda IDA CAS White Paper for Education, undated

Poverty Reduction Support Credits in Uganda: Results of A Stocktaking: P. Miovic, June 2004

New Strategies, Old Loan Conditions: The Case of Uganda: Warren Nuamugasira et al; Uganda National NGO Forum, April 2002

Rethinking Participation: Questions for Civil Society about the Limits of Participation in PRSPs: Jane Ocaya Irama, Action-Aid International, Uganda, April 2004.

African Women's Economic Policy Network (AWEPON): Study on the Privatization of Water in Uganda: Commonwealth Foundation, July 2003

The Ugandan PRSP Experience: Rick Rowden, May 2002, Bretton Woods Project

Structural Adjustment Participatory Review Initiative (SAPRI): Uganda Country Report, September 2001, SAPRI

Non-Governmental Organizations in Uganda: A report to the Government of Uganda, Centre for the Study of African Economies, Oxford University, December 2003

Are Government Budgets Becoming pro-Poor: An Analysis of Social Services Delivery Trends in Uganda, Paul Mpuga and Sudarshan Canagarajah, draft, April 2004

Income Poverty in Uganda 1992-2003, John Okidi and Sarah Ssewanyana, Economic Policy Research Center, Kampala, Uganda, mimeo, October 2003

Poverty in Uganda; 1999/2000: Preliminary Estimates from the UNHS, Simon Appleton, U. of Nottingham, UK, mimeo, January 2001

Concept Note for a Uganda Poverty Assessment, M. Louise Fox, World Bank, draft of June 21, 2004

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Additional Annex 8. Detailed Project Data

Project ID Numbers: P050438; P073671; P074081

Project Names:Poverty Reduction Support Operation

Team Leader: Paud MurphyTL Unit: Human Development I Country Department 4 Africa Region

ICR Type: Core ICR Report Date: May 23, 2004

1. Project Data

Name: Poverty Reduction Support Credits L/C/TF Numbers:

GRTD-H0630

Country/Department: UGANDA Region: Africa Regional Office

Sector/Subsector:General education sector (20%); Health (20%); General water, sanitation and flood protection sector (20%); General public administration sector (20%); General agriculture, fishing and forestry sector (20%).

Themes:Other environment and natural resources management (P); Other financial and private sector development (P); Other rural development (P); Other human development (P); Other public sector governance (P)

KEY DATES

Original Revised/ActualPRSC 1

PCD:7/1/2000 Effective:11/29/01 11/29/01Appraisal:12/4/2000 MTR:Approval:5/31/2001 Closing:3/31/2002 3/31/2002

PRSC 2PCD:9/25/2001 Effective:3/12/2003 3/12/2003

Appraisal:1/28/2002 MTR:Approval:7/23/2002 Closing:6/30/2003 6/30/2003

PRSC 3PCD:10/3/2002 Effective:2/11/2004 2/112004

Appraisal:3/27/2003 MTR:Approval: 9/9/2003 Closing: 9/30/2004 9/30/2004

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Borrower/Implementing Agency: THE REPUBLIC OF UGANDA/Ministry of Finance, Planning & Economic Development

Other Partners

STAFF Current At AppraisalVice President: Callisto E. Madavo Callisto E. MadavoPRSC1Country Director: Judy O’Connor James W. AdamsSector Manager: Dzingai Mutumbuka Frederick Kilby

Team Leader at ICR: Paud Murphy Ritva ReinikkaICR Primary Author: Peter MiovicPRSC2Country Director: Judy O’Connor Judy O’ConnorSector Manager: Dzingai Mutumbuka Frederick Kilby

Team Leader at ICR: Paud Murphy Satu KahkonenICR Primary Author: Peter MiovicPRSC3Country Director: Judy O’Connor Judy O’ConnorSector Manager: Dzingai Mutumbuka Robert Blake

Team Leader at ICR: Paud Murphy Satu KahkonenICR Primary Author: Peter Miovic 2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Ratings apply to PRSC3 ONLY - although the ICR had to review PRSC3 in the context of the overall 3-year PRSC 1-3 cycle in order to assess the broader picture within which PRSC3 operated.

Outcome: SatisfactorySustainability: Likely

Institutional Development Impact: ModestBank Performance: Highly Satisfactory

Borrower Performance: Satisfactory QAG (if available) NA

Quality at Entry: NAProject at Risk at Any Time: No

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Additional Annex 9. Stocktaking Paper

Poverty Reduction Support Credits in Uganda

Results of a Stocktaking Study

Peter Miovic

June 30, 2004

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Table of Contents:

Background 3A Brief Overview of PRSCs 3The Approach to Stocktaking 5PRSC Performance Measured Against PRSC Objectives 6Broader Concerns 20Conclusions and Recommendations 33Annex 1 Partnership Principles between GoU and its Development Partners 42Annex 2. Calendar of Major Processes and Missions 49Annex 3 Education Sector Undertakings 50Annex 4 Principles for Determining Prior Actions 52

TablesTable 1 Monitoring Indicators in Education 7Table 2 Monitoring Indicators in Health 8Table 3 Comparison of PEAP/PRSP and MDG Targets 11Table 4 Foreign Inflows and External Debt as a Share of GDP 13Table 5 Budget Support, Program vs. Performance, 1998/99 – 2002/03 (US$ millions) 14Table 6 Budget Support Programs vs. Outturns, 1998/99 – 2002/03 14Table 7 Sectoral Shares of Expenditures, as % of Budget, 1998/99 – 2002/03 15Table 8 PAF as a % of Budget 15Table 9 Headcount of Poverty in Uganda, 1992-2002 21

ACKNOWLEDGEMENTS: The paper was prepared under the general guidance of Paud Murphy (WB). Satu Kahkonnen (WB) was instrumental in the design of the approach to the stocktaking. Robert Blake (WB) was an endless source of information on the economy of Uganda and the history of World Bank operations in Uganda. The Government provided useful comments. Additionally, many individuals in the Government, the donor community and members of the PRSC team members (PRSCs 1 through 4), too numerous to list, were generous with their time and responded to calls for background materials, comments and suggestions. Among them Jonathan Beynon (DfID) deserves special mention. Robert Blake, M. Louise Fox, Stefan Koeberle and Gaiv Tata (all WB) were the peer reviewers and helped me improve the final product. I would also like to thank Alema E. Siddiky (WB) for the preparation of the tables and Ivar Strand (WB) for a number of improvements in the arguments through occasional discussions during the preparation of the paper. The responsibility for the arguments and recommendations and the remaining inaccuracies, however, remains mine.

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Poverty Reduction Support Credits in Uganda

Results of a Stocktaking Study

Background

1. Uganda pioneered the use of budget support operations known as Poverty Reduction Support Credits (PRSCs) in the World Bank. The first PRSC for Uganda was approved by the World Bank Board in May 2001, the second (PRSC2) in July 2002, and the third (PRSC3) in September 2003. PRSC4 is now under preparation and is scheduled for Board presentation in June/July 2004.

2. A number of other countries have joined Uganda in the use of this new instrument in support the implementation of their Poverty Reduction Strategies. The teams involved in the design of PRSCs in various countries have been sharing their experiences on an informal basis, and the Quality Assurance Group in the World Bank has carried out a quality-at-entry assessment of several of these operations, including an assessment of the second PRSC for Uganda. However, the overall Uganda experience with the PRSCs has not been examined, and it was felt that a stocktaking exercise of the Uganda experience with its first three PRSCs would be useful for several reasons: (i) to reflect on the impact these PRSCs have had in terms of Uganda’s poverty reduction program; (ii) to learn lessons to guide approaches to future possible PRSC operations; and (iii) to provide insights for the larger issue (being studied in the World Bank and among donors) of how PRSCs are operating as an instrument, modality, and process.

3. Specifically, therefore, the objective of the exercise is to study what has worked, what has not worked, and what could be improved in the Uganda PRSC process in the future. The exercise aims to strengthen the consensus among the GoU and donors on the way forward in the area of budget support. It should also help inform the internal debate in the multilateral and bilateral donor community on the effectiveness of budget support operations and how they complement other available aid instruments.

A Brief Overview of PRSCs

4. PRSCs were designed to channel programmatic lending to support policy and institutional reforms in support of a country’s Poverty Reduction Strategy, usually presented in the form of a Poverty Reduction Strategy Paper (PRSP). In the case of Uganda the PRSCs were designed as a series of annual credits supporting a three year rolling program of reforms, based on Uganda’s version of a PRSC, which is known as the Poverty Eradication Action Plan (PEAP) . The World Bank credits are in the form of untied budget support, financing all government activities, in the same way as domestic tax revenues. The PRSCs have been significantly co-financed by other donors in the form of grants which, like the World Bank credits (although PRSC 3 was a grant on an exceptional basis), take the form of untied budget support.

5. The specific stated objectives of the Uganda PRSCs are to:· Improve public service delivery· Strengthen government processes and systems· Replace a number of concurrent donor systems with a single agreed system· Improve predictability of resource flows; and· Reduce transaction costs of aid delivery, as compared to transferring a similar level of resources

through a series of projects

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6. Implicit objectives that emerged along the way include:· Improved Government leadership and management of the reform program intended to eradicate

poverty· Better coordination and harmonization of donor activities and practices, and· Improved coordination between Government ministries and agencies through the integration of

specific sector plans into the overall poverty reduction program

7. Each of the three PRSCs supported specific goals and objectives of the PEAP, which is built around four pillars:· Developing a framework for economic growth and transformation· Ensuring good governance and security· Increasing the ability of the poor to raise incomes· Directly increasing the quality of life of the poor

8. The reform program supported by each of the PRSCs is laid out in a log-frame type Policy Matrix that sets out the objectives to be reached in each area, actions to be taken, and markers intended to make possible an evaluation of whether the actions were successful. Among these, a subset of about 10-12 is chosen as particularly critical, and form the Prior Actions which have to be taken by the Government before the next PRSC goes to the Board of the World Bank for approval. Since the PRSCs have so far been annual and the timing is tight, non-fulfillment of Prior Actions (typically required by April of the budget year ending in June) can affect the flow of resources to the budget in the next fiscal year.9. The first PRSC selected the following aspects of the PEAP, as priorities for Government action:· PEAP Pillar 4, directly increasing the quality of life of the poor, was prioritized by a focus on

improving the delivery of education, health, water and sanitation services.· PEAP Pillar 1, developing a framework for economic growth and transformation; and PEAP

Pillar 2, ensuring good governance and security, were selected for priority actions in two areas:o Improving public expenditure management, and monitoring and evaluationo Improving governance (public service management, public procurement, financial management,

legal and judicial reform and civil society participation).

10. The focus of the second PRSC expanded into some aspects of Uganda’s rural development reform program, by prioritizing actions to improve:· Agricultural extension· Agricultural research and development· Rural finance· Land tenure· Natural resource management, and· Rural roads

11. These actions were aimed at supporting PEAP Pillar 3 (increasing the ability of the poor to raise incomes), given the fact that the bulk of Ugandans living in poverty depend on agricultural production for their livelihood. One view of this component is that it too supported service delivery, but the services are in the nature of inputs into income generation activities in the rural economy.

12. PRSC-3 focused on actions to deepen reforms in most of the sectors covered in the first two PRSCs, and incorporated additional financial sector issues such as pensions.

13. The PRSC process aims to develop a relationship between the Government of Uganda and its donor partners, in which:

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· PRSCs operate as pure budget support financing mechanism, such as is already nearly the case with the support given by the World Bank and many other donors to the education and health sectors

· The Government firmly leads and manages all aspects of the reform program across all sectors, including prioritization of objectives, program design, implementation and monitoring, and impact evaluation; and

· Donors play the role of technical advisors and facilitators

The Approach to Stocktaking

14. This PRSC stocktaking exercise pursues two lines of inquiry:· It examines the performance of the Uganda PRSCs 1-3 with respect to their PEAP-related

priorities, as well as the other objectives described in paragraphs 5 and 6 above; and· It examines the way in which the Uganda PRSC experience can provide insights for the future

application of the PRSC instrument both in Uganda and elsewhere

15. The findings are based on:· A stocktaking workshop with the Government and donors held on June 20, 2003 in Uganda;· Interviews with Ugandan Government officials;· Interviews with donor representatives involved in Uganda PRSCs;· Interviews with members of World Bank’s Uganda PRSC teams;· Interviews with other relevant Bank staff;· Uganda PRSC 1-3 reports and other relevant documents and data; and· Prior assessments and evaluations of general budget support, including documents such as the

study on the evaluability of general budget support carried out for DfID (see OPM&ODI, 2002).

16. The stocktaking workshop of June 20, 2003 was attended by about 80 people from the Government and donor communities. There was no participation by the NGOs or the private sector. However, interviews were subsequently carried out with some thirty other individuals, some of whom represent Ugandan NGOs. These exchanges have provided a way of assessing the problems encountered in the PRSC process from a number of different, and in many cases, independent perspectives, and the conclusions drawn in this paper have relied heavily on convergence of views.

PRSC Performance Measured Against PRSC Objectives

17. Service Delivery. The overriding objective of the PRSCs 1-3 has been the improvement by the Government of those basic services that are associated with the ultimate goal (outcome) of reducing poverty in all its dimensions. The objective of delivering more and better services has been pursued through a number of channels – by improving the efficiency and equity of overall resource allocation; by strengthening systems and processes that would lead to better across-the-board governance and effectiveness of the public service; and by improving the direct delivery of services such as education, health, water, sanitation, and (later in the PRSC cycle), advisory services in agriculture, access to land and rural roads.

18. Education. A time-series examination of quantitative indicators in education shows improvements in a number of aspects. Primary school enrollments showed an increase from 6.6 million pupils in 2000 to 7.6 million by 2003, and secondary school enrollment increased from 519 million students in 2000 to nearly 750 thousand in 2003. The gender parity gap is almost closed with 49.4 % of pupils at the primary school level being girls. The poorest 20% of Ugandan households have enrolment rates that are almost as

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high as those for the richest 20%. Enrolment of children with special needs has increased tenfold. Some of the indicators of input quality tracked in the PRSC Quantitative Monitoring Indicators matrix also showed improvements (Table 1) – pupil/teacher ratio dropped from 65:1 in 2000 to 55:1 in 2003, pupil to classroom ratio declined from 106:1 to 95:1, there were fewer pupils per textbook and the books reflected a change in syllabus. Recent household survey indicates that the percentage of household heads with no formal education decreased from 24.7% in 1997 to 17.8% in 2003.

