Although real Gross Domestic Product (GDP) growth remained strong at 6.4 per cent during the first half of FY18/19, per capita growth is insufficient to propel Uganda to lower middle-income status, says the 13th edition of the Uganda Economic Update launched on Thursday at Makerere University by the World Bank.

According to the document, growth has largely been driven by strong investment and consumption performance, favorable weather conditions and strengthened credit. The Information and Communications (IC) sector sustained double-digit growth levels, financial services continued to recover, and agriculture was boosted by another decent harvest, it notes.

“Given the very high population growth rate of over 3 per cent per year, GDP growth will need to accelerate. Moreover, heavy reliance on rain-fed agriculture makes GDP and exports more volatile, with disproportionate costs for the poor. Therefore, an increase in agricultural productivity and absorption of excess rural labour into better and more productive employment is critical for making growth more inclusive,” it says.

Revenue collections

The report says revenue performance has been strong in the first half of FY18/19 and can be further enhanced if government remains committed to implementing the new domestic revenue mobilization (DRM) strategy. It notes that tax revenues have been on an upward trajectory, increasing to 14.5 per cent of GDP in the first half of FY18/19. Strong coordination and effective implementation of government’s five-year DRM strategy will be necessary for further revenue growth, it says. It calls for the establishment of a framework for managing tax exemptions, which it says continue to be a drain on public finances.

Ensuring robust and diverse revenue base

The report further says ensuring a robust and diverse revenue base is critical before any significant oil revenues start accumulating. “This will help contain the rise in public debt, ensure a stronger social compact in the use of revenues and provision of services, and would later allow oil revenues to be invested for strategic, long-term needs,” it says.

Capital expenditure fall short of expectations

According to the report, Uganda’s capital spending continues to fall short of expectations, diminishing the expected return from public investments and committing resources away from other pressing needs. Actual first half FY18/19 capital spending amounted to about 6.1 per cent of GDP, which is well below the levels of spending in the first halves of FY’s 14/15 and 15/16, of above 7 per cent of GDP, and only about a quarter of the FY18/19 development budget, it says. Compared to peers, capital spending in Uganda stood at 5.9 per cent of GDP in FY17/18, which was substantially lower than Rwanda (10.3 per cent of GDP) and Kenya (7 per cent of GDP), it says.

“Combined with deficiencies in the ‘quality at entry’ of projects, cost escalations, and poor quality of some projects, this under-spending is constraining Uganda’s ambitions for rapid growth and socio-economic transformation. Therefore, concerted efforts are required to select projects more carefully,” it argues. For instance, it says power generation investments have not been well sequenced with investments into transmission and distribution systems) and to improve public investment management (PIM).

Public debt expected to hit 44 percent of GDP

The projected widening of the fiscal deficit in FY18/19 and use of non-concessional financing will keep public debt on a steep upward trajectory. Public debt is expected to hit 44 percent of GDP in FY18/19. The growth in budget deficits and the increasing use of non-concessional financing are creating pronounced vulnerabilities. “Non-concessional borrowing results in larger principal and interest payments and makes debt more vulnerable to external shocks. Larger interest payments also consume fiscal space for spending on poverty reduction and public goods,” it says.

2021 elections could lead to drop in investment

The report notes that while the growth outlook for Uganda is positive, risks are tilted to the downside. The economy is expected to grow by 6 per cent in FY18/19 and FY19/20, driven by intensified public and private investments, especially to support developments in the energy and oil sectors. However, as the 2021 elections draw closer, heightened political activity and uncertainty could lead to a drop in investment and economic activity.

It says reliance on rain-fed and subsistence agriculture continues to expose the economy to risks from adverse weather. “Prioritizing spending more effectively, improving spending execution rates, and increasing revenue mobilization would maintain Uganda’s macroeconomic stability and reduce debt vulnerabilities,” it says.

Tensions with Rwanda and volatility in the Democratic Republic of Congo (DRC), South Sudan, and other export markets present risks to external stability and export performance, it says.

