This study on Uganda’s current EDF landscape was conducted by Economic Policy Research Center (EPRC) in collaboration with the Ministry of Finance, Planning and Economic Development (MFPED) for the period 2015/16 and commissioned by the African Center for Economic Transformation (ACET).
By Ezra Francis Munyambonera
In most developing countries, there are observed changes in EDF by source, nature, and mechanisms. Traditional overseas development assistance is reducing and making room for new important state players such as China, India, Brazil, the Gulf Countries and South Korea. In addition, philanthropies and private organizations are emerging as major players for EDF in their own right. For developing countries like Uganda, this emerging landscape brings new opportunities as well as challenges and risks in meeting their development priorities.
This study on Uganda's current EDF landscape was conducted by Economic Policy Research Center (EPRC) in collaboration with the Ministry of Finance, Planning and Economic Development (MFPED) for the period 2015/16 and commissioned by the African Center for Economic Transformation (ACET). It aimed at reviewing and assessing the changing behavior of Uganda's institutions towards development cooperation in the emerging EDF landscape. More specifically, the study examined how Uganda mobilises, allocates and manages a variety of external resource inflows, and how the country manages relationships with the development partners (DPs).
The study was guided by five specific objectives as listed below:
i)To assess how Uganda has been accessing external development finance in the past decade in light of the changing external environment.
ii) To provide an understanding of how government systems (institutional structures, processes and coordination) are adapting both to influence the intermediate targets of external resource inflows and to ensure efficient mobilization and allocation of development finance.
iii)To assess how Uganda is engaging and managing the new state and non-state actors.
iv) To assess the extent to which traditional partners are adapting and aligning their in-country assistance programs in the new EDF environment.
v)To explore the scope of the use of technology platforms to enhance the availability, quality, and timeliness of data that will enhance monitoring and evaluation of the use of development finance.
Various methods were employed to implement the study including document review, secondary data analysis of EDF, key informant interviews, and case study analysis of projects that had been financed under EDF.
This brief provides a synthesis of the findings of the responses from the key informant interviews based on the five specific objectives. The institutions interviewed included:
MFPED, National Planning Authority (NPA), Office of the Auditor General (OAG), and other Ministries, Departments and Agencies (MDAs) from the government; the World Bank Group, the African Development Bank (AfDB), the European Union (EU), the International Monetary Fund (IMF), the Japanese embassy, and other embassies and aid agencies among traditional DPs; the Chinese embassy for the non-traditional DPs; Uganda Debt Network and Uganda NGO Forum for the civil society representatives; and the Strømme Foundation representing philanthropist groups.
Findings and Discussion
In assessing how Uganda has been accessing EDF, all the respondents agreed that there were laws and guidelines in place that directed access by government to all forms of EDF, but that these guidelines were not always followed; both by the government and all groups of development partners.
In terms of government systems for EDF mobilization, respondents agreed that systems existed to ensure EDF sustainability, but that there was no full implementation. This they stated, was exacerbated by poor coordination among MDAs especially MoFPED and BOU, the key institutions that monitor EDF flows. Respondents also noted that although there was increased budget transparency, corruption remained a problem.
In regard to the relationship DPs had with government, respondents observed no significant change despite government's engagement with new state and non-state actors, but that there was increased inconsistency in DP response to government issues.
This was partly attributed to the breakdown in joint budget support efforts after the 2012 Office of the Prime Minister (OPM) corruption scandal.
Although traditional DPs reported that modalities and procedures for in-country assistance programs had not changed, they acknowledged that some DPs had introduced new financing instruments and that the IMF threshold for borrowing had been lifted.
In addition, while traditional DPs insisted that bidding for aid projects had been opened up to all players, some government officials noted a disproportionate dominance of Western firms in the implementation of EDF funded projects.
All respondents noted that non-traditional development partners limited their use of official government systems to contract engagement, but dominated procurement and implementation.
Finally, nearly all respondents acknowledged the existence of technology platforms for the monitoring and evaluation of EDF in particular the Aid Management Platform (AMP) housed at the Development Assistance and Regional Cooperation department in MFPED.
However, some government officials insisted that they were not aware of its existence although the AMP has been in place for four years. Moreover, CSOs and private donors were limited to using the platforms available only at the local government level. Besides the crosscutting issues, many were institution-specific as described below:
Some of the key findings per specific objective are presented below:
How Uganda has been accessing external development finance in the past decade in light of the changing external environment
The respondents acknowledged that several laws, institutions, and policies existed to mobilise and coordinate inflows of EDF from all development partners. The overarching guide is the Constitution, which gives sole power to receive EDF to MFPED. Despite this legal constraint, MDAs and local government bodies continue to receive financing in the form of grants from various development partners.
