Uganda - Second Reconstruction Program Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P -3295-UG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UGANDA FOR A SECOND RECONSTRUCTION PROGRAM April 29, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its eontents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Uganda Shilling (USh) US$1.00 : USh85.40 UShl.OO US$0.0117 (From October 1975 to May 1981, the Ugandan Shilling was tied to the IMF's Special Drawing Right (SDR 1.00 = U Sh 9.66) In June 1981, the Ugandan Shilling was devalued by about 90%; since then it has been floating. As a result, the US$/U Sh exchange rate is subject to change.) GLOSSARY OF ACRONYMS AEL : Agricultural Enterprises Limited CMB : Coffee Marketing Board CTB : Central Tender Board EAC : East African Community EADB: East African Development Bank LMB : Lint Marketing Board MPED: Ministry of Planning and Economic Development PEAC: Presidential Economic Advisory Committee UABT: Uganda Advisory Board of Trade UCB : Uganda Commercial Bank UDB : Uganda Development Bank UDC : Uganda Development Corporation UTGC: Uganda Tea Growers Corporation FISCAL YEAR July 1 - June 30  FOR OFFICIAL USE ONLY SECOND RECONSTRUCTION PROGRAM CREDIT AND PROJECT SUMMARY Borrower Government of Uganda Credit Amount SDR 62.9 million (US$70 million equivalent) Terms Standard Project Description:. The proposed credit would, over a nine-month period, finance the importation of agricultural inputs, spare parts and raw materials for industry and transport and other largely non-capital needs of high economic priority. It would supp~ort the Government's recovery program, in particular by: (a) increasing agricultural exports and domestic production in high priority areas, and (b) strengthening the Government's capacity to formulate and implement policies and programs in the following critical areas: (i) the planning and budgeting of foreign exchange; (ii) the pricing and marketing of export crops; (iii) the parastatal organizations; and (iv) external debt management. The principal risks are that security conditions in Uganda could again deteriorate, that the Government would be unable to implement its recovery program, and that shortfalls in financing could further reduce import levels and delay recovery. These risks have, however, been reduced by the Govern- ment's clear commitment to improving law and order and to its financial program, and its willingness to respond positively to the concerns of the principal donors. The Bank Group intends to assist the Government in addressing the problem of foreign * exchange shortfalls in the context of the forth- coming Consultative Group meeting. Estimated Period of Disbursements: July 1982 - September 1983 Rate of Return Not applicable Appraisal Report : None 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.  I  REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UGANDA FOR A SECOND RECONSTRUCTION PROGRAM 1. I submit the following report and recommendation on a proposed second reconstruction credit to the Republic of Uganda for the equivalent of SDR 62.9 (US$70) million on standard IDA terms, to help finance the Government's economic recovery program. PART I - THE ECONOMY 2. An economic mission visited Uganda in August 1981 and its report (3773-UG) dated 'March 31, 1982 has been distributed to the Executive Directors. A summary of social and economic data is given in Annex I. Background 3. Uganda achiev(ed independence in 1962 with a number of important advantages: a favorabla climate (with two rainy seasons in most parts of the country); fertile soils; a well-established indigenous smallholder sec- tor producing a widening range of export crops (coffee, cotton, tea, and tobacco) and an ample domestic food supply; a small industrial sector con- tributing exports of textiles and copper; a well-developed transport infra- structure; an exportable surplus of hydroelectricity; and one of the most advanced education systems in East Africa. Uganda's complement of skilled and trained manpower was greater than that of either Kenya or Tanzania. With those two countries it shared well-developed services: the railways, ports, an airline, posts and telecommunications. These favorable initial conditions, combined with competent economic management, resulted in a steady 2% per year growth in per capita GDP (1963-70), and an average sav- ings rate of 13%, which in turn permitted a high level of investment with- out inflationary pressure. A balance of payments current account surplus was maintained in most years, while central government revenue increased faster than recurrent expenditure, contributing a significant proportion of development outlays. 4. Uganda's political situation was less felicitous. Long-standing conflicts between the largest single kingdom (Buganda), the other kingdoms and the rest of the country continued during the 1960s, and became further complicated by ideological and social rivalries. This led to increasing dependence on the military, and in 1971, an army coup brought a military regime to power.  - 2 - The Economy Urder the Military Government 1971-79 5. From 1971 to 1979 (the year when the military government fell), the economy declined drastically: