Finland’s first Norilsk Nickel icebreaker is waiting for a construction permit
After the expanding COVID-19 (coronavirus) pandemic and with the economy fully opening up, optimism – with the expected acceleration of growth and a clearer outlook for oil production – with the signing of the final investment decision in February 2022, new global shocks, including the impact of the war in Ukraine, have subsided.
19th edition Uganda Economic Update (UEU): The sustainability of public finances through a more thorough reform of public investment managementThe semi-annual analysis of Uganda’s near-term macroeconomic outlook estimates growth at 3.7 percent in 2022, down from pre-COVID-19 forecasts of more than 6 percent. Uganda’s GDP per capita was around $840 in 2021 and has only grown marginally over the year.
Real gross domestic product grew by 4.3 percent in the first half of 2022, supported by a strong and rapid recovery in the service sector with the opening of the leisure and entertainment industry, accommodation and catering services, and continuous information and communication. The report predicts a Growth of 5.1 percent in FY23, 0.5 percentage points below the December 2021 forecast and rising to around 6 percent in FY24.
“Rising commodity prices and a general rise in the cost of living pose new risks to livelihoods that were just beginning to recover from the effects of COVID-19. These and other shocks threaten to halt socio-economic change, making people more likely to fall deeper into poverty.“, said Mukami Kariuki, World Bank Uganda Country Director. “It is therefore critical that the Ugandan government implements targeted measures to support the vulnerable while managing debt and rising inflation.”
The UEU proposes four policy measures to help Uganda sustain a sustainable and inclusive recovery: i) accelerate vaccination efforts against COVID-19; ii) introduce targeted measures to support the vulnerable – such as by building shock-resilient social security systems; iii) maintain prudent fiscal and debt management to support the fiscal consolidation program; and iv) cautious monetary tightening due to rising inflationary pressures.
The report also recommends accelerating longer-term structural reforms to i) enhance revenue deployment through the Domestic Revenue Deployment Strategy; ii) improve public investment management; iii) rationalize public spending to support faster, sustainable and inclusive growth by investing heavily in human capital development; and iv) improve the trade and business environment and enable green investments.
The UEU states that fiscal consolidation is needed to curb debt and create the necessary space for disruptions that could damage or halt the recovery. This can be done by improving Public Investment Management (PIM), based on important reforms implemented by the government. The benefits of these efforts are beginning to show.
“Uganda has a great opportunity to harness public investment management by ensuring that in addition to preparing good projects, efforts are also made to effectively finance, implement, monitor, operate, maintain and evaluate them. These measures ensure that the country gets the greatest possible value from public investments,” said Rachel Sebudde, Senior Economist at the World Bank and lead author of the Uganda Economic Update. “Developing the strategic capabilities of government officials is crucial because it improves Ministries, departments and agencies‘ efficiency throughout the PIM cycle.”
Despite the progress achieved in the PIM process, there are still key challenges. These include the low implementation rate of donor and own budget projects; long implementation delays; project cost and time overruns; and high commitment fees in the case of externally financed projects. Overall, improvements in administrative processes in the pre-investment phase of PIM are overlooked due to challenges in critical areas, including project prioritization and selection, budgeting, and implementation.