KAMPALA, June 30, 2022—For the economy to remain strong over the long-term and hence withstand shocks such as COVID-19 (coronavirus) and the war in Ukraine, the latest economic analysis recommends Uganda accelerate and deepen reforms on how it manages its public projects to increase the output of each shilling spent.
The 19th edition of the World Bank Uganda Economic Update, Fiscal Sustainability through Deeper Reform of Public Investment Management, notes that the dividend that can be reaped from improving the institutions, systems, and processes guiding decisions on how to prepare, implement, operate, and manage public investment projects is significant. According to the 2015 International Monetary Fund estimates, an average country obtains 30% less output in terms of physical infrastructure for a given expenditure than the most efficient countries. Up to two-thirds of this efficiency gap could be clawed back through improved Public Investment Management (PIM) institutions.
Cognizant of the benefits of closing the efficiency gap, Uganda embarked on a series of reforms to strengthen its PIM. The reforms over the past five years focused on improving the quality of projects at entry and had envisioned critical success factors including a stronger legal framework, enhanced capacity, and resources for project preparation.
A dedicated department in Ministry of Finance, Planning, and Economic Development (MoFPED) was established in 2015 to spearhead the PIM reforms, and in particular develop and promote the use of standardized guidelines and user manuals for project preparation and appraisal, national parameters, and economic conversion factors to support program appraisal, as well as selection criteria for projects into the Public Investment Program (PIP). It also ensures that the same approach and process are applied across government agencies when preparing projects.
The impact of these reforms are already visible in the improved quality of projects submitted by Ministries, Departments and Agencies (MDAs) to the Development Committee, the independent reviewer and gatekeeper, for approval and admission into the PIP. In effect, the percentage of projects that are underpinned by a cost-benefit analysis out of the total entering the PIP, while still low, has improved from 10% by 2015, to 37% for FY21 as reported by MoFPED. The impacts of some of these reforms may be realized in the future, but they raise hope that investments are starting to be managed well.
Nonetheless, the progress around the administrative processes are being discounted by challenges in critical areas including project prioritization and selection, budgeting, and implementation. The challenges include low execution rates on donor and own-budget projects; lengthy implementation delays; cost and time overruns on projects; high commitment fees in case of externally funded projects; shortened life span of projects due to poor operation and maintenance of created physical assets; low capacity of some MDAs and, continued non-compliance of many projects to the guidelines. For example, according to the Auditor General Report FY21, out of a sample of 371 projects in the public investment program, 245 projects (66%) with total project values of UGX643.4 trillion ($173 billion), did not have feasibility studies undertaken before they were allocated financing.
According to the UEU, these persistent PIM challenges underscore the complexity of reforming PIM frameworks, given the many institutions, processes and mandates that must work together to form a system that is able to manage investments efficiently.
For further gains, the report recommends deepening reforms around project prioritization and selection, budgeting, and implementation to go beyond the administrative processes of the pre-investment phase of PIM. Additional recommendations include:
- First, the gatekeeping function can be strengthened by introducing a legally binding “seal of quality” at the end of the appraisal stage to signify readiness of project proposals for financing.
- Second, budgeting for projects must be improved. Allocation of resources for projects must use the project life cycle approach and also close the gaps in budgeting for operational and maintenance costs. To promote the culture of project maintenance, each project must have at its appraisal, the ex-ante appraisal forecasts of both the project's capital and operational expenditures.
- Finally, improve the implementation phase by building project implementation capacities while at the same time strengthening and streamlining the monitoring and evaluation functions of the PIM System.
The UEU, a biannual analysis of Uganda’s near-term macroeconomic outlook, estimates growth at 3.7% in financial year 2022, a 5.1% in FY23, and about 6% in FY24.