Uganda: Selected Issues and Statistical Appendix

This Selected Issues paper and Statistical Appendix describes how to improve value-added tax (VAT) compliance in Uganda. The paper highlights that although the VAT in Uganda has a single positive rate and broad coverage, its initial threshold of U Sh 20 million may have been set too low, and a number of items that should have been exempted were zero rated. This paper presents a brief survey of the financial sector of Uganda. Public sector reforms and the privatization program are also discussed.

Abstract

This Selected Issues paper and Statistical Appendix describes how to improve value-added tax (VAT) compliance in Uganda. The paper highlights that although the VAT in Uganda has a single positive rate and broad coverage, its initial threshold of U Sh 20 million may have been set too low, and a number of items that should have been exempted were zero rated. This paper presents a brief survey of the financial sector of Uganda. Public sector reforms and the privatization program are also discussed.

V. The Poverty Eradication Action Plan and Social Expenditure 24

A. Summary of the Poverty Eradication Action Plan 25

63. In November 1995, the Government of Uganda held a seminar in Kampala on “Growth and Poverty Reduction”; it was agreed at that time that an action plan to eradicate poverty in Uganda should be formulated, in close consultation with donors. A strategy for the poverty eradication plan was first published in the Background to the Budget 1996/97 and in a medium-term development strategy document in July 1996; subsequently, ministries drafted sector-specific action plans. The final draft of the Poverty Eradication Action Plan (PEAP), Vol. I, was issued in June 1997. The second volume, a poverty-focused program for 1998/99–2001/02, is in an advanced stage of preparation. This section describes the main features of the PEAP.

64. Notwithstanding high rates of growth of real GDP in Uganda during the last ten years (6.5 percent average a year), mass poverty and poor social conditions continue to be major problems.26 According to the PEAP report, as of 1993/94, 66.3 percent of the population of Uganda was living in absolute poverty.27 The objective of the PEAP is to reduce this figure to 10 percent by the year 2017. The efforts are to be concentrated in three main areas: (i) macroeconomic policy; (ii) measures to increase incomes of the poor; and (iii) measures to improve the quality of life of the poor. The plan is a synthesis of existing policies and objectives (such as macroeconomic stabilization), and new ones (such as the Universal Primary Education program). Selected social outcome indicator targets, contained either in the PEAP or in the Enhanced Structural Adjustment Facility (ESAF-supported) program, are shown in the Table 12.

Table 12.

Uganda: Social Outcome Indicator Targets 1/

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Source: Ugandan authorities.

The targets are contained either in the PEAP or in the ESAF-supported program.

65. The PEAP emphasizes that maintaining a policy of macroeconomic stability is necessary for keeping the economy on a high and sustainable growth path, and thus for pursuing the strategy of “growing out of poverty.” At the same time, the PEAP recognizes that high rates of growth alone are not sufficient to solve the poverty problem. The following areas of the macroeconomic policy are therefore singled out as helping to eliminate poverty:

  • increasing expenditures on basic social services (health and education) both in absolute terms and as a percentage of total recurrent expenditures;

  • increasing efficiency of utilization of these expenditures (this objective is related to the overall reform of the public sector);

  • targeting the allocation of a larger share of public expenditures to poor areas;

  • creating an environment conducive to development of the private sector (improvement of legal and regulatory framework, and building of infrastructure), particularly in rural areas; and

  • eliminating distortions in the tax structure that reduce growth.

66. The PEAP’s measures to increase incomes of the poor concentrate on the areas of roads, land and the environment, agriculture, microenterprises and small enterprises, and employment and labor markets.:

  • With respect to roads, the objective is to reduce the disparity between urban and rural areas by improving farmers’ access to markets and market information, legal and other business services, and basic social services.

  • On land and the environment, as most Ugandans—especially in rural areas—derive their livelihood from land, to legalize the right of all Ugandans as titleholders to land is crucial in fighting poverty. It is also important to improve the quality of the land and to stop the current practices that erode the soil erosion and deplete the vegetation cover.