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The World Bank’s analysis of cross-country data on human capital indicates that Uganda is underinvesting in the future productivity of its citizens. A child born in Uganda today will only be 38 percent as productive when she grows up as she could be if she enjoyed complete education and full health, says the 13th edition of Uganda Economic Update authored by the World Bank Group.

According to the report, Uganda is ranked among the countries in the lowest quartile of the Human Capital Index (HCI) distribution, with an index slightly lower than the average for the Sub-Saharan Africa (SSA) region, and below what would be predicted by its income. “Uganda’s low ranking in the HCI is mainly due to the country’s low education outcomes,” the report says.

The report launched on Thursday at Makerere University, says a child born today in Uganda is expected to complete only 7 years of education by age 18, compared to a regional average of 8.1. Because of the low levels of learning achievement in Uganda, this is only equivalent to 4.5 years of learning, with 2.5 years considered as “lost” due to poor quality of education. Uganda’s score on this component is the lowest amongst the comparator countries and below the SSA average.

To improve its ranking in the HCI, the report says Uganda needs to adopt a dual priority approach focusing on schooling, specifically on expanding access to pre-primary and secondary education, and learning, through improving quality at all levels. “The country currently shows extremely low gross enrollment rates (GER) at pre-primary and secondary levels. In primary education, the near-universal access veils very modest completion rates and alarmingly low learning outcomes,” it says.

With the system’s current quality, efficiency, financing characteristics and trends, it is expected that enrollment rates in primary and secondary education will stagnate and decline by 2025. This would be a major setback, rarely seen in any country in a time of peace, it says.

To rectify the above trend, the report says Uganda needs a three-pronged strategy that aims at; improving the quality and the completion rate of primary education, expanding access to secondary education while improving its quality, equity and efficiency and devising ways to finance such efforts in a sustainable manner given that absorbing the enrollment increases will cost an additional US$ 330 million on average per year from 2019–25.

To bridge the budget gap, in addition to raising efficiency, the report says the government needs to mobilize extra public resources. “The government should gradually increase its levels of spending on education with a view to allocate 16 percent of the budget by 2025, which is the average for countries in SSA. This could generate up to US$1.6 billion in additional resources between 2019 and 2025,” it says.

The report says the private sector needs to be utilized better, as it often delivers similar results at a lower cost compared to the public sector. “This can be achieved through introducing subsidies to support vulnerable children and using the non-state sector to manage schools. “Efficient engagement of non-state providers should generate significant savings, as compared to the heavy fiscal burden the government would incur because of the current withdrawal of the PPP scheme,” it says.

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State Minister for Local Government, Jennifer Namuyangu, has ordered Masaka Municipal Council leaders to withdraw the lawsuit against the state over their demand for city status.

Yesterday, the chairpersons of districts in the greater Masaka region led by Masaka district chairperson Jude Mbabaali filed a lawsuit in the High Court, demanding an explanation why Masaka Municipality is not being elevated to city status, despite having all the necessary requirements.

Last week, government launched the operationalization of five cities that were recently elevated from municipality status. The cities to be include Arua, Mbarara, Gulu, Fort Portal and Jinja. They assume city status in the fiscal year 2019/2020.

The Minister however, said Masaka was considered, only that it will come after the operationalisation of the first selected cities. “Central Uganda was catered for by the current Kampala city, so government had to look in other regions like northern, eastern and other regions therefore, I call upon Jude Mbabaali and other members to withdraw their suit”

Masaka leaders contend that their area is marginalized adding that it was one of the few regions that was supposed to be upgraded to a city status. They averred that Masaka meets all the criteria such as a sewer plant that will supply water in the city and a population of more than 10,000 as it is stipulated in the constitution of Uganda.

Masaka is in the four batch of six cities under studies for elevation to a status and conclusion will be made by the end of financial year 2019/20. The other cities are; Moroto Nakasongola, Soroti, Kabale and Wakiso. They will commence operations in the F/Y 2023/24.

The second batch of two cities which include Mbale and Hoima, the Oil city will be operationalised in the financial year 2021/ 2022 and The Third batch of two Cities that include Lira and Entebbe will be operationalized in the F/ Y 2022/2023.

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