19. Survival rates for P4 level have risen from 44% in 2000 to 66% in 2003, despite the large increase in primary school enrolments. There are concerns that intra-sectoral allocations may be shortchanging secondary education, within an overall envelope for education that has shown a very strong increase over time. Currently secondary schools can absorb only 50% of the primary school leavers (WB 2003c, Ch. 4)

Table 1 Monitoring Indicators in Education

Indicators Base Year

1997 2000 2002 2003

Primary Enrolment 5.3 m. 6.6 m 7.3 m 7.6 m

Percentage o/w girls 46.5 49.0 49.2 49.4

Secondary Enrolment

445 t 519 t 656 t 749 t

Percentage o/w girls n/a 44.0 45.2 42.9

Pupil/teacher ratio

100:1 65:1 54:1 55:1

Pupil/classroom ratio

124:1 106:1 94:1 95:1

Pupil/book ratio - 6:1 n/a 3:1 * Survival rate to P4 %

44.5 66 66.5

Source : World Bank (2004a)Notes : * P3 & P4 grades only and with a new syllabus

20. The education sector has a well established record of carrying out analyses of various aspects of the educational system such as expenditure reviews, and tracking and value-for-money studies, which have been improving the analytical base for addressing the problems. Tracking studies, for example, have

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established that currently 90% of the funds allocated in the budget are actually reaching the schools, up from 20% in 1995. In addition, the government has been working on developing new strategies for secondary and tertiary education, and the National Examinations Board has put in a place a system for National Assessment of Progress in Education (NAPE) to measure learning outcomes. Outcome indicators are just being introduced and PRSC 4 is expected to track indicators such as “% of pupils reaching defined levels of literacy and numeracy”. To attract teachers to remote areas, schools in those areas are allowed to use 15% of their budget for housing and a 20% monthly supplement to salaries as a special incentive.

21. Health. There has been good progress in a number of health areas (Table 2). OPD utilization (including the private not-for-profits) has increased from 0.40 visits per capita in 1999/00 to 0.68 in 2002/03. DPT3 coverage went up from 41% to 65%. Deliveries at health facilities declined from 25% to 21%, although there was a turn-around in the last

Table 2 Monitoring Indicators in Health

Indicators Base Year

1999/00 2000/01 2001/02 2002/03

OPD use (G + PNFP) * 0.40 0.43 0.60 0.68 DPT 3 coverage ** 41% 48% 63% 65% Deliveries in health facilities 25% 28% 19% 21%(G + PNFP) Approved posst filled by 33% 40% 47% 43%health workers Urban/rural specific HIV prevalence

7% 6% 7% 6%

Infant mortality rate 82 (1995) 88

(2000)

(per 1000 live births) Under 5 mortality rate (per 1000 live births)

147 (1995) 152(2000)

Maternal mortality 527(199

5)505(2000)

(per 100,000 live births) Total fertility rate 6.9 Source World Bank (2003 a) & (2003 c)

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Note* OPD : Out-Patient Department; G- Govt; PNFP : Private not for profit** DPT3 : Deptheria, Pertussis, Tuberculosis vaccine

year from the low of 19% reached in 2001/02. Approved posts filled by trained health workers increased from 33% to 43%, with still well over a half of the posts (and especially in the remote areas) not covered by trained personnel. HIV sero-prevalence continued to stagnate in the 6-6.5% range, after having declined in the 1990s from almost 20% in 1991. Outcome indicators such as infant and maternal mortality, and total fertility, however, either stagnated or deteriorated. Incidence of malaria, the leading cause of morbidity and mortality, with a major impact on agricultural productivity, also increased (MOFPED 2003c and MOH, 2001).

22. In the area of infant and maternal mortality, a Task Force on Infant and Maternal Mortality has been constituted under the leadership of MOFPED in 2001 since this was viewed both as a very serious as well as heavily inter-sectoral issue that could not be solved by the health sector alone. The report of the Task Force has been acclaimed by the development partners as providing a solid basis for the way forward.

23. Funding for the health sector has at least tripled over the past 4 years. Within the overall budget envelope, there has also been a sharp realignment toward primary health care, from only 5% of overall health spending going to primary health care in 1997/98 to 42% in 2003 (Table 4.6, WB 2003c). With such a rapid expansion, there is concern that operational efficiency may be a problem. There is some evidence that unit labor costs are higher in government than in for-profit and non-profit facilities (Reinikka et.al., 2002), but additional refinements in analysis and comparators is required before clear conclusions can be drawn. As in the case of education, government documents show a more systematic tracking of inputs, processes and outputs, which will allow a clearer analysis in future of outcomes and their likely causes.

24. Water and Sanitation. In terms of quantitative indicators, the water and sanitation sector shows rapid expansion in coverage. For example, in PRSC 3, all targets for new water and sewerage connections were substantially exceeded (10 500 new water connections vs. 7000 targeted, of which 3000 for poor households; and 318 new sewerage connections vs. 100 targeted). Internal cash generation devoted to capital investments also exceeded its targets. However, despite these successes, there remain questions about the efficiency of resource use. The budget for water and sanitation had tripled over the last three years, but it is doubtful that this increase has been transformed into higher outputs on a pro-rata basis (see WB 2003b, Ch. 4). On the other hand, some of these resources were spent on capacity building and development of water resource management skills at the lowest level. With time, it is hoped that there will be a pay-off in terms of the efficiency and effectiveness of the overall system. The resources have been skewed towards urban areas and small towns (although small refers to every town over 5000 people), so that only 15% of the population have absorbed over 50% of these resources in 2002 (Table 4.4, WB 2003c); this at a time when 85% of urban areas already have access to safe water, compared to only 55% in rural areas. In addition, rural inhabitants are burdened with similar or worse disparities in sanitation facilities (latrines/flush toilets); and in such areas, poor people, for whom time is a vital factor in generating

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income, have to spend significantly more time compared to urban dwellers without water connections, to fetch water from available sources.

25. The Ugandan water and sanitation agencies are developing their capacity to track expenditures, and carry out value for money analyses. The problem appears to be that the planning goals for the sector are still too centralized without adequate influence from rural areas and more marginalized regions of the country, although resources are being invested at the lowest levels as noted in the previous paragraph. Unless the poor, who live overwhelmingly in the countryside, are brought into the planning process and empowered to influence the provision of water and sanitation services, their needs will not be met. The result will be continued deleterious impact on their health, especially infant and child mortality, and will inevitably affect incomes.

26. Agriculture. It is probably too early to say much about outcomes in the delivery of services to agriculture, although some positive opinions were expressed about progress in agricultural advisory services and in the use of non-sectoral conditional grants at the local level. Issues of land tenure have not been getting sufficient attention until recently. Quantitative Monitoring indicators are just being introduced for this sector, the main ones being the number of agricultural service providers and their geographical coverage, and the percentage of previous year’s land disputes resolved and the number of parishes in which land titles/certificates of ownership (including customary) have been issued.

27. The ground that still needs to be covered over the coming years can be seen from the MDG (Millennium Development Goals) and closely associated PEAP targets presented in Table 3. The MDGs are internationally agreed targets that are expected to be reached by year 2015. Some of these targets are set relative to the situation in the country in around 1990 (e.g. headcount of poverty was to be cut in half, infant mortality was to be cut by two-thirds), others are absolute such as universal primary education or gender balance. It is clear that many of the goals are within reach if the progress over the last 5-10 years is an indication of future trends. To reach others, such as infant and maternal mortality, the P7 net primary enrollment rate, and the poverty headcount rate, will require a rethinking of the strategy.

28. In sum, the amount and coverage of most of the targeted services in the social sector has improved and there has been a tilt towards the poorest sections of the population in a number of aspects of service delivery (Fox, 2004 and Mpuga and Canagarajah, 2004). Resources have clearly been reallocated toward the areas targeted by PEAP II and supported by the PRSCs, and success is evident in most areas at the input level (resources allocated, staff hired, and various ratios of service delivery). Most documents now specify targets to be achieved, relevant people are more aware of input vs. output targets, and the depth of analysis and knowledge of the various sectors is increasing. More work is needed to improve the efficiency of resource use as well as the equity of resource allocation to the various regions and poor communities. Perhaps the biggest challenge is in transaction-intensive areas that, in addition, require close coordination of various sectors - e.g. in reducing the disturbingly high rates of infant and maternal mortality that on present trends are not likely to be brought within a reasonable range of the MDG targets for 2015 (see Table 3)

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Table 3 Comparison of PEAP/PRSP and MDG Targets

Indicator MDG Target PEAP/PRSP Target

Current Status

MDG Goal : Halve the headcount poverty by 2015Headcount poverty 28% (2015) 10% (2017) 38%

(2002/03)

MDG Goal : Achieve universal completion of full course of primary education by 2015Net enrollment 100% (2015) 100% of the

poorest and 83 % poorest quintile (2002)

richest quintile (2015)

90% richest quintile (2002)

P7 net enrollment 100% (2015) 100% (2015) 10% (2002)

MDG Goal: Gender equality-elimination of gender disparity in primary and secondary education by 2005Primary Education:

Share of girls in total enrollment 50% (2005) 50% 49% (2002)Share of boys in total enrollment 50% (2005) 50% 51% (2002)

Secondary Education :Share of girls in total enrollment 50% (2005) NA 44% (2002)Share of boys in total enrollment 50% (2005) NA 56% (2002)

MDG Goal : Reduce infant mortalityInfant mortality rate (per 1,000 live births)

31 (2015) 68(2005) 88 (2000)

Children less than 1 year-old NA 80%(2005) 63%(2001/02)

that received DPT3 vaccination

MDG Goal : Improve maternal healthMaternal mortality rate (per 131 (2015) 354 (2005) 505(2000)

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100,000 live births)

MDG Goal : Combat HIV/AIDSHIV/AIDS prevalence rate Halted and

reversed by 2015

5% (2005) 6.5% (2001/02)

Rate peaked in 1992/93,and thereafter declined

MDG Goal: Halve the proportion of people without sustainable access to safe drinking water by 2015Access to safe drinking 62% (2015) 100% (2015) 55%

(2002/03)water (rural)Access to safe drinking 62% (2015) 100% (2015) 55%

(2002/03)water (urban)

MDG Goal: Integrate the principles of sustainable development into policies and program by 2015

NA Work ongoing onenvironmentalmainstreaming

Sources: WB (2003a), MOFPED (2003a), and MOFPED (2003d)

29. Strengthening of Government Processes and Systems. Because there is a lack of a systematic assessment framework and accompanying information sources to evaluate progress in strengthening government processes and systems, it is no surprise that views on progress made in these crucial areas are mixed, based mainly on partial experience, impressions, and anecdotes. All those consulted agreed that their judgments were insufficiently supported by the evidence that would emerge from a proper time-tracked monitoring mechanism. Therefore, stocktaking in this area is somewhat tentative. Progress has been made in strengthening and updating the legal framework and regulatory environment for public financial management. Dramatic improvements in the accounting and auditing capacity of the public sector mean that fiduciary risks have been reduced. The Government has procured an integrated financial management system, but the roll-out and further development of this system pose a significant challenge. The critical issue of the operational independence of the Auditor General remains unresolved. Monitoring and evaluation functions need major streamlining to reduce overlaps, and to obtain the information that is

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needed to make judgments and take decisions (Hauge, 2003). Coordination across government services is generally regarded as patchy, which makes the planning and monitoring of multi-sectoral initiatives problematic.

30. There is evidence that several branches of the public administration establishment increased their budgets without being able to demonstrate an obvious corresponding increase in effectiveness. Possible areas that have been identified for streamlining include expenditures by commissions, proliferation of districts, costs of operating the political system, costs of foreign missions, duplications within government and the process by which the public administration sector is able to more easily obtain supplementary funding during the budget year than other sectors. It is unlikely that the identified areas of public administration that have increased their expenditures have had a poverty reducing impact, except in special instances. There has also not been a notable improvement in the level of perceived corruption in Uganda, which should have resulted from the introduction of stronger processes in public tendering, financial management, transparency and accountability. The continuing problems of corruption reported at a local government level are especially troubling because moving governmental initiatives to the local level is an essential part of the poverty reduction strategy. On the other hand, many of the anti-corruption initiatives are fairly recent, and it may take some time for benefits to emerge. It will also require a sensitive tracking process that both detects changes in corruption, at the same time as identifying the emergence of more opaque corruption techniques, and any unintended but dysfunctional consequences resulting from these reforms. In any event, as long as the incentives that encourage corruption remain strong, and follow-through on the law enforcement side remains weak, it is unlikely that rules, improved procedures, and policing, without parallel socio-economic improvements will radically change the situation.

31. Civil society participation in governance exists but is relatively weak and patchy. While civic groups did participate in the Participatory Poverty Assessments and in the discussions during the preparation of the PEAPs, there are few awareness-raising and advocacy NGOs able to enforce accountability of government officials at the local level. There does seem to be a genuine commitment by the Government to strengthen civic involvement, but it is not immediately clear what needs to be done to see it materialize. It is important that the World Bank and donors involved in the PRSC, and other poverty reduction dialogue and actions, help the Government encourage NGO and community involvement, and take care to ensure that these voices are captured in the strategies and priorities that emerge.

32. Improving Predictability of Resource Flows. Most of the participating donors expressed the view that the predictability of donor-provided resource flows has improved during the PRSC program. Aid, as a percentage of (a growing) GDP, shows no major volatility, although there was a step-up in foreign aid of almost 5 percentage points of GDP from 1997/98 to 2001/02. This increase was the result of the development of the first PEAP (1997/98), introduction of the Poverty Action Fund (PAF, in 1998/99) in support of the PEAP, and the resulting qualification of Uganda for HIPC in 1998/99 with the subsequent increase in budget support. All of the increase in aid came from budget support rather than from projects. And about 60% of the increase came through grants rather than concessional loans (see Table 4).

Table 4 Foreign Inflows and External Debt as a Share of GDP

1993/94

1994/95

1995/96

1996/97

1997/98

1998/99

1999/00

2000/01

2001/02

Total Inflows

12.5 11.8 9.3 9.3 9.8 9.9 10.4 13.3 14.6

Loans 6.8 6.6 4.7 4.4 4.0 4.5 4.1 4.4 6.0Grants 5.7 5.3 4.6 4.9 5.8 5.4 6.3 8.9 8.6

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o/w HIPC 0.8 1.0 1.7 1.7Private Inflows

7.6 5.7 7.0 5.1 8.3 6.3 1.6 2.2 3.0

External Debt Total

75.0 58.8 58.7 58.4 55.6 58.6 58.5 55.1 51.9

Multilateral 45.4 37.5 41.5 42.4 42.3 47.4 47.3 51.4 48.6Bilateral 17.5 12.7 13.1 12.0 12.2 12.5 11.0 3.2 2.9Commercial Banks/Non-Banks

5.3 2.9 2.8 2.3 2.1 1.3 1.4 0.7 0.5

National Accounts (% of GDP at Market Prices)Gross domestic investment

14.6 15.7 17.1 17.0 15.7 19.2 19.5 19.7 21.3

private investment

9.2 10.2 11.4 11.7 11.0 13.7 13.1 13.4 15.4

public investment

5.4 5.4 5.7 5.4 4.7 5.5 6.4 6.4 5.8

Consumption

95.1 93.0 92.2 92.9 94.6 92.6 92.1 92.3 93.7

Sources: WB (2002b)

33. Actual percentage utilization of aid provided in support of the budget has been improving steadily with amounts of aid of this type increasing since 1998/99 and the ratio of actual disbursements to the amounts initially programmed increasing steadily from 39.6% in 1998/99 to 85.6% in 2002/03 (Table 5). There were some within year variations, such as the cut-back at the end of calendar 2002 of a total of about $30 million expected bilateral aid which did not materialize at that point because of the donors’ concerns with the sudden surge in military expenditures in the first half of FY2002/03. The Government handled this by adjusting Uganda’s ample foreign exchange reserves, typically running at 6 months’ worth of imports.

