Uganda - Technical Assistance and Second and Third Reconstruction Program Credit Projects

Documentof The World Bank FOR OFFICIALUSE ONLY RepoitNo. 8751 PROGRAM AUDIT REPORT PERFORMANCE UGANDA FIRST TECHNICAL ASSISTANCE PROJECT AND SECONDAND THIRD RECONSTRUCTION PROGRAMS (CREDITS 1077-UG,1252-UGAND 1474-UG) JUNE 13, 1990 OperationsEvaluationDepartment This document has a rstulcted distribution and may be used by recipients only In the performnce of their offcial duties. Its contents may not otherise be disclosedwithout World Dank authorization.  CURRENCYKgUIVALENTS (Averages) Nsme of Currency (Abbreviation)tshilling (U Sh) Window one Window Two 1971: US$1 ° U Sh 7.136 1975: US$1 - U Sh 7.412 1976: US$1 - U Sh 8.368 1977: US$1 D U Sh 8.266 1978: US$1 - U Sh 7.692 1979: US$1 - U Sh 7.469 1980: US$1 - U Sh 7.424 Jan. to May 1981: US$1 - U Sh 7.868 June to Dec. 1981: US$1 - U Sh 80.18 1982: US$1 - U Sh 94.05 258.40 (from August) 1983: US$1 - U Sh 153.86 276.40 Jan. to May 1984: US$1 - U Sh 270.64 313.39 June to Dec. 1984: US$1 - U Sh 423.32 1985: US$1 - U Sh 674.62 Jan. to May 1986: US$1 = U Sh 1479.8 May to July 1986: US$1 - U Sh 1400.0 5000.0 Aug. to Dec. 1986: US$1 - U Sh 1400.0 Jan. to April 1986: US$1 - U Sh 1470.0 May 1987: US$1 - U Sh 60.0 ("new" shilling) ACRONYMS CTA - Chief Technical Advisor CTB - Central Tender Board MPED - Ministry of Planning and Economic Development OED - OperationsEvaluation Department PCR - Project or Program Completion Report PEAC - Presidential Economic Advisory Council PPAR - Program Performance Audit Report UDB - Uganda Development Bank UNDP - United Nations Development Program FISCAL YEAR Government: July 1 - June 30  FOR OMCIAL USEONLY PERFORMANCE PROGRhM AUDITREPORT UGANDA FIRST TECHNICALASSISTANCEPROJECTAND ANDTEIRDRECONSTRUCTIOR SECOND PROGRAMS (CREDITS1077-UG,1252-UGAND 1474-UG) TABLE OF CPNTENTS Pare No. PREFACE ........................................................... i BASICDATA SHEETS ................................................ iii EVALUATIONSUM2ARY ................................................ ix I* BACRGROUND , . 1 I........... EconomicBackground .... .. ... ............ *...... .. I....... 1 Experience with the FirstReconstruction Credit .......... 3 The UNDP PlanningAssistanceProject ..................... 5 11. THE TREE CREDITS E6 The FirstTechnicalAssistanceProject ................... 6 Background*.*#.* ........................... 6 Objectives ....................... 7 Description *..*......... ... ..... ..... ............... 7 PerceivedRisks ...... .. ......................... .. .. 8 a.. Tmplementation .......................................... 0000000 8 The Second TechnicalAssistanceProject ................ 4, 9 TheSecond Reconstruction Proaram ...... .................. 10 Packground ........ .. .. ... ...... .. ..... ... ........... 10 Objectives ............................. 11 Descreption ............................. 12 PerceivedRisks ............................... 12 Implementation ........... 12 The Third ReconstructionProaram ...... ................... 14 Background.................................... 14 15 Objectives................................................... Description......................................... 15 PerceivedRieks9 ................................. 16 Implementation 16 ................................................. III. TECHNICALASSISTANCEFOR INSTITUTIONAL DEVELOPMENT DURRING RECONSTRUCTIONLENDING .............................. 17 Introduction.................................................... 17 Objectives,Strategyand Programs 18 i....................... ocumenthas a restricteddistribution dThis and may be used by recipientsonly in the performance duties.Its contents maynot otherwisebe disclosedwithoutWorldBankauthorization. of their official TABLE OF CONTENTS (cont'd) Paxe No. III. ASSISTANCEFOR INSTITUTIONAL TECBNICAL DEVELOPMENT DVRINGRECONSTRUCTION LENDING (cont'd) The Impact of Technical Assistance ....................... 19 Success in BreakingBottlenecks ........................ 19 Strengthening Institutional Capacity .................. 19 Agreeingon Objectives .... ....... .... . 19 Design Improvement............................ *........ 20 Supervision Needs ...*.........* .. ... *.. 20 Problemswith the ParastatalAccountingStudy .......... 21 Diluted TrainingEfforts ..... ................. . 21 The Imvacton BuildinaInstitutional Cayacitv ............ 21 The AgriculturalSecretariat . .......................... 22 The Uganda DevelopmentBank ............................ 23 The Ministryof Finance (CentralTender Board andthe Treasury) ......... 0.*."".2....... 0............ 23 The Ministryof Planningand EconomicDevelopment ...... 24 Summary and Conclusions................ 4*4...44. 4...... 26 Findings .............0t*0....... ........... 26 Lessons . .......... .............. 4.4.*.4.......... 26 IV. ECONOMIC STABILIZATIONANDRECONSTRUCTION DURING POLITICALINSTABILITYto ..... .*..................... 4 29 Introduction................... ............ 4444.4444444444 29 EconomicPerformancein the 1980s ..... ................... 29 Major Issues ....................................................... 32 Introduction........................................ 32 The Role of EconomicStabilization in Reconstruction ... 33 Debt ManagementStrategy .... 44.444.44444....4 44444 4......4 35 Diversification of Exports ........... o................. 36 Lessons *444444444444444.....44 4....... *****a* 37 APPENDIX: Historical Background- 1962 to the Present 4.44 444...... 39 PROJECTCOMPLETIONREPORT First TechnicalAssistanceProiect (Credit 1077-UG) ...... ......... 43 I. INTRODUCTION AND BACKGROUND.... 4.................... 43 II. ORIGIN AND NEED FORTHE PROJECT ........................... 44 III. PROJECT IDENIMFICATION,PREPARATION ANDAPPRAISAL o....... 45 IV. PROJECTOBJECTIVES AND DESCRIPTION........................ 45 V. PROJECT INPLEJENTATION ................. .... 4to4...4444444 46 VI. OVERALL PERFORMANCE AND INSTITUTIONAL DEVELOPMENT ......... 48 VII. IDA PERFORI4NCE 44444 44....................................... 49 VIII. SUMMARYAND RECOMMENDATIONS ................... ........... 50 TABLE OF COUTEUWS (cont'd) Page so, Annexes 1: List of Subprojects by Component A) Project PreparationStudies o........................... 51 B) ExpatriateStaff Assistance ............................ 52 C) Training ......... ...................................... 53 2: Summary of Project Preparation Studies .................... 54 3: Summary of ExpatriateStaff AssistanceSubprojects........ 61 Table: Project Costs - Estimatevs. Actual ....................... 75 PROGRAM COffPLETION REPORT The Second and Third Reconstruction Programs (Credits 1252-UG and 1474-UG) ........ ..... ..... ........ ... ........ 79 A. Background *********e****s***** e.**............... ....... 79 B. Implementation of the Program Supportedby the Second Reconstruction Credit ........... ........................ 80 C. Implementation of the Program Supportedby the Third Reconstruction Credit ... .. ... . *.. .. ...... . ..... 4.... ... . . 80 D. Utilizationof Funds Providedby the Credits .............. 81 E. Impact on the Economy ..................................... 82 P. Conclusion ************...........**********.*e*****...... 82 Tables 1: Events Related to Implementation of the Second and ThirdReconstruction Credits ............................ 83 2: Implementation of the Program Supportedby the Second Reconstruction Credit ..... .............................. 84 3: Implementation of the Program Supportedby the Third Reconstruction Credit .0... ...... . ... ................. ... . 85 4. Utilizationof Funds Providedby the Reconstruction II Credit *********************....*... ***.**.*......t...oo 87 5. Utilizationof Funds Providedby the Reconstruction III Credit **..... .******........*.*****.... ... *....a..s*** 88 6. Balance of Paymentsand SelectedOther Indicators ......... 89 7. Real Growth Rates, Projectedand Actual, 1982-85 .......... 90 ATTALCENEETS 1. CommentsReceivedfrom the Borrower ....................... 91 2. CommentsReceivedfrom CIDA (and the Bank's Reply) ........ 93  PROGRAM PERPORM&NE AUDIT REPORT FIRST TECHNICALASSISTANCEPROJECT AND SECORD ANDTHIRD RECONSTRUCTIONPROGRAMS (CREDITS1077-UG,1252-UGAND 1474-UG) PREFACE This is a Program Performance Audit Report (PPAR) on the First Technical Assistance Project and the Second and Third Reconstruction Pro- grams, involving the following IDA Credits: Date of Board Date Closinft Date of Final Credit No. Amount Arnroval Oritinal Final Disbursement (US$N) 1077-UG 8.0 12/02/80 12/31185 12/31/85 09/08186 1252-UG 70.0 05125182 12/31/83 06/30/85 03/12/86 1474-UG 50.0 05115184 09130/86 09/30/87j/ 08/25/86 Cofinancing for the Second Reconstruction Program was provided by the Netherlandsand Canadian Governmentsas grants of US$4.9 million and US$4.0 million which were administeredby the Bank. Cofinancing for the Third Reconstruction Program vas provided by the Netherlands Governmentas a grant in the amount of DPLs 20.0 million, again administered by the Bank. The PPA was prepared by the Operations Evaluation Department (OED) and the two Project/Program Completion Reports (PCRs) were prepared by the Africa Regional Office of the Bank. The PPAR is based on the attached PCRs, the Staff Appraisaland President's Reports, sector and economicreports,the credit documents, the summaries of discussionsof the Executive Directors' meetings at which the projectswere considered, a study of the project files, and discussionswith Bank staff. An ORD mission visited Uganda in October 1989 and discussedthe effectiveness of the Bank's assistancewith Government officialsand representatives of the banking and business communities. Their kind cooperation and valuable assistancein the preparation of this report is gratefully acknowledged. The PCRs provide a satisfactory account and assessment of the project experience. The PPAR elaborates on the institutionaldevelopment achievementsof the three projects and a parallel UNDP Planning Assistance Project and on several issues relating to economic stabilizationand recon- struction. III was to 1/ The one-yearextensionin the ClosingDate for Reconstruction allow the parallel grant from the Netherlands Government to be disbursed.  - Li - The draft PPAR vs. *sut to the Borrower and the Jetberls4ds and Canadian Governments for comments. The comments received from the Borrower and CImDi (including the Bank'sreply) are reproduced as Attachments to the PPAR.  iii - P,EpFORMANCE PROGRAM AUDIT REPORT PROJECT FIRST TECHNICAL ASSISTANCE- (CREDIT 1077-UG) BASIC DATASHEET CREDIT POSITION A (Amounts in US$ Million) As of Apr. 30. 1990 OriinaL1 Disburse Cancelled Laid Outstandins Credit 1077-UG 8.0 6.7 0.0 0.0 8.4 CUMUlATIVE ESTIMATEDAND ACTUAL DISBURSEMENTS Appraisal Estimate (US$M) 0.30 1.90 4.80 7.20 8.00 8.00 8.00 Actual (US$M) 0.0 0.06 0.43 1.80 4.64 7.60 8.00 Actual as % of Appraisal (%) 0 3 9 25 58 95 100 Date of Final Disbursement: September 8, 1986 PRO,JEC DATES Orid nal Revised/Actual First Mention in Files n.a. 07/79 Government'sApplication n.a. 07/79 Negotiations n.a. 04/80 Board Approval n.a. 12/02/80 Signing n.a. 01/21/81 Effectiveness 04/21/81 03/26/81 Loan Closing 12/31/85 12/31/85 STAFF INPUT (staffweeks) Preappraisal 4.8 - - - - - - 4.8 Appraisal 8.0 - - - - - - - 8.0 Negotiations 2.8 3.1 - - - - - - 5.9 Supervision - 1.5 11.9 10.7 10.9 7.5 0.5 1.0 44.0 Other -. L6. - 0.2 03 - -L Total 17.2 4.6 12.1 11.0 10.9 7.5 0.5 1.0 64.8  - i {v MISSION DMT No. of No. of Staff Date of Mont/Year Weeks Person Weeks Loort Preparation/ Appraisal 12/79 1.6 2 3.2 01/08/80 SupervisionI 10/81 0.3 1 0.3 10/29/81 SupervisionII 03/82 0.7 1 0.7 05/06/82 SupervisionIII 10/82 1.3 1 1.3 01/10/83 SupervisionIV 04/83 1.4 1 1.4 05/09/83 SupervisionV 06/84 1.4 1 1.4 SupervisionVI 06/86 2.3 1 2.3 OTHER PROJECTDATA Borrower: Republicof Uganda ExecutingAgency: Ministryof Planningand EconomicDevelopment Follow-onProJect: Project: Second TechnicalAssistanceProject Credit No.: 1434-UG Amount: US$15.0 million Board Date: December22, 1983 La Difference in US$ amounts of originalcredit and finAl disbursement due to fluctuations in dollar equivalentsto SDR. Credit was fully disbursed.  PRORAI PERFORMANE AUDIT ARMPR TGANDA & Cp REONSRUCI0N PRQg= (CREDIT1252-UG) BASIC DATA SHT CREIT POSITON La (Amounts in U1$ Million) As of Apr. 30. 1990 orlsin l Disbursed Cancelled LM1 Mutsun4LUS Credit 1252-UG 70.0 65.0 0.0 0.0 82.1 CUMULATIV ESTIMATED -ANDACTUAL DISBURSEMENTS AppraisalEstimate (US$ N) 56.0 70.0 70.0 70.0 Actual (US$ M) 7.9 34.6 57.0 65.0 La Actual as % uf Appraisal (8) 14.0 49.4 81.4 92.9 Date of Final Disbursement: March 12. 1986 PORMDATES Ori£ina1 Re lisd/Ztual InitiatingMemorandum n.a. 10/06/81f Memorandumof U lerstanding n.a. 04/82 Negotiations n.a. 04/15/82 Board Approval n.a. 05/25/82 Signing n.a. 06/14/82 Effectiveness 09/14/82 07/28/82 Loan Closing 12/31/83 06/30/85 STAFFINPUi (staffweeks) Preappraisal 1.4 1.0 0.9 - - - -3.3 Appraisal - - 24.1 - - - - 24.1 Negotiations * - 5.3 - - . 5.3 Supervision - - 1.3 20.3 17.6 8.3 2.3 0.5 50.3 Other 1 . 3. 20 -.- -82 0 -8. Total 1.4 1.0 34.2 20.3 17.6 8.3 2.3 0.5 85.6  * vi - MISSION DAT No. of No. of Staff Date of eut2ham Weeks Persons Weeks Wmon Preparation 08/81 n.a. n.a. n.a. 10/06/81Z Appraisal 01/82 n.a. n.a. n.a. 04/29/82& SupervisionI 06/83 4 2 8 06/30/83 SupervisionII 01/84 2 2 4 03/09/84 SupervisionIII 07/84 2 2 4 08/30/84 OTHER PROGRAM DATA Agency: Republicof Uganda Borrower/Executing Follow-on Proggam: Project: Credit Third Reconstruction Credit No.: 1474-UG Amount: US$50.0 million Board Date: May 15, 1984 X Differencein US$ amounts of originalcredit and final disbursement due to fluctuations in dollar equivalentsto SDR. Credit was fu'ly disbursed. ik Issues Paper dated October 6, 1981. Mc President'sReport.  - vii - AUDIT REPRT PROGIM PERFORM-NCE THIRD RECONSTRUCTION RGA (CREDIT 1474-UG) BASIC DATASHEET CREDIT POSITION Jg (Amountsin US$ Million) As of Apr. 30. 1990 Original Disbursed Cancelled Reaid Outstandng Credit 1474-UG 50.0 50.3 0.0 0.0 61.6 CUMULATIVEESTIMTED AND ACTUAL DISBURSENTS FYB m 6 Y8 AppraisalEstimate (US$ M) 40.0 50.0 50.0 Actual (US$ M) 13.9 47.6 50.3 A Actual as * of Appraisal (%) 34.7 95.2 100.6 Date of Final Disbursement: September19, 1986 PROGRIM DATES Original Revised/Actual InitiatingMemorandum n.a. 10/18/831k Memorandumof Understanding n.a. 04/30/84 Negotiations n.a. 13/28/84 Board Approval n.a. 05/15/84 Signing n.a. 06/08/84 Effectiveness 09/05/84 11/30/84 Loan Closing 09/30/86 09/30/87 STAFF INPUTS (staff weeks) FY84 FY85 FY87 FY88 TOTAL Preappraisal 3.1 - - - - 3.1 Appraisal 25.4 - - - - 25.4 Negotiations 8.9 - - - - 8.9 Supervision 4.8 16.3 7.3 2.4 0.5 31.3 Other - - O.9 Total 42.2 16.3 7.3 3.3 0.5 69.6  - viii - MISSIN DAA No. of No. of Staff Date of Montha Wear Wes Persons Weeks Zenom Preparation n.a. n.a. n.a. n.a. l0/18/83& Appraisal 10/83 n.a. n.a. n.a. 04/19/84 SupervisionI 07/84 3 1 3 07/27/84 SupervisionI 05/85 2 3 6 05/14/85 OTHERPROGRAM DATA Borrower/Executing Agency: Republic of Uganda Follow-onProg&am: Project: Economic Recovery Program Credit No.: 1844-UG Amount: US$65.0 million t£ Board Date: September15, 1987 , Difference in US$ amounts of original credit and final disbursement due to fluctuations in dollar equivalents to SDR. Credit wss fully disbursed. ,k Refers to Initial Project Brief. I& Five supplements totalling $65.0 million have been approved,the most recent being December18, 1989.  - ix - PERFORMANCE PROGRAM AUDIT REPORT ASSISTANCEPROJECTAND FIRST TECHNICAL SECOND PROGRAMS ANDTHIRD RECONSTRUCTION (CREDITS1077-UG,1252-UGAND 1474-UG) SUMMARY EVALUATION Introduction 1. During the 1960s, followingits independence in 1962, Uganda enjoyed steady growth as a result ot good economic policies and relative price stability. The turmoil began with the military coup in January 1971 when Major General Idi Amin overthrew Dr. Milton Obote. By the time Amin went into exile in 1979, Uganda's physical and social infrastructure had been severelydamaged. Given the destructionof the economy in the 1970s, Uganda in 1980 needed to restore macroeconomic stability and reconstruct and rehabilitateits economic and institutional infrastructure (PPAR, paras. 1-5 and Appendix). 2. The Bank restartedits lending operationsin Uganda in 1980 with the First Reconstruction Credit, followedby Reconstruction II in 1982 and Recon- structionIII in 1984. These programswere supported,inter alia, by a UNDP PlanningAssistanceProject,begun in 1980 and still going on, and two tech- nical assistanceprojects,approved in 1980 and 1983. This PPAR reviews the experience with TechnicalAssistanceI and Reconstruction II and III from two distinct points of view: the impact of the technical assistance provided under the three Credits and the impact of the reconstruction program. Obiectives 3. The objectives of the First Technical Assistance Project were to assist the Government in preparing suitable development and rehabilitation projects as well as in strengtheningrelevant ministries and agencies in planning and project preparation(PPAR, para. 25). The objectivesof Recon- structionII were to increaseagricultural exports and domesticproductionin high priority areas and to strengthenthe Government's capacity to formulate and implement policies in areas critical for Uganda's economic recovery (PPAR, para. 39). The objectivesof Reconstruction III were similar: to provide financing for essential imports, to continue to support policy and institutional reforms, and to generatecounterpartresources for the Govern- ment budget (PPAR, para. 53). Exnerience Implementation 4. Technical Assistance I financed seven project preparation studies, all of which led to Bank-financed projects,eleven technicalassistance sub- projects involving expatriate staff, and a number of training fellowships and seminars. After a slow start, the Credit was fully committed in early 1985 and disbursed in September 1986, nine months after the originalClosing Date (PPAR,paras. 30-34). 5. Reconstruction II was in two tranches. It was intended to be fast disbursing,but the agreed allocationproceduresresulted in serious delays. The second tranche,which was expected to be released in September 1982, was formally released only in November 1983, in part because of delays in dis- bursing the first tranche and in part to seek improvementsin two programs which were release conditions. The Closing Date was extended by 18 months and the Credit was fully disbursed almost two years later than originally expected. The proceeds were expended, as expected, on imports of spare parts, capital goods and raw materials,primarily for the agriculturaland industrialsectors (PPAR,paras. 44-50). 6. ReconstructionIII was implementedwith far greater ease then the previous ones due to the adoption of better allocation procedures. The Credit had been fully allocated by April 1986, more or less on schedule. However, the effectivenessof the cofinancing grant from the Netherlands Governmenthad been seriouslydelayed,and to ensure its rapid disbursement, proceeds from the Credit were reallocatedto it. The Credit proceedswere expendedon imports of spare parts and raw materials; capital equipmentand agriculturalinputs were excluded as they were being financed under other Bank projects (PPAR,paras. 59-64). Results 7. The technicalassistance providedunder the three Credits (and under the UNDP project) did finance studies which led to new Bank projects and it did help ease some institutional bottlenecks to the rapid disbursement of the reconstruction credits (PPAR, paras. 72-73). It also helped build institu- tional capacity in organizations vital to economic planning and management (PPAR, paras. 74-75). However, the results of a study which absorbed a quarter of the proceedsof TechnicalAssistanceI were never used, and repeat studies are now being funded under a new Bank project (PPAR, paras. 82-83). 8. The results of Reconstruction II and III are more difficult to assess. There was some improvementin Uganda's economy in the early 1980s, but this was reversed in 1984. The economic uncertainty generated by the changes in political leadership in the mid-1980s makes it difficult to separate the effect of the reconstruction program from the impact of politicalinstabilityon the economy (PPAR,paras. 119-126). Sustainabilitv 9. Surprisingly,in spite of the fact that the primary purpose of the technical assistance efforts was not institution building, a number of successesoccurred and are still in evidence. In this sense, the resultsof Technical Assistance I are being sustained (PPAR, paras. 74-75, 90, 96 and 115). The very limited results of the reconstruction program, however, were not sustained(PPAR, para. 120).  - 2Ci - Findintsand Lessons 10. The First Technical AssistanceProject was successfulin facilita- ting the flow of existing and future Bank funds to Uganda and in long-term institutional development (PPAR, para. 113). However, Reconstruction II and III were not successfulin achieving sustained recovery of the economy (PPAR, paras. 128-129). 11. A number of lessons emerge from the experience with the technical assistanceefforts. (a) Agreement among Bank staff about the objectives of technical assistancewould lead to a more focused project design and imple- mentation. (b) A systematicdiagnosticmapping effort should be undertaken in designingtechnicalassistanceprojectsto identifytrouble spots and weak organizations. (c) The Bank needs to structure its supervision efforts better when dealing with multiple, interrelated projects. (d) Training activities should not be diluted among a large number of organizationsas this prevents developinga criticalmass of trained staff anywhere. (e) Col- laborative relationships between expatriate advisors and local officials, especially including local counterpart training, are necessary to achieve sustained institutional development. (f) Local salaries and other incentives must be sufficientlyattractiveto ensure that trainingwill have an impact on institutionaldevelopment. (g) Macro policy measures advocated by the Bank and the IMF may weaken the very organizationsnecessary to spearhead reconstruction or adjustment(PPAR,para. 117). 12. The experiencewith Reconstruction II and III indicates that the results would have been improvedif the Bank's program had been accompanied by: (a) an economic stabilization program; (b) a debt management strategy; and (c) appropriatestructuraladjustmentpolicies. While inclusionof these policy measures in Reconstruction I and II might have been premature,given the emergencynature of those two Credits, there appears to be little reason why they could not have been incorporated into ReconstructionIII, thus fur- ther complementing the IMP's efforts in these directions(PPAR, para. 141).  PROGRAM AUDIT REPORT PERFORMANCE UGANDA FIRST TECHNICALASSISTANCEPROJECTAND SECOND PROGRAMS ANDTHIRD RECONSTRUCTION (CREDITS1077-UG,1252-UGAND 1474-UG) I. BACKGROUND EconomicBackground 1. In 1962, at the time of its independence, Uganda was considered"one of the most promisingeconomiesin Sub-SaharanAfrica".1 It was well endowed with human and natural resources. It had: (a) one of the most advanced education systems in East Africa and a large number of skilled and trained manpower; (b) ample ava'labilityof fertile land with two rainy seasons in most parts of the country and soil conditions favorable to agricultural growth; (c) a wide range of export crops (coffee,cotton, tea and tobacco); and (d) a vell developed manufacturingsector and transportationsystem. Uganda's rich natural and human resources,coupled with good economic poli- cies and relative political stability,resulted in high growth in GDP and relative price stability in the 1960s. Between 1963 and 1970, Uganda's GDP grew at nearly 6% per annum, prices were relatively stable, the external account was in surplus in most years, and the budget deficit was under control with Government revenue increasing faster than its recurrent expenditure. 2. However, the 1970. witnessed a sharp deteriorationin the economy. Along with poor economic policies, Uganda was devastatedby political tur- moil, civil unrest and economic and military wars. 2 The Government ran a large budget deficit which exceeded601 of the recurrentrevenue for most of the 1970s; the exception was in 1978 when Government revenue, which was highly dependent on export taxes on coffee, increased due to the boom in world coffee prices. In general, however, Government revenue fell in the 1970. from 14% of GDP in 1971/72 to 9% in 1975176. The macroeconomic imbalances along with low agricultural producer prices and other restrictive economic policies resulted in increased parallel market activities called "magendo".3 1/ See the President'sReport on the Second EconomicRecoveryCredit, Report No. P-5224-UG, January 8, 1990, para. 2. Also see the earlier President's Report on the Second Reconstruction Program, Report No. P- 3295-UG,April 29, 1982. 2/ For details on the changing political situation from independenceuntil the present, see the Appendix: "Historical Background - 1962 to the Present.' 3 Magendo has been described as taking many forms: smuggling, under- invoicingof exports, over-invoicing of imports,preferential allocation of foreign exchange,resale of imports and domesticallyproducedgoods at official prices, the exploitationof "choke points" in the distribution systems,bribery and theft. See Report No. P-3295-UG,op cit, page 2. 3. The political turmoil in Uganda began with the military coup in January 1971 when Major General Idi Amin took over the Government from Dr. Milton Obote. During the "economicwar" in 1972, the nationalizations and expropriationsthat startedunder Obote were intensifiedand most of the Asians, mainly entrepreneurs,were expelledfrom the country. The resulting uncertaintiesabout property rights discouraged private sector investment. Real investment fell by nearly 10Q per annum between 1973 to 1980. The deterioration in the financial and business environment, coupled with shortage of foreign exchange, led to reduced capacityutilization. A large number of industriesoperated at less than 10Z of their installedcapacity. By the time Amin went into exile in 1979, Uganda's physical infrastructure (e.g., transport, telecommunications, power and water supply) and social infrastructure had been severely damaged by over a decade of neglect and destruction associatedwith civil wars and mismanagement. 4. The poor economic policies and the political turmoil was reflected in negative growth rate in GDP throughoutthe 19708. Real GDP fell annually by nearly 41 between 1973 and 1980. The share of exports and imports in GDP fell from 26 and 241 in 1965 to a low level of 1.9 and 2.61, respectively,by 1980. By 1978, the productionof export crops had fallen to 401 of its 1970 production level. 5. Given the seriousmacroeconomicimbalances,uncertain financialand business environmentand the destruction of the economy in the 1970s, Uganda in 1980 needed to restore macroeconomic stability and reconstruct and rehabilitate its economic and institutional infrastructure. Economic stabilization(e.g., reduction in fiscal deficit, lower inflation and com- petitive but stable exchange rates) was essentialto the restorationof the financialand business environment. The Governmentat the same time needed to establishthe credibilityof economic stabilization, i.e., the stabiliza- tion program needed to be sustained,to improve the responsiveness of the private sector. A major source of structural weakness in the fiscal policy of the Governmentwas its heavy reliance on coffee exports for its revenue (coffeeaccountedfor more than 90% of total exports),and this needed to be addressed, soon after the economy made some recovery, along with rationalization in public expenditure. Uganda also sufferedstructural weak- ness in its balar"e of payments,again due to its relianceon coffee exports. 6. It was, thus, importantthat any recoveryprogram not be limited to increasedcapacityutilizationand reactivation of old (import substituting) industriesbut that new and competitiveindustrieswere encouragedto boost and diversify exports. Liberalization of the trade regime and reduction in the restrictiveness of the supply-sidepolicieswere essentialto increasing efficiency in the domestic sector. The reconstruction program, therefore, needed to be undertakenalong with the structuraladjustmentof the economy. 7. The Bank4 restarted its lending operations in Uganda in 1980 with the First ReconstructionCredit (referredto hereinafteras Reconstruction I and described in paras. 8-15). That operation was aimed at restoring the 4t The term "Bank" is used throughoutthis PPAR to refer to both the Bank and the Association. physical and institutionalinfrastructure, increasing capacity utilization and encouragingexports by providing foreign exchangeto finance the imports of essential capital and intermediategoods and raw materials. The Bank followed Reconstruction I with two other reconstruction programs which are reviewed in this PPAR: Reconstruction II in 1982 and Reconstruction III in 1984. These programs were supported by a UNDP Planning Assistance Project (described in paras. 16-21),by two technicalassistanceprojectsapproved in 1980 and in 1983 (the first is reviewed in this PPAR) and by a 1982 industrial rehabilitation project and a 1983 agricultural rehabilitation project. Experiencewith the First Reconstruction 5 Credit 8. This Credit, in the amount of US$72.5 million including a US$17.5 million participation by the Netherlands Government,was approved by the Executive Directors in February 1980 and became effective in May 1980. It was the first Bank project in Uganda since 1971. The Credit was supplemented by a Special Action Credit (equivalent to about US$20 million at the time of agreement),a grant of Can$3.0 million (equivalent to about US$2.6 million) from the Government of Canada, and a loan of US$5.0 million from the OPEC Fund. The total financing package was, therefore, some US$100 million equivalent. 9. The program had three objectives: (a) to provide a quick-disbursing source of assistanceto help meet Uganda'surgent short-termforeignexchange needs; (b) to svrportthe revival of the productivesectors of the economyby reestablishing tae flow of essential imports of inputs, and thus lead to increasesin the output of agricultural export crops and basic consumergoods for domestic consumption; and (c) to support the Government's reconstruction program by strengthening the capacityof the Governmentto carry out further policy reforms. The Credit had fairly limited policy goals, reflectingthe emergency nature of the situation. It financedthe importationinto Uganda of essentialcapitaland intermediate goods and raw materials. 