Report No. 1051 2-UG

UgandaManaging Public Expenditure

JUNE 30, 1992

Eastern Africa DepartmentAfrica Regional Office

FOR OFFICIAL USE ONLY

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MIGRi )FI1CIE COPY

Report No. Jo1b'--U(; Type: (SE'J')ABLO, E / X355:52 / J10'137,' AF"2(O

Document of the World Bank

This document has a restricted distribution and may be used by recipients£ :ily in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Uganda Shilling (U Sh)

Exchange Rates

May 1986 US$1 = U Sh 14May 1987 US$1 - U Sh 60July 1988 US$1 = U Sh 150July 1989 US$1 U Sh 200October 1989 US$1 = U Sh 340July 1990 US$1 = U Sh 440July 1991 US$1 = U Sh 750Marcl. 1992 US$1 = U Sh 1000

GOVERNMENT FISCAL YEAR

July I - June 30

This report is based on the findings of two missions to Uganda. The first nission took place betveenNovernber 5 and Novemnber 22, 1991. The members of this nission were Emmanuel Ablo (missionleader), Kapil Kapoor, Mini Klutstein-Meyer (AF2CO), Chukwuma Obidegwu (Uganda ResidentMission), Mark Schacter (CECPS), Neil Canpbell (Consultant), Emnanuel Folson (Consultant) andDickson Tamakloe (Consultant). The second mission, which took placefrom February 16 to February29, 1992, consisted of Emnanuel Ablo and Chukwuma Obidegwu. Roboid Covington and LilianCanamaso were responsible for wordprocessing and production of tie report. Afsar Nokhostin assistedin many ways with the processing and production of the report. Last but not least, the contribution ofmany Ugandan Government officials, particularly in the ministries of Finance and Econonic Planning,Local Government, Education and Health and in the Bank of Uganda, is gratefully acknowledged.

FOR OFCL USE ONLY

ABBREVIATIONS AND ACRONYMS

AfDB African Development BankAG Auditor GeneralBOU Bank of Uga. daCFS Consolidat'd Fund ServicesCMB Coffee Marke ing BoardCMS Central Medical StoresCTB Central Tender BoardC/TOA Commissioner/Treasury Officer of AccountsDANIDA Danish International Development AgencyDEO D. trict Education OfficerDMO District Medical OfficerDST Deputy Secretary to the TreasuryEAU Economic Analysis UnitEDMO External Debt Management OfficeEEC European Economic CommunityEFM Economic and Financial Maragement [ProjectiEMC Economic Monitoring CommitteeERP Economic Recovery ProgramFY Fiscal YearGDP Gross Domestic ProductICA International Coffee AgreementIDA International Development AssociationIMF International Monetary FundLPO Local Purchase OrderL/C Letter of CreditMLW Minimum Living WageMOE Ministry of EducationMOF Ministry of FinanceMOH Ministry of HealthMOLG Ministry of Local GovernmentMPED Ministry of Planning and Economic DevelopmentMPS Ministry of Public ServiceMPU Ministerial Planning UnitNGO Non-Governmental OrganizationNRM National Resistance MovementOGL Open General LicenseO&M Operations and MaintenancePAC Public Accounts CommitteePAPSCA Program to AUeviate Poverty and the Social Costs of AdjustmentPER Public Expenditure ReviewPES Public Enterprise SecretariatPFP Policy Framework PaperPIP Public Investment ProgramPIU P oject Implementation UnitsPM Prime MinisterPMEU project Monitoring and Evaluation UnitPSRRC Public Service Review and Reorganization CommissionPTA Parent/Teacher AssociationRDP Rehabilitation and DevelopmentRIE Requisition to Incur ExpenditureSCD Statutory Corporations DivisionSSA Sub-Sanaran AfricaST Secretary to the TreasuryTAI Treasury Accounting InstructionsTFI Treasury Financial InstructionsTGA Treasury General AccountTI Treasury if InspectorateUCS Uganda Computer ServicesUEB Uganda Electricity BoardUNESCO United Nations Scientific and Cultural Orga,izationUNICEF United Nations Chilldren and Educational FundURA Uganda Revenue AuthorityUStF Undersecretary for FinanceU Sh Ugandan ShillingWHO World Health Organization

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

UGANDAMANAGING PUBLIC EXPENDITURE

TABLE OF CONTENTS

Page No.EXECUTVE SUMMARY ........................................

A. Introduction ................... ...................... iB. Salient Features of Public Expenditure ......... .. .............. iiC. Main Findings of the Report ................... iiiD. Main Recommendations ............... .................. viii

CHAPTER 1: INTRODUCTION .................................. 1A. An Overview of the Economic Recovery Program ................ 1B. Public Expenditure: Level and Allocation Issues Revisited .... ....... 4C. Rationale and Scope of the Review .......................... 14D. Related Economic and Sector Work ......................... 14E. Organization of the Report ............................... 15

CHAPTER 2: THE PRESENT BUDGET PROCESS ..................... 16A. A Historical Perspective ................................ 16B. Preparation of the Annual Estimates ......................... 16C. Release of Funds ..................................... 24D. The Payments System .................................. 26E. Control and Management of Public Finances .................... 30F. Government Accounts .................................. 31G. Monitoring and Evaluation ............................... 34

CHAPTER 3: IMPROVING PUBLIC EXPENDITURE MANAGEMENT .... ... 36A. Introduction ....................... ................ 36B. The Revenue-Wages-Productivity Nexus ......... ....... 36C. Economic and Financial Information ...... .......... 39D. The Annual Estimates ................ 42E. Releases ................ 48F. Government Borrowing ................ 50G. The Payments System ................ 51H. Control and Management ................ 52I. Institutional Arrangements ................ 53J. Monitoring and Evaluation ................ 54

CHAPTER 4: NONWAGE RECURRENT EXPENDIURE NORM FORPRIMARY EDUCATION ...... .. ........ 55A. Introduction ............... 55B. TheData .......................................... 55C. Critical Inputs Into Primary Education ..... .......... 55D. Preliminary Norm ............... 57

ANNEXES1. A Framework for Recurrent Expenditure Norms .... ........... 602. Core Textbooks and Materials ....... .................... 733. Hired Transport . ................................... 79

TABLES1.1 Ministerial Recurrent Expenditure by Functional Classification .... .... 71.2 Ministerial Recurrent Expenditure by Economic Classi'ication .... ... 101.3 Total Expenditure by Economic Classification ..... ............ 123.1 Average Wages and Minimum Living Wages .373.2 Indicators of Affordible Wage Increases .393.3 Contribution of Import Support to Revenue .463.4 Counterpart Expenditure/Revenue Ratios .494.1 Summary of Nonwage Recurrent Cost Estimates .584.2 Actual Provision for Primary Education Versus the Norm .58A1.1 Nonwage Recurrent Allocations for Primary Education, 1991/92 .68A1.2 Nonwage Recurrent Allocations for Primary Health, 1991/92 .70

GRAPHSFigure 1.1 Ministerial Recurrent Expenditure by Functional Classification. 8Figure 1.2 Ministerial Recurrent Expenditure by Economic Classification .11Figure 1.3 Total Expenditure by Economic Classification .13

EXECUIVE SUYLR

A. Introduction

1. The National Resistance Movement (NRM) Government took over in January1986 not just a ruined economy but also a country whose political and social institutions hadpractically been destroyed. In response to the daunting challenges that it faced, the Governmentlaunched, with Bank, Fund and other donor support, an Economic Recovery Program (ERP) inMay 1987, aimed at bringing about economic recovery while restoring internal and externalfinancial stability. The implementation of the program has met with much success, as evidencedby an average growth rate of the Gross Domestic Product (GDP) of over 7 percent during thefirst two years of the ERP, the fall in the rate of inflation to the 20s and 30s and the rehabilitationof large parts of the infrastructure.

2. Recent developments have, however, shown that there are difficult challengesahead. Of immediate concern is the fact that Uganda's stabilization program has again faltered.The proof for this is the re-emergence of a severe imbalance between government revenue andexpenditure during FY92. The monetization o; the resulting budges deficit, coupled with adverseexternal developments (principally a further sharp fall in international coffee prices) has reignitedinflation, as shown by the jump in the year-on-year rate to 66.3 perceeei in May 1992. Given thissituation the Government will have to implement more vigorously pu,; i' and programs neededto attain sustained financial stability. The main prerequisites for succe.i .,a this area include asignificantly enhanced domestic revenue effort and much more effective planning andmanagement of public expenditure and of the ERr in general.

3. Aside from the imperative of achieving financial stabilization, Uganda has otherchallenges to contend with. The balance of payments situation remains very precarious. Thisis portrayed by the sharp decline in coffee export earnings (from US$282 million in FY89 to onlyUS$126 million in FY91) and the overhang of increasingly diffict t-to-service external debttotalling US$2.6 billion, including arrears of over US$400 million.

4. In the social sectors the years of turmoil had taken their toll. Through killingsor exile, the country lost large numbers of its best trained people. A good deal of the educationalinfrastructure was destroyed or neglected; schools closed down because of insecurity; and thoseremaining became very overcrowded. The quality of education at all levels has fallen drasticallybecause of the lack of instructional materials, pitifully low pay for teachers (as for other civi;servants), the employment of large numbers of untrained teachers and the dilapidated state of thtphysical facilities.

S. Conditions in the health sector also became appalling. Easily preventable diseasessuch as diarrhea and malaria have become major causes of mortality and morbidity. The rapidspread of HIV infection has added a new, more alarming dimension to the health problemsafflicting the population. The public health services are unable to cope with the problems in thesector because of the run-down state of the physical infrastructure, the breakdown of managementsystems, the shortage of qualified staff and poor incentives.

B. Salient Features of Public Expenditure

Aggregate Public Expenditure

6. In Uganda the ratio of public expenditure to GDP is relatively low. It wasestimated at 16.4 percent in FY91 (having risen from 13 percent in FY88), compared to anaverage of 30 percent for Sub-Saharan African (SSA) countries. It is not by design that aggregatepublic expenditure in Uganda is low. Rather, it is a reflection of an exceptionally weak domesticrevenue effort. The ratio of total domestic revenue to GDP increased from 6.7 percent in FY88to only 8.1 percent in FY91, still less than half the average for SSA countries. Low aggregatepublic expenditure offers part of the explanation for the inadequate funding of a wide range ofGovernment programs. To make this point is not to suggest that total government expenditureshould be increased regardless of the efficiency of use of public resources or the capacity toimplement public programs and projects.

7. Uganda's external assistance requirements have grown rapidly as its own exportearnings have dwindled. External assistance in the form of import support loans and grants havealso become a major prop to the Gove'nment budget. In FY91 the ratio of import supportrevenue to domestic revenue was 60 percent. Heavy reliance on foreign assistance imposes itsown constraints on public expenditure management and imparts a measure of vulnerability to thegovernment budget.

8. The collapse of export earnings from coffee, which still accounts for about 70percent of total export earnings, has seriously impaired Uganda's ability to meet its external debtservice obligations. In FY91 actual interest payments were equivalent to 7.3 percent of totalgovernment expeniiture and nearly 50 percent of exports of goods and services. Ugandacritically needs much higher levels of donor assistance through debt forgiveness, sharp write-downs and balance of payments support that can be used to buy imports as well as service debt.

9. The Public Investment Program (PIP) in Uganda consists of donor-financedprojects, except for a few locally-financed capital projects (the Mityana-Fort Portal road beinga prime example). The program is driven by a strong desire to recreate, to the same standard,the infrastructure that was destroyed or damaged during the civil wars. Many donors areprepared to oblige. As a result, projects are being added to the PIP without due considerationof the future recurrent costs. Moreover, the relentless growth of the PIP is not matched by theability of the public service to carry out the relevant projects and programs.

The Composition of Public Expenditure

10. The first PER report on Uganda made a wide range of recommendations de..ingmostly with how the composition of public expenditure might be changed to best serve theGovernment's objectives of promoting growth and equity. Difficulties were encountered intranslating the recommendations into budgetary allocations. Nevertheless, going by the very largeand obvious needs in the priority sectors (agriculture, education, health, transport and water), theGovernment was able, with assistance from IDA, to increase significantly the share of thesLsectors in total ministerial recurrent expenditure in FY92. This has involved a sharp cut in theshare of resources going into defense in FY92, with all the broad functional categories ofexpenditure (economic services, social services and public administration) expected to share inthe resources to be released by defense. There was firmer control over defense spending,

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although there was a small overrun and defense was spared the expenditure cuts that wereinstituted in April 1992.

1' The FY92 budget estimates reflect the Government's new emphasis on socialservices. Expenditure on serv;ces have been programmed to absorb a litde over a third of totalministerial expen"nture compared to about a quarter in the previous year. Unfortunately, thepriority programs in .tA social sectors (primary education, primary health and water) as well asthe priority programs in the economic sectors (agricultural research and extension and roads)were not protected ' -m the recent expenditure cuts necessitated by large shortfalls in budgetaryresources. Becausb v the twin risks of over-optimism on the revenue front and overspending insome areas, the Government will have to protect the priority programs from expenditure cutswhile c ontinuing to increase the share of these programs in total ministerial recurrent expenditure.For .FY93 the Governmient proposes to maintain the budgetary allocations for the priorityprograms in real terms over the -aocations for FY92. This report endorses the Government'sstance.

12. The Government has indeed begun to increase nonwage O&M expendituresubstantially. According to the original budget estimates, nonwage O&M expenditure wouldabsorb nearly three-quarters of total ministerial recurrent expenditure in FY92, compared to anaverage of two-thirds over the past three years. In addition to raising its share in aggregateministe -' expendituLe, the Government is targeting the resources available for nonwage O&Mexpencitcre on the prinrity programs (primary education, primary health etc). The increase int, share of wages in total ministerial recurrent expenditure in FY92 shows just how cautious theGovernmers has been in raising civil service wages and salaries. Tackling the problem of verylow civil .ervice pay will require some difficult trade-offs between wage and nonwagediscretion -v min;sterial expenditure.

C. Main Findings of the Report

Keeping Things In Perspective

13. Its easy to forget how bad things were in Uganda just seven years ago. It istherefore worth recalling that for a long time the state as the fount of authority had all butcollapsed. Even the established defence force had disintegrated. The economy was in ruins. Themost elementary systems for public sector management had broken down. The civil service wastotally demoralized. Public expenditure was more or less out of control. Such capacity for taxcollection as existed was used more and more for personal gain rather than the public good. Itis against this background that the improvements in public expenditure management introducedby the NRM Government since 1986 must be seen.

The Legal Framework

14. This report found that on the whole the basic laws governing public finances,namely the Constitution and the Public Finance Act, still provide an adequate fra.mework for themanagement of public expenditure. The same goes for the Treasury Financial Instructions (F!)and the Treasury Accounting Instructions (TAI), both issued under the authority of the PublicFinance Act. The duties of the National Assembly, Minister of Finance, the Auditor General(AG), the Treasury and accounting officers are spelt out clearly in the relevant provisions. Whatis lacking is not only knowledge but also the consistent application of these laws and regulations.

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The TFI and TAI (Part I) have been revised but have yet to be published and disseminatedwidely.

Preparation of the Estmates

15. On the face of it, the process of preparing the annual estimates works reasonablywell. A timetable similar to the one indicated in the TFI is followed each year. The Ministryof Finance and Economic Planning (MFEP) gets the process underway by issuing a call circular,inviting all ministries and self-accounting units to prepare and submit their draft recurrent anddevelopment budget estimates for the next financial year. Before the merger of the Ministry ofFinance (MOF) and the Ministry of Planning and Economic Development to form MFEP at theend of March 1992, the line ministries would submit their draft recurrent budget estimates toMOP and the development budget estimates to MPED. (in the rest of this repoit, where thecontext requires, the names of the merged ministries (MOF and MPED) are still used). Jointteams of Finance and Planning officials hold review meetings with the line ministries at whichaccounting officers and their senior staff defend the submissions. The results of the reviews areconsolidated and presented to the Cabinet. The draft estimates, as amended by cabinet, areprinted and presented to the National Assembly.

16. There are a number of questions about the content of the exercise sketched outin the preceding paragraph. Start with the call circular. It is meant to give a good indication ofthe amount of resources each ministry can expect to receive in the coming year. It is not yet ableto do that. Instead of well-articulated, ministry-specific budget ceilings, the line ministries arenormally asked to use the approved expenditure estimates for the current year as their recurrentbudget ceilings and the projected Rehabilitation and Development Plan (RDP) disbursements forthe next year as the development budget ceilings. As there is no obvious rationale for thisapproach, it is not surprising that practically every ministry tre. 's the supposed ceiling as a softbudget constraint or no constraint at all. In this way the process of prioritizing expenditurebreaks down right at the beginning of the budget cycle.

17. Another shortcoming of the budget call circular is that it more or less treats theannual estimates in isolation from the macroeconomy. This is in spite of the fact that in each ofthe past five years a medium-term macroeconomic framework has been developed for the PolicyFramework Paper (PFP) which serves as the basis for economic stabilization and adjustmentprograms with the Bank and the Fund. Owing mainly to lack of interest on the part of MOF,the C-overnment has been missing an opportunity to integrate the macroeconomic framework intothe budget process.

18. The quality of the submissions made by the ministries remains poor. The poorquality shows up in a number of ways. Firstly, few ministries are able to provide updated stafflists and properly documented proposals for new staff. Besides, their staffing proposals usuallybear little or no relationship to the recurrent expenditure programs and development projects thatthey propose to undertake in the next financial year. Secondly, priorities are hard to discernfrom the draft estimates as little or no effort is made to justify the continuation of existingprograms and projects and proposals for new ones. Thirdly, the submissions for the coming yearare not backed up by the revised estimates of revenue and expenditure for the current year andthe actuals for the previous year. Without these the preparation of the draft estimates by theministries takes place in a sort of vacuum. The estimates exercise and indeed the whole budgetprocess is seriously hampered by the lack of accurate and timely economic and financialinformation.

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19. Without fairly firm ceilings within which ministries must frame their submissions,estimates discussions caw be very unproductive. This is a weakness of the estimates process InUganda. Meetings of the estimates committe-,s are largely devoted to making cuts in submissionswhich are 20 or even 100 tir,mes the supposed ceilings, giving the discussions too much of anadversarial rather than collegial atmosphere. Until the ministries are able to show discipline inbiddirng for resotirces and base their submissions on actual performance, this situation will notchange.

20. MFEP now sees the need to consult Cabinet early in the estimates process. Theaim of such consultations is to obtain not only Cahinet guidance but also Cabinet commitmentto the proposed allocations for the ministries. In the past budgetary allocations tended to unravelsoon after approval by the National Assembly because they were seen as having been imposedby MOF and MPED. In reflection of the new approach MFEP presented a Budget Issues Paperfor FY93, the first oi its kind since the ERP began five years ago, to Cabinet in May 1992. Inessence the paper presented the results of the budget discussions in the context of m.acroeconomicprojections for the coming year.

Release of Funlds

21. In the abnormal conditions that prevailed in Uganod for a long time (asmanifested in rampanit corruption, the breakdown of expendituis control, the collapse of therevenue base as well the revenue effort, failure to produce annual government accounts etc), theBudget Department and the Treasury made the release of funds based on what is called"Requisition to Incur Expenditure (RIE) the rule rather than the exception. RIE means that,although authorized by the National Assembly, the estimates are suspended. This generalizedRIE system proved unduly cumbersome and less effective against corruption and indiscipline inspending than had been expected. It has therefore been substantially relaxed during the past yearand a half, although, in an cifort to implement expenditure cuts during the final quarter of FY92,the Government has, as a temnorary measure, reinstated RIEs for certain types of expenditure(travel abroad, utilities, rents, contributions to outside organizations etc).

22. The present system of releases is a combination of automatic quarterly releasesand RIEs, with the former applicable to recurrent expenditure and the latter to developmentexj -nditure. In terms of ministries' ability to spend, the quarterly release is more notional thanreal. For, through the check-printing system operated by the Uganda Computer Services (UCS),ministries are restricted to spending one-twelfth of the approved estimates each month, unless anadN ,nce has been granted by the Commissioner/Treasury Officer of Accounts (C/TOA) on theadvic of the Commissioner f,- :.e Budget. For expenditures involving lumpy payments,advances are inevitable. To credit, the Budget Department and the Treasury have beenresponsive to applications ft . advances. In the cu. ..t circumstances of tight and uncertainflow of budgetary resources- s quarterly release system represents a prudent movement awayfrom the hitherto excessive reliance on RIEs which unduly restricted accounting officers' freedomto manage the programs under them.

23. The release of funds for local capital expenditure (financed 100 percent by theGovermnent) and counterpart funds for externally financed projects involves the following steps:a ministry submits an RIF, together with appropriate documentation on impending payments, tothe Budget Department; if the Budget Department finds the RIE to be in order, it approves it andadvises the Treasury to release the required funds; by m,eans of a Treasury warrant the Treasuryseeks the approval of the Auditor General (AG) for the relevant issue from the Consolidated

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Fund; the AG's approval is conveyed thrcugh an audit warrant; finally, the Treasury causes acheck to be prepared and credited to the ministry's account in the Treasury General Account(TGA) at the Bank of Uganda (BOU); when the release is for local coutterpart expenditure thecheck is deposited in a proiect account.

24. In the case of externally finair.ed projects, differen.t donors apply differentprocedures. Where withdrawal applications are i ed, the applications originate from the projectimplementation units (PIU) but the release of funds is actually auLiorized by the Treasury. Thissystem is akin to the Government's own RIE system. In other cases donors follow procedureswhich allow them to completely bypass the Treasury and the PIUs when they release projectfunds. These donors in effect implement their own budget within, and even outside, theGovermnent's budget, with all the complications that such a practice entails.

The Payments System

25. The payments system has been simplified and streamiined considerably over thepast year and a half, in step with the quarterly system of re'easing funds for recurrentexpenditure. Under the existing system ministries order goods and services . y issuing localpurchase orders (LPO) to suppliers. When goods have been delivered or services provided, orthere is reasonable assurance that this will haipen, the ministry prepares payment voucbl.rswhich, together with the supporting documents, are forwarded in batches to the Treasury. TheTreasury staff carry out a pre-audit of the payment to ensure that the ministry has sufficient fundsin its bank account to cover the payment, the correct transactions codes have been used and thedocuments (proforma invoices, Central Tender Board approval etc) are in order. After Treasuryclearance, all payments above U Sh 1 million (less than US$1,000 at the current exchange rate)under the quarterly release procedure and all payments of any amount under the RIE procedureare forwarded to the AG who carries out a further pre-audit of the payments. Batches of paymentvouchers that have been passed by the AG are submitted to the UCS, checks are printed on thecomputer and suppliers are paid. The pre-audits carried out by the Treasurv and the AG, nodoubt, cause a certain amount of delay in the payments system but in a situation whereaccountability is very suspect they probably do more good than harm.

26. From time to time ministries have abi.ud the LPO system by entering intocommitments in excess of their approved estimates, thus creating domestic arrears and forcingthe Treasury to seek Parliamentary approval of the resulting unauthorized expenditure. In aneffort to minimize thi type of abuse, the Government has introduced a local letter of credit (L/C)method of payment tor domestic supplies. The new method is designed to work as follows: aministry enters into a standard, written agreement with a supplier; on the basis of this contract,the supplier's commercial bank establishes an L/C which is confirmed by BOU; upon proof ofdelivery of goods or s(.- .ces, the supplier is paid by the Bank of Uganda (BOU). The advantagefor the supplier is that he or she is guaranteed payment by BOU which blocks the ministry'saccount to the tune of the contract once it has confirmed the L/C. Strictly followed, the L/Csystem should eliminate future domestic arrears in respect of the goods and services to which itapplies. However, the threshold for eligible transactions, U Sh 1 million c the equivalent ofUS$1,000 at the current exchange rate, is too low.

27. Payments to foreign suppliers, which are made through BOU, pose a differentproblem. Some ministries have been known to enter into foreign supply contracts, with orwithout deferred payment terms, without due consideration of the availability of local cover andforeign exchange. Payments due under these contracts have sometimes ended up as external

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payments arrears which add to the stock of external debt. This sort of abuse of the paymentssystem lias been significantly reduced.

28. Al'.hough in conformity with the law, there is something peculiar about the waythe statutory provision regarding the lapsing of appr3priations is applied in Uganda. At the endof each financial vear the Bank of Uganda closes the TGA for that year even though Governmentchecks (which have a life of six months) are outstanding. This automatically gives rise todomestic arrears even where suffic,ent funds would otherwise be available to cover the checks.

Control and Management of Public Finances

29. The control and monitoring of revenue and aggregate expenditure has improveda great deal over the past three years, thanks largely to the Economic Analysis Unit (EAU) whichhas been able to create a fairly comprehensive fizal database whic. .s updated monthly. Thedata collecte by the EAU form the basis of reports which are considered by the EconomicMonitoring Committee (EMC). Before the merger of MOF and MPED, the EMC was composedof the Minister of Finance (who ;s chairman), the Minister of Planning and senior officials drawnfrom MOF, MPED and BOIJ. The monitoring arrangements have generally worked wll but,as shown by the serious probLems with the FY92 budget, things can still go wrong. Among otherfactors, the automatic quarterly release system is being blamed for the FY92 fiscal fiasco. Thisshows a misunderstanding of the way thie quarterly release system actually works; effectively onlythe funds &r one month are released. The excessive borrowing from BOU in FY92 that occurredis better explained by the failure of MOF to apply the provisions of Section 12 (3) of the PublicFinance Act which states: "Whether or not an issue from the Consolidated Fund account has beenmade, the Minister may limit or suspend any public expenditure (not being statutory expenditure),with or without cancellation of any warrant, if in his opinion financial exigencies or other publicinterest so require". In a situation where revenue was lagging behind expenditure by a widemargin, exceptional action was needed but this was not forthcoming.

30. Poor coordination among the key economic agencies and within each institutionremains a major hindrance to the effective control and management of public finances.

Government Accounts

31. Thie law and the relevant regulations give prominence to accountability in respectof public revenue and public expenditure. Section 99 (1) of the Constitution provides for theOffice of the Auditor General who is independent of the executive and the legislature. There isa statutory timetable for the submission of final accounts and the Auditor General's report on theaccounts. The timetable is as follows:

within four months of the end of the financial year (i.e. by October ofthe following financial year) the C/TOA, each accounting officer andeach receiver of revenue must prepare and submit the required accounts,statements and balance sheets to the AG; some of the Treasurystaternents (eg statement of loans guaranteed by Government) arerequired within six months;

within nine months of the end of the financial year (i.e. by March of thefollowing financial year) the AG must submit his report on the accounts,together with the accounts duly certified, to the Minister of Finance;

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within fourteen days of the first sitting of the National Assemblyfollowing his receipt of the report the Minister must lay the report beforethe National Assembly.

32. To its great credit, the NRM Government lost no time in instituting measures thatwoulJ result in the production, audit and Parliamentary scrutiny of the public accounts. Thesemeasures have begun to yield some positive results, as shown by the following: although muchdelayed, the accounts and finar :ial statements for FY87 and FY88 were submitted to the AG whoissued his reports on the acco;tnts without certifying them; the AG's reports for the two yearswere tab1cd in Parliament and censidered by the Public Accounts Committee (PAC); the firstTreasury Memorandum since 1963 'vas issued in respect of the FY87 accounts; and the accountsfor FY89 are about to be laid before the National Assembly as the first fully audited andpublished accounts in nearly two decades. In spite of the progress made so far, the delays in theproduction of the accounts are excessive. Take for example the last financial year (FY91); asof AprL 2992 very few ministries had submitted to the C/TOA their final accounts for FY91which were due in October 1991.

33. Many factors militate against the production of public accounts in Uganda. Asidefrom the generic problems of poor work incentives and shortage of suitably trained staff, fourspecific factors may be mentioned. Firstly, there are people inside and outside Government whohave a vested interest in the status quo. These people stand to lose from the maintenance ofproper books and the publication of accurate and timely accounts. Secondly, since very fewcopies of the 1970 edition of the TAI are available and the revised (1991) edition has yet to becirculated widely, accounting staff can always plead ignorance of what is expected of them in theproduction of monthly accounts and final accounts. Thirdly, the Treasury Inspectorate (MI)whtose duty it is to continuously inspect books of account kept by ministries and recommendcorrective actions where necessary has been practically dormant. Fourthly, there is laxity on thepart of accounting officers. Few seem to realize the importance of keeping proper books ofaccount and preparing final accounts.

D. Main Recommendations

Address the Revenue-Wages-Productivity Question

34. It is simply not possible to secure significant improvements in civil serviceproductivity without raising the pay of government employees to at least what the Public ServiceReview and Reorganization Coinnission (PSRRC) called the Minimum Living Wage (MLW).A comparison between the present average civil service wages and the recommended MLW givesan indication of just how low present wages are. Tripling the present top wages in order to bringthem up to the MLW would only mean a monthly salary equivalent to US$150.

35. The line of attack on the three inter-related problems must run from an enhancedrevenue effort to improved pay to higher productivity. With the establishment of the UgandaRevenue Authority (URA) tax administration and revenue collection are being overhauled. TheURA is expected to help raise the ratio of domestic revenue to GDP to 12.5 percent by FY94.This would, however, not be sufficient to underwrite the kind of wage increases needed to spurgreater productivity. The Government must therefore strive for an even stronger improvementin the domestic revenue effort than currently envisaged. In the meantime time, while protectingO&M expenditures for the key programs in agriculture, education, health, roads and water, theGovernment must be prepared to shift resources away from other recurrent programs and from

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local capital expenditure to wages. In order to ease the burden of wages on the budget theGovernment should accelerate its plans for reducing the size of the civil service.

Tackle the Problem of Government Accounts as a Priority

36. Improving public expenditure management should start at the end of the process,that is, with accounting. For until better economic and financial information becomes available,the quality of the estimates cannot be expected to improve significantly; nor would the releaseof funds and the control of expenditure. Much of the required information will have to begenerated by the accounting system. It is possible to bring about real improvements inaccounting even before better trained staff become available. The problem of very poor workincentives, though, has to be resolved. A number of ways in which progress can be made in theproduction of government accounts are outlined below.

37. Let Uganda Computer Services Produce Accrounting Reports. It should berecalled that by FY74 the Computerized Budget and Accounts section created by the Treasuryin 1969 had succeeded in computerizing the accounts of eighteen ministries. Up to FY76 theGovernment computerized accounting system was able to produce the cash book, balance sheetand other statements and to process the final accounts. Moreover, the UCS had instituted aGovernment-wide computerized payroll system from the mid-1960s. Unfortunately, both thepayroll and the accounts applications were abandoned during the period of turmoil. It was notuntil 1985 that the check-writing system was re-established.

38. Although it requires some new computer hardware and software, UCS presentlyhas the computing capacity to handle most of the accounting reports expected of it. It nowcaptures enough information through the check-printing and payroll applications to be able toproduce large parts of the required reports, if not the full reports. What UCS lacks most are theskilled computer systems analysts and programmers who would convert the existing programs torun on International Computers Limited (ICL) machines rather than the original InternationalBusiness Machines (IBM) computers, or to write new programs, so that the available governmentreceipts and payments data can be used to generate accounting reports. Funds are available underthe on-going TA III to procure the necessary skills and complementary inputs. The Governmentshould move quickly to use these funds. The UCS route promises to be the quickest way to geton top of some of the accounting problems bedeviling public expenditure management in Uganda.

39. Bank of Uganda Must Become Current on Accounts. The Bank of Ugandahas come a long way in putting its house in order as far as accounting is concerned. For a longtime the only published final accounts of the central bank were those for 1986. That haschanged. The accounts for the five years ended June 30, 1991 have now, been produced.However, the Accounts Department is still not able to do, among other things, the following: postall transactions on the same day and to the correct accounts; prepare daily balances of allGovernment accounts; prepare a provisional consolidated position showing Governmentborrowing through Ways and Means; and furnish the Treasury and the ministries with accuratebank statements promptly after the close of each month. The solution to the accounting problemat BOU is simple. The central bank should once again start behaving like a bank: it must, likeany bank, post each and every transaction (originating in Currency, Banking, Foreign Exchange,EDMO and Accounts itself) on the day the transaction takes place and balance all its books forthe day. BOU pays wages of up to five times civil services wages and so the problem is not somuch that of poor incentives, training and equipment as laxity and poor work habits whichmanagement should not tolerate.

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40. Beef Up Treasury Inspection. The accounting reports that will be produced bythe UCS are not meant to replace the manual books of account kept by the ministries, certainlynot in the foreseeable future. The Treasury Inspectorate will therefore still have an importantrole to play in overseeing the preparation of accounts. Owing to neglect the Inspectorate is nowoperating at a low level. It should be strengthened as planned so that it would be able to carryout regular inspections of the books of all ministries; review the accounting standards in use;receive and examine the ministries' monthly and other returns (expenditure return, trial balance,bank reconciliation statement, final accounts etc); and communicate its findings, recommendationsand opinion to accounting officers. Allowances to be provided under the Economic and FinancialManagement Project (EFM) should be used expeditiously to attract qualified staff; transport andoffice equipment and supplies will also be financed by this project.

Improve the Annual Estimates

41. Be Realistic. Uganda faces a very difficult economic future. Its capacity tomobilize domestic revenue, boost the production of import substitutes and earn more foreignexchange is growing very slowly. The donors have shown much willingness to support thebalance of payments and the budget. Still that does not change the fact that domestic resourcesare very limited. The resource constraint is a fundamental fact which the estimates must respect.In other words, the framers of the estimates must be realistic about what can be accomplishedthrough public expenditure, given the limitations on the Government's finances. They must alsostrive for ecunomy. Uganda should eschew grandiose projects (trying to recreate the past)because it cannot afford them. Even in better times such projects should be frowned upon.

42. Set the Estimates Within a Macroeconomic Framework. It is important toplace the estimates within a macroeconomic framework that reviews current and prospectivedevelopments affecting the national, external, fiscal and monetary accounts. Actually, sinceFY88 the PFP has provided each year such a framework with a three-year horizon but it has notbeen properly integrated into the estimates exercise, mainly because of poor working relationshipsbetween MOF and MPED. With the merger of these two ministries this should no longer be aproblem. Besides, there is a growing realization that the estimates need to be underpinned bya macroeconomic framework.

43. Introduce a Budget Issues Paper. Once the macroeconomic framework hasbeen updated, the results should be incorporated in a Budget Issues Paper to be presented toCabinet in October. The paper would review recent economic developments, nationaldevelopment priorities and strategies, present projections of domestic and foreign resources,propose an overall spending limit and present preliminary expenditure ceilings for the varioussectors. For the FY93 estimates a paper along these lines was presented to Cabinet in May 1992.The practice should be institutionalized.

44. Improve Coverage and Presentation of the Estimates. The coverage andpresentation of the estimates should be improved in the following ways:

(i) ministries should submit revised estiniates for the current year and the actualexpenditure for the previous year along with their draft estimates for the nextyear;

(ii) as a special case of (i) above, the Sectoral Planning Department (SPD) in MFEP,using information from withdrawal applications and other sources, should

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compile project-by-project actual expenditure for the previous year and make thisavailable prior to estimates discussions.

(iii) draft estimates must be accomp ed by updated and verified establishment andstaff lists;

(iv) the revised estimates for the year just ended and actual expenditure for thepreceding year should be included in the published estimates;

(v) the published estimates should provide details of import support loans and grants;

(vi) the published estimates should provide two types of additional summary data forrecurrent expenditure broken down by item. One, a summary of recurrentexpenditure by item will be provided at the beginning of each vote and two, theministry data by item will be summed up across all ministries and presented atthe beginning of the estimates;

(vii) the estimates should provide full information on interest, capital repayments anddividends due to the Government;

(viii) the estimates should distinguish between external debt service for Government'sown account and that for the account of parastatals;

(ix) on-lending to parastatals should be shown in the estimates.

Keep the Present System of Releases

45. All things considered (a fragile domestic revenue base, vulnerability to delays inthe flow of import support and indiscipline with regard to spending), the present system ofreleasing funds more or less meets Uganda's needs. The system is flexible enough to take careof lumpy payments yet, in combination with the check-writing system, is suitable for controllingaggregate expenditure on a monthly basis. It should be preserved.

46. The release of funds for counterpart expenditure is more controversial. It isbased on ~he RIE system which is fraught with delays if the various parties (projectimplementation unit, accounting officer, Commissioner of Budget, C/TOA and the AG) do notplay their respective roles effectively. The RIE system applicable to local counterpart expenditurecan be made to work. However, two questions need to be answereJ. One question is: shouldthe estimates provide fully for all the counterpart commitments the Government has entered intowith donors? The answer to this question is yes. Counterpart obligations should be fully funded.If the scale of a project has to be reduced or if implementation has to be stretched over a longerperiod, that should be done as a matter of deliberate policy and not by accident of lack ofcounterpart funds. The other question is: where are the blockages in the system of releasingfunds for counterpart expenditure? None of the parties to the release of this type of funds isblameless. However, the weight of the available evidence suggests that, very often, delays arecaused by poor documentation and justification of requisitions for counterpart funds by the projectimplementation units (PIU), resulting in the requisitions being returned without further action onthe part of MFEP. A change to automatic releases is not recommended because of the largescope for misuse of funds in these enclave-type project units.

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Maintain Prudent Limits on Government Borrowing

47. Two types of action are required.

48. Enforce the Statutory Limit on Borrowing from Banli of Uganda. Subsection(1) of Section 26 of the BOU Act provides for the making of temporary advanices to Governmentbut subsection (2) of the same section limits such advances. It states:

The total amount of the advances made under the piovisions of thepreceding subsection shall not at any time exceed fifteen per centum ofthe estimated recurrent revenue as laid before the National Assembly forthe financial year in which the advances are made.

49. This provision of the BOU Act is not being observed. If it were, borrowing fromthe central bank could not have increased by U Sh 55 billion during the first half of FY92.Admittedly, BOU has a practical difficulty in the sense that, by tradition, it is not expected toreturn valid government checks unpaid. That does not, of course, absolve it of the responsibilityto warn MFEP promptly when the statutory limit on government borrowing, or another limitestablished in the context of the ERP, is in danger of being breached. In any case, the statutorylimit on Ways and Means advances must be enforced; so also should any other limits establishedfor macroeconomic or other reasons.

S0. Amend the Public Finance Act to Limit Treasury Power to Borrow. Section23 (1) of the Public Finance Act gives the Treasury power to borrow in any financial year up toth. limit of total exnenditure for that year (i.e. expenditure on both Supply Services andConsolidated Fund Services). Such borrowing power might have satisfied the dictates of fiscalprudence in the 1960s but they certainly do not now. The Act should therefore be amended toset a reasonable limit on domestic borrowing to finance the budget (preferably expressed as apercentage of a moving average of domestic revenue).

Streamline the Payments System

51. Reduce Pre-audit of Payments. The pre-audit of payments by both the CtTOAand the AG is aimed at minimizing fraud and misuse of public funds. Thle AG acts as a checkon the C/TOA. Nevertheless, pre-audit poses a moral hazard for the AG as he is being calledupon to pre-audit payments that he will have to audit ex-post. In view of this, the Treasuryshould be strengthened so that it can relieve the AG of this responsibility. This will have theadded advantage of cutting out one layer of bureaucracy in the payments system. Pre-auditshould ultimately be phased out.

52. Establish Internal Audit Units. The ministries used to have what are calledexamination sections. Some ministries still have examination sections, but not internal audit unitsindependent of the accounts department. The examination sections are supposed to carry out pre-audit of payments within the ministries. They have, however, not been effective, mainly becausethey are directed by the chief accountant from whom originate the payrenes tley are expectedto audit. A strong internal audit unit is needed in each ministry to ensure that payments areproperly authorized and recorded. The Government should therefore implenment current plansto upgrade the existing examination sections into internal audit units and establish such unitswhere no examination section exists.

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53. Avoid Domestic Arrears Arising from Lapsing of Appropriatiors. The closingof the TGA by BOU immediately after June 30 each year is in conformity with the law but itgives rise to domestic arrears in respect of checks outstanding, even against ministry accountswhich would otherwise have sufficient funds. This is unsatisfactory. MFEP should takeadvantage of the rider to Section 22 of the Public Finance Act. This allows the AppropriationAct to be suitably worded so that appropriations do not automatically lapse at the close of thefinancial year. Once that is done BOU can then keep the TGA open for up to six months tomatch the six-month life of a government check.

Shake 4p Project Implementation Units

54. There has been a proliferation of project implementation units over the past fiveyears. These units are invariably well-staffed with foreign experts (mainly in accounts,procurement and computers) and Ugandans who receive generous allowances. They are alsoprovideed with comparatively good office accommodation, motor vehicles (with running andmaintenance funds), office equipment (including computers) and supplies. In spite of being sowell endowed, the performance of the PIUs has been amost uniformly dismal: they provide littleuseful information on the physical and financial progress of projects; they do not maintain properbooks of account and so fail to observe covenants relating to project audit and so on. TheGovernment (meaning accounting officers) should call the PIUs to account.

Implement the Merger of MOF and MPED

55. There is no hard and fast rule auout the way finance and planning should beorganized. In some countries they are combined into one portfolio. In other countries they formseparate portfolios, as was the case in Uganda until the end of March 1992. How well theseparate-ministry arrangement works depends to some extent on the overall competence of thecivil service and the quality of governance as a whole. It can, however, be said that the 'tsionof the two portfolios has a great advantage in that countries which follow this route do not haveto worry about coordination between finance and planning. In Uganda coordination ofgovernment policies and programs is a big problem. The separation of finance and planning hasbeen part of the problem.

56. The two-ministry arrangement in Uganda was characterized by: conflict andmisunderstanding (which ministry ultimately dd:ides the size and composition of the developmentbudget?); duplication of functions, with each ministry having an aid coordination unit and eachissuing its budget call circular at estimates time; confusion, as reflected in the incompatibledatabases on aid commitments and disbursements maintained by the two ministries; ambiguity (egwith respect to external debt management where BOU is also involved); and less-than-optimal useof scarce skilled manpower (economists in MPUs and MPED headquarters). The merger ofMOF and MPED at the end of March 1992 could not have come too soon. The merger shouldresult in better coordination of government policies. The priority is to ensure that a truly unifiedministry is created. For the danger of two separate units appearing to operate as one ministryexists.

Monitor and Evaluate Public Expenditure

57. A management reporting system is in place. This involves the submission ofquarterly reports on public expenditure programs by the ministries and self-accounting units tothe Office of the PM. The existing reporting system should be used, first and foremost, to obtain

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basic information on, and improve, the effectiveness of public expenditure. The emphasis shouldbe on gauging the impact of public expenditure, not in an accounting sense but in terms of thephysical implementation of projects and the actual delivery of public goods and services. To thisend a more simplified and less detailed management report, still to be produced quarterly, shouldreplace the present report which tends to be too voluminous.

CHAP1TR 1: INTRODUCTION

A. An Overview of the Economic Recovery Program

The Pursuit of Financial Stabilization

1.1 When the National Resistance Movement took over power in January1986 it found a nation in acute economic difficulty. The transport network was in aterrible state of disrepair; the stock of vehicles was depleted; foreign exchange reserveswere exhausted; once-productive agricultural lands lay in ruins; most industrialestablishments had either closed down or were operating at a fraction of installedcapacity; discipline and accountability had all but collapsed in the public service; andthe country was saddled with a debt service ratio in excess of 50 percent.

1.2 In response to the daunting challenges that it faced in the economicsphere, the Government launched, with the support of the Bank, the IMF and otherdonors, an Economic Recovery Program in May 1987. The main objectives of theERP were to: restore internal financial stability and sharply reduce the rate of inflation(then running at an annual rate of 360 percent); reduce the imbalances in the externalaccounts; improve producer incentives; improve the allocation and use of publicresources; rehabilitate the infrastructure; and promote growth.

1.3 The Government took the following adjustment measures up-front. Itdevalued the shilling by 77 percent in foreign currency terms; introduced a newcurrency equal to 100 units of the old currency, accompanied by a 30 percentconversion tax on all liquid asset holdings; increased crop producer prices by 150-400percent; started dismantling price controls as well as controls on internal and externaltrade; and introduced a limited Open General License (OGL) system for allocatingforeign exchange to key industries. The implementation of the program faltered soonthereafter and for the next two years the Government failed to contain the fiscal andmonetary aggregates within the targets agreed with the IMF in connection with thearrangements under the Structural Adjustment Facility (SAF) and the EnhancedStructural Adjustment Facility (ESAF). As a consequence inflation, although comingdown, remained high (86 percent in June 1989). Moreover, for transactions conductedthrough official channels the shilling continued to be highly overvalued. In spite of thedisappointing performance in the area of stabilization, the economy showed a strongsupply response; real GDP grew by over 7 percent in both FY88 and FY89, aided bythe return of peace and security to most parts of the country, the lifting of somerestrictions on economic activities and the rehabilitation of part of the infrastructure.

1.4 Against the background of continuing high inflation and the collapse ofthe quota system under the International Coffee Agreement (ICA) in July 1989, theGovernment began to implement the stabilization measures under the ERP withrenewed vigor. It addressed the overvaluation of the shilling in three stages. Firstly,it devalued the shilling in October 1989 by 41 percent in foreign currency terms (fromUSh 200 to USh 340 to the U.S. dollar) which resulted in a 13 percent realdepreciation and followed this up with monthly adjustments aimed at maintaining thereal effective exchange rate. Secondly, in July 1990 the Government legalized the

2 -

parallel currency market by issuing licenses to foreign exchange bureaus to deal inforeign currency at market-determined rates. Thirdly, in January 1992 it moved to amarket basis for the determination of the official exchange rate through the introductionof an auction system for allocating foreign exchange. As of the end of April 1992 theforeign exchange bureaus still offered a 10 percent premium over the rates determinedat the weekly foreign exchange auction conducted by the Bank of Uganda.

