Statement by Marc-Antoine Autheman at the Board meeting of May 20, 1997

International Bank for Reconstruction and Development 86842 International Development Association International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY EDS97-167 CONFIDENTIAL May 19,1997 Board Meeting of May 20, 1997 Statement by Marc-Antoine Autheman UGANDA - Country Assistance Strategy This CAS is convincing. I will organize my comments in line with the proposed agenda for Board discussion: II I believe that the proposed program fully reflects the stated objectiv~ of poverty reduction. What is striking, and augurs well for the future, is the congruence between the government's and the Bank's objectives. • I support the increased poverty focus of our investment portfolio; • As we discussed in the context of the HIPC Initiative, the composition of public expenditures in Uganda remains an issue. Indeed, the two fastest growing components in the budget have been security and parastatal subsidies. SAC conditionality attached to redirecting public expenditures to priority areas remains too weak ("increase budgetary allocations for agriculture research and extension, primary health and primary education at least at the rate of increase of nominal GDP"). We should aim at raising social expenditure above military expenditure. • Besides the level of spending, effective service delivery also matters. Findings of recent studies referred to in the CAS are indeed troubling in this regard: I therefore welcome the CAS's emphasis on improving the management of public expenditures and the service delivery, notably at the district level. 21 I support the CAS's emphasis on growth performances. • I am quite interested in the questions raised in paragraphs 43 and 44 on optimal revenue targets and on tax policy for achieving higher growth. Indeed, I found some contradictions in the CAS document: on the one hand, it advocates for further efforts to mobilize domestic revenue; indeed, the SACill includes a target for revenue to increase by one percentage point of GOP each year, on average; this makes sense to the extent that the government's capacity to spend effectively is enhanced. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  2 on the other hand, by recognizing that Uganda's growth will increasingly rely on a much higher private investment rate, it suggests that reducing taxation may be warranted, with a particular emphasis on reducing distortionary (for example, high tariff rates) or regressive taxation. • Another question not fully addressed in the CAS is the need for public infrastructure to support a higher private sector growth rate. Infrastructure projects, except for roads, are virtually absent from the lending program. Do staff consider that private sector financing is a credible alternative? Could we rely solely on IFC? 3/ As a matter of principle, I approve an increase in the IDA lending program in recognition of Uganda's strong performance. But I doubt whether it is sustainable: it would represent a doubling of our level of commitments if I refer to Annex 2; it supposes an increase in disbursements by 40% so as to avoid a ballooning of undisbursed balances; the size of future individual projects, most of them poverty-focussed projects and stand-alone capacity building projects, should be relatively modest compared to previous operations; our current portfolio includes a number of problem projects and half of ongoing projects are identified as "projects at risk". This suggests that primary emphasis should be placed on portfolio improvement efforts. 41 On the fourth question, I do not have the appropriate benchmarks to assess whether the proposed balance between lending and non-lending instruments is the right one. My sense, however, is that the relevance and the quality of non-lending services cannot be ensured if they are disconnected from our lending experience.