Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No 53731-UG

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROGRAM DOCUMENT FOR A PROPOSED CREDIT

IN THE AMOUNT OF SDR65.9 MILLION (US$100 MILLION EQUIVALENT),

INCLUDING SDR26.4 MILLION IN PILOT CRISIS RESPONSE WINDOW RESOURCES
(US$40 MILLION EQUIVALENT)

TO

REPUBLIC OF UGANDA

FOR THE

EIGHTH POVERTY REDUCTION SUPPORT CREDIT

August 30, 2010

Poverty Reduction and Economic Management 2

Country Department AFCE1
Africa 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.
 UGANDA - GOVERNMENT FISCAL YEAR
July 1 – June 30
CURRENCY EQUIVALENTS
(Exchange Rate Effective as of August 25, 2010)
Currency Unit Uganda Shillings (Ush)
US$1.00 2,260

ABBREVIATION AND ACRONYMS

AfDB African Development Bank MTEF Medium Term Expenditure Framework
AG Auditor General NAADS National Agricultural Advisory Services
BFP Budget Framework Paper NAPE National Assessment of Progress in Education
BoU Bank of Uganda NDP National Development Plan
CAS Country Assistance Strategy NGO Non-Governmental Organization
CBMS Community-Based Maintenance System NEMA National Environmental Management Agency
CHOGM Commonwealth Heads of Government Meeting NIMES National Integrated M&E Strategy
CPIA Country Policy and Institutional Assessment NPV Net-Present-Value
DFID Department for International Development NSDS National Service Delivery Survey
EIA Environmental Impact Assessment NSSF National Social Security Fund
EMIS Education Management Information Systems NWSC National Water and Sewerage Corporation
EPI Expanded Program for Immunization OAG Office of Auditor General
ESW Economic Sector Work OPM Office of the Prime Minister
GDP Gross Domestic Product OOB Output Oriented Budgeting
GNI Gross National Income PAC Public Accounts Committee
GoU Government of Uganda PAF Poverty Action Fund
GPOBA Global Partnership on Output-Based Aid PEAP Poverty Eradication Action Plan
HIPC Heavily Indebted Poor Countries PCC Policy Coordination Committee
HSSP Health Sector Strategic Plan PER Public Expenditure Review
HIV/AIDS Human Immunodeficiency Virus/Acquired PEMCOM Public Expenditure Management Committee
Immune Deficiency Syndrome
IDA International Development Association PFM Public Financial Management
IFMS Integrated Financial Management Systems PNFP Private Not-For-Profit
IGG Inspector General of Government PPA Participatory Poverty Assessment
IMF International Monetary Fund PPDA Public Procurement and Disposal of Asset
IPPS Integrated Pay and Personnel System PRGF Poverty Reduction and Growth Facility
JBSF Joint Budget Support Framework PRSC Poverty Reduction Support Credit
JSAN Joint Staff Assessment Note PSIA Poverty and Social Impact Assessment
KfW Kreditanstalt für Wiederaufbau PRSP Poverty Reduction Strategy Paper
LG Local Government ROM Results-Oriented Management
LGFC Local Government Finance Commission SDR Special Drawing Rights
M&E Monitoring and Evaluation SWG Sector Working Group
MDG Millennium Development Goals TASU Technical and Administrative Support Unit
MoES Ministry of Education and Sports UBOS Uganda Bureau of Statistics
MoFPED Ministry of Finance, Planning and Economic UNDP United Nations Development Program
Development
MoH Ministry of Health UPE Universal Primary Education
MoLG Ministry of Local Government URA Uganda Revenue Authority
MoPS Ministry of Public Service VAT Value Added Tax
MoWT Ministry of Works and Transport WSS Water Supply and Sanitation
MoWLE Ministry of Water, Lands and Environment

Vice President: Obiageli Katryn Ezekwesili

Country Director: John Murray McIntire
Country Manager Kundhavi Kadiresan
Sector Manager: Kathie Krumm
Task Team Leader: Paul Wade
Co-TTL: Suleiman Namara
 Republic of Uganda

EIGHTH UGANDA POVERTY REDUCTION SUPPORT CREDIT

TABLE OF CONTENTS

CREDIT AND PROGRAM SUMMARY ................................................................................. I

I. INTRODUCTION ................................................................................................................... 1
II. COUNTRY CONTEXT ........................................................................................................ 3
Poverty, Inequality, and Quality of Life Indicators ...................................................................... 3
Governance ................................................................................................................................... 5
Recent Economic Performance and Outlook ................................................................................ 6
III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES ........ 10
IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM ...................................... 11
Partnerships................................................................................................................................. 11
Relationship with Other Bank Operations .................................................................................. 12
Assessment of Achievements and Lessons under PRSC 1 – 7 ................................................... 13
Analytical Base ........................................................................................................................... 15
V. THE EIGHTH POVERTY REDUCTION SUPPORT CREDIT .................................... 17
Operation Description ................................................................................................................. 17
Results Framework ..................................................................................................................... 17
Policy Areas ................................................................................................................................ 22
VI. IMPLEMENTATION ........................................................................................................ 39
Implementation, Monitoring, and Evaluation ............................................................................. 39
Poverty and Social Impact .......................................................................................................... 39
Environmental Aspects ............................................................................................................... 41
Fiduciary Aspects ....................................................................................................................... 42
Disbursements and Auditing....................................................................................................... 44
Risks and Risk Mitigation .......................................................................................................... 45

FIGURES

Figure 1: Uganda: Relative CPIA Rating Compared with IDA ................................................... 2

Figure 2: Poverty by Location and Demographic Characteristics ................................................ 5

TABLES

Table 1: Selected Macro Indicators 2005/06-2012/13 .................................................................. 9

Table 2: Prior Actions under PRSC 8 Progress to Date ............................................................. 19
Table 3: UGANDA - Investment Projects that Mitigate Environmental Risks .......................... 42

ANNEXES

ANNEX 1: Draft Letter of Development Policy ........................................................................ 47

ANNEX 2. PRSC Policy Matrix ............................................................................................... 54
ANNEX 3. Outcome and Headline Sector Results in PRSC Sectors ........................................ 67
ANNEX 4. Fund Relations Note ................................................................................................ 70
ANNEX 5. Country at a Glance ................................................................................................. 71
ANNEX 6. Summary of PEFA Indicator Scores, 2005 and 2008 ............................................. 74
ANNEX 7. Map of Uganda ....................................................................................................... 75

BOXES

Box 1. Good Practice Principles on Conditionality .................................................................... 21

The Bank task team includes the following: Paul Wade (Task Team Leader, AFTP2), Suleiman Namara
(Co-TTL, AFTSP), Sukhdeep Brar, Innocent Mulindwa (AFTED); Peter Okwero, Dominic Haazen
(AFTHE); Parminder Brar, Paul Kamuchwezi (AFTFM); Jonas Parby (AFCTZ); Dino Merotto, Rachel
Sebudde, Rebecca Simson, Obert Pimhidzai, Asumani Guloba (AFTP2); Tony Verheijen, Barbara Magezi
(AFTPR); Grace Munanura, Howard Centenary (AFTPC); Sam Mutono, Martin Onyach-Olaa (AFTUW);
Victor Ocaya (AFTTR); Martin Fodor (AFTEN); Nathalie Weier Johnson (AFTEN); Phillip Beauregard,
Evarist Baimu (LEGAF).
Task Team Assistants: Arlette Sourou (AFTP2); Rosemary Mugasha and Clare Busingye (AFMUG).
Kathie Krumm and Kundhavi Kadiresan provided overall guidance and assistance.
Quality reviewers and advisors included Robert Blake, Wolfgang Fengler and Iradj Alikhani.
 CREDIT AND PROGRAM SUMMARY
Republic of Uganda
EIGHTH UGANDA POVERTY REDUCTION SUPPORT CREDIT

Borrower Republic of Uganda

Implementing The Office of the Prime Minister (OPM) and Ministry of Finance,
Agency Planning and Economic Development (MoFPED)
Financing Data IDA credit, standard IDA terms. 40 years maturity and 10 year grace
period.
Amount: SDR65.9 million (US$100 million equivalent), including
SDR26.4 million (US$40 million equivalent) in Pilot Crisis Response
Window (CRW) resources.
Operation Type Programmatic, (1st of 3), single tranche.
Main Policy Policy Cluster 1: Reforms in Public Expenditure Management, Public
Areas Financial Management and Public Service Management that Improve
Service Delivery. Strategic objectives supported by the PRSC are: (i)
improved budget credibility, (ii) transparent and efficient public financial
management and public procurement; (iii) strengthened public sector
management and accountability; and (iv) strengthened local government
system for service delivery.
Policy Cluster 2: Improving Value for Money in Public Service Delivery
Sectors. Strategic objectives supported by the PRSC are: (i) wider access
to and better quality of primary and secondary education; (ii) wider
access to and better quality of health services; (iii) improved sexual and
reproductive health care services and control of major communicable
diseases; (iv) improved water and sanitation system; and (v) improved
national road network to lower transport cost, raise competitiveness and
facilitate economic activity.
Key Outcome Public Expenditure Management, Public Financial Management and Public
Indicators Service Management
Percentage budget variance between allocations and releases of JBS
sectors (by sector and front line service delivery levels)
Baseline: 5 percent; Target: 5 percent
Percentage clean audit reports (Central, Local and Statutory bodies)
Baseline: CG: 35 percent; SB: 49 percent; LG: 9 percent
Target: CG: 45 percent; SB: 59 percent; LG : 29 percent
Public Service Delivery Sectors
Increase in primary pupils passing PLE with grades I-III at public
primary schools by sex and district
Baseline: 262,337 (girls 45.2 percent); Target: 280,000 (girls 46 percent)
Number and proportion of children immunized with DPT3
Baseline: 82 percent; Target: 90 percent

i
 Percentage of improved water sources that are functional at the time of
spot check (disaggregated by (i) rural, and (ii) valley tanks and dams)
Baseline: 82 percent, 23 percent; Target: 84 percent, 30 percent
Percentage of paved national roads in fair to good condition
Baseline: 65 percent; Target: 80 percent
Program
The program development objective for the operation is improved access
Development
to and greater value for money in public services.
Objective(s) and
Contribution to The Uganda Country Assistance Strategy was discussed by the Board on
CAS May 25, 2010. The proposed operation is a core component of the CAS
and will contribute to strategic objectives two, three and four: enhance
public infrastructure; promote human capital development; and support
good governance and accountability. It will complement a range of
investment lending operations.

Risks and Risk Fiscal risks and debt sustainability. In the short term, fiscal pressures
Mitigation could increase, which could pose a challenge to fiscal sustainability and
would compound the stress on the public service delivery system. The
PRSC mitigates these effects by supporting efforts to improve
expenditure efficiency and value for money. Furthermore, a permanent
reduction in GDP growth could result in a high public debt ratio,
highlighting the risks should the growth dividend from investments
undertaken be lower than expected. Prudent investment and debt
management will mitigate this risk.
Governance and fiduciary risk. Commitment to better governance may
weaken before the 2011 elections. Corruption has increasingly become a
source of public discontent. Three major corruption scandals - NSSF,
CHOGM and Global Fund – have in the past three years have revealed
weaknesses in procurement, financial management, and control systems.
The Bank and government continue the dialogue on governance issues to
mitigate this risk.
Risks associated with oil revenue. In the medium term, the use of oil
revenue could raise new challenges such as real exchange rate
appreciation and loosened fiscal rigor. The Bank and other development
partners are providing analytic support and policy advice to strengthen
the institutional base for managing future resource revenue. Policy
support under this operation for procurement and PFM reform is
expected to improve institutional capacity for future management of oil
revenue. Consideration will also be given to include policy reforms
specific to the oil sector in future PRSCs in this series.
Exogenous risks arising from bad weather or the world economy can
adversely affect Uganda. As a landlocked country, Uganda‟s
development may be threatened by insecurity in neighboring countries.
This could disrupt trade routes or raise the risk of conflict in border
regions.

ii
 Aid effectiveness. The proposed operation has been designed and will be
implemented through the Joint Budget Support Framework. While the
JBSF has reduced transaction costs for government, this could lead to
donor coordination costs that slow implementation and impede flexible
response to new policy problems. The Bank has signaled to its partners
the importance of flexibility during implementation. To minimize
coordination costs, partners have agreed to a clear coordination structure
and dispute resolution mechanisms for the JBSF.
Operation ID No P101232

iii
 IDA PROGRAM DOCUMENT FOR A
PROPOSED EIGHTH POVERTY REDUCTION SUPPORT CREDIT (PRSC8)
TO THE REPUBLIC OF UGANDA

I. INTRODUCTION

1. This program document presents a proposed credit to the Republic of Uganda for
SDR 65.9 million or US$100 million equivalent, including SDR 26.4 million or US$40
million equivalent in Pilot Crisis Response Window (CRW) resources, to finance the Eighth
Poverty Reduction Support Credit (PRSC 8).

2. The proposed PRSC 8 is the first in a series of operations prepared in a Joint

Budget Support Framework (JBSF) with development partners. It is the first of three
development policy lending (DPL) operations to support Uganda‟s poverty reduction
strategy.1 The proposed operations cover the period 2010-13.

3. The government’s previous poverty reduction strategies reduced the share of

households living in poverty from 44 percent in 1997, to 38 percent in 2001/02, and to 31
percent in 2005/06.2 Economic growth has remained high, with annual real GDP growth
averaging 8.2 percent over the 5 years ending in 2009/10, despite exogenous shocks,
including the global financial, food and energy crises.

4. The Government of Uganda (GoU) recognizes that Uganda’s growth record and
poverty reduction cannot be sustained without a transformation of the economy. This
reorientation, which is consistent with the findings of the Bank‟s 2007 Country Economic
Memorandum, is embodied in the five-year National Development Plan (NDP) - Growth,
Employment and Prosperity. GoU will increasingly address infrastructure constraints to
growth because without substantial public infrastructure investments - in roads, electricity,
railways and water for production - growth will slow.

5. Fiscal space is needed for investments in infrastructure and human capital for a
growing population, such as universal primary and secondary education and free basic
health care. The best way to increase fiscal space is through efficiency gains in public
spending, especially service delivery. Recognizing this and building on the gains achieved
under previous PRSCs, the government is promoting a set of reforms to improve public
sector management and the quality of public administration. These reforms emphasize
planning and accountability measures such as output oriented budgeting and monitoring.
These prioritized reform areas are also areas of relative weakness in Uganda as indicated by
its CPIA ratings relative to other IDA countries (Figure 1). Uganda performs considerably
better than average for IDA countries (and the African region) on economic management
(with high macroeconomic, fiscal, budget, and structural CPIA scores) but is average or

1
Uganda‟s poverty reduction strategy has been contained in three Poverty Eradication Action Plans over 12
years. The first PEAP was prepared in 1997 and provided the model for the PRSP. It was revised in 2000
and again in 2004. The third and latest revision expired in June 2010, and has been succeeded by a five-
year National Development Plan.
2
These estimates are based on the Uganda national poverty line. When measured at a poverty line of
US$1.25 per day, the estimated poverty headcount dropped from 64 percent in 1995 to 52 percent in 2005.
1
below on public sector management, efficiency of revenue mobilization, quality of public
administration, and transparency, accountability and corruption.

Figure 1: Uganda: Relative CPIA Rating Compared with IDA

1.2

0.8

0.6

0.4

0.2

-0.2

-0.4

-0.6

Source: World Bank, IDA Countries Resource Allocation Index, 2009.

6. The NDP similarly places strong emphasis on improved value for money in
public service delivery. The PRSC contributes to four out of the eight NDP objectives:
Objectives 3 and 5, human capital development and access to social services, which aims to
improve access to- and quality of public services; Objective 4, economic infrastructure, with
an emphasis on energy, roads and water for production facilities, and Objective 7, good
governance, defense and security, which aims to strengthen public sector coordination,
planning and accountability. The PRSC uses Public Expenditure Reviews (PERs) in
Education (2007), Health (2008) and Roads (2010) as analytic bases (Section IV). The
operation identifies complementary reforms in service delivery and public administration
(procurement, public financial management and staff management) that can lift critical
constraints to service delivery.

7. The proposed operation has important growth aspects. Deficient transport and
energy infrastructure are the key constraints to Uganda‟s growth. The roads sector, which
constitutes 90 percent of Uganda‟s transport infrastructure, is directly supported under the
PRSC series. The proposed operation will also indirectly support growth, as increased value
for money in public spending creates fiscal space for other much needed public investments
to facilitate growth without crowding out private sector access to resources. Closely linked to
the PRSC series are significant IDA investments in roads (Roads Development 3 (FY05);

2
Transport Sector Development Project (FY10)) and energy (Power Sector Development
Project (FY07); Energy Rural Transformation 2 (FY09); East Africa Regional Power Project
(FY10); Electricity Sector Development Project (FY11)).

8. The proposed operation takes into account the impact of the global slump on the
Ugandan economy, which became more evident in 2009/10. In 2008/09, the global
economic slowdown resulted in an underperformance in GDP growth of 1.5 percentage
points and a shortfall in fiscal revenues equivalent to 0.5 percent of GDP. This was
underpinned by slowdown in exports and lower foreign direct investment, which constrained
private investment and threatened to reduce the pace of poverty reduction. Preliminary
estimates suggest the impact was worse than anticipated in 2009/10 as domestic demand is
feared to have slumped. The fiscal stimuli envisaged through government‟s earlier strategy
for public investment through infrastructure spending in the 2008/09 and 2009/10 has been
constrained by implementation and absorption capacity issues. To ensure that the economy
remains robust and to be able to address any vulnerability to growth and poverty reduction,
fiscal policy will have to remain accommodative. To this end, supplementary resources
provided under the Crisis Response Window will help the government maintain investment
and counteract the global crisis, while the PRSC support for efficiency gains in public
spending can in turn help to address implementation and absorptive capacity issues.

9. Reforms in governance and economic management are critical for effective use
of Uganda’s future oil revenue. Reserves in the Albertine Graben of at least 800 million
barrels have been confirmed with significant revenue expected in 6-10 years. Total deposits
are estimated to contain as many as 2 billion barrels. The NDP is an opportunity to provide
general budget support as a foundation for efficient management of oil resources. The
policies supported under the PRSC, with an emphasis on value for money and public
financial accountability, are important steps in managing the projected oil revenue.

II. COUNTRY CONTEXT

POVERTY, INEQUALITY, AND QUALITY OF LIFE INDICATORS

10. Poverty in Uganda has declined over 20 years, though inequality persists. The
poverty head count fell from 44 percent in 1997 to 31 percent by 2005/06 (Uganda National
Household Survey). The decline, especially between 2002/03 and 2005/06, came from better
crop prices (particularly coffee), agricultural diversification, growth in non-wage, non-farm
employment (primarily household enterprises), and the creation of new wage and salary jobs
in urban areas, mainly Kampala. However, inequality persists among regions, between rural
and urban areas, and within cities. The Gini coefficient of expenditure was 0.41 in 2005/63.
War in the North until recently prevented it from developing with the rest of Uganda.

11. Population growth hampers Uganda’s economic progress. Uganda has the third
highest fertility rate in the world, with 6.8 children per woman. The population has doubled
since 1986. At the current growth rate of 3.4 percent, the population will grow from 32
million today to 68 million in 2035 and 100 million in 2050. Uganda‟s dependency ratio of
1.12 is high, which decreases household ability to save and invest productively and puts

3
Uganda‟s level of inequality is about average for Sub-Saharan African non-mineral exporting economies.
3
pressure on public services. Uganda‟s demographic transition is a key theme in the 2010
CAS.

12. Uganda’s progress toward the MDGs is fast in some areas (see Annex 5). Uganda
has registered strong progress and is likely to achieve MDG 1, poverty reduction and hunger
eradication; MDG 2, universal primary education; and MDG 3, gender equality and
empowerment of women. Poverty has fallen steadily since the late 1990s, and with the
introduction of universal primary education, primary enrollment has increased to 92 percent,
with near gender parity. Access to safe water in both rural and urban areas is on target; 65
percent of rural households and 71 percent of urban households have access, compared with
MDG targets of 62 and 77 percent, respectively. Access to sanitation facilities is 68 percent,
compared with the MDG target of 72 percent.

13. Uganda will not reach some MDGs. Child and maternal mortality are still too high
and unlikely to be met, with under five mortality of 137/1,000 and maternal mortality of 435
per 100,000 births. MDG 6, combating HIV/AIDS and malaria, and MDG 7, environmental
sustainability, could still be met if given sufficient attention. The HIV/AIDS prevalence fell
from 15 percent in 1990 to 6.2 percent in 2000, although it appears to be rising once more.
Malaria continues to be a main cause of mortality. The Bank has recently approved a new
health sector operation that will improve national capacity to deliver the Uganda National
Minimum Health Care Package, with special emphasis on maternal and newborn care.