1.5 From FY90 the Government also began to tighten fiscal and monetarypolicies. By adjusting other taxes and achieving modest improvements in taxadministiation, the Government has been quite successful in replacing coffee revenueas the mainstay of domestic revenue; ':offee now accounts for less than 2 percent oftotal domestic revenue compared to over 30 percent at the start of the ERP. At thesame time it made a more determined effort to bring aggregate expenditure undercontrol. These actions on the fiscal front helped to moderate the Government'srecourse to the banking system. The Government also succeeded in reining in thegrowth of credit to the Coffee Marketing Board (CMB) and other marketing agencies.These and other actions were rewarded by a rapid fall in the rate of inflation. Asmeasured by the year-on-year change in the consumer price index, inflation fell fromover 243 percent in FY88 to 29 percent in FY90.

1.6 Recent developments have shown that Uganda's stabilization programhas again faltered. The proof for this is the re-emergence of a severe imbalancebetween government revenue and expenditure during FY92. This in turn has led toheavy government borrowing from the central bank (U Sh 55 billion during the firsthalf as against a programmed, build-up of cash balances of U Sh 48 billion for the fullyear). The monetization of the budget deficit, coupled with adverse extemaldevelopments (principally a further sharp fall in international coffee prices) hasreignited inflation, as shown by the jump in the year-on-year rate to 66.3 percent inMay 1992.

The Development Challenge

1.7 Emerging from a war situation, Uganda naturally embarked upon theERP with a lot of disabilities. This makes the progress achieved in rehabilitatinginfrastructure, stimulating production and reducing inflation somewhat striking. ButUganda could have made faster progress in these and other areas if the Governmenthad played a more active role in the formulation of policies (instead of unduly relyingupon the Bank and the Fund) and if a more concerted effort had been made to addressproblems of poor coordination and weak implementation of policies and projects.

1.8 The development challenge facing Uganda remains first and foremostthat of achieving sustained financial stability. Two main prerequisites for financialstability are a significantly enhanced domestic revenue effort and much more effectivemanagement of the ERP. There is also the challenge of increasing production andemployment. The best contribution the Goverfiment can make to production is to

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serve, through policies as well as infrastructure investments, as a facilitator of orivateenterprise, both foreign and local.

1.9 Given its endowment of fertile soils and a favorable climate, Ugandahas the potential to achieve a steady improvement in the standard of living of itspeople. However, if recent developments are any guide, meeting that challenge willnot be easy. The economic growth momentum has already slowed down; real GDPgrew by 5.8 percent and 4.6 percent in FY90 and FY91, respectively, compared toover 7 percent in each of the preceding two years. The balance of payments situationremains very precarious. This is portrayed by the sharp decline in coffee exportearnings (from US$282 million in FY89 to US$126 million in FY91 and a projectedtotal of US$115 million in FY92) and the overhang of increasingly difficult-to-serviceexternal debt totalling US$2.6 billion, including arrears of over US$400 million.Furthermore, despite recent improvements, infrastructure bottlenecics (in roads,power, water, telecommunications) continue to constrain production and marketing inall sectors.

1.10 Uganda has other challenges to - 'tend with, especially in theeducation and health sectors. During the years political and military turmoilUganda lost large numbers of educated people. Motcover, many areas witnessed thedestruction and the closing of schools. Although low (around 50 percent in the finalyear of the primary school cycle), primary school enrollment rates have held up well,mainly because of the commitment and initiative of parents and local communities.Still there are many communities without schools or with overcrowded classrooms.Aside from access, the quality of education at all levels has fallen drastically becauseof the lack of instructional materials, pitifully low pay for teachers (as for other civilservants), the employment of large numbers of untrained teachers and the dilapidatedstate of the physical facilities.

1.11 The health status of the population also deteriorated sharply. Thedeterioration has reached the point where patterns of mortality and morbidity havebecome dominated by the resurgence of easily preventable diseases like diarrhea andmalaria. The situation is made more alarming by the rapid spread of HIV infection;a survey conducted by the Government in 1988 revealed that 1.3 million Ugandans outof a total population of 16 million carried the AIDS virus. The public health servicesare incapable of meeting the challenges n the health sector because of the run-downstate of the physical health infrastructure, the breakdown of management systems, theshortage of qualified staff and very poor work incentives.

1.12 The continued rehabilitation of the Ugandan economy demands actionsover a wide front. One set of actions involves giving the private sector the freedomto invest, produce, trade and manage businesses. The private sector has always beenthe dominant sector in the economy but for many years it was hamstrung by a web ofcontrols and licensing requirements. Most of these restrictions have now beenremoved. The other set of actions has to do with redefining the role of the public

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sector and improving the effectiveness of public expenditure. By the standards ofdeveloping countries the public sector in Uganda is not very large. Even in areaswhere the public sector has enjoyed a monopoly (the export marketing of coffee) orhad a substantial stake (industrial production), things are changing. With regard tocoffee, the monopoly of the CMB (now Coffee Marketing Limited) was abolished inOctober 1990. In the industrial sector the role of state enterprises is being reducedthrough divestiture and liquidation, in the context of the Public Enterprise Project andthe Enterprise Development Project.

1.13 This report is about improving the management of public expenditurein Uganda. Before turning to the details of how public expenditure is managed atpresent and where improvements might be made, it is useful to discuss the broadcharacteristics of aggregate public expenditure and issues pertaining to the compositionof public expenditure.

B. Public Expenditure: Level and Allocation Issues Revisited

1.14 Given the overriding need for financial stabilization during the earlyyears of the ERP, public expenditure policy focused narrowly on the containment ofaggregate expenditure and the overall budget deficit. Five years into its adjustmentprogram, Uganda has yet \o achieve low and stable inflation. Therefore thestabilization objective remains paramount. However, the Government has begun tomove beyond controlling aggregate expenditure to tackling issues relating to thecomposition of expenditure, thanks to the better understanding of expenditure issuesgenerated by the PER process. This section reviews briefly issues pertaining toaggregate public expenditure and the composition of public expenditure.

Aggregate Public Expenditure

1.15 Aggregate public expenditure is of economic significance for a numberof reasons. It is often a major component of aggregate demand; the ways in which itis financed can have a significant impact on the monetary and external accounts,savings and investment; and it is a rough measure of the Government's capacity toprovide public goods and services, especially in the social sectors where privateprovision is often the excel.a on. A distinguishing feature of Uganda is low level ofaggegate public expenditure. Overall public expenditure increased from 13 percentof GDP in FY88 to 16.4 percent in FY91. The average ratio for Sub-Saharan African(SSA) countries is 30 percent or nearly double that for Uganda.Y' Low aggregatepublic expenditure offers part of the explanation for the inadequate funding of a widerange of Government programs. However, this is not to suggest that overall public

[/ Uganda's ratio is understated as it excludes govermment on-lending to parastatals. A crudeadjustment for this downward bias brings Uganda's ratio of public expenditure to GDP to about 18percent.

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expenditure should be increased regardless of how efficiently resources are allocatedand used and zegardless of the limitations on the Govermment's capacity to implementprograms and projects. For well known reasons (shortage of skilled manpower, poorcompensation of civil servants and the breakdown of management information systemsand management practices) the implementation capacity of the civil service is veryweak. The desire to raise aggregate public expenditure must be tempered by a keenawareness of the capacity constraint.

1.16 Low aggregate public expenditure in tum is explained largely by anexceptionally weak domestic revenue effort: the ratio of total domestic revenue toGDP increased from 6.7 percent in FY88 to only 8.1 percent in FY91. The averagerevenue/GDP ratio for SSA countries is 20 percent, a figure that Uganda had, in fact,achieved in the 1960s.

1.17 The corollary of a weak domestic revenue effort and dec!ining exportsis heavy reliance on foreign loans and grants to support both the governmentbudgetz' and the balance of payments. This in itself is not an undesirable feature ofp.ublic expenditure in a country at Uganda's stage of development. However, heavyreliance on foreign assistance imposes its own constraints on public expendituremanagement and imparts a measure of vulnerability to the government budget.

1.18 The Public Investment Program (PIP)V' consists of donor-financed projects,except for a few locally-financed capital projects (the Mityana-Fort Portal road beinga prime example). The PIP is driven by a strong desire to recreate, to the samestandard, the infrastructure that was destroyed or damaged during the civil wars.Many donors are prepared to oblige. As a result, projects are being added to the PIPwithout due consideration of the future recurrent costs and weaknesses inimplementation capacity.

The Composition of Public Expenditure

1.19 The first PER report4- on Uganda made a wide range ofrecommendations dealing mostly with how the composition of public expenditure mightbe changed to best serve the Government's objectives of promoting growth and equity.These recommendations, which were well received by the Government, may besummed up as follows:

I/ In FY91 grants accounted for 33 percent of total revenue and grants while 90 percent of capitalexpenditure (excluding local capital exrenditure which is largely of a recurrent nature) was financedby the donors.

I/ In Uganda the PIP, loosely defined, is the four-year rolling Rehabilitation and Development Plan(RDP).

At World Bank, Pablic Choices for Private Initiatives, Report No. 9203-UG, February 12, 1991.

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* defense expenditure should be reduced in real terms;

e the Government must strive to bring civil service pay to a level that wouldconstitute a living wage;

* allocations for education in general and primary education in particular needto be increased substantially;

* in the health sector recurrent spending on preventive programs and primaryhealth care should be doubled in real terms;

* allocations for the expansion of access to safe water have to be greatlyincreased;

* Government should phase out its involvement in agricultural production andmarketing while revamping and providing adequate funding for agriculturalresearch and extension services;

* budgetary allocations for feeder road construction and road maintenance shouldbe increased and costly new investments in rail and air transport avoided;

3 Government involvement in the industrial sector through its share-holding inover 100 parastatals must be significantly reduced; and

3 additional electric power generation capacity should be created at the OwenFalls Dam and the operations of the Uganda Electricity Board (UEB), thepower company, improved.

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Table ,l1: MINERL, R ECR EXN ENDT rrmi' aY FUNCTIONALCLASSIWICATIONPercentage Saresh

1988/89 1989/90 199091- 1991192Actual Actual Actual Budget-

E|ooic Services 9.0 8.2 8.7 1i.OAgriculture 3.2 2.5 2.7 3.4l -Infstructure 3.8 3.4 3.0 4.8Other 2.0 2.4 3. .. i8

Social Sesvicea 30.2 22.9 26.0- 3/+.2Education 18.0 13.9 16.2 17.2Health 4.4 4.6 5.4 7.9-Local Govemnment 2.9 1.9 - 3.0 7.6Other 4.8 2.5 1.4 1.5

Defensev 39.9 44.6 46.0: 26.6

Public Administration 20.9 24.3 19.2- 28.30

TOTL : L - : - -100.0 100.0 1 00 0 1000

Sorc:Miitry o inance

:0'~" boutu- citaiS- ^ epondtre (Seoli-Ty )for the iMwtsti o- -:nanc:.

1.20 The Government showed every willingness to begin, in FY92,restructuring public expenditure along the lines suggested in the report but faced aproblem. The problem was that the existing budget processes and management systemswere ill-suited to the task of translating the report's recommendations into not onlybudgetary allocations but also actual public services. Nevertheless, going by ahe verylarge and obvious needs in the priority sectors (agriculture, education, health, transportand water), the Government was able, with assistance from IDA, to increasesignificantly the share of these sectors in total ministerial recurrent expenditure (seeTable 1.1 and Figure 1.1).

1.21 Table 1.1 shows a planned massive shift of resources away fromdefense in FY92, with all the broad functional categories of expenditure (economicservices, social services and public administration) expected to share in the resourcesto be released by defense. There has been firmer control over defense spending,although there was a small overrun and defence was spared the expenditure cuts thatfell on the other sectors during the final quarter of FY92. This is in sharp contrast tothe experience of th; past three years when defense expenditure was more or less out

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Figure 1.1: Ministerial Recurrent Expenditureby Functonal Classification

30 l; Economic Serv.

20 i 11lsodal s.

80~8

Sr D...st. oeFensn0 *Public Admin.

Fiscal Year

Source: Ministry of Finance.

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of control. It is expected that through budget rationalization and the adoption of costcontainment measures the share of defense in total ministerial recurrent expenditurewould be reduced further.

1.22 The new emphasis on social services is also discernible from Table 1.1.In FY92 social services have been buugeted to absorb a little over a third of totalministerial expenditure compared to about a quarter in the previous year.Unfortunately, the priority programs in the soci-' sectors (primary education, primaryhealth and water) as well as the priority programs in the economic sectors (agriculturalresearch and extension and roads) were not protected from the recent expenditure cutsnecessitated by large shortfalls in budgetary resources. The implication of this is thatthe share of the priority programs in total ministerial recurrent expenditure would belower than what is indicated by the original budget estimates. Because of the twinrisks of over-optimism on the revenue front and overspending in some areas, theGovernment will have to protect the priority programs from expenditure cuts whilecontinuing to increase the share of these programs in total ministerial recurrentexpenditure. For FY93 the Government proposes to maintain the budgetary allocationsfor the rriority programs in real terms over the allocations for FY92. In view of theother competing claims on public resources available for discretionary ministerialexpenditure (principally wages), this report endorses the Government's stance in thisarea.

1.23 In Table 1.2 ministerial recurrent expenditure is broken down byeconomic categories. This table and the accompanying bar chart show that theGovernment has indeed begun to increase nonwage O&M expenditure substantially.According to the original budget estimates, nonwage O&M expenditure would absorbnearly three-quarters of total ministerial recurrent expenditure in FY92, compared toan average of two-thirds over the past three years. In addition to raising its share inaggregate ministerial expenditure, the Government is targeting the resources availablefor O&M expenditure on the priority programs referred to in paragraph 1.22 (primaryeducation, primary health etc). The planned increase in the share of wages in totalministerial recurrent expenditure in FY92 shows just how cautious the Government hasbeen in raising civil service wages and salaries. (For a further discussion of the wagequestion, see paragraphs 3.4-3.7).

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Tabl I MINSTEIA-RECURRENT'.PN IUEB-ECONMC LSSIFICATION.....

1988/89 1 9 990

5~~~~~ ~ ~~~~~~~~~~~~~~~~ . .: ... ...: .....

3onwngeO M 0 61.2 65.8 6

=efensaScctionlf 6.9 8~7 140 ~..TOTAL 1000 100.01000 1000~~~~4RECURRENT~~~~~~~~~~~~~~~~~~~~~~~~~......

.ro ...... y ... n..

I/ Travel costu ~~t Izw)udd wftb mr.ag0 M

- 11 X

Figure 1.2: Ministerial Recurrent Expenditure110 by Economic Classification100 0

so

80_

70_

40- ~~~~~~~~~~~~Legendso ~~~~~~~~~Employee Costs20 ~~~~~~~~*Non-wage 0 & M20 ~ ~ ~ ~ ~ ~ ~ ~~ ~Defen seedton 1

10_IWWS 10801 109/1 1901/2

Fisa Yew

Source: Ministry of Finance.

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1.24 Table 1.3 presents total public expenditure broken down by economiccategories. A number of points can be made about the data given in the table. Thefirst point is tha, the share of capital expenditure exhibits apparently wide fluctuations.However, the fluctuations are probably more a reflection of data problems thanvariations in implementation rates.5' The second point relates to interest payments.These have ballooned, as a share of total govemment expenditure, from 7.3 percentin the previous year to an estimated 17.8 percent in FY92. This goes to show that,from a budgetary as well as a balance of paymerts perspective, Uganda's external debtservice burden has become extremely onerous. For not only is the lack of foreignexchange to service external debt a problem but also the availability of local cover canno longer be taken for granted. The Government has, therefore, not surprisingly,continued to accumulate large external debt service arrears. Without a drasticrestructuring of the external debt, arrears will continue to mount.Y' The third pointis that employee costs as a proportion of total expenditure have been on a decliningtrend. Tackling the problem of very low civil service pay will require some difficulttrade-offs between wage and nonwage discretionary ministerial expenditure.

Table 1.3 TOTAL EXPENDITURE BY ECONOMIC CLASSIFICATION-Percentage Shares

1988/89 1989/90 1990/91 1991/92-Actual Actual Actual Budget

Employee Costs i/ 20.4 14.2 9.9 10.2

Non-wage 0 & M 39.2 36.7 30.2 32.6

Interest Payments 6.8 5.0 7.3 17.8

Caiptal Expenditures2/ 33.6 44.1 52.6 39.4

-TOTAL 100.0 100.0 100.0 100,0EXPENDITURES

Sowro: Ministry of Fimauce and DO

,i/ Travl cost are included with non-wage 0 & AL2 ncludes locaw capital expenditures (Section 1) for the Ministry of Defense.

I/ Data on actual externally financed capital expenditure are not as accurate and as comprehensive asthey should be. The interpretation of the percentages shown in Table 1.3 must therefore beapproached with caution.

For proposals for such debt rcstructuring, see Republic of Uganda: External Debt Strategy, a reportprepared by S.G Warburg & Co. Ltd.

- 13 -

Figure 1.3: Total Expenditure110. by Economic Classification100

80-

60.

4s0- L I 6 I E 30- * l l lll * E Employee Costs

20 ~ ~ ~ ~ ~~ *Non-Wage 0& U10 El Interest Paenbt0 _ 1901/92 *Capita Exp.

Sistr Y ea

.Source: Ministry of Finance and IMF.

- 14-

C. Rationale and Scope of the Review

1.25 The 1991 PER report had suggested that, in order to move away fromincremental budgeting, the budget estimates process should start off with theGovernment allocating sufficient resources to the priority programs. However, thiswas easier said than done. The information base and the processes for establishing therequirements of the various priority programs were found to be seriously deficient.This report is one response to the difficulties encountered in translating the 1991 PERrecommendations into budgetary allocations.

1.26 Although it has its origins in the difficulty encountered in translatingthe 1991 PER recommendations into budgetary allocations for FY92, this report lookswell beyond the question of allocations. In fact, it is concerned with the budgetprocess rather than expenditure allocation per se. In this regard, it examines all thevarious stages of public expenditure management, from the draft estimates to the finalaccounts. Improving public expenditure management is not just a matter of changingthe composition of expenditure in favor of the priority sectors. It is also a matter ofensuring better budget administration, improved delivery of public services and greateraccountability.

i.27 The report also attempts to go beyond the issue of allocations forparticular priority programs to examine the question of standard or unit costs ofproviding certain public services. In this regard, it presents a framework for thecomputation of nonwage recurrent expenditure norms for primary education andprimary health and derives a preliminary norm for primary education.

D. Related Economic and Sector Work

1.28 This report is intended to complement the Bank's economic and sectorwork in a number of areas while providing part of the underpinning for Bankinvestment and adjustment lending. With regard to sector work, two studies areparticularly relevant for bringing about improvements in public expendituremanagement. One study aims at assisting the Government to develop a social sectorstrategy. This is in recognition of the Government's increasing emphasis onimproving basic social services. Among other things, the Social Secto- Strategy reportadvocates a redirection of available resources towards primary education andpreventive and community health interventions. In the context of the PER theGovernment has already taken the first steps towards bringing about such a shift in theallocation of resources.

1.29 The other relevant piece of economic and sector work is theforthcoming report on Strengthening District Management. This report will reviewthe Government's decentralization policy, assess the likely impact of decentralizationon public expenditure management and service delivery and examine the options andstrategies fc,r the implementation of the policy. This study fits in very well with the

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PER. For important areas of public expenditure covering rural water supply, ruralfeeder roads, primary education and primary health care which are being targeted forincreased budgetary allocations are, according to current policy, the responsibility ofthe urban and district authorities. A better understanding of the Government'sintentions with regard to decentralization of services to the local authorities and thecurrent state of policy implementation is vital for improving the effectiveness of publicexpenditure on basic infrastructure and social services.

1.30 This report is also of immediate relevance to two lending operationsnamely, the Structural Adjustment Credit (SAC) and the Economic and FinancdalManagement Credit (EFMC). One set of actions being supported by the SAC relatesto shifts in the composition of public expenditure towards primary education, primaryhealth, agricultural research and extension, road maintenance and repair and watersupply. Other actions supported by the SAC include ministerial review andreorganization, civil service retrenchment and pay restructuring and the overhaulingof tax administration and revenue collection. The EFMC is the vehicle for providingthe technical assistance needed to implement not only the public expenditure measuressupported the SAC but also most of the improvements recommended in this report.

E. Organization of the Report

1.31 Chapter 2 of the report looks at the way the present budget processworks. An attempt is made to bring out both the strengths and weaknesses of thepresent system. The aim is to identify the areas that are in need of improvement.

1.32 Chapter 3 suggests improvements to the various stages in publicexpenditure management. The focus is on the basics (better information, effectivemonitoring, prompt response to deviations from the estimates, etc) rather than onsophisticated systems.

1.33 The final chapter presents the preliminary results of an exercise thatwas initiated as part of this PER to derive a nonwage recurrent expenditure norm forprimaiy education. The original intention was to make a similar calculation forprimary health too but owing to data problems and the complexity of health issues ithas not been possible at this stage to work out a nonwage recurrent expenditure normfor primary health. However, Annex 1 at the end of the report provides the contextfor the computation of nonwage recurrent expenditure norms for both primaryeducation and primary health.

CHAPTER 2: THE PRESENT BUDGET PROCESS

A. A Historical Perspective

2.1 The present weaknesses of the Ugandan budget process have theirorigins in the mismanagement and civil strife that characterized the 1971-1985 period.During this period the public service, and indeed the country as a whole, lost throughdeath or exile many of its best trained people; the public service became heavilypoliticized; there was little or no adherence to the laws and regulations governing theappropriation, issue and expenditure of public funds; Government accounts were nolonger prepared and laid before Parliament; corruption became rampant; theGovernment's management information systems broke down; and basic data forplanning and budgeting became virtually unobtainable.

2.2 During the second Obote regime (1980-1985), while the civil strifecontinued, an attempt was made to rehabilitate the economy. An economicstabilization and adjustment program was launched in FY82 with the support of theBank, the Fund and other donors. The Government also prepared a public investmentprogram (the Reconstruction and Development Plan) which it presented to the donorsfor financing. These initiatives were accompanied by efforts to re-establish the basicelements of planning and budgeting. In reflection of this, the Government succeededfor a while in maintaining control over aggregate expenditure. All these effortscollapsed during 1984 and 1985 under the weight of an intensified guerilla campaignagainst the Government which culminated in the overthrow of the second Obote regimeand its successor.

2.3 By the time the NRM took over the reins of power in January 1986 thestate as the fount of authority had all but collapsed in Uganda. Even the establisheddefence force had disintegrated. The most elementary systems for public sectormanagement had broken down. The civil service was totally demoralized. Publicexpenditure was more or less out of control. Such capacity for tax collection asexisted was used more and more for personal gain rather than the public good.

