Uganda’s draft national budget framework paper for fiscal year 2017/18 proposes an ambitious 10 per cent budget increase, benefiting mainly infrastructure, such as roads in the Albertine region.
Funding for the security sector also increases, but budgets for health, education, social development and justice are cut. As development partners, we are committed to supporting Uganda’s efforts to generate private sector growth and decrease reliance on external funding, including aid.
We have concerns, however, about whether the proposed budget is compatible with that scenario. Imagine Uganda in 2030 on the present trend and economic policies: in a favourable scenario, Uganda would be a lower middle-income country, with oil revenues flowing, increased trade to the region and elsewhere, peaceful, and external aid being phased out.
Yet in 2030 Uganda’s population is 56 million, with 60% below 18 years. A combination of underinvestment and poor absorption capacity leaves most children without access to quality education and adequate health services.
Top-down public support for agriculture and agribusiness, the only sectors able to generate sufficient job opportunities, remains inefficient. Most young people in this scenario are underqualified, unemployed and unable to benefit from oil revenues or economic growth. The judiciary is struggling with mounting backlogs, and inequities are growing.
As long-time friends, partners and admirers of Uganda’s progress and stability, we wish to voice our concern that this scenario may come to pass. We are all hoping to see the positives of increased revenues and trade, and we are working with partners to that end. But leaving people and youths behind, and underinvesting in basic quality services, carries social, economic and political risks.
The share of the budget dedicated to social sectors has declined from 37% in 2002/03 to 19% in the proposed budget for 2017/18. Without government bridging the funding gap arising from the decline in external aid to the social sectors, the earlier results could be compromised.
With over one million new-borns annually, Uganda cannot afford to defer these investments. Inevitably, investment per pupil in Uganda has decreased over the years, leading to deterioration in education indicators such as basic numeracy and literacy levels.
In health, earlier progress is either at risk, or almost entirely dependent on donor support, especially in the fight against and management of HIV/Aids.
Implementation is another concern. The energy and transport sectors – which represent 35% of the proposed budget – traditionally record Uganda’s lowest budget execution rates, and value for money is an issue.
Even if Uganda decides to go ahead with the proposed frontloading of infrastructure, including through loans mortgaged by future oil revenues, adequate sequencing in procurement and quality execution are critical to address absorption challenges. Interest payments on external loans are already taking a large share of the budget, making up the third-largest share.
Cutting services supposed to benefit future generations, with future oil revenues as guarantees for loans, in order to pay interests on delayed infrastructure execution – in our view – will make Uganda’s quest to reach the Sustainable Development Goals very difficult. We wonder whether there is an implicit expectation that donors and INGOs will fill the gaps.
The draft 2017/18 budget also implies increased domestic public borrowing. In 2016, Uganda already became the largest borrower from the domestic market and this is now set to rise further.
This means putting more scarce capital into public administration, which accounts for less than 3% of Uganda’s labour force, with the private sector finding it harder to access credit.
To help the private sector create jobs to future taxpayers, the government should consider reducing domestic borrowing, and avoid adding further on the current Shs 2.3 trillion of arrears. Only then will Uganda eventually see cheaper private sector access to capital for productive private investments, which are paramount to future growth.
In short, while we understand the difficult need to prioritize, we pledge to support the government of Uganda to invest in both people and infrastructure, to unleash modern, sustainable, and equitable economic growth. This calls for a balance between productive and social sectors, between future oil production and job creation and skills now for the youth.
Finally, as we look to a future where trade and investments gradually replace aid and loans, we will continue to offer Uganda full zero tariff-access to the European Union, the second-largest market in the world.
Ambassador Schmidt is the head of delegation of the European Union.
This article was co-authored with ambassadors from Belgium, Denmark, France, Germany, Ireland, Italy, the Netherlands, Sweden, the British High Commissioner and Engelits Günter, the Head of Office, Austrian Development Cooperation.