14. Infrastructure investments have not matched growth in demand. The absence of
adequate infrastructure – in particular in transport and electricity – throughout urban and
rural areas is the greatest obstacle to shared economic growth because it raises production
costs. Improving transport connectivity between farmers and markets would induce a
stronger supply response in agriculture and raise household incomes among the rural poor.
The Bank is supporting GoU‟s efforts to close this infrastructure gap, primarily through
investment lending. The previous CAS had committed over US$600 million to infrastructure,
mainly roads and energy, and similar amounts have been committed under the new CAS
discussed at the Board on May 25, 2010.

15. Households in poorer areas have fewer services and have worse health and
education outcomes. Infant mortality in Kampala was 54/1000, but it is twice as high in the
neighboring districts of the central region and in the north. Student-teacher ratios and
classroom sizes are much larger in poorer areas, especially in the north, resulting in lower
primary completion rates and gender disparities. In 2007, government started implementation
of universal post-primary education and training to increase access to secondary education.

4
Figure 2: Poverty by location and demographic characteristics

Source: UBOS, Uganda National Household Survey, 2005/06

GOVERNANCE

16. Public sector governance has serious weaknesses which harm development
outcomes and threaten service delivery. These include weak staff management, poor
accountability of public officials, and lack of attention to demand for better governance. A
Human Resource Management review using the Actionable Governance Indicators
highlighted deficiencies in the way public servants are recruited, deployed and rewarded.4
This explains the high vacancy ratios in public services (49 percent in health alone) and the
high absenteeism in public institutions.

17. Accountability is weak - there are few, if any, consequences of inadequate

performance by officials. The Inspectorate of Government report to Parliament indicates an
investigation rate of only 38 percent of cases brought forward regarding abuse of office,
fraud, and loss of public funds. The National Integrity Survey (2008) found that 43 percent of
households regard health workers as corrupt and that 51 percent do not know how to report
corruption. The public perception is that corruption is high and worsening, as shown by
Transparency International‟s Corruption Perception Index which fell from 2.8 in 2007 to 2.6
in 2008 and 2.5 in 2009, out of a maximum score of 10.

18. Structural changes in government have affected performance. The creation of

new districts in Uganda5 has raised administration costs and stretched scarce human
resources. At the same time the share of government expenditure at the local government

4
Republic of Uganda, Ministry of Public Service, Pilot Study on Human Resource Management, 2009.
5
The number of districts in Uganda has increased from 34 in 1990 to 112 in 2010.
5
level is falling. Low budget outturns suggest challenges in complying with Public Financial
Management (PFM) regulations, and reports of misuse of public funds are common.

19. Although PFM institutions have been strengthened over the past years, serious
systemic weaknesses remain. The 2008 Public Expenditure and Financial Accountability
(PEFA) indicators register some improvements since 2005 but point to weaknesses in the
public financial management system, particularly with regard to transparency and
accountability in the use of public resources (see Annex 6). Whereas there has been progress
in some areas of public procurement reform, legislative reforms in this area remain slow and
suffer occasional setbacks, such as the recent amendments to the Public Procurement and
Disposal of Assets Act proposed by Cabinet, now in Parliament.

20. While legislation prescribes decentralized public services, public resources are
concentrated at the center. Transfers to local governments have not been commensurate to
the government‟s stated decentralization by devolution process. While LGs are formally
responsible for ensuring the quality of service delivery, public resource allocation remains
highly centralized6. This is compounded by a rapidly increasing number of districts which
increases local administration costs and reduces resources for frontline service delivery.
Furthermore, the accountability link between local governments and citizens deteriorated
after the abolition of the graduated tax, user fees and parent contributions to Parents Teachers
Association.7

RECENT ECONOMIC PERFORMANCE AND OUTLOOK

21. Uganda’s economy grew rapidly over the past 20 years, propelled by consistent
policy reforms. Annual growth in real GDP averaged 7.4 percent over the 10 years ending in
2009/10,8 compared with 6.5 percent recorded in the 1990s. This acceleration was in spite of
consecutive exogenous shocks including: the oil price shock; prolonged drought conditions
with adverse effects on energy generation and agricultural production; and volatile food
prices.

22. More recently, the global economic slowdown decelerated GDP growth, but
Uganda’s medium-term growth prospects remain solid. In 2009/10, as demand for
Uganda‟s traditional exports reduced, liquidity conditions tightened, and real activity mainly
in the construction sector slowed, GDP growth fell to 5.8 percent, impressive by world
standards, but falling short of projected performance. Gross domestic investment in 2009/10
amounted to 23 percent of GDP, almost three percentage points below the level recorded in
2008/09. Exports and remittances remained strong at 22 percent and 4 percent of GDP

6
More than 75% of the government budget is still executed at the centre with transfers to local
governments declining from 28% of the total budget in 1997/98 (the start of the decentralization process) to
22% in 2009/10. Even when netting out the effect of government priorities in centrally led infrastructure
and energy investments in recent years, budget transfers to local governments at 26% of total budget (net of
infrastructure and energy) in 2009/10 still fall below the 1997/98 budget share.
7
Ibid; World Bank, Fiscal Policy for Growth, 2007, volume 2.
8
Ugandan authorities revised their National Accounts back to 2000/01 by rebasing to FY 2002/03 and
reweighting the various components to better capture economic activity. This raised the GDP growth rates
over the 5 years ending in FY 2007/08 by about 2 percentage points and has affected historical aggregates
that are based on GDP.
6
respectively through 2009/10, but foreign direct investment was low at about 5 percent of
GDP in 2009/10 (compared to a peak level of 11.8 percent of GDP in 2007/08), and other
short-term foreign inflows remained weak. The Uganda shilling depreciated by over 17
percent against the US dollar in 2008/09, and more moderately, by 4.6 percent in 2009/10.
GDP growth is expected to recover in 2010/11 and remain robust, averaging about 7 percent
in the next few years on a base of strong services growth, regional trade and agricultural
comparative advantage.

23. The economic slowdown stemming from the global financial crisis has led to
fiscal revenue shortfalls in 2008/09 and 2009/10. There was a shortfall in fiscal revenue
collection in 2008/09 (at Ushs.151 billion or about US$75 million, equal to 0.5 percent of
GDP) , and in 2009/10 (Ushs.159 billion or about US$80 million, equal to 0.5 percent of
GDP), largely reflecting slower economic growth and the impact of the global financial
crisis. Strengthening revenue performance is central to fiscal performance going forward.

24. Implementation and absorptive capacity have constrained the intended fiscal
stimuli in 2008/09 and 2009/10 through under-execution of domestically funded
government projects. Whereas the revenue shortfall resulted in modest expenditure cuts in
non-essential areas, significant under-spending was recorded on the development budget
(compared to the ambitious increases in its budget allocation). However, while there were
absorption challenges also within the 2009/10 development budget, the actual outturn in
development spending in 2009/10 was still 1.6 percentage point of GDP higher than the
preceding 2008/09 budget outturn.

25. The 2010/11 budget presented to parliament continues on a trend of modest

fiscal expansion to counter the impact of the global financial crisis on the domestic
economy. The overall fiscal deficit (including grants) increased from 1.9 percent of GDP in
2008/09 to 3.0 percent of GDP in 2009/10 and is projected to reach 3.2 percent of GDP in the
current fiscal year. The development budget continues on a rising trend, increasing by 0.5
percentage point from 7.2 percent of GDP in 2009/10 budget outturn to 7.7 percent in the
2010/11 budget. However, implementation and absorptive capacity will need to improve
along with better governance in order to effectively increase public investment, achieve the
intended fiscal stimulus and raise value for money in public spending.

26. Inflationary pressures, which continued through the first half of 2009/10 on account
of pass-through of the sharp nominal depreciation of the shilling witnessed in the last quarter
of 2008 and higher food prices reflecting regional demand for Ugandan food exports, have
subsided in line with declining aggregate demand and reflecting bumper harvests. Inflation is
now under control, declining from 12.3 percent in 2008/09 (end of period) to about 5 percent
in 2009/10. Monetary policy was gradually eased in 2008/09 in response to the fall in private
external financing, and continues to be managed cautiously to preserve the delicate balance
between stability and real sector recovery prospects.

27. Uganda’s banking sector remains sound and well-capitalized despite the crisis.
At the outset of the financial crisis, Uganda had a solid banking system and macroeconomic
footing, with substantial amounts of reserves. Banks have generally improved their liquidity
buffers and tightened lending standards, in addition to the high capital adequacy ratios (Tier 1
ratio at 19.4 percent compared with the Basel II requirement of 12 percent) and a low ratio of

7
non-performing loans to gross loans at 4.0 percent. More recently, the decline in banks
profitability suggest that operational risks may have increased.

28. Uganda’s risk of debt distress is low as a result of international debt relief and
prudent macro management. Following entrance into the Multilateral Debt Reduction
Initiative in 2006, GoU adopted a new debt strategy that sets annual limits on borrowing and
a preference for loans with high returns. The results of the 2010 Joint Debt Sustainability
Analysis9 suggest that all parameters for sustainability are within the prescribed thresholds
and the risk of debt distress is low. The authorities plan to only gradually increase the use of
non-concessional borrowing to finance their ambitious public investment program after
building requisite implementation capacity. Debt service ratios remain robust under most of
the standard stress tests. The Debt Sustainability Analysis shows, however, that a permanent
shock to real GDP growth10 results in a marked deterioration in the public debt ratio. As
fiscal spending increases in the face of limited revenue, additional financing through
nonconcessional sources may raise the risk of debt distress. This highlights the risk should
the growth dividend from investments undertaken be lower than expected.

29. GoU will require external loans to finance the fiscal deficit and maintain its
fiscal expansion policy. It is expected that the fiscal deficit (including grants), projected at
3.0 percent of GDP in 2009/10 and 3.2 percent in 2010/11, will be largely funded through
concessional loans. These investments will be productive only if government addresses
implementation problems, particularly in roads. The proposed PRSC 8 operation helps to
alleviate Uganda‟s fiscal constraint by financing the government‟s investment program,
including supplementary financing through the Crisis Response Window. It also aims to
strengthen absorptive capacity through support for reforms in public financial management,
procurement and public service management.

30. Uganda’s oil discoveries promise significant increases in GDP and in fiscal
revenue. With confirmed oil reserves of 800 million barrels and potential reserves of up to 2
billion barrels, Uganda‟s reserves are similar to those of the Republic of Congo (1.9 billion),
Equatorial Guinea (1.7 billion) and Gabon (3.2 billion), but far short of Nigeria (36.2 billion)
and Angola (13.5 billion). Although price volatility makes it difficult to predict the revenue
stream, public revenues are projected to double in about 6-10 years time. Peak production is
projected to be 150,000 barrels per day, a rate that could be sustained for 10-20 years. Based
on the current fiscal system and an oil price of US$75 per barrel, government revenue at peak
production is estimated at over US$2 billion per year. Large investments will be needed to
produce, transport, export and refine the oil so there remains uncertainty regarding the time to
reach peak oil production and income.

9
Uganda: Joint IMF/World Bank Debt Sustainability Analysis, 2010.
10
The permanent shock is defined to be one under which GDP growth is on average smaller by roughly 1
percentage point compared with the baseline scenario and the path of nominal fiscal expenditure left
unadjusted.
8
Table 1: Selected Macroeconomic Indicators, 2007/08-2013/14
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Indicators <------------------proj.------------------>
<-------est.-------->
(Annual percentage change)
Domestic prices
Average overall (headline inflation) 7.3 14.2 9.5 4.1 5.2 5.3 5.2
Average underlying inflation (exc. Food crops)2 8.0 12.5 7.3 4.5 4.9 5.1 4.9
GDP deflator 5.0 14.6 8.6 3.9 5.1 5.1 5
Exchange rate
Nominal effective exchange rate -1.6 -- -- -- -- -- --
Real effective exchange rate -1.3 -- 0.3 -- -- -- --
Terms of trade (based on all exports ) -1.1 11.6 7.8 -4.0 1.1 1.8 1.8
National income accounts
Agriculture 1.3 3.5 2.1 2.7 -1.1 34 3.6
Manufacturing 7.3 9.4 5.9 5.4 5.4 7.0 7.0
Services 9.7 7.5 5.8 7.5 7.9 22.5 10.3

Total GDP at market prices 8.7 7.1 5.8 6.4 7.0 7.2 7.4
GDP per capita 5.4 3.8 2.4 3.1 3.7 3.9 4.1
(As percentage of GDP at market prices)
Real Sector
Gross domestic investment 25.3 25.9 23.2 23.4 25.2 25.6 26.2
Public investment 4.9 5.4 5.1 6.4 7.7 7.8 8.1
Private investment 20.4 20.5 18.1 16.9 17.5 17.8 18.2
Gross national savings (i.e. excl grants) 19.7 19.4 16.8 18.5 20.0 20.5 21.0
Public 2.1 4.3 2.1 3.5 4.3 4.7 5.1
Private 17.7 15.1 14.7 15.0 15.6 15.9 16.0
External Sector
Current account balance (incl grants) -3.2 -4.8 -6.4 -6.2 -6.1 -5.7 -5.6
Exports of goods & nonfactor services 21.9 21.2 21.8 21.6 21.1 20.7 20.1
Imports of goods & nonfactor services -32.0 -31.4 -34.1 -31.5 -30.9 -29.7 -28.8
Trade balance -6.3 -6.4 -8.3 -5.5 -5.5 -4.9 -4.7

External Debt to GDP ratio 17.7 19.6 20.1 23.3 25.7 26.3 26.4
o/w Public &Publically guaranteed 11.8 13.8 13.6 15.9 18.1 19.6 20.7
Debt service to exports ratio 6.0 3.5 4.4 6.1 6.6 7.6 8.2
Public debt service to exports ratio 2.4 0.7 1.6 1.5 1.7 2.0 2.1

Foreign reserves (in months of imports) 5.8 5.9 5.2 5.6 5.7 5.9 5.9
Government Finance
Domestic Revenue 12.8 12.5 12.7 13.1 13.5 14 14.4
Total expenditure and net lending 17.9 17.8 18.6 18.1 18.8 18.7 18.9
Overall balance (excluding grants) -5.1 -5.3 -5.7 -5.0 -5.4 -4.8 -4.5
Overall balance (including grants) -2.4 -1.9 -3.0 -3.2 -3.6 -3.2 -3.1
Domestic borrowing -0.3 -0.2 -1.2 0.6 0.4 0.3 0.4
Net Foreign financing 2.5 2.0 1.8 2.6 3.2 2.9 2.6
(As percentage of total expenditures)
Sectoral Expenditure (includes donor financing)
Roads and Works 13.2 18.5 17.2 23.6 23.7 22.3 21.3
Agriculture 4.3 3.8 4.4 6.6 6.0 5.3 4.6
Education 16.1 15.4 15.3 14.6 13.1 11.4 10.1
Health 9.0 10.7 10.4 14.5 13.6 12.5 11.6
Energy and Mineral Development 4.0 4.1 9.9 5.4 11.8 12.0 13.2
Security 9.3 8.1 6.9 6.2 6.1 5.6 5.0
Water 3.3 2.6 2.4 4.6 4.4 4.0 3.8
Law and Order 4.9 4.8 5.1 4.6 4.4 4.6 4.6
Public Sector Management 6.0 9.6 10.0 7.0 6.2 5.3 4.7
Public Administration 7.2 2.8 3.1 2.1 1.8 1.6 1.4
Interest payments 6.1 6.5 5.2 5.3 5.3 5.3 5.3
Sources: Ugandan Authorities; and IMF staff estimates and projections
1.Fiscal year covers July 1-June 30
2.Core inflation

9
 III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES

31. GoU approved a new five-year National Development Plan (FY2011-2015) in March
2010. The NDP broadens the focus from „poverty reduction‟ to „structural transformation‟ for the
purposes of economic growth and improved living standards. It is the first in a series of six plans
intended to transform Uganda over thirty years into a modern and prosperous country.

32. The NDP has eight objectives. These are: (i) increase household income and promote
equity; (ii) enhance the availability and quality of gainful employment; (iii) enhance human
capital development; (iv) improve the stock and quality of economic infrastructure; (v) increase
access to quality social services, (vi) promote science, technology, innovation, and ICT to
enhance competitiveness; (vii) strengthen good governance, defense, and security; and (viii)
promote sustainable population and use of the environment and natural resources. The NDP also
identifies fourteen “national flagship projects” intended to address binding constraints to growth.
Furthermore, the NDP identifies a set of strategies for unlocking the binding constraints to
development which are well aligned with PRSC priorities. These include a focus on improving
public sector management and administration, and improving public sector financing and
financial services. In addition, the PRSC contributes directly to the four objectives described
below.

33. NDP Objective 4: Economic Infrastructure. The NDP emphasizes that sustaining high
growth and transformation requires industrialization, value addition in agriculture, and larger
markets both internally and externally – and that these objectives all depend on infrastructure
investments, particularly in energy and transport, but also water for production facilities. The
NDP also identifies supporting reforms required to improve the overall business climate (see
Objectives 1 and 2), including the need to strengthen the domestic financial sector, and improve
policy and regulatory frameworks.

34. NDP Objectives 3 and 5: Human Capital Development and Access to Social
Services. The NDP maintains a strong focus on improving and expanding social service
delivery. Key priorities are improving quality of education, expanding universal secondary
education, and implementing business, technical and vocational education and training. Health
sector priorities include improving management of health units, reducing waste, and
rehabilitating and equipping hospitals, while continuing to focus immunization, communicable
disease control, reproductive health and nutrition and hygiene. These ambitious programs for
service delivery are feasible only in the context of improving efficiency in public spending, a key
pillar of government‟s fiscal strategy.

35. NDP Objective 7: Good Governance. The NDP identifies a weak public sector as a
major constraint to development and aims to address this challenge by building performance-
based management systems and improving policy coordination. Priorities include the
introduction of institutional performance contracts at all levels, improved human resource
management of public servants, and increased transparency and accountability by introducing
value for money performance standards and performance budgeting in all sectors.

10
 IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM

36. The new Uganda Country Assistance Strategy was discussed by the Board in May
2010. The CAS supports the GoU in reaching its medium-term goals of accelerating economic
growth, transforming the structure of the economy, raising employment and ensuring prosperity
for all. Like the NDP, the CAS focuses on infrastructure development, agriculture, human capital
development, and improving efficiency and value for money in public spending through better
governance. The CAS will cover the period 2011 – 2015. The PRSC operations will continue to
be an important component of the Bank‟s support for Uganda in the CAS, constituting
approximately one quarter of IDA lending, and contributing to strategic objective two, enhanced
public infrastructure; objective three, promote human capital development; and objective four,
good governance and accountability.

PARTNERSHIPS

37. The proposed operation was prepared jointly with ten other Joint Budget Support
donors and government. The Joint Budget Support Development Partners (JBS-DPs) consists
of Austria, Belgium, Denmark, European Union (EU), Germany, Ireland, the Netherlands,
Norway, Sweden, and the United Kingdom, in addition to the Bank. Over US$300 million is
expected to be disbursed under the JBSF annually, of which the Bank contribution is projected to
be roughly one-third in the CAS. The Joint Budget Support Framework is aligned with the
government cycle and embedded in national coordination structures. The governance structure is
two tiered and includes a high level Development Partner JBSF Policy Advisory Committee,
which meets regularly with government at a semi-annual high level forum. At the working level,
the JBSF Technical and Policy Dialogue Taskforce meets frequently to coordinate the design and
implementation of the JBSF and conduct an annual assessment of performance. Sector Working
Groups coordinate dialogue with government at sector level. All missions and assessments are
conducted jointly by the participating development partners. The final appraisal report is
produced jointly by the JBS development partners, and strong efforts will be made to reach a
consensus on how to assess government performance although each partner makes an
independent decision about disbursements based on the appraisal results. The joint approach
reduces government transaction costs, increases the predictability of disbursements, and creates
mutual accountability, in line with the Paris Declaration on Aid Effectiveness and subsequent
Accra Agenda for Action.

38. The JBS partners have also agreed to finance a multi donor trust fund, managed by the
Bank, to establish a Technical and Administrative Support Unit (TASU) for the JBSF. The
TASU will have a dual role in providing administrative support as well as generating high-
quality technical and analytical work that will form the evidence base for future policy design,
assessment of results, and policy dialogue.

39. The IMF has recently approved a new 3-year Policy Support Instrument for
Uganda. Collaboration between the Bank and the Fund remains strong, with the IMF
concentrating on macroeconomic issues while broader issues of public financial management,
sectoral policies and structural and governance reforms are supported by the PRSC. Fiscal and
financial sector issues are supported jointly.

