Why Uganda can’t attain middle income status by 2020
Despite the government of Uganda’s efforts towards consolidating growth and social transformation, progress so far has been slow compared to the required milestones making it difficult to attain middle income status, according to Dr. Patrick Birungi, the Director for Development Planning at the National Planning Authority,
He says the country’s growth momentum has slowed over the first two years of the NDPII, averaging only 4.4 percent growth.
“This is quite low compared to the required NDPII period average growth of above 6.4 percent. Other key NDP II growth targets that have recorded less than satisfactory performance include: domestic revenue as percentage of GDP, which stood at 14% in FY 2017/18, as opposed to the target of 15.8%; Exports to GDP was 12.0% against the target of 14%; and private sector credit was NDP II 8% against 15% target.
“The low economic growth performance for the last two years of NDPII implementation puts the country at the risk of not being able to achieve the NDP II targets by 2020,” said Birungi during the 6th CPA Economic Forum hosted by the Institute of Certified Public Accountants of Uganda (ICPAU) at Imperial Resort Beach Entebbe.
He says the underlying premise for NDP II was that strengthening the fundamentals (roads, ICT, water for production, power and human capital development) to harness the available opportunities (Agriculture, Tourism and Minerals, Oil & Gas), however due to some complexities and challenges, in most cases the target results have not been realized.
He mentions the fundamentals as ineffective financing of development priorities, which manifests in different ways such as (i) misalignment between the intent of the budget and the actual budget allocations.
“Poor budget discipline – leading to frequent supplementary expenditures and off budget financing, Public borrowing that is not aligned to NDP Priorities, and high interest payments are crowding out budget allocations to key sectors and priority infrastructure projects that are key in driving growth and improving competitiveness of the economy,” says Birungi.
He adds that challenges in coordination and implementation of NDP priority programmes and projects, as many programmes delayed to start and those that started could not be effectively implemented due to challenges such as costly compensations (land acquisition), procurement delays and poor sequencing of development programmes and projects.
“Weak private sector limiting the ability to harness opportunities including those rendered through regional economic communities (East African Community –EAC).
“Despite the enabling business environment and investment climate, the private sector has not responded swiftly. Further, the private sector credit growth is still low to drive the NDPII target.
“The private sector credit growth at 7.5 percent is much lower than the NDPII target of 15.4 percent. As such, it is constraining Uganda’s growth potential and efforts for Middle income target.
“Sufficient expansion of private sector credit is critical to support private investment and consumption which are key to accelerated economic growth.”
He notes delays to realize oil and gas revenues. “By the time of drafting NDP II, it was anticipated that commercial exploitation (production and development) of Oil and Gas would commence at least by FY 2018/19 and non-realisation of this revenue meant that some priority programmes could not be executed”.
“High population growth and increasing dependence burden eroding the benefits of increased economic growth. Despite increase in GDP figures, GDP per capita has not grown that much due to an equally fast growing population at 3% per annum.”
PROSPECTS FOR REALIZATION OF UGANDA’S DEVELOPMENT AGENDA
Birungi says that Uganda’s growth and development targets set forth in Vision 2040 and NDP II are achievable but require an accelerated intervention approach.
He prescribes below the approaches and what needs to be done to accelerate Uganda’s growth and development agenda?
(a) Prioritisation and targeted interventions: to fast-track the implementation of priority programmes and projects and a new strategy that focuses on design of holistic programmes that cut across jurisdictions (whole-of-government). This calls for improving coordination of implementation mechanisms through establishment of appropriate delivery unit.
(b) Addressing systemic challenges in the economy that deter the economy from achieving and sustaining high growth levels. Some of these structural challenges include institutional rigidities encouraging working in silos, weak governance and
(c) Integrated planning and development process: Through integrated planning and implementation model, program-based planning and implementation will be used. This is required to ensure that government synergies are coordinated to delivery of key transformation programs.
(d) Maintaining sound macroeconomic environment – single digit inflation, stable exchange rate regime and low interest rate
(e) Stepwise Industrialization will be prioritized to build on existing resources including power generation, iron ore and agriculture. A stepwise approach will be undertaken that: First, pursues agricultural led industrialization, second, diversifies to other labour intensive light manufacturing and lastly prepare and transit to heavy manufacturing, particularly linked to available natural resources such as power generated, iron ore, agriculture and abundant labor. Value addition in iron will be used as a benchmark for building an Iron and steel industry. Value addition in agriculture will drive agriculture led industrialization and structural transformation.
(f) Strengthen Collaborations and partnerships – Attaining the Vision 2040 long term aspirations and NDP II targets is achievable but requires combined effort of all Ugandans. The role of certified public accountants in design and implementation of NDPs cannot be overemphasized especially in fostering transparent and accountable systems. Promote private sector development and competitiveness by reducing the cost doing business, facilitate and work with non-state actors, including: traditional/cultural leaders, faith based leaders, and CSOs, to deliver priority results.
(g) Consolidate gains in Human Capital development by refocusing Uganda’s approach. NDPII will need to prioritize efforts to harness the demographic dividend by managing Uganda’s population growth. Further, there is need to consolidate investments in education and health by changing their focus. The Health sector investment and expenditure consolidation strategy’s focus should be on improving the quality of service delivery in the existing stock of health centers and hospitals.
(h) Aligning the budget strategy to NDP. There is a need to strengthen the linkage and synergies between planning, budgeting the development and resource allocation of the development budget. This is critical in ensuring that the development budget implements the national strategic direction especially directing resources to productive sectors of the economy as defined in NDPs.
(i) Enhancing revenue (domestic revenue) mobilization to finance the plans – it’s critical that adequate resources are mobilized to finance NDP priorities. As noted earlier Uganda’s tax revenue effort is still low (14.2%), tax base has remained narrow and there are concerns about the efforts to broadening the tax base being retrogressive in nature.
“Professional public accountants can play key role in informing and influencing Uganda’s tax policy. In addition, to expanding the fiscal space, there is a need to enhance efficiency and effectiveness of tax administration and public spending (efficiency gains). Again, chartered accountants should play key role in influencing public expenditure allocation and enforcing value-for money accountabilities.”
He says Uganda has taken critical milestones in driving growth and socio-economic transformation. Important in-roads are reported in areas of constructing the economic infrastructure especially power, roads and water for production.
“However, a lot still needs to be done to attain and sustain the targets for the Uganda Vision 2040 and NDPII. In releasing the Vision and NDP Objective s and targets, collaboration and partnerships with key stakeholders cannot be overstated. The CPA fraternity should take lead in enforcing public accountability and performance of public agencies.”
BY PAUL TENTENA