While the Minister of MFPED has to seek Parliamentary approval before entering into any legal contract with development partners, some respondents noted that at times proposals are presented to Parliament as a fait accompli. Respondents also reported that other institutions involved in mobilization are NPA, which ensures EDF falls within development plans and the Ministry of Justice and Constitutional Affairs, which goes over the legal provisions.
Key stakeholders further noted that traditionally, government has been obtaining most of its EDF from the World Bank, African Development Bank and a host of other bilateral and multilateral lenders in the form of budget support, sector support, project-specific support, and technical assistance.
This funding has been largely concessional or in the form of grants. Funding from new DPs often comes in the form of project-specific support and technical assistance, is semi-concessional, and is not subject to budgetary oversight.
Many respondents noted that although government had limited control over procurement and management of projects financed by EDF from new DPs, the projects were often better implemented than those undertaken with traditional DPs.
Additionally, the appearance of new DPs has opened up alternative opportunities for financing, including from traditional DPs. The IMF lifted its USD 3 billion cap on financing for Uganda while other traditional institutions introduced new EDF instruments such as blended financing.
To provide an understanding of how government systems (institutional structures, processes and coordination) are adapting both to influence the intermediate targets of external resource inflows and to ensure efficient mobilization and allocation of development finance
Respondents stated that before 2010, the government followed the Poverty Eradication Action Plan (PEAP) whose aim was to eradicate poverty through social spending in education and health.
Since, the country has adopted a national Vision 2040 with the aim of transforming Ugandan society from a predominantly low-income peasant country to a competitive upper middle-income country within 30 years through the implementation of six National Development Plans (NDPs).
Government's focus has been on programs that seek to deliver economic growth and transformation through heavy investments in infrastructure, agriculture and tourism, as underpinned in the first and second NDPs—2010/11-2014/15 and 2015/16-2019/20.
Government officials indicate that the NDPs are implemented through ministry drafted Strategic Investment Plans (SIPs) that donors can "buy into".
These investment decisions are made through Sector Working Groups that bring together the ministries and donors.
Furthermore, the government has put in place debt sustainability frameworks such as the Medium Term Expenditure Framework, the Medium Term Fiscal Framework and the Debt Strategy that require government to largely borrow on highly concessional terms especially for projects with long-term returns on investment.
However, despite the establishment of institutional frameworks, polices, mechanisms and processes for borrowing, government still falls short in aligning the NDPs to the national budget; leading to poor, untimely, or even non-implementation of externally funded projects.
Respondents also noted that government's efforts at institutionalizing EDF mobilization are further hampered by poor coordination, duplication of projects, corruption, weak implementation capacity, and prolonged procurement processes, among others.
Respondents indicated that as a result of these problems, externally funded projects are characterized by low absorption/utilization of financial resources. Monitoring institutions assert that they play a part in advocating for responsible borrowing and effective management of EDF and that their efforts have resulted in increased budget transparency.
How is Uganda engaging and managing the new state and non-state actors
Respondents acknowledge that the portfolio for new development partners is expanding while that of traditional DPs is decreasing. This is partly because new DPs have the financial resources to fund expensive infrastructure projects that traditional DPs have historically been unwilling to finance.
Respondents also indicate that repayment schedules for new DPs are more flexible and that their EDF comes with less conditionality and is better planned and implemented.
In addition, while the government is not fully apprised of grants entering the country through traditional DPs and private foundations, all EDF from new DPs is channeled through the central government, which further facilitates centralised development efforts.
However, some respondents note that the acquisition of loans from new DPs is not as transparent as that from traditional DPs since negotiations are done at different levels of the political hierarchy and that new DPs hardly ever use government budgeting, procurement, financial management, or auditing systems.
They also note that while the conditionalities from new DPs are not many, they involve provision of collateral that is beyond that parliamentary resolution to borrow and the mortgaging of the country's natural resources.
Moreover, there is no mutual consultation on development and budget planning. Finally, some respondents note that the availability of alternative financing should be an advantage, but government is not optimally leveraging the competition among development partners for EDF.
The extent to which traditional partners are adapting and aligning their in-country assistance programs in the new EDF environment
Traditional DPs generally agree that the arrival of new DPs has not substantially changed their behaviour. However some respondents insist that new financing opportunities provided by the traditional DPs are a crucial change in behavior.
The more recent of these is the blended financing framework that allows Uganda to borrow from international private funds at subsidized interest rates.
Theoretically, such a loan is open to international bidding—as other donor funded projects have supposedly been—but government officials complain that international bidding procedures favour foreign companies over local ones.