Table 5 Budget Support, Program vs. Performance, 1998/99 – 2002/03 (US$ millions)

Program Outturn Performance1998/99 o/w HIPC o/w non-HIPC

297.537.2260.3

117.945.072.9

39.6%

28.0%1999/2000 o/w HIPC o/w non-HIPC

364.038.3325.7

204.656.2148.4

56.2%

45.6%2000/01 o/w HIPC o/w non-HIPC

421.886.0335.8

293.374.4218.9

69.5%

65.2%

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2001/02 o/w HIPC o/w non-HIPC

644.577.6566.9

426.880.4346.4

66.2%

61.1%2002/03 o/w HIPC

506.8n.a.

433.7n.a.

85.6%n.a.

Source: MOFPED

34. Deviations in overall budget outturns vs. allocations diminished over time, with the discrepancy index dropping from 9.8% in 1998/99 to 5.5% in 2002/03 (Table 6). And broad sector allocations and outturns over the same period showed relatively stable trends (Table 7).

Table 6 Budget Support Programs vs. Outturns, 1998/99 – 2002/03

1998/99 1999/00 2000/01 2001/02 2002/03Discrepancy Index 9.8 4.9 7.6 5.8 5.5

Note: Discrepancy Index is defined as the weighted average of absolute percentage deviation between budgeted amounts and outturns.Source: WB (2003c)

35. However, this apparently stable overall performance hides some within-year budget fluctuations. Allocations to the Poverty Action Funds increased from 17% of the budget in 1997/98 to 37% in 2002/03 (Table 8). Releases under the PAF closely tracked budgeted amounts. Protecting PAF expenditures and sticking to the overall budget ceilings as much as possible, created a situation where any increases in items such as defense expenditures, would have to be reflected in cuts in non-PAF expenditures. This is in fact what happened in the first half of 2002/03, and led to some donors to withhold funds. With defense expenditures running 18% above programmed levels at mid-year and public administration expenditures exceeding their target by 3%, the non-protected areas of the budget were cut by 23% (WB 2003b, Ch 3). Higher than budgeted outturns in security and interest payments were reflected in lower than budgeted outturns in non-PAF protected areas of education and health. The process of reallocating funds within a budget year through supplementary requests by certain sectors (in this case defense and public administration) should diminish with the passage of the Public Finance and Accountability Act (2003). This Act requires parliamentary approval before the release of any supplementary funds, forcing a parliamentary debate on why the overruns happen and how they should impact other sectors.

Table 7 Sectoral Shares of Expenditures, as % of Budget, 1998/99 – 2002/03

1998/99 1999/00 2000/01 2001/02 2002/03Approved Outturn

Security 19.9 15.4 13.9 12.6 12.914.1Roads & Works 6.2 8.1 8.5 8.3 7.47.4Agriculture 1.0 1.5 1.5 2.2 2.32.3Education 26.9 26.3 24.9 24.1 24.923.3Health 6.5 6.5 7.4 8.6 9.69.0Water 1.2 1.5 2.4 2.6 2.42.6Law & Order 7.2 7.3 6.5 6.7 7.06.9Accountability 0.6 0.8 1.1 1.1 1.31.2EF & SS * 2.7 4.6 5.0 6.5 7.47.2

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Public Order 20.7 20.3 20.2 19.3 17.817.4Interest payments 7.1 7.7 8.5 8.1 7.18.6

Total 100.0 100.0 100.0 100.0 100.0100.0* Economic functions and social sectors

Sources: WB (2002b, Table 2.4) and WB (2003c, Table 2.6)

Table 8 PAF as a % of Budget

1997/98pre-PAF

1998/99 1999/00 2000/01 2001/02 2002/03

% of budget allocations on PAFPAF 17 23 25 30 37 37% of sector allocations on PAFRoads 17 26 23 22 25 29Education 59 69 62 68 64 63Health 8 29 25 52 61 67

Source: Williamson and Canagarajah (2003, Table 2)

36. There was also within-year variability in terms of actual cash flows. While this sort of variability was not necessarily damaging in many areas, it did cause problems in agricultural sector where activities follow a seasonal pattern and should be funded accordingly. For example, releases to NAADS (National Agricultural Advisory Services) should have been heavily focused on July. Instead the mid-year shortfall was made up in November and December of 2002 (WB 2003c, Figure 3.1).

37. Local governments mostly received their allocations but there is a perception among those interviewed that there is unacceptable diversion of funds from their intended uses in many localities and that local governments often do not have the capacity to make effective use of the funds.

38. Despite the clear benefits of direct budget-supported aid, Uganda is highly aid dependent, with aid levels at 13-14% of GDP, effectively supporting one half of Uganda’s budget. Various donors have expressed confidence that aid levels will not suddenly drop as long as Uganda follows its current course, and short of any political or military developments that alienate donor support. These assurances notwithstanding, there is empirical evidence (see Bulir et al, 2003) that aid is more volatile than domestic revenues, that its volatility increases with the rate of aid dependency, and that aid tends to be pro-cyclical (amplifying, rather than offsetting the cyclicality of growth and domestic revenues). This possibility means that the Ugandan Government should be vigilant about the risks that long-term aid dependency at this level poses to the sustainability of its poverty reduction program, which could not withstand a sudden cut in aid flows. It is also important to ensure that there is a long-term commitment within Uganda to the use of its own resources for poverty reduction, because there will need to be a sustained internal effort long beyond the life-time of current donor-supported programs, and there is a danger that poverty reduction will be seen as impossible without donor subsidy. There is also the question of whether increased donor funding has weakened Government incentives to mobilize resources locally. While donor aid is useful in making up for a low-tax base in an agricultural economy, this can be viewed only as a transitional arrangement in

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Uganda to allow for the strengthening of the agricultural sector, and cannot be viewed as desirable for long-term growth and self reliance.

39. In summary, direct budget support has helped make the overall budget envelope more predictable although there continues to be a risk of sudden cut-backs, given that foreign aid is, in principle, annual and could be cut back between years for a variety of reasons. So far, however, the main disturbances have come from within Uganda due to within-year supplementary requests for the defense and public administration over-runs encroaching on expenditures outside the PAF. This has forced expenditure cuts in areas that may have an important impact on poverty alleviation (e.g. agricultural research and development and some road programs).

40. Transaction Costs of Aid Delivery. Various Government officials indicated that, in their view, while some transaction costs had declined, there were significant costs to Government due to the size and frequency of the PRSC missions (at least 3 per year, some with as many as 35 people), together with the volume of PRSC-related documentation. On the other hand, there is little doubt that the Government prefers the combination of the PRSC instrument and a small well-targeted set of investment credits to a combination of investment credits and an occasional adjustment or sector credit. The costs of establishing the parallel structures associated with investment lending, such as Project Implementation Units (PIUs), separate financial management systems, and procurement procedures are thought to be high in a number of respects. The Government argues that further proliferation of projects would lead to fragmentation and non-transparency of aid, that the PIUs often attract competent people away from the Government by being able to pay higher salaries, and that they make donor harmonization and the pursuit of sector-wide approaches more difficult. They also argue that the PRSCs helped them sharpen the strategic focus of the Government’s reform program, that they did not distort resource allocations, and that they helped them tackle cross-cutting issues in a much better way than investment projects. In short, the PRSCs are the preferred aid instrument.

41. Data for World Bank loans indicate that the size of an average investment loan/credit (typical World Bank project) for the five-year period 1998-2002 for Uganda was $40 million while the size of each of the three PRSCs was $150 million. The average preparation plus supervision cost of an investment credit for the same period was $450,000. The average cost of preparing and supervising a PRSC was $800,000. In addition, PRSCs often benefited from Bank sector staff overlapping their sector missions with PRSC missions, but charging their time to the sector budgets. Adjusting for these, the estimates suggest that Ugandan PRSCs transferred at least one and a half times the amount of dollars per unit cost of preparing these credits than the typical World Bank investment credit to Uganda. Similar estimates for other donors were not available, but a number of them indicated that through the PRSCs more was being accomplished with the same level of staff input.

42. Finally, the World Bank assistance strategy even before 1999/2000 was moving away from largely project instruments, regardless of transaction costs, because in a number of cases the projects were not working (education, health, water and sanitation). They were being replaced by sector credits, such as the one in education (see paras. 59/60 below). The move from sector credits to multi-sector PRSC budget support was the logical next step. The PRSCs would be complemented by projects in power and roads to underpin growth and by projects supporting the development of capacity at the local government level. In retrospect, the success in service delivery in education, water and sanitation, and less so in health, suggests that the PRSC sector-wide, across-the-board, approach has been successful. It also seems to have lowered the transaction costs to the donors and has helped strengthen the strategic focus in a number of other sectors. While one cannot prove that the PRSC approach has been better as well as cheaper than the (“projects only”) counter-factual, it is a reasonable bet that it was.

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43. Government “Ownership” of the Reform Program (Commitment to and Management of Poverty Reduction). It has been customary in recent years for donors in Uganda to use the term “Government Ownership” to describe donors’ views about the extent to which a government demonstrates its commitment to policies it has embraced, through tangible enactment of measures to achieve those policies. The term is becoming increasingly unhelpful in the Ugandan context, partly because of its underlying patronizing tone (that donors somehow have insight into government motivation that is more accurate than government’s public commitment), but also because the term obfuscates understanding of the various issues that slow down and complicate progress. Through the PEAP, and through fulfilling the Prior Actions required for three PRSC’s, the Government has demonstrated its serious commitment to poverty reduction and to the policies that are thought to be necessary to achieve such goals. At the same time, there are clearly some problems in achieving full political support across a broad spectrum of interests, including Parliament and NGOs. It is also the case that public administration still lacks the human, organizational, and system capacity to easily implement policies that have been agreed, and that this is especially true in terms of local government weaknesses and continued problems of corruption. There are undoubtedly some difficult trade-offs facing the Government in its efforts to enact the PEAP, and these include issues related to military expenditures, the conflict in the north, and attention to marginalized regions. These are not simple dilemmas with easy solutions.. Donors complain about delays in Government delivery on agreements. It is also clear that the Government still relies on a limited pool of talent, and this group is heavily burdened, often caught between work to enact PEAP measures, and meeting donor demands.

44. Improved Coordination within Government. The stock-taking process found that awareness of the goals and mechanisms of the reform program is high at the technical level in Government, although this varies across sectoral ministries. Ministries such as Education that had sector-wide programs before the PRSCs were introduced, are leading the way. The large, rapidly evolving reform agenda is facing some resistance among ministries accustomed to project-based donor funding; and weaker ministries are struggling with the new processes required by the PEAP approach. The PEAP has made it clear that many of the most critical poverty reduction reforms can be achieved only through the coordinated action in a number of sectors, and the traditional boundaries around ministries, as well as sheer work-load, makes cross-ministerial collaboration difficult. Some of the results from the review of the performance in service delivery over the past few years suggest that weakest performance happened precisely in areas that required intense cross-ministerial coordination.

45. Nevertheless, as a result of Government introduction of various coordination processes, cross-sector coordination, dialogue and prioritization of the reform program is improving, and the allocation of resources is becoming more transparent. Among the most important coordination innovations introduced by the Government is the introduction of a new inter-ministerial coordination mechanism, above the ministry of Finance, Planning and Economic Development (MOFPED) placed in the Office of the Prime Minister (OPM, 2003). This coordinating office will require strengthening and support in a number of structural, capacity-related, and organizational areas if it is to fulfill its mandate. For example, some competent Government analysts involved in the preparation of the Policy Matrix and measures of success, should probably be assigned to this coordinating office. Even more importantly, the OPM group should be responsible for following through on the implementation of the PEAP-PRSC policy measures, and report regularly to the Implementation Coordination Steering Committee (ICSC) on PRSC progress. Both through the ICSC and in direct interaction with donors, the OPM group should share vital monitoring information with the donors involved in budget support. Special attention may also need to be paid to cross-cutting issues that involve actors from many ministries since the centripetal forces to stay within one’s silo (sector) are powerful.

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46. A number of Government officials said that rallying commitment would be helped if the PEAP policy matrix to guide the reform effort (which would include the PRSP matrix as an important part) were prepared entirely by the Government. Some others argued that having parts of the matrix be a donor demand (e.g. for issues touching on governance) would help put on the agenda reforms that are politically difficult and might not advance without an outside push. However, such an approach would require a broad consensus among senior officials.

47. There is also a feeling that more needs to be done to raise awareness of and support for the reform program in Parliament, so that Parliament itself can champion the reform program among the broader populace. Preparing popular booklets such as “Budget at a Glance” or “Citizens’ Guide to the Budget Process” is one such effort (and the booklet was commendably available in seven local languages), but more materials are needed. Government and parliamentary outreach would have to be matched by strengthening the involvement of civic organizations, NGOs, and community groups in the PEAP process, particularly at the local level, not only in terms of the debate, but at each stage of the cycle, including planning, implementation, monitoring, and evaluation. This should be a major goal for future PRSC operations.

48. Better Coordination of Donor Activities and Sectoral Working Groups. Donor coordination and harmonization has improved, assisted by the Partnership Principles between the Government of Uganda and its Development Partners (see Annexes 1 and 2). This document gives guidelines on preferred funding modalities; proposes undertakings by the Government to reduce fiduciary risks; states the Government’s intent to put all developments assistance “on budget”; and suggests the preferred approaches to collaboration with donors. There are now regular donor meetings of about two dozen sector and other working groups, many of which are attended by government officials and a good number of which overlap with the 14 Sector Working Groups set up by the Government to prepare sector Budget Framework Papers (MOFPED, 2003c). These interactions have helped deepen individual relationships among donors and between donors and government officials; they have also encouraged a constructive problem-solving approach. However, there is some unevenness among the various sector groups in terms of the depth of the strategic vision and the level of discourse, where the quality is well below that of the core government ministries. Both Government and donors need to take steps to identify which are the critical working groups (especially cross-sectoral groups) for the next PEAP-PRSC cycles forthcoming period, and help raise the level of the lagging groups to the level achieved in such groups as education, health and, more recently, water and sanitation.

49. Overall Summary of Government and Donor Views of PRSC Process. There is a broad consensus that the benefits of the PRSCs outweigh the costs, and agreement that progress is being made in meeting some important PEAP goals. However, there is a more positive perception in Government than among donors. This is partly because, with some qualifications, the Government strongly favors the PRSC funding mechanism compared to project-financing, and is also strongly committed to the greater autonomy and self-reliance the PRSC has encouraged. At the same time, the Government is candid about the pressures this approach imposes both in terms of some increased complexity without a sufficiently rapid growth in capacity and supporting systems, and on occasion, the heavy demands that donors, especially the World Bank make on their limited time and resources. The donor group believes that the PRSC process is a beneficial innovation, but that in many respects the PRSC operations to date have yet to deliver on some of the stated goals of the process, and that there is a need for some significant adjustments in a number of aspects of the design and implementation of PRSCs. These are discussed in the sections that follow.

