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In the wake of a waning COVID-19 (coronavirus) pandemic and as the economy fully reopens, optimism – about the expected acceleration in growth and a brighter outlook for oil production with the signing of the final investment decision in February 2022 – has been mitigated by new global shocks, notably the effects of the war in Ukraine.

The 19e edition of the Uganda Economic Update (UEU): Fiscal sustainability through deeper public investment management reform, a semi-annual analysis of Uganda’s short-term macroeconomic outlook, estimates growth at 3.7% in 2022, which is below pre-COVID-19 projections of more than 6%. Uganda’s gross national income per capita stood at around $840 in FY21 and increased only slightly in the year that followed.

Real gross domestic product increased by 4.3% in the first half of 2022, supported by a strong and rapid recovery in the service sector during the opening of the leisure and entertainment industry, accommodation and services catering, as well as sustained dynamism in the information and communications sector. The report projects a Growth rate of 5.1% in FY23, 0.5 percentage points lower than the December 2021 forecast, dropping to around 6% in FY24.

Rising commodity prices and the overall increase in the cost of living pose new risks to livelihoods, which had only just begun to recover from the effects of COVID-19. These and other shocks threaten to stall socio-economic transformation, increasing the likelihood that people will sink deeper into poverty,” said Mukami Kariuki, World Bank Country Director for Uganda. “It is therefore crucial that the Ugandan government adopts targeted interventions to support vulnerable people while managing debt and rising inflation..”

The UEU proposes four policy actions that will enable Uganda to maintain a resilient and inclusive recovery: i) accelerate vaccination efforts against COVID-19; (ii) adopting targeted interventions to support vulnerable people – such as building shock-responsive social protection systems; (iii) maintain prudent fiscal and debt management to support the fiscal consolidation program; and (iv) cautious monetary tightening in the face of rising inflationary pressures.

The report also recommends accelerating longer-term structural reforms to (i) strengthen revenue mobilization through the implementation of the domestic revenue mobilization strategy; (ii) improve public investment management; (iii) rationalize public expenditure to support faster, sustainable and inclusive growth by investing heavily in human capital development; and (iv) improving the trade and business environment and enabling green investments.

The UEU notes that fiscal consolidation is necessary to bring debt under control and create the space to respond to shocks that could harm or block the recovery. This can be done through better public investment management (PIM) building on the significant reforms that have been undertaken by the government. The benefits of these efforts are beginning to be felt.

Uganda has a great opportunity to harness public investment management by ensuring that beyond preparing good projects, efforts also focus on ensuring that they are effectively financed, implemented, monitored, operated, maintained and evaluated. These measures ensure that the country can reap maximum value from public investments.“, said Rachel Sebudde, World Bank Senior Economist and lead author of the Uganda Economic Update. Strengthening the strategic capacities of government officials is crucial as it will improve the Ministries, Departments and Agencies‘ efficiency throughout the PIM cycle.”

Despite the progress made in the PIM process, major challenges remain. These include low execution rates for donor projects and own budget; long lead times; project cost and time overruns; and high commitment fees for externally financed non-concessional projects. Overall, improvements in the administrative processes of the PIM pre-investment phase are hampered by challenges in critical areas, including project prioritization and selection, budgeting, and implementation.