It is also noted that the IMF lifted its borrowing cap on Uganda stating that the organization did not need to micromanage the country's borrowing behavior. The only change that all respondents acknowledged was the shift from direct budget support to more sector and project specific support.
This followed the 2012 OPM corruption scandals associated with the loans and grants extended towards direct budget support through the ministries. It also affected the way traditional DPs approached government.
While in the past, they dialogued with government as a group under the Joint Budget Support Group; currently their interaction with the government is more discrete. Government officials criticized off-budget support for undermining their authority to determine which areas needed to be prioritized.
Traditional DPs, on their part, acknowledge that there needs to be more harmonization of projects to avoid duplication, and more organized and systematic dialogue.
The scope of the use of technology platforms to enhance the availability, quality, and timeliness of data that will enhance monitoring and evaluation of the use of development finance.
Most of the key stakeholders acknowledged the existence of systems for monitoring and tracking EDF effectiveness. Government has established IT based systems such as the Aid Information Management System (AIMS) housed by MFPED to track EDF commitments, disbursements and allocations; the National Integrated Monitoring and Evaluation System (NIMES); the Aid Management Platform (AMP); and the Debt Management Financial Facility (DMF) provided by development partners to track EDF effectiveness.
The problem lies with the usability and integration of these systems, leading to a lack of harmonization of development assistance information. And as some government officials asserted, not all ministries have access to these platforms and some are not even aware of their existence.
Traditional development partners reported that among themselves there are mechanisms for interaction and exchange of information on sectors financed. The Local Development Partner Group headed by the World Bank is the most prominent and to which most development partners report.
Previously, development partners coordinated their efforts through the Joint Budget Support Group, but it was dissolved when many DPs withdrew direct budget support after the Office of the Prime Minister OPM scandal of 2012.
Other groups include sector working groups such as the Joint Partnership Fund for the water sector, the Donor Economist Group and the Partners for Democracy Group, which brings together heads of delegations / ambassadors.
Non-traditional development partners on the other hand, do not have systems that are integrated into the government's AIMS. The MDAs too have an established mechanism for requesting, accounting and reporting EDF utilization.
Civil Society has also been given a platform by Parliament to monitor the implementation of development partner funded projects and track the effectiveness of development finance, but as they reported, their access to information is largely limited to ad hoc meetings and small grant funded projects executed at the local government level.
Conclusions and Key policy recommendations
In line with the objectives, the study sheds light on changes within Uganda's policies and strategies in the mobilization of external resources and within government systems (institutional structures, processes and coordinating mechanisms), financing plans, and development priorities;
The study further highlights how these changes are enabling the achievement of intermediate outcomes, how well the inflow of additional resources is aligned with national development plans, how providers' behaviour is being influenced by country-level practices, and, highlights the potential impact on the desired development outcomes in the new external development finance landscape.
Government has established institutional mechanisms, systems and processes for soliciting and managing EDF, which are equally applied to a certain degree to both traditional and non-traditional development partners.
The shift has been in the modalities applied when dealing with the different types of DPs especially on borrowing terms, but the strategy remains the same.
The problem however, lies in government's weakness to fully execute its own systems. Nevertheless, the arrival of new development partners has provided alternatives for financing development projects that were previously unavailable and loosened the purse strings of traditional development partners who have now come up with new financing tools—blending—and lifted the borrowing cap that previously restricted the country's access to EDF.
While we have observed that the country's dealings with the new DPs are less transparent and that the new DPs impose conditions on procurement and management, the excitement for new financing options is discernible.
Traditional DPs are notorious for the strict conditionalities that come with their EDF, rendering their projects more difficult to implement and while they boast open bidding processes, government officials criticize the dominance of foreign firms in the implementation of traditional DP funded projects.
Finally, it has been observed that government is not adequately leveraging the availability of more financing options to its advantage and that the low absorption of EDF has negative implications on the achievement of the key national development objectives and may affect the government's ability to transform the economy from a low-income country to a medium income country by 2020.
The key policy recommendations drawn from this study show that to maximize benefits from external assistance in the new development finance landscape, greater efforts are needed to improve mechanisms of loan acquisition, to improve utilization and absorption of the loans across the MDAs, prosecute corruption, reduce transaction costs, and improve technical capacities to monitor development finance effectiveness across government institutions and CSOs.
In the new EDF landscape, government should aim at strengthening systems for efficient and effective loan acquisition and coordination amongst the institutions that track development finance flows and establish measures to improve project implementation, including improved procedures in regard to project selection, appraisal and design, cost benefit analysis, portfolio reviews, and monitoring and evaluation.
The writer works with Economic Policy Research Center (EPRC)