Uganda’s draft National Budget Framework Paper for fiscal year 2017/18 proposes an ambitious 10% budget increase, benefiting mainly infrastructure, such as roads in the Albertine oil region. Funding for the security sector also increases, but budgets for health, education, social development and justice are cut. As development partners, we are committed to supporting Uganda’s efforts to generate private sector growth and decrease reliance on external funding, including aid. We have concerns however about whether the proposed budget is compatible with that scenario.
Imagine Uganda in 2030 on the present trend and economic policies: in a favourable scenario, Uganda would be a lower middle-income country, with oil revenues flowing, increased trade to the region and elsewhere, peace is maintained, and external aid is being phased out.
Yet in 2030 Uganda’s population is 56 million, with 60% below 18 years. A combination of under-investment and poor absorption capacity leaves most children without access to quality education and adequate health services. Top-down public support for agriculture and agribusiness, the only sectors able to generate sufficient job opportunities, remains inefficient. Most young people in this scenario are under-qualified, unemployed and not able to benefit from oil revenues or economic growth. The judiciary is struggling with mounting backlogs, and inequities are growing.
As long-time friends, partners and admirers of Uganda’s progress and stability, we wish to voice our concern that this scenario may come to pass. We are all hoping to see the positives of increased revenues and trade, and we are working with partners to that end. But leaving people and youth behind, and under-investing in basic quality services, carries social, economic and political risks.
The share of the budget dedicated to social sectors has declined from 37% in 2002/03 to 19% in the proposed Budget for 2017/18, and this in a context of a population growth which Uganda is struggling to sustain. Without government bridging the funding gap arising from the decline in external aid to the social sectors, the earlier results could be compromised.
With over 1 million newborns annually, Uganda cannot afford to defer these investments. Inevitably, investment per pupil in Uganda has decreased over the years, leading to deterioration in education indicators such as basic numeracy and literacy levels. In health, earlier progress is either at risk, or almost entirely dependent on donor support, as in the fight against and management of HIV/AIDS.
Implementation is another concern. The energy and transport sectors – which represent 35% of the proposed Budget – traditionally records Uganda’s lowest budget execution rates, and value for money is an issue. Even if Uganda decides to go ahead with the proposed frontloading of infrastructure, including through loans mortgaged by future oil revenues, adequate sequencing in procurement and quality execution are critical to address absorption challenges. Interest payments on external loans are already taking a large share of the budget, making up the third largest ‘share.
Cutting services supposed to benefit future generations, with future oil revenues as guarantees for loans, in order to pay interests on delayed infrastructure execution -in our view will make Uganda’s quest to reach the Sustainable Development Goals all the more difficult. We wonder whether there is an implicit expectation that donors and INGOs will fill the gaps.
The draft 2017/18 budget also implies increased domestic public borrowing. In 2016, Government of Uganda already became the largest borrower from the domestic market and this is now set to rise further. This means putting more scarce capital into the public administration, which accounts for less than 3% of the Uganda’s labour force, with the private sector finding it harder to access credit.
To help the private sector create jobs to the future taxpayers, we believe the Government should consider reducing domestic borrowing, and avoid adding further to the current UGX 2.3 trillion of arrears. Only then will Uganda eventually see cheaper private sector access to capital for productive private investments, which are paramount to future growth.
In short, while we understand the difficult need to prioritize, we pledge to support the Government of Uganda to invest in both people and infrastructure, to unleash modern, sustainable, and equitable economic growth. This in our view calls for a balance between productive and social sectors, between future oil production and job creation and skills now for the youth.
Finally, as we look to a future where trade and investments gradually replace aid and loans, we will continue to offer Uganda full zero tariff-access to the European Union, the second largest market in the world.
H.E. Hugo Verbist, Ambassador of Belgium
H.E. Mogens Pedersen, Ambassador of Denmark
H.E. Stephanie Rivoal, Ambassador of France
H.E. Peter Blomeyer, Ambassador of Germany
H.E. Dónal Cronin, Ambassador of Ireland
H.E. Domenico Fornara, Ambassador of Italy
H.E. Henk Jan Bakker, Ambassador of the Netherlands
H.E. Per Lindgärde, Ambassador of Sweden
H.E. Peter West, British High Commissioner
Mr Günter Engelits, Head of Office, Austrian Development Cooperation
H.E. Kristian Schmidt, Ambassador, Head of Delegation of the European Union