Policy analysts call for fresh economic policies

By Sylvia Juuko

UGANDA may have matured from receiving aid from the International Monetary Fund (IMF) owing to its strong record of macro- economic performance, but economists say more needs to be done to improve critical public infrastructure and strengthening private sector access to bank credit.

Fred Muhumuza, a research fellow at Makerere University’s Economic Policy Research Centre (EPRC), says while Uganda deserves a pat on the back for macro- economic management, the challenge remains putting in place new policies that propel the current stability to deliver results.

“The first generation of policies has been concluded. We need to deal with the next generation of policies that will focus on improving poor infrastructure and boosting capacity of government institutions to deliver public service,” Muhumuza said on Friday.

He said with the new policies in place, it would be easy to mobilise funds to finance these programmes.

“Once these policies are in place, mobilisation of funds will not be a problem since there are several sources of funding.

“But utilisation and absorption of this money remains a concern for possible funders and a challenge that needs to be addressed,” he says.

At the conclusion of a country review recently, IMF said it would not offer more financial support when the current package expires at the end of the year but would offer technical advice and support.

Peter Allum, IMF’s resident representative, said recently that IMF’s finances support a country’s balance of payments when international reserve levels are low, but robust export growth and high donor inflows has strengthened Uganda’s foreign reserves that are now equivalent to over six months of exports.

“Uganda has matured in the sense that it has established a strong record of macro-economic stability as indicated by low and stable levels of inflation, sound management of the budget and good monetary management.”

Despite this, Allum agrees with economists that the Government needs to focus on improving critical public infrastructure like power and roads, further improvement of budget management like avoiding domestic arrears and strengthening private sector access to bank credit.

Donors who fund more than half of Uganda’s budget are also pushing for reforms in areas like tackling high levels of corruption and making the East African Community effective.

While analysts say macro economic stability has been achieved at the expense of overall poverty reduction efforts, Allum does not agree.

“International experience suggests that sustained poverty reduction is almost entirely explained by strong economic growth,” he says.

He argues that Uganda should sustain and strengthen its impressive performance, as a sound macro-economy is a key factor that boosts growth.

“Without Uganda’s success on the macro-economic front over the past 10 to 15 years, poverty would have been higher than it is today,” says Allum.
Muhumuza concurs that macro economic stability should prevail to allow for proper planning and accelerated growth but should be a means to an end.

So far, the Government measures to increase revenue through hiking taxes and not broadening the tax base have caused jitters within the manufacturing sector that is already bogged down by high power costs and rising fuel prices, factors that may slow growth.

Allum agrees that higher taxes will have some adverse effects on private sector demand but he notes that this will be offset by higher spending leaving the economy broadly unaffected.

“Over the long run, spending in the right areas such as public infrastructure will eliminate production bottlenecks and allow for production growth, new jobs and reductions in poverty,” he says.