2.4 The rest of the chapter is devoted to an examination of the budgetprocess that has been recreated from the chaos that existed six years ago, theimprovements that have been made and the weaknesses that remain. The discussionproceeds from one stage of the budget process to the next, starting with the preparationof the budget estimates.

B. Preparation of the Annual Estimates

7he Legal Framework

2.5 Article 94 (1), Chapter IX of the Constitution!' of the Republic ofUganda imposes a duty on the Minister of Finance to prepare and present to the

I/ A new draft Constitution is expected to be unveiled by December 1992.

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National Assembly each year estimates of revenue and expenditure for the comingfinancial year. The form or structure of the estimates is prescribed by the TreasuryFinancial Instructionst' which are issued under the authority of the Public FinanceAct. In common with other anglophone countries, the TFI divides the estimates intotwo parts -the recurrent budget and the development budget. The recurrent budget isfurther divided into two: the revenue estimates of the recurrent budget and theexpenditure estimates of the recurrent budget. The development budget is similarlydivided into two parts - the revenue estimates of the development budget and theexpenditure estimates of development budget.

2.6 The basic structure of the estimates is still appropriate but the structureof the details of the revenue and expenditure estimates (the vote, the ambit of the vote,the head, sub-head etc) have changed drastically over the years.2' Actually, theGovernment has, over the past four years, made a special effort to change the form ofthe detailed estimates of expenditure. The changes have been designed to facilitate theclassification of expenditure by economic categories or functional categories.

2.7 Two subjects covered by the TFI deserve special mention at this point,namely the civil service establishment and the estimates of revenue. The TFI requiresthat the annual estimates of expenditure prescribe the authorized establishment. Forthe bigger part of the civil service this requirement is not being met. With regard tothe estimates of revenue, suffice it to note that, although the TFI requires that thedetails of the revenue estimates of both the recurrent budget and the developmentbudget be published, the practice has developed whereby the details of import supportloans and grants (a major source of resources for the budget) are not published.

The Esdimates llmetable

2.8 The timetable for the annual estimates laid down in the TFI stillprovides a good basis for the preparation of the budget. The timetable is as follows:

November Staff proposals.

December/January Draft estimates of expenditure and appropriations-in-aid(recurrent budget).

February Draft estimates of revenue and revised estimates ofrevenue for the current year (recurrent anddevelopment budgets).

II Only limited copies of the 1963 edition of the TFI ate available. However, the Treasury has produceda revised version which will be published and widely disseminated in FY93.

2' The new edition of the TFI will reflect the changes in the details of the estimatea.

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January/February Draft estimates of expenditure and revised estimates ofexpenditure for the current year (development budget).

March Revised estimates of expenditure and appropriations-in-aid for the current year (recurrent budget).

2.9 The TFI is silent on what happens between March and June. However,based on recent experience, the timetable for the rest of the period leading up to thepresentation of the budget to the National Assembly can be given as follows:

February/March Discussion of draft estimates of revenue andexpenditure.

March/April Consolidation and review of draft estimates of revenueand expenditure by MFEP.

April/May/June Cabinet consideration and approval of draft estimatesof revenue and expenditure.

June Printing of the annual estimates.

June/July Presentation of the annual estimates to the NationalAssembly.

2.10 No major problems have been encountered in the past five years inworking within the above timetable. In this connection it should be noted that it is nota statutory requirement that the Government present the annual estimates to theNational Assembly before the beginning of the new financial year. The Governmenthas, however, tried to present the estimates to the National Assembly by the end of thecurrent financial year, i.e. June 30. It has not always succeeded; in the past four yearsonly the FY90 Government budget was presented to the National Assembly before thestart of the financial year. To avoid such a delay, MOF has sought to bring theestimates timetable forward by, for example, issuing the budget call circular for theFY93 estimates in mid-October (1991) rather than in November or even December aswas the case in the preceding two years.

The Budget Call CYrcular

2.11 In Uganda the budget process formally gets underway when the BudgetDepartment in MOF (now MFEP) issues a call circular, inviting all ministries and self-accounting units to prepare and submit their draft recurrent and development budgetestimates for the next financial year. There is some ambiguity here. Although thecircular calls for the draft estimates of recurrent expenditure and developmentexpenditure, it is really concerned with the former. Actually, over the past three yearsMOF and MPED have moved closer to a division of labor that required MPED to

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Issue a separate call circular for the draft estimates of development expenditure,receive the submissions and lead the discussion of these estimates. The involvementof MPED in preparing the call circular for the development budget estimates was tobe welcomed. However, the issue of two separate circulars can be faulted on thegrounds that it encouraged the line ministries to view the recurrent budget and thedevelopment budget as two distinct budgets. It has, in a way, made it easy for themto ignore the recurrent implications of their development budget proposals.

2.12 The call circular is not just intended to guide the line ministries on howto go about putting their draft estimates together but also give a good indication of theamount of resources each ministry can expect to receive in the coming year. In thepast few years MOF and MPED have not been able to provide specific ceilings. Thepresent practice is to ask the line ministries to use the approved expenditure estimatesfor the current year as their recurrent budget ceilings and the projected RDPdisbursements for the next year as thc development budget ceilings. As there is noobvious rationale for this approach, it is not surprising that practically every ministrytreats the supposed ceiling as a soft budget constraint or no constraint at all.

2.13 In the distant past the Treasury issued each year a list of ruling netprices for standard items of office equipment, furniture, vehicles, etc. The ministriesbased their estimates for such items on these prices. This helped to avoid widevariations in the draft estimates for the same item by different ministries. In October1991 MOF distributed a questionnaire to all ministries in an attempt to collect datawhich would allow it to derive unit costs for all non-wage recurrent inputs. This is auseful but too ambitious an effort, given the fact that the primary accounting data arenot available in the kind of detail that is required for unit costs. A limited effort,focusing on the inputs into the key programs targeted for increased allocations, wouldbe more productive; this is what Chapter 4 of this report seeks to do by calculating anonwage recurrent expenditure norm for primary education).

2.14 As is the case everywhere, an important assumption underlying thedr t estimates is that they have been prepared in the light of established governmentpolicies. The call circular can serve as a medium for disseminating governmentpolicies more widely, or for explaining policies and giving them the right emphasis.Recent call circulars have attempted to do that. For example, the 1990 circularexplained the rationale for the increased allocations proposed for the priority programsin education, health, transport, agriculture and water. There is more scope for thistype of guidance.

2.15 The case of Makerere University shows why su_h guidance is needed.At budget time the university finance department seeks submissions from about 150departments, units and offices within the university. Little or no attempt is made toestablish priorities by faculty and evaluate the demand for resources emanating fromall these units according to those priorities so as to be able to shift resources amongfaculties, between teaching and research and between physical facilities and

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consumables. Likewise, the faculties have no clear priorities with respect tospecialization. Instead, each teaching, research, administration or maintenance unitvies with the other to maintain and advance its claim on what are very scarceresources. Yet the role of the university in Ugandan :ciety is too important to be leftto such ad hoc decision-making.

2.16 At present the call circular is not much informed by current andprospective macroeconomic developments. This is a major weakness and the reasonfor it is that, unlike in many other countries, in Trganda the call circular is notpreceded by a Budget Issues Paper. In essence, a Bud3et Issues Paper first assessesthe resource base of the economy and then goes on to formulate possible spendingoptions, recommend recurrent allocations to various sectors and programs and identifyprojects to be included in the development budget. The question of the appropriatesize of the budget deficit is of central concern in the Budget Issues Paper, as the deficithas implications for economic conditions in general and price stability in particular.This front-end piece to the preparation of the estimates is missing in Uganda.

2.17 Paradoxically, an exercise similar to the one required to produce theBudget Issues Paper actually takes place in Uganda but it has yet to be fully integratedinto the hudget process. It involves the development of a medium-termmacroeconomic framework which is then incorporated into the Policy FrameworkPaper (PFP) which in turn becomes the basis for economic stabilization and adjustmentprograms with the Bank and the Fund. The PFP is a tripartite document negotiatedbetween the Government, the Bank and the IMF but it continues to be viewed ingovernment circles as bearing too much of the stamp of the Bank and the IMF. Thisperception explains, up to a point, the tendency to all but ignore, for budget purposes,the macroeconomic framework that emerges from the PFP exercise.

Ministries' Draf Estimates

2.18 The TFI requires ministries and other self-accounting units to produce,in accordance with the estimates timetable given in paragraph 2.8, the following:

(i) staffing proposals for the next financial year;

(ii) draft expenditure estimates of the recurrent budget;

(iii) draft expenditure estimates of the development budget;

(iv) draft estimates of appropriations-in-aid;

(v) draft revenue estimates of the recurrent budget;

(vi) draft revenue estimates of the development budget;

(vii) revised revenue estimates of the recurrent budget for the current year;

(viii) revised revenue estimates of the development budget for the currentyear;

(ix) revised expenditure estimates of the recurrent budget for the currentyear;

(x) revised expenditure estimates of the development budget for the currentyear.

2.19 As the foregoing list shows, the preparation of the draft estimates is aformidable task, though it is standard requirement in any normal budget system. Thequestion is: To what extent are ministries able to prepare the above estimates? Theanswer is that, almost without exception, the quality of the ministries' draft estimatesis poor; some of the estimates are not produced at all.

2.20 The inadequacy of the draft estimates comes out in various ways.First, there is the question of staffing proposals. Few ministries are able to provideupdated staff lists and properly documented proposals for new staff. The Ministry ofEducation (MOE) stands out in this regard; it has no verified list of teachers at all (seeparagraph 3.32). Moreover, the staffing proposals that the ministries put forwardusually bear little or no relationship to the recurrent expenditure programs anddevelopment projects that they propose to undertake in the next financial year.Second, the draft estimates show a lack of prioritization of expenditures, except for thekey programs that are now targeted for increased allocations. Little or no effort ismade to justify the continuation of existing programs or new expenditure proposals.On this point, the TFI is quite explicit. It states: "Estimates should be carefullyscrutinized to see whether the provision for any existing service could be discontinuedor reduced. "'' Third, there is the problem of the revised estimates of revenue andexpenditure for the current year. These should form the basis of the draft estimatesfor the coming financial year but the ministries are not able to produce them. Fourth,information on actual expenditure by item for the previous year which should also bean input into the draft estimates is generally not available. Fifth, the deadline for thesubmission of the draft estimates is usually missed.

2.21 Although the exact internal processes that ministries follow in order toproduce the draft estimates vary from ministry to ministry, they fit into the generalpattern which is described here briefly. Upon receipt of the call circular, theaccounting officer forwards it to the Undersecretary for Finance (US/F). An internalmemorandum is then issued by the US/F or chief accountant, requesting heads ofdepartment to prepare and submit their draft estimates of revenue and expenditure by

JQ/ Uganda Government, Treasury Financial Instructions, June 1963.

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a certain date. In some ministries an effort is made to establish departmental orprogram ceilings based on whatever ceiling MOF and MPED have given a particularministry but the more common practice is for the US/F to ask heads of department tomake unconstrained submissions. These submissions are collated by the chiefaccountant. Almost without exception, the sum of the expenditure submissions is amultiple of either the ceilings given by MOF and MPED or a multiple of the estimatesfor the current year. At this stage most ministries hold some sort of review meetingchaired by either the Minister or the accounting officer. These meetings often resultin the reallocation of resources among departments or programs and a paring down(but sometimes an increase) of a ministry's overall bid for resources.

2.22 The process described in paragraph 2.21 is in principle adequate. Thatit does not produce the desired results is another matter, which has more to do withthe lack of accurate and timely information than with the process per se. If there isone major criticism of the internal process used by the ministries to draft theirestimates, it is that not enough use is made of the planning officers in the ministries.Every major sector ministr- has a ministerial planning unit (MPU).I1 ' With a fewexceptions, the MPUs are staffed by economists. Taken together, they represent thelargest pool of economists in the civil service. It thus patently wasteful not to fullyinvolve the MPUs in the preparation of the draft estimates. With some training,economists in the MPUs should be able to help ministries prepare draft expenditureestimates which have a clearer policy orientation, are better prioritized and have fullerjustification.

2.23 An important reason forthe generally poor quality of the draft estimatessubmitted by the ministries is that many of the staff who are charged with theresponsibility for preparing the estimates are not conversant with the requirements ofthe TFI. The TFI provides guidelines on the preparation of the draft estimates (suchas those conceming projects involving construction, existing commitments, officeaccommodation, minor works and improvements and employee costs). This documentwas, of course, outdated and needed to be revised, which is being done. Still,familiarity with its contents as well as consistent application would help improve thequality of the draft estimates. Unfortunately, copies of the TFI are not readilyavailable. Even where they are available, accounting officers do not ensure thatfinance officers familiarize themselves with the instructions in the manual and adhereto t"-m, unless they have been superseded by recent unpublished changes.

Review and Discussion of the Drof Estimates

2.24 The estimates revivw and discussion process has worked like this.MOF receives the draft estimates of the recurrent budget while the draft estimates ofthe development budget are submitted to MPED. MOF and MPED are supposed to

Jj/ Many =mailet minigies have MPUs too.

C

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collate and review the recurrent budget and development budget submissions prior tothe start of estimates discussions in order to get an idea of the total bid for resources.This does not happen, for two reasons. For one thing, the submissions are so farabove whatever ceilings have been given to the ministries that MOF and MPED takethe view that it would be a waste of time to prepare consolidated figures prior to thediscussions. But it is also true that the Budget Department in MOF and the SectoralPlanning Department in MPED are not geared to undertake this task in time for theestimates discussions. Matters are not helped by the delays in the submission of thedraft estimates.

2.24 Even before all the submissions are in, discussion meetings arescheduled and started. At these meetings joint teams of officials from MOF andMPED raise questions about the draft estimates and seek answers from accountingofficers and their senior staff. The principal weakness at this stage of the budgetprocess is insufficient knowledge on the part of line ministry officials regarding thefinancial and physical status of individual programs and projects. The issue concernssuch mundane things as the numbers of primary schools, teachers and professionalhealth workers. The line ministries pay a price for ignorance of their own programsin that when convincing answers are not forthcoming MOP and MPED are naturallypredisposed to make arbitrary cuts in the draft estimates. The country pays too, since,for lack of information, the ministries get away with allocations that would otherwisenot pass muster.

Cabinet Review and Approval of the Draft Estimates

2.25 Consultations with the Cabinet relating to the draft estimates havebecome more frequent and less perfunctory as estimates documentation has improved.There has also been a move to consult the Cabinet at an early stage in the estimatesprocess. In line with recent improvements, MFEP presented to the Cabinet in Maya Budget Issues Paper for FY93, the first of its kind since the ERP began five yearsago. The significance of a Budget Issues Paper lies in the fact that it would help toconcentrate minds, ahead of the final allocations, particularly on the country'sexceptionally weak domestic revenue effort, the severe underfunding of key programsin the recurrent budget and the serious recurrent cost implications of an overlyambitious PIP.

The Published Estimates

2.26 The published estimates now provide sufficient detail by item tofacilitate the National Assembly's review and consideration of the same. However, amajor shortcoming remains: the published estimates do not present the revisedestimates for the current year and actual expenditure for the preceding year. TheNational Assembly is thereby deprived of key inputs into its decisions about theallocation of resources among ministries.

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C. Release of Funds

The Legal and Regulatory Framework

2.27 The release of funds to meet expenditure under the approved estimatesis governed by various provisions of the Public Finance Act of 1964, the TFI and theTAI.A To start with, Section 10 of the Public Finance Act provides that "... theTreasury shall control the issue of public moneys to Ministries and departments of theGovernment". But that is not all. Section 12 of the same Act requires that "... theAuditor General shall, if satisfied of the correctness thereof, give his approval toTreasury warrants ..." This simply means that no issues can be made from theConsolidated Fund without the AG's approval.

2.28 As far as payments by ministries are concerned, funds may be releasedto meet three types of expenditure, namely:

* statutory expenditure which is mainly expenditure on Consolidated FundServices (CFS);13'

* voted expenditure or expenditure on Supply Services; and

- expenditure in advance of appropriation, also known as Vote on Account.J'

How Funds Are Supposed to be Released

2.29 According to the TFI and TAI, once the annual Appropriation Act hasbeen passed by the National Assembly, the Treasury is expected to issue a circular toall accounting officers authorizing them to spend up to the limit of the approvedestimates, except in cases where amounts are shown in the detailed estimates as beingsubject to "Requisition to Incur Expenditure (RIE)".A In normal budget systems thelimitaticn, by means of the RIE, on accounting officers' authority to spend would noteven apply. In the abnormal conditions that prevailed in Uganda for a long time (as

IV A revised edition of the TAI Part I (Finance) was published in 1991 but has yet to be disseminatedwidely.

13/ By far the biggest component of the CFS is the public debt. Also included in the CFS are the salariesand allowances payable to specified office holders (eg judges of the High Court, the Inspector Generalof Police and the Auditor General).

14J A Vote on Account empowers the Minister of Finance to authorize the release of funds to meetexpenditure necessary to carty out government services for up to four months into the new fiscal year;see Section 13 (1) of the Public Finance Act.

IS~/ Originally, an RIE was meant to signify that while the Treasury had agreed in principle to includeprovision for a particular item in the estimates, actual expenditurewould be subject to further agreementwith the Treasury on the details of such expenditure.

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manifested in rampant corruption, the breakdown of expenditure control, the collapseof the revenue base as well the revenue effort, the failure to produce annualgovernment accounts etc), the Treasury made the release of funds based on RIEs therule rather than the exception. This generalized RIE system proved undulycumbersome and less effective against corruption and indiscipline in spending than wasexpected. It has therefore becn substantially relaxed during the past year and a half.

How Funds Are Presently Release I

2.30 The present system of releasing funds is a mix of what is calledquarterly releases and RIEs. The quarterly release (introduced in October 1990),which conriwletely does away with the RIE, applies to the recurrent budget (excludingdebt service).L6' The release is made as follows:

prior to the start of each quarter the Commissioner for the Budgetsends to the Commissioner/Treasury Officer of Accounts the details ofauthorized amounts for the next quarter (exactly as contained in thepublished estimates), with a covering memorandum requesting theC/TOA to release the said amounts to the ministries and departments;

C/TOA in turn forwards a Treasury warrant to the Auditor Generalseeking his approval of issues of funds from the Consolidated Fund tocover the quarterly release;

AG gives his approval by issuing an audit warrant;

C/TOA credits the accounts of individual ministries and departmentsin the Treasury General Account (TGA) at BOU, less any advancesdue for recovery in that particular quarter.

2.31 In terms of ministries' ability to spend, the quarterly release describedabove is more notional than real. For, through the check-printing system operated bythe Uganda Computer Services, ministries are restricted to spending one-twelfth of theapproved estimates each month, unless an advance has been granted by the C/TOA onthe advice of the Commissioner for the Budget. For expenditures involving lumpypayments, advances are inevitable. To their credit, the Budget Department and theTreasury have been responsive to applicatiors for such advances. In the currentcircumstances of tight and uncertain flow of budgetary resources the quarterly release

16/ In the case of debt service the Public Debt Section in the Treasury is supposed to send a requisition eachmonth to the Budget Department which then approves the amount of debt service to be paid in aparticular month. A Treasury warrant is then approved by the Auditor General. After that the Tteasuryissues a check to the External Debt Management Office (EDMO) in the BOU. Owing to data problems,foreign exchange scarcity and dereliction of duty, this release system for debt service works poorly.

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system represents a prudent movement away from the hitherto excessive reliance onRIEs. Quarterly releases give accounting officers and other account holders a measureof flexibility in managing their programs. Unfortunately, the Government has, as atemporary measure, recently reinstated RIEs as a major instrument of expenditurecontrol. This was done in an effort to implement a deep expenditure cut (a total of USh 16 billion) during the final quarter of FY92 and thus bring the fiscal program forthis year more or less back on course.

2.32 In Uganda expenditure under the approved estimates of the developmentbudget are automatically suspended and can only be made through RIEs. The obviousrationale for suspending the development expenditure estimates is that developmentactivities involve works which must be inspected and certified by the appropriateauthority before payments are made. In general, the process works as follows. Aministry prepares and forwards an RIE, together with appropriate documentation onimpending payments, to the Budget Department; if the Budget Department finds theRIE to be in order, it approves it and advises the Treasury to release the requiredfunds; by means of a Treasury warrant the Treasury seeks the AG's approval for therelevant issue from the Consolidated Fund; the AG's approval is conveyed through anaudit warrant; finally, the Treasury causes a check to be prepared and credited to theministry's account in the TGA at BOU. This is the basic approach followed inreleasing funds for local capital expenditure (i.e. development expenditure fullyfinanced by the Government) and the Government contribution to externally financedprojects or counterpart funds; in the case of local counterpart expenditure the checkis deposited in a project account rather than the TGA. The system was recentlyrelaxed somewhat by allowing quarterly releases for the ministries responsible forspecified key programs in agriculture, education, health, transport and water.

2.33 The release of donor funds for development projects is morecomplicated. Different donors apply different procedures. IDA and AfDB, forexample, rely on releases of funds based on a system of withdrawal applications. Theapplications originate from the project implementation units but the release of funds isactually authorized by the Treasury. That is the way it should be: Uganda shouldcontrol the release of grant or loan funds provided by donors. Unfortunately, somedonors follow procedures which allow them to completely bypass the Treasury and thePIUs when they release project funds. These donors in effect implement their ownbudget within, and even outside, the Government's published estimates, with all thecomplications that such a practice entails.

D. The Payments System

The Legal and Regulatory Framework

2.34 The authority to incur expenditure under the approved estimates and thelegal limitations on expenditure are covered in great detail in the TFI (dealing mainlywith supplementary estimates, reallocations, internal reallocations and excess

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expenditure) and the TAI (appointment of accounting officers and other officersauthorized to conduct accounting transactions). In the first instance, the authority toincur expenditure is given to accounting officers who are appointed by the Treasury.Accounting officers may (and invariably do), by way of a departmental warrant,delegate the authority to incur expenditure to staff who work under them. However,it is the accounting officer who is responsible to the National Assembly for themanagement of the funds approved for the programs and projects under his control.

2.35 The TAI and TFI make it very clear that the approved estimates, thepublished details of the estimates and the establishment details are fixed and cannot beexceeded or varied without the authority of a supplementary estimates warrant, areallocation warrant or a Contingencies Fund advance warrant. The conditions underwhich the authority to exceed or vary the estimates would be granted by the Treasuryand the procedures to be followed are spelt out in Sections IV-VIII of the TAI. TheTAI allows the Treasury to delegate to accounting officers authority to approvereallocation of expenditure within specified limits; this is known as internalreallocations.

