Changing aid times for Uganda- how shall the country respond?

By Warren Nyamugasira

For better or for worse, times are changing for Uganda and it is very hard to know how best the country should respond.

Business Vision (April 25, 2013) carried a story that the donor community is completely pulling out of budget support amounting to around 30% of the budget or some $300m annually, by no mean pocket change. Budget support is a funding mechanism where donors contribute to the Government’s general budget as opposed to funding projects directly, making it easier for government prioritise and manage its planned activities.

In Uganda, budget support has an important history. In the 80s and 90s, donors primarily funded projects largely because the government financial management systems were considered too weak and prone to abuse to be relied upon. Then there came a time when it became too cumbersome for the Government to deal with hundreds if not thousands of project financing arrangements (including procurement procedures) by tens if not hundreds of individual donors. Project Management Units and Project Execution Agencies were tried but the problem persisted.

When the then separate ministries of Finance and Economic Development; and Planning were merged to form the super Ministry of Finance, Planning and Economic Development, its arm was strengthened and its Permanent Secretary, now the Governor of Bank of Uganda, tabled the ‘Mutebile Principles’ which were later renamed the ‘Copenhagen Partnership Principles’. Among them was that donors would, to the extent possible, use the Government financial and procurement systems in order to reduce transaction costs on the part of the Government as officials were spending a lot of their time in meetings with one mission after another, leaving very little time to implement what was agreed.

In the mean time, the Ministry of Finance, Planning and Economic Development were investing a lot of resources in building the capacity of its officers to bring them to international standards. This, coupled with a great deal of financial discipline, made donors more comfortable and willing to use the Government systems rather than setting up parallel ones. One or two donors did not adopt budget support of legal reasons back in their countries (as they had to show direct link between their aid and results on the ground). Likewise, many civil society organisations, which were recipients of project funding, were resistant to the donors shifting to budget support, arguing that this would breed corruption.

Of course, and rather unfortunately, today the main driver for this policy reversal on the part of donors is the corruption scandals by the Government officials, which has reached a level which almost seems irreversible. But also there is an aspect of financial indiscipline as it is perceived by the donors. In the early days, there was a similarly feared phenomenon called fungibility of funds (a term we don’t hear much of today) . That is, because donors are funding a sector, government shifts its own money from that sector into one that donors are not interested to fund. These days it manifests itself in extravagance, excessive supplementary budgets to certain cost centres, and the like.

We should recall that earlier this year, the Government actually refunded some of the money it had lost to donors such as Ireland, Norway, Sweden and Denmark, at their insistence, but this has not been enough to appease donors collectively.

To do more, it has formed an inter-ministerial High Level Government Financial Management Reform Action Plan. The plan presented to donors includes better financial management, better investigations into corruption cases, indictments of those implicated in scams, and actual prosecution of those culpable. In terms of action, Bank of Uganda has already closed 165 dormant accounts which were among the avenues through which public funds were channeled to private accounts; accountants are to be rotated so that they do not build the necessary networks through which to steal; the leadership code, under which senior public servants declare their wealth and liabilities every two years, and which for long had not been used to challenge anyone’s wealth,  is now being used by the Police to match actual wealth with that declared by implicated officers. Special audits have also been conducted where there is suspected illicit activity. So far, over 100 case files have been opened by the police. Still donors have demanded for fresh and expanded audits into the OPM scam, which are supposed to “leave no stone unturned”.

However, there is doubt how long the donors will hold on and how far they will go in pushing the Government to do more. For starters, they are not unaware of the unintended consequences and backlash of their actions. For example, as a result of the suspension of aid, some front line public servants such as teachers and health workers have not been fully paid their already meager salaries. Furthermore, the Government has just announced that it will phase out the lowest levels of health outlets (Health Centre II) so as to save some money, thereby depriving those who are unable to get to higher centres. And when the Government refunded money to donors and the refund was actually accepted, there was a chorus of condemnation of the donors by the public for inflicting double tragedy on the innocent.

But perhaps the most unexpected consequence has been the introduction of the Internal Security Organization (ISO), a spy arm of the Government, into schools to undertake head count of pupils and teachers to unearth ‘ghost pupils and teachers’, all in the guise of pleasing donors. This ‘trust creep’ could lead to the militarisation of civil service and in future spell enduring disaster on strength of our institutions.

They also realise that they might have inadvertently reinforced the accusation that the Government is more responsive to donors than to its citizens. While this conversation and decision-making is going on, neither the Government nor the donors have engaged citizens on their courses of action. For example, while the Government is pushing through a whole range of new taxes, which could hurt more than help, the Uganda Parliamentary Forum on Youth Affairs is drafting a Bill for the creation of an autonomous National Youth Enterprise Fund.

President Museveni is an interesting man. Those who have studied him carefully will tell you that you can tell who is and who isn’t in his good stead from the way he shakes hands when he arrives to a waiting line of important officials. Those he greets almost in passing when his focus is already on the next person will know they are not that important to him. It would seem that even in this case, he is ‘greeting the donors’ with his face looking east and to the other emerging partners. In particular, he is looking to China’s sovereign funds to help fund important infrastructural projects. He has also developed a strategy to creatively leverage the future on oil reserves, in which partners like China will be more than willing partakers, creating “a unique moment in the country’s relations with its traditional donors”.

Citizens have a critical role in shaping this “unique moment”. Should the country grab this as a disguised blessing to wean itself from donor dependence?  Should more citizens join in the fight against corruption even “at the peril of their lives” as members of the Uganda Chapter of the African Parliamentarians’ Network against Corruption have just resolved, fully aware that “Corruption often fights back?

How will Ugandans respond?

Warren Nyamugasira is an Economist