Uganda - Second Economic and Financial Management Project (EFMP II)

Report No. PID6478 Project Uganda - Second Economic and Financial... Management Project (EFMP II) Region Africa Sector Public Sector Management Project UGPA44679 Borrower Government of Uganda (GOU) Implementing Agency Ministry of Finance, Planning and Economic Development P.O. Box 8147, Kampala, Uganda Contact: Mr. Damoni Kitabire, Director, Budget Phone: 256-41-258698 Fax: 256-41-341397, 230163 Date this PID prepared May 20, 1998 Projected Appraisal date September 1998 Projected Board date January 1999 Country and Sector Background 1. Since 1986, the Ugandan government has begun the process of reversing the legacy of civil war, political instability and economic mismanagement between 1972 to 1985. Real GDP has grown at between 6-7T for over a decade and inflation has been in single digits for the last five years. Despite this good economic performance, per capita income still stood at only US$ 290 in 1996 putting Uganda among the fifteen poorest countries in the world. In addition, Government expenditures at around 18-19w of GDP are only partially financed by domestic resource mobilization of around 12t of GDP. 2. One of the goals of the IDA Country Assistance Strategy is to assist the Government in improving use of the scarce resources mobilized so that the effectiveness and efficiency of service delivery improves. The achievement of this goal needs to take into account the Uganda specific circumstances. These include: a substantial shift of service delivery responsibilities from central government to local governments which has not been matched by resource transfers; weak financial management systems; sectoral and local government planning with an insufficient focus on monitoring of outcomes and outputs; capacities from policy development through to implementation which are weak (i.e. insufficient managerial and technical skills). The Government is addressing the above issues through four reform programs: civil service reform, decentralization, sectoral reform and expenditure management reform. Project Objectives 3. In the context of the Third Structural Adjustment Credit, the Government and IDA agreed upon an expenditure management reform program which would improve the composition, quality and transparency of public expenditures. The project contributes to this objective, over the next three fiscal years by supporting the first phase of the expenditure management reform. Specifically, the objectives of the project are to: integrate the central and  local government planning and budgetary processes and support the decentralization of the development budget; introduce an Outcome-Oriented Budgetary process by strengthening expenditure management skills and commencing implementation of expenditure management information systems; and support monitoring and evaluation of the performance of the economy, poverty reduction and Government service delivery. Project description 4. The project will consist of three components: planning and budgeting; financial management strengthening; and performance monitoring and evaluation. 5. The budgeting and decentralization of development budget component will provide: assistance (including analytical work) to define and operationalize rules associated with the inter-governmental financial transfer system; support to the Budgeting Department in the Ministry of Finance to expand implementation of the Budget Framework Planning process to local governments; and regular publishing and dissemination of budgets and results achieved. 6. The financial systems improvements component will support: implementing legislative framework for improved financial management and the institutional arrangements to implement the legislative framework; preparation of financial management staff development plan and support to its implementation; strengthening and streamlining internal control systems; assistance to institutions involved with external audit (i.e. Office of the Auditor General) and audit follow-up (i.e. Treasury Inspectorate, OAG, Inspector General of Government and Public Accounts Committees at central and local government levels); development of the overall Government fiscal management system framework, definition of a chart of accounts for utilization by all levels of Government and definition of improved accounting, budgeting and financial information systems at the central and local government levels; and support to first phase of the implementation plan for improved information systems. 7. The performance monitoring and evaluation component will support: definition of an institutional framework including the relative roles and responsibilities of the Statistics Department/proposed Bureau, the Central Government ministries (in the pilot sectors) and the district level statisticians; the Statistics Department/ proposed Bureau in maintaining economic and poverty data systems; and National Service Delivery Surveys. Project financing 8. The estimated project cost would be US$ 23.0 million equivalent. Of the total project cost, IDA would finance approximately US$ 20.7 million equivalent. Parallel financing is being provided by other donors who have been participating in preparation missions including DFID and DANIDA. Project implementation 9. Implementation of activities under the project will be undertaken by mainstreaming project activities under the relevant departments/ ministries. Expenditure management reform is one of the activities included under the Public Service Reform 2002 program for which a program management structure is already in existence and will be utilized for co-ordinating project activities at a policy and technical level. The Director, Budget will be the Government's task manager for the EFMP II project. The Director, Budget will also be responsible for the first component; the Commissioner/ Treasury Officer of Accounts will be responsible for the second component; and the -2 -  Commissioner, Statistics Department, will be responsible for the third component. Project sustainability 10. The project's sustainability will be assured when the development of appropriate processes, information systems and institutions for expenditure management will only be sustainable when there are sufficiently qualified human resources to continue managing the processes at the end of the project. One of the key issues therefore relates to pay reform and other measures which will allow Government to attract and retain such skills. Lessons learned from past operations in the country/sector 11. There are several key lessons learned and incorporated into the project design from the Economic and Financial Management Project. These include: limited impact of Technical Assistance in the absence of available and motivated counterparts, the need to integrate the project implementation structure into the mainstream activities of the ministry; and appropriate sequencing of information systems development activities. Other lessons learned from the Institutional Capacity Building Project are: need for a common co-ordination mechanism for cross-cutting programs (i.e. civil service reform, decentralization and expenditure management reform); prioritization of overall program to a manageable set of activities and the need to have appropriate sequencing of activities among the cross-cutting programs; and prioritization of project activities within the context of the overall program. Environmental Aspects 12. The project is not expected to present any environmental risks and thus an environmental rating of "C" is proposed. Neither an indigenous peoples plan nor resettlement plan will be developed. Program Objective Categories 13. The project would primarily contribute to public sector management. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending June 5, 1998. - 3 -