The Traditional Local Purchase Order System

2.36 It should be stated at the outset that the payments system has beensimplified and streamlined considerably over the past year and a half, in step with thequarterly system of releasing funds for recurrent expenditure. Under the existingsystem ministries order goods and services by issuing local purchase orders (LPO) tosuppliers.A" When goods have been delivered or services provided, or there isreasonable assurance that this will happen, the ministry prepares payment voucherswhich, together with the supporting documents, are forwarded in batches to theTreasury. The Treasury staff carry out a pre-audit of the payment to ensure that theministry has sufficient funds in its bank account to cover the payment, the correcttransactions codes have been used and the documents (proforma invoices, approval ofthe Central Tender Board etc) are in order. After Treasury clearance, all paymentsabove USh I million (less than US$1,000 at the current exchange rate) under thequarterly release procedure and all payments of any amount under the RIE procedureare forwarded to the AG who carries out a further pre-audit of the payments.A TheTreasury submits batches of payment vouchers that have been passed by the AG to theUCS, checks are printed on the computer and suppliers are paid.

2.37 The pre-audit of payments by the Treasury and the Office of the AG

JZ/ This assumes that necessary approvals such as Central Tender Board authority have been obtained.

I8/* The Auditor General has no legal authority to pre-audit payments but has had to bow to Governmentpressure to help minimize corruption and fscal indiscipi ne. The Auditor General is vay much awarethat pro-audit cretes a moral hazard for him as he must later carry out a statutory audit of payments heha already passd.

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are meant to compensate for weaknesses at two levels. On one level is the ministryitself which is supposed to carry out its own pre-audit or internal audit before makingpayments. The ministries do not have proper internal audit units and so no effectivepre-audit takes place. Moreover, they do not maintain proper vote books. They alsotend not to keep track of the commitments that they enter into. On the second levelis the Treasury Inspectorate whose responsibility it is to regularly inspect the booksmaintained by the ministries and help discourage the misuse of public funds but it isonly able to do this on a limited scale. The pre-audits carried out by the Treasury andthe AG, no doubt, cause a certain amount of delay in the payments system but in asituation where accountability is very suspect they probably do more good than harm.

The Local Letter of Credit System

2.38 The local letter of credit (L/C) system is an innovation prompted bydissatisfaction with the LPO system. The LPO system has indeed been open to abuse.Ministries are prone to enter into commitments well in excess of their approvedestimates, creating domestic arrears and forcing the Treasury to seek Parliamentaryapproval of the resulting unauthorized expenditure. The law provides for surchargingthe accounting officers responsible for unauthorized expenditure but the provision israrely invoked, perhaps because of the extremely low level of government salaries.

2.39 The L[C system, which was announced in the FY92 Budget Speech,is designed to work as follows. A ministry enters into a written, standard agreementwith a supplier, subject to the necessary clearances by the Central Tender Board(CTB), the Treasury and the AG. Based on this contract, the supplier's commercialbank establishes an L/C which is confirmed by BOU. Upon proof of delivery of goodsor services, the supplier is paid by BOU. The advantage for the supplier is that he orshe is guaranteed payment by BOU which blocks the ministry's account to the tune ofthe contract once it has confirmed the L/C. Strictly followed, the L/C system shouldeliminate future domestic arrears, at least in respect of the eligible payments (mainlyfor food).

2.40 The [IC system applies to payments above U Sh I million which is toolow given the purchasing power of the shilling today. Certain types of transactions (egmotor vehicle repair and maintenance bills) are exempt. Apparently, there has beenmuch resistance to the new L/C payment system but MFEP is continuing its efforts toensure compliance.

Payments to Foreign Suppliers

2.41 Payments to foreign suppliers are made through BOU by means of abank draft, tested telex, LIC or other means. There are basically two problems here.One problem is tOh scarcity of foreign exchange which sometimes prevents ministriesfrom using their allocations to procure goods from abroad (human and animal drugs

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and school books, for example). The second problem involves foreign supply contractswith or without deferred payment terms. Payments due under these contracts often endup as extemal payments arrears, and add to the stock of extemal debt. This happensin two ways: when there is insufficient provision in the estimates to cover the value ofthe contract and when, unbeknown to MFEP, payment falls due in another financialyear and there is no provision for such a payment. Payment arrears arising fromforeign supply contracts have been among the worst forms of financial discipline buthave been brought under control.

Lapsing of Appropriations

2.42 As required by Section 22 of the Public Finance Act, everyappropriation of funds by the National Assembly in each financial year lapses at theclose of the year (so do expenditure warrfnts) and the unspent balance of any fundswithdrawn from the Consolidated Fund must be paid back into the Consolidated Fund.The law allows for suitable wording of the Appropriation Act to forestall immediateclosing of the T( *A at the end of the financial year. This is not done. BOU thereforecloses the TGA as required by law, often giving rise to payment arrears, mainly todomestic suppliers. This happens because government checks (which have a life of sixmonths) are normally outstanding well into the next financial year. It is one thing ifpayment of the checks outstanding from the previous financial year would result in theoverdrawing of a ministry's bank account.. It is quite another matter if the checks aredrawn against the positive bank balances that would otherwise remain but fcr theclosure of the TGA for the previous year.

A Question of Fiscal Discipline

2.43 Discipline over expenditure of public funds has improved a great dealsince the NRM Government came to power in January 1986. Still, lack of disciplineover the use of public funds is a serious problem, hence the continuation of thepractice of pre-audit of payments by not only the Treasury but also the AG. To someextent the problem is partly due to ignorance: copies of the TAI and TFI are notavailable and so civil servants (including accounting officers) do not know what isexpected of them. Indiscipline is also a reflection of the bad habits and attitudesacquired during the long years of political and economic chaos. Perhaps, that isputting it too charitably. But when all is said and done, accounting officers must takethe blame for the continued laxity in public expenditure. In the present political andjudicial climate they can say no to Ministers without too much fear of victimization.Yet they generally abdicate their responsibilities as managers and controllers ofexpenditure. Within the ministries the burden of ensuring that payments are inaccordance with the approved estimates and are made with proper authority thus fallsupon the chief accountants who in any case are susceptible to pressure from theaccounting officers themselves and Ministers.

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E. Control and Management of Public Fiiiances

What the Law Requires

2.44 Under the Public Finance Act (Section 3), the duties of the Minister ofFinance are to "so supervise the finances of Uganda as to ensure that a full accountthereof is made to the National Assembly and that ... financial control is maintained

". The Minister is charged with basically two responsibilities here, namelyadministering the budget (and other financial matters) during the course of the fiscalyear and rendering an account to the National Assembly after the close of the year.This section of the report is concerned with budget administration. Governmentaccounting is dealt with in section F below.

2.45 Budget administration covers the release of funds, the monitoring ofrevenue and expenditure and adjustments in response to deviations from the approvedrevenue and expenditure estimates. The release of funds has already been covered insection C. However, it must be emphasized that the expression "automatic quarterlyreleases' is not meant to be taken literally. As dramatically illustrated by the FY92budget debacle, it is not sufficient for releases to be within the approved estimates.What the FY92 budget problems show is that at present there is not enoughappreciation of the need to match releases to the flow of revenue, including importsupport loans and grants, to the budget, subject, of course, to such prudent limits onborrowing as may have been established. In this connection it should be noted that thepower to limit expenditure is expressly provided for in the Public Finance Act.Section 12 (3) states: "Whether or not an issue from the Consolidated Fund accounthas been made, the Minister may limit or suspend any public expenditure (not beingstatutory expenditure), with or without cancellation of any warrant, if in his opinionfinancial exigencies or other public interest so require". This provision of the Actshould have been used to impose expenditure cuts from the second quarter of FY92.

Present Monitor;ng Arrangements

2.46 The monitoring of revenue and expenditure has definitely improvedsince FY88, thanks largely to the Economic Analysis Unit (EAU) which has been ableto create a fairly comprehensive fiscal database which is updated monthly. The datacollected by the EAU form the basis of reports which are considered by the EconomicMonitoring Committee (EMC). Until the merger of MOF and MPED in March 1992,the EMC was composed of the Minister of Finance (as chairman), the Secretary to theTreasury (ST), the Deputy Secretary to the Treasury in charge of the Budget (DST),the Head of the EAU, the Minister of Planning and Economic Development, thePermanent Secretary (PS) of MPED, the Chief Government Planning Economist inMPED, the Govemor, Deputy Governor and Director of Research of BOU. Thecommittee meets each month. This arrangement generally works well but has beenknown to fail, as happened this year.

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A Problem of Poor Coordination

2.47 In spite of the progress achieved to-date with regard to the managementand control of government finances, problems remain. A major problem is poorcoordination among the key agencies, namely the former ministries of Finance andPlanning, the Ministry of Public Service and the Bank of Uganda. The failure inFY92 to adjust expenditure in response to very large shortfalls in both domesticrevenue and foreign loans and grants with resultant heavy borrowing from BOU servedto highlight the lack of coordination among the core economic institutions. It shouldbe added that coordination within these institutions is often equally poor. For example,the EAU, the Budget Department and the Treasury failed to act on information thatwould have averted the full releases and spending that threw the FY92 budget seriouslyoff course. The lack of timely and accurate information makes good coordination allthe more necessary.

Weak Management as the Fundamental Problem

2.48 Data deficiencies are real enough but they are only symptomatic ofmanagement problems in the core economic institutions and the civil service generally.One example would suffice to highlight the management problem. External resources(import support and project finance) account for nearly 80 percent of total plannedexpenditure for FY92. Yet there is not much evidence of a real, concerted effort tomanage these resources. Managing these resources means that the Government playsits part in ensuring that, as soon as possible, the funds are committed by the donors,disbursement and procurement procedures are mastered, disbursement and otherconditions are met and bottlenecks affecting project implementation (eg counterpartfunds) and the utilization of import support funds are removed.

F. Government Accounts

The Legal and Regulatory Framework

2.49 The law and the relevant regulations give prominence to accountabilityin respect of public revenue and public expenditure. Section 99 (1) of the Constitutionprovides for an Auditor General who is independent of the executive and thelegislature. Section 24 (1) of the Public Finance Act spells out the duties of the AG,to wit: "examine, inquire into and audit the accounts of all Accounting Officers andreceivers of revenue and of all persons entrusted with the collection, receipt, custody,issue or payment of public moneys, or with the receipt, custody, issue, sale, transferor delivery of any stamps, securities, stores or other Government property". The lawrequires the AG to submit a report on the government accounts to the Minister ofFinance who in turn must lay the report before the National Assembly.29 The types

12/ The AG has a statutory duty to submit his report to the Speaker of the National Assembly if the Ministerfails to do so (see subsection 2 of Section 28 of the Public Financo Act).

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of books of accounts (cash book, jou' .al and ledgers in respect of expenditure,revenue, project funds, etc) that must be kept by accounting officers are listed inparagraph 71 of the TAI Part I. Section 27 of the Public Finance Act specifies thetypes of statement and balance sheet that must be prepared after the close of thefinancial year by the Treasury, each accounting officer and each receiver of revenueand submitted to the AG.

The Accounts and Audit llmetable

2.50 The timetablez' for accounting to the National Assembly is asfollows:

* within four months of the end of the financial year (i.e. by October of thefollowing financial year) the C/TOA, each accounting officer and each receiverof revenue must prepare and submit the required accounts, statements andbalance sheets to the AG; some of the Treasury statements (eg statement ofloans guaranteed by Government) are required within six months;

* within nine months of the end of the financial year (i.e. by March of thefollowing financial year) the AG must submit his report on the accounts,together with the accounts duly certified, to the Minister of Finance;

* within fourteen days of the first sitting of the National Assembly following hisreceipt of the report the Minister must lay the report before the NationalAssembly.

A Brief Historical Perspective

2.51 Uganda's record on the production of public accounts is dismal, asattested to by the following: during the period 1971-1986 no public accounts and AG'sreports were produced; prior to the assumption of power by the NRM the last TreasuryMemorandum produced was for FY63; the Public Accounts Committee ceased tofunction until it was revived by the NRM Government. This was nothing short of acomplete breakdown of financial management and control.

Recent Efforts to Produce Govemment Accounts

2.52 To its great credit, the NRM Government lost no time in institutingmeasures that would result in the production, audit and Parliamentary scrutiny of thepublic accounts. The measures included: the immediate, revival of the Public AccountsCommittee (PAC); strengthening the Office of the AG so that it can resume theperformance of its duties; ridding the Office of the C/TOA of corrupt staff; and

}QI lbe National Assembly may extend the deadline for the submission of accounts by the CiTOA,accounting officers and receivers of revenue.

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demanding that the accounts required of the C/TOA and accounting officers beproduced.

2.53 The above efforts have yielded some positive results. In the firstinstance, although much delayed, the accounts and financial statements for FY87 andFY88 were submitted to the AG by the Treasury. The AG found the accounts andstatements to be incomplete and inaccurate in many respects and therefore declined tocertify them. Nevertheless, the AG submitted his report on the examination and auditof the accounts for the two years to the Minister who in turn tabled the reports inParliament.11' The PAC reports on the accounts for the two years were publishedand the Treasury Memorandum issued in respect of the FY87 accounts. Next, theaccounts for FY89 were produced by the ministries and the Treasury and were auditedby the AG. These are about to be laid before the National Assembly as the first fullyaudited and published accounts in nearly two decades. Although late (this set ofaccounts should have been ready by March 1990), the publication of the accounts forFY89 is a mark of progress. However, the delays in the production of the accountsare excessive. Take for example, the FY90 accounts. The AG's report, together withthe accounts for that year, which should have been ready by March 1991, have beendelayed because of discrepancies in the statements submitted to the AG and becauseof bank reconciliation problems. The accounts for FY91 offer no hope of animprovement: as of April 1992 very few ministries had submitted to the C/TOA theirfinal accounts for FY91.

What Are the Stumbling Blocks?

2.54 Many factors militate against the production of public accounts inUganda. Aside from the generic problems of poor work incentives and shortage ofsuitably trained staff, four specific factors may be mentioned. Firstly, there are peopleinside and outside Government who have a vested interest in the status quo. Theystand to lose from the maintenance of proper books and the publication of accurate andtimely accounts which would lead to the detection of embezzlement and misuse ofpublic funds. Secondly, very few copies of the TAI (eve4i the 1970 edition) have beenavailable; here was a convenient but often genuine excuse for ignorance of theaccounting instructions. Thirdly, the Treasury Inspectorate (TI) whose duty it is tocontinuously inspect books of account kept by ministries and recommend correctiveactions where necessary has been practically dormant. Fourthly, there is laxity on thepart of accounting officers. Few seem to realize the importance of keeping properbooks of account and preparing final accounts.

The Importance of Government Accouras

2.55 Government accounts are important for two main reasons. One reason

21/ The AG's reports led to the dismissal of a number of senior civil servants, including PermanentSecretaries.

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has to do with probity and accountability. In the absence of audited accounts, it isimpossible for the National Assembly to know whether or not, in the words of Section24 (2) of the Public Finance Act, "reasonable precautions have been taken to safeguardthe collection of revenue' and whether or not "all public moneys have been dealt within accordance with proper authority". The accountability question is tied up with thewhole issue of good governance. Public accounts are important for another reason.They form the primary source of much of the data needed for: planning; preparing theestimates; managing revenue and expenditure; and evaluating government programsand projects.

G. Monitoring and Evaluation

2.56 The mere expenditure of public funds in no way assures the provisionof goods and services, much less efficient provision. There is often room for waste,inefficiency, delay and embezzlement. There is therefore the need to look beyond therelease of public funds and the production of govemment accounts and ask questionsabout the ways in which public expenditure programs and projects are managed andthe outcomes that arise (or fail to arise). This calls for a system of monitoring andevaluation of public expenditures.

2.57 A monitoring and evaluation system was part of the Ugandan budgetsystem until the mid-1970s when, as a result of the generalized chaos prevailing in thecountry, it fell into disuse. Since FY87 efforts have been underway in the Office ofthe Prime Minister (PM) to restore the monitoring and evaluation system that existedbefore. Ministries and self-accounting units, including the urban and local authorities,are required to submit quarterly management reports to the Office of the PM, detailingthe activities carried out during the period in question, what was accomplished, whatwas not accomplished and the reasons why, the work plans for the next quarter andbeyond, and the steps proposed to address the factors hindering the effectiveimplementation of public expenditure programs.

2.58 The response of the ministries and self-accounting units has been slowbut encouraging. As of February 1992 several ministries and self-accounting units hadsubmitted their reports for the quarter ending September 1991; one or two ministrieshad even submitted their reports for the October-December 1991 quarter. Most of theministries go into considerable detail in providing information on, and discussing, theirprograms; too much detail, in fact, given the limited capacity of the Office of the PMto process the information and review the submissions.

2.59 The relevant section in the Office of the PM is supposed to collate andsummarize the reports, review them, bring to the knowledge of the PM matters whichrequire his attention as well as the attention of the Cabinet and, based on the reports,propose solutions to the problems that have beva identified. Addressing the problemswould sometimes call for Cabinet decisions involving policy and institutional changes.But very often, the PM could put the reports to good use by summoning the relevant

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Cal"\net Minister and his senior officials and discussing with them the correctiveactk... needed to tackle the problems plaguing the particular ministry's expenditureprograms.

2.60 There is a great deal of concern at the highest levels of Governmentabout the general ineffectiveness of public expenditures. Yet there is little or noindication that the monitoring and evaluation system in place is being used to improvethings. The Government is thus missing an opportunity to put the weight of the PM,and indeed of the whole Cabinet, behind efforts aimed at tackling problems of weakimplementation of programs and projects.

CHAFFER 3:IMPROVING PUBLIC EXPENDITURE

MANAGEMENT

A. Introduction

3.1 The previous chapter examined the present system of public expendituremanagement, drawing attention to its strengths and weaknesses. The chapter showedthat progress has been made since 1986 in improving public expenditure management.That progress can be measured by the following: a degree of discipline in themanagement and control of public funds has been restored; recurrent budgetappropriations are now released quarterly in contrast to the old system whereby thebulk of the recurrent budget estimates were subject to RIE (see paragraph 2.31); theGovernment has begun to pay greater attention to questions relating to the compositionof expenditure; the Uganda Revenue Authority has been established and entrusted withthe task of overhauling sax administration and revenue collection; a computerizedpayroll has been instituted for part of the civil service; UCS has resumed productionof some accounting reports; and final government accounts covering FY87-FY89 havebeen produced. But the previous chapter also showed that much remains to be doneto increase the effectiveness and integrity of government finances.

3.2 The aim of this chapter is to suggest, or emphasize, ways in whichfurther improvements in public expenditure management can be brought about. Theaccent is on improvements that are feasible in the medium term, taking into accountthe difficult economic situation facing Uganda, the acute shortage of skilled manpowerand the breakdown of management systems But it is one thing to suggestimprovements, quite another to carry them through. In this regard, it should bepointed out that the pace of civil service reform in general has been very slow. Manyof the improvements discussed below will be supported by the EFM project butexperience has shown that kind of support is no guarantee of success. A much moresystematic approach is required to improve the budget process and the effectiveness ofpublic expenditure.

3.3 The rest of this chapter is devoted to a discussion of the types of actionsthat will help generate the accounting data so vital for public expenditure managementand the changes in procedures and institutional arrangements that would strengthenestimates preparation and budget administration. Before discussing these issues thereport raises again the question of domestic revenue and civil service wages which areintertwined.

B. The Revenue-Wages-Productivity Nexus

3.4 Significant improvements in civil service productivity are not possiblewithout raising the pay of government employees to at least what the PSRRC called

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the Minimum Living Wage.2- Table 3.1 below compares the present average civilservice wages with the recommended MLW. The last column of the table gives anindication of how low present wages are. The current top civil service wage, includingcash allowances, is equivalent to US$70 per month.W' At the top, wages need to betripled in order to bring them up to the MLW while at the bottom they need to beincreased five-fold. It should be added that the top monthly MLW is equivalent toonly about US$150.

Table 3.1 Average Wages and Minimum Living Wages(U Sh per month)

l . Wage Scale MLW Average Wage % Ratio of (3) to (2)-

l (1)0 (2) (3) (4)

VI Special: 193,636 69,559 36

lUtJi- 176,962 54,084 31

l U2 ;;-: t- 155,566 30,893 20

l3 iB -f 0 ;131,540 32,426 25

U4 119,525 26,220 22

U.5- 106,288 19,368 18

U6 - 75,764 14,488 19

U7 63,187 14,244 23

US ~52,478 11,163 21

Source:' Report or the PSRRC and data provided by UCS.

Notes: (I) Data for the month of October 1991 were used to calculate average wages;-e: data cover only established staff.

-'.(2) 'Ave0ag wages include basic pay, professional and top-up allowacs ind'-other allowances.

(3) The average wage for U2 is distorted by other allowances, thus brealdng..t:h progression of the scales.

7,2/ See Appendix Dl, pages 661-663 of the Report of the Public Service Review and ReorganizationCommission, Volume 1, Main Report, September 1990.

21/ In gaugingthe adequacy of present civil service wages sight must however not be lost of noncash income(principally housing benefit) which can be substantial.

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3.5 The case for rapid increases in civil service wages is incontestable.That better civil service pay holds the key to improved productivity is also not indispute. The big question is how to fund the large pay increases needed to boostmorale, minimize absenteeism and moonlighting and reduce the misuse of public fundsand property. Clearly, the line of attack on these inter-related problems must run froman enhanced revenue effort to improved pay to higher productivity. With theestablishment of the URA tax administration and revenue collection are beingoverhauled. The URA is expected to help raise the ratio of domestic revenue to GDPto 12.5 percent by FY94 (see Table 3.2 below).

3.6 As can be seen from Table 3.2 the wage bill accounted for 15 percentof ministerial recurrent plus local capital expenditure in FY91. It is appropriate torelate the wage bill to ministerial recurrent expenditure plus local capital expenditurebecause the Government has full discretion over these categories of expenditure. Onthe basis of the original estimates the wage bill/ministerial expenditure ratio would bethe same in FY92. But note that, according to Table 3.1, for the civil service as awhole, roughly a four-fold increase in wages would be required to reach the MLWtargets recommended by the PSRRC. In Table 3.2 it is assumed, for illustrativepurposes, that MLW levels would be achieved in FY94, raising the present wage billto about U Sh 144 billion by then. Maintaining the present 15 percent ratio betweenthe wage bill and total ministerial recurrent and local capital expenditure implies thatthe latter would need to increase to U Sh 960 billion by FY94, which is not feasiblesince domestic revenue and domestic revenue plus import support loans and grants areprojected to be U Sh 420 billion and U Sh 715 billion, respectively, in FY94.

3.7 By allocating U Sh 144 billion of projected budgetary resources towages in FY94 the Government would double the ratio of the wage bill to domesticrevenue (presently 17 percent). That implies a major shift of resources to wages awayfrom nonwage ministerial recurrent and local capital expenditure programs that are notregarded as priority programs, if, as the foregoing paragraph suggests, there is no paripassu increase in revenue. Such a shift of resources is almost inevitable if the wagequestion is to be addressed in a fundamental way but it has to be done in such a waythat O&M expenditures on the priority programs are protected. The shift of resourcesshould be cushioned in three wa'ls. One way is to move swiftly to trim the size of thecivil service. The second way is to strive for an even stronger improvement in thedomestic revenue effort than that shown in Table 3.2. The third way is to close downexpenditure programs which no longer have any good justification to be in the publicdomain or to be in existence at all.