11
 RELATIONSHIP WITH OTHER BANK OPERATIONS

40. The PRSC complements a large World Bank portfolio of sectoral operations. In line
with government‟s increased focus on growth enhancing infrastructure and human capital, Bank
support has a strong emphasis on transport, energy, complemented by continued support to social
sectors and public sector reform.

41. CAS Strategic Objective 1, Promote Sustainable and Shared Economic Growth:
This objective is supported by a range of investment projects and technical assistance focused on
the business environment, financial sector development, regional integration, agriculture and
natural resource management.

42. CAS Strategic Objective 2 and 3, Enhance Public Infrastructure and Strengthen
Human Capital Development: Complementing PRSC Policy Cluster 2, improving value for
money in public service delivery, the CAS includes investment programs in the service sectors
that provide resources for specific programs or targeted technical assistance. These programs
focus on intra-sectoral resource constraints or management challenges and are complemented by
the PRSC‟s cross sectoral approach (see CAS Objective 4), which helps to lift broader service
delivery level constraints.

(a) Education: Financing for the education sector focuses on post primary education and aims to
support the rollout of government‟s Universal Secondary Education policy (Post Primary
Education and Training Program, FY09). It also supports strengthened science education
under the Millennium Science Initiative (FY06).

(b) Health: The Bank is supporting the health sector through the Health Systems Strengthening
Project, which reinforces the PRSC‟s focus on efficiency in service delivery by providing
assistance to strengthen human resource management and other essential management
systems for health care service delivery. The Bank-administered Global Partnership on
Output-Based Aid (GPOBA) and KfW are together piloting output-based aid (a form of
results-based financing) for safe child delivery and treatment of sexually transmitted diseases.

(c) Water and Sanitation: Grant support to the water and sanitation sector has been provided
through the water and sanitation program partnership and includes a focus on water sector
governance, which has helped to inform the PRSC. A proposed Water Sector Development
and Management Project (to be delivered in FY13) will finance investments in production
capacity, inter alia. Grant support has also been provided through the Bank-administered
GPOBA for both rural/small towns and urban/National Water and Sewerage Corporation
schemes whereby results-based financing in the form of output-based aid is used to increase
access for the poor, and in some cases has also leveraged private sector finance and expertise.

(d) Transport/Infrastructure: The Bank‟s portfolio is increasingly oriented toward transport and
energy, in line with the government‟s priorities. Support is provided under the Third Roads
Development Project (FY05), and the recently approved Transport Sector Development
Project (FY10), for governance and management of the roads sector.

12
43. CAS Cross-Cutting Objective 4, Good Governance and Value for Money: This
objective, which corresponds to Policy Cluster 1 of the PRSC, is further supported by a range of
ESW, technical assistance and investment projects. To strengthen expenditure management the
Bank has been providing extensive Economic Sector Work (ESW) throughout the last CAS
period focused on sector specific expenditure allocations and management. The design of the
PRSC was also informed by the Public Service Performance Enhancement Project, approved in
FY06, which aims to enhance the policy, institutional, and regulatory environment for sustainable
service delivery. The Local Government Management and Service Delivery Project (FY08) and
Northern Uganda Social Action Fund 2 (FY09) further help to strengthen public financial
management and accountability at local levels. In addition, targeted ESW and technical
assistance aim to inform national level public financial management and public procurement
reforms. While these projects provide direct financing for program implementation and capacity
building within particular ministries or agencies, the PRSC helps to build stronger momentum for
challenging reforms and has secured broader inter ministerial commitment for reforms that
require joint action.

ASSESSMENT OF ACHIEVEMENTS AND LESSONS UNDER PRSC 1 – 7

44. The PRSC achievements and lessons described here are drawn from the 2009 IEG
Country Assessment Evaluation, Implementation Completion Reports, and Implementation
Status Reports.

45. There was greater focus on public investment priorities for growth and poverty
reduction. The PEAP and PRSC processes have led to improved focus on the development
challenges faced by Uganda and on the public investment needs to meet those challenges. This
facilitated the allocation of resources, helped increase the efficiency of basic service delivery, and
contributed to improving the coordination of the type of cross sectoral efforts needed for poverty
reduction in its various dimensions.

46. High transaction costs are necessary to ensure a strong PRSC program.
Government, while raising concerns about the size of PRSC missions and a reform agenda that
leaves little room for down time, made it clear that the budget support approach was by far the
preferable way of proceeding. With respect to the World Bank, the available evidence suggested
that resource cost for program preparation was considerably higher for the PRSCs than for
regular IDA investment projects. The report recommended that follow up PRSC attention should
focus on improving the impact of the transferred resources rather than worrying too much about
the costs of program preparation.

47. While broad, complex policy operations are valuable at capturing a wide variety of
needed initiatives, they do come at a cost. PRSC 5-7 were clearly this type of complex
program, and one disadvantage thereof is that the lagging parts of the program tend to get an
inordinate amount of attention and may hold up and even damage other activities that might
otherwise perform better and move faster. The entire operation lost resources because of weak
implementation in a few areas. Accordingly, a narrower focus may lead to more meaningful and
deeper implementation and greater reform sustainability.

48. Donor coordination improved. The PRSCs helped to streamline and coordinate donor
support, and this led to increased resource flows from donors as aid shifted progressively into

13
direct budget support. The PRSC series also improve the predictability of concessional resources.
The locus for PRSC donor activities has been the Sector Working Groups, supplemented by
special meetings arranged during PRSC missions. Improved coordination was evident in the
exchanges of donor assistance strategies and key reports, feedback to the World Bank, and
continuous informal exchanges, especially important when they involved government
representatives to reinforce the sense of partnership and transparency. Donor coordination is
being further strengthened through the Joint Budget Support Framework (JBSF) arrangement.

49. The quality of national M&E frameworks supporting poverty reduction efforts (and
by extension, PRSCs), tends to be very weak. Yet the Bank chooses to evaluate the success of
its programs in accordance with those frameworks. In order to reconcile the objective of
ownership with the objective of measurement, the Bank must provide more effective assistance
to governments to support the design, implementation, and utilization of findings from those
M&E efforts, and in the interim be selective and realistic in its choice of PRSC indicators.

50. Sequencing of reforms. The joint ICR for PRSCs 1-3 and that for PRSC 4 highlighted
the issues of capacity and the PRSCs‟ tendency to set ambitious long term goals. In response to
this, the Bank took steps during the second series (PRSC 5-7) to include detailed descriptions of
the rationale, content, and policy expectation for each prior action. In some cases it was
impossible to link prior actions to the long term objectives, partly because they were presented in
annual PRSCs. Prior actions for the PRSC series 8-10 therefore will be sequenced over the
MTEF.

51. Alignment with the national budget cycle. There are advantages to aligning the PRSC
with the GoU budget cycle. Typically, though project documents acknowledged that this
alignment was an objective, the PRSCs lagged months behind the government‟s call for
individual ministerial programs. This often posed challenges for the government to fit the PRSC
conditions into the already developed Ministerial programs. In addition, if budget support was
late, the GoU would also have to move resources to adjust to the shortfall in budget support.

52. Cross-cutting reforms. Another lesson is the need to strengthen the link between the
cross-cutting reform agenda in the PRSC and sectoral reforms. In most instances, service delivery
reforms cannot be done without appropriate measures taken across the public sector as a whole,
including key ministries such as Ministry of Finance, Planning, and Economic Development
(MoFPED), Public Procurement and Disposal of Asset (PPDA), Ministry of Local Government
(MoLG), Ministry of Public Service (MoPS), and Ministry of Gender, Labor and Social
Development. Often these crosscutting measures would need a tailor-made application to the
particular service delivery sector to be truly effective (for example, in the area of procurement of
drugs, one would need a tailor made improvement in procurement procedures beyond the general
measure). Previous PRSCs have worked at both sectoral and national levels but have been less
successful at engaging government across sectors.

53. Procurement reforms. Previous PRSCs have supported procurement reforms in Uganda.
They focused on establishing the Public Procurement and Disposal of Assets Act (2003) and on
creating operational procurement units and tender committees in ministries and local
governments. Under PRSC 7, the government established that compliance with the procurement
law was low and that it is necessary to strengthen compliance mechanisms. This enforcement
mechanism includes the proposed amendments under PRSC 7 (which will be concluded under

14
PRSC 8). There were some setbacks as the proposed draft amendments sometimes differed from
international best practice. The outcome of PRSC 7 in this area was not satisfactory, and
improvement in the Procurement Law is being pursued under PRSC 8.

54. Legal reforms require time for wide stakeholder engagement. A key lesson
emanating from the experience in PRSC 7 is that reforming a law that involves multiple
stakeholder interests and possible rent seeking requires not only reasonable lead time but also
extensive time for dialogue. The dialogue is necessary to deal appropriately with pervasive
incentives that may arise during the process of negotiating a second round of reforms. For
example, in the process of amending the procurement law under PRSC 7, additional proposals
emerged that were likely to restrict open competition in procurement and would therefore
weaken, rather than strengthen, the law. Following extensive consultations with stakeholders,
most of these weaknesses have been corrected in the version of the Bill currently before
Parliament.

ANALYTICAL BASE

55. The analytical base of the new PRSC series, focusing on efficiency of service delivery
and increasing value for money, is the Country Economic Memorandum (CEM, 2007), the Public
Expenditure Reviews (PERs) for 2007, 2008, and 2010 and sector analytical work.11

56. The CEM has helped government to develop a prioritized, time-bound, and consistent set
of policy actions, investments, and interventions to accelerate economic growth. As a result of
the CEM and other work, growth and economic transformation became more prominent in the
third PEAP and NDP than had previously been the case.

57. The sectoral PERs that followed the CEM have been critical inputs into government‟s
budget reforms, which aim to generate value for public money. The PER 2007 underscored that a
shift in budget composition toward infrastructure spending was urgently needed to support
growth, but that this shift would require deep public administration reforms to increase the
efficiency of public expenditures. Evidence from the education sector showed that as much as 20
percent of recurrent expenditure was estimated to be “waste” owing to staff absenteeism, ghost
workers on the payroll and inappropriate use of capitation grants. This suggested that Uganda
would greatly improve efficiency across all sectors by reducing such leakages. 12 The PER 2008
explored budget composition trends and resource performance in the health sector. It concludes
that better value for money in public services will result from appropriate funding at the level of
service delivery, controlling employee related costs in central government budgets, and
preserving allocations to the development budget. Within the health sector, reducing health
worker absenteeism, reducing drug leakages and waste in clinics and stores, and improving the
integration of off budget donor funds into the planning and resource framework of the public
health sector are identified as the most important first steps to increase efficiency.

11
World Bank, Uganda: Fiscal Policy for Growth, Public Expenditure Review, 2007; World Bank, Uganda:
Health Efficiency and Future Expenditure Challenges, Public Expenditure Review, 2008; World Bank, Uganda:
Strengthening the Impact of the Roads Budget (DRAFT), Public Expenditure Review, 2010.
12
World Bank, Fiscal Policy for Growth, 2007, Volume 2, p. 32
15
58. Ongoing sector work also continues to inform the PRSC process. A report on public
financial management,13 including an assessment of the fiscal decentralization, and the PEFA
(2009) report have advanced PFM reform. A pilot study using actionable governance indicators
to analyze human resource management has informed the design of public service reforms.
Several studies undertaken and ongoing on education,14 health,15 and water and sanitation16
inform the human development component of PRSC support. The 2010 PER focuses on technical
and allocative efficiency in road construction and maintenance.

13
P. Brooke and J. Brumby “PFM reform in Uganda – a platform approach,” July 2008.
14
Annual Sector Review Report 2007/08; Studies on learning assessment, teacher recruitment/retention, funding
of and public/private partnership for post primary education; USAID expenditure tracking study on school
capitation grants.
15
Uganda Health Work Force Turnover Study, capacity project (USAID) and MoH (2009), Assessments on
HIV/AIDS sector spending and on procurement system in the National Medical Stores.
16
Cost Variation Study (2008); Addressing Institutional and Financial Challenges of Environmental Sanitation
in Uganda (2009) Value for money and tracking studies to investigate high costs of deep boreholes and piped
water schemes.
16
 V. THE EIGHTH POVERTY REDUCTION SUPPORT CREDIT
OPERATION DESCRIPTION

59. The proposed Eighth Poverty Reduction Support Credit would be the first in a planned
series of three operations (PRSC 8-10). Building on the lessons from the last seven annual
operations, the new series will support the implementation of Uganda‟s Poverty Reduction
Strategy, the recently completed National Development Plan. The Bank‟s PRSC support to
Uganda is provided within a harmonized framework for budget support.

60. The objective of the proposed PRSC 8 is to support government‟s reforms to improved
access to, and greater value for money in, public services. The operation supports reforms under
two policy clusters:

(a) Policy Cluster 1: Reforms in public expenditure management, public financial management
and public service management that improve service delivery.

(b) Policy Cluster 2: Improving value for money in the four core service delivery sectors: health,
education, water supply and sanitation, and road construction and maintenance.

61. The PRSC and Joint Assessment Framework (JAF) permit flexibility in program
coverage and design. If necessary, the PRSC/JAF could be modified to address emerging policy
issues or exogenous shocks. It will also allow for the incorporation of additional sectors once
they have developed adequate policy frameworks for reforms. Future operations in the series may
address growth (including in agriculture), governance of the oil sector, and crosscutting
environmental management issues. This will be determined as the changing policy framework
becomes clearer.

RESULTS FRAMEWORK AND FINANCING

62. The PRSC uses a subset of the authorities’ policy and outcomes matrices as its
results framework. This is also a subset of the JAF jointly developed and agreed by government
and JBSF development partners; hence, agreed prior actions in PRSC 8 are the same as in JAF 1
and similarly between PRSC 9 and JAF 2. For the four service delivery sectors covered by the
PRSC (and JBSF), the result frameworks have evolved since the PEAP and are fully consistent
with those agreed between MoFPED and line ministries for the output based budget for FY
2009/10.

63. Prior actions and triggers. Ten prior actions are detailed for PRSC 8 and ten proposed
triggers are presented for PRSC 9. In addition a set of potential triggers are presented for PRSC
10.

64. PRSC 8 Financing. The amount of PRSC 8 budget support is US$100 million,
comprising US$60 million country IDA and US$40 million from the Crisis Response Window to
help GoU mitigate the impact of the global economic crisis. The total credit amount is a
reduction from the planned amount of US$140 million as a result of inadequate strengthening of
the legal framework for public procurement and slow progress in public service reform. The draft
Amendment to the Procurement Law presented to Parliament meets international best practice in
most areas, with the exception of the amendment to allow unrestricted use of force account. This
17
originally agreed prior action has therefore been dropped. It is given high weight in the
assessment of government performance under the program since achieving efficiency in public
procurement is critical to Uganda‟s reforms to achieve value for money in public spending,
especially given that at least 55 percent of the government budget is expended through public
procurement. Unrestricted use of force account could compromise value for money in public
works as well as stifle development of the local construction sector. Furthermore, progress
against key reform actions has been slow in public service reform – also a central aspect for
achieving higher value for money in public spending. The government has not yet finalized a
single framework for performance management by linking results oriented management and
output oriented budgeting, and its implementation must now be accelerated to achieve program
objectives of the series. Government is expected to finalize this framework under PRSC 9.

65. PRSC appraisal. Progress against the PRSC 8 prior actions was assessed in the course of
a joint review by JBSF DPs of government performance against JAF 1, which was conducted
during December 7-14, 2009. Further appraisal and policy dialogue on pending prior actions was
undertaken until August 2010. The joint review concluded that government had met the two prior
actions under public expenditure management and public financial management and all the prior
actions in the service delivery sectors (health, education, water and sanitation, and transport). The
government initially faced some challenges with the implementation of public service reforms.
The originally agreed prior action on results oriented management (“Single framework for
Results Oriented Management (ROM), Output Oriented Budgeting (OOB) and budget monitoring
agreed by MoPS and MoFPED and modality for attaching performance agreements to letters of
appointment agreed with the Service Commissions”) could not be met. This prior action was
hence dropped with a corresponding reduction in the proposed credit amount. Furthermore, there
have been setbacks in the government‟s efforts to develop a procurement amendment bill that is
consistent with international best practice. This originally agreed prior action was hence dropped;
also with a corresponding reduction in the proposed credit amount.

66. The use of PRSC as an effective instrument in the outer years and in the new CAS period
will depend on performance early in the series. There will be careful and regular assessment of
relevance and effectiveness of this instrument.

18
Table 2: Prior Actions under PRSC 8 Progress to Date

Area PRSC 8 Prior Actions Status of PRSC 8 Prior Actions

Budget (a) Actual annual budget releases for the Prior action met. At sector level, performance
Credibility sum of conditional grants to each of the averaged 99.7% in 2008/09 budget execution.
four JBSF sectors (health, education,
water and sanitation, and roads) were at
least 95% of the corresponding approved
budget allocations for the Fiscal Year
2008/2009; (b) budget releases for the
sum of recurrent wage expenditure
across the four sectors, the sum of
recurrent non-wage expenditure across
these sectors, and the sum of
development expenditures across these
sectors were in each case at least 95% of
the corresponding approved budget
allocations for the Fiscal Year 2008/2009
Releases from the treasury to spending Prior action met. Quarterly releases have been
agencies are made on a quarterly instead instituted against submission of work plans.
of monthly basis, through the end of the
first quarter of Fiscal Year 2009/10

PFM Develop format for performance Prior action met. Formats completed and
Compliance agreements for accounting officers issued.
(including Chief Administrative
Officers) with an incentive and penalty
system for non compliance with PFM
regulations 17

Procurement Procurement performance indicator Prior action met. Procurement performance

Compliance framework agreed and baseline data indicator framework agreed and piloted in 15
available MDAs. Baseline indicator data collected and
report completed.

Performance Adoption by Government of the Prior action met. The framework has been
of Public framework for attracting and retaining completed and adopted.
Servants public officers in Hard-to-Reach Areas

Health Establish Human Resources for Health Prior action met. The system has been
Management Information System to established.
provide information on levels and
distribution of the health workforce

Education Sign performance contracts with at least Prior action met. The contracts with
90 percent of all head teachers in the 12 customized performance targets have been
districts with the weakest education agreed and signed in the respective districts.
sector indicators (covering customized Training in the new practice as the first step in

17
The enforcement of this penalty system is key for compliance and accountability. It will be crucial to follow
up on the coherence between performance contract A, the ROM system, and any new measures coming from
MoPS.
19
 Area PRSC 8 Prior Actions Status of PRSC 8 Prior Actions

performance targets) implementation is being provided.

Water and Make Community Based Maintenance Prior action met. Water User Committees are
Sanitation Systems (CBMS) Water User now actively functioning in 68% of districts.
Committees actively functioning in at
least 50% of districts, and within these
districts on average at least 40% of water
points are covered by Water User
Committees
Transport Road Fund Board and Executive Prior action met. The Road Fund Board was
Director appointed appointed in April 2009 and the Executive
Director in September 2009.

Cabinet approves policy on Prior action met. The policy was submitted to
strengthening of national construction Cabinet in September 2009 and approved in
industry February 2010.

20
Box 1. Good Practice Principles on Conditionality
Principle 1 — Ownership
Uganda has been a pioneer in country ownership of its development strategy. In 1997, Uganda‟s first
Poverty Eradication Action Plan (PEAP) provided the model for PRSPs worldwide, and it has since
been revised twice. The current government program is contained in the third PEAP, which was
approved by the Cabinet in November 2004 following broad consultations. The PEAP, which has
been transformed into a five year National Development Plan, has been important in shaping sector
wide approaches to investment and reform, and the Bank has played a supporting role in this process,
including via its analytical work.
Principle 2 — Accountability
Donor harmonization and alignment with government priorities is advanced in Uganda. Government
developed an annualized policy action matrix for the third PEAP and requested that development
partners use the PEAP matrix and the findings of the Annual PEAP Implementation Review to
determine their assistance. In addition, the PEAP matrix was used by sectors to develop the sector
investment plans and the budget framework papers (BFPs). The budget support donors, including the
Bank, have developed a Joint Assessment Framework (JAF) anchored on the PEAP and BFPs. The
JAF, which was endorsed by the government on October 5, 2009, formalizes and builds on the
existing collaborative arrangement under the PRSC.
Principle 3 — Country circumstances
Policies supported by the PRSC represent actions that the government believes will lead to the
desired NDP outcomes, and thus reflect country preferences. They are selected from the NDP, the
sector strategies, and annual budget framework papers. The 2009 Country Assistance Strategy
completion review concluded that the PRSC is the single best vehicle for helping Uganda advance its
system-wide reform process, and for making progress on service delivery and crosscutting issues. The
government has said that it would like PRSC operations to be structured so that financing is approved
before the national budget is submitted to Parliament. The Bank and other development partners have
adjusted the JBSF and the PRSC timetable to further enhance funding predictability for budgeting
purposes and to feed PRSC discussions into the Joint Assessment Framework.
Principle 4 — Choose only actions critical to achieve results as conditions for disbursement
Prior actions for PRSC8 are drawn from the JAF 1, and form the foundation for a three-year
programmatic cycle of budget support. Subsquent prior actions have been carefully aligned to those
in PRSC 8 to allow for a reasonable policy reform period. The PRSC triggers represent actions and
outputs that government considers critical to the success of its reforms. Several of the PRSC prior
actions are based on satisfactory completion of undertakings agreed to in existing sectoral review
processes (such as in education), thus avoiding creation of new and overlapping review structures and
indicators. However, the Bank, jointly with other development partners under the JBSF arrangement,
continues to provide important input to the sector review process to improve prioritization and
outcome-orientation.
Principle 5 — Conduct transparent progress reviews conducive to predictable and performance
based financial support
The PEAP policy matrix served as the basis for the first Annual PEAP Implementation Review,
conducted in February 2007, and guided policy analysis, budget prioritization, work planning,
performance assessment, and development partner dialogue. The development of the NDP benefitted
from these assessments. Furthermore, the Joint Assessment Framework under the JBSF, is assessed
on an annual basis drawing on GoU‟s own performance reports, and the assessment findings are
discussed with government. The findings inform the design of government‟s budget framework
papers and future JAFs.

