Uganda’s Fiscal Policy (2000-2016): Implications for Public Investment Management (PIM)

Abstract

Uganda has recently pursued expansionary fiscal policies, driven by the desire to improve the country's infrastructure, increase the production of assets, and facilitate accelerated growth. Nevertheless, providing more resources for capital development in line with the country development aspirations alone will not necessarily translate in optimal infrastructure investments. A question that arises is, what comes first: Is it to invest in the effort to establish effective systems for managing public investment in order to yield high returns or should financing these investments precede capacity challenges. Using a rich dataset of public sector projects defined by project, financing mix, sector etc; the paper carries out project absorptive capacity and overall fiscal trend analysis to ascertain whether budgeted projects translated to intended outturns. It is found that weak Public Investment capacity has led to less than budgeted public investment outturn which has reduced intended fiscal policy impact. As such, for Uganda to achieve its fiscal objectives there is need to balance its expansionary fiscal policies with the ability to absorb fiscal resources.

Uganda's fiscal policy reforms: What have we learned?

“…At the same time, tax revenue performance has stagnated, and Uganda is currently the worst regional performer. The fiscal deficit has been contained as a result of under‐execution of the capital budget (Guloba, 2018; World Bank, 2016a), which has limited the impact of fiscal policy on growth. A recent PEFA assessment indicates significant weakness in strategic allocation of resources, arrears management, tax administration, and cash management (GoU, 2017).…”

“…However, tax effort stagnated between 10% and 11% of GDP as the authorities struggled to keep the momentum in tax revenue performance. At the same time, public expenditures continued to increase as the authorities pursued an expansionary fiscal policy, particularly in the 5 years during 2000–2004 when expenditures averaged 21% of GDP before declining to an average of 16% during 2005–2008 as the economy started to pursue fiscal consolidation (Guloba, 2018).…”

“…While the economy appeared to have coped well with the effects of the global financial crisis, economic performance was affected by regional trade shocks and domestic production constraints (Hausmann et al, 2014; World Bank, 2013, 2018). During this period, the country pursued an expansionary fiscal policy as the development objectives changed focus from social service delivery to delivery of infrastructure investments (Guloba, 2018). While tax revenue performance has improved from 9.5% of GDP in 2009 to 13.5% in 2017, the country's expansionary fiscal policy was offset by weakness in expenditure execution, particularly for capital projects (Guloba, 2018; World Bank, 2016a).…”

“…During this period, the country pursued an expansionary fiscal policy as the development objectives changed focus from social service delivery to delivery of infrastructure investments (Guloba, 2018). While tax revenue performance has improved from 9.5% of GDP in 2009 to 13.5% in 2017, the country's expansionary fiscal policy was offset by weakness in expenditure execution, particularly for capital projects (Guloba, 2018; World Bank, 2016a). At the same time, government access to foreign grants has declined, averaging only 1.6% of GDP, as development partners preferred a project‐focused development support model as opposed to budget support.…”

“…The fiscal deficit, which had averaged more than 10% during 2000–2005, has been stable and averaged 5.4% between 2012 and 2017, as the country's expansionary policy was offset by weakness in capital budget execution (Guloba, 2018). In addition, tax effort has stagnated and has not been responsive to the overall good macroeconomic performance (Mawejje & Munyambonera, 2016; World Bank, 2018).…”