10. During preparation and appraisal of the program the Bank's staff concentratedon three key policy areas: (a) the need for a satisfactory overall economicand social policy frameworkto guide reconstruction; (b) the and (c) the need for firm steps to be taken to restore fiscal accountability; need to deal promptlywith the distortionin the exchangerate. The Bank was generally satisfied with the progress made in dealing with the first two subjects, but gradually hardened its position on the exchange rate issue during the months precedingnegotiations. In the end, the Governmentagreed to a tranching arrangementwith the second tranche tied to exchange rate action. 11. Almost immediately after the Credit was declared effective, the Governmentwhich had drawn up the reconstructionprogram and negotiatedthe financing package was overthrownby a Military Commission,and on May 23, 1980 the Bank informallysuspended disbursementsunder all effective credit agreements. This poor start heralded a long and difficult implementation 5/ The experiencewith Recon-:ructionI (Credit983-UG) is reviewed in PPAR No. 5703, dated June 12, 1985.  - 4- periodfor the program. A year later,in June of 1981,the OboteGovernment that was elected in December 1980 adopted a comprehensive economic and finan- cial recovery program which included a major devaluation of the Uganda shilling. As a result, the Bank agreed to release the balance of the financing package, including the second tranche. 12. It took anotherfull year, until June 1982, for the Credit to be fully committed and yet anotheryear, until June 1983, for it to be fully disbursed. In view of this, the program quite clearlyfailed to meet its originalintention of supportingthe first stage of the Government's 1979 reconstructionprogram,envisaged as lastingsix months,as nothingwas dis- bursedduringthis period.6 Nor did it achieveits more generalobjective of providinga quick-disbursingsourceof foreign exchangesince it took a full three years to disbursethe Credit comparedwith the four months originally expected. 13. The main reason for the slow rate of disbursement, apart from the initial informal suspension, was the procurement and disbursement procedures followed under the program. A rapid disbursement of a program loan or credit is normally achieved by separating procurement and disbursement procedures, that is to say, by using the loan or credit proceeds to reimburse the cost of importsprocuredunder previously approved contracts. However, in this case it was decidedto tisburseonly againstgoods procuredunder new contracts approved afterthe Creditwas approved. Two factors seem to have led to this decision. The firstwas the need to exercise some degreeof control over the use of the proceedsof the Credit--both to direct foreignexchangeto the highest priority uses as well as to minimize misdirection or misuse of imported goods. The secondwas the fear that theremight not be an adequate flow of importseligiblefor reimbursements. 14. A secondmajor goal of the program was to facilitate the revivalof productive sectorsand therebyincreaseexportsand the supply of consumer goods. Some progresswas made in these areas in the early 1980.,though it is difficult to know how much of this progressis attributableto Reconstruc- tion I. However, production was criticallyconstrained not only by the scarcity of foreignexchange but also by the shortageof many other factors, such as local transport, services, financeand management, which the program was not designed to address. 15. Perhaps the most valuableachievement of Reconstruction I was in supporting criticalpolicy decisions both beforeCredit approvaland after- wards. This and subsequent reconstruction credits providedthe Bank with a means to supportand encourage the agentsof changewithinUganda. It helped to establish the Bank's credibility with the new Governmentand providedan opportunity to initiatea dialogueon a wide range of economicpolicy and management decisions. 61 The first phase of this programwas designedto restorethe production and sale, through 'fficial channels, of export cash crops (coffee, cotton,tea and tobacco)and to re-establish vital Governmentservices. The secondphasecovereda medium-term investment programdirectedat the rehabilitationof key productivesectorsand the country'sinfrastructure to the levelwhichprevailed in the 1970s.  -5- The UNDP Plairini Assistance Proiect 16. The President'sReport for Reconstruction I noted the steps the new Government was taking to, inter alia, re-establish machinery for effective medium-term planning. These centered around the strengthening of the Ministry of Planning and Economic Development (HPED) so that it could carry out its central role of reviewing and approving rehabilitation and develop- ment projects submittedby the other Ministries. The Bank was to assist in these efforts by acting as Executing Agency for a UNDP-financedPlanning AssistanceProject. This project was seen by the Bank as a critical element of support for the Government'sreconstruction effort, and the assumptionof its successful execution underlay much of the Bank's planning. 7 It is therefore appropriateto briefly review thia project's progress so that the results of the other projects that are the main subjects of this review can be better understood. 17. Agreement to assist in preparing the UNDP project was reached in early 1980. The initialpurposewas to identifymore preciselythe nature of the technical assistance required by MPED so that it could function more effectively. At the same time, the preparatory assistanceproject provided urgently needed expatriate assistance in development planning, transport economics and industrialeconomics. This phase involved the provision of a Chief TechnicalAdviser (CTA) and two others,plus funds for training,office equipment and vehicles, in recognitionof the severe understaffingof the Ministry and its need for basic supplies. 18. In part because of the unsettledconditionsin Uganda, it took until January 1981 to recruit the CTA; the industrialadviserwas recruiteda month later. The transportadviser could not be recruiteduntil two years later, in January 1983, by which time the industrialadviser'scontracthad expired. In the meantime, the needs of the Ministry had been defined and the formal Project Document signed. The objective of the project remained the sames "to strengthenMPED to enable it to carry out its responsibility for long- term planning in Uganda including the elaboration of a national planning methodology and establishment of a viable planning system." 8 This was to be achieved through the provision of seven expatriate advisers, substantial training of local staff, and the provision of further office equipment and vehicles. 19. Recruitment of the second group of advisers proved to be a difficult task, both because of the shortage of the skills required and because of the difficultliving and working conditionsin Uganda. A new adviser began work 71 For example, the Credit and Project Summary of the President's Report on Technical Assistance I (Report No. P-2900-UG, dated November 11, 1980), noted that: "The main risk facing the project involves possible delays resulting from the technicalweakness of the MPED. However, in view of the Bank Group's involvement in a UNDP-financed technical assistance project which is directed at the needs of this ministry, it was concluded that this risk is being satisfactorily addressed." 8/ The mid-1984 Tripartite Review agreed that the output of the project was not to be a Plan, but the improved capacity to plan.  -6 - in October1983,bringingthe total in the fieldto three. In January1984, however, the second of the original two advisers left. Two more recruits began vork In July, and a fifth in June of 1985, the highest total reached at any one time during the life of the project. These five remained with the project during the July and December1985 evacuations of Uganda. Three, however,were terminated at the Government's requestin early 1986when the project was restructured. 20. The project continued in one form or arotheruntil mid-1988. At that time it was formally replaced with another, similar project which con- tinues to this day. UNDP's total financial inputbetween1980 and mid-1988 Bri slightly over US$4 million. Of this,some US$3 million was expended for advisers, US$460,000 for training of localstaffand US$370,000 for equipment and vehicles, with US$170,000 covering variousmiscellaneous expenses. 21. Becausethis projectis an integral part of the Bank'soveralltech- nical and other assistance to Uganda duringthis period,its impact is dis- cussed in ChapterIII t.eatherwith the impact of Technical AssistanceI, vhich also was directed,in part, to MPED. 1I. THE THREECREDITS Ptoiect Assistance The FirstTechnical 22. Backtround. The first Bank mission to Uganda following the over- throw of Amin was a reconnaissance mission in July 1979. The report of a Comonwealthteam of experts 9 had just been released, providing a comprehen- sive overviewof the currentconditionof the economy and identifying the important problems which had to be dealtwith. One of thesewas the urgent nsed to build up a pipeline of adequately prepared investment projects for financing by external donors. To help with this, the reconnaissance mission recommended that the Bank extend a technical assistance credit to Ugands.1O 23. The near total absence of well prepared investment proposals reflectedthe departure of many of the trainedcivil servantsduring the 1970sand the limitedcommitment of the Amin regimeto development.Another resultof the Amin yearswas the considerable deterioration of the gove.-Ment machineryfor economic planning. Additionally, existingprojectsneeded to be rehabilitated,which in turn would requiresubstantial technical assis- tance. In short, it was clear that if Uganda were to be successful in its reconstructionand rehabilitation effortsand at the same time lay the foun- dationsfor achieving rapid economicgrowth,the capacityof the Government to prepareand manage rehabilitation and development projectswould have to be significantlyimproved. 91 Commonwealth Secretariat, Fund for Technical Cooperation, The of the Economyof Uaanda, Rehabilitation two volumes,London,June 1979. 12/ That mission also recommended that the Bank extend the Pirst Reconstruction in the UNDP project, Credit and that the Bank participate in ChapterI. both described  - 7 - 24. The technical assistance project was seen as a suitable instrument for providing the Gaoernment with some of the financial resources it needed to deal with these problems. Funds could be provided quickly and flexibly for a broad range of activities,supplementing what was available from UNDP and bilateralsources. The Credit of SDR 6.4 million (US$8.0million equiva- lent) was approved in December 1980 and was signed in January 1981. 25. Obiectives. The project had several,related objectives. It was to provide assistance to the Government ins (a) preparingsuitabledevelopment and rehabilitationprojects for financingby the Bank and other donor agencies; (b) completingcapacityutilizationstudies; (c) strengthening Ugandan institutions involved in project preparationactivities;and (d) providing assistance in the implementation of such projects. 26. Description. Funds from the Credit would be allocated to specific subprojectsby agreementbetween the Governmentand the Bank. The Credit was initiallyallocatedto the followingactivitiest Table 1: FIRST TECHNICALASSISTANCEPROJECT - ORIGINALALLOCATION USS million SDRmillion Prefeasibility and feasibilitystudies 4.3 3.44 Rehabilitation and capacityutilizationstudies 1.1 0.88 Technical assistancefor strengtheningplanning and project preparationinstitutions 1.1 0.88 Short-term managementand technicalassistance for existingprojects 0.5 0.40 Training 1.0 0.80 Total 8.0 6.40 Reallocation between categories during project implementation,because of changing needs and priorities,would be done by agreement between the Bank and the Government. It was expected that the project funds would be com- mitted in about three years and fully disbursedin five. 27. MPED had the responsibility, because of its central role in reviewing and approving development projects, of administering the project. However, to help ensure that it was able to do so, given its weakened condi- tion, three conditionsof credit effectiveness were imposed: (a) the desig- nation of a senior administrative officer in MPED as Project Coordinator; (b) the establishmen of a subproject Review Committee within MPED; and  -8 - (c) the appointment of the CTA under the UNDP Planning Assistance Project (see para. 17). These conditionswere met shortly after the project was approvedand the Credit was declaredeffectivein March 1981. 28. Subproject requests were to originate in Government ministries, parastatals,other Governmentagenciesor the private sector. Each was to be reviewedby the technicalstaff of MPED, includingwhere necessary the UNDP- financed advisers,with their conclusionssummarizedin an evaluationreport. This report would then be consideredby the Review Committee. Approved subprojects costing more that US$10,000 (except for trainio& subprojects) would be reviewed by the Bank. The originating entity would implement approvedsubprojects. The Project Coordinator was responsiblefor overseeing the implementationof the project, includingreportingto the Bank. 29. PerceivedRisks. At the time of appraisal the main risk in imple- menting the project was consideredto be delays in strengthening the tech- nical capacity of MPED because of delays in recruiting the UNDP-financed experts. The risk was viewed as acceptablesince the Bank was the Executing 11 Agency for that project. 30. Implementation. The project got off to a slow start, in large part because the Project Coordinatorinitiallyappointedby ZPED had other respon- sibilitieswithin the Ministry which preventedhim from devoting sufficient time to the project. A contributingfactor was the slower than expected recruitment of advisers under the UNDP project; only the CTA and one other were in place through the middle of 1982. The result was that the qualityof the initial subproject requests submitted to the Bank was not good. 31. One of the first Bank supervisionmissions, in October 1981, antici- pating (correctly)that the staffing of the UNDP project would not materi- alize as originallyenvisaged,suggestedthat alternative ways of providing suitabletechnicalinput into the preparation and selectionof subprojects be considered.12 Recommended was to more clearly link the use of funds to the preparationof Bank projects (thoughnot to the exclusionof other projects). In addition to ensuring that Bank sector specialists would lend their tech- nical expertisein the definitionof the scope of studies and the preparation of terms of reference for consultants,this approachwould also ensure that money was spent on the preparationof projectswhich had a high probability of being financed. Recognizingthat this type of involvementin subproject selectionmight be consideredan encroachment on a Governmentprerogative, the mission recommendedthat the Bank proceed informally. 