Ablo E. Y., and Ritva Reinikka, 1998, “Do Budgets Really Matter? Evidence from Public Spending on Education and Health in Uganda,” World Bank, Policy Research Working Paper No. 1926 (Washington: World Bank).
Appleton Simon, 2001, “What Can We Expect from Universal Primary Education,” in Uganda’s Recovery: The Role of Farms, Firms, and Government, ed. By Ritva Reinikka and Paul Collier (Washington: The World Bank), pp. 371–405.
Atingi-Ego, Michael, and Rachel K. Sebbude, 2000, “Uganda’s Equilibrium Real Exchange Rate and Its Implications for Export Performance,” Bank of Uganda Staff Papers, Vol. 2 (No. 1).
Bandara, Jayatilleke S., 1995, “Dutch Disease in a Developing Country: the Case of Foreign Capital Inflows to Sri Lanka,” Seoul Journal of Economics, Vol. 8 (Fall), pp. 314–29.
Benjamin, Nancy C., Shantayanan Devarajan, and Robert J. Weiner, 1989, “Dutch Disease in a Developing Country: Oil Reserves in Cameroon,” Journal of Development Economics, Vol. 30 (January), pp. 71–92.
Burnside, Craig, and David Dollar, 2000, “Aid, Policies, and Growth”, American Economic Review, Vol. 90 (September), pp. 847–68.
Calvo, Guillermo, Leonardo Leiderman, and Carmen M. Reinhart, 1993, “Capital Inflows and Real Exchange Rate Appreciation in Latin America,” Staff Papers, International Monetary Fund, Vol. 40 (March), pp. 108–51.
Calvo, Guillermo, Leonardo Leiderman, and Carmen M. Reinhart, 1994, “The Capital Flows Problem: Concepts and Issues,” Contemporary Economic Policy, Vol. XII (July), pp. 54–66.
Collier, Paul, and Jan Dehn, 2001, “Aid, Shocks, and Growth,” World Bank Policy Research Working Paper No. 2688 (Washington: The World Bank).
Collier, Paul, and David Dollar (2002), “Aid Allocation and Poverty Reduction,” European Economic Review, Vol. 46 (September), pp. 1475–500.
Corden, W. Max, and Peter J. Neary, 1982, “Booming Sector and De-Industrialisation in a Small Open Economy,” Economic Journal, Vol. 92 (December), pp. 825–48.
Daalgard, Carl-Johan, and Henrik Hansen, 2001, “On Aid, Growth and Good Policies,” Journal of Development Studies, Vol. 26 (August), pp. 17–41.
Deininger, Klaus, and John Okidi, 2001, “Rural Households: Incomes, Productivity, and Nonfarm Enterprises,” in Uganda’s Recovery: The Role of Farms, Firms, and Government, ed. by Ritva Reinikka and Paul Collier (Washington: The World Bank), pp. 123–75.
Edwards, Sebastian, 1989, “The Real Exchange Rate, Devaluation and Adjustment: Exchange Rate Policy in Developing Countries,” (Cambridge Massachusetts: MIT Press).
Elbadawi, Ibrahim A., 1999, “External Aid: Help or Hindrance to Export Orientation in Africa?” Journal of African Economies, Vol. 8 (December), pp. 578–616.
Fischer, Bernhard, and Helmut Reisen, 1993, Liberalizing Capital Flows in Developing Countries: Pitfalls, Prerequisites, and Perspectives, (Paris: Organization for Economic Cooperation and Development).
Goldstein, Morris, 1998, The Asian Financial Crisis: Causes, Cures, and Systemic Implications, (Washington: Institute for International Economics).
Hadjimichael, Michael T., and others, 1995, “Sub-Saharan Africa: Growth, Saving, and Investment, 1986-93,” International Monetary Fund: Occasional Paper No. 118 (Washington: International Monetary Fund).
Hansen, Henrik and Finn Tarp, 2000, “Aid Effectiveness Disputed,” Journal of International Development, Vol. 12 (April), pp. 375–98.
Henstridge, Mark and Louis Kasekende, 2001, “Exchange Reforms, Stabilization, and Fiscal Management,” in Uganda’s Recovery: The Role of Farms, Firms, and Government, ed. by Ritva Reinikka and Paul Collier (Washington: World Bank), pp. 49–79.
Lensink, Robert, and Howard White, 2001, “Are There Negative Returns to Aid?” Journal of Development Studies, Vol. 26 (August), pp. 42–65.
Montiel, Peter and Carmen Reinhart, 1999, “Do Capital Controls and Macroeconomic Policies Influence the Volume and Composition of Capital Flows? Evidence from the 1990s,” Journal of International Money and Finance, Vol. 18 (August), pp. 619–35.
Nkusu, Mwanza, 2004, “Aid and the Dutch Disease in Low-Income Countries: Informed Diagnoses for Prudent Prognoses,” IMF Working Paper 04/49 (Washington: International Monetary Fund).
Philipps, Michael M., 2002, “Uganda Fears Help Could Hurt; Official Split on Currency Effect,” Wall Street Journal (New York), May 29, Sec. # A4.