21
 POLICY AREAS

POLICY CLUSTER 1. REFORMS IN PUBLIC EXPENDITURE MANAGEMENT, PUBLIC

FINANCIAL MANAGEMENT AND PUBLIC SERVICE MANAGEMENT THAT IMPROVE SERVICE
DELIVERY

67. Weaknesses in Uganda’s administrative and economic governance system are

widely recognized as one of the key binding constraints to improving service delivery
quality. To address these weaknesses the PRSC series works at two levels: transversal measures
address constraints deriving from systemic governance issues (Policy Cluster 1). Such measures
cover six areas: budget credibility, financing at service delivery level, public financial
management, public procurement, performance of public servants, and anti-corruption measures,
with performance management as a common strategy. Sector specific reform measures in
education, health, water and sanitation, and transport address constraints in individual policy
areas (Policy Cluster 2).

68. The government has been working toward a performance based public management
system. The Result Oriented Management (ROM) initiative is being led by MoPS and provides
an enhanced performance appraisal system. A complimentary initiative, the Output Oriented
Budgeting (OOB) initiative, introduced by MoFPED, is putting in place output level performance
indicators for institutions, linking output targets to budget allocations. These two systems need to
be linked. Transforming a public sector that operates through input controls (whether it is on
human resources or budget) into a performance-based system that combines managerial
flexibility with accountability for results is a complex process that will take time.

69. Performance management is a central theme of the proposed PRSC and requires
careful phasing. Therefore, Uganda is using the platform approach that structures the
implementation of performance management reforms, with an emphasis on removing binding
constraints to performance. Progression to the second and third phases (including more
managerial flexibility and changing reporting modalities) will proceed only when the actions
under the first platform are completed.

Component 1.1. Budget Credibility

70. There were three prior actions in the past PRSC series: (i) a ceiling on public spending in
line with the budget; (ii) a floor on Poverty Action Fund (PAF) implementation (within
95 percent of budget); and (iii) an anticipated decline in the share of public administration. The
new PRSC series shifts focus to value for money in sector programs.

71. Poor budget predictability has been preventing managers from adhering to work
plans. Late release of funds from MoFPED to line ministries means that budgets cannot be fully
spent by district governments and service providers. Cuts to the development budget and the
possibility of cuts to priority areas during the budget year also undermine predictability.
Supplementary budget reallocations (and in some areas, budget augmentations) change priorities
during the year and undermine service delivery. The PRSC is in support of government efforts to
improve budget predictability by reducing the frequency of releases from the treasury to spending
agencies from a monthly to a quarterly basis, on the basis of submitted work plans and
procurement plans.

22
72. Transfers to local governments have not matched the growth in demand for services
- in particular, the non-wage allocations are inadequate. The 2007 PER18 showed that non
wage budgets for schools, hospitals and clinics have been constant in nominal terms, implying a
drop in real per capita funding and presumably a drop in service quality. Total district education
and health budgets have been rising because Uganda has been hiring more teachers and health
workers and, in effect, indexing their pay rises to nominal GDP growth. While the PAF may have
ring fenced sector allocations, PAF targets were met through increased health worker and teacher
staff unit costs. To begin addressing the under-funding of district non-salary budgets and
facilitating more effective frontline service delivery, the PRSC includes a prior action aimed to
safeguard non-wage recurrent and development expenditure in the four target sectors.

73. There is scope to enhance efficiency in district services. The PRSC series proposes
new efficiency measures based on analytical work supported by the Bank. They are as follows.

(a) Shift the budget in favor of service provision by: reversing underfunding of district non
salary budgets; controlling employee costs in central ministries and agencies relative to
front line service delivery, while ensuring adequate capacity at the center to support front
line services; reduce overheads; examine the use of „grants to semi-autonomous
institutions‟; to stop the rise in recurrent spending hidden in the development budget; and
improve predictability of the sector ceilings in the MTEF and reduce reliance on
supplementary budgets;

(b) Analyze the affordability of new policy commitments by: keeping pay raises selective for
certain grades in order to retain good performers;

(c) Limit pay raises until there is reform of the government pension scheme; and

(d) Realize efficiency savings by improving inter- and intra-sectoral allocations, which can then
be channeled into core sectors19 (specific sector efficiency savings are discussed under
Policy Cluster 2).

74. The PRSC therefore supports reforms to reduce the variance between approved and
executed budgets. It emphasizes budget preparation and coordination between central and local
government levels. To this end, MoFPED has begun to release funds quarterly instead of
monthly, on the basis of submitted work and procurement plans.

Prior actions for PRSC 8:

 (a) Actual annual budget releases for the sum of conditional grants to each of the four
JBSF sectors (health, education, water and sanitation, and roads) were at least 95percent
of the corresponding approved budget allocations for 2008/09; (b) budget releases for the
sum of recurrent wage expenditure across the four sectors, the sum of recurrent non-wage

18
Uganda: Fiscal Policy for Growth, 2007.
19
Relative to many countries, Uganda‟s budget has quite a high share of core sector spending. Including donor
funded projects, about 60 percent of Uganda‟s non statutory public expenditure in 2008/09 set out in the MTEF
goes to Roads, Health, Education, Agriculture, Energy and Water. Despite increases in Defense and Public
Administration spending in recent years, other sector allocations still account for less than one fifth of the
spending in „priority‟ sectors.
23
 expenditure across these sectors, and the sum of development expenditures across these
sectors were in each case at least 95percent of the corresponding approved budget
allocations for 2008/09.
Status: Prior action met. At sector level, performance averaged 99.7 percent in 2008/09 budget
execution.
 Releases from the treasury to spending agencies are made on a quarterly instead of
monthly basis, through the end of the first quarter of 2009/10.
Status: Prior action met. Quarterly releases have been instituted against submission of work
plans.

Proposed trigger for PRSC 9:

 Pilot alignment of work plans with cash flow and procurement plans in four JBS sectors
for 2010/11 budget.

Component 1.2. Funding at Service Delivery Level

75. The Local Government Act enacted in 1997 transferred the responsibility for basic
service delivery functions to local governments, 20 but progress toward fiscal
decentralization has remained slow. Although LGs execute a considerable share of the
respective sector budgets for provision of these services, a number of recent policy shifts are
raising concerns about government‟s broader commitment to fiscal decentralization. These
reforms include the abolition of a major source of local governments‟ own revenue, i.e., the
graduated tax; payment of political leaders from the consolidated fund; centralization of the Chief
Administrative Officers and Town Clerks; high conditionality on the use of transfers from central
governments; and creation of more districts. These reforms indicate a reorientation toward
deconcentration and have presented challenges to the government‟s policy of decentralization by
devolution. A review is needed, with a view to arriving at a clearer policy framework.

76. However, efforts to strengthen local government capacity to deliver public services
are underway. The block grant transfers, which provide un-earmarked funds for LGs, were
piloted under the first Local Government Development Program (LGDP) with funds from the
Bank. They were subsequently rolled-out nationally under LGDP II with financial support from
the Bank and other bilateral donors.21 These grants have now been mainstreamed in the
government national budget. Today the block grants, which are Ushs.63 billion and projected to
grow to about Ushs.112 billion by 2013/14, accounts for about 5% of central government
transfers to LGs. Under the Local Government Management and Service Delivery Project
(LGMSD) funded by the Bank, the capacities of the administrative cadres of LGs are being
strengthened through professional training in the areas of public administration, procurement,
accounting and auditing. Strengthening the LG system for improved service delivery will
continue to be a priority under the PRSCs given the LG mandates under decentralization by
devolution, unless government significantly changes its service delivery policy in coming years.
It is also hoped that the proposed introduction of Regional Tiers above district level (bill is

20
Local governments are responsible for services including primary education, primary health care, feeder
roads, water and sanitation and agriculture extension.
21
DANIDA, Government of Netherlands, Government of Ireland, and Government of Austria.
24
currently before the Parliament), can help to stem the service delivery challenges created by the
proliferation of districts. The Bank will continue its policy dialogue with government in this
regard, and support government to articulate a clearer policy regarding inter-governmental fiscal
flows and decentralization.

77. At local government level, five performance issues have been identified that affect
service delivery. These include improvements in local governments‟ (i) budget cycle credibility
(see Component 1), (ii) own source revenue (supported under the broader JAF), (iii) coordination
of collection and processing of data on revenue and expenditures (addressed under PRSC 9), (iv)
inter-governmental fiscal transfers covering composition of the transfers and horizontal
allocation to reduce inequality amongst LGs (supported under the broader JAF), and (v)
coordination of inspection, monitoring and supervision (see Component 1.5). These issues were
identified within the context of the broader PFM and PSR dialogue and are intended to eliminate
the constraint to service delivery in LGs. Furthermore, with support under the JAF, government
has committed to conducting a study on financing of LGs. Its findings will provide triggers for
subsequent PRSC operations.

Proposed Trigger for PRSC 9:

 MoFPED to develop and implement a system for the consolidation and analysis of
quarterly Form B reports, in order to provide aggregate and in-year information about LG
expenditures and outputs.

Component 1.3. Compliance with Public Financial Management Regulations

78. While Uganda has an elaborate system of PFM rules and regulations, a major
challenge has been weak compliance with these rules. A key to improved compliance is
holding senior officials accountable for PFM performance. To this end, PRSC 8 supports efforts
by MoFPED to put in place a penalty and rewards system for ensuring improved compliance with
PFM systems in performance contracts with accounting officers. PRSC 9 will roll-out the
existing performance contract (prior action), while simultaneously working to strengthen the
current PFM regulations and then incorporate the revised regulations into the performance
contracts to ensure that accounting officers can be held to account for poor PFM compliance.
PRSC 10 will then focus on updating the performance agreements and ensure their enforcement
in case of breach of PFM regulations (trigger).

79. Strengthening internal and external audit capacity can also improve compliance.
The Internal Audit Department in MoFPED currently reports to the Accountant General, which
undermines its independence. Under PRSC 8 and 9, MoFPED has undertaken to achieve
functional independence for the internal audit department by ensuring that it reports directly to
the Permanent Secretary. Subsequent PRSCs will support the internal audit department to achieve
independence under the public finance law. The Internal Audit Department is also being
supported to pilot risk-based auditing. Subsequent PRSC periods would see the roll out of this
system across the central government and local governments. In parallel, the PRSC 10 supports
the National Audit Office to shift to risk-based auditing, initially on a pilot basis, and
subsequently rolled out across government.

80. The Inspection Unit of MoLG is effective in enforcing improved compliance with
regulations and has agreed to provide details on administrative action taken against local
25
government officials on an annual basis at Public Expenditure Management Committee
(PEMCOM) meetings. Parliamentary accountability committees such as the Public Accounts
Committee (PAC), the Local Authorities' Accounts Committee and the Committee on Statutory
Authorities and State Enterprises have been strengthened and are now more effective. These
changes are expected to impact the overall compliance environment in a positive way in the
country.

Prior action for PRSC 8:

 Develop format for performance agreements for accounting officers (including Chief
Administrative Officers) with an incentive and penalty system for non compliance with
PFM regulations 22
Status: Prior action met. The formats have been developed, agreed and issued.

Proposed Trigger for PRSC 9:

 Sign performance agreements with all Permanent Secretaries and Chief Administrative
Officers 23and monitor performance

Component 1.4. Compliance with Public Procurement Regulations

81. Strengthened compliance with the public procurement law is central to improving
value for money and budget absorption and lies at the core of the fight against corruption.24
Uganda‟s procurement reforms, implemented since 2001, culminated in the enactment of the
Public Procurement and Disposal Act of 2003. The Act decentralized procurement to the
spending agencies through Procurement and Disposal Units (PDUs) and established the Public
Procurement and Disposal of Public Assets Authority (PPDA) as the procurement oversight
body. Implementation of the 2003 Act exposed inadequate mechanisms for its enforcement.

82. PRSC 7 and 8 support government efforts to amend the Procurement Act to make
public procurement more efficient and to strengthen enforcement mechanisms. Under
PRSC 7 a set of principles were submitted to Cabinet that addressed the defects in the 2003
Procurement Act and laid the basis for the development of a Procurement Amendment Bill.
Subsequently, the originally agreed PRSC 8 prior action aimed to support the government to
submit this Procurement Amendment Bill to Parliament and ensure that it would meet
international best practice in promoting transparency and value for money. However, in the
course of the discussion of the Bill, government included a clause that introduced force account
as an accepted procurement method without any restriction on its application. This could
compromise value for money in public works25 and could stifle the development of the local

22
The enforcement of this penalty system is key for compliance and accountability. It will be crucial to follow
up on the coherence between performance contract A, the ROM system, and any new measures coming from
MoPS.
23
The signed agreements confirm performance contractual obligations between the Head of Public Service and
Permanent Secretaries; and between Ministry of Local Government and Chief Accounting Officers. The
agreements bind them on the fulfillment of PFM rules.
24
Over 50 percent of the government budget is expended through public procurement.
25
This is due to the risks of (i) poor maintenance and misuse of force account resources such as equipment,
spare parts and materials, (ii) conflict of interest problems as the government is both client and supplier, which
26
construction sector. In response to concerns about unrestricted use of force account, the
government has prepared a draft regulation specifically on force account that restricts its
application to district roads, urban roads where the local government is unable to attract
contractors, and to emergencies that need prompt attention and there are no contractors that are
readily available to undertake the works. Government has committed in writing to issuing these
regulations once the amendment to the Procurement Law is effective. Given the slow progress,
the originally agreed prior action has been dropped. Under PRSC 9 the Bank will continue to
support the government‟s efforts to strengthen the regulatory framework for public procurement.

83. Beyond the need to strengthen the legislative framework for public procurement,
government faces key implementation challenges:

(a) Compliance with and enforcement of the law is still weak. Under PRSC 7, PPDA reviewed
1,000 procurement contracts to assess the extent of compliance against key criteria in the Act.
It found that less than 30 percent of the contracts reviewed were fully compliant with the Act.
The low compliance is perpetuated by the lack of action on identified cases of
significant/material non compliance identified by audits. Such action would set an important
precedent and discourage other stakeholders from breaking the law. Without proper
enforcement, the law cannot meet its objectives.

(b) Procurement planning is still inadequate in guiding budget execution. Whereas procurement
plans are now prepared, they are still viewed as an administrative compliance requirement
rather than as a planning and management tool. This is shown by the significant deviation
between actual and planned procurement in terms of volume, timing and types of activities
undertaken, and the lack of alignment with work plans and cash plans. In the absence of
adequate procurement planning, spending units experience cash crunches or end up with idle
balances. This hinder effective budget execution and results in accumulation of arrears or
unplanned purchases.

(c) The government needs a system for measuring performance in public procurement. This is
essential to ensure systematic monitoring of the (i) efficiency of the public procurement
system, (ii) extent to which value for money is being achieved, (iii) extent of compliance
with the procurement law, and (iv) transparency of public procurement. To this end, the
PPDA has developed and tested a procurement performance indicator framework, supported
under PRSC 8. Information collected through this framework will be used by PPDA for the
purpose of reporting to the MoFPED and other integrity institutions and will also be shared
with development partners as the basis of for the JBSF performance assessment.

(d) Procurement capacity in the entities is still weak. Capacity building is still required to
improve the capabilities of the procurement institutions. In this regard the PPDA is
developing a Procurement Capacity Building Program that will ensure rapid scale-up of
procurement training, to be supported by a trigger under PRSC 9.

commonly leads to inefficiencies and uncompetitive practices, and (iii) high equipment maintenance and
operational costs eating into maintenance budgets and diverting resources from the actual works to be done. .
27
Prior action for PRSC 8:

 Procurement performance indicator framework agreed and baseline data available

Status: Prior action met. Procurement performance indicator framework agreed and piloted in 15
Ministries, Departments and Agencies. Baseline indicator data collected and report completed.

Proposed Trigger for PRSC 9:

 Revision of Procurement Regulations and Guidelines in line with the revision to the
PPDA Act and meeting international best practice.

Component 1.5. Performance of Public Servants

84. The PRSC/JAF prioritizes three public sector reform areas that can contribute to
improved service delivery efficiency and equity. These include: (i) the inequitable distribution of
public servants across the country; (ii) weaknesses in the inspection and disciplinary system for
public servants; and (iii) the roll out of performance management tools and pay reforms.

85. The Government of Uganda lacked a clear and transparent human resources policy
on geographic areas that are ‘hard to staff’.26 Performance in key sectors can improve only if
public service positions are evenly staffed across the country. While some central areas staff up
to 85 percent of available positions, vacancy rates are as high as 80 percent in other places. While
the underlying reasons for this situation are complex27 failure to resolve this problem would
make further work on PSM and PFM futile. Thus, the adoption and implementation of a policy to
address uneven service provision should be an immediate measure. The Ministry of Public
Service has completed and adopted a framework to redress the near absence of public services in
these areas. Implementation will commence in fiscal year 2010/11.

86. There is a need to address anomalies in the inspection and disciplinary system.
Absenteeism and „part-timerism‟ are prevalent in part due to the virtual collapse of the inspection
system, a result of organizational weaknesses as well as years of underfunding. The convoluted
disciplinary process in public service, which errs on the side of extreme protection of workers,
even in cases of extremely poor performance, is another important factor. The issue can be
addressed by redefining inspection procedures, establishing performance targets for inspectors,
creating an organizational review of the system (in particular in health), and simplifying
disciplinary procedures. To complement the PRSC, a series of actions and targets in the JAF aim
to strengthen the inspection system.

87. The enhancement of performance management tools and the reform of payroll and
wage systems are longer term reform priorities. The government is addressing performance
management through various mechanisms, such as the results oriented management system and
output oriented budgeting. Actions under this section (supported in PRSC 9 and 10) will thus

26
The term „hard to reach‟ is usually used, but „hard to reach‟ does not really capture the complex of reasons
why vacancy rates in some areas are four to five times the national average.
27
See: Republic of Uganda, Ministry of Public Service, Pilot Study on Human Resource Management
Assessment using Actionable Governance Indicators, 2009
28
focus on strengthening existing performance management instruments, as well as the elaboration
and rollout of performance agreements and the enhancement of current appraisal mechanisms. In
subsequent years, this will be paired with improved performance rewards, such as modification
of the existing system of salary increments, or through the introduction of variation in pay levels.
The current wage system does not capture the complexity of professional systems (in particular
in the health sector) and is not well attuned to labor market dynamics. These are some of the
causes of high vacancy rates and absenteeism/part-timerism. However, wage system reform will
need to be phased in gradually. Thus, the initial emphasis will be on more effective payroll
management through the implementation of the Integrated Personnel and Payroll Management
System (IPPS), which should help to free up resources for future wage improvements.

Prior action for PRSC 8:

 Adoption by Government of the framework for attracting and retaining public officers in
Hard to Reach Areas.
Status: Prior action met. The framework has been completed and adopted.

Proposed Trigger for PRSC 9:

 Single framework for Results Oriented Management (ROM), Output Oriented Budgeting
(OOB) and budget monitoring adopted by MoPS and MoFPED, including a modality for
attaching performance agreements to letters of appointment adopted.

Component 1.6. Accountability and Anti-Corruption

88. Uganda’s efforts to fight corruption and improve governance have been embedded
in a national strategy (NACS). The country has put in place new institutions to fight corruption,
modified the law legislation and implemented reforms at the central and local government level
in finance and procurement. These have been complemented by reforms in the public sector to
improve accountability.