32. By early 1982, as a result of Bank pressure, a full-time Project Coordinatorhad been appointed. However, implementation was still very slow with only some US$800,000of the Credit committedto four subprojectsand one training fellowship. A supervision mission at that time noted that all the subprojectsapproved so far were in some way or other related to projects 11/ President's Report on the First Technical Assistance Credit, Report No. P-2900-UG,November 11, 1980, para. 45. 12/ By this time only three subproject requests had been received by the Bank, with only one having been approved. expected to be financed by the Bank and had been promoted by the Bank and designed with Bank assistance. All requests for studies submitted to the Bank by the Review Committeewhich were not so promoted had been rejectedby the Bank as being poorly conceived or sent back for further preparation. This situation reflected the continuingtechnicalweaknesses of the minis- tries and agenciesinvolvedin preparingand reviewingsubprojectt, including MPED. 33. An October 1982 supertision mission reportedthat the pace of imple- mentation, which had shown signs of increasing a few months earlier, had again slowed,with only some US$3.1 million of the Credit committed to seven subprojects and another US$72,500 committed to eight training activities. Again, all of the approved subprojectshad been proposedand/or prepared by Bank staff. In view of this, the role played by the Review Committee and MPED had been largely formal. The mission noted that it would be important, in designing a second technical assistanceproject, to ensure that project proposalswere routed through the established channelsbecause a continuation of the recent practices would inevitablylead to a demoralizationof the staff and an even further weakening of the planning system. 34. The commitmentpace picked up in 1983 and by mid-yearall but about US$730,000 had been committed. With savings in the cost of several sub- projects, and changes in the US dollar equivalentof the SDR in which the Credit was denominated,additionalfunds became availableand the final com- 13 mitment was made early in 1985 for Phase II of a ParastatalAccountingStudy. The Closing Date of December 31, 1985 was not extended, and the final disbursementtook place on September 8, 1986. In the end, the funds were disbursed for the following purposes: Table 2: ASSISTANCEPROJECT - FINAL ALLOCATION FIRST TECHNICAL SDR million Thiee prefeasibilityand feasibilitystudies 0.82 Four rehabilitationstudies 0.65 Eleven technicalassistancesubprojects involving expatriate staff 4.85 Training 0.08 Total 6.40 35. The Second Technical Assistance Project. The October .982 super- vision mission noted that there were severalmajor subprojects under prepara- tion that would exceed the funds available from the first technical assis- tance project and that preparation of a second project should begin shortly. 13/ Details on all subprojects and training activities funded under the project are contained in the annexes to the attached PCR on the First TechnicalAssistanceProject.  - 10 - It was appraised in April 1983 and a Credit of SDR 14.2 million (US$15.0 was approvedin December 1983. Its objectiveswere: million equivalent) (a) to strengthenthe Government's decisionmaking, planning, project preparation and implementation capabilities through external assistance; and (b) to train Ugandans. The original Closing Date of June 30, 1988 has been extended twice and is now June 30, 1990. Program The Second Reconstruction 36. Backaround. As noted in para. 11, the Obote Government, which came to power after the December 1980 elections,adopted a new financial program in June 1981 after consultations wvth the IMF. This program was intendedto stabilizethe still deteriorating economy and revive productionby restoring confidence in the currency, eliminating price distortions and improving fiscal and monetary discipline. A significant aspect of the program was that the currencywas initiallydevaluedby 902 and then allowed to float.1 4 The Governmentalso confirmed its intentionof encouraginga "mixed economy" by allowingformer owners to reclaim their propertyor claim compensation and by inviting private investment in a number of areas. The program was supported by a 13-month IMP stand-by arrangement for US$135.0 million and by the releaseof the rest of Reconstruction 1.15 37. However, during a high-levelBank mission to Uganda in July 1981 it became apparent that a critical shortage of foreign exchangewas hampering the Government's efforts to implement the agreed IMP stand-by program. Because of the major policy initiativesincludedin that program, it was felt that priorityneeded to be given to raisingadditionalexternalfinancingfor essential imports, especially over the next 18 months. As a result, the economic mission which visited Uganda in August was asked to appraise a second reconstruction program. A post-appraisal mission visited Uganda in January 1982. 38. Two weeks prior to negotiating the Credit with the Ugandans in April 1982 the Bank decided to split it into two tranches; there is no indication in the Bank's files as to what prompted this decision. Although the Uganda delegationobjected to this last minute change, it was accepted in the end. The Credit of SDR 62.9 million (US$70.0million equivalent) was approvedin 141 The exchange rate had been the main point of contention between the Governmentand the IMP. The Governmentresistedthe discretedevaluation favored by the IMP and preferred a dual exchange rate, which in turn was rejected by the IMP. The float was the compromise. II/ Report No. P-3295-UG, gp cit, para. 16.  - 11 - May 1982 and was signed in June 1982.16 The first tranche of US$40.0 million was made availableafter the Credit was declaredeffective in July 1982. The second tranchewas expected to be released at the end of Septemberwhen the fol swing conditionshad been met: (a) a unit had been establishedto analyzedomesticand Inter- nationalcosts, prices and supply trends of Uganda'smajor agriculturalexport crops and to make recommendations on the level of agriculturalproducerprices; (b) a program had been preparedto strengthenthe administra- tive, managerial and planning capacitiesof the Ministry of Finance and the MPED, including steps to obtain prioritytechnicalassistance; and (c) a program had been prepared to improve the monitoringand managementof externaldebt. 39. Obiectives. The program was intended to advance the Government's Recovery Program announced in April 1982. This two-year investmentprogram comprised priority rehabilitation investmentand recurrent foreign exchange needs focussedon those sectors and projectsmost likely to raise production and improve the foreign exchangepositionrapidly. Reconstruction 1I was to support the programbys (a) increasingagricultural exports and domesticproductionin high priorityareas; and (b) strengtheningthe Government'scapacity to formulate and implement policies and programs in areas critical for Uganda'seconomicrecovery. These were: (i) the planningand budgetingof foreign exchange; (ii) the pricing and marketingof export crops; and (iii) the parastatalorganizations; (iv) the managing of externaldebt. a summary The agreed actionswere describedin a Memorandumof Understanding, PCR. of which appears as Table 2 of the attachedReconstruction 40. As noted in the PCR (para. 5), the program focussed primarily on institutionaldevelopmentand on the preparationof policy measures, rather than on their implementation, in view of the limited capacity for policy formulation prevailingat that time. As also noted in the and implementation 16/ The Netherlands and Canadian Governments provided cof:.. ;ncing grants of US$4.9 million and US$4.0 million equivalent,respectively,in January 1984,which were administeredby the Bank.  - 12 - PCR (para. 4), many of the measures supported under this program and Recon- st-uctionIII were also supported under other lending operations such as the two technical assistance projects aimed at inastitutional development. 41. Descrit,tion.Funds from the Credit would finance the importationof agriculturalinputs, spare parts and raw materials for industry and trans- port, and other largely non-capitalneeds of high economic priority during FY83. An IndustrialRehabilitation Project which was being implementedat the same time was to complementthis project;while Reconstruction II would enable selected industriesto increase capacityutilization,the Industrial Rehabilitation Projectwould finance capitalequipmentto replace or rehabil- itate plant and machinery. 42. Priority end-users of foreign exchange had been identified by a Government committee on the basis of submissionsby sectoral ministries, vetted by MPED. Recognizing the problems of credit allocation under Recon- structionI, criteria for allocatingcredit proceeds to particularend-users was agreed vith the Government,as were the general categoriesof end-users 17 A negative list of imports was also eligible to receive credit proceeds. agreed. It was expected that the program funds would be committed by June 1983 and fully dipbursedby September 1983. 43. PerceivedRisks. At the time of appraisalthe main risks facing the program were consideredto be that securityconditionsin Uganda could again deteriorate,that the Governmentwould be unable to implement its Recovery Program, and that shortfallsin financingcould further reduce import levels and delay recovery. These risks were felt to have been significantly reduced by the Government'sclear commitmentto improving law and order and to its financialprogram and by its willingness to respond positively to the con- carns of the principal donors.18 44. Implementation. As with Reconstruction I, implementationbegan slowly. Though the proceedsof the Credit had been tentativelyallocatedby the Government to end-users by October 1982, the lack of local currency resources for the potential beneficiariesto use in acquiring the foreign exchange from the Credit proceeds socn emerged as a serious obstacle. This shortagewas caused by a squeezeon commercialbank liquidityand by the lack of creditworthiness of the beneficiaryenterprises. By March 1983 disburse- ments had only barely begun, and an urgent reallocationof funds to more viable enterpriseswas considerednecessary. 45. Besides the lack of counterpartdomesticresources,another serious obstaclewas the weaknessof the Central Tender Board (CTB)which was respon- sible for much of the procurement under the program. During the appraisal of the program,needed improvements in CTB's practices and procedures were dis- cussed, and the Governmenthad agreed to arrange for the necessary technical assistance. Although it had started discussions with various possible sources of such assistancebefore July 1982, it was not until April 1983 that 17/ Report No. P-3295-UG,OD cit, paras. 63-64. 18/ ibid, para. 73.  - 13 - agreementwas reachedwith the Crown Agents to supply two expatriates(to be financed under TechnicalAssistanceI). These experts began work in Kampala shortly thereafter,and executionof the programbegan to improve. 46. By June 1983 the Credit had been reallocatedto beneficiaries with supposedlyfirm commitments of local cover. This, togetherwith the improve- ments in CTB, was expected to lead to rapid disbursement of the first tranche (disbursements had by now reached US$7.54 million). In subsequentmonths, though, it became clear that the allocation process being followed was causing many of the problems faced by the program. An October 1983 super- vision mission proposeda furtherreallocation of funds away from chronically slow and inefficient beneficiariestowards fast users. Nevertheless,by December 1983 (the original Closing Date) only some 20X of the Credit had been disbursed, with another almost 201 committed. The Closing Date was extendeduntil December31, 1984. 47. The second tranche, which had been expected to be released in September 1982,was formallyreleasedonly in November 1983. An October 1982 supervisionmission had concluded that the first and third conditions had been met,19 but that programs for strengthening the two ministries had not yet been prepared. The Governmentsubmittedthese programs in December 1982, formallymeeting the condition. However, the Bank felt that the submissions could be improved in several respects. As there was no urgency about the release of the second tranche, given the delays in utilizing the first, it was decided to hold up release while pushing for improvementsin the two programs. By October 1983 furtherprogress on the second conditionhad been made and, given the (expected)increased pace of utilization of the first tranche,the second tranchewas formallyreleased. 48. Another factor seriouslyaffectingdisbursements were administrative delays by the Bank in processingapplications. The Governmenthad complained about these delays during the supervisionmission in October 1982. The same problem had been experiencedwith Reconstruction I. A revolving fund was suggested as a help in smoothing the flow of payments. After discussion within the Bank, a US$5 million revolving fund was established in December 1983. 49. While the economy had begun to recover in 1983, in 1984, as noted in the PCR (para. 14) and the Appendix (para. 8), economic policies went off track, security conditionsworsened, and the economy began to deteriorate once again. Nevertheless,by mid-year CTB had approved awards valued at about US$65.7 million, leaving about US$13 million from the Credit and the Dutch and Canadian grants to be committed. To speed matters up, it was agreed that the uncommittedfunds could be eligible for disbursement at the 19/ Regarding the first, a high level AgriculturalPolicy Committee and an AgriculturalSecretariathad been establishedat the Bank of Uganda, the central bank, with support from Technical Assistance I. Regarding the third, an External Debt Management Office had been established at the Bank of Uganda, with IMP technicalassistance.  - 14 - Bank of Uganda's weekly foreign exchange auction,20the procedure agreed to under the recently approvedThird Reconstruction Credit. The main implemen- tation problem now, however, was the slow rate at which beneficiaries were opening letters of credit. The lack of local cover and the rapid deprecia- tion at window one prior to the merger of the two foreign exchange windows were given as reasons for this state of affairs. 50. ReconstructionII and the two cofinancinggrants were finally fully committed by May 1985. The Closing Date was extended a second time to June 30, 1985, and the last disbursementtook place in March 1986. There PCR indicateshow the were no funds cancelled. Table 4 of the Reconstruction funds were utilized. The Third Reconstruction Program 51. Background. Anticipatingfurther needs for fast-disbursing finan- cial assistance, the Government requested a third reconstruction credit during the annual meetings in September 1983. A pre-appraisal miseion in October 1983, which also supervised Reconstruction II, concluded that, provided executionof Reconstruction II accelerated and an action program for further reforms was agreed, a third credit should be processedquickly. Over the next several months the executionof Reconstruction II did appear to be accelerating and a reform program was agreed with the Government. Accordingly,Reconstruction III was appraisedin January 1984. 