Broader Concerns

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50. Poverty Reduction. The poverty numbers that have just emerged from the 2002/03 household survey are likely to lead to a change in focus of the next (third) PEAP, and even more so in the case of future PRSCs --- towards a more direct support of income generating activities and towards having to pay closer attention to the North. Poverty reduction is the overarching goal of the PEAP, and therefore the core reference point for the design of past, current, and future PRSCs. The achievement of PEAP goals depends more on the increase of incomes among the poor than on any other single objective. This is because the same rapid growth that will be needed to increase incomes among the poor will also help increase domestic revenues needed for sustained delivery of basic services that are important in improving the non-income dimensions of poverty. The first three PRSCs emphasized service delivery, strengthening of governance and improving resource allocation, all of which help create a context in which poverty reduction is achievable and sustainable, and which may contribute in indirect ways to increased income. However, none of the PRSCs have taken up directly the jobs/incomes challenge that lies at the heart of the PEAP (aside from some aspects of service delivery to agriculture that were introduced in PRSC-2).

51. There is no doubt that social service delivery in education, health, water and sanitation can, and is, contributing to the quality of life and a longer life-span in ways that are crucial to the overall poverty reduction effort. However, there is little evidence to convince one that these improvements will lead to improvements in incomes or reduction in the poverty headcount any time soon. Some production-oriented services, such as research and extension or rural roads, could potentially contribute to raising incomes of the poor, especially in sectors where the elasticity of poverty reduction with respect to an increase in income is relatively high (Townsend, 2003). However, a number of other factors would need to be in place before that result will be forthcoming, and growth in markets for agricultural products is clearly the most important of these conditions. Better farming practices on their own do not necessarily result in entrepreneurship and its essential skills. These are essential if incomes are to improve. It is not clear exactly how PRSCs can focus on these aspects of poverty reduction, but as these are Poverty Reduction Support Credits, and represent the key financial support from the World Bank and other donors for poverty reduction, it would be difficult to argue that PRSCs (or complementary World Bank operations) should not focus on such issues.

52. The issue of the North is especially problematic. Poverty has hardly declined there in the last 10-12 years. As long as the conflicts with the Lord’s Resistance Army and the Karamajong are not solved, this situation is bound to continue and be reflected in the overall poverty profile for Uganda. PRSC is not the instrument to tackle that issue, but it is essential for partner donors in the PRSC, who are better positioned to work on conflict resolution, to ensure that this goal is not de-linked from the PRSC, but remains a parallel, essential requirement for poverty reduction goals.

53. Focusing on the accumulated analysis of poverty trends in Uganda, a key fact is that between 1992 and 2000, headcount poverty in Uganda declined from 56% of the population to 34%. (Table 9). Most of this improvement was achieved before the Government’s poverty reduction strategy had much of a chance to have an impact. Rather, these improvements were the results of a recovery from war, benefits from macroeconomic stabilization, various structural reforms, and the mid-nineties coffee-boom. Since 1997 an explicit poverty reduction strategy (starting with the first PEAP) has been in place. Yet poverty numbers from the 2002/03 household survey show a rise in headcount poverty back to 38% of a now much larger population of Uganda, estimated at about 23 million at the time of the household survey. The number of people in poverty increased from 7.2 million to almost 9 million, most of them living in rural areas, and especially Eastern Uganda, where headcount poverty increased startlingly from 35% in 1999/00 to 46% in 2002/03. The mean per capita consumption of every group other than the top 20% of the population, declined significantly; and income Gini coefficient rose to .43 in 2002/03 from .40 in 1999/00. In effect, Uganda’s growth over the past three years has been pro-rich and not poverty reducing. Inequalities were

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larger in urban (.48) than rural (.36) areas (see Table 9). Geographically, poverty continued at above 60% of the population in the North. Poverty increased strongly in the East and West and rose marginally in the Center which already had the lowest poverty headcount. Increases in the rural areas were higher than in the urban areas.

Table 9 Headcount of Poverty in Uganda, 1992-2002

Population2003

1992 1997/98 1999/00 2002/03

Headcount Poverty (%)National 100.0 55.7 44.4 33.8 37.7Rural 86.2 59.7 48.7 37.4 41.7Urban 13.8 27.8 16.7 9.6 12.2

Central 29.6 45.6 27.9 19.7 22.3East 27.4 58.8 54.3 35.0 46.0West 24.7 53.1 42.8 26.2 31.4North 18.2 72.2 59.8 63.7 63.3

Gini CoefficientsNational .36 .35 .40 .43Rural .33 .31 .33 .36Urban .40 .38 .43 .48Note: Figures for 1999/00 and 2002/03 were made comparable by adjusting for the four districts that were in conflict and could not be surveyed in 1999/00 (Kitgum, Gulu, Bundibugyo and Kasese)Sources: Appleton, S. (2001), MOFPED (2000d), Okidi, J. and Ssewanyana, S. (2003)

54. It is not yet known which factors account most strongly for this poverty reversal. It is clear, however, that the growth strategy for Uganda cannot rely solely on a combination of the traditional interventions applied at their current pace: infrastructure and human capital investments, improved public administration, delivery of services, reduced corruption, relaxed regulation to encourage production and exports, and macroeconomic stability. All of these remain vital and relevant, but they will not be sufficient to reverse the worsening trend in income poverty. One major factor is the rate of growth of population which, based on the recent census, was revised sharply upward to 3.4% per annum. Population growth rate of that magnitude (Uganda’s total fertility rate of 6.9 is one of the highest in the world), will put a serious strain on the public resources and is likely to put the achievement of several of the MDGs beyond reach.

55. Hopefully the new PEAP will provide an analytical basis from which to design more direct interventions that will impact jobs and incomes. Whether or not such measures can be supported by future PRSCs, the success and contributions of future PRSCs will depend in large part on whether the Government, with or without donor support, is embarking on a determined effort to increase the rate of growth of the economy. This must inevitably require a significant reallocation of and an increase in public resources, particularly in the area of infrastructure where the expenditures are substantially lower as a

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proportion of GDP than in the economies that have achieved sustained rates of growth of over 7% per year. It would be unfortunate if such a reallocation were to rob essential services of needed resources, although even in this area, thinking will need to be done about priorities and the efficacy of boosting certain service sub-sectors in the absence of job/income growth. Continuing commitment to poverty reduction will require the Government to take tough budgeting decisions (including holding and ideally reducing expenditures in defense and public administration), cost reduction and efficiency boosting measures in services and government operations, continuing efforts to save resources from being siphoned away by corruption and rent seeking, and renewed vigor in plugging loopholes and drainage in the collection of tax revenues.

56. Capability of Government. Interviews with government officials and NGOs indicate that improvements in institutional capacity are more visible at the national than at the district and local levels, and that there is a wide difference among various sector agencies. Capability of government is at the heart of more rapid growth, poverty reduction and improved service delivery. The process of capacity strengthening and institution building has been underway in Uganda for more than a decade, and while beneficial results have emerged, especially at the technical levels, the various interventions have also demonstrated the complexity of building lasting capacity in a situation in which (a) new demands on public administration are constantly emerging (including donor demands); (b) there has been a significant reliance on technical assistance, and transfer to local capacity has been only partially successful; and (c) the task has been made even more complex by the process of decentralization. Because capacity building efforts have established only tentative links between increased public administration competence and poverty reduction, much energy has gone into establishing systems and processes that often become ends in themselves, rather than means towards ends.

57. From the outset, each PRSC has recognized the need to focus on system-wide capacity building issues, the “governance” pillar of the PEAP. Each PRSC has a fairly extensive annex that covers the Institutional Reform Program that has been identified as needed to achieve PEAP objectives. Monitoring has, so far, addressed the question as to whether these reforms have been enacted, and has not looked in any great depth (except perhaps in the health and education sectors) at whether or how the reforms have helped achieve poverty reduction goals. Future PRSC Institutional Reform annexes need to be more integrated into the operations. This will involve calculating, however tentatively, the costs of the proposed institutional reforms and fitting these costs into the overall budget envelope; and establishing an impact evaluation framework which can test whether and how these reforms are impacting on poverty reduction goals. It will also be necessary, given the burden which public administration already faces and the limited capacity from which government can draw, to ascertain whether the reforms are sufficiently parsimonious, or err on the side of unnecessary complexity.

58. As the PRSC does not, in fact, implement capacity building reforms beyond budget funding and enactment of particular measures, the process has to rely on the many other capacity building processes taking place in core ministries, sector ministries, and local government. It is not sufficient to simply acknowledge that these efforts are being undertaken. It is important that the PRSC/Government team have a full appreciation as to how these current efforts are likely to support poverty reduction goals in practice (not simply conceptually), whether there are key needs and gaps which the current capacity building programs are not addressing but which are vital for the PEAP outcome, and whether the various programs are sufficiently coordinated. As the PEAP goals are the over-riding goals for Uganda’s development strategy, the PEAP and PRSC provides the perfect perch from which to monitor and evaluate all the various efforts being made to strengthen institutional and human capacity. If after such a review, it is clear that there are still gaps and vital areas not being adequately covered, there may be a need for a parallel program (such as CAPEP, Capacity and Performance Enhancement Project, proposed by the World Bank). However, without the overview and integration of capacity building efforts, such an intervention runs the

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risk of becoming another stand-alone initiative with limited results. There are five essential challenges that need to be faced by future PRSCs in terms of the needed capacity to achieve PEAP goals. Firstly, is enough being done to build capacity at the local level, especially in those regions that have experienced the sharpest increases in poverty? Secondly, how can capacity be strengthened among the enablers of poverty reduction (local community groups, NGOs, farmers associations, trade groups) to help them play a fuller role at each stage of the process, but especially at the planning stage? Thirdly, what can be done to build an adequate cadre of skilled Ugandans who can more rapidly and effectively take over from provided international technical assistance, and reduce its need in future (and what can be done to provide them with the incentives to remain in public service)? Fourthly, how can more effective, results-oriented measures/indicators be established to determine whether the institutional reforms enacted are in fact producing the poverty reduction contributions attributed to them. And finally, to be covered in more detail below, what needs to be done to strengthen the Office of the Prime Minister to take the lead coordinating role in linking PRSC-supported actions and goals to the PEAP, tracking the results of the reforms, and operating as the key interlocutor with PRSC-supporting donors?

59. Aid Modalities. Almost everyone agrees that budget support operations such as PRSCs are not the best instrument in all situations. Sector-wide approaches (SWAPs, which can be financed either through budget support, or as standard projects, or a mix of the two, but are NOT in themselves financing mechanisms), may be superior when there are a number of detailed reforms and processes which take time to implement and require a complex implementation design. Projects are needed in sector-specific situations which have clearly defined, concrete outcomes, and where the country does not possess all the implementation capacity needed. Uganda made a number of important policy reforms through SACs, even though these sometimes caused relationship and financial flow problems (due to conflicts between donors and Government). Uganda PRSCs have undoubtedly helped change the relationship between donors and Government, and introduced greater flexibility in the management of resources. It is not clear, however, whether, in terms of the PEAP goals, Uganda has the optimum mix of type of operations. In fact, it is not clear how one could make that determination in a way that is more objective and systematic than considered judgment.

60. However, the World Bank’s experience with education in Uganda may provide some clues. In 1993, the World Bank’s Board approved an education project that was to support Primary Education and Teacher Development (PETDP). This project was judged “unsatisfactory” in an internal World Bank evaluation in 1996, which was the very year that the Government introduced the Universal Primary Education (UPE) program. The World Bank supported the UPE through an Education Sector Adjustment Credit (ESAC, approved in March 1998) which was essentially budget support to a SWAP in education. It was judged internally to have been satisfactory. Moreover, the UPE galvanized the work supported under the PETDP project which ended up being rated as “satisfactory” by 1998 (see Murphy, 2003). The PRSC then continued to support service delivery and the reform program in education to the point where it is now a “one liner” in the PRSC. If the education sector undertakings in say April of any year are viewed as having been carried out and reported in the education sector review in October of that year, then education is funded directly through the budget, as agreed earlier. The experience points to two possible conclusions: the first is that the three modalities were interconnected and sequenced in a way that produced positive outcomes and development of greater Ugandan self-reliance. The PETDP project needed a larger context in which to be successful, and the education “one liner” prior action in the PRSC could not have happened without an underlying SWAP-like process that underpinned the PRSC (see list of Education Sector Undertakings in Annex 3 which is substantial, but is handled as “one line” in the PRSC). This suggests that the background of a sector-wide strategy may be of critical importance to both PRSCs and projects. The other possible conclusion is that PRSCs will have the greatest impact in sectors in which Government has already demonstrated capacity and progress through the creation of a rigorous analytical framework, a

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convincing financing plan, and the institutional framework to make the reforms happen. At the same time Uganda’s progression from projects, some of which did not work until put in a sectoral context, through sector operations to supporting multi-sectoral actions via PRSCs, suggests that there is a point in a low-income country’s development where sector and budget support become an instrument that is superior to the “projects only” instrument.

61. Absorptive Capacity. At present, absorptive capacity rather than flow of financial resources is considered by donors and some Government officials, to be the more important constraint. If more money is coming into Uganda than can be used effectively within a given time-frame, one of the expected results would be a rise in unit labor costs in the non-traded goods sectors. That, in fact, is what is happening in Uganda today. Monetary authorities, in an attempt to control these inflationary pressures, have cut back on the rate of growth of money supply. Given the large foreign aid inflows, either the exchange rate must be permitted to rise (which is a disincentive for exports), or real interest rates must be raised (which is bad for investment). Arguably the same dilemmas would exist if all aid came in the form of project funding rather than budget support. The answer hinges on the proportion of budget or project funding that is spent on non-tradeable goods (and it would be worthwhile to conduct some research on this topic). Whatever the answer to this problem, it would make sense to find ways of identifying the parts of government in which absorption is a special problem, and respond to these with a combination of more controlled release of resources and measures to improve absorption capacity. In addition one could search for ways to help build capacity in the private sector that the Government could outsource to. These and other issues need discussion, and it is recommended that the evidence and options be discussed in the Government/Donor PRSC team. This issue is closely linked to the next one: aid dependency.

62. Aid Dependency. Uganda’s aid dependency is high and there are signs of “Dutch” disease. As mentioned in the previous paragraph, unit costs of non-tradables such as construction are rising much faster than the overall price index. Uganda’s effort to raise its rather low domestic tax revenues needs to be redoubled as it now supports barely a half of total budget expenditures. This is also the stated intention of the government. Large flows of aid, of any kind, prevent this issue from being experienced with the right level of urgency. Significant reforms were introduced in this area over the last decade, and the outcomes are far from satisfactory. There is among some donors a view that a continued flow of aid is more desirable than an effort to replace part of such aid through tax revenues. This is based on the well-known arguments made by Collier et al, concerning the negative impact of increasing domestic revenues in a largely agricultural economy still undergoing significant reconstruction. When applied to Uganda, this argument had legitimacy in the first decade or so after conflict, but should not be viewed as a long term solution. It would not serve Uganda well to continue for the next decade or two financing a significant portion of its poverty program through external loans and grants. That would signal a failure in being able to generate and harness the potential wealth of the country to ensure that efforts to eradicate poverty are fully under Ugandan control and are hence likely to be sustainable. No assurance from donors that aid flows will be sustained should be taken by an independent government as a guarantee. This is not to argue that the move from aid to domestic resources and investment can be a sudden one. The process is clearly long-term, but needs to be better charted in the World Bank’s CAS, and form a clear, agreed discipline among donors when it comes to planning future aid volumes. The PRSC is not a useful instrument in this respect, given its one year time frame. Even if the PRSC does not move to a multi-year program (and there are good arguments for keeping it as an annual instrument), each annual operation needs to be planned within such a multi-year aid program, and this should not simply be a reflection of estimated budget gaps. From the perspective of both aid dependency, and the absorption capacity problems described above, it is important that donors agree to some overall aid limits, coordinate rather than compete, and carefully scrutinize the priority of all projects even if some of these projects are welcomed (predictably) by individual sector ministries, or being energetically advocated (again predictably) by individual task managers. The World

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Bank should also be willing to apply its own stated principle of encouraging utilization of grant resources first, and operating in Uganda as lender of last resort. This should apply not only to projects and financing contributions to co-financed operations, but also to disbursements.