89. Under the previous PRSC series, the Bank’s support to governance and anti-
corruption initiatives focused mainly on supporting the implementation of the NACS. This
enabled government to put in place the basic legal and institutional framework and has continued
to build on the strategic framework through the formulation of the third NACS (2008-2013) and
the Accountability Sector Investment Plan 2008-2013.

90. Uganda continues to perform poorly in controlling corruption, despite the various
reforms. The Worldwide Governance Indicators show a decline in control of corruption between
2004 and 2008, with Uganda rated in the 23rd percentile in 2008. Recent studies (PER for
Education and Health Sectors 2007, 2008; and Actionable Governance Indicators (AGI)
assessment for health and education 2009) show many governance challenges.28 However,
government‟s efforts to tackle grand corruption has been slow in recent years, as evidenced by
the delays in taking administrative action following audit findings related to the 2007
Commonwealth Heads of Government Meeting (CHOGM), which identified over US$25 million

28
Elements of the government‟s accountability agenda are reflected in the PFM and the PSM matrices. A
separate matrix has been developed for this area and will be introduced at the point of the first annual review.
29
of inappropriate and irregular expenditure. This limited response to corruption has been one of
the weakest areas in the government‟s performance under the JAF. The Parliamentary Accounts
Committee (PAC) has completed hearings regarding the CHOGM audit findings. Findings of the
Committee will be debated in the full House of Parliament and government has committed itself
to refer those found guilty to the Courts of Law. Furthermore, MoFPED, in collaboration with
other agencies, has developed a CHOGM action plan which includes administrative sanctions,
plans for recovery of lost funds, and strengthening of procurement and PFM systems going
forward, and has begun implementing the agreed actions.

91. Critical performance needs include: (i) systems improvements under the PFM to reduce
the opportunities for corruption; (ii) strengthening inspectorate functions to detect
noncompliance, including financial crimes; (iii) improved follow up on audit findings through
more effective administrative and judicial sanctions; and (iv) more public demand for
accountability through a focus on transparency measures.

92. The above performance issues are being addressed through this PRSC series
through support to reforms in PFM, procurement and PSM that will strengthen public
accountability and performance-based management. Development partners are currently
providing assistance to establish a measurement framework to track corruption trends and
identify strategic priorities for their engagement with government on corruption.29 The
government and development partners are also agreeing on a set of administrative actions that
can be taken to recover funds lost during CHOGM and improve systems to reduce future similar
PFM breaches. The government has announced its intention to demonstrate progress against this
action plan by October 2010.

Proposed trigger for PRSC 9:

 Develop and agree upon a measurement framework (Data Tracking Mechanism),

including indicators, for improved tracking of corruption trends.

29
This prior action directly addresses one of the recommendations of the IEG Country Assistance Evaluation
2001-2007, namely, to put in place a governance framework to measure progress in governance, transparency
and accountability.
30
POLICY CLUSTER 2: IMPROVING VALUE FOR MONEY IN PUBLIC SERVICE DELIVERY
SECTORS

Component 2.1. Health

93. Although cost effective interventions exist for most diseases, Uganda’s resources are
insufficient to apply them nationally.30 Coverage for most interventions remains low and the
disease burden is high. In addition, Uganda‟s health care system faces spending constraints due
to the pressures of rising HIV/AIDS prevalence, rapid population growth, newer, effective health
technologies, and proliferation of districts raising overall management and supervision costs.
This is coupled with low funding in the limited allocation discretion because of earmarking
through the wage bill, project support and conditional grant transfers. A large portion of external
funding is off budget and skewed to a few programs, notably HIV/AIDS. The very low level of
non wage recurrent budget has grossly limited availability of funds for operations.

94. Lack of drugs is a major cause of poor health outcomes. This problem is not only a
resource issue, but one of management. For example, a high proportion of the drugs allocated for
hospitals are lost to waste, corruption and poor logistics. Responding to the problem, government
decided to pre-finance the National Medical Stores (NMS) by transferring funds originally
earmarked for drugs in districts and hospitals to NMS from October 2009. The modalities for the
pre-financing of NMS are under discussion and will include a performance agreement between
NMS on one side and MoH, MoFPED and MoLG on the other side, to be supported by a
proposed PRSC 9 trigger.

95. Uganda’s population growth and total fertility rates remain among the highest in
the world, putting the health of mothers and their children at risk and contributing to
increased household poverty. Uganda has one of the highest unmet needs for family planning
services at 41 percent. While HIV/AIDS prevalence declined from over 15 percent in 1990 to 6.2
percent in 2000, there is increasing evidence that the infection rate may be rising again. Apart
from progress in curbing the spread of HIV/AIDS and other major communicable diseases, it is
unlikely that Uganda will achieve MDG targets 4 and 5 on reducing child mortality and
improving maternal health, respectively.

96. Health reforms started in 2000. Their objective is to reduce illness and mortality
through delivery of a package of essential health services. Their operational goal is to improve
access to and coverage of health services through a focus on health units at the sub-district level,
which involved upgrading selected health centers (HC IVs) to provide emergency obstetric and
surgical care and constructing selected health centers in underserved areas. The reforms
rationalized drug financing through creation of a drug credit line, strengthened public private
partnership, and recruited more qualified health workers.

97. Uganda’s success in health reforms is mixed. There has been notable progress in
access, coverage and utilization of health services, with an increasing share of the population
residing within a five kilometer radius of a health center, rising outpatient utilization of health
services, improved immunization coverage, some gains in recruitment of qualified health

30
Health expenditure per capita is US$28 (of this, approximately 30 percent is government expenditure, 30
percent is off-budget donor project expenditure, and 40 percent is out-of-pocket expenditure).
31
workers, as well as increased access to and utilization of malaria and HIV/AIDS related
interventions. Infant mortality, under five mortality, maternal mortality, and malnutrition rates,
which for over two decades had stagnated, have recorded improvements. On the other hand,
suboptimal progress was made on assisted deliveries, drug and health supplies availability,
sanitation and environmental hygiene, implementation of the village health team concept, and
functionality of HC Type IV. It should be noted that performance in the health sector is
dependent upon performance in other sectors.

98. The PRSC supports health reforms to improve: (i) human resource management, (ii)
drug procurement, and (iii) health financing, which is expected to improve health outcomes over
time. Owing to weak personnel management, the health workforce is characterized by low
motivation, inequitable health personnel distribution, high rates of attrition and absenteeism, and
difficulties with attraction and retention of health workers in remote and hard to reach/hard to
staff (HRT-HTS) districts. Moreover, the private not for profit (PNFP) health workers have
continued to migrate to government employment because it offers relatively better salaries, which
depletes the PNFP subsector and undermines the entire health sector. These HR problems
significantly reduce the health sector‟s capacity to deliver timely, adequate and relevant services.
The PRSC supports government efforts to improve human resource management for health
through the introduction of a Human Resource for Health Management Information System,
which will provide clear data on levels and distribution of the health workforce. In an effort to
ensure equitable distribution of health personnel, a HTR-HTS policy is being developed under
the leadership of MoPS (see component 1.5) with the goal of giving sectors the tools and
flexibility to attract personnel to remote regions.

Prior action for PRSC 8:

 Establish Human Resources for Health Management Information System to provide

information on levels and distribution of the health workforce.
Status: Prior action met. The system has been established.

Proposed trigger for PRSC 9:

 Develop and implement guidelines to streamline distribution of drugs by NMS under the
pre-financing arrangement. This will include instituting a performance agreement
between NMS on one side and MoH, MoFPED and MoLG on the other.

32
 Component 2.2. Education

99. Uganda’s Universal Primary Education reform program was launched in 1997 and
has since realized over 90 percent net enrollment in primary education (Figure 3). The
Universal Post Primary Education and Training (UPPET) program was launched in 2007 with the
objective of increasing access to lower secondary education. The reform saw a 44 percent rise in
Senior 1 enrollment between 2006 and 2007, but the low secondary gross enrollment level of
only 25 percent in 2007 (28 percent male and 22 percent female) compromises Uganda‟s
realization of its growth potential and sustainable socioeconomic development. While Uganda
has improved access to education, it is faced with a dual challenge of sustaining gains in access
while improving quality.

Figure 3: Trends in Primary Education Outcomes in Uganda, 2003-2008

100. Ongoing reforms to enhance quality of education include the primary education
curriculum review, which has been rolled out for the lower primary grades 1-3, with an
emphasis on literacy and numeracy proficiency. Teachers have received extensive in service
training to support their effective delivery of the reformed curriculum. The primary teacher
education curriculum review exercise is also on course.

101. The proposed operation addresses four impediments to effective education: (i)
inequitable teacher deployment; (ii) high head teacher and teacher absenteeism; (iii) inadequate
instructional materials; and (iv) insufficient and ineffective community participation.

102. Efficient distribution of qualified teachers is essential for gains in equity and
quality. Variations in district pupil teacher ratios range from 36:1 in Moroto and Nakasongola
Districts to 96:1 in Pader District. A major cause of this inequity is the difficulty of recruiting and
retaining teachers in remote poor districts – these are the hard to reach/hard to staff (HTR-HTS)
areas. This implies that poor and remote districts have limited capacity to attract teachers, which
leaves many teacher positions vacant.

33
103. The PRSC supports the Ministry of Education and Sports (MoES) in analytical
work on education staffing to inform an HTR-HTS strategy. At MoPS-level (see component
1.5), the PRSC supports government‟s adoption of a broader hard to reach area policy, which will
give ministries the flexibility to provide incentives for personnel to work in hard to staff
locations. Performance will be measured by a falling vacancy rate in hard to staff locations, in
proportion to non hard to staff locations. Proposed triggers for future operations focus on
implementation of the adopted HTR-HTS policies and the development of teacher rationalization
and deployment policies for districts and schools.

104. Teacher absence is the main source of waste in public education and is a major
obstacle to quality education. A 2006 survey through unannounced visits to 160 schools found:
(a) daily head teacher and teacher absenteeism of 27 percent and 19 percent, respectively; and (b)
fewer than 20 percent of paid teachers who were present in school were in class teaching. Low
teacher motivation is one of the underlying reasons for teacher absenteeism in spite of a 30
percent premium on public sector teachers‟ salaries compared to teachers in private schools.
Added to this is the limited teacher supervision at the school levels by the head teachers or the
district inspection division. The public sector ineffective rewards and sanctions regime
discourages head teachers from disciplining absent teachers.

105. The PRSC supports MOES efforts to combat absenteeism through a prior action to
introduce Customized Performance Targets (CPTs) for head teachers. The CPT initiative
started in 2008/09 and is intended to strengthen management and supervisory roles of head
teachers within the broader framework of the decentralized personnel management function. The
CPTs are signed between the head teachers/deputies and the Chief Administrative Officers
(CAOs) of respective districts. They aim to streamline supervisory roles and annual targets that
have to be met by these school administrators. This initiative needs to be integrated in the public
sector performance management system for it to be efficiently managed. However, performance
arrangements, especially in relation to rewards and sanctions, cannot be enforced without MoPS
implementation of corresponding changes in national frameworks for performance monitoring
(addressed under components 1.3 and 1.5).

106. Textbooks and reading materials are necessary for quality education at all levels.
Resources for procurement of instructional materials (textbook and non-textbook) have not
matched enrollment expansion. In order to improve availability and use of instructional materials
in schools, a proposed PRSC 9 trigger supports government‟s commitment to allocating at least 8
percent of the non wage budget for the primary education subsector for instructional materials‟
procurement starting FY 2009/10.

107. Community involvement in, and oversight of, education is important for effective
school management. The appointment of School Management Committees (SMCs) has been
fully decentralized to the district level, and SMCs are charged with planning, budgeting and
decision making over school operations in partnership with the school administration (head
teacher, deputy). Their authority includes control over school budgets and recurrent expenditures.
However, capacity and motivation of the SMCs remains weak, and the abolition of cash
payments to schools by parents has undermined the mobilization of local resources that could
compensate for shortfalls in budget allocation. Future PRSCs may contain actions intended to
strengthen the role and accountability of SMCs. Moreover, the PRSC supports the Ministry of

34
Local Government‟s efforts to map downward accountability mechanisms (supporting action, see
component 1.2) with a view to building a more effective local accountability system.

Prior action for PRSC 8:

 Sign performance contracts with at least 90 percent of all head teachers in the 12
districts with the weakest education sector indicators (covering Customized
Performance Targets).

Status: Prior action met. The contracts with Customized Performance Targets have been
agreed and signed in the respective districts. Training in the new practice as the first step in
implementation is being provided.

Proposed trigger for PRSC 9:

 Approve and implement a new teacher allocation formula to ensure equitable

distribution of teachers.

Component 2.3. Water and Sanitation

108. Uganda continues to make modest progress toward achieving targets on safe water
access and sanitation. Access to rural water increased from about 55 percent in 2000 to 65
percent in 2009. The 2015 MDG and PEAP targets are 62 and 77 percent, respectively.
Sanitation coverage has increased from 49 percent in 1997 to 68 percent in 2009. The 2015 MDG
and PEAP targets are 72 and 80 percent, respectively. The functionality of water sources stands
at 83 percent. Hand washing with soap has risen to 22 percent in 2009 from 14 percent in 2008.

109. The water and sanitation sector is faced with challenges that undermine recent
gains. These include low functionality of water facilities in rural areas and water for production
facilities, owing to weak Community Based Maintenance Systems (CBMS), weak LG capacity,
weak private sector capacity, and poor quality of construction.

110. Unit costs of water delivery are rising, as a result of the need to extract water from
marginal areas where cheap technologies cannot be applied. Costs are also rising due to increased
costs of inputs, overdesign and preference for high technology options and weak local
government capacity to manage contracts. Furthermore, poor predictability of funding
availability and reduced economies of scale as a result of subdivision of districts are eroding
efficiency in spending.

111. Regulation of the urban subsector and water resources management is insufficient,
including compliance with and enforcement of the regulations. These problems are
exacerbated by the extreme centralization of some water resource functions, weak regulatory
frameworks, and poor compliance by large water abstractors. Unfilled positions in the
directorates of water development and water resources management contribute to slow
processing of application permits and enforcement, which weakens compliance with regulations.

112. Public spending on sanitation and hygiene is low, resulting in inadequate sanitation
facilities and services.

35
113. In response to these performance issues, the PRSC and the broader JAF has
prioritized core activities and reforms in the water and sanitation sector that are expected
to have the greatest impact on value for money. These are reinforced by crosscutting reforms
at central ministries. These include: (i) strengthened Community Based Maintenance System
(CBMS); (ii) improved Operation and Maintenance (O&M) of water for production facilities;
(iii) safeguarded budget allocations and streamlined PFM processes; and (iv) prioritization of
expenditure for sanitation services.

114. Government’s strategy for expanding rural water supplies is to improve support to
Community Based Maintenance System (CBMS). At present, water users are insufficiently
involved in facility maintenance, and there is a need for further training of water user and source
committees. Recognizing the centrality of community involvement in water and sanitation
provision, the PRSC 8 supports efforts by the government to build the capacity of Water User
Committees.

115. Low functionality of water for production is a major challenge. A recent survey
found that only 23 percent of facilities were functional. In response to this finding, government is
developing a new O&M framework with new options for maintenance, including the possibility
of maintenance contracts with private operators. The PRSC 8 proposes a trigger for PRSC 9 to
implement this O&M framework, with stronger engagement of the private sector.

116. The budget for water and sanitation is too small. The water and sanitation share of the
budget fell from 4.9 percent in 2004/05 to 2.4 percent in 2008/09. The intrasectoral allocation of
funds is inefficient, with decreasing allocations in real terms to frontline non wage expenditure,
such as O&M, support to CBMS, and replacement of facilities/components that have reached the
end of their lifespan. In addition, late releases of funds and unpredictable flows to frontline
service delivery units have affected the planning and implementation capacity in the water and
sanitation sector. These crosscutting constraints are addressed under PRSC component 1.1, which
supports reform efforts led by MoFPED to improve predictability of funding for ministries and
LGs through a move from monthly to quarterly releases and to safeguard budget allocations for
JBSF sectors. The PRSC results framework measure non wage expenditure in JBSF sectors and
timeliness of releases to ministries and LGs.

117. Sanitation remains a problem sector. An analysis of expenditures under the sector
conditional grants shows that a very small percentage of the money allocated in these grants is
spent on sanitation and hygiene promotion (only 4 percent of the water and sanitation grant and 2
percent of the primary health care and school facilitation grants was spent on sanitation). For this
reason, government has introduced new output codes for sanitation and hygiene, which enable
spending agencies to allocate funds directly to sanitation.

Prior action for PRSC 8:

While addressing the three key performance issues, the following prior action is also expected to
ensure improvements in the overall targets for the sector.

 Make CBMS Water User Committees actively functioning in at least 50 percent of districts,
and within these districts on average at least 40 percent of water points are covered by Water
User Committees.

36
Status: Prior action met. Water User Committees are now actively functioning in 68 percent of
districts.

Proposed trigger for PRSC 9:

 Implement framework developed in 2008/09 for Operation and Maintenance Management of

water for production facilities with involvement by the private sector.

Component 2.4. Roads

118. Uganda has given high priority to growth-enhancing infrastructure investments,

particularly roads. The budget for road maintenance and construction increased sharply in
2008/09, with further increases in 2009/10. However, while the budget was previously the
constraining factor, absorption capacity now must be increased to match the budgetary
provisions, and governance of the sector needs to be strengthened to ensure that the roads budget
is used efficiently.

119. The PRSC series will address five key performance impediments in the roads sector:
(i) inadequate maintenance caused by unpredictable funding and poor management of available
funds; (ii) inhibiting business environment for private road construction companies; (iii) axle
overloading of vehicles, leading to faster deterioration of roads; (iv) poor road safety; and (v)
procurement challenges.

120. Sustainable financing of road maintenance has been addressed by the legislation to
establish a Road Fund, passed by Parliament in June 2008. The Board of the Road Fund was
appointed in April 2009 and the Road Fund will be fully operational by FY2011. It is expected
that the initial contribution of the road user charges will not meet the requirements for backlog
maintenance. Hence, there will be a need for a dedicated budget allocation until the backlog
maintenance has been eliminated. In order to address management issues in the roads sector,
GoU embarked on a reform process that led to establishment of the Road Agency Formation Unit
(RAFU) in 1998. In May 2006, Parliament approved the bill for creation of an autonomous roads
authority, thus transforming RAFU into the Uganda National Roads Authority (UNRA). UNRA
became operational on July 1, 2008. However, its workload and pressure to deliver have been
greatly increased due to budget increases, thus there is an urgent need to increase its capacity.
This issue will be addressed through long term TA to UNRA.

121. Cabinet has approved a policy for the development of the local construction
industry. Recognizing that weak contractor capacity is hampering district road maintenance, the
policy prescribes capacity building measures, increased access to equipment, strengthened
cooperation with private sector associations, and improved regulation of the construction
industry. However, the anticipated impact of the policy may be hampered by the recent decision
to reintroduce the use of force accounts for district road maintenance, which will allow local
governments to procure equipment and hire personnel directly to undertake road works. This may
act as a disincentive to private investment in the construction industry. The Bank will continue to
provide technical advice and guidance to government to help it set in place appropriate
regulations and safeguards for the use of force accounts that will send the right signals to the
private sector and allow for its phase out once the national construction industry capacity has
been sufficiently strengthened.

37
122. Current regulations and axle load enforcement must be amended to protect roads.
The Ministry of Works and Transport (MoWT) will start a study on policy for axle load control.
Following recommendations of the study, the Traffic and Road Safety Act of 1998 will be
amended. This should guide government to formulate, endorse, and implement a new policy and
strategy to reduce axle overloading within a reformed road sector in the medium term. Policing,
legal follow-up and prosecution need to be addressed. Issues in fighting corruption in
enforcement of the road laws will also be studied.

123. Overall road safety is poor. High accident rates cause some 3,000 deaths per year,
attributable in part to poor condition of roads, poor enforcement of traffic rules, unsafe vehicle
conditions, poor driving behavior and insufficient traffic awareness education. Thus, the sector is
developing a National Road Safety Policy and Strategic Plan for implementation. Through
previous donor financing, Ugandan police were provided with equipment for enforcement of
traffic rules as well as appropriate training material for behavior change of drivers and traffic
awareness among primary school children. These actions, which are outside the control of the
sector itself, are deemed to be the cornerstones to improving the situation. Government has
recently begun drafting legislation to establish a Road Safety Authority.