52. As all the key actions under the agreed programwould be conditions of effectiveness, tranching of the Credit was not considerednecessary. A Credit of SDR 47.2 million (US$50.0million equivalent) was approved in May 1984 and was signed in June 1984.21 It was declaredeffectiveat the end of 20/ After the initial 902 devaluation in June 1981, the Uganda shilling floated in relationto a basket of currenciesuntil August 1982. At that time, the Bank of Uganda, in order to eliminate parallel market transactions and with IMF agreementas a temporarymeasure,established a dual exchange rate system. At window one the exchange rate was managed by a money market committee in the Bank of Uganda. At window two, the exchangerate was determinedthroughweekly auctionsby bids submittedto the Bank of Uganda. The window one rate, which was the lower of the two, was used to finance Governmentobligationsand imports consideredby the Government to be essential for the rehabilitation of the economy, including those financedby Reconstruction II. It was also applied to the proceeds from the traditionalexport crops as well as externalloans and grants. The window two rate was used to finance other transactions and was supportedby a minimum of US$2 million per week suppliedby the Government. The two windowswere unified in June 1984 at the insistence of the IMF, with the system of weekly foreign exchange auctions continuingto determinethe exchangerate. 21/ The Netherlands Governmentagreed to provide a grant of DFLs 20.0 million (about US$6.6 million equivalent at the time) on parallel terms. An agrement between the Bank and the Netherlands was signed in December 1984. However, execution of the Development Grant Agreement between Uganda and the Bank was delayed until September 1986. See paras. 61-63.  - 15 - November 1984, the delay being due to delays in meeting the several condi- tions of effectiveness. The Credit was expectedto be fully disbursedby the end of 1985. 53. Objectives. The program was expected to consolidate the economic gains and the policy reforms achieved under ReconstructionI and II. Its principal objectivesweret (a) to provide financingfor the importationof essential raw materials,intermediate goods, spare parts, minor capital equipmentand drugs for high priority sectors in line with the Revised RecoveryProgram;Z2 (b) to continue the support for policy and institutional II; and reforms initiatedunder Reconstruction (c) to generate counterpart resources for the Government budget. The agreed actions were again described in a Memorandum of Understanding, summarized in Table 3 of the Reconstruction PCR. 54. As with Reconstruction II, the policy design of Reconstruction III did not include macroeconomicstabilization as a direct objective. Instead, Bank relied on the IMF to support this goal. The two Credits from the Bank were primarily aimed at providing foreign exchange to facilitate the importa- tion of essentialinputs. 55. DescriRtion. The allocationprocedureused under Reconstruction II, as noted earlier, led to considerabledelays and to a number of unintended results, including,inter alia, spreading the proceeds among too many bene- ficiaries and allocating amounts that did not reflect the needs of the beneficiaries. Furthermore,the earlier experienceindicated that the more creditworthy companieswere also more successfulat increasingproductionand that normal commercial banking criteria, especially in an environment where price and exchange rate distortions were being eliminated, generally served the objectives of the projects. Accordingly, not less than 80Z of Recon- struction III was made available to firms which were able to use their cwn resources to purchase foreign exchange at the auction 23 or which qualified for commercial bank credit without a government guarantee. 22/ The Recovery Program covering FY83 and FY84 was revised in October 1983 to take account of emerging resource constraints and implementation problems. The Revised Recovery Program maintained the same broad objectivesand strategyand was extendedto cover FY85. 23/ It was expected that initially window two would be used (the proceeds from ReconstructionII were sold at the preferentialwindow one rate until the two windows were unified). However, it was also anticipated that the two windows would be unified shortly after Credit approval, and that the resultant auction system would then be used; this happened in June 1984, before the Credit was declaredeffective.  - 16 - 56. A Technical Committee vas established with responsibility for reviewing sales of foreign exchange at the weekly auction to determine eligibility for reimbursement under the Credit. Apart from limitationson the categoriesof imports eligible for financing,on large procurement con- tracts and on the amount that could go to any one beneficiary,there were no prior allocations of this part of the Credit proceeds. 57. Not more than 20% of the Credit was reserved for parastatals requiring Governmentloans or guaranteesand for Governmentministrieswhose operations were vital to the economy. A list of these beneficiariesand their intendeduse of Credit funds was agreed during negotiations. 58. Perceived Risks. The main risks facing the program were considered to be the same as thore which faced Reconstruction II (see para. 43).24 59. Imglementation. The program was implemented with far greater ease than the previous ones. The Credit proceeds began to be auctioned in February 1985 and continued to be, at the rate of about US$1 million each week, until the auction system was terminated in January 1986 when the Museveni Government came to power. About US$1.6 million had not been auctionedby that time, and it was allocated in April to eligible importers at the final auction exchangerate. 60. The final allocation of the Credit proceeds was as follows (in US$ OOOs)s Table 3: PROGRAM THIRD RECONSTRUCTION - FINAL ALLOCATION Private Sector Enterprises 41,986 (for details see PCR, Table 5) Public Sector Enterprises 2,197 Ministry of Health 1,027 Uganda CommercialBank 487 Directorate of Civil Aviation 402 Uganda PrisonsDepartment 200 Ministry of Planning 81 RetroactiveFinancing 4.584 Total 48.767 The public sector enterprises did not use all of the funds initially allocated to them (up to 20% of the Credit) partly because their documenta- tion took too long to be processedby CTB and partly because,once processed 241 President's Report on the Third ReconstructionProject, Report No. P- 3733-UG,April 19, 1984, para. 69.  - 17 - by CTB, they delayed in opening letters of credit until after the Credit was fully committed. Retroactive fiancing of up to US$5.0 million equivalent was apecificallyprovided for in the project.Z5 The final disbursement took place in August 1'86 with no funds being cancelled. 61. The availability of the Dutch cofinancing grant, which had been agreed in principle by the end of 1984, was held up due to administrative difficultiesinitially,and then because of the hostilitiesin Uganda during the second half of 1985. In February 1986 the Governmentrequested the Bank and the NetherlandsGovernmentto take the necessary steps to make the funds available in order to assist in meeting nationalpost-waremergencyneeds. 62. A key conditionof the disbursement of both the Credit and the grant was the operationof a satisfactoryforeign exchangeregime. After the sus- pension of the auction system, a Foreign Exchange Allocation Committeewas establishedin February 1986 and the exchangerate was fixed at a rate one- third of the parallelmarket rate. With continued inflationary demand, and no change in the exchangerate, it became even more over-valuedand therefore was considered unsatisfactory. However, the Netherlands Government requested, and the Bank agreed, that this condition be waived for the purposesof disbursingthe grant. 63. An Agreement covering this grant was signed between the Bank and Uganda in September 1986 and the first tranche of DFLs 10 million, which had been on deposit in a trust account in a Dutch bank since early January 1985, was disbursed in December 1986. The second tranche of DFLs 10 million was made available in June 1987. Both were used to finance industrial raw materialsand spare parts. 64. One of the objectives of the program was to generate counterpart resources for the Government budget through the sale of Credit proceeds. This was achieved to a greater extent than anticipateddue to the deprecia- tion of the Uganda shillingover the course of the project (from U Sh 550 per US$ in February 1985 to U Sh 1,470 per US$ in January 1986). Some U Sh 37,435 million was generated from the Credit and another U Sh 3,834 million from the Dutch grant. III. TECHNICALASSISTANCEFOR INSTITUTIONALDEVELOPMENT DURINGRECONSTRUCTIONLENDING Introduction 65. This chapter assesses the impact of Technical Assistance I and ReconstructionII and III, as well as the UNDP PlanningAssistanceProject, on institutionaldevelopmentin Uganda between 1980 and 1986. 25/ Report No. P-3733-UG,OD cit, para. 65.  - 18 _ Obiectives.Strategyand Programs 66. in Uganda in the early The overall Bank strategy for reconstruction 19808was to provide fast disbursingresourcesfor critical Importsto stimu- late export recovery. Technical assistance was used primarily to get specificstudies done to help design projectsto "prime the pump" for outside financing and secondarily for institutionalstrengtheningof the economic planning and management system. 67. The initial design of the three Credits under review provided no formal, systematicmapping of the network of key Ugandan institutionsor detailed assessments of their current capacity. 26 Rather, they identified certain institutionsor activitieswhich were viewed as bottlenecks in the accomplishmentof Bank project objectives. For example, one objective of Reconstruction II was stated to be strengthening the Government'scapacityto formulateand implementpoliciesand programsin areas which are criticalfor Uganda's economic recovery. These areas were identifiedass (i) planning and budgeting of foreign exchange; (ii) pricing and marketing of export crops; (iii) the parastatalorganizations; and (iv) externaldebt management. 68. Reconstruction III mentioned the need to strengthen the Bank of Uganda, the Ministries of Finance and of Planning and Economic Development, and the newly established AgriculturalSecretariat,and to reinforce such activitiesas monitoringgovernmentfinances,aid coordination, budget formu- lation and parastatalfinancialcontrol. 69. In Reconstruction II and III the primary vehicle for accomplishing institutionaldevelopmentactivitywas conditionality tied to Credit effec- tiveness and to tranche release. No actual financial resources were dis- bursed for institutional development. Instead, the Credit proceeds were entirelyused to purchasecriticalimports. 70. The strategy for institutionaldevelopment activity was different under Technical AssistanceI. That project provided resources to finance a range of activities to design projects for outside financing and to break institutional bottlenecks. No organizations were targeted as initial can- didates for institutionaldevelopmentprograms. Instead,decisionsabout the made during project implemen- use of the resourceswere to be collaboratively tation; a high level Ugandan subproject Review Committee was to recommend activitiesto the Bank for final decision. 71. The UNDP project was more clearly structured. In its first phase, it supportedexpatriatestaff to work on a diagnosticof MPED's strengthsand weaknesses. This diagnosticresultedin a larger project which, in somewhat differentform, continuesto this day. The objectivesof this larger project were to strengthen IMPEDto enable it to carry out its responsibilityfor long-term planning in Uganda, including the elaboration of a national planningmethodologyand establishment of a viable planningsystem. 26/ The UNDP project was different in this respect as it was specifically targeted at MPED.  - 19 - The Impact of Technical Assistance 72. Success in Breakina Bottlenecks. If the overall purpose of these combinedprojectswas to provide flexibleresources to facilitatethe inflow of further Bank funds to Uganda,TechnicalAssistanceI was successfulin two major ways. First, 23S of the proceedswere committedto seven feasibility studies which resulted in new Bank projects, largely for infrastructure(see TechnicalAssistancePCR, Annex 2). 73. Second, some 501 of the proceeds funded direct technicalassistance to break institutionalbottlenecksto the rapid disbursementof the recon- struction credits. For example,assistanceto CTB helped that organization cope with the increased volume of internationalbids necessaryfor Government purchase of imports in compliancewith Bank procedures. Assistance to MPED enabled a team of foreign experts to help complete the two-year Government investmentplan which served as the basis for the recovery strategy. Tech- nical assistanceto the Uganda DevelopmentBank (UDB) helped that organiza- tion get a clear picture of its financial position as a first s' p in becoming a major conduit for African DevelopmentBank and World Bank loans. Since all of this occurred during a period accompanied by high levels of violenceand political instability, it is remarkablethat the project had any impact at all. 74. StrenatheninaInstitutionalCanacitv. Even if the primary objective of the technicalassistanceeffort was not the building of long-terminstitu- tional capacity in organizationsvital to economicplanning and management, there is strong evidence that this took place in several organizationsin spite of seriouspolitical instability. The quality of work produced at the Agricultural Secretariat and the information system developed at UDB are examplesof lasting improvementsin institutional capacitywhich can still be observedtoday. 75. Another demonstrationof the sustainability of initial investments is that more than 901 of the local staff sent for training (under both Tech- nical Assistance I and the UNDP project) have returned to Uganda and have largely remained with their public sector organizations. Perhaps the most dramatic evidence of continuity, in spite of five changes of government between 1980 and 1989, is that of the five key members of Obote's Presiden- tial EconomicAdvisory Committee (PEAC) which served between 1980 and 1985, only one is employed outside the country and none are persona non grata. Three hold top level positions in the current Government and one is in the private sector. Several members of the technicalcommitteeto PEAC now hold PermanentSecretarypositions. Finally,under the UNDP project,a quarter of the present group of MPED economistsreceived training;this contributedto the creationof a criticalmass of expertise within the Ministry. 76. Aareeint on Obiectives. There appears to have been little agreement among the Bank staff involved at the time on the objectives of technical assistance for institutional development efforts. Some Bank staff have stated that the primary objectiveof Reconstruction TI and III was the rapid disbursementof funds for criticalimports. Another staff member noted that institutional capacity buildingwas includedas an objectivebecause it v.-is  - 20 - believed that this was expectedby the Bank's top management. Others stated that technicalassistancewas includednot really for institutional develop- ment efforts but rather to break bottlenecksand to allow Uganda to absorb more Bank resources. 