63. Political Economy, Conditionality, and Principle of Graduated Response. Issues of political economy were repeatedly raised by Government participants at the stocktaking workshop. They argued that as the implementation of adopted legislation proceeds, there are serious risks of policy reversals if the reforms are resisted by influential vested interests. On this view, Prior Actions (see Annex 4 for the Principles involved in selection of Prior Actions), which trigger the presentation of the next PRSC to the World Bank’s Board, should contain more conditionality with respect to actual implementation than with respect to just initial policy enactments. While this balance has been shifting towards the implementation end of the spectrum over the years, a number of donors still feel that there is insufficient emphasis on results and outcomes and view Prior Actions as simply the start of the process. In some cases this emphasis is accompanied by a demand that PRSCs include some element of tranching (i.e. that PRSC instrument be “multi-year”) based on the monitoring of these emerging results, and it is clear that some donors will probably operate according to such a principle even if the World Bank continues to disburse on the basis of the enactment of Prior Actions. As long as PRSCs remain a single disbursement one-year operation, there is some danger that a significant lack of real progress following the initial enactment of a Prior Action, could result in one or more donors withholding financial support from the next PRSC, or even holding up disbursement during the current year. On the other hand, so far every year the PRSC processing has been perturbed by events that had not been foreseen initially: substantial budget over-runs by mid-year, unexpected defense expenditures, and leadership code issues created situations that would have presented challenges that a multi-year PRSC might have had trouble overcoming. For this reason this paper argues for a “graduated response” approach, while continuing to use the annual PRSC instrument.

64. Some argue that if direct budget support were reduced or delayed, project financing would provide Uganda with a floor to overly large fluctuations in overall aid. While this may be true in terms of aid figures, it is unlikely to be true in terms of performance. When budget support declines, counterpart funds become scarcer, and not all projects can continue uninterrupted. Choices are made, resulting in interruptions and a decline in the effectiveness of aid. In addition, because a cutback in direct budget support would probably be due to the deterioration of the overall performance of the country’s reform program, this fact would also reduce the effectiveness of projects linked to the issues being disputed. More project aid is therefore not the antidote to possible cuts or delays in direct budget support. The answer is to fix the problems that have caused the impasse, and to find a mechanism by which this situation can be anticipated and managed to ensure that the economy is not destabilized. The answer may lie in the adoption of a framework of graduated response, and the following paragraphs sketch three examples of such a response.

65. The PRSC process is based on an expectation that as Uganda will receive a major amount of its resources in the form of budget support, that the flow of these resources will not be interrupted within a budget year, and that the between-year changes will be reasonably predictable. Uganda qualifies for such support because it has a fairly mature program of reforms (a poverty strategy, sector strategies, some sector-wide programs, a reform-minded government with a track record, trust between government and donors, and a wide net of working relationship with government officials that allows donors to assess progress on a continuous basis). It is unlikely, although not impossible, that Uganda will veer off course suddenly and dramatically. A look at the World Bank Country Performance and Institutional Assessment ratings (which are important in determining the size of the World Bank’s assistance program) suggests that sudden large changes in these ratings from one year to the next are rare and virtually non-existent in countries with mature aid programs. The most reasonable projection is that Uganda, being a mature

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borrower, will by and large adhere to the performance framework agreed with the donors; and donors will probably not have sufficient basis to suddenly reduce their budget support. Rather, the preferred response would be graduated, a slowing down of disbursements or a delay providing the space for dialogue and opportunity for the Government to seek remedies.

66. Notwithstanding, there are some indications of donor impatience on certain aspects of Government expenditures, lingering corruption, and the continued watering down in implementation of some policies that have been enacted. If this situation continues, it is not impossible that one or a few donors may decide to reduce their contribution to the overall budget support package. If situations that would trigger such consequences are specified in advance, outcomes are in the hands of the country’s decision makers, and such donor actions need not be destabilizing for the entire program. This is another example of a graduated response.

67. A third possibility would be to include some element of segmentation in the release of funds within the PRSC. There could be a core amount that is dependent only on the enactment of agreed Prior Actions and continued good performance that Uganda is making in achieving agreed PEAP goals and maintaining macroeconomic stability. Further amounts could be calibrated to harder demands for reform, whether these are of a deep institutional nature or reforms that are more political in nature and call for strong political leadership. The tricky issue will be to reach a consensus that will bind all donors rather than have a particular donor’s financing support linked to such issues. On the surface, the simple solution could be donor parallel financing outside the PRSC tied to a donor’s political or governance concerns. However, this would be a superficial solution that does not address the deeper donor concerns about ways in which vested domestic interests undermine progress. It is also vital that donor support in Uganda is well coordinated, based on transparent country assistance strategies, with clear links to the PEAP. The transparency should apply both to public scrutiny and to discussions within sector working groups to ensure compatibility with agreed sector strategies. This needs to be combined with a careful assessment of absorptive capacity (as discussed above), but also provide sufficient assurance of budget support for the following three years (on a rolling basis) to enable the Government to plan the longer term interventions and programs needed to make an impact on tenacious poverty problems. The recently signed Partnership Principles between the Government of Uganda and its Development Partners (Annexes 1 and 2)), try to embody the spirit of this approach. It is important that the issues described above are openly discussed at a senior level among the donor agencies, to avoid a situation in which one or more donors feel they have no choice but to withhold aid because their concerns are not being addressed.

68. Scope of PRSC Matrices. As Uganda PRSCs moved from the first to the third, Policy and Quantitative Monitoring Indicators matrices grew like topsy. Both on the Government side and among donors, these matrices are judged to have become too large, and there is broad consensus that selection criteria should be developed to guide the inclusion of new issues/areas, and to provide for the exit of others. Government officials emphasized that actions cutting across sectors were much more successful when included in the PRSC, rather than being pursued purely within a sectoral programs. In education, an example is the interlinked program of teacher recruitment and deployment, textbook publishing and classroom construction, for which responsibility falls within three separate ministries (MoPS, MFPED and MLG), all outside of the Ministry of Education and Sports. As a result many ministries have attempted to have their cross-cutting goals included in the PRSC policy matrix.

69. As sector-wide strategies have matured in their various sectors, they have been moved into a “one-liner” mode in the matrices although they are still financed under a PRSC. The real action in these areas takes place at the sector level through continuous close collaboration between Government and donors, punctuated by formal detailed reviews of the sector’s progress within the framework of the sector

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strategies, as well as the PEAP and the PRSC. This has helped control some of the growth of the matrix, especially when education and health sectors were converted to this “one liner” mode, although each “one liner” was underpinned with a rather extensive list of undertakings (see Annex 3 for the case of education or PRSC 4 document for several other sectors). However, care must be taken to ensure that where there are links between sectors that have been reduced to one-line entries in the matrix, and other sectoral actions that are fully described in the Policy Matrix, that these links continue to be made specific. Ultimately, the “one liner” mode may just be helping to hide the fact that the scope of the PRSCs has reached its limits. It may be time to consider supporting some sectors through separate operations. One idea, in view of the recent rise in income poverty, might be to design a budget-support operation that focuses on economic growth issues.

70. Results Orientation. As indicated earlier, there is a strong concern among donors that judging progress under PRSCs needs to be based more firmly on tangible results, that Prior Actions more specifically spell out the milestones and intermediate outcomes that these actions are intended to produce, and that less reliance is given to judgments based on observing a process under way. Discussions concerning results orientation focused on two main elements. The first is the issue of better alignment, between the PEAP and the PRSC, and between the outcomes sought in the Policy Matrix and the Quantitative Monitoring Indicators used to track progress. Improved alignment between the PEAP and the PRSC seems to be, in part, a matter of accurate prioritization,--that the PEAP should be the main derivative source for the PRSC, even though there may be other valuable public administration reforms that require attention. The PRSC goals should do more than mirror the poverty reduction goals of the PEAP, but should be established, implemented, and evaluated in a way that directly captures the concrete poverty reduction goals the Government has prioritized. The links in other words should go beyond a conceptual foundation (e.g. that “actions of this nature have been shown to ….”). Improved alignment between the Policy Matrix and the Quantitative Monitoring Indicators, suggests a tighter discipline, both in terms of determining what is possible to achieve, over what kind of time frame, and assuming the policy measures are both appropriate to the situation and implemented effectively, what sort of changes should it be possible to detect, in very specific terms.

71. The second issue related to an improved results-orientation concerns the actual rigor of the methodology, the way goals are set based on what can be measured, the way indicators and outcomes are derived from both the situation and the types of reforms, the information that would need to be collected and interpreted to inform both tracking and impact evaluation, and the rigors needed to ensure validity, reliability, and utility of the process. Validity concerns whether what we are measuring is, in fact, what we believe we are measuring, rather than the result of factors that are not related to the particular reform. Reliability concerns the extent to which we can depend on the data and the interpretations, and the extent to which generalized conclusions can be derived from them. Utility (or usefulness) concerns whether the findings are sufficiently clear, detailed and practical to underpin decision-making (to continue the reforms as planned, to change course, to add other supportive measures, and the like).

72. Donors frequently raise the issue as to whether we are actually observing cause and effect in evaluating PRSC outcomes, or merely observing correlations. They also raise the issue of the intervening variables (factors that are not being controlled for, or even, for that matter measured) that can explain poverty reduction trends as convincingly as (or alongside) the impact of PRSC reforms. Just as important is the fact that if the analysis and/or the information base is incomplete, the utility of such evaluations is compromised, because policy analysts do not have sufficient insight into what is happening to be able to propose adjustments or additions that will be strategically powerful. Given a situation in which the Ugandan Government is burdened by a huge agenda of reform and ongoing routines, there needs to be a parsimony in the formulation of policy proposals. Evaluation that is based on incomplete analysis,

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inevitably results in falling back on prevailing “development ideology” rather than Ugandan realities, and encourages the view that donors are using the country as a laboratory for testing their favorite theories. This is often a charge (whether or not justified) made by NGOs that feel they are close to the reality, but whose contributions to the policy debate are marginalized because “money rather than truth drives the reforms”. A more rigorous and wider-based evaluation process will not only help hone policy formulation, but can also help stimulate the participation of civil society.

73. In summary, an improved results-oriented evaluation process could strongly benefit both the PRSC cycle and help strengthen policy analysis related to poverty reduction in Uganda. Such improvements would not only include a deeper analysis of the actual outcomes that a set of reforms would be expected to achieve, and the milestones on the way to those outcomes, but would also focus on whether there is actually sound (valid, reliable, useful) information and analysis that can demonstrate the impact of reform interventions. Little is to be gained by trying to control for variables outside of the PRSC reform agenda, as there is no practical way in which this can be achieved, and such a hope tends to fuel speculative judgment rather than rigorous analysis. Rather the evaluation model needs to be broad enough to encompass all the major factors that will have an impact on poverty reduction goals, including factors not being targeted in the PRSC. It therefore follows that the PRSC should be meticulous in describing the broader set of factors, indicating how the actual PRSC reform goals fit within that broader framework, and how some of these factors could support or obstruct the achievement of PRSC goals. This approach would provide additional realism to the nature of the PRSC intervention, and help the Government focus on the broader reality. It is also likely to be popular with donors who sometimes express the view that the PRSC process claims too much; and it would avoid the problem of having to explain after-the-event, why poverty has increased in Uganda to a greater extent since the PRSC process was introduced.

74. At a more detailed level, more attention needs to be given to developing a set of strategic questions that need to be posed about the reform program and its results. An example is the areas of efficiency of expenditure allocations and in operational efficiencies within each of the “one liner” sectors. There has been a rapid increase in social expenditures, but are they efficient and/or cost effective, and when compared to other expenditures such as agricultural research and extension or rural roads, are their cost/benefit ratios competitive? Can increasing expenditures on public administration be justified in terms of their impact on better service delivery, more rapid and higher quality growth, or greater poverty reduction? At the level of operational efficiency, are programs in education or health or water and sanitation giving high value-for-money? What are the factors at a local level that tend to drain or divert resources from their intended goals, how can these be monitored, and what actions can help diminish these tendencies? The envelope in these areas needs careful management since resources are scarce and there are still many unmet needs. The process of prioritizing and formulating reform goals and designing the evaluation process may benefit from the use of tools such as Poverty and Social Impact Analyses.

75. It is also vital that a careful assessment is made of the many studies and information bases related to poverty in Uganda, in an effort to bring together the best of these, streamline or eliminate information that is being collected on a routine basis but may have limited utility, validity, or reliability. This task should be located in the Office of the Prime Minister, with appropriate donor support, to help strengthen the overview, coordination, and analytical strength of that office.

76. Annual vs. Multi-Year PRSCs. There is strong support among the PRSC donors for moving from annual PRSC operations to a multi-year PRSC. They argue that many of the issues raised in this paper could be more readily addressed by such a move. While progress is monitored during the PRSC year, the annual nature of the exercise places the spotlight on Prior Actions and perhaps insufficiently on results and outcomes. It is also very difficult to identify reforms that will show results in a year, and given the pressure

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to come up with Prior Actions each year may be leading to a situation where there is insufficient time for the reforms to take root. A multi-year PRSC could help focus greater attention on results, and encourage the establishment of longer-term goals which are appropriate to the challenges of poverty reduction. The establishment of additional reforms, or adjustments to those under way could take place “organically”, as the situation requires, rather than a “mechanical annual process”. This could also help reduce the huge PRSC missions that draw criticism from Government and donors alike. Similarly, the disbursement of funds could become more flexible, like a facility rather than a one-time disbursement, allowing a better alignment with the budget process. This could also help with the problems of absorption and aid dependency. For a multi-year PRSC to have this flexibility and capacity to adjust to Ugandan needs and realities, the operation would have to provide the task manager the powers to respond without continually seeking authority. It should suffice for an interim report to be sent to the Board annually, and shorter notes whenever a major adjustment or an innovation is required. If the multi-year PRSC were simply a repackaging of a number of annual operations under one cover, there would be little benefit. So it is recommended that the current reviews concerned with the possibility of introducing multi-year PRSCs focus primarily on the kinds of improvements and flexibilities required, and work to achieve as procedurally light an instrument as possible. While the thinking on this issue should continue, this report argues that at the moment the uncertainties and unexpected events that have occurred annually in Uganda (see para. 63) are better handled through a graduated response based on a series of annual PRSCs.