124. Procurement planning and capacity is also a major challenge in the roads sector.
Inadequate procurement capacity results in poor absorption of resources and delayed
implementation of roads sector activities. Efforts to stem irregularities in procurement and
corrupt tendencies need to be stepped up. Measures addressed under Component 1.4 will play an
important role in strengthening procurement capacity within the transport sector.

Prior actions for PRSC 8:

 Road Fund Board and Executive Director appointed.

Status: Prior action met. The Road Fund Board was appointed in April 2009 and the Executive
Director in September 2009.
 Cabinet approves policy on strengthening of national construction industry.
Status: Prior action met. The policy was approved by Cabinet in February 2010.

Proposed trigger for PRSC 9:

 Baseline data established and M&E framework to measure sector performance is

operational.

38
 VI. IMPLEMENTATION

IMPLEMENTATION, MONITORING, AND EVALUATION

125. Implementation, monitoring, and evaluation of the PRSC is conducted through the Joint
Budget Support Framework, which is aligned with national processes. Government, through the
Office of the Prime Minister (OPM), leads implementation of the JBSF. The JBSF will be
managed through the existing government coordination framework for poverty reduction
reforms, which has four levels: the Cabinet level through the Policy Coordination Committee
under the Prime Minister; the Permanent Secretary level under the Head of Public
Service/Secretary to Cabinet; the technical level under the Permanent Secretary in the Office of
the Prime Minister; and in Sector Working Groups. A JBSF technical and policy taskforce is in
place, which meets frequently to oversee the JBSF.

126. The impact of reforms supported by the proposed PRSC 8 will be monitored as part of
the NDP results framework. The government monitors national outcomes and impact to assess
progress in achieving NDP objectives. Key monitoring mechanisms for poverty and sector level
outcomes include regular household, service delivery, integrity, enterprise, demographic, and
health surveys. The OPM manages a quarterly reporting mechanism at sector level that feeds into
an annual government wide performance report. At the accounting unit level, the MoFPED has
set up the Budget Accountability and Management Unit, which tracks how actual spending and
achieved outputs relate to approved budgets and planned outputs. Results are consolidated into
the annual Budget Performance Report.

127. Below the level of monitoring by OPM and MoFPED, sector performance is also
monitored through the Sector Working Groups, which coordinate closely with the JBSF technical
and policy dialogue taskforce. Government and the development partners assess the performance
of each sector annually, discuss emerging issues, and agree on new undertakings and quantitative
targets at Joint Sector Reviews.

128. Development partners in JBSF have committed to creating a Technical and

Administrative Support Unit (TASU), whose purpose is to collect data, evaluate impact, and
write studies relevant to the JBSF. TASU will be funded out of a multi donor trust fund and will
be fully operational by the beginning of FY11. The TASU will have a dedicated communications
officer who will ensure that the JBSF process and results are communicated to civil society.

POVERTY AND SOCIAL IMPACT

129. Poverty and Social Impact Assessments (PSIAs) have allowed government to analyze the
distributional impact of reforms. Earlier PSIAs include the abolition of user fees in health clinics
(2004) and the Strategic Exports Program (2003). A comprehensive poverty assessment was
undertaken in 2006 for the period 1992/93 to 2002/03. A PSIA on lands in northern Uganda was
prepared jointly by the Ministry of Lands and the World Bank, and a study entitled “Local
Government Revenue Policies and their Impacts: Model for Tanzania and Uganda” was
completed in June 2007.

130. Continuous assessment of the poverty and social impact of policies and activities is done
in Uganda‟s national monitoring system, in particular through the biannual household surveys
39
that analyze poverty trends and dynamics. These surveys are complemented by qualitative
participatory poverty assessments. The government is placing increasing emphasis on outcomes
in its monitoring frameworks and thereby provides direct information on the status of dimensions
of poverty, including gender related issues (for example, a baseline assessment on women and
land was completed in 2006).31 These outcome indicators are monitored based on a broad range
of surveys and administrative data systems. Government, supported by the World Bank, carried
out “Moving Out of Poverty” in 2005/06 as part of an international program to assess the
determinants of income mobility.

131. As part of the PRSC and JAF preparation process, the JBS development partners,
together with government, have reviewed the prior actions and triggers to determine possible
negative and positive distributional effects. As most of the measures are related to institutional
reforms to improve the efficiency and effectiveness of government spending, no adverse
distributional effects are anticipated and a complete PSIA was not deemed necessary. All prior
actions are designed to reduce the gap between service quality for the middle class and that for
the poor and to improve service access for marginal groups.

132. The prior actions for budget predictability and a move from monthly to quarterly releases
will improve the efficiency (in terms of results, e.g., access and quality) of pro-poor public
spending on health, education and water. The impact of these reforms on the poor is expected to
be wholly positive. The prior action supporting the development of a hard to reach/hard to staff
policy is expected to improve the equity of public spending, by increasing public sector staffing
in remote and socio-economically disadvantaged regions, and hence improve access and quality.
Support for the development of performance agreements for accounting officers is intended to
increase compliance with PFM regulations once the formats are introduced, thereby improving
the flow of funds to service delivery, and thus benefit the poor. The procurement prior actions are
likewise expected to increase value for money in public services and thereby strengthen the
quality of services for the poor.

133. The social sector prior actions are designed to increase equity in public spending.
Introduction of performance targets in education in 12 underserved districts will increase the
quality of education contributing to greater equity. Support for human resources for health
management information system will enable the Ministry of Health to better plan its human
resource strategies to serve poor areas. The increase in CBMS Water User Committees should
improve water access in rural communities, thus benefiting the poor. Support for the
operationalization of the Road Fund, which will directly receive funds raised from fuel levies
(and thereby depend less on a budget allocation from MoFPED), should improve the
predictability of funding for road maintenance, which will in turn improve the road network and
improve rural market access. The PRSC also supports a policy to strengthen the construction
industry which should lead to more cost-effective road construction and maintenance undertaken
by local contractors through stronger competition and greater national competencies.

134. The JBSF partners will fund analytic work, in some cases to be done jointly by both
government and external researchers, to monitor whether the positive distributional impacts
described above are occurring. If service delivery for the poor is not improving, additional

31
Republic of Uganda, Ministry of Water, Lands and Environment, Gender Monitoring Baseline Survey for the
Land Sector Strategic Plan in 20 Districts, 2006
40
analysis will be undertaken to identify key measures which could deliver this result. In
preparation for future operations, there may be a need for further PSIA work.

ENVIRONMENTAL ASPECTS

135. The PRSC‟s environmental impacts are expected to be positive, with some potentially
adverse effects in specific sectors. The positive impacts stem from general emphasis on good
governance, improved procurement and financial management, and other aspects of civil service
reform, such as improved staffing in hard to reach/staff areas and focus on results oriented
management. While the PRSC actions do not specifically target environmental institutions of the
civil service, e.g., the National Environmental Management Authority (NEMA), National
Forestry Authority (NFA), Environmental Liaison Units of sector ministries or environment and
natural resource (ENR) management offices of local governments, the general improvements of
the civil service are assumed to contribute positively to the capacity of these institutions to
deliver their services with respect to environmental planning, management, enforcement and
monitoring. The magnitude of this positive impact is uncertain, also because semi-autonomous
NEMA, NFA and the local governments operate with a greater degree of autonomy than the
more centralized parts from the national civil service, and may have different uptake of the civil
service reform actions supported by PRSC.

136. Positive environmental impacts will come from the PRSC focus on improving the
number and coverage of operational water user committees in districts. One of the core functions
of water user committees is improved management of water resources, including protection and
management of immediate surroundings of water points.

137. The positive impacts of the PRSC will be complemented by the environmental capacity
strengthening measures under two self-standing environmental operations, i.e., Environmental
Management and Capacity Building Project 2, and Protected Areas Management and Sustainable
Use Project.

138. The PRSC is not expected to result in major adverse, or irreversible, environmental
impacts. Potential environmental impacts are expected to be minor in education and health and
moderate in road and water/sanitation sectors, given the nature of sector activities, and can be
foreseen at this time only in a generic manner. The potential for land acquisition, resettlement,
and effects on cultural resources cannot be ruled out, but such effects are likely to be limited
given the emphasis on service delivery and will in any event be treated under Ugandan law,
which has been reviewed and found satisfactory.

139. Environmental impacts in the target sectors of education, health, and water and
sanitation, and roads will be addressed by appropriate Ugandan institutions, although experience
from investment operations in these sectors suggests less than adequate capacity and performance
in managing environmental impacts. This is particularly the case in the roads sector, where the
implementing agency (UNRA) is significantly overstretched and where the improved access to
forest areas may lead to increased deforestation and forest degradation.

140. Issues regarding land use, land tenure, and common property may arise in target sectors.
IDA currently has a presence in these sectors and will continue to work with counterparts to
ensure that appropriate mitigating measures are promoted and incorporated into the grant/credit
activities. Table 3 shows the investment projects that complement PRSC 8 and their development
41
objectives in Uganda. As relevant, each of these investment projects incorporates Bank
safeguards, management plans, and monitoring of environmental and social performance
indicators. These projects include sector-specific measures for enhancing environmental
management capacity. In the road sector, the EU is active in improving the environmental
management system (EMS).

Table 3: UGANDA - Investment projects that mitigate environmental risks

Sector and Project Project Development Objectives

Agriculture
Avian and Human Influenza
Preparedness and Response Project
Energy and Mining
Energy for Rural Transformation II
Sustainable Management of Mineral
Resources Project
Environment
Protected Areas Management and
Sustainable Use Project
Second Lake Victoria Environmental
Management Project
Second Environmental Management
and Capacity Building Project
Transport
Third Phase of the Road
Development Program
Transport Sector Development
Project
Urban Development
Kampala Institutional and
Infrastructure Development Project
Local Government Management and
Services Delivery Project
Support efforts that substantially reduce the threat posed to
humans and poultry in Uganda by the Highly Pathogenic Avian
Influenza; and respond effectively to other infectious disease
emergencies in livestock and humans
Develop rural energy and information/communication
technology sectors to significantly improve the productivity of
enterprises and the quality of life of households.
Strengthen Government's capacity to develop a sound minerals
sector based on private investments and improvements in
selected artisanal and small scale mining areas
Conservation of Uganda's biodiversity through sustainable and
cost effective management of wildlife and cultural resources.
Rehabilitate and protect the lake ecosystem
Create and establish an efficient mechanism for sustainable
environmental and natural resource management at the national,
district, and community levels.
Improve access to rural and economically productive areas by
removing major constraints to efficient road transport services;
and progressively building up sustainable road sector planning,
design and program management capability including road
safety management.
Improve the connectivity and efficiency of the transport sector
Improve the institutional efficiency of Kampala City Council
through implementation of the Strategic Framework for Reform
requiring, among others, increase in local revenue and increase
in public satisfaction with service delivery.
Strengthen the ability of the central and local governments to
plan and manage resources in collaboration with communities
for improved service delivery.

141. The risks that environmental degradation poses to government‟s ability to meet operation
objectives are possibly more significant than the minor to moderate environmental and social
impacts of PRSC 8. Particularly in the water supply and health sectors, direct links exist between
the delivery of public services in the sector and the impact of environmental degradation. For the
water sector, poor environmental and forest management is having a negative impact on quality
and availability of rural water supplies and raising the unit costs for water facilities (see section

42
3.3). In the health sector, the links between public health performance and environment are
equally strong, with 27 percent of the total disease burden being environmental disease burden.32

FIDUCIARY ASPECTS

142. Foreign exchange system. The Safeguards Assessment of the Bank of Uganda (BoU),
which was completed by the IMF on April 13, 2003, identified strengths and vulnerabilities of
BoU financial systems. Under a safeguards update assessment completed in 2007, the IMF noted
additional risks in external and internal audits that have since been mitigated by the BoU. A
formal mechanism to monitor and report on the implementation of external audit
recommendations has been made fully operational. Audited financial accounts are put before the
legislature within the statutory period of three months after the end of the financial year; an Audit
Committee and Governance Committee (AGCB) of the Board has been appointed, and
procedures have been put in place to ensure that both internal and external audit findings and
recommendations, as well as follow up actions taken, are appropriately communicated to the
Governor and the Audit Committee of the Board. On a continuous basis, Internal Audit Function
monitors these recommendations and reports to the Audit and Governance Committee (AGCB)
of the Board, which then takes further action.

143. The BOU now reconciles economic and financial data each quarter. It has created an
audit plan assessing the risks to its operations and the related control environment. Since the
institution of a risk management framework in 2005, BoU conducts a risk management review on
an annual basis.

144. Budget management. The 2008 PEFA examined PFM from 2006 to 2008. It noted
improvements in budget classification and comprehensiveness and oversight of aggregate fiscal
risk from other public sector entities. It also indicates improved stock and monitoring of
expenditure payment arrears, though some commitments are not captured by the government
IFMS system in various MDAs. Transparency of taxpayer obligations and liabilities, together
with taxpayer registration and assessment, has also improved, as has the availability of quality
data and timeliness of budget reports and annual financial reports. Progress is also noted on the
use of the International Public Sector Accounting Standards (IPSAS) framework, and training
and capacity building for staff in central and local governments in this regard has been
conducted.

145. Fiduciary risks related to inadequate legislation and regulatory framework in PFM and
Public Sector Management (PSM) are being addressed through the PRSC and the broader JBSF.
In the medium term, progress on the highlighted indicators in the JAF together with other PFM
reforms will continue to be guided by the Public Expenditure Management Committee
(PEMCOM) and implemented through the multi donor funded Financial Management &
Accountability Program (FINMAP). Public Sector Management (PSM) reforms regarding the
payroll and pension system are being guided by the Public Service Reform Program (PSRP).

146. Oversight institutions are being strengthened. Government passed the 2008 Audit Act,
which gives the Office of the Auditor General (OAG) full autonomy in terms of budgeting and
operations. The OAG has been sufficiently funded by government in 2009/2010 to increase his

32
WHO 2009, based on 2004 country health statistics.
43
audit scope, staffing and execution of audits to include VFM audits. In the current Parliament, the
Public Accounts Committee (PAC) and the Local Government Public Accounts Committee
(LGPAC) have improved their follow up on irregularities identified in the Auditor General‟s
reports, while most backlog of audit reports (up to 2006/2007) have been cleared.

147. Procurement. The major country procurement risks are (i) limited compliance with the
Act as indicated in PPDA‟s Audit Reports, (ii) inadequate capacity and experience in the
procurement entities to conduct procurement, and (iii) weak procurement planning, which results
in delays in procurement.

148. The national legislation on public procurement as laid out in the Public and Disposal of
Public Assets Act (PPDA 2003) is generally consistent with World Bank guidelines, except: (i)
negotiation of contracts under competitive bidding; (ii) the use of merit point evaluation for the
procurement of goods; (iii) pre-qualifying bidders and then inviting only a few on a rotational
basis and; (iv) inadequate procedures to select consultants. These provisions are being addressed
under the proposed PRSC (see paragraphs 81-83).

149. The 2008 PEFA found deficiencies in procurement plans at MDAs. These include
emergency procurements, procurements of non required items, and procurement at higher prices
than necessary. Procurement is decentralized to over 200 procuring entities in central and local
government and reporting to the central regulatory body is poor. The report also highlights
special audits and payroll cleaning exercises that have taken place, but follow up is not
sufficiently transparent. Internal controls exist, but audit reports show that they are violated or
ignored. Systemic controls in the IFMS prevent any commitment that would take cumulative
expenditure above the cumulative quarterly limits, but the IFMS is sometimes bypassed and
commitments are made outside the IFMS, so some government units continue to accumulate
arrears. Remedies to some of these risks are being proposed in the current review of FINMAP.

DISBURSEMENTS AND AUDITING

150. The credit will be disbursed in a single tranche upon effectiveness. The disbursement will
follow IDA‟s simplified procedures for development policy lending against satisfactory
implementation of the program. Satisfactory implementation will be indicated by prior actions
and maintenance of a satisfactory macroeconomic policy framework. IDA will disburse the
proceeds into an account designated by the GoU that is part of the country's foreign exchange
reserves accounts, acceptable to the Bank.

151. The Borrower will ensure that upon deposit the foreign exchange amount will
immediately be converted to Uganda shillings and credited to the Uganda Government
Consolidated Fund Account, to be used subsequently for budgeted public expenditures. The
Borrower will acknowledge receipt to IDA of the deposit to the foreign currency account and the
credit in local currency to the Consolidated Fund Account. If, after deposit in the foreign reserve
account, the proceeds of the credit or any part thereof are used for excluded expenditures (for
example, to finance goods or services on the standard negative list) as defined in the Financing
Agreement, IDA will require the Borrower to either: (i) return that amount to the foreign reserve
account for use for eligible purposes, or (ii) refund the amount directly to IDA. Amounts
refunded to IDA upon such request shall be cancelled.

44
152. The administration of this credit will be the responsibility of the Ministry of Finance. The
following summarizes the fiduciary assurance requirements for receipt of the credit:

(a) Foreign reserve account. The GoU will acknowledge receipt to IDA that the money has
been deposited in the foreign reserve account and the amount was credited in local
currency to the GoU Consolidated Fund Account. While no audit is required, it is
expected that confirmation of receipt will be signed off by both the Accountant General
and the Auditor General. IDA reserves the right to request an audit of the account as
provided for in the financing agreement.
(b) Public (government) accounts. The Auditor General is required by law to produce
his/her annual report to Parliament on the public accounts within nine months of the
fiscal year end, and the report for the year ended June 30, 2008, was issued in March
2009 to comply with this statutory requirement. IDA has always had access to those
audited accounts.
(c) Bank of Uganda. The annual entity financial statements of the Bank of Uganda, audited
in accordance with international auditing standards as promulgated by the International
Federation of Accountants, will be publicly available. All audit reports for the previous
years, including the latest of June 30, 2009, have been published.

RISKS AND RISK MITIGATION

153. Fiscal and debt sustainability. Fiscal pressures will rise from government‟s new
infrastructure investment, new initiatives such as universal secondary education, proposed civil
service pay raises, and creation of new districts, and continued high population growth. The
PRSC is designed to mitigate these effects by supporting government efforts to improve
expenditure efficiency and value for money. While Uganda‟s risk of debt distress is low, a
permanent shock to real GDP growth could result in a marked deterioration in the public debt
ratio. As the fiscal spending increases in the face of limited revenues, additional financing
through non-concessional sources may raise the risk of debt distress. This highlights the risk
should the growth dividend from investments undertaken be lower than expected.

154. Governance risks. Commitment to better governance may weaken before the 2011
elections. Corruption has increasingly become a source of public discontent. Three major
corruption scandals -- NSSF, CHOGM and Global Fund -- in the past three years have revealed
weaknesses in procurement, financial management, and control systems. The Bank and
government continue the dialogue on governance issues to mitigate this risk.

155. Risks associated with oil revenue. In contrast to the near term fiscal constraints, in the
medium term (6+ years), oil revenue is likely to boost government revenue. This may reduce the
fiscal deficit but could raise new challenges such as real exchange rate appreciation, which would
lower the competitiveness of Uganda‟s non-oil exports. To avoid the “resource curse,” the Bank
and other development partners are supporting the government with analytic work and policy
advice to strengthen the institutional base for managing future resource revenue. Policy support
under this operation for procurement and PFM reform is expected to improve institutional
structures and capacity for future management of oil revenue. Consideration will also be given to
including policy reforms specific to the oil sector in future PRSCs in this series.

45
156. Exogenous risks arising from bad weather or the world economy can adversely affect
Uganda. As a landlocked country, Uganda‟s development might be threatened by insecurity in
neighboring countries, which could disrupt trade routes or raise the risk of conflict in border
regions.

157. Donor coordination. The proposed operation has been designed and will be
implemented through the Joint Budget Support Framework, involving ten other development
partners. This could lead to coordination costs that may slow program implementation, and could
result in insufficient flexibility to respond to emerging problems. To manage this risk, the Bank
has signaled to its partners the importance of flexibility during implementing and in the outer
years of the JAF. To minimize implementation risks, development partners have agreed to a
coordination structure and dispute resolution mechanisms under the JBSF. These structures are
being formalized in a Memorandum of Understanding between the government and JBSF
development partners, to be completed in late 2010.