77. Referring to Technical Assistance I, some staff stated that they recognizedserious institutional deficienciesin Uganda that posed a threat to economic recovery as well as to long-term economicmanagement capacity. To remedy the problem. they specificallydesigneda flexibletechnicalassis- tance package. Still others mentioned that the technicalassistanceproject was flexibleby default rather than by design: "almost like a shotgun blsst aimed at a very blurry target". Greater consensus about objectivesmight have led to strongerdesign and implementation. 78. Desijn Improvement. Even if the technicalassistanceobjectiveshad been simply to break bottlenecks to speed reconstructiondisbursements,a more systematic diagnostic effort could have taken place. Mapping the economic policy making and management system might have helped identify potentialbottleneckssooner. Targeting weak btZt criticalorganizationswith specific programsmight have reduced the gap between the disbursement goals performance. and the actual disbursement 79. Had institutional capacity building been a serious objective, a deeper diagnosticof the problems of key institutionscould have been com- pleted during the design phase of Technical AssistanceI. This could have been buttressed by several excellent studies which already existed at the time the three projectsunder review were designed. 80. SupervisionNeeds. The impact hoped for through the four inter- related projects required a comprehensive supervisioneffort which the Bank was not structuredto provide. The reconstruction effortswere to take place through interdependent projects with large numbers of subcontractorsand other donor organizationsover which the Bank had little direct control. 27 This kind of complex project managementrequiresa high level of supervision continuity. Without such continuity it is difficult to identifywhen one specificaspect of the overall effort is not going well and to take remedial steps. 81. The Bank was not organizedto maintain an overviewof the series of projects as an integratedeffort. At that time it was not clear who should monitor technical assistance Der se, and it was passed from one group to 27/ Besides the three projectsunder review and the UNDP project,there were also an IndustrialRehabilitation project,an Agricultural Rehabilitation project, a Second Technical Assistanceproject plus nine other projects approvedand being implemented between 1980 and 1986.  - 21 - another. The roles and responsibilities of the Bank vs. UNDP for the UNDP- funded project were often unclear. Finally, the last phase of Reconstruc- tion III and the beginning of the new program under the Museveni Government (EconomicRecovery) took place during the Bank's own reorganization and all continuitywas lost.28 82. Problemswith the ParastgtalAccountingStudv. Certain subprojects funded under TechnicalAssistance I did not have their desired impact. For example,a quarter of the total Credit proceedswas used to fund a parastatal accountingstudy. This study was actuallya detailedreview of the financial and accounting situation of fifteen separate parastatals,among the most important in the country. The study, in two phases, requiredover two years to complete,in part because of the unsettledconditionsin the country. The results, though, were never used, in spite of the importance the Bank attachedto the study.29 83. Although the Bank approved each phase of this subprojectbefore it was implemented,the competence of the firm which was awarded the overall contract, and in fact the way it was selected by the Government, were seriously questioned. Potential users of the studies found them to be of limitedutility. At this time the Bank is funding repeat studies of some of the same parastatalsunder a new project, without having used the existing 30 ones in the design process. 84. Diluted TraininaEfforts. A second general limitationof Technical Assistance I was that its training component (just over 1% of actual dis- bursements)was spread among a large number of organizations. The training probably provided an excellent experience for the 21 individuals who bone- fitted. All are still within the country. However, no critical mass of trainingtook place in any single organization as a result of this effort, in contrastto the UNDP project,substantially dilutingthe effectiveness of the trainingprovided. The ImDact on BuildingInstitutional Canacitv 85. In spite of the fact that the primary purpose of the technical assistance efforts of the three projects under review was not institution building,some surprisingsuccessesoccurred. 28I Besides the loss of staff continuity,a number of project files were also lost. 29/ Commencementof the study was a condition for beginningnegotiations for ReconstructionIII. Consultatiou with the Bank on progresswas a special conditionof that Credit. See Report No. P-3733-UG,Op cit, Annex III. Q/ Public EnterprisesProject, Credit 1962-UG, approved November 8, 1988. See the Staff Appraisal Report, Report No. 7280-UG, dated October 14, 1988, Annex V. As a reflection of the loss of continuityduring the Bank's reorganization, some staff members working on this project were not even aware of the existenceof the parastatalaccountingstudy.  - 22 - 86. The Agricultural Secretariat. According to the available data, substantialinstitutionaldevelopmenttook place at the AgriculturalSecre- tariat during 1980-86. A criticalelement of the Government's1982 Recovery Program was reducing producer price distortionsin the agriculturalsector. This was considered critical to economic reactivationof coffee and other exports. Increasing rural incomes was also considered essential to main- tenance of the Government's politicalbase. Thus, agriculturalpricing took on significantimportance. 87. However, initial attemptsby the PEAC to get accurate data on agri- culturalproducercosts and prices from the Ministry of Agricultureand other sources met with failure. This led to the strong interest of both the Government and donors, including the Bank, to create a new organizational mechanism which would provide accurate information for economic policy making. 3 1 A second factor which helped insure the success of the AgriculturalSecretariat v8s its locationin the Bank of Uganda, perceived to be more technicallycompetentthan other institutions. 88. Third, the Secretariat began as a new organization with donor- funded, local counterpartofficialswhose salaries providedmore incentives than those who worked in the line ministries. Fourth, the project recruited effectiveexpatriateadvisorswho worked collaboratively with the counterpart officials in joint definitionof tasks and in implementation. Fifth, the Secretariat'sfirst policy recommendations about pricing met with approval and success in helping to stimulatea recovery of coffee production. Thus, tha unit's reputationwas established early on. 89. The style of team work establishedto look at problemsof particular products was signally effective. When the unit took on the analysis of a particular product line, it formed intersectoral and interministerial teams of experts to look at costs and special problems. This collaborative style helped to both produce accurateinformation ana to build consensus. Finally, because of its success,the unit was able to attract additionalresourcesfor equipmentand for extensivetrainingof its staff. 90. The Secretariat evidently developed substantial institutional capacity between 1980 and 1986, in part through the funding provided under TechnicalAssistanceI. This sustainedcapacityis still evident today. The Agricultural Secretariat has clear goals, a small, permanent number of dedicated,high quality staff, adequateequipmentand budget. High levels of satisfaction with the work producedby the organization are expressedby its clients. Its staff have access to sufficient incentives and training to maintain morale. Staff attritionis low and its primary expatriateadvisor, who has been with the Secretariat from its beginning, has helped provide continuity in the process. 31/ Establishment of this unit was a condition of release of the second tranche of Reconstruction II; see paras. 38 and 47. Assistance to the Secretariat was provided from Technical Assistance I; see Technical AssistancePCR, Annex 3.  - 23 - 91. The Uaanda DevelongentBank. TechnicalAssistanceI resourcesalso helped mobilize an unusual process of institutional development at UDB. The project provided resources for two separateactivities: an initial audit of the bank and then expatriateadvisorsand training activities. Execution of the second subprojectwas particularly difficult due to the unstable condi- tions in the country. Two of the advisors recruited for UDB died vhile in Uganda, one being shot as part of a politicallyinspiredambush. 92. In spite of the early difficulties,the technicalassistanceinter- vention proved to be successful. UDB's top managementwas reported to be creative and dynamic compared to other organizationsat that time. Two of the advisors served temporarilyas assistantgeneral managers for operations and firance,and were reportedto have hai substantial positive impact. 93. UDB's strategic problems in the early 1980e were to get control of its portfolio and to switch roles from commercial lending to the provision of agricultural and industrial term credit. Staff were reported to have been initially unprepared for this transition. UDDEs accounting systems were being maintained by hand. It was difficult to establish the bank's true financial position. At the same time, the opportunityof becoming a major actor in new term lending as a result of credits from the African Development Bank and the World Bank presentednew opportunities. 94. One of the key strategiesfor change was the design and implementa- tion of some simple, but powerful,management informationsystems. One of the expatriate advisors helped build a team with information systems capacity. The group automatedthe loan ledger and began to produce accurate data on the portfolio. It developedthe capacityto bill accuratelyand in a timely fashion, and UDB began to improve the volume and speed of its collections. 95. The success of the first part of the information systems pilot project convinced management and donors that UDB could get control of its operations and pursue the new term lending strategy. As a result, new resourceswere providedfor these efforts. TechnicalAssistanceI funds were used for staff training in project appraisal and for equipment purchases. The relations between the Bradford University (the major subcontractorfor training),the expatriateadvisors and the UDB staff were reportedas being highly collaborative. As a result, a real team effort was strengthened. UDB's incentive systems allowed it to attract and keep quality staff during the 1980s. 96. UDB's institutionalcapacitywas clearly strengthened as a result of these efforts. Between 1980 and 1986 the bank's goals becme clearer and it improved the quality of its staff, equipment and other inputs. Steps to rationalizeits internalprocesses were taken. It expandedits portfolioand developed a clearer picture of what its actual financialstatus was. These improvements,as with the Agricultural Secretariat,are still evident today. 97. The Ministry of Finance (CentralTender Board and the Treasury). In contrast to the institutional development efforts at the Agricultural Secretariat and UDB, the initial interventionsat the Ministry of Finance  - 24 - produced limited results. Resourcesfrom TechnicalAssistanceI were used to provide expatriate advisors for the Treasury and CTB. These interventions were made essentially to break specific operational bottlenecks in monitoring foreign debt and expenditure control in the Treasury and in making inter- nationalbidding and purchasingprocedures at CTB more agile. 98. As with other subprojects,it was difficult to attract qualified expatriate advisors because of the political uncertainties. Two advisors were finally hired at the Treasury. One had to be evacuated immediately because of the political situation, and was never replaced. The other advisor has remained in place since 1984, but appears to perform a line function. It is unclear whether he has been involved in any substantial trainingof counterparts. 99. Within CTB, two experts from the Crown Agents were seconded to do training in internationalbidding procedures and to evaluate some 80 com- petitivebids that had piled up. Because of the subsequentstaff changes at CTB, it is difficultto evaluatethe effectiveness of this intervention. 100. Neither of these early technical assistance investments in the Ministry of Finance appear to have includeda focus on a detailed assessment of the Ministry and its function in economic policy making or management. Neither were thought of in terms of being a part of an integral program. Their overall impact was probablyonly short-termand marginal. More recent investments to finance an analyticalunit and to strengthen the budgetary process have occurred in follow-onprojects and could lead to more profound institutional developmentimpacts. 101. The Ministry of Planning and Economic Development. The results of institutionaldevelopment efforts at MPED, which included those under the UNDP project as well as under Technical AssistanceI, were more mixed. In the 1970s MPED's functionwas to prepare medium- and long-term development plans for the country and to manage the implementationof those plans. Its primary productswere the two-year Governmentinvestmentplan and the Back- ground to the Budget document. This latter document provided an annual report on the economic and social conditionof the country and the logic of the operating and capital budgets, as well as special studies such as the employmentsurvey done every ten years. 102. By the beginning of the 1980s the Ministry was operatingwith high levels of staff vacancy. The former Permanent Secretary for Planning estimatedthat two-thirdsof the professional staff had been lost in the last years of the Amin regime. Equipment and furniture had been stolen and supplies were non-existent. The capacity to produce routine planning materialssuch as the Backgroundto the Budget documentand the more detailed investmentplans had been seriously disrupted. In fact, only summary docu- ments were often producedin the late 1970s and early 1980s. 103. Immediately after the new Governmentwas installed in 1980, the Ministrybecamo a focal point for mobilizingthe strategyfor externalassis- tance for Uganda. It developedits own 1981-89 plan for the UNCTAD meetings  - 25 - based on the report of the Commonwealth team of experts.32 Member*of the Ministryserved on the technical committee for PAC and did the staffwork for negotiations with major donors. The Permanent Secretaryand the Minister made major efforts to persuadeold staff to return and to recruityoung professionalsfrom the University.They met with limited successinitially. 