77. PRSC Coordination and Management. Closely linked to the need for an improved results orientation is the issue of how to improve coordination and management of the PRSC process. There are two dimensions of coordination and management worth considering. The first relates to coordination and management within the Government, which has taken the important step of vesting overall responsibility for reviewing and coordinating the PRSCs within the Office of the Prime Minister. For this step to work effectively, OPM must have more than simply review and coordinating responsibility. What is needed is more than a secretariat. The PEAP and PRSC process lie at the heart of the Ugandan development program, and cut across all sectors. Therefore OPM should be vested with the seniority and executing authority to pro-actively coordinate the program in consultation with the Ministry of Finance and the sector ministries (which are responsible for the actual management of their reform programs), propose changes, analyze decisions, convene donor meetings and represent the Government at all such meetings, and report directly to the head of state on the progress of the project. This would require a significant capacity building effort, to bring the level of talent needed into OPM, establish the information bases required, and streamline decision-making. It is proposed therefore that the next PRSC include specific goals for the design of OPM’s PRSC coordination unit, supported by the necessary technical assistance, training, and other strengthening measures. This may be ideal for a UNDP or bilateral donor funded support project, because such an operation may be more likely than a Bank operation to be launched rapidly and contain the flexibility to adjust to a “learning-by doing” approach.

78. The other dimension of PRSC coordination and management that is worth reviewing is the location of Task Management responsibility. If greater attention is to be given to results and outcome milestones, and especially if the PRSC is to be transformed into a multi-year operation, there would be significant benefits from locating the management of the operation at the Resident Mission. The fact that the PRSC is the core operation in Uganda’s development program implies that the PRSC should be the major concern of the Country Director/Manager, who should have the Task Manager and Core Team on location. This would enable the reform process to be more closely monitored, with greater learning from observation. In addition, there would be better coordination with the major sector reform efforts, improved coordination with donors, an opportunity to facilitate greater involvement from community groups, civic organizations, and NGOs, better on-the-spot understanding of the problems and obstacles affecting implementation in the regions, and direct, every-day consulting support to key implementors in the Ugandan government. The

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Country Director and Task Manager can request the additional specialized assistance from headquarters as needed, as well as make better use of expertise within the partner donor agencies. In this way, locating the Task Manager and small Core Team in Uganda could be a valuable contribution to the Bank’s goal of decentralizing operations and increasing country accountability. It is also likely that the replacement of very large, frequent PRSC missions would off-set the costs of local location, and perhaps even lead to net cost savings.

79. Environmental Degradation. The Participatory Poverty Assessment shows that the environmental degradation trends have continued and perhaps worsened during the PRSC cycle, and that there is no evidence as yet that either the level or the risks have been reduced (the PRSC goal: see PRSC-III Program Document, paragraph 137, page 41). Losses due to environmental degradation have been estimated to lie within the range of 4 to 12 percent of GDP. Significant causes continue to be loss of forest cover, water pollution due to industrial and domestic waste, over-fishing, destruction of native fish species by introduction of foreign species, over-grazing, and encroachment on wildlife areas and wetlands. PRSC focused on strengthening institutional structures (chiefly NEMA), designing conservation and protection strategies, and training (especially at the local government level). Progress has been made in many aspects of this component as it was designed, although progress in achieving the stated PRSC goal is some way off. A number of environmental policies have been put in place: for forests (2001); wetlands (2001); and soil (2003). Responsibility for environmental management has been formally devolved to district and lower governments. An Environmental and Natural Resources Sector Working Group was established in 2001 to prepare and harmonize sector plans and budgets. Environmental training and manuals have been given to relevant government agencies, NGOs, and district and sub-district officials. An Environmental Governance Review has been launched, and the first steps taken to establish a National Forestry Authority. The viability of this approach to reducing environmental degradation depends on the adequacy of capacity and resources at the levels of primary responsibility, namely district and sub-district governments. It is clear that at present, neither the resources nor the capacity are adequate, and the sustainability of the decentralized approach remains uncertain. The policies themselves have also not been adequately funded, so implementation will be slow and uneven until they are. At the moment the Government funds only 10% of the recurrent budget of NEMA, with the rest supplied by donors. Environmental management depends to a large degree on voluntary adoption of effective practices and avoidance of harmful ones, and this requires a strongly participative approach to decision-making and a clear awareness of rights. Progress on this front is slow and there have been complaints of people being excluded from the decision-making process. While issues of environment are not central to the PRSC process, they do tend to be cross-sectoral and could be supported through PRSCs. However, this would further strain the already large scope of the PRSCs. Perhaps the solution lies in well-focused “hands on” technical assistance along the lines that seems to have been successful in improving financial management and procurement procedures.

Conclusions and Recommendations

80. The PEAP and PRSC processes have led to a substantial sharpening of the overall vision of development and its main strategic components that Uganda is to follow, helping focus the allocation of resources, increasing the efficiency of basic service delivery, and improving the coordination of the type of cross-sectoral efforts needed for poverty reduction in its various dimensions. The consensus is that the process should continue but with a number of important adjustments, several of which have already been started in PRSC 4, currently under preparation (such as a more results-oriented framework, the improvement of government coordination mechanisms, and the development of the Principles for Determining Prior Actions).

81. Conclusions and Recommendations of the stocktaking of the Ugandan PRSCs are as follows:

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(a) Government Commitment to and Management of Poverty Reduction.. The PEAP/PRSC process has strengthened Uganda’s strategic development vision and has raised the awareness of this vision within central Government, Parliament, local governments, and civil society. The core ministries have demonstrated their commitment to leading and managing the process, and the recent decision to locate PEAP/PRSC coordination and oversight in the Office of the Prime Minister (OPM) is an invaluable sign of growing self-reliance. There are still cases of delay and unevenness in Government responsiveness, but this is not surprising in a public administration that still lacks essential capacity, and is often burdened by donor demands and frequent innovation and change. However, it does underline the fact that poverty reduction will proceed only at the pace at which the Government can respond. Major obstacles still exist at lower staff levels and within local government. There are still many aspects of the poverty reduction program which are politically sensitive, especially concerning resource allocation, and the Government often struggles with the balance among factors that are not always mutually supportive, -- moving the reform program forward, acting on controversial issues like corruption, building political will, increasing the level of Parliamentary and civil society involvement in the policy dialogue driving poverty reduction, and maintaining domestic stability. The ongoing problems in the north and on Uganda’s borders, are clearly additional complicating factors. The way the Government is able to manage these often conflicting factors will come under increasing pressure if the next phase of the PEAP and its accompanying PRSCs are to make the key shifts needed in Uganda’s development strategy. This shift of vision will require a wide-ranging dialogue involving the participation of all the main stakeholders engaged in the process of implementation. This will be helped if the Government can take a clearer lead in the production of both policy and governance matrices that summarize the essence of the PEAP. Donors should focus on reinforcing the Government’s efforts rather than being seen as the main drivers behind more controversial policy issues.

(b) Service Delivery. There is little doubt that PRSC-supported programs have increased the amount, the range and some aspects of quality of the services delivered, including by and large those delivered to the poor. Major resources have been channeled to primary education, basic health, water and sanitation and, more recently, agricultural services. Results are evident at the input level (resources allocated, enrolment, patient visits, vaccinations administered, etc.) The PEAP and PRSC processes have helped focus planning processes on outputs and outcomes rather than simply on inputs, and there is a better grasp, at least among senior Government management and technical staff about the desired outputs and outcomes that are being pursued through greater inputs. These planning documents show an increased depth in analysis and understanding of the key issues. The PRSC-supported pursuit of the PEAP goals has thus had a noticeable impact on the ways of thinking about service delivery.

(c) Poverty Reduction Model. The first PRSC for Uganda clearly chose to focus on the human development dimensions of poverty that are improved through more and better education, health, and access to water and sanitation. The choice was to pay less attention to those parts of Uganda’s second PEAP that stressed income generation, although both the first as well as the two subsequent PRSCs did support continued macroeconomic stability, better allocation of public resources, improved governance and some aspects of agriculture, all of which are needed to achieve rapid and sustained economic growth. With hindsight, given the increase in headcount poverty between 1999/2000 and 2002/03, the focus of PRSCs might usefully have been somewhat different. It is true that the World Bank CAS also had in place parallel projects that dealt with issues such as additional power generation and support to the 10-year investment plan for the development of Uganda’s road network. It is not clear, however, that the integration of these with the objectives of the PRSCs was pursued aggressively. Growth was mostly left to other parts of the Uganda Country Assistance Strategy even though one of the stated outcomes by which PRSCs were to be measured was “(income) poverty reduction”, even though the main objective was improved service

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delivery. While overall macroeconomic stability and improved human development services are necessary conditions for long term poverty reduction, they have been shown to be insufficient to make a significant dent in headcount poverty figures in the shorter term. The lives of many of the poor have undoubtedly improved through access to more and better services, but the percentage of those suffering income poverty has increased in the last three years. The third PEAP, now under preparation, will likely attempt to redress this imbalance. The main challenges will be how to raise the rate of growth to the 7% per annum range; how to retarget the growth pattern to be more pro-poor; how to tackle sharply rising poverty in the East and continued high poverty in the North; what to do about the high population growth rate and high maternal and infant mortality rates; what to do about the emerging pattern of increasing inequalities; and what kinds of interventions can stimulate job growth, increase incomes and develop new markets. Sharply increased investments in infrastructure (roads, power) are part of the answer but in general the “growth” part of Uganda’s Poverty Reduction Model is much less developed than its “service delivery” (human development) part.

(d) Government Processes and Systems. The PRSC process has helped strengthen government processes. There has been good progress in cross-cutting areas such as procurement, financial management, accounting, audit, law and order, and with them, some increase in transparency and accountability, and some progress in tackling corruption. However, to achieve significant and lasting reform in these areas, the efforts will have to be exerted over many years, because the interests and incentives that thrive on lack of transparency will continue to be present, and it may well prove to be easier to re-corrupt the system than to maintain the reforms achieved so far. The revitalization of the faltering effort to improve public administration should be seen as another step in the process that began more than a decade ago, and still has much to achieve. Government is still overwhelmed by systems and procedures, as well as constant innovations, and there is still an inadequate understanding of the difference between the essential and the desirable. Until this understanding is applied, Government cannot achieve the lean and effective profile needed for rapid interventions and response, rapid understanding of the impact of interventions, and the flexibility to adapt to different and changing circumstances. Priority should be given to nurturing well-functioning Sector Working Groups, reinforcing essential cross-sectoral collaboration, and fostering the capacity to analyze areas in which projects can best complement the budget/import support operations. There is also urgent capacity building required at the delivery end of line ministries, and at both planning and implementation levels of local government. Without that, many well intended policies and reforms will be stalled or diluted by the time the benefits reach the poor. While each PRSC has a substantial annex on the institution building issues and what needs to be done, the necessary actions are typically not costed out (and hence under-funded or not-at-all funded in the budget). Capacity building needs to be better integrated into the budget and it may be necessary to develop some carefully targeted complementary capacity building projects, within the context of the relevant Sector Working Groups (and hence sector strategies) and fitted into the MTEF. The next PRSC should focus special attention on building capacity within OPM to ensure that office can effectively oversee the PEAP/PRSC process.

(e) Predictability of Resource Flows. The PRSC process has improved the predictability of resource flows at the aggregate level. There were, however, some problems with the flows at the sub-national level that need to be addressed. These were not due to the failure of PRSCs to deliver the funds, but rather due to lapses in implementation on the Government side. These are issues such as disruptive mid-year supplementary budget requests, failure to release resources budgeted for seasonally sensitive needs in agriculture in a timely way, as well as ensuring that agreed budget releases to local governments are actually used for their intended purposes.

(f) Transaction Costs are viewed to have declined. The Government, while complaining about the size of PRSC missions and the reform agenda that leaves little room for any down time, has made it clear

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that the budget support approach is by far the preferable way of proceeding. On the World Bank side there is some evidence that resources transferred per dollar of preparation cost are considerably higher for the PRSC than for regular Bank investment projects. In the next stage attention should focus on improving the impact of the transferred resources rather than worrying too much about the costs of transfer. Well-functioning Sector Working Groups that are inter-connected in the areas in which they need to be collaborating closely are probably the single most important area that needs to be nurtured. They are the place where sector strategies are operationalized, where cross-cutting issues can best be identified and approaches thought through, and where needs for projects that might best complement the budget/import support operations can be examined.

(g) Coordination among Government Ministries and Agencies is improving. For a while there was a sense in many line ministries that MOFPED, while doing a very competent job, was an inappropriate ministry to coordinate many of the (non-financial) issues across government. The Cabinet, based on a proposal for improved coordination arrangements prepared in a cabinet paper, recently approved new coordination arrangements. These will be run from the Office of the Prime Minister at the overall policy level, although for some time MOFPED will have to be relied on for its expertise to support the work of the new arrangements. A promising start under the new arrangements has been made during the preparation of PRSC 4. The main test will be how the new arrangements deal with the many and complex cross-cutting issues and the strain of sticking to the agreed timelines.

(h) Donor Coordination. The PRSCs have helped streamline and coordinate donor support, and increased resource flows from donors have shifted progressively into direct budget support. The main locus for local PRSC donor activities has been the Sector Working Groups, supplemented by special meetings arranged during PRSC missions. Improved coordination is evident in the exchanges of donor assistance strategies and key reports, feedback to the World Bank, and continuous informal exchanges, especially important when they involve Government representatives to reinforce the sense of partnership and transparency. While there are disagreements among donors, the underlying atmosphere is one of collaboration, marked by a “can do” attitude. A good deal of this improved atmosphere of collaboration among the development partners (donors and GoU) has been summarized in the Partnership Principles (see Annexes 1 and 2).

(i) Aid Modalities. Overall, the direct budget support provided by the PRSC is an invaluable approach that has done much to sharpen the focus of the Government’s poverty reduction program. However, it is also clear that providing aid to Uganda only through budget support is not the best approach, even if it is the instrument of choice for the Government. There are always issues (typically in capacity and institution building, but also in major infrastructure investments in areas such as electric power and roads) that can arguably better be handled in the project mode. It is critical, however, that this be done in the context of a sector strategy (assisted by Sector Working Groups), be transparent to all actors (donors as well as government), that such projects be well justified, and that they be “on budget”.

(j) Implementation. However, the practical implementation has lagged somewhat. More needs to be done to improve both the efficiency and equity of resource utilization, so that more of these resources can reach poor communities and remote areas. Part of this improvement needs to take place at the local level, where a combination of lack of capacity and skills, as well as corruption and local influence continues to divert poverty funds from their prime purpose. This local capacity building is only partly a question of training; it is also a matter of oversight and counter-balancing power. Therefore, an essential part of improving the actual delivery of PEAP and PRSC goals involves the greater day-to-day participation of community groups, civic organizations, and local NGOs. These groups at times feel that only lip-service is being paid to them by Government and donors, and that they have yet to become genuine partners in the

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policy debate. As long as they feel this way, it is unlikely that they will play the full partnership role on which poverty reduction is dependent. Both Government and donors are therefore urged to examine the authenticity of efforts to involve civil society, and to listen carefully and react appropriately to the feedback received from their organizations and representatives.