46
ANNEX 1: DRAFT LETTER OF DEVELOPMENT POLICY

47
48
49
50
51
52
53
 ANNEX 2. PRSC POLICY MATRIX
POLICY RESULTS MATRIX
Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
Policy Cluster 1. Reforms in Public Expenditure Management, Public Financial Management and Public Service Management that Improve Service Delivery
Objectives: (i) improved budget credibility, (ii) transparent and efficient public financial management and public procurement; (iii) strengthened public sector management and
accountability; and (iv) strengthened local government system for service delivery.
Component 1.1. Credibility of the Budget
Variance (a) Actual annual budget Guaranteed (95%) Conduct a review of the % budget 5% Max 5% Max 5% Max 5% Annual
between releases for the sum of protection of the four budget calendar and variance deviation average average average budget
budget conditional grants to each JBS-sectors at service propose adjustments, between based on performan
allocations, of the four JBSF sectors delivery level as well as including a proposal for allocations and 08/09 ce report
releases and (health, education, water of recurrent (wage and alignment of Office of releases of JBS releases. & supple-
outturns are and sanitation, and roads) non-wage) and the Prime Minister sectors (by mental.
significant, and were at least 95% of the development reporting cycle with sector and front schedules
the budget corresponding approved expenditures for these budget cycle line service
calendar does budget allocations for the sectors delivery level)
not allow for Fiscal Year 2008/09; (b)
sufficient budget releases for the
planning sum of recurrent wage
expenditure across the
four sectors, the sum of
recurrent non-wage
expenditure across these
sectors, and the sum of
development expenditures
across these sectors were
in each case at least 95%
of the corresponding
approved budget
allocations for the Fiscal
Year 2008/09

54
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
Untimely and Releases from the treasury Units needing special 50% reduction in the % of spending 70-80% 70-80% 90% 100%
unreliable to spending agencies are support to provide number of units units receiving
releases, and made on a quarterly appropriate planning and requiring special timely quarterly
weak budget instead of monthly basis, reporting docs are support from MoFPED releases, as per
and through the end of the identified and support agreed cashflow
procurement first quarter of FY2009/10 provided plan
planning by
spending Pilot alignment of work Roll-out alignment of
agencies plans with cash flow work plans and
undermines and procurement plans procurement plans
budget in four JBS sectors and cash plans to all
credibility MDAs starting
FY11/12

Component 1.2. Funding at Service Delivery Level

The existing Initiate background Conduct a Ratio of front Agric: Agric: 1% 1% (a)
policy study of current LG background study and line service 0.510 0.510 increase increase Annual
framework for financing arrangements present a revised delivery in ratio of in ratio of budget
Works: Works:
local strategy for allocations for core core frame-
0.091 0.091
government comprehensive LG each JBS sector service service work
financing to Cabinet Edu –pri: Edu –pri:
financing is at separate vs. total delivery delivery papers,
0.080 0.080
odds with sector budget grants in grants in (b) budget
current (salary and non- Edu – sec: Edu – sec: JBSF JBSF perfor-
practices salary) 0.061 0.061 sectors sectors mance
Water – r: Water – r: reports,
0.463 0.463 and (c)
approved
Water – u: Water –u: estimates
0.015 0.015
book.
Health: Health:
0.193 0.193

55
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
Inconsistent Consolidated budget MoFPED to develop Develop statutory % of LGs
and untimely expenditures (central and and implement a regulations that specify publishing 48% 53% 75% 90%
reporting of LGs) and all revenues system to consolidate the LG financial
local govern- discussed at half-yearly and analyze quarterly reporting/accountability transfers and
ment expendi- public budget review reports on local requirements to service budgets at local
ture impedes meeting. government users (in line with level
consolidation expenditures (Form B) Freedom of Information
and analysis Act and other existing
and is poorly statutory instruments)
disseminated
Quarterly releases to
at the local
local governments are
level
published in the media
and on the MoFPED
website within 1 month
of beginning of quarter
Component 1.3. Compliance with Public Financial Management Regulations
To strengthen Develop format for Sign performance Revise performance AG‟s
compliance performance agreements agreements with all agreements to % clean audit consoli-
with PFM for accounting officers Permanent Secretaries incorporate revisions reports (Central, CG: 35% - CG: 40% CG: 45% dated
laws and (including Chief and Chief made to PFM Local35 and SB: 49% SB: 54% SB: 59% report and
regulations, Administrative Officers) Administrative Officers regulations Statutory bodies) LG: 9% LG : 19% LG : 29% specific
more emphasis with an incentive and and monitor audit
Report to PEMCOM on
needs to be penalty system for non performance 34 reports.
actions taken against
placed on compliance with PFM
Develop and issue PFM Accounting Officers
performance- regulations 33
regulations to provide an who are in violation of
based
Management in each incentive and penalty PFM regulations
assessment of

33
The enforcement of this penalty system is key for compliance and accountability. It will be crucial to follow up on the coherence between performance contract A, the ROM system,
and any new measures coming from MoPS.
34
The signed agreements confirm performance contractual obligations between the Head of Public Service and Permanent Secretaries; and between Ministry of Local Government and
Chief Accounting Officers. The agreements bind them on the fulfillment of PFM rules.
35
This includes districts only.
56
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
public ministry to undertake and system for non-
servants, with report on administrative compliance with PFM
an emphasis on action taken to address regulations
both rewards issues of non compliance
and sanctions highlighted in reports of the
Auditor General, PPDA,
Internal Audit, PEFA and
any other PFM assessment
report
The internal Ensure that functional Cabinet minutes Draft legislation
audit dept independence is provided to authorizing functional providing
currently Internal Audit of MoFPED independence for independence to
reports to the (internal Auditor reporting Internal Audit of Internal Audit Dept is
AG, under- directly to PS) MoFPED reporting to PS prepared and
mining its issued by June 30, 2010. approved by Cabinet
independence Functional independence
takes effect July 1, 2010

Chronic Ensure that arrears database Government endorses Implementation of an Arrears as % of AG‟s
arrears build- is reconciled and kept timebound action plan to agreed phase 1 of the total 12.2% 10% 7.8% 5% database /
up undermines consistent with all eradicate arrears action plan to eradicate expenditures 36 (07/08) final
budget accounting institutions, and arrears accounts
credibility updated by Accountant
General.

Component 1.4. Public Procurement

Weaknesses in The procurement Revise and issue full set Prepare and issue % of PPDA
current legal amendment bill submitted of Procurement Standard Bidding Audit 79.5% 79.5% 85% 90%
and regulatory to Parliament shall meet Regulations and Documents (including Recommen-

36
The domestic arrears should be measured as a percentage of the budget based on the approved domestically funded budget (which includes statutory and domestic arrears) as
appropriated by parliament. The source of information for domestic arrears will be the verified stock contained in the Accountant General's data base, reported in the Final Accounts
figures by October each year. Government‟s definition of arrears is the total outstanding amount of unpaid bills at the end of the fiscal year (June 30).
57
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
framework for international best practice in Guidelines in line with specialized bidding dations
procurement promoting transparency, the revision to the documents) and implemented
equal opportunity and value PPDA Act. Issued Requests for
for money in the use of regulations and Proposals based on
public funds guidelines shall meet the amended PPDA
international best Act and Regulations
practice
Implement
recommendation on
restructuring of PPDA
Weak Procurement performance Roll out procurement Roll out procurement % of contracts
monitoring has indicator framework performance performance with complete
hampered agreed and baseline data measurement system to measurement system to procurement
enforcement of available 25 additional MDAs 40 additional MDAs records in
procurement reaching a total of 40 reaching a total of 80 compliance with 32% 32% 40% 70%
law and MDAs MDAs PPDA
sanctioning of regulations (by
breaches number)

Component 1.5. Performance of Public Servants

Civil servant Adoption by Government HTR/S Strategy and Budget management Vacancy rate in AGI
vacancy rates of the framework for Action Plan approved flexibility for accredited JBSF sectors HRM
in hard to staff attracting and retaining and reflected in the institutions in hard to (education, 300% 300% 300% 200% assess-
areas are very public officers in Hard-to- 2010/11 Budget and staff areas introduced, health and water) ment
high and hence Reach Areas sector implementation allowing them to define in a represen-
service plans for health and incentives within tative sample of
delivery in education finalized budgetary limits Hard To Staff
these areas is (HTS) locations
inadequate. as a % of non-
HTS locations 37

37
The interpretation of this indicator is as follows: in the baseline, the vacancy rate in Hard To Staff locations for positions in JBSF sectors (education, health, and water) is 3 times
(300%) that of the vacancy rate in non-Hard To Staff locations; for example, 30% in Hard To Staff locations and 10% in non Hard To Staff locations.
58
 Main PRSC 8
Performance
Issue
Civil servants Single framework for
are not judged Results Oriented
on the basis of Management (ROM),
performance Output Oriented Budgeting
and face little (OOB) and budget
accountability monitoring agreed by MoPS
for their and MoFPED and modality
actions for attaching performance
agreements to letters of
appointment agreed with the
Service Commissions
PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
cation
Single framework for Start implementation
Results Oriented of single performance
Management (ROM), framework and its
Output Oriented application to select
Budgeting (OOB) and frontline service
budget monitoring delivery units,
adopted by MoPS and including: sign
MoFPED, including a institutional
modality for attaching performance
performance agreements for all
agreements to letters of MDAs and individual
appointment adopted. performance
agreements for their
Responsibility for
senior managers by
initiating and applying
June 30, 2011; and (b)
sanctions reviewed, and
sign performance
roles and responsibilities
agreements for min 12
streamlined
regional hospitals and
Implement establish mandatory
recommendations on performance targets
harmonization of for schools (primary
multiple inspection, and secondary) in min
supervision, sanctions 4 districts, keeping
and rewards (closely budget allocations
aligned with PFM stable in real terms
corresponding action)
Performance
agreements attached to
letters of appointment
of all medical
superintendents
Rollout of Client
Charters customized for
education, health, and
water sectors
59
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
Weak Implementation of Phase I Implementation of % of employees
IPPS fully operational
management of the Integrated Personnel Phases III-V of IPPS whose
covering all MDAs and
systems for and Payroll Management launched computerized
at least 50% of all
personnel and System (IPPS) completed HR processes 5%39 10%41 IPPS
districts
payroll related to pay are None None IPPS IPPS generated
managed by the data40 data42 reports
employer
(included in the
IPPS)[MoPS]38
Component 1.6. Accountability and Anti-Corruption
Few and Development of Data Agree upon a Corruption trend data Follow up and CHOGM Report Remain- OAG
disputed Tracking Mechanism for measurement tracking system is action on Special special from GoU ing Recovery
of at least verify-
mechanisms improved tracking of framework (Data operational and data audits of Grand audit showing CHOGM cation
for measuring corruption trends initiated Tracking Mechanism), is collected on an corruption cases conducted evidence accounta- 60% of
corruption including indicators, annual basis Manage- of follow- bility lost
trends for improved tracking ment up action provided; CHOGM
of corruption trends Letter taken in disciplina funds
produced terms of ry action Completi
Response to GoU initiates follow-up Government action plan Continued on of
disciplina taken;
audit findings action on the special audit agreed for follow-up on implementation of the CHOGM
ry action criminal
from grand of CHOGM in terms of CHOGM by end of CHOGM action plan, criminal
and investigati
corruption disciplinary action and March 2010 and key including recovery of investigati
recovery ons
cases has been recovery of funds and report follow-up actions from 60% of funds and ons, and
of funds initiated;
slow and to Parliament on action the action plan completion of criminal prosecutio
shares for
inadequate taken concluded investigations ns
Ush 33bn
invest- initiated
ment

38
These include recruitment, disciplinary procedures, absenteeism, payroll management, wage bill outturn
39
Based on February 2009 Payroll Figures
40
Number of public servants incorporated in IPPS phase 1 as proportion of the total number of public servants
41
Not expected to double as more MDAs/LGs will be added in phase II.
42
Number of public servants incorporated in IPPS phases 1 and 2 as proportion of total number of public servants
60
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
obtained;
and
recovery
of at least
20% of
lost funds
Policy Cluster 2: Improving Value for Money in Public Service Delivery Sectors

Component 2.1. Health

Objective: wider access to and better quality of health services; and improved sexual and reproductive health care services and control of major communicable diseases
Insufficient Establish Human Implement Human Roll out HRH MIS to
availability of Resources for Health Resources for Health additional 35 districts in Proportion of
qualified Management Information Management the country approved posts 51% 52% 54% 59% HRH
health staff at System to provide Information System to filled by audit
Establish Divisions of
task information on levels and provide information qualified health report
HRH Devt and HRH
distribution of the health about levels and workers [HR-
Mgt in MoH to
workforce distribution of health MIS]
coordinate HRH
workers
functions
Develop plans to roll out Roll out
implementation of the implementation of the Absenteeism rate tbd tbd tbd tbd UBOS
hard to reach scheme in motivation strategy and (UBOS annual annual
agreement with MoPS the hard to reach survey) panel
and MoFPED incentive scheme survey

Carry out quarterly area Establish formal

team supervisions to management functions
intensify the human (positions and
resource inspection structures) for hospitals
(regional and general)

Inadequate Establish system to update Develop and implement Implement the Proportion of
availability of the procurement plan for guidelines to streamline reviewed super-vision health facilities 28% 35% 50% 60% MOH
essential medicines and medical distribution of framework for HSSP without drug annual
61
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
medicines and supplies by all stakeholders essentials drugs by III to ensure effective stock outs for 6 survey
health supplies NMS under the new M&E and medicines tracer drugs
in health pre-financing inspections
centres arrangements,
including a Create logistics
performance management
agreement (MoU) for capacity/unit in MoH
distribution of essential for medicines and
drugs between MoH essential supplies
and NMS
Component 2.2. Education
Objective: Wider access to and better quality of primary and secondary education.
Inequitable Undertake analytical work Approve and Implement the revised
teacher to inform the development implement a new teacher deployment and % of teachers at DES QEI
deployment of the HTS-HTR policy and teacher allocation rationalization policies task in the 12 - 63% 70% 75% report
strategy within the PSM formula to ensure for districts and schools districts with the
reform equitable distribution weakest
of teachers education sector
indicators (QEI)
43 44
High teacher Sign performance Implement the Implement evaluation
absenteeism contracts with at least 90 performance contracts tool for performance
percent of all head (covering Customized contracts (covering
teachers in the 12 districts Performance Targets) in Customized
with the weakest 12 districts and develop Performance Targets)
education sector an evaluation tool to (x% of head teachers
indicators (covering assess the effectiveness in 24 districts on
Customized Performance of CPTs performance contracts
Targets) undergo an annual

43
Teacher‟s time at task is measured by teacher presence against the school time table and head teacher presence at school. The baseline indicators will be available for 2008/09 based
on 12 districts.
44
The Quality Education Initiative (QEI) is implemented in 12 districts with the weakest education sector indicators in education service delivery; these are: Amuru, Arua, Bududa,
Bukedea, Bulisa, Kaabong, Kyenjojo, Lyantonde, Mubende, Nakapiripirit, Nebbi, and Oyam Districts.
62
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
Inspect schools at least performance
Implement 1st phase of the once a term and conduct appraisal against their
Scheme of Service (career a review of action points CPT)
plan for teachers) for 4,000 to be undertaken by the
teachers45 schools
Inadequate Protect at least 8% of the Implement
instructional non-wage budget for text recommendations of the
materials for books and other evaluation study on the Pupil-text book
primary instructional materials Decentralized ratio (lower and
teachers and Instructional Materials upper primary
learners Procurement (DIMP) separately) TBD TBD TBD TBD
policy evaluation study
Develop a unit cost
model (including a
baseline) for primary
education
Insufficient Initiate practice of SMC decisions and % of schools in
and ineffective disclosing SMC funds released to the 12 districts - 23% 27% 30%
community decisions and funds schools (capitation with the weakest
participation released to schools grants and others) are education sector
(capitation grants and disclosed on school indicators with
others) on school notice notice boards and functional
boards and nearest nearest public places on SMCs47
public places on a a recurrent basis in at
recurrent basis. 46 least [x] % of primary
and secondary schools

45
The prior action initiates a process that is expected to continue throughout the PRSC series in a bid to support career growth for teachers.
46
The prior action is expected to continue throughout the PRSC series.
47
Functional SMCs = make decisions on management and finance; publicly share/disclose minutes of the meetings at which decisions made; follow up the school administration to
ensure effective and timely implementation of the decisions made; develop and endorse the school development plan; have agreed strategies for feeding children while at school. The
baseline indicators will be available for 2008/09 based on 12 districts.
63
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
in [y] % of districts.

Component 2.3. Water and Sanitation

Objective: Improved water and sanitation system.
Low % of improved
Make CBMS Water User Make CBMS Water User Make CBMS Water
functinality of water sources
Committees actively Committees actively User Committees
water facilities that are 82% 83% 84% 84% SPR
functioning in at least functioning in at least actively functioning in
in rural areas functional at the 23% 24% 27% 30%
50% of districts, and 70% of districts, and at least 80% of districts,
within these districts on within each district on and within each district time of spot
average at least 40% of average at least 50% of on average at least 60% check:
water points are covered water points are covered of water points are - Rural
by Water User by Water User covered by Water User - Valley tanks
Committees Committees. Committees. and dams

Implement framework Initiate the

developed in 2008/09 implementation of the
for Operation and revised O& M system
Maintenance and maintain data base
Management of water on functionality
for production facilities
with involvement by
the private sector48
Increasing unit Carry out cost variation Finalize the risk and Start the
costs of service study opportunity mapping implementation of
delivery study and the Water 20% of the activities
integrity/baseline study in the Water and
and update the sanitation sub sector
accountability and good Good Governance

48
The prior action initiates a process that is expected to continue throughout the PRSC series.
64
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
governance action plan Action plan under
GoU responsibility.
Low levels of Create codes on the GoU Allocate resources to the Initiate social marketing % of people 14% 21% 27% 30% SPR
sanitation and chart of accounts for grants newly created budget schemes aimed at accessing hand
hygiene for sanitation and hygiene codes for sanitation and scaling up the washing with
for LGs.(MoFPED) hygiene (MoFPED) community-led soap facilities
initiatives in at least 20
districts (MWE, MOH) Pupil to
latrine/toilet 65:1 60:1 43:1 43:1 SPR
Support the
stance ratio in
enforcement of the
schools (and
Public Health Act,
hand washing
ordinances and bylaws
facilities)
in 30 districts (MOES,
MWE, MOH)
Component 2.4. Transport
Objective: Improved national road network to lower transport cost, raise competitiveness, and facilitate economic activity.
Inadequate Road Fund Board and Fully staffed and Bill amending the % of funds UNRA
road Executive Director operational Road Fund URA Act to allow released to outturns
maintenance appointed direct transfer of road UNRA on time 80% 80% 90% 95%
user charges to the (as per
Present an outline of the Baseline data Road Fund submitted performance
M&E Framework to established and M&E to Parliament agreement)
measure sector framework to measure
performance, including JAF sector performance is
indicators operational

65
 Main PRSC 8 PRSC 9 PRSC 10 Performance Baseline PRSC 8 PRSC 9 PRSC 10 Source of
Performance Indicator 2007/08 2008/09 2009/10 2010/11 Verifi-
Issue cation
Inhibiting Cabinet approves policy Implement an agreed Develop and issue a
% of expenditure - 85% 90% 95% MoWT
environment on strengthening of subset of actions from manual outlining how
for maintenance and
for private national construction the Action Plan Matrix to implement force
works executed UNRA
sector industry on Unit Costs account in the roads
by the private outturns
development sector, with appropriate
sector
Endorse Action Plan Matrix safeguards
on Unit Cost Workshop
recommendations
Axle Implement first stage of Implement second stage
% of vehicles 60% 20% 5% MoWT
overloading actions to combat axle of actions to combat
overloaded records
shortens the overloading, more axle overloading
life of the specifically: launch axle
% of vehicles
roads load control campaign,
complying with the
recruit an axle load
Axle Load Regulations
advisor, put into
operation 6 additional
weigh bridges, begin
measuring the % of
vehicles complying with
the Axle Load
Regulations, and amend
the Traffic and Road
Safety Act, 1998, in
harmony with EAC

66
 ANNEX 3. OUTCOME AND HEADLINE SECTOR RESULTS IN PRSC SECTORS

EDUCATION

Baseline PRSC8 PRSC 9 PRSC 10

Impact
2007/08 2008/09 2009/1049 2010/11

1. Percentage of literate and numerate children in age cohort N/A N/A N/A N/A
(13-14) 50/51

Headline Sector Results

2. Increase in number of pupils reaching defined level of

competence in Government aided schools
Literacy proficiency
P3 total literacy literacy literacy literacy
P3 girls P3 T: 46% P3 T: 48% P3 T: 50% P3 T: 53%
P6 total P3 G: 47% P3 G: 50% P3 G: 52% P3 G: 55%
P6 girls P6 T: 50% P6 T: 52% P6 T: 55% P6 T: 57%
Numeracy proficiency P6 G: 51% P6 G: 53% P6 G: 56% P6 G: 59%
P3 total numeracy numeracy numeracy numeracy
P3 girls P3 T: 45% P3 T: 47% P3 T: 49% P3 T: 52%
P6 total P3 G: 43% P3 G: 46% P3 G: 48% P3 G: 50%
P6 girls P6 T: 41% P6 T: 44% P6 T: 46% P6 T: 48%
P6 G: 37% P6 G: 39% P6 G: 41% P6 G: 43%

3. Increase in primary pupils passing PLE with grades I-III and Total: 262,337 Total: 264,960 Total: 266,347 Total: 280,000
unit cost disaggregated by school type, gender, and grade52. % girls: 45.2 % girls: 45.5 % girls: 45.8 % girls: 46.0

Total: 27.6% Total: 27.9% Total: 32% Total: 34.9%

4. Survival to P7 by gender and district.53 Boys: 28.6% Boys:27.1% Boys: 32% Boys: 34.9%
Girls: 26.6% Girls:27.9% Girls: 32% Girls: 35.0%

HEALTH

Baseline MDG Target

Impact
2015
Infant mortality rates 76/1000 41/1000
Maternal mortality rates 435/100,000 131/100,000
Baseline PRSC8 PRSC9 PRSC10
Headline Sector Results
2008/09 Dec 09 2009/10 2010/11
Number and proportion of deliveries in health
facilities (health centers and hospitals) 33% 34% 35% 40%

49
The FY 2009/10 refers to the school year 2009 from January 2009 to December 2009.
50
Testing level and method for literacy and numeracy to be defined.
51
The field work for the Uganda Panel Survey is scheduled to start in October 2009. The baseline will be available after 12
months, in October 2010.
52
Refer to table attached on p. 5.
53
Survival to P7 targets are yet to be set by the sector through a broader consultative process.