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Table 3.2 Indiators of Aff6rdabI Wae c-~(erceat

. .... .... .... . .. ... ... .. ,. f , .....: -. ....... ..... -z .-.i; ......... f ..E 0. --: ... . ... . . ..

Dot=eatlcrv. 6.iDP . 6.5: 7.5- L 9.4 10 l2-

W bil/onieatie revenue 16 20 14 18i 17 1 I

Wagebif talrec urrent 13 16 11 15i. 1 8

wtoldicee in l- wage bil 4(U 3I bU -- - >- C:-

dsoutie: ini-tiy of Fiance, Estimates of Revenue and Expendituem

Nota a n: i -strial necurrentexpenditureexcludes interepaynmentsbut includes local @ p -ta ;pe d u ire, the bulk of whichis of a recurrent nature anyway.

C. Economic and Financial Information

3.8 Efforts to improve public expenditure management should start at theend of the process, that is, with accounting. Improved budget formats, a well-definedestimates timetable, a timely and comprehensive budget call circular, prompt releaseof funds, etc count for little when reliable and up-to-date informati,n are not availableto frame the estimates in the first instance and to monitor revenue and expenditure.Put simply, until better economic and financial information becomes available, thequality of the estimates cannot be expected to improve significantly;W nor would therelease of funds and the control of expenditure.

What to do about the Accounting Problem?

3.9 The accounting problem is in the ministries, the Treasury and BOU.Some of the actions that need to be taken to improve accounting are described brieflybelow.

3.10 Uganda Computer Services. At its inception in the mid- 1960s the firsttask of the UCS was to run a government-wide computerized payroll system. Thenthe Treasury created in 1969 a Computerized Budget and Accounts section which hadby FY74 succeeded in computerizing the accounts of eighteen ministries. Both the

2I/ Th. lack of accurate and up-to-date data is also an impedimnent to the formulation of sound policies.

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payroll and the accounts applications were abandoned during the period of turmoil.It was not until 1985 that the check-writing system was re-established. A partialpayroll system which strictly covers only established staff numbering about 60,000(mainly excluding teachers) has also been in operation since FY89.

3.11 It is significant to recall that up to FY76 the government computerizedaccounting system was able to produce the cash book, balance sheet and otherstatements and to process the final accounts. According to the TAI (paragraph 45),UCS should provide C/TOA with the following reports each month: bank schedules,ledger reports or cash books and expenditure returns. With the exception of theexpenditure returns, parts of these reports are being produced by UCS but not in thedetail that is required for accounting purposes. The same paragraph of the TAI requiresUCS to provide the ministries with the following financial reports monthly, unlessotherwise indicated:

(i) trial balances;

(ii) exception reports;

(iii) summary of budgetary balances;

(iv) report by sub-programc (revenue collectors);

(v) expenditure statements by sub-items;

(vi) budget variations;

(vii) balance sheet (quarterly);

(viii) summary of revenue and expenditure;

(ix) appropriations account;

(x) revenue account;

(xi) bank reconciliations (daily);

(xii) expenditure and revenue return.

3.12 Although it requires additional computer hardware and software, UCSpresently has the computing capacity to handle most of the accounting reports expectedof it. It now captures enough information through the check-printing and payrollapplications to be able to produce large parts of the required reports, if not the fullreports. What UCS lacks most are skilled computer systems analysts and

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programmers. These are needed to convert the existing programsW' to run on ICLmachines rather than the original IBM mainframe computer, or to write new programs,so that the available government receipts and payments data can be processed into therequired accounting reports. The Government should move quickly to use the fundsavailable from the on-going TA III project to procure the required skills andcomplementary inputs so that UCS can begin to produce the required reports. TheUCS route promises to be the quickest way to get on top of some of the accountingproblems bedeviling public expenditure management in Uganda. This is, of course,not an argument for abandoning the manual systems for keeping accounts in theministries.

3.13 Bank of Uganda. It is virtually impossible to produce timely andaccurate government accounts when the government's banker, i.e. BOU, is not ablekeep proper accounts. For a long time the only published final accounts of the centralbank were those for 1986. To its credit, BOU initiated two years ago a major effortto restore its accounting capability. This effort has met with some success, as shownby the production of the final accounts for the five years ended June 30, 1991. Thevolume of transactions awaiting posting has gone down. Moreover, the delays inpostings have been reduced to weeks rather than months and even years. As a resultof these improvements, BOU is now able to provide the Treasury and the ministriesstatements of account with a lag of one month or a little longer.

3.14 The progress achieved by BOU so far is good but has much further togo. This is because the Accounts Department is still not able to do, among otherthings, the following: post all transactions on the same day and to the correct accounts;prepare daily balances of all govemment accounts; prepare a provisional consolidatedposition showing Government borrowing through Ways and Means; and furnish theTreasury and the ministries with accurate bank statements promptly after the close ofeach month. The solution to the accounting problem at BOU is simple. The centralbank should once again start behaving like a bank: it must, like any bank, post eachand every transaction (originating in Currency, Banking, Foreign Exchange, EDMOand Accounts itself) on the day the transaction takes place and balance all its books forthe day. BOU pays wages of up to five times civil services wages. The problem hereis not so much that of poor incentives, training and equipment as laxity and poor workhabits which management should not tolerate.

3.15 Manuals. In the ministries manual books of account will continue tobe kept for a long time. Accounting staff in many ministries complain of lack of suchthings as manuals (TAT and TFI as well as the Standing Ordersb), technicalstationery (cash books, ledger sheets, payment vouchers etc) and calculators. To stop

2S/ USC's problems have been compoundedby the fact that the existingcomputerized accountingapplicationwas poorly documented, making it difficult to convert it to run on a different computer.

26/ A revised edition of the Standing Orders was published in February 1992.

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ministries using the lack of these things as an excuse for not maintaining accurate andup-to-date books, the Treasury must ensure that adequate provision is made in theFY93 and subsequent estimates and proper arrangements are made (with the CentralPurchasing Corporation or the Government Printer, as the case may be) to supply eachministry with enough calculators, copies of manuals and technical stationery. Thework of revising the manuals and printing sufficient copies is on-going but should bespeeded up.

3.16 Inspection. The Treasury Inspectorate has been neglected for too long.MFEP now realizes that this was a big mistake. The Treasury needs a strongInspectorate which has the capacity to: carry out regular ibspections of the books keptby ministries; review the accounting standards in use; receive and examine theministries' monthly returns and other returns (expenditure return, trial balance, bankreconciliation statement, final accounts etc); and communicate its findings,recommendations and opinion to accounting officers.

3.17 There has recently been a slight improvement in the performance c `+heTreasury Inspectorate but it is still very poorly staffed and it lacks transport and ouwercomplementary inputs. The EFM project will assist the Inspectorate by providing top-up allowances (thus aiding the recruitment and retention of qualified staff), transport,office equipment and supplies and training. This report canncot overemphasize the needto deliver these forms of assistance to the Treasury Inspectorate expeditiously.

3.18 Public Accounts Committee. The PAC, together with the Office ofthe AG, has been instrumental in getting government accounts produced since FY87.The PAC needs to exert more pressure on the C/TOA and accounting officers toimprove the overall standard of accounts, meet the deadline for the production andsubmission of the final accounts and respond fully to the criticisms andrecommendations contained in the committee's reports.

D. The Annual Estimates

Realism and Economy

"In present circumstances it seems essential to accept that the onlypossible standard is the functional standard at minimum cost, anyexpenditure above that standard being a waste of public funds whichare urgently needed else.vhere."

3.19 The above quotation comes from the Report of the EconomyCommission, 1960.0' It is more relevant today than ever before, particularly in

22/ Sessional Paper No. 5 of 1960/61, Part 1, paragraph 9.

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respect of capital projects where the temptation exists to build white elephants. Thefact of the matter is that Uganda's ability to mobilize domestic revenue and to earnforeign exchange is very limited.2-' The estimates must reflect this reality and thusbe framed so as to achieve economy or the "functional standard". MFEP must leadthe fight for realism and economy in the preparation of the estimates.

Settlng the Estimates Within a Macroeconomic Framework

3.20 The estimates are about raising and spending public funds to achievecertain objectives. The ways in which revenue is raised and the amounts raised, thelevel of expenditure and the ways in which it is financed all affect and are affected bythe macroeconomy; hence the importance of placing the estimates within amacroeconomic framework that reviews current and prospective developments affectingthe national, external, fiscal and monetary accounts. Since FY88 the PFP has providedeach year such a framework with a three-year horizon but it has not been properlyintegrated into the estimates exercise. The former MPED and BOU have a few staffwho possess the relevant skills for macroeconomic analysis. The two institutiors havetherefore been more actively involved (with Bank and Fund staff) in developing themacroeconomic framework than MOF which has had the final say on budgetarymatters.

3.21 Things are changing. Even before the merger, there has been agrowing realization in MOF that the estimates need to be underpinned by amacroeconomic framework. The only problem is that MOF itself has had little or nocapacity to do the required analysis. The merger of the planning and finance ministriesprovides a great opportunity to build a strong capacity for macroeconomic analysis inthe civil service. Building that capacity will take time. In the meantime MFEP andBOU should work hand in hand to update the macroeconomic framework each year,relying on the existing Macroeconomic Framework Committee (MFC)Z!' for thecoordination of their efforts. The objective would be to have the first results of themacroeconomic analysis in September/October each year.

Budget Issues Paper

3.22 Once the macroeconomic framework has been updated, the resultsshould be incorporated in a Budget Issues Paper to be presented to Cabinet in October.This paper, to be prepared by MFEP, with inputs BOU, will focus on the comingfinancial year while outlining the prospects for the next two years. It should be keptsimple. It should do the following:

a2/ Uganda should, and does, of course, supplement domestic resources with foreign assistance to the extentpossible.

29/ The MFC is made up of officials drawn from MFEP and BOU.

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* discuss recent economic developments;

* review the Government's development priorities and strategies;

* present projections of domestic revenue and foreign loans and grants;

e highlight major spending commitments and new capital projects;

* propose an overall limit on public expenditure, consistent with the need toachieve a sustainable deficit; and

* present preliminary expenditure ceilings for the various sectors.

Medium-Term Expenditure Plan.

3.23 With the object of further improving the estimates of developmentexpenditure, MPED has, prior to the merger, been contemplating a related planningexercise namely, to produce a rolling Medium-Term Expenditure Plan (MTEP) witha three-year horizon. The MTEP would provide details of projects (broken down bycivil works, vehicles and technical assistance, disbursement profile etc). If properlydone the annual development expenditure estimates should more or less fall out of theMTEP. However, to get from the present position to an MTEP requires much morereliable data than are currently available on actual development expenditure financedby donors, the undisbursed balances of project aid and project implementation rates.The creation of a reliable database on project aid disbursements should therefore takeprecedence over the p-eparation of the MTEP per se.

Coverage and Presentation of the Estimates

3.24 As shown by the discussion in the previous chapter, there is a need toimprove the coverage and presentation of the estimates. Possible improvements in anumber of areas are highlighted below.

3.25 Revised Estimates and Actual Expenditure. At present the draftestimates, and hence the published estimates, do not show the revised estimates for thecurrent year and actual expenditure in the previous year.-2' This omission seriouslyhinders meaningful evaluation of spending proposals by all the interested parties (theline ministries, MFEP, Cabinet and the National Assembly). It should be corrected,beginning with the draft estimates for FY94. It is one way of forcing the lineministries to maintain their books of account.

30/ Domestic revenue provides an exception; the previous year's actuals are presented.

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3.26 Development Budget Estimates. The budget release system, thecheck-printing and payroll system and the accounting system, in various ways, generatereasonably good and timely data (at least aggregate, n, nistry-by-ministry data) onactual recurrent expenditure and local capital expenditure. With regard to localcounterpart funds for externally financed projects, only release datau" are available.There are no comparable data on actual expenditure on externally financed projectswhich accourt for up to 90 percent of capital expenditure. Most projectimplementation units are of little or no help in compiling the required information; soalso the separate aid coordination units in the erstwhile MOF and MPED; and only afew donors (IDA and EEC in particular) are able to provide useful informationregularly. In the absence of actual data on disbursement and implementation rates, theestimates of development expenditure are prone to big margins of error, withimplications for the balance of payments estimates of project imports.

3.27 Drawing upon information from withdrawal applications signed by theTreasury, EAU monitors disbursements in respect of a number of projects.A' Intaking on this role, EAU has been filling a vacuum left by the Sectoral PlanningDepartment (SPD) in the former MPED. This report suggests that this task should beperformed by the SPD in MFEP. Initially, SPD should expand the EAU database tocover all project loans and grants for which withdrawals must be authorized in oneform or another by the Treasury or any other government agency. The Treasury andthe other agencies should submit monthly returns giving information on signedwithdrawal applications to SPD. They should also submit weekly batches ofwithdrawal applications to UCS for processing.3'

3.28 Import Support Loans and Grants. The share of import supportloans and grants in total revenue has been growing over the past few years (see Table3.3 below). Yet the details of these resources are not shown in the estimates, makingit difficult to assess the total financing for the budget and to monitor the commitmentand disbursement of import support funds. Accurate estimates of import supportmatter as much as estimates of domestic revenue. The details of import support shouldtherefore be shown in the estimates from FY93 onwards.

31/ lbese are probably adequate for budgeting purposes because the funds released as good as spent; thequestion is on what is the money spent.

L/ Withdrawal applications do not always translate into disbursements; applications are sometimes rejectedor returned and so care must be exercised to avoid double counting.

331 Ultimately, the data collection system must be extended to all externally financed projects.

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- ~ ,bIe 3.3"Con tion of Import Support to Revenue

(U'Sb billion)... . . ... ... .. .. . .. . .. . .. . .. ... . .. ..

. ... . .. . F 9:: - - - -~F89 FY9 FY 9l

65.8 l47.6 220.2::. .. : ::. ::::: : . . ... ..... .

Im rt support 17.9 53.1 82.9 |

-. r : upport/total revnue . 27 36 .38

So-ur~:Mnsr of Floaee

Not. -Total rovenue is the sum of tax and nontax revenue and import wpport ioans an-s:

3.29 Interest, Capital Repayments and Dividends. Token amounts (oneor two billion shillings) have been shown in the estimates against dividends and capitalrepayments in recent years. The scope for raising more revenue from these sources isnot known because the Statutory Corporations Division (SCD) of the Economic AffairsDepartment in MFEP which is supposed to provide the relevant information is, like therest of the department, barely operational. The Government may be missing anopportunity here to mobilize additional domestic revenue. It is therefore suggested thatthe Public Enterprise Secretariat (PES),2' in collaboration with the SCD, shouldassume the responsibility of providing the necessary data to the Budget Departme.at andthe Treasury.

3.30 Parastatal Debt Service. The estimates for external debt service makeno distinction between debt service for the account of Govemment and that for theaccount of parastatals. Government ends up making external debt service paymentson behalf of parastatals without any mechanism for recovering the amounts so paid.Moreover, there are local currency loans to parastatals. There has been no systematicapproach to the recovery of thf,vse loans.35' This is tantamount to subsidizing theparastatals concerned at the expense of the budget. To put an end to the practice, the

34I PES, created under the IDA-financed Public Enterprise Project, has carried out a number of studiesrelating to parastatal reform. It is now part of the institutional setup for paastatal reform, includingrehabiliation and divestiture.

3S/ The Secretry to the Treasury recently instructed the Treasury to make recoveries on government orgovernment-guaranteed loans to parasals.

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Treasury should, with effect from FY93, bill parastatals for debt service due and takesteps to recover the amounts involved)2'

3.31 On-lending to Parasttals. Foreign loans and grants on-lent toparastatals are not now shown in the estimates. This gives a distorted picture of thetotal resources at the disposal of the Government each year. From FY93 this omissionshould be corrected.)'

3.32 Establishment and Payroll. Establishment and payroll matters shouldbe settled at estimates time and not be allowed to drag on during budgetimplementation, as is so dramatically illustrated by the continuing squabble over thetotal number of teachers in primary and secondary institutions of leaming. TheMiniistry of Public Service (MPS) has spent about US$0.6 million to carry out a censusof teachers and to analyze the data. The data may not be 100 percent accurate (datararely are) but the sensible thing would be to convert the information into acomputerized payroll for teachers and then validate it as time goes by. MOE is tryingto prevent MPS from following this course of action by making unsubstantiated chargesconcerning the accuracy of the data. This is as much a financial matter as anestablishment matter and large numbers are riding on it. Based on the MPS and MOEpositions, the total number of teachers could be anywhere between 97,000 and120,000, a difference of 23,000. These numbers in turn translate into monthly salarypayments (including allowances) of roughly U Sh 1.0 billion and U Sh 1.2 billion atthe wages ruling at the beginning of FY9238'. As things stand MFEP will have takethe lead in getting the differences between MPS and MOE resolved. The aim shouldbe to have a computerized payroll for teachers during the first half of FY93, at thelatest. In this connection, it should be pointed out that it would be unwise to raise civilservice wages to MLW levels before the matter of teachers' establishment and payrollhas been settled.3' Indeed, although no short-term savings from retrenchment wouldbe available to help fund improved civil service remuneration, the Government wouldbe better advised to proceed more speedily with trimming the size of the service priorto bringing present wages up to the MLW.

NI Many parastatals are so weak financially that they will not be able to meet their debt service obligations.Still it is necessary to bill them and at least raise the question of whether or not they are being wellmanaged.

371 Only a handful of cases of on-lending would be expected each year but the sums involved could be verylarge (the Third Powar Project, for example). Initially, the change will raise the deficittGDP ratiorelative to the previous years, assuming that it is mainly foreign loans that are on-lent.

21/ This does not take account of the increase in teachers' pay by a factor of 2-3 with effect from March1992.

22/ A similar point can be made about group employees, whose numbers (currently estimated at 40,000) arenot known with any certainty. There is, however, an ongoing exercise to ascertain their number.

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3.33 Summary of Expenditure Estimates. The published estimates presentonly one type of summary of expenditure, that is, aggregate recurrent expenditure andaggregate development expenditure by ministry. For the recurrent expenditureestimates MPEP should go beyond this and provide more disaggregated information.Since no common program classification exists the summary will have to be at the itemlevel, as presently published, or rearranged if deemed necessary. As proposed here,there will a summary by item for each ministry at the beginning of each vote. Thenthe ministry summary will be aggregated, again by item, across ministries andpresented at the beginning of the estimates. The present item classification is asfollows:

* employee costs;* administration costs;* supplies and services;* transport and plant costs;* property costs;* payments to other agencies and bodies;- other expenditure.

E. Releases

3.34 All things considered (a fragile domestic revenue base, vulnerability todelays in the flow of import support loans and grants and indiscipline with regard tospending), the present system of releasing funds more or less meets Uganda's needs.The ministries are generally satisfied with the quarterly release system for recurrentexpenditure. However, in an effort to deal with the serious fiscal imbalances thatemerged during the first half of FY92, the Government has, a temporary measure,reverted to month-by-month releases and has also reinstated RIEs as the method forreleasing funds for certain categories of expenditure (travel abroad, utilities,contributions to outside organizations, rents et). This is an understandabic butretrograde step which should be retracted as soon as possible. In the case of localcounterpart funds there is widespread dissatisfaction with the way the funds arereleased. The issue of tiie release of counterpart funds is discussed below.

Counterpart Expenditure

3.35 There are basically two questions about counterpart expenditure. Onequestion is whether or not the Government can find the resources to meet all thecounterpart commitments under various projects. The other question is whether or notthere are blockages in the system of releasing counterpart funds. With regard to thefirst question, Table 3.4 below shows that counterpart funds have consumed arelatively small proportion of available resources; during the FY88-FY91 period thefigure ranged from 7 percent to 11 percent of domestic revenue and from 4 percent to9 percent of total revenue. Admittedly, the historical data in the table do not tell usa great deal, for three reasons. Firstly, local counterpart expenditure may well have

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been underfunded. Secondly, there is evidence of PlUs failing to utilize counterpartfunds because of their own inadequacies. Thirdly, the ratios in the table may simplyreflect the pace of project implementation which is known to be generally very slow.

3.36 In the light of the foregoing, the best way to address the first questionis to proceed on the basis that counterpart expenditure will be fully funded and theestimates should be framed accordingly. If counterpart expenditure, together with therest of government expenditure, results in a budget deficit that cannot be financed ina non-inflationary way, something must give. A priori, there is no reason why the axeshould fall on counterpart expenditure. If the allocation for counterpart expendituremust be cut, that is a sign that the total externally-financed development expenditureis too large. In that case it would be more rational to re-examine the size of theexternally financed development budget rather than cut the counterpart allocation andthen spread the available funds thinly over numerous projects.

Table 3.4 Counterpart Expenditure/Revenue Ratios

FY88 FY89 FY90 FY91 FY92 est.

Counterpart/ fI 9 6 7 12domestic revenue

Counterpart X 9 6 4 - 6total revenue.

source, Mrinisti of Fiume

Not:: Total revene is as deriued i -th W.no 01 a l-- --

3.37 As far as streamlining the release procedures is concerned, this reportendorses the decision to release counterpart funds on a quarterly basis. That decisionshould be implemented from the beginning of FY93. RIEs will still be required, notonly because development expenditure is auLomatically suspended but also because theBudget Department and the Treasury need to satisfy themselves that project activitiesare indeed continuing. The available evidence and the weight of the arguments heardduring the course of gathering material for this report cast strong doubt on the charge,often made by PIUs, that MOF has wilfully delayed the release of counterpart funds.No doubt, there are delays. However, very often the delays have been caused by poordocumentation and justification of requisitions for counterpart funds, resulting in therequisitions being returned without further action on the part of MOF. At any rate,those PlUs that are well organized and managed and maintain proper books of account(the PIU in MOE being a good example) have little or no difficulty with the releaseof counterpart funds by MOF.

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F. Government Borrowing

3.38 Fiscal prudence requires that a government's power to borrow belimited by the legislature. In Uganda the limits on government borrowing are to befound in the External Loans Act of 1962, the Public Finance Act and the Bank ofUganda Act of 1966. The External Loans Act sets a definite limit on foreignborrowing and so it has had to be amended from time to time to raise the limit.!S'Interestingly, it is the external lenders (IDA, to be exact) who have insisted on thelimit being raised, as and when the need arose.

3.39 The Public Finance Act is rather ambiguous on the subject of howmuch the Govermment can borrow in any financial year. Subsection 23 (1) states:

The Treasury may in any financial year transfer to the ConsolidatedFund from other funds and moneys under its control, or borrow ... byway of loan or advance, the issue of bills or bank overdraft, amountsnot exceeding in tota: at any one time the aggregate of-

(a) the gross expenditure (including expenditure to be met byappropriations in aid and expenditure approved by resolutionof the National Assembly as a Vote on Account) authorized forthat year by the Appropriation Act or by a supplementaryestimate approved by resolution of the National Assembly;

(b) the statutory expenditure for that year.

3.40 The power to borrow granted to the Treasury under the above-mentioned section is far too wide. The law should be amended to set a definite limiton the Treasury's power to borrow.