104. Both the Bank and UNDP identified capacitybuildingat MPED as a priority investment. MPED not only had an importantrole to perform in improving the quality of economic policy making, but it was to be the organi- zation which administered the techanical assistance and other foreign aid inflows. The Bank's Technical Assistance I project and the parallelUNDP project were to provide expatriate staff to advise the Ministryand to perform specific tasks such as preparing the revised 1983-84 Government investment plan. 105. Unfortunately, all of this had to be accomplished in an atmosphere of transition while the Ministry was trying to recover basic staff, find elementarysuppliesand equipmentand get its minimal routine activities functioning again. As noted earlier,it was difficult to find expatriate staffwillingto come to a war-;torn, politicallyunstableUgandawhere food was scarce,livingconditions difficult,and whereviolenceabounded. 106. It was also difficultto mobilizeMPED in its role as the coor- dinatorof Technical Assistance I. Major disbursementsunder that project did not begin until over a year after it had been approved due to design difficulties and administrative problems. For example, MPED did not initially assign a full time ProjectCoordinator to the projectbecauseit was so shortof personnel. 107. Anotherproblemwas a result of the Bank's insisting that the sub- project Review Committee be chaired by the Permanent Secretary of Planning and that it include the Secretary of the Treasury, the Chief Government Development Economist and four other top level officials. This Committee was supposed to recommend all subprojects over US$10,000 to the Bank for final approval. These top level decision makers,however, were so busy with their regularresponsibilities that it was oftenimpossible to get them together to discussand approveproposedsubprojects. 108. Thus, by the end of 1983 a Bank assessmentof MPED noted some recovery but the list of problemareas still lookedquite similarto that of 1980. Between1980 and 1983 the only major technical assistanceinterven- tions had been the Bank-funded team recruited through the Commonwealth Fund for Technical Cooperation, the recruitment of the first UNDPexperts and the purchase of a limited amount of equipment. 109. Between 1984 and 1986 a critical mass of expatriate advisors was obtained and the project coordinating committeebegan to functioneffec- tively. A largetraining programbegan for MPED staff,fundedunderthe UNDP project. It included in-country seminars and overseas study tours. Routine planning functionswere re-established. However,while overall staffing improved, staff shortages at senior levelsremained high. 321 Commonwealth Secretariat, O cit.  - 26 - 110. Many aspects of the institutional developmentefforts at MPED have been successful. Routine functions have been re-establishedin the Ministry, 242 of the line economistsand 121 of the top managementgroup have received training. The Ministry's basic products, its two-year rolling investment plan and the Background to the Budget document, are now producedon a regular basis and special studies are performed. Technical assistanceprojects are coordinated with more speed than in the early 1980s. 111. However, a set of problems remain which serve to contrast the approachto institution buildingat MPED with that at the AgriculturalSecre- tariat and the UDB. Some of the Ministry'sprincipalclients are not always satisfied 33 with its products. At times this criticismis quite high profile. A review of the two major products,the Backgroundto the Budget documentand tCe two-year investmentplan, reveals no substantialchange in methodology since the early 1980s. One has the impressionthat the expatriateadvisors and the Ministry staff are quite separate and that a team approach has not been established. There remains the perceptionthat the expatriates do a great deal of the routine work and that skills have not been transferredto the local staff. 112. It would appear that the local staff, while now technicallycapable of doing the work of the Ministry, are simply not motivated to do so. As long as the salary structure in the Ministry remains so terribly eroded and as long as there are no options for incentive pay, serious problems of motivationwill remain. Summary and Conclusions 113. Findinas. If the principal purpose of the technical assistance efforts evaluated here was to facilitatethe inflow of existing and future Bank credits to Uganda, then these efforts were successful. Even if the primary object of the technical assistancewas not long-term institutional development,there is strong evidence that capacityeas strengthenedin some organizations. 114. Lessons. Institutional capacity building begun during these projectsappears to have been more successfulin the two autonomousorganiza- tions, the Agricultural Secretariat and the UDB, than in MPED and the Ministryof Finance. This was in spite of the larger investmentsin expatri- ate staff, training, and equipment in the Ministries, particularly MPED. Greater relativesuccess in the first two organizationsmay be due tot (a) the high priorityboth donors and the Governmentplaced on the new roles of the first two organizations; (b) the more direct "perceived" utility of these organiza- tions' products for immediate economic policy making 33/ For example, see the November 2, 1989 edition of Kampala's largest circulating newspaper, The New Vision, which quoted President Museveni's criticismof MPED.  - 27 - (i.e., agriculturalprice policy analysis at the Agricul- tural Secretariat) or for economic recovery (expanded agriculturaland industrialterm lending through UDB)I (c) higher levels of political support for the autonomous agenciesand their higher degree of independencea (d) the team approach linking expatriate advisors and local staff in both UDB and the AgriculturalSecretariat. In the Ministriesthe focus was more on the advisors getting the work done; (e) the incentive structureswhich permitted higher pay than in the Ministriesand which deterioratedless than in the Ministries;and (f) dynamic leadership. 115. In spite of the high levels of political turmoil including five changes of governmentbetween 1980 and 1986, many of the capacity improve- ments initiated during this period in the AgriculturalSecretariatand UDB, and some at MPED, were still observableiD 1989. In fact, capacitycontinued to be built between 1986 and 1989. To a large extent, this is because 90S of the staff sent for training from these organizationshave returned to Uganda. Most work for the same organizations and many have been promotedto positions of greater responsibility. Staff continuitypermittedmaintenance of an integral organizational vision and the ability to put new skills from traininginto practice. 116. The Museveni Governmenthas retained most of the civil service it inherited. As a result, there has been more continuityin the relationship between top level Government officials and donors and greater policy con- tinuity than might have been predicted. 117. In spite of the general success of the technicalassistanceefforts, their overall effectiveness could have been improvedin the following ways: (a) There was little agreementon the objectivesof technical assistanceamong Bank staff who participatedin the design and approval process of the three projects under review. Greater consensusabout objectivesmight have led to more focused design and implementation. (b) Even if the technical assistanceobjective of the three projectshad been simply to break bottlenecksin the dis- bursement process, a more systematic diagnostic mapping effort might have identifiedtrouble spots sooner. Tar- geting weak but key organizationsfor immediatetechnical assistance might have reduced the gap between the dis- bursementgoals and the actual disbursementperformance.  - 28 - (e) The desired institutionaldevelopmentimpacts were to be accomplishedthrough conditionality and direct activities scattered among a bewilderiug array of interrelated projects. The Bank was not structuredto provide inte- grated supervision of technicalassistance,reconstruction and other projects at the same tlme, with staff continu- ity. Furthermore, implementation took place in part effort and continuity during the Bank's own reorganization was further lost. (d) While much of the trainingfrom the UNDP project for MPED was focused on and created a core group of line econo- mists, the training component of Technical Assistance I was diluted among a large number of organizationsand did not developa criticalmass of trained staff anywhere. (e) Only 91 of the $12.0million dollars in resourcesprovided by Technical Assistance I and the UNDP project went directlyto Ugandans,through trainingand equipment. The other 91 funded expatriatestaff and subcontractors who did studies. Where collaborativerelationshipsbetween expatriate advisors and local officials were developed, enhanced institutionalcapacity resulted. However, many expatriatessimply came and did the work, leaving little behind. A prerequisite for sustained institutional capacity building is teamwork and local counterpart training. (f) Between 1980 and 1986 inflaticn substantiallyeroded the already low local purchasing power. It thus became rationalfor Governmentemployeeswho wanted to feed their familiesnot to come to work but rather to tend their home gardens. Large investments in training, such as took place at MPED, or efforts by expatriatesto train local counterparts will have limited impact on sustained insti- tutional capacity building where incentives to even show up at work are so severely eroded. (g) Macro policy measures advocated by the Bank and the IMP, such as control of the fiscal deficit and public sector wage freezes,may weaken the very organizations necessary to spearhead reconstruction or adjustment. Since these policies are critical to the overall success of adjust- ment, pragmaticsolutionsmust be found to keep important public sector organizations strong. 34 34/ Wage increases for individual civil servants may not add to fiscal deficits if they are accompanied by rationalization in civil service payments,e.g., by reducingphantom and/or unproductiveemployment.  - 29 - STABILIZATIONANDRECONSTRUCTION IV. ECONOMTC DURINGPOLITICAL INSTABILITY Introduction 118. Along vith the serious destruction of the economy in the 1970s, Uganda inherited a high level of economic and financial instabilityin the 1980. which threatenedfuture economic development. Among other things, the Government'smacroeconomic policieswere a major source of instability in tile economy (see paras. 2-7 for a discussion of the economic policies of the 1970. and their impact on the economy). Economic stabilization, thus, was essentialto the restorationof the financialand business environment which, in turn, was necessary for an efficientreconstruction of the economy. The policy design of Reconstruction 1I and III, however, did not includemacro- economic stabilizationas a direct objective. Instead, the Barikrelied on the IMF to support this objective.35 The economicperformanceof Uganda in the 1980. and how this related to Reconstruction II and III is discussed in this chapter. EconomicPerformancein the 1980s 119. Two major constraints,among other things, limit the assessmentof the performanceof the Ugandan economy in the 19809 and its relationship to the policy design of ReconstructionII and III. First, data on the relevant economic variables for Uganda are not completely availoible for the period. Second, the political instabilityand turmoil of the 1970s continued to an extent in the first half of the 1980s (see the Appendix). The economic uncertaintygeneratedby the changes in political leadershipmakes it diffi- cult to separatethe effect of the reconstruction program from the impact of political instability on the economy. Therefore, some caution has to be exercised in assessingthe role and impact of the Bank's program in Uganda. 120. On balance, the Ugandan economy did not make a sustained recovery following the reconstruction program. The initial success, in terms of higher growth rate in GDP, investmentand exports, was reversed in 1984. Thereafter, the economy deterioratedsharply as GDP and investment fell. Uganda experienced a sharp increase in the Government's budget deficit, accompaniedby spiralinginflationand exchangerate devaluation. 121. Compared to the 1970s, Uganda did show some signs of improvementin the 1980.. The average real GDP growth rate did turn positive during the early 1980's, compared to the negative growth rate in the 1970.. However, the average growth rate in GDP between 1981 and 1987 was less than 1% per annum. Table 4 below presents the real annual growth rate in GDP, agricul- ture and industry for the period 1981 to 1987. Between 1981 to 1983, real GDP grew at more than 5X per annum. However,it turned negative from 1984 to 1986. Similarly,both agricultureand industry faced positive growth rates 35/ The policy design and objectives of Reconstruction II and III are discussedin paras. 36-40 and 51-54.  - 30 - between 1981 to 1983, but turned negative between 1984 to 1986. Uganda, thus, failed to sustain in the mid-1980s the positive growth rate of the early 1980s. Table 4: REAL ANNUAL GROWTH RATES (percent) FY81 FY82 FY83 FY84 PY85 FY86 FY87 GDP at factor cost 3.9 8.2 4.3 -5.4 -1.0 -1.1 2.9 Agriculture 6.8 10.1 5.1 -10.6 -3.7 -4.8 2.8 Industry 1.3 9.0 0.7 5.9 -9.5 -3.1 14.5 Source: World Bank, "Uganda: Towards Stabilization and Economic Recovery,"Report No. 7439-UG,September26, 1988, Table 2.3. 122. Increased capacity utilizationwas an important objective of the reconstructionprogram. Whether this was achieved,however, is difficult to verify since data on capacity utilization is not available. But it is unlikely that capacity utilizationincreased substantiallyin the mid-1980s as indicated by the overall performanceof the economy. An internal Bank d nument of 1989 suggested that many industrieswere still operating at 30X of --Nacityutilization(compared, though, to only 101 in 1970s).36 123. Table 5 gives the share of gross domesticinvestmentin GDP for the period 1982 to 1987.37 In general,the share of investmentin GDP in Uganda is low compared to other developingcountries, in part as a result of the past experience of expropriations and nationalization. Table 5 shows that the share of investmentin GDP increasedfrom a low level of about 71 in 1982 to more than 161 in 1984, but it fell in 1985 and 1986. A comparison of Tables 4 and 5 shows that the efficiency of investment was low in Uganda in the 1980s. Table 5s GROSSDOMESTIC AS A PERCENTOF GDP INVESTMENT PY82 FY83 FY84 PY85 YY86 FY87 7.3 8.8 16.3 8.6 8.1 12.0 Source: Report No. 7439-UG,gp ci*, Table 2.7. 36/ World Bank, "Uganda: March 29, Policy Framework Paper," Sec.M89-334, 1989. )Z/ Data on private sector investmentis not available.  - 31 - 124. The net resource transfer to Uganda turned negative in 1984 (-$57.3 million) and the outflow of resourcesincreased from 1.9S of GDP in 1984 to 3.5Z of GDP In 1986 (-$99.3million). The increased outflow of resources from Uganda between 1984 to 1986 partly explainsthe deteriorationin invest- ment. The low level of investment is also explained by the deterioration since1984 in the fiscal position of the Goverument which crowded out private sector investment. Among other factors, exchange rate devaluation, especially after 1986 when world coffee prices fell, worsened the fiscal position of the Governmentby increasingthe domestic expenditure on ser- vicing the external debt. The introduction of the auction-determined exchange rate, as part of Reconstruction III, in an uncertain rtcroeconomic environment added to economic instability and, thus, deterred private investment. 