(k) Aid Dependency and Problems in Absorptive Capacity. One concern about the current increased aid flows (from both budget and project support) is the issue of high aid dependency. Despite the benefits of predictable budget resources, there are already clear signs of an imbalance between donor aid and the mobilization of domestic resources. It is hard to refute the argument that aid flows of the size Uganda is receiving, undermine incentives to increase domestic revenues. Donors insist that as long as Uganda “stays the course”, there is little danger of sudden cuts in aid flows. However, such reassurances can never be definitive; and the Government has to weigh the dangers that such cuts or delays would present to a poverty reduction program whose results are still fragile and cannot easily adjust to sudden loss of resources. High aid flows are also encountering problems in absorptive capacity, as can be inferred from the increase in unit labor costs in the non-traded goods sectors. Uganda’s largely agrarian economy does not present opportunities for a rapid replacement of aid flows with domestic resources. However, expanding the domestic revenue base should be an objective, and improved projections should be carried out to produce a reasonable expectation of increases in the potential for increasing domestic resource mobilization.. These projections should be used to calibrate future patterns of donor aid, and will require agreements among donors both in terms of levels of PRSC support, as well as an agreed envelope of project loans and grants (within a clear set of priority criteria to prevent “the pushing of projects”).

(l) Political Issues, Conditionality, and Graduated Response. There is persistent worry that the PRSC instrument is so large that it cannot be used credibly as pressure to make the Government stick to all its promises with respect to the reform program (whether on the economic or governance side). The entire program can in effect be held hostage to one important action or area that is not being attended to by the Government to the satisfaction of some of the donors. As was argued in the text, this issue is probably overstated. The donor approach is already graduated in a number of ways. Moreover, there is nothing standing in the way of making the graduation more formal. One could envisage a core program that depends on some basic relatively straight-forward actions (continued macro-stability and progress in a number of sectoral areas). This core program would receive funding regardless of other developments over some agreed period (e.g. the three-year period of the current MTEF). Above the core, there might be several additional amounts of support “on offer” that would depend on actions that are increasingly more difficult, presumably because of their more political nature.

(m) Scope of PRSCs. The current approach to deal with the ever expanding scope of the PRSCs has probably been right; namely keeping the focus of the PRSC on cross-cutting issues, packaging the sector reforms (education, health, water, etc.) increasingly into “one liners” with the series of sector undertakings being pursued and monitored through sector working groups in parallel with the PRSC, and develop well-targeted complementary (technical assistance/capacity building) projects where needed. This has helped control some of the growth of the Policy Matrix, although each “one liner” was underpinned by a rather extensive list of undertakings (see Annex 3 for the case of education or PRSC 4 document for several other sectors). However, there is a danger that the “one liner” mode may just be helping to hide the fact that the scope of the PRSCs may have reached its limits. It may be time to consider supporting some sectors through separate operations.

(n) Results Orientation. During the stock-taking there were repeated calls for greater results-orientation. There is a wide-spread sense that while there has been good progress on a number of input fronts (overall budget under control, sector ceilings in place, teachers and health workers being hired,

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more students in schools, etc.), the issues of better outcomes remains to be solved. Operational efficiency is thought to be low and much remains to be done in this area, starting with a better connect between policy actions and monitorable indicators in the PRSC matrices themselves (so-called Schedules 2 and 3 of the PRSCs 1-3). This is much easier said than done due to the familiar problems of attribution. Nevertheless, this has now clearly become an important issue. Money is being pumped into various agreed areas, but more often than not it increases the quantity and/or cost of inputs, rather than resulting in better outputs and outcomes. PRSC 4, now under preparation, has already taken on this challenge and pays considerably more attention to results and how “success” will be measured (one of the successes clearly being a coherent, implementable reform program). The incipient trend of weaving monitoring and evaluation into the fabric of results orientation should continue to be strengthened in the future.

(o) Annual vs. Multi-Year PRSCs. While the argument for multi-year PRSCs is conceptually attractive (see paragraph. 76), the multi-year instrument implicitly assumes some level of predictability. In the case of Uganda, unexpected events delayed presentation of each of the PRSCs to the World Bank Board by some months. The graduated response approach combined with continued annual PRSCs may, in the case of Uganda, still be the best way forward for some time to come.

(p) PRSC Coordination and Management. On the Government side the OPM needs resources to strengthen its ability to competently review and pro-actively coordinate the reform program, and especially the parts of the program that need substantial collaboration among various ministries and agencies. On the World Bank side it is time to locate the Task Manager of the PRSC in the field, supported by a small locally-based Core Team. There are simply too many day-to-day issues that need attention, for the PRSCs to be managed from Washington DC.

References

Appleton, S. (2001), “Poverty in Uganda, 1999/2000: Preliminary estimates from the UNHS”, U. of Nottingham, mimeo, January 2001

Bulir, A. and J. Hamman (2003), “Aid Volatility: An Empirical Assessment”, IMF Staff Papers, vol.50, No.1.

Fox, M. Louise (2004), “Poverty in Uganda: Key Findings and Issues”,note, May, 2004

Hauge, A. O. (2003), The Development of Monitoring and Evaluation Capacities to Improve Government Performance in Uganda, World Bank, Operations Evaluation Department, ECD Working Paper Series No. 10, October 2003

Ministry of Finance, Planning and Economic Development (2003a), Uganda’s Progress in Attaining PEAP Targets - in the Context of Millennium Development Goals, Background Paper for the Consultative Group Meeting, May 14-16, 2003, Kampala

Ministry of Finance, Planning and Economic Development (2003b), Uganda Poverty Status Report, 2003: Achievements and Pointers for the PEAP Revision, July, Kampala.

Ministry of Finance, Planning and Economic Development (2003c), Guidelines for the Budget Process for Financial Years 2004/05 to 2006/07, Kampala

Ministry of Finance, Planning and Economic Development (2003d), “Information Paper on Changes in

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Poverty in Uganda, 1999/00 – 2002/03”, October 2003, Kampala.

Ministry of Health (2001), Annual Health Sector Performance Report – Financial Year 2000/01, Kampala

Mpuga, P and S. Canagarajah (2004), “Are Government Budgets Becoming pro-Poor: An Analysis of Social Services Delivery Trends in Uganda, World Bank , Kampala, draft

Murphy, P. (2003), “Education, Educators and Financing Modalities: Reflections on Experience in Uganda”, Papers Presented to the Third International Conference on Education and Development, Oxford, Confederation of British Teachers, London.

Nyamugasira, W. and R. Rowden, “New Strategies, Old Loan Conditions” The Case of Uganda, with the assistance of Action Aid (Uganda and USA), April 2002

Okidi, J. and S. Ssewanyana (2003), “Income Poverty in Uganda, 1992-2003”, Economic Policy Research Centre, Kampala.

Office of the Prime Minister (2003), Framework for Coordination and Monitoring of Policy and Programme Implementation in Government, presentation to the National Stakeholder Consultative Conference on the PEAP Revision and Budget Framework, by M. Odwedo, PS, OPM, 30 October 2003, Kampala

Oxford Policy Management and Overseas Development Institute, “General Budget Support Evaluability Study: Phase One”, Report to UK Department for International Development (DFID), 30 December 2002

Reinikka, R., Svensson, J., and Lindelow, M. (2002). “Health Care on the Frontline: Survey Evidence on Public and Private Providers in Uganda”, mimeo, World Bank, Development Research Group, Washington D.C.

Townsend, R. (2003), “Uganda: Environmental, Rural and Social Development”, White Paper for the forthcoming Country Assistance Strategy for Uganda, World Bank.

Williamson, T. and Canagarajah, S (2003). “Is There a Place for Virtual Poverty Funds in Pro-Poor Public Spending Reform? Lesson from Uganda’s PAF”, Development Policy Review, ODI, vol. 21, No. 4, pp. 449-480.

World Bank (2000), Uganda Country Assistance Strategy FY 2001-2003

World Bank (2001), First Poverty Reduction Support Credit, Report No.7442-UG

World Bank (2002a), Second Poverty Reduction Support Credit, Program Document, Report No. 24400-UG

World Bank (2002b), Uganda Public Expenditure Review: Report on the Progress and Challenges of Budget Reforms, Report No. 24882-UG, Sept. 23, 2002.

World Bank (2003a), Third Poverty Reduction Support Operation, Program Document,Report No. 26078-UG, July 28, 2003.

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World Bank (2003b), Republic of Uganda: Poverty Reduction Strategy Paper Annual Progress Report and Joint IDA-IMF Staff Assessment, Report No. 26567-UG, August

World Bank (2003c), Uganda Public Expenditure Review 2003: Supporting Budget Reforms at the Central and Local Government Levels, Report No. 27135, September.

World Bank (2004a), White Paper on Education for the forthcoming World Bank CAS

World Bank (2004b), “Fourth Poverty Reduction Support Credit”. Draft June 7, 2004

World Bank (2004c), Implementation Completion Report on the Third Poverty Reduction Support Operation, Report No, 28838, June 2004.

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Annex 1 Partnership Principles between GoU and its Development Partners

SEPTEMBER 2003

MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT

Section One: General Principles

1. The Poverty Eradication Action Plan (PEAP) identifies the development objectives for Government and its development partners. Effectively linking donor support with the PEAP is the main rationale for setting out these Partnership Principles. These principles apply to public assistance.

2. The delivery of financial assistance (aid) by development partners must be fully compatible with the national budget process and with Government ownership of the budget.

3. Government will ensure transparency in the budget process by remaining committed to including all stakeholders in its preparation and in monitoring budget execution. The budget process will work through dialogue with all stakeholders.

4. Development partners will participate in the process of formulating Government budgets. However, donor views on the budget should be expressed collectively at the appropriate fora in the budget process (budget workshops, sector meetings, Public Expenditure Reviews, etc). Individual donors should not attempt to influence budget allocations outside these fora or by using their own aid as a lever.

5. Major changes in the budget will only be taken after prior consultation with all partners, as predictability is the key for development partners when deciding on their preferred modalities of support to Uganda. Similarly, development partners will communicate promptly to the Government any significant changes in the level of their support to the budget.

Section Two: Government’s Preferred Modalities of Support from Development Partners

6. The modalities of donor support are important because different aid modalities are not equally compatible with efficient budget planning and management and national ownership of the budget.

7. The Government’s ranking of donor support modalities, in descending order of preference, is as follows: In the case of the World Bank, general budget support, budget support earmarked to the PAF and sector budget support are referred to as balance of payments support.

1. General budget support2. Budget support earmarked to the Poverty Action Fund3. Sector budget support 4. Project aid

8. Government’s preferred modality is general budget support, because this provides the Government with the greatest flexibility with which to deliver public services efficiently and to implement the PEAP. General budget support is also fully compatible with the Government’s budget and accounting procedures. 9. Government recognizes that some development partners do not provide general budget support. In

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such cases Government’s preferred option is budget support to the Poverty Action Fund (PAF). Budget support to the PAF directly supports the PEAP through expenditures covered by the PAF. Government is committed to increasing PAF expenditures as a share of the overall discretionary GOU budget, and to protect PAF expenditures from cuts arising from resource shortfalls or supplementary expenditure demands from other sectors.

10. Sector budget support is acceptable to Government if it meets the following conditions:(i) Sector Wide Approaches (SWAps) and sector development plans are in place in the

sector being supported, and; (ii) the support is mutually agreed upon by the line ministry, MFPED and the donor through

the yearly consultative budget process.

11. Government cannot guarantee that sector budget support will increase the relevant sector’s expenditure ceiling above what would have been otherwise provided in the Medium Term Expenditure Framework (MTEF). The level of any sector’s expenditure ceiling cannot be determined by the amount of sector budget support promised to that sector. Government must control aggregate spending by the Government, and if one sector ceiling is increased owing to the receipt of sector budget support this will inevitably mean that cuts must be made to the spending ceilings of other sectors. This in turn can lead to a sectoral composition of expenditure which is not optimal from the Government’s point of view, nor indeed from the point of view of the majority of donors.

12. Sector budget support is best provided “notionally”, allowing the development partners influence through the Sector Working Group over issues pertinent to the sector, but the donor should not attach any “additionality” conditionalities, because this would violate the principles set out in paras 9 and 21.

13. Sector budget support should be provided straight into the Consolidated Fund thereby considerably simplifying budget execution, accounting and reporting procedures.

14. Project aid or technical assistance can provide benefits such as the transfer of skills and capacity development. Additionally it can be an important source of support to meet critical humanitarian needs. To maximise the benefits of this support, development partners will ensure that their support is integrated within the sector wide approaches where these exist and will work with the MFPED to ensure that their support is integrated into the MTEF.

Section Three: Undertakings by Government of Uganda

15. The Government recognizes that the development partners willingness to give budget support depends on their confidence in the transparency, predictability and efficiency of Government budget processes and in the public servants in charge of these processes. To this end, the Government will:· Consult with stakeholders annually on strategic allocations in the budget and implement the budget

in a manner consistent with the agreed allocations.· Consult in advance with the donor partners on major envisaged changes to budget allocations

during the financial year.· Ensure transparency and efficiency in public budgeting and spending with the aim of fulfilling

PEAP and PRSC targets.· Improve the quality of financial management systems at both central and local government levels.· Strengthen the audit function by enhancing the role, capacity and independence of the Office of the

Auditor General.· Improve procurement processes both at the central and local government levels to ensure better

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value for money.· Implement the public service reform, including pay reform which is consistent with improving

delivery of public services.

16. Corruption presents a tax on the effectiveness of public services. Government will, therefore, aggressively fight corruption. To this end Government will:· Strengthen the key anti-corruption institutions such as the IGG and the Directorate of Ethics and

Integrity.· Encourage the participation of civil society and the private sector in fighting corruption, especially

by increasing public access to Government information.· Enhance the legal framework for fighting corruption.· Prosecute perpetrators and strengthen efforts to recover embezzled funds.

17. The Government is determined to reduce its dependence on donor aid over time. Accordingly, it is committed to increase domestic revenue mobilization through systematic enforcement of tax legislation, improved tax administration and collection, new revenue measures as appropriate, and expenditure restraint.

18. The Government recognizes the importance of a strong civil society and private sector institutions. The Government will enhance the role of these institutions in policy making and monitoring and evaluation.

Section Four: Reflecting Development Assistance in the Budget

19. All development assistance to Central Government should be included in the budget estimates and MTEF.

20. Data on development assistance for each fiscal year should be provided to the Ministry of Finance by October of the preceding fiscal year. As far as is possible, development partners should provide three year rolling projections of all budget and project support.

21. Development partners should also assist the Ministry of Finance to compile accurate and timely budget outturn data by reporting to the Ministry of Finance the disbursements to each project that they are funding on a quarterly basis.

22. Sectors will have to budget within an overall ceiling set by the Government which will include all donor projects. This will be a hard budget ceiling, implying that an increased level of project support expenditures will have to be matched by lower GOU budget expenditures.

Section Five: Global Funds

23. Any financial assistance received from Global Funds will be utilised as sector budget support or project aid and integrated into the budget in line with the principles set out in sections one, two, four, and six.

Section Six: Working More Effectively at the Sector Level

24. Partners should seek to work in fewer sectors and focus their expertise in sectors where they have a comparative advantage.