3.41 When it comes to the BOL Act, there is no ambiguity about the law.Subsection (1) of Section 26 of the Bank of Uganda Act provides for the making oftemporary advances to Government but subsection (2) of the same section limits suchadvances. It states:

The total amount of the advances made under the provisions of thepreceding subsection shall not at any time exceed fifteen per centum ofthe estimated recurrent revenue as laid before the National Assemblyfor the financial year in which the advances are madeAL'

40I Since the limit is fixed in local currency it is quickly eroded by the depreciation of the shilling againstforeign currer.cies. The Act is being amended again, this time not only to raise the limit but also set alimit in US dollars.

j1/ In uome countries the limit is set in relation to the estimated domestic recurrent revenue.

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3.42 This provision of the BOU Act is not being observed. If it were,borrowing from the central bank could not have increased by U Sh 55 billion duringthe first half of FY92.iv Admittedly, BOU has a practical difficulty in the sensethat, by tradition, it is not expected to return valid government checks unpaid. Thatdoes not, of course, absolve it of the responsibility to warn MFEP promptly when thestatutory limit on government borrowing, or another limit established in the context ofthe ERP, is in danger of being breached. BOU has consistently failed to give suchwarning during the past five years.

G. The Payments System

Pre-audi of Expenditure.

3.43 The pre-audit of payments by both the C/TOA and the AG is aimed atminimizing fraud and misuse of public funds. Internal controls in the ministries arestill weak. Many ministries fail to make timely monthly accounting returns. And theydo not meet the deadline for the submission of final accounts. These factors providejustification for some form of oversight of ministries' payments by an extemal agency.However, it is an unnecessary duplication of effort for the C/TOA and the AG toperform the same function.

3.44 It is true that the AG acts as a check on the C/TOA. Nevertheless,pre-audit poses a moral hazard for the AG as he is being called upon to pre-auditpayments that he will have to audit ex-post. In view of this, the Treasury should bestrengthened quickly so that it can relieve the AG of this responsibility. This will havethe added advantage of cutting out one layer of bureaucracy in the payments system.Given the ability of UCS to limit, through the check-printing system, each month'saggregate expenditure by a ministry to one twelfth of the annual estimates (plus anyadvances obtained) and given the introduction of the local LJC system, the dangers ofrelaxing the payments system by doing away with pre-audit by the AG do not appeartoo great. The ultimate goal in any case should be to strengthen accounting sufficientlyto be able to do away with pre-audit by the Treasury altogether.

Intemal Audit

3.45 Pre- audit by the C/TOA and the AG is in some respects a substitute iorthe internal audit that should normally take place in the ministries but does not. Oneof the curious things about the Uganda payments system is that, unlike the system inmost anglophone countries, there is no tradition of internal audit in the ministries. Incountries where such S tradition exists, internal audit units report to the accounting

_/ Excluding capital and import support grants, the 15 percent limit works out to be U Sh 30 billion inFY92. Of course, for macroeconomic reasons, a different limit (i.e. repayments of U Sb 48 billion toBOU) were agreed between the Government and the IMF.

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officer. Their main function is to pre-audit payments. In that way they act as a checkon the accounting department.

3.46 In Uganda the ministries used to have what are called examinationsections. Some ministries still have examination sections. These are supposed to carryout pre-audit of payments. They have, however, not been effective, mainly becausethey are directed by the chief accountant from whom originate the payments they areexpected to audit. A strong internal audit unit is needed in most organizations of anysize. It is needed to ensure that payments are properly authorized and recorded. Thisreport strongly endorses current plans to upgrade the existing examination sections intointernal audit units and establish such a unit where no examination section exists.

Lapsing of Appropriations

3.47 As mentioned earlier, in line with Section 22 of the Public Finance Act,BOU blocks the TGA at the close of business on June 30 of each financial year. Theresult is that outstanding checks that would otherwise be covered by sufficient fundsgive rise to domestic payment arrears. This is unsatisfactory. The Budget Departmentand the Treasury should take advantage of the rider to Section 22 of the Act. Theoperative phrase is "Unless special provision to the contrary is made in anyAppropriation Act ... ' Such a special provision should be included in theAppropriation Act for FY93 and subsequent years so that BOU can keep the TGA fora particular financial open beyond June 30 in order to accommodate outstanding checkscovered by sufficient funds.

H. Control and Management

Revenue and Recurrent Expenditure Monitoring

3.48 The basic systems created by the EAU for monitoring revenue andrecurrent expenditure and local capital expenditure are adequate, though they could beexpanded as other improvements in planning and budget, ig take place. The EAU isbeing absorbed into the Budget Department. This shoald strengthen the BudgetDepartment considerably. The enlarged department should concentrate on the controland management of aggregate expenditure. The present attempt to micro-manage thebudget by requiring ministries to submit quarterly expenditure returns is not veryproductive. The department just does not have the capacity to analyze the returnswhich give details of expenditure down to the sub-item. The kind of scrutiny ofexpenditure that the Budget Department desires is something that should be donethrough the accounting system. In view of this, it is suggested that the returns bediscontinued so that the Budget Department can concentrate on the monitoring of broadtrends in revenue and expenditure while the ministries devote their attention toimproving their accounts.

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Monitorng of Externally Financed Development Projects

3.49 With a few exceptions, the implementation and monitoring of externallyfinanced development projects are largely ineffective. The MPUs and the ProjectMonitoring and Evaluation Unit (PMEU) must take some of the blame for this; theyshould be made to operate effectively. However, the fault lies squarely with the PIUs.These project units are invariably well-staffed with foreign experts (in accounts,procurement, computers, etc) and Ugandans who receive generous allowances. PIUsare also provided with comparatively good office accommodation, motor vehicles (withrunning and maintenance funds), office equipment (including computers) and supplies.In spite of being so well endowed, the perfolmance of the PIUs has been almostuniformly dismal; a good example is the PIU for the IDA First Health Project (duringthe first three years of its existence). Very few PIUs maintain proper books of accountand comply with covenants requiring annual audited accounts.

3.50 There is something seriously amiss here. It is not a question of poorcompensation and shortage of qualified staff. Nor is it a matter of lack ofcomplementary inputs. The problem is poor management by accounting officers. ThePIUs are answerable to them but they generally do not demand results.

3.51 In the light of the foregoing, this reports suggests that the Governmenttake a close look at the PIUs. There has been a proliferation of PIUs since thebeginning of the ERP, without any appreciable improvement in the overall pace ofproject implementation. They have become, first and foremost, a means to obtainingspecial privileges (pay, transport etc). It is time to hold them to account for theprivileges they enjoy.

I. Institutional Arrangements

Merger of Finance and Planning

3.52 This report has shown that, although basically sound, the legal andregulatory framework for public expenditure management in Uganda requires updating.This is being done, especially with regard to the revision of the regulations andinstructions issued in terms of the Public Finance Act. The report has also shown thatthere are institutional weaknesses which impinge on the implementation of the budgetand economic policy in general. A crucial institutional issue has been the separationof the ministries responsible for finance and planning.

3.53 There is no hard and fast rule about the way finance and planningshould be organized. In some countries they are combined into one portfolio. In othercountries they form separate portfolios, as was the case in Uganda before MOF andMPED were merged at the end of March 1992. How well the separate-ministryarrangement works depends to some extent on the overall competence of the civil

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service and the quality of governance as a whole. It can, however, be said that thefusion of the two portfolios has a great advantage in that countries which follow thisroute do not have to worry about coordination between finance and planning. InUganda coordination of government policies and programs is a big problem. Theseparation of finance and planning was part of the problem.

3.54 The two-ministry arrangement in Uganda was characterized by: conflictand misunderstanding (which ministry ultimately decides the size and composition ofthe development budget?); duplication of functions, with each ministry having an aidcoordination unit and each issuing its budget call circular at estimates time; cc -fusion,as reflected in the incompatible databases on aid commitments and disbursementsmaintained by the two ministries; ambiguity (eg with respect to external debtmanagement where BOU is also involved); and less-than-optimal use of scarce skilledmanpower (economists in MPUs and MPED headquarters).

3.55 Not before time, MOF and MPED have now been merged. Amongother things, such a merger is expected to achieve two important goals. Firstly, itwould greatly facilitate the rebuilding of a capacity for macroeconomic analysisthrough the combination of the Macroeconomic and Regional Planning Department andthe Economic Affairs Department in the former MPED and MOF, respectively.Secondly, the merger would make it much easier to improve external aid coordination,not to mention coordination in general.

J. Monitoring and Evaluation

3.56 As discussed in paragraphs 2.56-2.60, a management reporting systemis in place. This involves the submission of quarterly reports on public expenditureprograms by the ministries and self-accounting units to the Office of the PM. Theexisting reporting system should be used, first and foremost, to obtain basicinformation on the effectiveness of public expenditure. In the case of primaryeducation, for example, the reporting system would be used to provide information onthings like the supplies of scholastic materials actually procured and delivered toprimary schools, the number of school inspections carried out, the number of schoolsbuilt or rehabilitated and the numbers of trained teachers versus untrained teachers.The emphasis should be on gauging the impact of public expenditure, not in anaccounting sense but in terms of the physical implementation of projects and the actualdelivery of public goods and services. To this end a more simplified and less detailedmanagement report, still to be produced quarterly, should replace the present reportwhich tends to be too voluminous and rather incomprehensible.

CHAPTrER 4:NONWAGE RECURRENT EXPENDITURE NORM FOR

PRIMARY EDUCATION

A. Introduction

4.1 This chapter presents a first approximation of the nonwage recurrentnorm for primary education. This is done against the background of the discussion inAnnex 1 at the end of the report. Annex 1 provides a framework for the derivationof nonwage recurrent expenditure norms for primary education and primary health.

4.2 In what follows every effort is made to retain the existing budgetclassification of expenditure as much as possible. The only proviso is that, assuggested in paragraph 30 in Annex 1, major items of recurrent expenditure that arenow included in the development budget should, to the extent possible, be counted aspart of the total recurrent budget allocation, if not transferred to the recurrent budget.This is important for gauging the extent to which the present levels of funding deviatefror. the norm.

B. The Data

4.3 As already pointed out, the numbers of schools, teachers and pupils isstill a matter of great controversy. There are, in fact, three sets of vastly differentdata. At this stage it is impossible to reconcile the data. The data used here wereprovided by MOLG. The only reason for using the MOLG data is that they providethe basis for the distribution of the block allocation of U Sh 9 billion for nonwagerecurrent inputs for primary schools in FY92. The data on the cost of scholasticmaterials and other inputs was collected through a simple market survey carried outby MOLG staff.

C. Critical Inputs Into Primary Education

Employee Costs

4.4 Although this report is concerned with nonwage recurrent norms, thequestion of teachers' pa is so important for raising the quality of primary educationthat a number of points are worth making about employee costs. The first point isthat, while correcting the underfunding of nonwage recurrent expenditures willcontribute towards improved learning, in the absence of considerably imnDroved pay forteachers (and the rest of the civil service), the impact of increased supplies of nonwageinputs will be limited. The second, related point is that the extremely low pay forteachers has driven out a lot of trained teachers and pulled into the system largenumbers of untrained teachers. Low pay aside, the high ratio of untrained teachers

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in itself has a negative impact on the quality of primary education. Reducing the ratioof untrained to trained teachers should therefore be a key objective of policy in theprimary education subsector. Third, the teaching service achice-Vl notoriety withregard to the payment of ghost workers. A census of teachers was completed in 1991,making it possible to compile verified staff lists which in turn are being converted intoa teachers' payroll. This should greatly reduce, if not eliminate, the rampant abuse ofthe payroll that has gone on for so long.

Non-Wage Recurrent Inputs

4.5 The basic non-wage recurrent inputs for primary education can beclassified as:

transport;

school textbooks;

other teaching and learning materials;

sports and recreational materials;

office expenses.

4.6 Two of the schedules needed to compile the basic data for norms forprimary education are presented Annexes 2 and 3. The schedules would be used bythe program managers to prepare their budget submissions. The preparation of theschedules would require cooperation between the headteachers and the DEOs on theone hand and the staff of MOLG and MOE on the other.

4.7 Sub-item 20:2010: Office Expenses. Included here are stationery,maps, small office equipment, maintenance and repair of office furniture, postage, etc.For lack of data office expenses are estimated as a percentage of the teachers' wagebill.

4.8 Sub-item 30:3010: Hired Transport of Stores. The movement oftextbooks and other scholastic materials from Kampala to the districts will involveconsiderable expenses in transport charges. It is expected that the movement of schoolmaterials and supplies would be by hired transport. In view of the bad experience withregard to the operation and maintenance of official vehicles, the alternative ofacquiring a fleet of government vehicles for the purpose of transporting supplies toprimary schools is not recommended. Under the present arrangement procurement isno longer done centrally by MOLG but by each district.

4.9 In working out the requirements for hired transport a schedule like thatgiven in Annex 3 would be used to organize the data and perform the necessarycalculations.

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4.10 Sub-item 30:3030: Materials, Supplies and Manufactured Goods.Textbooks and other teaching and learning materials fall under this budget sub-item;so do sports and recreational materials. Annex 2 gives the core textbooks and writingmaterials that each pupil would have, if the Government and/or the parents couldafford to provide them. Every teacher must have a set of the books selected for agrade; the norms should always provide for this. The schedule also provides a list ofpupils' and teachers' stationery.

D. Preliminary Norm

4.11 The assumptions and the data used to derive the norm for primaryeducation are as follows:

Number of pupils in each grade:

P1 550,000P2 550,000P3 450,000P4 450,000P5 400,000P6 400,000P7 300,000

Total 3,100,0004-'

Other basic information:

Total number of teachers: 77,50(W'

Only one book per subject per pupil; the subjects covered in each grade,stationery per pupil, teachers' textbooks, guides and stationery are as perAnnex 2.

On the basis of available, albeit, crude data on transport costs, transport costsare taken to be equivalent to 5 percent of the total cost of textbooks andstationery.

Owing to lack of information, it is assumed that sports and recreationexpenditure requirements represent 15 percent of the wage bill for teachers.The same ratio is used for office expenses.

43/ This compareb with the MPS census count of 2,539,549.

44/ Thc MOLO figure is not very different from the MPS census figure of 77,958.

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Table 4.1. Summary of Nonwage Recurrent Cost Estimates

U Sh billion

Textbooks for pupils 49.6Stationery for pupils 71.1Textbooks and guides for teachers 2.1Stationery for teachers 10.4Office expenses 1.8Sports and recreation 1.8Transport 6.6

Total 144.0

Table 4.2. Actual Provision for Primary Education vers_s the Norm

Aggregate Per pupil

(U Sh billion) (U Sh)

FY92 provision45' 20.1 6,484'Norm 144.0 46,452

Funding gap 123.9 39,968

Implications of the Norm

4.12 The gap between the current provision for non-wage recurrent inputsand the norm is huge. In per pupil terms, a seven-fold increase in the currentprovision would be needed to attain the norm, which is itself quite modest in that itassumes only one textbook per subject per pupil. For lack of information, the abovecalculation excludes Parent Teacher Association (PTA) charges, thus overstating thefunding gap shown in Table 4.2. However, the following points should be noted:

4S/ The aggegate amount includes U Sh 9 billion in school fees expected from parents. The collection rateis definitely below 100 percent but default on fees is reportedly not a major problem. Also included isprovision for U Sb 2.1 billion under the IDA Fourth Education Project which is shown in thedevelopment budget (See Table Al. 1).

I/ This approximates the average of the present government capitation grant and school fees of U Sh 2,500per pupil in grades 1-4 and U Sh 4,000 in grades 5-7.

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(i) huge as it seems relative to the current provision, the norm per pupil(U Sh 46,452) is in line with the PTA charges that parents in Kampalaand some of the other urban areas are already paying.

(ii) as far as textbooks and teachers guides are concerned, it is not a caseof starting afresh; textbooks have a life of 2-3 years and teachers'guides a longer life.

(iii) part of the additional financing will be provided by donors; eg underthe proposed successor project to the IDA Fourth Education Project.

(iv) if the present 50:50 formula for cost sharing between Govemment(capitation grant) and parents (school fees) is maintained, it wouldmean that on average school fees would be increased by U Sh 19,984,with the matching Govemment contribution going up by the sameamount. Whether or not such a sharp increase in fees would seriouslyaffect enrollment and attendance needs to be assessed. At any rate, the50:50 formula which was established in FY83 can be changed to shiftmore of the burden of financing non-wage inputs to either theGovernment or the parents.

(v) the norm does not have to be attained in one leap. In any case,Government simply does not have the resources to carry its share ofthe implied increase in funding. A goal of attaining the norm over,say, a three-year period could be set, taking into account revenueprospects and other expenditure commitments (improved civil servicewages, for example).

Conclusion

4.13 The above norm for primary education is illustrative rather thanprescriptive. It does, however, give an indication of the enormity of the task ofimproving the quality and coverage of primary education. In this regard, it is worthreite.ating the point that the norm is based on the assumption that each pupil isprc vided with only one textbook per subject. Even though, for lack of resources, thenorm cannot be readily translated into increased provision for primary education, itdoes serve as a yardstick by which the adequacy of current and future funding wouldbe judged. That is the main value of carrying out an exercise like this. It is stilluseful for other sectors to carry out a similar exercise, at least for the priorityprograms that have been targeted to receive an increased share of available resources.

ANNEX 1

PRIIMARY EDUCATION AND PRIMARY HEALTH: A FRAMEWORK FORNONWAGE RECURRENT EXPENDITURE NORMS

A. Introduction

1. This Annex attempts to apply the concept of recurrent expenditurenorms to primary education and primary health. As pointed out in paragraphs 1.10and 1.11 of the main report, the education and health sectors are in a state of crisis.For over a decade the physical facilities were allowed to deteriorate drastically for lackof maintenance funds and are now in an appalling condition. In addition, educationand health institutions were starved of operating funds, thus crippling them. Privateeducation and health institutions have filled some of the gap left by the decline inpublic services.

2. The NRM Government has embarked upon projects aimed atrehabilitating the physical facilities in the education and health sectors. Except for thenormal counterpart contribution by the Government (on average, 10 percent of projectcosts), almost all the projects are financed by donors. In the education sector theseprojects include the IDA Fourth Education Project, the education component of theProgram to Alleviate Poverty and the Social Costs of Adjustment (PAPSCA) andassistance to Makerere University by various donors. The projects in the health sectorinclude the rehabilitation of primary health centers by various donors and the IDA FirstHealth Project involving the rehabilitation of Mulago Hospital (the national referralhospital), eight district hospitals and thirty rural health facilities as well as theconstruction of a new hospital at Rakai. Owing to weak implementation capacity, thephysical rehabilitation of health units has procee led more slowly than envisaged.

Under-fimding of O&M Expenditure

3. In addition to physical rehabilitation, the donors have been providingsubstantial amounts of recurrent inputs through programs such those involving thesupply of textbooks in the education sector and immunization and the supply of basicdrugs in the health sector. In spite of these efforts, there are huge unmet O&Mrequirements in the education and health sectors. Although this annex seeks to shedsome light on the under-funding of O&M expenditure at the primary levels of theeducation and health delivery systems, the exact extent of the under-funding is hard toquantify. Nevertheless, comparisons with other SSA countries suggest that theproblem is serious. In Uganda the Government spends the equivalent of 2 percent ofper capita GDP per enrolled primary school pupil compared to 11 percent in Kenya.In health recurrent spending on primary and secondary care is estimated at about US$2per capita in Uganda (much of it financed by donors) compared to US$6 in Kenya,US$14 in Zimbabwe and US$29 in Botswana.

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Orgin of the Work on Norms

4. As noted in paragraph 1.18 in the main report, the under-funding ofO&M expenditure is a widespread phenomenon. It affects not just primary educationand primary health but the whole of education and health. Other sectors are affectedtoo, including key sectors such as agriculture, transport and water. In an effort toaddress the underfunding problem, the Government began, starting with the FY92budget, to target primary education, primary health, agricultural reserarch andextension, road construction and maintenance and water supply for special treatmentin the allocation of resources for the recurrent budget. The experience of working outthis initial set of recurrent allocations for the key programs revealed that the relevantministries are poorly geared to identify and estimate the input requirements for theprograms concerned. Like the rest of the ministries, they all resorted to incrementalbudgeting. In principle, there is nothing wrong with incremental budgeting, providedthere is sufficient documentation and justification for the resulting estimates. This waslacking. This attempt at calculating recurrent expenditure norms grew out of thisexperience.

Why Primary Education and Primary Health?

5. In the main primary education and primary health have been chosenbecause they are critical to the long-term development of the country. Investments inthe education and health of the population are rated as some of the main factors thatwould underpin increases in proJuctivity. And in these jectors what would benefit thelargest number of the people more than primary education and primary health! Inmany ways secondary and university education are just as important as primaryeducation; the same can be said of hospital care and primary health care. But inUganda as in many other developing countries the limited resources available foreducation and health tend to be concentrated, respectively, on secondary and universityeducation and curative and hospital-based health care. In education for example, it isestimated that the Government has been spending on each secondary school student 15times what it spends on a primary school pupil and on a university student 225 times.The benefits of such spending on secondary and university education accrue to a tinyfraction of the populatien, hence the inequity of it.

6. Another reason for choosing primary education and primary health isthat, as brought out by the figures in paragraph 3 above, compared to other SSAcountries, Uganda's spending on primary education and primary health is exceptionallylow. Partly as a consequence, primary school enrollment, for example, is estimatedto be in the 55-60 percent range, which raises questions about the feasibility ofattaining universal primary education by the year 2010 as presently envisaged by theGovernment. Illiteracy rates tell the same story: in 1989 the rate was calculated to be.52 percent (both sexes) and 65 percent for females, high by even SSA standards. Thecomparable rates were 40 percent and 49 percent for Ghana and 31 percent and 42percent for Kenya.

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7. The development of recurrent expenditure norms would, of course, notstop with primary education and primary health. The intention is to extend theexercise to the other key programs presently targeted for increased recurrent budgetallocations, namely agricultural research and extension, roads construction andmaintenance and water supply. MOF has, in fact, already circulated a comprehensivequestionnaire aimed at collecting data on the unit costs of providing variousgovernment services. If collected, this information would help to work out norms forother programs and activities in the recurrent budget. Unfortunately, the required dataare not readily available. The questionnaire has therefore elicited a poor responsefrom the line ministries. However, that is no reason why MOF should abandon itseffort. What the poor response suggests is that a less ambitious, i.e. step-by-step,approach is needed. This annex seeks to do that.

Purpose of Norms

8. Expenditure norms provide a standard or a yardstick by which therecurrent budgetary allocations to a particular program or item can be judged. Theallocation to a program or item is not an end itself; it is intended to buy goods andservices which go into the provision of public services. So, ultimately, what is beingset is a standard for public services such as primary education and primary health care.A standard can be defined in relation to quantity (access to primary education orprimary health) or quality (the level of competence attained in literacy and numeracyskills). In this annex the emphasis is on the critical non-wage recurrent inputs intoprimary education and primary health. In both primary education and primary health,the most pressing need is to improve the quality of existing services. Therehabilitation of the physical facilities will contribute to improved service but there isno doubt that adequate provision of recurrent inputs will contribute even more toraising the standard of primary education and primary health care.