67
(HMIS)
Contraceptive Prevalence Rate 24% 25% 27% 30%
[Annual Panel survey (UBOS)]
Number and proportion of children immunized with 82% 83% 85% 90%
DPT3 [HMIS]

WATER AND SANITATION

Baseline MDG Target
Impact
2007/08 2015
Contribute to improved health and productivity [Reduction
2.7/1000
of epidemic diarrhea ( cholera plus dysentery)] through use 1/1000 population
population
of safe water services and sanitation
Targets
Baseline
Headline Sector Results PRSC8 PRSC9 PRSC10
2007/08
2008/09 2009/10 2010/11
Access to Rural Water Services
% of people within 1.5 km (rural) of an improved water 63% 63% 62% 61%54
source (rural population served ) (16,917,378) (17,358,419) (17,760,043)
Access to Urban Water Services
% of people within 0.2 km of an improved water source 61% 60% 62% 62%
(Cumulative urban population served - millions) 2.695 m 2.895 m 3.1 m
Cumulative Water for production (WfP) storage
14 MCM 16 MCM 19 MCM 22 MCM
capacity (Million Cubic meters – MCM)
Compliance
% of water abstraction and discharge permits holders 27% 48% 58% 67%
complying with permit conditions
Sanitation
62% 64% 66% 68%
% of households with access to safe and effective sanitation

ROADS

Baseline PRSC 8 PRSC 9 PRSC 10

Impact 2007/08 2008/09 2009/10 2010/11
Improved agricultural marketing, increased access to basic
social services, increased economic activity, and reduced
trade costs on key commodities through:
Travel time
% of national roads in fair to good condition
Paved Road 65% 71% 75% 80%
Unpaved Road - - - -
% of district and urban roads in fair to good condition

Baseline PRSC8 PRSC9 PRSC10

Headline Sector Results
2007/08 2008/09 2009/10 2010/11
Number of km of national roads maintained

54
Revised figure (May 2009) taking into account walking distance, new SIP, and declining MTEF.

68
National Paved: Paved Paved Paved Paved
Routine mechanized (Km executed) 2,700 2,865 3,000 3,500
Periodic (Km executed) 93 200 200 200

National Unpaved: Unpaved Unpaved Unpaved Unpaved

Routine mechanized (Km executed) - 6,000 21,000 15,000
Periodic (Km executed) - 1,400 1,500 2,500

Number of km of district and urban roads maintained

Routine (Km executed) 16,800 17,300 22,000 22,000
Periodic (Km executed) 1,250 1,300 1,400 1,500
Paved periodic (Km executed) 15 30 45 55
Equivalent number of national roads rehabilitated or
constructed
150 150 175 225
Upgraded to bitumen standard (equiv. km) 120 150 300 250
Paved roads rehabilitated (equiv. km) 0 0 8 12
Rehabilitation of bridges (No.)

69
 ANNEX 4. FUND RELATIONS NOTE
IMF Executive Board Completes Seventh Review under Uganda's PSI and Approves a
Three-Year Policy Support Instrument
Press Release No. 10/195
May 12, 2010
The Executive Board of the International Monetary Fund (IMF) completed today the seventh
review of Uganda's economic performance under the Policy Support Instrument. At the request of
the authorities, the Executive Board cancelled the current PSI and approved a new three-year
program. Uganda's previous PSI was approved on December 15, 2006 (see Press Release No.
06/281).
The PSI for Uganda aims at maintaining macroeconomic stability and alleviating constraints to
growth through a scaling up of public investment spending and structural reforms to enhance the
country‟s absorptive capacity. It will also support the strengthening of institutions ahead of
expected oil production and Uganda‟s participation in the future East African Monetary Union.
The IMF's framework for PSIs is designed for low-income countries that may not need, or want,
IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies.
PSIs are voluntary and demand driven. PSI-supported programs are based on country-owned
poverty reduction strategies adopted in a participatory process involving civil society and
development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is
intended to ensure that PSI-supported programs are consistent with a comprehensive framework
for macroeconomic, structural and social policies to foster growth and reduce poverty. Members'
performance under a PSI is normally reviewed semi-annually, irrespective of the status of the
program (see Public Information Notice No. 05/145).
Following the Executive Board‟s discussion on Uganda, Mr. Naoyuki Shinohara, Deputy
Managing Director and Acting Chair, stated:
“Prudent macroeconomic policies have enabled Uganda to maintain macroeconomic stability
despite a series of external shocks. Notwithstanding a recent deceleration, output growth has been
strong and is expected to rebound quickly. Inflation has moderated, and the external position has
remained solid, buoyed by robust exports and foreign investment flows. Limited central bank
intervention has helped smooth excessive exchange rate volatility, and the financial sector has
remained sound.
“Looking ahead, the main challenge is to accelerate infrastructure development while ensuring
macroeconomic stability. The new PSI-supported program aims to support the objectives of the
recently adopted National Development Plan. The authorities aim to raise domestic revenue and,
if needed, use a limited amount of non-concessional borrowing to finance the increase in public
spending. A cautious monetary stance, a flexible exchange rate regime, and a comfortable level of
reserves will help keep the fiscal and debt positions within sustainable bounds.
“To improve efficiency and raise future growth, the government is committed to reinvigorate
structural reforms. These will focus on public financial management, including strengthening
spending controls and efficiency, and increasing domestic tax revenue. Financial sector reforms
will seek to enhance banking stability and facilitate financial deepening.
“Large-scale oil production and the establishment of the Eastern African Monetary Union will
present opportunities but also pose significant policy challenges for Uganda in the years to come.
The authorities are taking steps to further strengthen their institutional and policy frameworks
which, together with improving infrastructure, should help the country prepare effectively for
these developments”, Mr Shinohara added.

70
 ANNEX 5. COUNTRY AT A GLANCE

Uganda at a glance 11/2/09

Sub-
Ke y D e v e lo pm e nt Indic a t o rs Saharan Lo w
Uganda A frica inco me Age distribution, 2007
(2008)
Male Female

P o pulatio n, mid-year (millio ns) 32.0 800 1,296 75-79

Surface area (tho usand sq. km) 241 24,242 21,846 60-64
P o pulatio n gro wth (%) 3.3 2.4 2.2
Urban po pulatio n (% o f to tal po pulatio n) 13 36 32 45-49

30-34
GNI (A tlas metho d, US$ billio ns) 13.3 761 744
15-19
GNI per capita (A tlas metho d, US$ ) 410 951 574
GNI per capita (P P P , internatio nal $ ) 1,040 1,869 1,489 0-4

15 10 5 0 5 10 15
GDP gro wth (%) 8.7 6.2 6.4 percent of total population
GDP per capita gro wth (%) 5.4 3.8 4.2

( m o s t re c e nt e s t im a t e , 2 0 0 3 – 2 0 0 8 )

P o verty headco unt ratio at $ 1.25 a day (P P P , %) 52 51 ..

Under-5 mortality rate (per 1,000)
P o verty headco unt ratio at $ 2.00 a day (P P P , %) 76 73 ..
Life expectancy at birth (years) 50 51 57
200
Infant mo rtality (per 1,000 live births) 75 89 80
180
Child malnutritio n (% o f children under 5) .. 27 28 160
140
A dult literacy, male (% o f ages 15 and o lder) 82 71 72 120
100
A dult literacy, female (% o f ages 15 and o lder) 66 54 55
80
Gro ss primary enro llment, male (% o f age gro up) 120 99 100 60
Gro ss primary enro llment, female (% o f age gro up) 115 88 89 40
20
0
A ccess to an impro ved water so urce (% o f po pulatio n) 67 58 68
A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. 31 39 1990 1995 2000 2007

Uganda Sub-Saharan Africa

a
N e t A id F lo ws 19 8 0 19 9 0 2000 2008

(US$ millio ns)

Net ODA and o fficial aid 113 663 845 1,728 Growth of GDP and GDP per capita (%)
To p 3 do no rs (in 2007):
United States 13 30 58 302 25
United Kingdo m 7 35 217 167 20
Euro pean Co mmissio n 25 35 36 117
15

10
A id (% o f GNI) .. 15.7 13.9 14.8
A id per capita (US$ ) .. 41 37 56 5

Lo ng- T e rm E c o no m ic T re nds -5

95 05
Co nsumer prices (annual % change) .. 45.6 5.8 7.3
GDP implicit deflato r (annual % change) .. 44.4 -6.7 5.0
GDP GDP per capita

Exchange rate (annual average, lo cal per US$ ) .. 319.6 1,511.4 1,696.5
Terms o f trade index (2000 = 100) .. 95 100 135
19 8 0 – 9 0 19 9 0 – 2 0 0 0 2 0 0 0 – 0 8
(average annual gro wth %)
P o pulatio n, mid-year (millio ns) .. 16.3 23.0 32.0 2.7 3.4 4.1
GDP (US$ millio ns) .. 4,304 6,196 14,529 3.3 7.8 7.8
(% o f GDP )
A griculture 72.0 56.6 29.4 22.4 3.3 1.9 2.4
Industry 4.5 11.1 22.9 27.2 6.8 14.4 9.7
M anufacturing 4.3 5.7 7.6 7.5 4.8 13.5 6.5
Services 23.5 32.4 47.7 50.4 3.9 10.3 8.6

Ho useho ld final co nsumptio n expenditure 88.9 91.9 77.5 81.5 2.6 7.8 6.8
General go v't final co nsumptio n expenditure 11.2 7.5 14.5 12.1 2.2 8.3 5.4
Gro ss capital fo rmatio n 6.2 12.7 19.5 23.6 11.2 10.9 12.6

Expo rts o f go o ds and services 19.4 7.2 10.7 15.6 2.0 10.3 13.4
Impo rts o f go o ds and services 26.0 19.4 22.1 32.8 5.2 12.7 10.1
Gro ss savings .. 0.6 7.8 17.4

No te: Figures in italics are fo r years o ther than tho se specified. 2008 data are preliminary. .. indicates data are no t available.
a. A id data are fo r 2007.
71
Develo pment Eco no mics, Develo pment Data Gro up (DECDG).
 Uganda

B a la nc e o f P a ym e nt s a nd T ra de 2000 2008
Governance indicators, 2000 and 2007
(US$ millio ns)
To tal merchandise expo rts (fo b) 456 2,278
To tal merchandise impo rts (cif) 954 3,562 Voice and accountability
Net trade in go o ds and services -703 -1,815
Political stability

Current acco unt balance -644 -1,317

Regulatory quality
as a % o f GDP -10.4 -9.1
Rule of law
Wo rkers' remittances and
co mpensatio n o f emplo yees (receipts) 238 849 Control of corruption

Reserves, including go ld 719 2,673 0 25 50 75 100

2007 Country's percentile rank (0-100)

C e nt ra l G o v e rnm e nt F ina nc e higher values imply better ratings
2000

(% o f GDP )
Source: Kaufmann-Kraay-Mastruzzi, World Bank
Current revenue (including grants) 10.8 13.0
Tax revenue 9.9 12.6
Current expenditure 10.4 11.7
T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2007
Overall surplus/deficit -13.2 -4.1
P aved ro ads (% o f to tal) .. 23.0
Highest marginal tax rate (%) Fixed line and mo bile pho ne
Individual 30 30 subscribers (per 100 peo ple) 1 14
Co rpo rate 30 30 High techno lo gy expo rts
(% o f manufactured expo rts) 4.3 10.6
E xt e rna l D e bt a nd R e s o urc e F lo ws
E nv iro nm e nt
(US$ millio ns)
To tal debt o utstanding and disbursed 3,604 5,277 A gricultural land (% o f land area) 62 64
To tal debt service 181 134 Fo rest area (% o f land area) .. ..
Debt relief (HIP C, M DRI) 1,434 1,805 Natio nally pro tected areas (% o f land area) .. ..

To tal debt (% o f GDP ) 58.2 36.3 Freshwater reso urces per capita (cu. meters) 1,484 1,261
To tal debt service (% o f expo rts) 25.7 3.9 Freshwater withdrawal (billio n cubic meters) .. ..

Fo reign direct investment (net inflo ws) 177 481 CO2 emissio ns per capita (mt) 0.06 0.08
P o rtfo lio equity (net inflo ws) 0 0
GDP per unit o f energy use
(2005 P P P $ per kg o f o il equivalent) .. ..
Composition of total external debt, 2008
Energy use per capita (kg o f o il equivalent) .. ..
Private, 125 IBRD,
Short-term, 0 0
Bilateral, 171
Other multi-
lateral, 1,001 Wo rld B a nk G ro up po rt f o lio 2000 2007

IMF, 0 (US$ millio ns)

IB RD
To tal debt o utstanding and disbursed 0 0
IDA, 3,980
Disbursements 0 0
P rincipal repayments 0 0
Interest payments 0 0

US$ millions IDA

To tal debt o utstanding and disbursed 2,098 3,574
Disbursements 150 490
P riv a t e S e c t o r D e v e lo pm e nt 2000 2008 To tal debt service 31 43

Time required to start a business (days) – 25 IFC (fiscal year)

Co st to start a business (% o f GNI per capita) – 100.7 To tal disbursed and o utstanding po rtfo lio 36 12
Time required to register pro perty (days) – 227 o f which IFC o wn acco unt 36 12
Disbursements fo r IFC o wn acco unt 0 0
Ranked as a majo r co nstraint to business 2000 2007 P o rtfo lio sales, prepayments and
(% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 6 0
Electricity .. 63.3
Tax rates .. 11.0 M IGA
Gro ss expo sure 43 158
Sto ck market capitalizatio n (% o f GDP ) 0.6 1.2 New guarantees 0 115
B ank capital to asset ratio (%) 9.8 10.3

No te: Figures in italics are fo r years o ther than tho se specified. 2008 data are preliminary. 11/2/09
.. indicates data are no t available. – indicates o bservatio n is no t applicable.
72
Develo pment Eco no mics, Develo pment Data Gro up (DECDG).
Millennium Development Goals Uganda

With selected targets to achieve b etween 1990 and 2015

(estimate clo sest to date sho wn, +/- 2 years) Uga nda

G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2007

P o verty headco unt ratio at $ 1.25 a day (P P P , % o f po pulatio n) 68.7 64.4 60.5 51.5
P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) .. 44.0 35.0 31.1
Share o f inco me o r co nsumptio n to the po o rest qunitile (%) 6.8 6.8 .. ..
P revalence o f malnutritio n (% o f children under 5) 23.0 26.0 38.0 ..

G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling

P rimary scho o l enro llment (net, %) .. .. .. ..
P rimary co mpletio n rate (% o f relevant age gro up) .. .. 57 54
Seco ndary scho o l enro llment (gro ss, %) 12 11 16 18
Yo uth literacy rate (% o f peo ple ages 15-24) .. .. .. ..

G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n

Ratio o f girls to bo ys in primary and seco ndary educatio n (%) .. .. .. ..
Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) .. .. .. ..
P ro po rtio n o f seats held by wo men in natio nal parliament (%) .. .. .. ..

G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds

Under-5 mo rtality rate (per 1,000) 185 147 152 137
Infant mo rtality rate (per 1,000 live births) 93 97 88 75
M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) .. .. .. ..

G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs

M aternal mo rtality ratio (mo deled estimate, per 100,000 live births) .. .. .. ..
B irths attended by skilled health staff (% o f to tal) .. .. .. ..
Co ntraceptive prevalence (% o f wo men ages 15-49) .. .. .. ..

G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s

P revalence o f HIV (% o f po pulatio n ages 15-49) 13.7 11.8 8.5 5.4
Incidence o f tuberculo sis (per 100,000 peo ple) .. .. .. ..
Tuberculo sis cases detected under DOTS (%) .. .. .. ..

G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds

A ccess to an impro ved water so urce (% o f po pulatio n) .. 36 52 67
A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. .. .. ..
Fo rest area (% o f to tal land area) .. .. .. ..
Natio nally pro tected areas (% o f to tal land area) .. .. .. ..
CO2 emissio ns (metric to ns per capita) 0.0 0.0 0.1 0.1
GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) .. .. .. ..

G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt
Telepho ne mainlines (per 100 peo ple) 0.2 0.2 0.2 0.5
M o bile pho ne subscribers (per 100 peo ple) 0.0 0.0 0.5 13.6
Internet users (per 100 peo ple) 0.0 0.0 0.2 2.5
P erso nal co mputers (per 100 peo ple) .. 0.0 0.2 1.7

Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people)
olds)
25 100 20

75

50 10

25
0

2000 2002 2004 2006 2007 0 0

1990 1995 2000 2007 2000 2002 2004 2006 2007

Primary net enrollment ratio (..)

Ratio of girls to boys in primary & secondary Uganda (..) Sub-Saharan Africa Fixed + mobile subscribers Internet users
education (..)

No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. 11/2/09

Develo pment Eco no mics, Develo pment Data Gro up (DECDG).

73
 ANNEX 6. SUMMARY OF PEFA INDICATOR SCORES, 2005 AND 2008

Assessment Indicators 2005 2008

A. Credibility of the Budget
PI-1 Aggregate expenditure outcome compared with original approved budget B B
Composition of expenditure outcome compared with original approved C C
PI-2 budget
PI-3 Aggregate revenue outcome compared with original approved budget A A
PI-4 Stock and monitoring of expenditure payment arrears D D+
B. Comprehensiveness and Transparency
PI-5 Classification of the budget B A
PI-6 Comprehensiveness of information included in budget documentation B A
PI-7 Extent of unreported government operations C D+
PI-8 Transparency of Inter Governmental Fiscal Relations C D+
PI-9 Oversight of aggregate fiscal risk from other public sector entities D C
PI-10 Public Access to key fiscal information B B
C(i) Policy-Based Budgeting
PI-11 Orderliness and participation in the annual budget process C+ C+
Multi year perspective in fiscal planning, expenditure policy and B C+
PI-12 budgeting
C (ii) Predictability and Control in Budget Execution
PI-13 Transparency of taxpayer obligations and liabilities B B+
PI-14 Effectiveness of measures for taxpayer registration and tax assessment D B
PI-15 Effectiveness in collection of tax payment D+ D+
PI-16 Predictability in the availability of funds for commitment of expenditures C+ C+
PI-17 Recording and management of cash balances, debt, and guarantees C C+
PI-18 Effectiveness of payroll controls D+ D+
PI-19 Competition, value for money, and controls in procurement C D+
PI-20 Effectiveness of internal audit controls for non salary expenditure D+ C
PI-21 Effectiveness of internal audit D C+
C (iii) Accounting, Recording and Reporting
PI-22 Timeliness and regularity of accounts reconciliation C+ B
PI-23 Availability of information on resources received by service delivery units B B
PI-24 Quality and timeliness of in year budget reports D C+
PI-25 Quality and timeliness of annual financial statements B+ C+
C (iv) External Scrutiny and Audit
PI-26 Scope, nature, and follow-up of external audit C+ C+
PI-27 Legislative scrutiny of the annual budget law C+ C+
PI-28 Legislative scrutiny of external audit reports D+ D+
D. Donor Practices
D-1 Predictability of Direct Budget Support C+ D
Financial info provided by donors for budget, reporting on project, D+ C
D-2 program aid
D-3 Proportion of aid that is managed by use of national procedures C D

74
ANNEX 7. MAP OF UGANDA

75