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25. The composition of the Sector Working Group (SWG) should include all relevant Government stakeholders, especially as service delivery becomes increasingly decentralised (e.g. Ministry of Local Government plus the relevant sector ministry). Other stakeholders (e.g. civil society and non-Government providers of services) should also be included. All donor partners, whatever the modality of their assistance, should also be represented (possibly as a silent partner) in a single SWG that focuses on policy, strategy, prioritising expenditures, monitoring and evaluation, and service delivery.

26. Development partners participating in the SWG should endeavor to communicate with Government through a ‘lead donor’ and with a common voice.

27. Government reporting mechanisms should be strengthened so that they can be adopted by development partners. As this is accomplished, development partners should seek to utilise the Government reporting systems and not demand separate reporting mechanisms for their own funds. All stakeholders should adopt a common set of outcome indicators for monitoring progress at the sector level.28. Joint financing committees should only address administrative issues related to the basket. All resources provided by development partners must be reflected in the Government budget. Joint financing reviews, although necessary for accountability, should become a smaller component of a larger review.

29. Sector expenditure ceilings must be determined by the Government through the budget process, independently of any sector financing and in particular, independently of any “additional” sector funding made available or promised by development partners.

30. The SWG should identify, cost and rank sector spending priorities. Only the highest ranking spending priorities, which have been clearly identified in sector investment/expenditure plans, should be undertaken, either through the GOU budget or as donor funded projects. Development partners should not attempt to influence Line Ministries to undertake expenditures which have not been identified as priorities by the SWG, using their own sector support or project aid as a lever.

31. A calendar of key annual processes (Annex 2) should guide the work of sectors to ensure appropriate linkages to PER/MTEF, PEAP and the poverty monitoring and evaluation strategy (PMES). 32. Sector Working Groups will become fully engaged in Public Expenditure Review and budget work. They will establish mechanisms to link budget inputs to service delivery through the PER and Poverty Monitoring and Evaluation Strategy (PMES). The SWGs activities will also be linked to other processes which impact on service delivery, such as decentralisation and the Local Government Reform Programme.

Section Seven: Joint Sector Reviews/Missions

33. Joint missions are preferable to bilateral consultations. The timing and format of reviews must complement key processes such as the budget exercise, PER and PRSC Review, and will be open to all stakeholders.

34. A sector review should provide the single opportunity for all development partners to comprehensively review policy, strategy, performance and capacity needs.

35. A lead donor approach can reduce the transaction costs of both development partners and the Government.

36. Joint reviews must be open to all stakeholders. This should be reflected in the Terms of Reference for the joint review.

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37. The outcomes of sector reviews should feed into the overall PRSC review.

38. The sharing of bilateral reports can preclude repetitive missions. Sector working groups and the annual review should establish a common agenda of analytical work.

Section Eight: Consultative Group Meeting (CG)

39. The CG should be linked to the PEAP and NEPAD processes. CGs will involve both formal and informal sessions.

40. The role of the formal CG is to review progress in major areas (e.g. PEAP and broader reforms) and to map a way forward.

41. Civil society should be invited to attend the formal session as observers.

42. The role of the informal CG is to discuss sectoral/thematic concerns and address all issues likely to be raised in formal session. The informal session will precede the formal session. The main civil society / private sector input is in the informal session.

Annex 2. Calendar of Major Processes and Missions

January February

March April May June July August September October

Budget/MTEF

Inter-ministerial meetings

MTEF Preparation

Budget Budget WorkshopAnd guidelines

BFPs preparation

PER Background/Sector Studies

PER Review

Consultation on scope of work

1. ToRs for background studies 2. External resource mobilisation for budget guidelines

Background/Sector Studies

PRS and Poverty Monitoring

PMAU Review

PRSC Appraisal Mission Pre-appraisal

Consultative Group

Agreement on themes

Preparation of background papers

Joint Sector Education, Water Joint Education

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Reviews health and water joint reviews

Reviews & Health Joint Reviews

Annex 3 Education Sector Undertakings

EDUCATION SECTOR UNDERTAKINGS

1. The Government has satisfactorily implemented the following undertakings agreed in the education sector review of April 2002 and confirmed by the October 2002 review:

2. Financial commitment: Budget and releases in line with the Government of Uganda guidelines maintaining a minimum of 31 percent of recurrent discretionary expenditure for education. At least 65 percent of the total education sector budget is allocated to primary education.

3. Public Expenditure Management:

(a) A Progress report on the implementation of the Financial Management Strengthening Component of the Second Economic and Financial Management Project and Financial Accountability Project (April 2003).

(b) A tracking study on teachers’ recruitment, deployment and payroll management, carried out by the October 2002 Education Sector Review.

(c) Preparations for a tracking study in an area of mutual concern (now agreed to be on value for money on the school facilities grant).

4. Quality Enhancement:

(a) Pupil-teacher ratio calculated nationally and by district: 54:1(d) Pupil-core textbook ratio calculated nationally and by district: --(e) Pupil-classroom ratio calculated nationally and by district: 92:1 (The lower ratio was as a result of

redefinition of classrooms to only include permanent classrooms. The review agreed that the target had been achieved).

5. Outcome (equitable quality):

(a) Share of appropriate age range of girls and boys in P7 nationally and by district monitored.(b) The learning achievements of primary school pupils as assessed by National Assessment of

Progress in Education (NAPE), Southern Africa Consortium for Monitoring Education Quality (SACMEQ) and Monitoring Learning Achievement (MLA) in their reports (for April 2003).

(c) Net enrollment ratios, particularly for the most disadvantaged districts monitored.(d) Primary completion rates monitored.6. Equitable access: A draft costed framework for basic education for disadvantaged children feeds into the October 2002 education sector review and the 2003/04 planning and budgeting cycle commencing in October 2002.

7. Teacher recruitment: Mechanisms for monitoring the share of filled positions strengthened and

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the action plan for increasing the number of teachers on the payroll with particular attention to the ten districts with the largest establishment gaps implemented including:

(a) Reworking the establishment formula and aligning this to the national annual target for pupil-teacher ratio by 31 May 2002;

(b) Harmonization of staff establishment ceilings for all districts by 31 July 2002;(c) Reappraising target districts in the light of harmonized establishment ceilings by 31 August, 2002;(d) Revising action plan for focus on new target districts and implementing from early September

2002;(e) Proposing future targets for teacher recruitment to the October 2002 education sector review;(f) Presenting a report on progress to the October 2002 education sector review.

8. Monitoring and evaluation: 2002 Education Management Information System data, in which a registry of private schools has been incorporated, collected, entered, analyzed, verified and resulting statistics reported on at the October 2002 education sector review. The School Census 2002 will capture an increasing proportion of secondary schools and post–primary education and training institutions. Information on complementary primary education centers will be collected and included in the Education Statistical Abstract.

9. Post-Primary Education and Training: A draft policy and costed framework for expansion of post-primary education and training which has been discussed with a range of stakeholders be presented to the October 2002 review for its comments, endorsement and future development.

Annex 4 Principles for Determining Prior Actions

Principles for Prior Actions in the Uganda Poverty Reduction Strategy Support Credit (PRSC) Programs. The following principles have been developed during PRSC4 to guide the development of prior actions for the PRSC programs:

1. About the PrinciplesThese principles concern the establishment of Prior Actions (conditions) for disbursement of the World Bank-supported PRSCs in Uganda. The principles are intended to be complementary and subordinate to the agreed “Partnership Principles between Government of Uganda and its Development Partners”, Kampala September 2003.

2. The Poverty Reduction Support Credit (PRSC)a. The PRSC is a core operation to implement the objectives of Uganda’s Poverty Eradication Action

Plan/Poverty Reduction Strategy Paper (PEAP/PRSP), and the Bank Group’s Country Assistance Strategy (CAS).

b. The PRSCs are sequential annual credits, and each PRSC is seen as an annual step in a three-year medium-term reform program.

3. Prior Actionsa. Each PRSC is based on a set of conditions (“prior actions”) that the government fulfills before the

grant/credit is presented to the World Bank Board. These prior actions are based on shared expectations between Government of Uganda (GoU), the World Bank (WB), and other development partners.

b. Prior actions should be based upon policy dialogue, and aligned with Uganda’s Poverty Eradication Action Plan and country assistance priorities. Prior actions should normally correspond to all the major reform areas (pillars) of the Poverty Eradication Action Program. The

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starting point for discussion is the set of prior actions of the preceding PRSC.c. The flexibility inherent in the PRSC comes not from defining vague or easily-met prior actions, but

from agreeing on specific and monitorable milestones and then measuring progress against them, with reasoned judgments allowing for disciplined adaptation.

d. Agreement on prior actions is reached between GoU, the Bank, and other development partners shortly after pre-appraisal and before appraisal. Prior actions are at this stage considered binding, but are in exceptional circumstances adaptable in the face of uncertainties inside and outside of the program.

e. Completion of the prior actions is a condition for proceeding to the World Bank Board for approval of the grant/credit.

f. When prior actions are not met by negotiations, there are three alternatives: (i) reduce support; (ii) delay program; and (iii) release Credit in tranches.

4. Anticipated Prior Actions

a. Each PRSC also includes a notional set of tentative prior actions that are presented in the program documentation. The tentative prior actions are not binding for the next PRSC.

b. As one PRSC becomes effective, and the preparation of the next commences, the tentative actions identified under the first help shape and form the basis for preparation and agreement of prior actions under the next. It is important for the reform program to have a predictable and sustained approach.

c. The anticipated prior actions should normally be discussed, and agreement on broad areas to be covered should be reached at the pre-appraisal of the preceding PRSC.

d. Exact area and precise wording of the anticipated prior actions should be agreed during appraisal and negotiations of the preceding PRSC.

e. Where tentative prior actions may have to be revised, the fault may lie in a poor choice of tentative actions, unexpectedly weak execution of elements of the reform program, faster than expected implementation of elements of the reform program, or changing circumstances outside the reform program.

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C E N T R A L

W E S T E R N

E A S T E R N

N O R T H E R N

30° 32° 34°

0°

2°

4°

34°32°30°

4°

2°

0°

MASINDI

LIRA

SOROTI

MOROTO

KOTIDO

KITGUM

GULU

MOYO

ARUA

NEBBI

APAC

KIBOGA

NAKASONGOLAHOIMA

KIBALE

BUNDIBU

GYO

MUKONO

JINJA

KAMULI

KUMIKAPCHORWA

MBALE

TOROROIGANGA

PALLISA

MUBENDEKABAROLE

MASAKA

MPIGIKASESE

BUSHENYI MBARARA

RUKUNG

IRI

KABALEKISORO

RAKAI

KALANGALA

SEMBABULE

BUGIRI

BUSI

A

ADJUMANI

LUWERO

KATAKWI

YUMBE

PADER

SIRON

KO

KABE

RA

MAIDO

KA

YU

NG

A

WAKISO

MAYUGE

KYENJOJO

KAN

UNG

U

KAM

WENG E

NAKAPIRIPIRIT

DEMOCRAT IC

REPUBL IC

OF CONGO

S U D A N

K E N Y A

T A N Z A N I A

R W A N D A

Adilang

Adjumani

Akokoro

Aloi

AmudatAmuria

Atanga

Atiak

Barabili

Biso

BudakaBugaya

Bugiri

Buhuka

Bukedea

Bukuya

Bulisa

Bundibugyo Busembatia

Bushenyi

Busia

BusiuBusolwe

Butiaba

Butiru

Butiti

Bwambara

Gayaza

Hoima

Ibanda

Ibuje

Iganga

Inde

Kaabong

Kabale

Kabasanda

Kabatoro

KachumbalaKagulu

Kakabara

Kakitumba

Kakoro

Kakumiro

Kalaki

Kalangalo

Kaliro

Kamengo

Kamuli

Kangole

Kanoni

Kapchorwa

Kasanda

Kasese

Katakwi

Kayunga

Kiboga

Kidera

Kikagati

Kilak

Kiriri

Kiruhura

Kiryandongo

Kisomoro

Kisoro

Kitembo

KitgumKitgumMatidi

Kitoba

Kitoma

Koboko

Kotido

Kumi

Kyenjojo

Laropi

Lira

Lodonga Loyoro

Luwero

Madi Opei

Madudu

Magabbi

Magoro

Majanji

Makando

Maracha

Masaka

Masindi Masindi Port

MayenzeMazimasa

Mbarara

Molo

Moroto

Moyo

Kibale

Muntu

Mutoke

Myanzi

NaamOkora

Nabilatuk

Nabiswera

Naboa

Nabubare

Nabusanke

Nabyeso

Nagongera

Naigobia

Nakasongola

Nakitoma Namasale

Namwiwa

Ndolwa

Ngora

Nkoko

Ntungamo

Ntusi

Ntwetwe

Okollo

Omugo

OrungoOtuboi

Padibe

Pajule

Pakwach

Pallisa

PanyimurParaa

Parombo

Patongo

Puranga

RhinoCamp

Rubirizi

Sironko

Soroti

Terego

Uleppi

War

Wera

Wobulenzi

Yumbe

Fort Portal

Arua

Entebbe

Jinja

Mbale

Tororo

Gulu

GoliZeu

Kampala

Katojo

Mpondwe

Nebbi

Apac

Mubende

RukungiriRakai

Mpigi

Mukono

Namulonge

Serere

BusunjuBombo

Katunguru

Pader

Wakiso

Kanungu

Sembabule

Mayuge

Kaberamaido

Kamwenge

Kalangala

L a k e V i c t o r i a

LakeEdward

LakeGeorge

Lake A

lber t

LakeKwania

Lake Kyoga

LakeNakuwa

LakeSalisbury

LakeOpeta

Kafu R.

Nkusi R.

Muzizi R.

Kitumbi R.

Mayanja R. Nile R.

BujagaliFalls

Lwak

haka

R.

Siti R.

Omanimani R.Lochoman R.

Okok R.

Ako

koro

iR.

Ngo

lola

polo

nR.

Dop

eth

R.

Kape

ta

R.

Achwa R.

Agogo R.

Aringa R.

Achwa R.

Pager R.

Oytino

Nile

R.

R.

Koia R.

Anyou R.

Albert

Ora R.

MurchisonFalls

Victoria Nile

KarumaFalls

R.

Toch

i R.

Aroca R.

Aswa R.

MpongoR.

Mpa

nga

R.

Katonga R.

Rusangwe R.

Koki

nga

R.

Nabakazi

R.

Kyogya

Kaku R.

LakeNakivali

LakeKijanebalola

Ntu

ngu Ruizi R.

R.

UGANDAPRIMARY ROADS

SECONDARY ROADS

RAILROADS

SELECTED TOWNS AND VILLAGES

DISTRICT CAPITALS

NATIONAL CAPITAL

DISTRICT BOUNDARIES

REGION BOUNDARIES

INTERNATIONAL BOUNDARIES

0 50 100 150

KILOMETERS

To Ruhengeri

ToRutshuru

ToRutshuru

ToBeni

To Aba

ToYei

ToJuba

To Bungoma

This map was produced by the Map Design Unit of The World Bank.The boundaries, colors, denominations and any other information shownon this map do not imply, on the part of The World Bank Group, anyjudgment on the legal status of any territory, or any endorsement oracceptance of such boundaries.

IBRD 31802

MA

RCH

2002

UGANDA