9. There are four steps involved in the computation of norms. Firstly, theinputs that are needed to implement a program are specified (textbooks and otherscholastic materials for primary schools for example or the basic drugs for primaryhealth units). Secondly, the quantity required of each input is estimated. Thirdly, theunit price or cost of each input is derived from price-lists or historical data. Fourthly,the total cost of providing the service is calculated. Finally, the cost per capita (eg perprimary school pupil) or per unit (eg per health center) is worked out.

10. Norms tell us that, ideally, a certain amount of resources (in theaggregate, per capita or per unit) should be provided for primary education andprimary health in order to attain a certain level of service delivery. Although there areinternational guidelines'' concerning the provision of primary education and primaryhealth, each country must decide for itself what is the ideal quality of service. And

I/ TheUnited NationsScientificand Cultural Organization (UNESCO), the United Nations Children'sFund(UNICEF) and the World Health Organization (WHO) provide guidelines on primary education andprimary health.

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so what constitutes the norm is as much a policy Issue as the actual budgetaryprovision for the service. In primary education, for example, the norm could be theprovision of one basic textbook in each subject to every pupil. In Uganda such a normwould represent a considerable improvement on the present situation characterized bythe sharing of a given textbook by three or more pupils. It all depends on theimportance a country attaches to a particular service, given competing demands onavailable resources, and on how high it wants to aim. It should be added that thereis no reason why the burden of attaining or moving towards the ideal should fallentirely upon the Government. The effort to attain the norms often provides a goodopportunity for (increased) burden sharing with the Government, that is, cost recovery.

11. In the case of health, it should be pointed out that it takes bothpreventive and curative services to safeguard the health of the population. Preventiveservices include improved drainage, water supply, spraying, and health and familyplanning services. The cost of preventive programs tends to be much lower than thecost of curative services. Moreover, success with preventive programs helps to reducehealth risks to the population and therefore lowers the cost of curative services.Another point to keep in mind is that education increases awareness of environmentalfactors in improving one's health and the health status of the community or nation.

12. Although the benefits are well-known, preventive health servicesgenerally receive low priority in national budgets. Uganda is no exception in thisregard. The main reason for this is that professional health workers constitute apowerful lobby for increased spending on curative services. On the face of it, thepolitical leadership, the rest of the civil service and the donors should provide a strongcounterweight to the views of the health professionals but this seldom happens. Tomake the best use of its limited resources, Uganda needs to break out of this trap, i.e.stop neglecting preventive health services.

Selected Country Expenence with Norms

13. Three countries that recently developed and began using non-wagerecurrent expenditure norms are Ghana, Benin and Togo. In Ghana three sectors (notjust subsectors) have been covered. These are agriculture, education and he&lth. Aninventory approach to estimating the requirements of these sectors was first tried beforeturning to norms. The inventory appreach involves taking stock of existing assets andinputs (vehicles, typewriters, textbooks, drugs etc). The records were found to be toopoor to be of much help. The Government then sought to establish what types andquantities of inputs should be provided for particular programs; that is, to developnorms. A process of trial and error was followed in introducing the norms in Ghana.The most immediate problem encountered in the application of the norms was the lackof systems for determining what was actually spent as opposed to what was allocated.To remedy the situation a concerted effort was made to restore the accounting systemsat the Office of the Accountant General. In conception, little attention was paid to thequestion of whether or not the application of norms would be extended to the entirebudget. This has not been done, leading to complaints that the selective application

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of norms puts the rest of the sectors, or at least other priority sectors, at adisadvantage. These and other concerns aside, the norms have undoubtedly helped toplace budget submissions for non-wage recurrent inputs in the three sectors on a morerational basis; they are also funded more adequately. In the case of Benin and Togothe emphasis was on first instituting program budgeting in the selected sectors and thendeveloping norms for the various levels of service provision.

14. The rest of this annex examines the institutional arrangements for theprovision of primary education and primary health care and the present budgetclassification of recurrent expenditure. A first approximation to the norm for primaryeducation is presented in annex 2. Data limitations preclude the derivation of a normfor primary health at this stage.

B. Institutior al Arrangements

The Concept and Reality of Local Govemment

15. Uganda has an elaborate system for the administrative control andfinancing of primary education and primary health. The main participants in thisarrangement are the Ministry of Local Government (MOLG), the technical ministries(MOE for primary education and MOH for primary health) as well as the localauthorities (the urban councils and district councils). The whole basis of thearrangement is the devolution of the provision of primary education and primary healthcare (and other functions) to local governments.

16. Within the framework of devolution, the roles of the major players areas follows:

The Technical Ministries

formulation of policy, coordination of planning and technicalsupervision down to the community level;

training of professional staff (teachers or health personnel);

payment of the salaries an1 allowances of established staff;

procurement of supplies (scholastic materials for primary schools anddrugs and medical equipment for primary health units).

Ministry of Local Government

coordination between the district councils and the urban councils on theone hand and the technical ministries on the other;

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procurement and distribution of supplies or disbursement of CentralGovernment transfers to the local authorities;

provision of transport facilities (at health centers for out-reachactivities); and

coordination of the activities of Non-Governmental Organizations(NGOs), in conjunction with MOE and MOH.

Local AuM1orities

identification of the education and health needs of their areas and theresources to meet those needs;

mobilization of, and assistance to, communities in planning andimplementation of education and health programs;

management of services under the general supervision of MOLG andthe direction of the technical ministries;

construction and maintenance of physical facilities;

provision of non-technical equipment for health centers;

provision and maintenance of water and sanitation amenities; and

recruitment of group employees and payment of their wages andallowances.

17. The ',olution of programs involving the provision of primaryeducation and primary health care to the local level is a commendable feature ofgovernmental arrangements in Uganda. In principle, placing the responsibility for aparticular service close to the point where the service is consumed should ensure thatwhat is demanded is what is provided. It should also ensure greater accountability forthe resources deployed in the provision of those services. However, the reality israther different. This raises some troubling questions about the adequacy andeffectiveness of the present institutiornal arrangements. There are three basic questions.They touch on the resource base of the local authorities, the fragmentation ofresponsibility and the administrative capacity of MOLG and the local authorities.

18. The resource question is fundamental to the viability of devolution asa practical arrangement for the allocation of functions between the center and localgovernment. And the fact of the matter is that, almost without exception, the localauthorities are operating from a very weak resource base. It is true that, for the urbancouncils, the property tax represents a major potential source of revenue but they areyet to develop the capacity to tap this source of revenue to the fullest extent. The

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urban councils as well as the district councils are therefore forced to depend largelyupon the receipts from the graduated tax (poll tax) and market dues for financing theiractivities. The result is that there is a serious mismatch between the resources and theresponsibilities allocated to local go. =rnments, as attested to by their inability to raisethe standard of existing services and expand cove* ge.

19. In view of the weak financial position of the local authorities,individuals and local communities have had to carry more and more of the burden offinancing primary education (through payment of Parent/Teacher Association dues andprovision of direct labor for the construction of physical facilities) and primary health(through payment of informal fees, purchase of drugs outside the health units andprovision of direct labor to construct physical facilities). Individuals and localcommunities should, of course, contribute as much, as possible to the financing of theseservices. However, primary education and primary health, especially in a poorcountry like Uganda, are too important to be left entirely to individual initiative. TheCentral Government therefore has a crucial role to play in the financing of theseservices.

20. As can be seen from paragraph i5 above, the responsibility for primaryeducation and primary health is fragmented. This creates problems of co-ordination.There are problems of coordination between MOLG and the technical ministries (thereis no harmonized database on the numbers of schools, teachers and pupils). There arealso co-ordination problems between MOLG and the local authorities (halfway intoFY92 MOLG had no basis on which to proceed to disburse and account for therecurrent allocations for primary education). Fragmentation has resulted in weakreporting systems; for example, information on slow-moving items in the drug kitprovided under the Essential Drugs Program is not fed back into the system so as totrigger corrective action. Another casualty of fragmentation is accountability. Forinstance, there is no accounting to the district councils or MOLG for theParent/Teacher Association (PTA) dues and other private contributions to the financingof education. Similarly, the Central Government's pursuit of accountability, such asit is, is limited to its own contribution. Fragmentation has also undermined the processof evolving a coherent structure capable of taking a comprehensive view of thestrengths, weaknesses and basic requirements of primary education and primary health.

21. The third area of concern about the present institutional arrangementshas to do with administrative capacity. The responsibility for supervising primaryeducation as far as non-wage recurrent inputs are concerned was transferred fromMOE to MOLG as recently as FY90; for primary health the transfer took place inFY85. MOLG has separate departments which look after education and health. Thedepartments are small relative to the vast network of institutions and personnel thatthey are expected to supervise. Take primary education. There are approximately

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8,iOO schools, 79,000 teachers and 2.6 million pupilsY In the case of the primaryhealth delivery system there are about 96 aid posts, 454 sub-dispensaries, 127dispensaries, 16 maternity units, 74 dispensaries with maternity units and 209 healthcenters.2' It is difficult to see how a staff of two based at MOLG headquarters cansupervise these health units spread all over the country. Primary health is a lot moredifficult to supervise than primary education because it is much more technical.

22. The local authorities are no better equipped than MOLG to manageprimary education and primary health. They have fewer resources to work with.Their staffing position is worse than that of the Central Government. The majoritylack transport facilities to undertake field visits. They are largely dependent upon theDistrict Education Officer (DEO) and the District Medical Officer (DMO) for thesupervision of education and health programs, respectively. These officers are,however, answerable to their technical ministries and not the local authorities.

23. Of the three questions raised about the present institutional arrangements, thec -- concerning resources lends itself to the most straight-forward solution, throughincreased transfers from the Central Government and greater contributions by thepublic. The development of recurrent expenditure norms should assist in this process.But increased resources are not enough. The fragmentation of functions and weakadministrative capacity will continue to hamper the implementation of primaryeducation and primary health programs. Given the technical nature of health care andthe woefully inadequate services being provided at present, one may wonder whetheror not the country would be better served by having MOH more actively involved inthe provision of drugs and other recurrent inputs for the sub-sector. MOH controls thedrugs and other supplies procured for the health sector either through directGovernment funding or through donor-funded projects. This creates a perverse biasin favor of hospitals (which are under MOH) with regard to access to drugs and othersupplies.

Financing of Recurrent Expenditures

24. There is no comprehensive data on the various sources of financing forprimary education. Even the wage bill for teachers is not known with certainty as thepayroll is plagued by the problem of ghost workers. The total number of children inprimary school is also open to question as some teachers are known to inflateenrollment figures in an attempt to garner more resources. As a result, it is notpossible to determine what the total cost of the Government's matching contributionto school fees (also known as the capitation grant) should be. The FY92 capitationgrant is U Sh 9 billion. It is a block allocation which MOLG has been distributing tothe districts on the basis of enrollment figures provided by the districts. Another

2/ As far as the numbers of primary schools, teachers and pupils are concerned, the beat set of data comefrom the census conducted by MPS. MOLG and MOE have their own figures but these are consideredto be less reliable.

3/ The data are as of January 1992.

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source of funding is the education levy imposed by some district councils. The levyis payable by all adults but this is an ad hoc rather than a properly structured sourceof revenue. Then there are the school fees paid by parents and guardians. These feesare mandated by the Central Government. The school fees were U Sh 150 per childin primary school grades 1-3 and U Sh 340 per child in grades 4-7 until the end of1991. From January 1992 the fees have been increased to U Sh 2,500 and U Sh 4,000per child in primary 14 and primary 5-7, respectively. On top of the school feesparents pay PTA dues which vary enormously from school to school. They alsoprovide direct labor for different kinds of schGol projects. Externally-funded projectsare another important source of financing of recurrent inputs as well as capital itemsfor primary education. The recurrent allocations for primary education in FY92,including the major recurrent items covered under the development budget, are givenin Table Al.1.

Table Al.1: Nonwage Recurrent Allocations for Primary Education1991/92

(in U Sh million)

013: Ministry of Education Recurrent Budget 1,41105: Primary education 1,411

10: Employee costs 6460: Payment to other agencies 1,347

113: Ministry of Education Capital Budget Section 2 2,0744th IDA Education Project 2,074

025: Ministry of Local Government Recurrent Budget 9,01714: Education department 9,017

10: Employee costs (excluding wages) 1620: Administration costs 130: Supplies and services60: Payment to other agencies 9,000

Total 12,502

25. Just as with primary education, so data problems make it difficult toarrive at a comprehensive picture of primary health financing. Budgetary allocationsfor FY92 are shown in Table A1.2. The Central Government pays the wage bill forestablished staff. In this connection it should be noted that the problem of ghostworkers is thought to be far less serious in health than in education. Unlike the caseof primary education, there is no Government capitation grant as such. However, theFY92 budget includes a block allocation of U Sh 414 million for the recurrent inputrequirements of some of the primary health units. Originally this provision wasearmarked for eight districts but the list was later expanded to cover twenty-fourdistricts in all.

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26. There is scope for cost recovery in the health sector, including primaryhealth, as it is known that the practice of charging informal, unstructured fees is quitewidespread. The bulk of these charges go towards supplementing the incomes ofhealth workers who are so poorly paid anyway. The Government did consider in 1990specific proposals for cost recovery in the health sector but shelved those plans on thegrounds that more time was needed to work through the equity and other implicationsof the proposed fees.

27. The donors are very active in the health sector. Most extemally fundedprojects provide significant financing for recurrent inputs, although the developmentbudget lumps these expenditures together with capital expenditure. The biggest sournesof donor funding for recurrent inputs are the Essential Drugs Program financed byDANIDA and the Expanded Progranr of Immunization which is financed by the UnitedNations Children and Educational Fund (UNICEF). In the budget there is nobreakdown to show how much of the recurrent resources provided under these twodcwor programs goes to the primary health units. Health workers contend that thedrug kits provided through the Fssential Drugs Program meet only a fraction of therequirements of the primary health units. The drug kits are very valuable but they arenot meant to meet the full requirements of the health units. Thus a kit that is meantto cater for up to 2,000 people will contain, among other things, 19 syringes and 48needles. Clearly, the quantity of these supplies has to be supplemented. Indeed, thehealth units may, and are expected to, purchase additional drugs and other suppliesfrom the CMS but few of them are able to raise the money to make such purchases.Visits to a few health units in the course of gathering material for this report revealeda dire shortage of many basic inputs including sterilizers, syringes and needles.

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Table A1.2: Nonwage Recurrent Allocations for Primary Health1991I9t

(in U Sh million)

014: Ministry of Health Recurrent Budget 3004: Regional and district health services .30

10: Employee costs (excluding wages) 2420: Administration costs 150: Property costs 5

114: Ministry of Health Capital Budget Section 2 857Essential Drugs Program 583Expanded Program of Immunization 274

025: Ministry of Local Govt Recurrent Budget 42915: Health Department 429

10: Employee costs 620: Administration costs 330: Supplies and services 41440: Transport and plant costs 6

125: Ministry of Local Government Section 2 708Essential Drugs Program 708

Totai 2,024

Source: Ministry of Finance.

Notes: The FY92 estimates show all wages and salaries under the ministry headquarters.It is assumed that roughly 10 percent of the total allocations under the Essential DrugsProgram and the Expanded Program of Immunization go to the primary health units.

C. Recurrent Budget Formats

Program Classification

28. The Government initiated a process of budget reform in 1988. Oneoutput of this effort was a revision of the recurrent expenditure formats, including amove towards program classification. Program classification involves identifyir.g amajor cluster of activities that lead to the provision of a particular service. Obviously,not all budget tctivities can be readily grouped into programs. However, primaryeducation and primary health lend themselves to program classification.

29. Program budgeting facilitates the application of norms, as it is easierto define, allocate and monitor the inputs into and the outputs from a given program.

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It is therefore recommended that, as far as primary education and primary health areconcemed, program budgeting be followed throughout the budget document for bothrecurrent and capital expenditures. Under vots 013 (MOE recurrent budget) primaryeducation is already identified as a program. The other relevant votes require thefollowing changes:

vote 113: MOE development budget - identify primaryeducation as a program;

vote 025: MOLG recurrent budget - identify primary educationas a separate program (presently classified as educationdepartment);

vote 014: MOH recurrent budget - create a separate programfor primary health (now lumped together with other activitiesas regional and district health services);

vote 114: MOH development budget - create a new programcategory 'primary health";

vote 025: MOLG recurrent budget - identify primary health asa program (not just health department, as at present); and

vote 125: MOLG development budget - isolate primary healthas a program.

Separating Recurrent Inputs From Capital Items

30. It is important to switch to a program format for primary education andprimary health throughout the budget but that would not be enough to focus attentionon the recurrent funding of these services. This is because a significant amount offunding for recurrent inputs is embedded in allocations for capital projects in thedevelopment budget. As Tables Al.1 and A1.2 show, the amounts involved can besizable. This method of presentation gives a distorted picture of not only the overallfunding of recurrent inputs for primary education and primary health but also a falsemeasure of the capital formation that actually takes place. It is therefore recommendedthat, for a start, the project-related recurrent inputs for these two subsectors be isolatedand included in the recurrent budget of the appropriate ministries. The aim is not toachieve a perfect separation of recurrent inputs from capital items but to move the bigand obvious items from the development to the recurrent budget.

Block AUocatons

31. Central Government transfeks to the local authorities through MOLGtend to take the form of block allocations (see item 60 under vote 013, program 05 and

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under vote 025, program 14). This assumes that the urban and district councils havebudgets against which MOLG would disburse the funds. Experience over the pastthree years has shown that this is often not the case. Consequent'y, disbursements areeither delayed or made against local authority budgets that cannot stand up to closescrutiny. The local authorities should, of course, be given the opportunity todetermine their own priorities and formulate their budgets. However, MOLG, andhence MFEP, must know in advance the major categories of inputs that the transferswill finance. Without that, the resulting expenditures would be virtuallyunmonitorabla. T'his defeats one of the purposes of program budgeting, which is tomake it easier to relate outputs to inputs.

ANNEX 2CORE TEXTBOOKS AND MATERIALS

Primary 1 and 2

Textbooks

Subjects Title Quantity

Mathematics Primary Maths forUganda Book 1 1

English Uganda Primary EnglishCourse Term I & 2 1Uganda Primary EnglishTerm 3 1Learning to Read bySound Book 1 & 2 1

Stationery

Exercise books 18Pencils 9Erasers 3Box of crayons 3

Primary 3

Textbooks

Mathematics Primary Maths forUganda IPrimary School MathsBook 3 1

English Uganda Primary EnglishCourse Book 3 1New Oxford EnglishCourse Book 2 1Essential English Usageand Grammar Book 3 1Reading Pictures andSounds Step 1 & 2 1Primary Leaving Exercises 1First Aid Book 1 1English ComprehensionExercises Book 1 1

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Science Basic Science and HealthEducation: Teachers Guide 1This is Science Book 3: Pupilsand Teachers First Aid 1

SocialStudies Social Studies Book 3

Our Home and Country 1Stories from Uganda History 1Social Studies RevisionNotes for P.3 1

Stationery

Exercise books 24Pencils 9Colored pencils (packet) 2Ruler 1Eraser 3

Primary 4

Textbooks

Mathematics Primary Mathematics forUganda Book 4 1Essential primary MathsBook 4 1Primary School Mathsfor Uganda Book 4 1Okello Book 4 1Revision Textbook 4 1

English English ComprehensionExercises Book 2 1Essential English Usageand Grammar Book 4 1Standard Four English Aid 1New Oxford English Course Book 41Primary Leaving Exercises IUganda Primary EnglishCourse Book 4 1Junior English Revised 1

Science This is Science Book 4 1Beginning of Agriculture

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in Tropical Schools 1Introduction to Biology 1Poultry Keeping IBasic Science and HealthEducation Book 4 1Health and First Aid Book 1

SocialStudies Atlas 1

Social Studies Book 4 1Stories from Uganda History 1Our Home and Country 1Social Studies Revision Notes 1

Stationery

Exercise books 24Pencils 3Colored pencils (packet) 2Ball point pens 12Ruler IEraser 3Mathematical set 1

P.imary 5

Textbooks

Mathematics Pupils and TeachersMaths Book 5 1Primary Maths for Uganda 1Essential Primary School Maths 1Highway Maths 1

English Dictionary 1First Aid in English 1Uganda Primary EnglishCourse Book 5 1Essential English Usageand Grammar Book 5 1Graded Standard Exercises Book 5 1

Science Basic Science and HealthEducation 1Junior Physics 1This is Science Book 5 1

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SocialStudies Atlas 1

Social Studies RevisionNotes for P.5 1

Stationery

Exercise books 27Pencils 3Colored pencils (packet) 2Ball point pens 12Ruler 1Eraser 3Mathematics set I

Primary 6

Textbooks

Mathematics Primary Maths for UgandaBook 6 1Essential Primary SchoolMaths Book 6 1Primary School Maths Book 6 1P.6/7 Maths Revision 1

English Uganda Primary EnglishCourse Book 6 1Junior English Compositionand Grammar (1989 edition) 1First Aid in English byA. Maciver (revised edition) 1The Students Companion byW.D. Best (new edition) IRevision English byR. Forrest (new edition) INile English Course Book 6 1Living English Structure byS. Allen 1Junior English Revised byH. Richards 1Practice Your English byC.E. Wood 1

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Stationery

Exercise books 30Graph book 1Pencils 3Colored pencils (packet) 2Ball point pens 12Ruler 1Eraser 3Mathematics set 1

Primary 7

Textbooks

Mathematics Primary maths forUganda Book 7 1Primary School Maths Book 7 1Preparatory Maths Book 1Ladder to Success Seriesby A. Kayizzi 1

English Uganda Primary EnglishCourse Book 7 1Junior English Compositionand Grammar 1English Composition Exercises 1First Aid in English 1The Students Companion(Revision Edition) 1Junior English (revised edition) 1Revision English (new edition) 1Dictionary 1

Science Basic Primary ScienceCourse for Uganda IBasic Primary Scienceand Health for Uganda 1This is Science Book 7 1East African Agriculture 1Junior Physics 1Junior Tropical Biology 1Science for Standard Seven 1

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Stationery

Exercise books 30Graph book 2Pencils 3Colored pencils (packet) 2Ball point pens 12Ruler 1Hraver 3Mathematics set 1

Stationery per teacher

Class register 1Notebook 1Ball point pens (blue) 6Ball point pens (red) 6Chalk (box) 2Maths set (for blackboard) 1Blackboard renovator 1Blackboard cleaner 1Wall map of East Africa 1Wall map of Africa 1Globe 1

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ANNEX 3

HIRED TRANSPORT

Unit Average Materials Trips Total Costcost distance(U Sh/km) (km) (tons) (no./yr) (U Sh m)

l

;

I