On March 27, 2020, Uganda registered the first case of COVID-19 (coronavirus) and had 39,600 cases and 320 deaths by January 31, 2021. The Government took fast action to minimize the spread of the virus, imposing restrictions on travel and closing Entebbe International Airport and all borders for passenger travel. President Yoweri Museveni also promoted better hygiene through hand washing and health safety habits, instituted social distancing measures, and prohibited public gatherings and shut down schools. Employees were asked to work from home, except for those providing essential services.
While the number of COVID-19 cases has increased at a relatively slow pace, the spillover of the global recession and domestic containment measures have had a severe impact on livelihoods and the economy. The pandemic has slowed economic activity. Real gross domestic product (GDP) growth fell to 2.9% in FY20, from 6.8% in FY19 as major trade partners faced a recession, travel restrictions choked the tourism industry, and the sharp decline in world oil prices stifled foreign direct investment inflows. Furthermore, the recession abroad and loss of employment reduced remittance inflows. Meanwhile, the partial closure of businesses and industries in the country disproportionally hit low- and middle-income earners and raised the vulnerability of the poor. The pandemic pushed between 1.1 to 3.2 million people into poverty, in addition to the latest official estimate of 8.7 million. The presence of 1.4 million refugees in Uganda—Africa’s largest hosting country and third largest in the world—also added to the enormous pressure of delivering essential services during this crisis period.
The World Bank provided $300 million in budget support to help mitigate the economic impact of the pandemic and protect the poor and vulnerable population. The budget support is part of a larger package of support to Uganda’s National COVID-19 pandemic response and was coordinated with other interventions in the country, including in health, water and sanitation, agriculture, environment, private sector development and job creation. The project complemented and leveraged support from other development partners including a Rapid Credit Facility of $490 million from the International Monetary Fund (IMF) delivered in May 2020 to strengthen the foreign exchange reserves position and finance the national budget.
Aligning National Development Priorities and Development Aid Effectiveness
The Development Policy Operation (DPO) is aligned with the Government of Uganda’s Vision 2040 to transform Uganda into a competitive upper middle-income country. The DPO is also consistent with the third National Development Plan which aims for sustainable industrialization for inclusive growth, employment and sustainable wealth creation. Lessons learnt from the implementation of previous World Bank operations in Uganda as well as emergency DPOs in other countries informed the design of the operation. The preparation of the DPO also benefited from dialogues of the Local Development Partners Group that comprise heads of missions of multilateral and bilateral agencies. The operation also benefited from the guidance of other stakeholders, including the civil society institutions that focus on budget advocacy and others that focus on issues of trade, tax and development.
The Uganda Development Policy Operation (budget support) is comprised of two pillars:
Pillar One: Strengthening the crisis response and protecting the most vulnerable
This pillar aimed to support the health response by reducing the cost of necessary medical materials and equipment to prevent, manage and treat COVID-19; maintain critical utility services; protect the vulnerable and reduce the poverty impact of the crisis by supporting the most vulnerable and those most affected by the multiple crises facing Uganda.
Reforms under this pillar aimed to strengthen social safety nets to prevent the poor and vulnerable from falling deeper into poverty. It therefore supported the roll out of several social protection measures under this response package, including cash transfers to the elderly and temporary cash-for-work for informal sector workers in the main urban areas in the country and in flood affected districts. By strengthening safeguards for the welfare of children, including protecting them from violence, the operation aimed to ensure safety and continued access to education.
Pillar Two: Fast tracking economic recovery and debt sustainability
The aim of this pillar was to ensure that liquidity is provided to the financial sector through the Bank of Uganda; temporary relief provided to financially distressed businesses by postponing tax payments and restructuring of their loans with commercial banks; while also improving markets for agricultural inputs to raise productivity through use of the electronic-voucher system; and enhancing debt transparency to help manage public debt buildup in the future.
Reforms under this pillar provided temporary relief to financially distressed businesses to keep them from winding up or laying off workers. The reforms also supported farmers to withstand the economic impacts of the pandemic and recover quickly. Businesses significantly impacted by the Coronavirus outbreak have been exempted from paying import and excise duties, and value-added tax. The businesses have also been provided with access to affordable credit to continue running their operations and paying their employees.
These pillars were further supplemented by measures to protect children from violence and ensure their safe access to education.
Implementation of Actions and commitments under the DPO
As of February 15, 2021, progress on follow-on activities related to achieving the results of the prior actions and fulfillment of commitments under the Letter of Development Policy under this DPO remains mixed. Restrictions imposed due to COVID-19 may have affected some activities. However, given the criticality of the activities supported by the DPF in managing the pandemic and its effects, the overall progress on implementation of the program actions and meeting the commitments should have been faster. Key actions being followed up include providing funding to critical activities to save livelihoods of most vulnerable; quantifying the impact of tax relief measures supported by the DPO; re-aligning spending to levels committed to support social development (education and health), accelerating effort to benefit from the Debt Service Suspension Initiative and an independent audit of COVID-19 expenditures which will facilitate access to information and promote social accountability.
Expected Outcomes and Results by close of the program
A. Social safety net to protect the poor and vulnerable
- A temporary cash for work scheme will have supported an estimated 500,000 people nationally, once fully implemented. This support targets the informal sector workers in the main urban areas as well as the flood-affected districts in the country.
- The current senior citizen grant will have been expanded to 71 districts to provide income support to 200,000 additional elderly people, once fully implemented.
- A national single registry for beneficiaries of safety net programs has been established to improve targeting of social protection.
- Existing customers continued to receive water from the National Water and Sewerage Corporation and Umbrella Authorities and electricity services (Umeme) over the lockdown period between April and June 2020.
B. Stimulating a quick economic recovery, enhancing debt transparency and debt management
- Businesses in tourism, manufacturing, horticulture and floriculture with turnover of less than UGX 500 million ($ 136,300) will have been exempted at least UGX 6.5 billion of Corporate and VAT tax.
- The financial sector will have accessed extra liquidity to counteract the collapse in growth and rise in non-performing loans.
- An additional 20,000 farmers in 10 additional districts to those where the Bank’s Agriculture Cluster Development Project is currently operating would have accessed the e-voucher technology to access higher quality agriculture inputs and improve productivity and resilience
- Debt transparency has been enhanced with greater public access to data on total public debt, government guarantees, individual Public Private Partnerships, implicit contingent liabilities, including from legal proceedings, and domestic arrears with not more than a one-year.