SUMMARY OF A LECTURE BY MR. LAWRENCE KIIZA TO THE GRIPSMASTER’S
DEGREECOURSEOF‘POLICYDESIGNAND
IMPLEMENTATION IN DEVELOPING COUNTRIES’
Lecturer: Mr. Lawrence Kiiza, Director of Economic Affairs, Ministry of Finance,
Planning and Economic Development, Uganda
Date: 22nd June, 2007
Venue: GRIPS Lecture Room A

1. MAIN POINTS OF THE LECTURE(1) Historical Background for the Economic and Political Situations in Uganda – from
Economic and Political Instability to an Era of New Political Power - (1960’s-1980’s)¾

During the 1960s, the economy was better (investment was over 16% of GDP,
export was 30% of GDP).

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However, Uganda experienced political and economic destruction during the
1970-1980s.

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As a result, investment and savings went down to 8% of GDP. Inflation was outof control and domestic savings fell to negative 0.4%.

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The year 1987, when a new government took power (led by current President_

Museveni), became a turning point for the Ugandan economy. In those days,
there had been no vibrant private sector and no coordination of government
programmes; and the government had faced with low revenue and over bloatedcivil service. In late 1987, the new government in collaboration with the IMF
embarked on structural adjustment programmes.
(2) Macro Economic Stability and Planning Framework – from Structural Adjustment
Concerns to Consideration of Development Strategy and Public Expenditures--(1990’s to date)¾

With the adoption of firm macro economic policy and liberalization, theUgandan economy has improved. In 2006/07, inflation was 6.5% (compared to
the Sub-Saharan Africa (SSA) average of 7.1%); real GDP grew at 6.2% (SSA
average of 4.7%); real GDP per capita increased to US$ 400 (SSA average of
US$ 500); gross domestic savings rose to 9% of GDP (SSA average of 21.5%);
and tax revenue increased to 14 % of GDP (compared to 4 % in 1986, SSA

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average of more than 16 %).
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The monopoly of commodity marketing boards was dismantled; export taxes
were removed; and price control was lifted. As privatisation programme wasundertaken, investment grew by over 16 % of GDP, and export also increased.

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Reform of the government economic planning structure also started. In 1992,
the Finance Ministry and the Planning Ministry were merged into a new
Ministry as the Ministry of Finance, Planning and Economic Development(MFPED). At the same time, the MFPED undertook a personnel reform andpromoted young and brilliant officers. This reform enabled the MFPED to play
the more proactive role in aid management than before.

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In 1995, Uganda started formulating the Poverty Eradication Action Plan
(PEAP) which was published in 1997. This was the first PRSP in the world
approved by the World Bank. Currently, the Government of Uganda is revising
the PEAP into the forth edition (revision has been made every four years).

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PEAP provided: (i) policy framework for donors to align their aid; and (ii)guidance to sector ministries and local governments to better link aid andpublic expenditure priorities in their medium-term national sector plans andlocal government plans. The Medium Term Expenditure Framework (MTEF)
and Sector Wide Approaches (SWAPs) were developed to strengthen thegovernment’s budgetary process and financial system.

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Together with the introduction of economic and policy reforms, external support
both from multilateral and bilateral donors have resumed. Especially, thecommencement of the policy instruments of PRGF (Poverty Reduction Growth
Facility) by the IMF and the PRSC (Poverty Reduction Support Credit) by theWorld Bank had accelerated the policy reforms in Uganda.

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In addition to the project support, new aid modalities such as the sector budget
support, the vertical funds and the general budget support have been developed.
New aid approaches were also introduced such as commencement of thePartnership

Principles

betweentheGovernmentof

Ugandaandits

Development Partners, implementation of the Paris Declaration, andintegration of donor funds into MTEF.
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As a result, Uganda has become a ‘darling’ of donors and also a ‘laboratory’ of
new aid approaches. Some donors may think that the integration and alignmentof donor aid to the country’s national policy and financial system might cause
the loss of their visibility. However, there are measurable outcomes, and donors
can monitor them through the PRSC matrices and/or PSI (Policy Support2

Instrument) evaluation.
(3) Challenges and the Way Forward¾

Challenge 1: Donor interests and advice might not always be in compatible withgovernment priorities.
There are cases where the government is not able to manage and incorporate
aid funds into the budgetary process, even though it tries its best. This isbecause donor’s conditionality on governance and human rights, if not
successfully met, could lead to reduce the amount of aid from the amountoriginally pledged, and this may undermine the government’s budget discipline.
However, it seems that the issue of ‘what is governance’ has not been clearlyanswered yet in the international discussion and further studies are necessary.