  • Since the majority of the poor generate their incomes from agriculture, improvement in this area is obviously very important as well. The PEAP lists the following positive features of Uganda’s agriculture: generally fertile soil, good weather, a comparative advantage in food production in the East African region, and good research facilities. The following weaknesses are identified: overspecialization in rain crops and animal production, underdeveloped infrastructure, poor extension services, backward technology, food insecurity, and lack of credit. Government policies addressing these problems will focus mainly on developing rural infrastructure, removing fiscal measures harmful to agriculture, and developing rural credit markets through the establishment of special microfinancial institutions. The government will also work to create the appropriate legal and regulatory environment for activities of nonbanking financial institutions.

  • Microenterprises and small enterprises are viewed as a major source for generating employment and income for the poor.28 The problems of these enterprises are similar to those in other developing countries, they do not have access to credit (either because of lack of appropriate institutions or lack of collateral), adequate supporting services for these enterprises are not in place, and no training centers for entrepreneurs exist. Local governments will aim at addressing these problems.

  • With respect to employment and labor markets, availability of employment opportunities and improvements in labor productivity are necessary for reducing poverty. Currently, the labor force in Uganda suffers from a lack of basic skills and poor health. Job opportunities for unskilled workers are limited. No labor exchanges exist that would provide information about job openings. Also, the labor market is characterized by many inefficiencies, including those arising from discriminatory practices. The government will attempt to address these problems by giving priority to health and education expenditures and by improving the legal and regulatory framework.

67. The PEAP’s envisages a number measures to improve the quality of life of the poor:

  • Upgrade health care services, which are necessary for increasing the life expectancy of the population and for improving labor productivity (and income).

  • Ensure a clean water supply, which is necessary for improving health of the population. The PEAP document states that in 1996 only 31 percent of the rural population had a safe water supply. The objective of the government is to raise this figure to 75 percent.

  • Improve education. In spite of the increase in the number of schools in the 1980s, the access to, and the quality of, education has decreased since the 1970s. This is because of the interruption of the training of teachers and the maintenance of schools during the civil strife. The main objective of the government is to provide universal primary education. The challenge is to achieve this without further lowering the quality of education.

68. While implementation of many aspects of the PEAP has been ongoing, the implementation of the overall program has only recently started. Thus, PEAP objectives were explicitly taken into account in the recent comprehensive public expenditure review. The Ministry of Planning and Economic Development is responsible for coordinating and monitoring the implementation of the PEAP. A special mechanism is being established to monitor the effectiveness of the PEAP in reducing poverty. A set of indicators is being developed and refined, and monitoring will start in July 1998.

B. Evolution of Social Expenditures

69. The period during which Uganda has had ESAF arrangements with the Fund has been one during which social expenditures on health and education have risen substantially, more than doubling in real, per capita terms (see Table 13). Measured in constant 1990/91 Uganda shillings, per capita expenditures on education rose from U Sh 1,475 in 1988/89—the year before the start of Uganda’s first ESAF arrangement—to U Sh 3,139 in 1996/97. Meanwhile, per capita expenditures on health rose from U Sh 515 in 1988/89 to U Sh 1,328 in 1996/97.

Table 13.

Uganda: Health and Education Expenditure Indicators, 1988/89–1996/97

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Sources: Ugandan authorities; and Fund staff estimates and projections.

70. The evolution of social spending could be analyzed in terms of the changes in real, per capita expenditures on health and education that could be attributable to four factors: (1) real, per capita GDP growth; (2) changes in the expenditure share of GDP; (3) changes in the health and education shares of total expenditures; and (4) changes in the prices of health and education goods and services relative to all goods and services. From 1988/89 to 1996/97, these factors evolved as follows: real GDP per capita rose 29 percent; the ratio of total expenditure to GDP rose from 10.5 percent to 18 percent; the shares of health and education expenditures in total expenditures rose, from 10.0 percent to 14.5 percent for education, and from 2.6 percent to 4.9 percent for health; and, relative to the overall GDP deflator, the health sector deflator rose 56 percent, while the education sector deflator rose 49 percent. Thus, all the factors identified above, except relative prices, moved in a way that would cause real, per capita social expenditures to rise.