Reinikka, Ritva, and Jakob Svensson, 2001, “Confronting Competition: Investment, Profit, and Risk,” in Uganda’s Recovery: The Role of Farms, Firms, and Government, ed. by Ritva Reinikka and Paul Collier (Washington: World Bank), pp. 207–34.
Republic of Uganda, 1997, Poverty Eradication Action Plan: A National Challenge for Uganda, Volume I (Kampala: Ministry of Finance, Planning, and Economic Development).
Republic of Uganda, 2000b, Poverty Eradication Action Plan: Revised Volume I (Kampala: Ministry of Finance, Planning, and Economic Development).
Republic of Uganda, 2000c, Uganda Poverty Profile: What Do We Know About the Poor? (Kampala: Ministry of Finance, Planning, and Economic Development).
Republic of Uganda, 2001, Poverty Reduction Strategy Paper, Progress Report, (Kampala: Ministry of Finance, Planning, and Economic Development). Available via the internet: http://www.imf.org/external/NP/prsp/2001/uga/01/030201
Republic of Uganda, Ministry of Finance, Planning, and Economic Development, Statistical Abstract, various issues (Kampala: Ministry of Finance, Planning, and Economic Development).
Sackey, Harry A., 2001, “External Aid Flows and the Real Exchange Rate in Ghana,” AERC Research Paper No. 110 (Nairobi: African Economic Research Consortium).
Tsikata, Tsidi, M. 1999, “Aid Effectiveness: A Survey of the Recent Empirical Literature,” in International Economic Policy Review, Vol. 1, ed. by Paul Masson, Podma Gotur, and Timothy Lane (Washington: International Monetary Fund), pp. 73–90.
United Nations Conference on Trade and Development (UNCTAD), 2000, Investment Policy Review: Uganda (Geneva and New York: United Nations).
The author would like to thank Anupam Basu, Michael Nowak, Godfrey Kalinga, Yasmin Patel, Calvin McDonald, W. Scott Rogers, Shamssudin Tareq, David Dunn, Damoni Kitabire, Gabriela Inchauste, Selin Sayek, Ulrich Bartsch, John Matovu, Jeanne Gobat, and the participants at an African Department seminar for useful comments and suggestions on an earlier version. The author would like to thank also Natalie Baumer and Tom Walter for their editorial suggestions. Francis Tyaba’s assistance with the charts is greatly appreciated.
Uganda qualified for debt relief under the original HIPC Initiative in 1997. In 2000, total debt relief under the original and the enhanced Initiatives was estimated at roughly US$2 billion. Actual debt service relief averaged US$52.5 million a year during 1998/99–2000/01.
The REER is computed as the nominal effective exchange rate (NEER) index adjusted for relative movements in national prices or cost indicators of the home country and its trading partners. The NEER index itself is the ratio of an index of period average exchange rates of a country’s currency to a weighted geometric average of exchange rates for its trading partners. Where real exchange rate (RER) is used, it refers to the ratio of the price of nontradables to tradables. For both the REER and the RER, an increase denotes an appreciation.
Calvo, Leiderman, and Reinhart (1993) and Goldstein (1998) analyze the problems associated with non-ODA flows—foreign direct investment (FDI) and portfolio investments—to Latin America and East Asia, respectively. Fischer and Reisen (1993) highlight lessons from many OECD and developing countries’ experiences with private capital flows, following capital account liberalization.
Notwithstanding some short-term appreciations, the REER remained on a broadly stable long-term trend.
However, FDI figures may include some liability-creating flows, such as intercompany debt, that can be reversed quite quickly.
While disbursements can be stopped anytime, debt servicing will be expected to continue according to an agreed schedule.
Official grants, along with transfers to the nongovernment sector, could generate or exacerbate macroeconomic management problems as those related to capital inflows. In this vein, the analysis of the impact of inflows includes capital as well as noncapital financial flows.
The REER is computed using the official exchange rate. Since 1992, the parallel market was absorbed by foreign exchange bureaus with the liberalization of the foreign exchange market.
The figures reported reflect also recording errors. Nonetheless, even after excluding errors and omissions, the annual average growth rate of non-ODA flows remains strong, at 26 percent. Developments in non-ODA flows may have, along with various structural changes, encouraged some observers to consider Uganda as an emerging market country, even though institutionally it has not yet reached the standing of countries usually referred to as such. For instance, Montiel and Reinhart (1999) include Uganda in a study of capital flows to emerging markets, and the UN Conference on Trade and Development (UNCTAD) (2000) lists Uganda’s emerging market status among its strengths.
However, FDI has not necessarily been associated with investment in new enterprises, as part of the recorded inflows is privatization related and part relates to the return of businesses seized from foreigners under the Amin regime to their former owners. Whether it is privatization related or not, FDI will usually fit the “pull” view of capital inflows.
There have been episodes of deferred disbursements associated with delays in implementation of some measures agreed on with donors.
The PAF is a virtual accounting mechanism within the government’s budget, established to link debt relief and other donor assistance and domestic resources to spending on poverty reduction programs.