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Challenge 2: Implementation and execution of policies must be improved.
In Uganda, we have already established a framework and policy fordevelopment. What we need from now is to make sure that we implement thepolicies. The lack of implementation seems to be the main reason why Africa
stays where we are now, compared to many other Asian countries. Lessons canbe learned from private enterprises such as Japanese companies of Toyota or
Honda in terms of their implementation skills and ability to execute decisions.

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Challenge 3: Proper fiscal management needs to be placed, because fiscal deficit
has been increasing with increased aid.
Domestic revenue has not been increasing at the same pace as the government
spending. Currently, donor aid finances the deficit so that the spending could besecured. However, donor aid cannot be guaranteed over the medium term as
disbursements of donor budget support have consistently fallen short of,compared to the plan. In addition, with the increase of donor aid liquidity will
also increase. This will undermine the quantity of bank lending to the private
sector because the government will increase the issuing of Treasury Bills andconsequently cannot secure lending for the private sector.

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Challenge 4: Aid should be targeted to promoting economic growth.
We need to be selective in the kind of aid we will be receiving. To this end, thepurpose and priority of national policy have to be clear, and it is important tomake decisions on aid receipt accordingly. Uganda is interested in aid which
supports infrastructure and productive sectors. Although the areas ofprioritization might be different from country to country, what we should
concentrate is to receive ‘quality aid’ from donors.

32. QUESTIONS FROM THE STUDENTS¾

How do you handle governance issue? Also, working as a government official, I
am often interfered by politicians. I feel this may undermine the efficiency ofour public services. What is your advice?

→ In terms of governance, the pressure from western countries is sometimes
strong. However we, as government, also have to make greater effort, such as
including the opposition party on board to become a more democratic country. In
addition, in terms of accountability, we need to improve the capacity of reporting.
With regard to politicians, expectations from the public and politicians are
sometimes different, and it is difficult to match them. However, as technocrats,
we need to reconcile stakeholders’ opinions and put them into one policy. We haveto be clear on what is needed from technocratic perspectives and have to convince
domestic stakeholders.
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Do you think that there are risks of MFPED becoming too powerful as asuper-ministry? How do you manage to handle the increasing inflow of donor
funds while stabilizing the macro economy?

→The MFPED is a national bank in a sense that it has to manage tax payers’
money and secure the national budget properly. Since MFPDE has a
responsibility for the Uganda’s economy, it is fine to assume a strong role. In
Uganda, the President protects us and gives us a leeway to manage our economy.
Therefore, I would say that political leadership is important. As a finance officer
who manages the national budget strictly, I am not afraid of saying ‘no’ to therequests from sector ministries and local governments. My motto is thatwhenever requests come, the first time you say ‘no’. The second time you say ‘no’again. It is only when the person comes third time that you say ‘I’ll consider it’.
Your working attitude will help to manage your country’s economy in a
disciplined way. Moreover, we have made our best effort to develop mechanisms
to secure our budget and mange donor aid. One of the examples is that we‘discount’ the amount of donor support at the time of budgeting. This means that
we estimate the amount of aid receipt lower than what donors pledge, since aid
money is not necessarily disbursed timely.

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How do you think that we can stimulate growth? Also, what do you think about
the role of agriculture?

→First of all, revenue should increase as same pace as economic growth. In Uganda,
the government got out of business when it had adopted economic stabilizationand liberalization measures. Since then the sphere of public and private sectors
have been clearly distinguished. However, the private sector market is yet
responding, and the government is now considering to give incentives to theprivate sector and to help complement private business through such mechanism
as Public Private Partnership (PPP). In terms of agriculture, the government has
a limited role. Basically it has to be initiated by the private sector, especially inthe area of post-harvesting, research and extension services.

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