71. Decomposing the changes in real, per capita social expenditures into components, most of the improvement in social spending results equally from the increases in real, per capita GDP and from a broad increase in government expenditures as a share of this higher GDP (Table 14, Figure 5). For the entire period from 1988/89 to 1996/97 these two factors accounted for roughly equal shares of the improvement in both real, per capita health and real, per capita education expenditures. The improvement in the composition of expenditures contributed a smaller share. The negative effect of the increase in the relative price of goods and services in the health and education sectors more than offset the effect of the change in composition of expenditures, but was smaller than the positive effects of growth of GDP or of expenditure as a share of GDP.29

Table 14.

Uganda: Changes in Per Capita Health and Education Expenditure, 1988/89–1996/97

(In constant 1991 Uganda shillings)

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Sources: Derived from data privided by the Uganda authorities.

Fiscal year June–July.

Figure 5:
Figure 5:

Uganda. Real, Per Capita Health and Education Expenditures, 1988/89–1996/971

(in Uganda shillings)

Citation: IMF Staff Country Reports 1998, 061; 10.5089/9781451838626.002.A005

1/ Fiscal year July-June.

72. Real, per capita health and education expenditures in Uganda have risen substantially, in spite of adverse price movements, because the government has devoted increased resources to these sectors. Under the 1997/98 budget the government is planning to expand spending in these areas further, most notably with the implementation of the Universal Primary Education program. Notwithstanding the clear upward trend in the quantity of social expenditures, there is considerable room for improvement in the quality, and indications are that not all social expenditures are benefiting the targeted recipients. Hence, changes in real, per capita expenditures may not necessarily measure concomitant changes in real benefits received by individuals. Additionally, a note of caution must be expressed about the reliability and comparability of the data series. For example, there are questions that surround the measurement of sector deflators for health and education, such as whether rural districts are properly accounted for, which items are included in the deflators, and how donated goods and services are accounted for. The data on expenditures on education and health are partly based on cash releases from the budget, and it is not always possible to track how they are spent, especially at the district level. Moreover, information is not available on the education and health components of externally funded development expenditures. Nevertheless, the government recognizes the importance of these sectors and remains committed to expanding and improving them.

Table 1.

Uganda: Gross Domestic Product by Industry, at Current Prices, 1991/92–1996/97 1/

(In billions of Uganda shillings, unless otherwise indicated)

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Source: Ministry of Planning and Economic Development. Statistical Abstract 1997, p. 34.

The national accounts series were revised in May 1997.

Includes owner-occupied dwellings.

In thousands of Uganda shillings.

Based on the 1991 census.

Table 2.

Uganda: Gross Domestic Product by Industry, at Constant 1991 Prices, 1991/92–1996/97 1/

(In billions of Uganda shillings)

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Source: Ministry of Planning and Economic Development. Statistical Abstract 1997, p. 34.

The national accounts series were revised in May 1997.

Includes owner-occupied dwellings.

Table 3.

Uganda: Gross Domestic Product by Expenditure at Current Prices, 1991/92–1996/97

(In millions of Uganda shillings)

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Sources: Ugandan authorities; and Fund staff estimates.

Includes change in stocks.

Includes transfers.

Difference between GDP by industry and GDP by expenditure.

Table 4.

Uganda: Gross Domestic Product by Expenditure Shares at Current Prices, 1991/92–1996/97

(As a percentage of GDP at market prices)

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Sources: Ugandan authorities; and Fund staff estimates.

Includes change in stocks.

Includes transfers.

Difference between GDP by industry and GDP by expenditure.

Table 5.

Uganda: Growth of Gross Domestic Product by Sector at Constant 1991 Prices, 1991/92–1996/97

(Annual growth rates, in percent)

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Source: Ministry of Planning and Economic Development, Statistical Abstract 1997, p. 34.

Includes owner-occupied dwellings.

Table 6.

Uganda: Composite Consumer Price Index, January 1992-February 1998

(Base: September 1989=100)

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Source: Ministry of Planning and Economic Development

Percentage change in 12-month moving average.