The literature widely acknowledges the positive association between the terms of trade and growth. Uganda’s growth performance over the last decade has been in part attributed to variations in terms of trade (Republic of Uganda, 2001).
However, unless the economy undergoes a transformation that makes it possible to increase domestic revenue mobilization so as to sustain government recurrent outlays, including those associated with the increase in the investment ratio, serious problems would emerge down the road when aid tapers off.
The implementation of Uganda’s PEAP has been associated in part with an increase in the number of classrooms, teachers, and health care professionals, and an improvement in the road network. During the period 1997/98–2000/01, expenditure on health, education, and roads averaged almost 38 percent of total expenditures. Deininger and Okidi (2001) provide some indications of the positive impact of education and access to infrastructure on income in Uganda. Using data from the 1992 and 1999/2000 household surveys, they find that raising the level of education of a household’s head by one year generates an almost 0.6 percentage points increase in the annual growth rate of the household’s income and that the result is statistically significant. They also find that distance to transportation infrastructure, more precisely roads, had a negative, albeit insignificant impact on income growth.
The depreciation of the REER after the revision of the CPI averaged 3.6 percent during 1996/97–2000/01.
The determination of an ERER on the basis of which misalignment should be assessed can, in general, be difficult. In line with his definition of the ERER, Edwards (1989) mentions that, while market-clearing equilibrium in the domestic market can be defined at any level of employment, his representation of ERER presumes full employment or employment being at its natural level. In a country where poor infrastructure and distance to markets have, over the years, prevented full employment of available resources, it is difficult to determine what the full or natural employment level of output would be with reduced infrastructural bottlenecks.
Deininger and Okidi (2001) mention weather and diseases as common determinants of changes in yield for many crops over the period 1992–99.
Budgetary outlays on roads, whose share in total expenditure increased from almost 8 percent in 1997/98 to 12 percent in 2000/01, have translated into improved infrastructure, and have thereby encouraged private investment and exports. In his June 2000 Budget Speech delivered at a parliament session, the Ugandan Minister of Finance indicated that government spending on roads in 1999/2000 allowed for the rehabilitation of 1,200 kilometers of rural feeder roads, in addition to routine maintenance of thousands of kilometers of the country’s highway roads (Republic of Uganda, 2000a, p. 9).
It is possible that the relatively strong Uganda shilling may have somewhat affected some exports even though total exports increased in real terms.
The revision in the CPI left annual average changes in the REER for fiscal years preceding 1999/2000 almost unchanged.
The area devoted to the cultivation of food crops increased from 4 million hectares in 1991 to 5 million hectares in 2000 (Appendix, Table A1).
Unemployment figures for Uganda are sketchy. Nonetheless, inferences can be drawn from poverty indicators and from the 1997 PEAP. According to the 1997 Household Survey, 24 percent of adults living in urban areas were unemployed while another 5 percent was referred to as economically active but not employed. In rural areas, the unemployed and economically active but not employed represented 9 percent and 4 percent, respectively (Appendix, Table A2). The 1997 PEAP indicates that “employment opportunities are very few relative to demand and because of this, salaries and wages are low” (p. 31).
Between 1998 and 2000, the wage bill for primary school teachers increased by 15.4 percent (from U Sh 89 billion to U Sh 103 billion), while the number of teachers on the payroll increased by almost 11 percent (from 80,427 to 89,052).
Firms importing inputs can benefit from a relatively less depreciated shilling in terms of lower costs. For instance, soft drink producers, such as Coca-Cola, import sugar, one of the main ingredients in soft drinks. The oil-processing sector imports 75–80 percent of the raw materials or semifinished edible oil products it needs, as the domestic supply of inputs covers only 20–25 percent of the demand of the processing mills (UNCTAD, 2000, p. 7).
Failure of the increase in spending associated with large aid flows or other sectoral booms to give rise to the Dutch disease is documented for Botswana (Harvey, 1992), Sri Lanka (Bandara, 1995) Tanzania (Nyoni, 1998), Cameroon (Benjamin, Devarajan, and Weiner, 1989), and Ghana (Sackey, 2001). On the theoretical front, Torvik (2001) develops a full employment endogenous growth model showing that depending on the characteristics of the economy experiencing a boom, production and productivity in both the tradables and the nontradables sectors can go either way.
The country’s trade restrictiveness index has declined from 7 to 2 on a 10-point scale, where 10 represents an extremely restrictive trade system.
Low and stable inflation and low variability of the RER are widely recognized in the literature as encouraging private investment and growth.
A temporary coffee stabilization tax was introduced in the mid-1990s.
The comparison suffers from a lack of consideration of the behavior of all ERER determinants in all countries.
According to many studies of the diminishing returns to aid, aid to Uganda would still be below the turning point, which is placed at 50 percent of GNP in Lensink and White (2001) and 25 percent of GDP in Hadjimichael and others (1995) and Hansen and Tarp (2000). Collier (1999) argues that aid could benefit growth even at 30 percent of GDP. Here again, it is important to emphasize that country-specific circumstances matter to the level of aid an economy can accommodate.