This paper, written by Dr Miriam Omolo, with support from DI’s Moses Owori, analyses Uganda’s budget for the 2019/20 financial year, focusing on Poverty Action Fund (PAF) allocations to four selected sectors – health, education, agriculture and social protection. An overview of poverty, expenditure, revenue, financing and debt is also provided. Uganda’s Second National Development Plan (NDP II) sets the investment priorities for delivering key development goals and targets. Uganda’s PAF is earmarked for priority programmes that directly alleviate poverty.
Revenues and expenditures. While expenditures have grown at an average rate of 18% over the last five years, revenue has grown at an average rate of 15.7% in the same period. Uganda’s resource envelope is largely driven by tax revenue, which has been growing at an average rate of 14% per year since FY2016/17. Uganda’s expenditure–GDP ratio, at 27%, is below the 21% target set out in the NDP II. External debt constitutes 74% of total debt against a target of 29%.
Focus on infrastructure. Uganda’s spending under the PAF in FY2019/20 has largely focused on infrastructure development; this is important since infrastructure development is an essential driver for growth across all sectors. Education and health are also prioritised, as evident in their higher proportion of PAF allocation in comparison to other sectors. Reducing poverty though agriculture seems to require much more attention than has been given: PAF expenditure on agriculture is much lower than other major sectors (7%), yet agriculture remains the mainstay of Uganda’s economy.
Debt sustainability. Uganda’s debt portfolio is growing, and there are concerns about the increase. The budget deficit and therefore financing have grown in absolute terms from UGX 4.5 trillion in FY2015/16 to 10.1 trillion in FY2019/20. Consequently, interest payments are made from recurrent expenditure, and (on average, for FY2015/16–2019/20) constitute 21% of this. Increasing debt implies that more money will be allocated to interest payments, and less on service delivery and development spending. Also, increased borrowing from domestic sources crowds out investment in the private sector, affecting employment and output.
Service-delivery outcomes of expenditure allocation. Expenditure allocations and actual spending cannot be easily linked and aligned to social outcomes, as with the case of health or education. The most recent data available is often 2–4 years old. Even though a large proportion of the health allocation from the PAF is spent on pharmaceuticals and medical supplies (25% of total health PAF allocation), 77% of households perceive the service delivery in relation to drug quality as poor or only fair. Likewise, staff responsiveness to health needs of households when seeking treatment was found to be wanting, with 54% ranking their services as fair or poor.
Fairly low priority is given to the social protection and agriculture sectors and their subsequent PAF expenditure allocation. To minimise the risk of increase in vulnerable populations, the government should allocate adequate funds for social protection to reduce vulnerability risks of the population.
Government would have to increase domestic resource mobilisation through expanding the tax base and, more importantly, increase efficiency in use of public resources through effectively sealing corruption loopholes in order to reduce the reliance on external financing and public debt.
The PAF has mixed outcomes based on anecdotal evidence; there is need for further impact analysis of the PAF interventions to establish if they support the poorest people. The government can, through UBOS, initiate biennial household data collection that can facilitate more accurate budgetary impact analysis.
Workers in Kampala, Uganda. Photo: Arne Hoel/World Bank