125. The tradable goods sector neither expanded nor diversified in the 1980s. Exports continued to suffer from a narrow base and foreign exchange earnings fluctuatedfrom year to year. Table 6 shows the trend in merchan- dise exports for the period 1983 to 1987. There were substantialannual fluctuations in the value of merchandise exports without any clear long-term trend of increase in export earnings. Table 6s MERCHANDISE EXPORTS (in US$ million, __Actual - Estimated Proj. 98_3 X1 4 1985 1986 1987 Total MerchandiseExports 367.7 410.2 342.9 406.3 335.7 Coffee 339.7 374.4 320.9 386.3 320.0 Cotton 12.4 11.4 11.8 4.4 5.7 Tea 1.2 3.2 1.6 1.9 0.9 Tobacco 0.9 1.5 1.0 1.0 0.8 Coffee as S of Total 92.4 91.3 93.6 95.1 95.3 Sources Report No. 7439-UG,g Table 3.2. citg, 126. Table 7 shows that exports and imports as a percent of GDP increased initially, but fell in 1985 and 1986. The fall in importsand exports was even greater since GDP was contracting in the mid-1980s. While the share of exports in GDP fell, Uganda's dependence on exports of coffee increased, as indicatedby the increasein its share in total exports from 912 in 1984 to more than 951 in 1986 (see Table 6 above).  - 32 - Table 7: EXPORTSANDIMPORTSAS A PERCENTOF GDP 1982 1983 1984 1985 1986 1987 Exports 8.3 9.5 15.8 9.5 9.4 9.7 Imports 11.8 12.9 16.1 12.7 12.1 16.9 Source: Report No. 7439-UG,ol cit, Table 2.7. Naior Issues 127. Introduction. The Bank's reconstructionprogram began in 1980 as a quick responseto an emergencysituation. As such, it is not surprisingthat ReconstructionI had little policy content. ReconstructionII also was a quick response to an urgent need for foreign exchange; in this case, the policy initiativeswere being supportedby the IMF's first stand-byprogram. By the time Reconstruction III was approved,however, some four years after the Bank's reconstruction program had begun, one would expect that the urgency of the immediatepost-warperiod would have abated somewhat and that more policy content could have been includedin the Third Credit instead of continuingto rely on the IMF. This, however,was not the case. 128. Several related factorswere responsiblefor the Ugandan economy's limited response to the Bank's (and the IMP's) reconstruction program. First, the failure to stabilize the economy by reducing the macroeconomic imbalances was a primary cause of the rapid rise in inflationfrom the mid- 19808. This was further worsened by the auction-determined exchange rate system, introducedin an uncertain macroeconomicenvironment. The sequence of large inevitabledevaluationsfollowingincreases in inflationdenied the use of the exchange rate as a nominal anchor against inflation. This resultedin exchangerate devaluations chasing inflation,and in the process, feedingon each other. The great deal of economicuncertaintyresultingfrom high inflation and the changes in exchange rates deterred investmentin the tradablegoods sector. 129. Second, the impact of economic instability was further worsened by poor debt managementstrateiv. The net outflow of resourcesfrom the country to meet its debt payments reduced the resourcesavailablefor reconstruction and rehabilitation. Third, the lack of structuraladiustmentgolicies in the Bank's reconstructionprogram did not help Uganda in sustainingits long-term growth. The Bank's reconstruction program in its later phases did not sufficientlyemphasizethe badly needed structuraladjustmentin the economy aimed at encouraging (new) competitive sectors with export potential. Instead the Reconstruction Credits became a balance of payment support for old and inefficient import substitutingindustries. Thus, the failure to bring about economic stabilization early in the program, the poor debt strategyand the lack of structuraladjustmentpolicies in the Bank's program diluted the Bank's effort at reconstructing and rehabilitating the Ugandan economy. Some of these issues are discussedbelow.  - 33 - 130. The Role of EconomicStabilization in Reconstruction.A reconstruc- tion program, such as the Bank's Reconstruction II and III, would have been more effective in achieving its objectives if it had been accompaniedby economic stabilization. Reconstruction II and III did not call explicitly for a reductionin budget deficits;instead,the Bank relied on the IMF for a macroeconomic framework. Between 1980 and 1984 the IMP made three successive one-year stand-byarrangements with Uganda. The IMF's stand-byarrangements called for a reductionin budget deficit,and in this respect the IMP program complementedthe Bank's reconstruction program. After initially succeeding in reducingits budget deficit from more than 72 of GDP in 1982 to 31 of G;DP in 1984, the Government failed to meet its fiscal target in 1984. The IMf withdrew from Uganda in June 1984 and did not release the final SDR 30 million committedunder the last stand-byarrangement. Between 1984 and 1987 Uganda remainedwithout an IMP agreement. Reconstruction III of 1984 and the second tranche of ReconstructionII were, thus, left without a macroeconomic framework. 131. Table 8 shows the fiscal deficit and the trade deficit as a percent of GDP for the period 1982 to 1987. Though these deficits declined as a percent of GDP between 1982 to 1984, there was a deteriorationin both deficitsbeginning in 1985. Table 8: FISCAL DEFICIT AND TRADE DEFICIT AS A PERCENT OF GDP FY82 FY83 FY84 FY85 FY86 FY87 Fiscal Deficit -7.5 -4.0 -2.6 -5.2 -4.5 -4.1 Trade Deficit -3.5 -3.4 -0.2 -3.3 -2.6 -7.2 Sources Report No. 7439-UG,op cit, Tables 2.7 & 5.1. 132. A major source of fiscal instabilitywas the Government'sreliance on export taxes on coffee for its revenue which meant that its revenue was vulnerable to changes in world coffee prices. Table 9 shows the share of export taxes from coffee in total tax revenue. Coffee'sshare increasedfrom nearly 291 in 1982 to more than 65% in 1986. This was helped by increasesin world coffee prices, until prices fell in 1986. It can also be argued that the Governmentused exchangerate devaluation as a fiscal support,given that it was highly dependent on export taxes. This paid in the short-runwhen world coffee prices increased,but could not be sustainedwhen coffee prices weakened.  - 34 - Table 9: COFmEEEXPORTTAXESAS A PERCENT OF TOTALTAX REVENUE Preliminary Eat. PY82 FY84 FY85 FY86 FY87 FY88 28.5 31.9 47.4 59.1 67.8 41.0 39.3 Source: Report No. 7439-UG,O cit, Table 5.1. 133. A sustainedreductionin the fiscal deficit requireda reform of the tax system and a rationalizationof public expenditure which should have been carried out as part of ReconstructionIII, soon after Reconstruction I and II when the economy began to show signs of improvements. It is unlikely, though, that it would have worked, given the negative output shocks and the resurgenceof political instability between 1984 and 1986 during the transi- tion from the Obote to the Museveniregimes. 134. High inflationand exchange rate instability were a consequenceof fiscal deterioration. Table 10 shows the trend in the consumerprice index; the changes in the nominal exchange rate are given on the inside front cover of this report. Both inflation and exchange rate devaluation increased rapidly from the mid-1980s. The introduction of the auction-determined exchange rate, as part of Reconstruction III in 1984, was inappropriate to the macroeconomic circumstances then prevailing in the country, given that the fiscal position of the Government began to deteriorate in 1984. Instead, Reconstruction III should have aimed at controllinginflationby reducingthe fiscal deficit, and once macroeconomic stability had been acitieved, the exchangerate auction system could have been introduced. Table 10: CONSUMERPRICE INDEX 1st 3 Qtrs 1982 1983 1984 1985 1986 1987 1988 1989 24 30 43 100 269 908 2,576 4,584 Source: International Monetary Fund, "International Financial Statistics," February 1990. 135. Though the system of auctionswas withdrawn in 1986, inflationhad become fully entrenched in the system. The inflationary impact of the fiscal imbalance was also worsened by negativeoutput shocks and the lack of foreign exchange reserves. The impact of the fiscal deficit on inflation was initiallycushionedby the availability of foreign exchange reserves,but as foreigrn exchange reserves fell, it adversely affected the imports of goods and, thus, the expansionary macro policy resulted in high inflation.  - 35 - 136. The decline in foreign exchange reserves in Uganda generated inflationaryexpectationssince the economicagents anticipatedthat domestic demand could not be met in the future through increases in imports without the availabilityof foreign exchange. Table 11 gives the level of available foreign exchange reserves in terms of months of imports. Foreign exchange reserves fell dramaticallyafter 1986, and this coincided with increase in inflationand exchange rate devaluation. The trends in the nominal exchange rate and in foreign exchange reserves tend to suggest that exchange rate devaluationsclosely followedthe changes in foreign exchangereserves. Table 11s FOREIGNEXCHANGERESERVESIN TERMS OF MONTHSOF IMPORTS FY85 FY86 PY87 FY88 FY89 1.9 2.0 0.7 0.7 0.5 Source: Report No. P-5224-UG,OD cit, Annex B2. 137. Debt ManagementStrateav. Reconstruction III should have includeda debt management strategy, i.e., reschedulingthe interest and/or principal owed on external debt, aimed at ensuring a positive net resource transfer into Uganda during the reconstruction period. This was importantsince more than 50S of export earnings during the reconstruction period went into servicing the external debt, owed largely to multilateral institutions. Table 12 shows the share of external debt service in relation to export earnings and to GDP during the second half of the 19808.38 Table 12: EXTERNAL DEBT SERVICE AS A PERCENTOF EXPORTEARNINGS AND OF GDP, ANDNET RESOURCE TRANSFERAS A PERCENTOF GDP Lit" FY85 FY86 Fl8Z PY88 FY89 External Debt Service: as Percent of Export Earnings 59.8 47.1 64.3 35.2 46.4 as Percent of GDP 8.3 6.9 9.4 2.0 2.7 Net ResourceTransfer: as Percent of GNP -2.1 -3.6 -0.2 n.a. n.a. Source: Report No. P-5224-UG,OD Cit, Annex B1. 38/ Data for the earlier period is not available.  - 36 - 138. The net resource transfer into Uganda had turned negative in 1984 and remainedso until 1987. The externaldebt servicingrequirement had also reduced the flexibility of fiscal policy, as indicated by the divergence between the primary fiscal deficit, i.e., excluding interest payments, and the overall fiscal deficit. Table 13 presentsthe overall and primary fiscal deficit as a percent of GDP for the period 1982 to 1988. There was an increasing divergencebetween the two f om 1982 to 1986, indicatingthat a significant proportion of Government expenditure went into servicing its debt. DEFICIT AS A PERCENT Tasle 13: OVERALL ANDPRIMARY OF GDP Preltminarv ESt. FY82 FY83 FY84 [g85 FY86 FY87 PY88 OverallDeficit -7.5 -4.0 -2.6 -5.2 -4.5 -4.1 -3.7 Primary Deficit -7.2 -2.5 -0.2 -3.2 -2.7 -3.6 -3.0 Sources Report No. 7439-UG,on cit, Table 5.1. 139. Diversification of Exports. Coffee remains the major export of Uganda and the source of its foreign exchange earnings and of revenue for the Government. This constituted a major structural weakness both in the coun- try's balance of payments position and in the Government's fiscal position. Therefore, it was important that the country diversify its exports away from coffee to reduce its vulnerabilityto terms of trade shocks. However, the country's reliance on coffee exports increased in the 1980s, while total foreign exchange earnings from exports did not increase. Table 6 shows the share of coffee in total exports increasingfrom 911 in 1984 to more than 951 in 1986. The increasingconcentration on coffee exports partly reflectedthe fact that the potential for increasingexports of tea, cotton, tobacco and other crops was yet to be exploited,though the Bank's reconstruction program included little emphasis on export diversification. Table 14 shows the volume of exports of coffee, cotton, tea and tobacco. The trend in the volume of coffee and non-coffee exports did not change much in the 1980s, except 1984 when the exports of tea and tobacco increased. Table 14: OF MERCHANDISE VOLUME EXPORTS Actual Estimated Proi. 1983 1984 1985 1986 1987 Total MerchandiseExports 100.0 95.0 103.6 93.0 98.5 Coffee 100.0 92.3 105.0 95.6 102.7 Cotton 100.0 94.7 106.2 54.2 29.9 Tea 100.0 192.3 107.7 126.5 72.2 Tobacco 100.0 186.0 118.5 128.4 110.4 Source: Report No. 7439-UG,gg cit, Table 3.2.  - 37 - 140. Exchange rate devaluation was the major vehicle for export promotion in the Bank's reconstruction program. Though exchange rate devaluation did have a beneficial 39 it was not effective effecton exports, in diversifying Uganda's exports. An export promotion strategy based on exchange rate devaluation in countries largely dependent on the export of primary commodities may not be sustainableif a number of other primary commodity adopt a similar strategy, e.g-, Ghana in exporting countries simultaneously the mid 1980a. Lessons 141. The response programwould have been to the Bank'sreconetructica improvedif the Bank's program had been accompaniedby: (a) An economic stabilizationprogram aimed at reducing the fiscal deficit on a sustainablebasis chrough reforms in the domestic tax system and rationalization of public expenditure, bringing inflation under control and main- taining exchange rate stability while preserving the com- petitiveness of exports (and while not weakening organiza- tions criticalfor reconstruction); (b) A debt managementstrategyto ensure a positivenet trans- fer of resources into Uganda to facilitateinvestmentin %ompetitivesectors and help with the reconstructionof the economy;and (c) Structuraladjustmentpoliciesto ensure that the recovery programwas not limitedto increasingcapacityutilization and reactivatingold (import substituting)industriesbut industries that new and competitive to were encouraged boost and diversifyexports. Liberalization of the trade of the supply- regime and reductionin the restrictiveness side policies were essential to increasingefficiencyin the domesticsector. While inclusion of these policy measures in ReconstructionI and II might have been premature, given the emergency nature of those two Credits, there appears to be little reason why they could not have been incorporated into ReconstructionIII, thus further complementingthe IMF's efforts in these directions. "I An econometric estimate of Uganda's coffee exports indicates that exchange rate devaluation,one year lagged, has a positive effect on exports.  - 39 - APPNDIX Page 1 of 2 HISTORICALBACKGROUND- 1962 TO THE PRESENT 1. At Independenceon October 9, 1962, Dr. Milton Obote became Prime Minister of a governmentbased on a fragile coalition between two reluctant partners--his Uganda Peoples Congress party and the small Kabaka Yekka party representingthe interests of the Baganda tribe and its monarchy. In 1963 the King of Buganda became the first President of Uganda, a non-executive position. 2. In 1966 Obote suspended the 1962 Constitution as part of an effort to achieve a one-partystate. A "Republican Constitution" took its place and all the tribal kingdoms, includingBuganda,were abolished. Obote replaced the King of Buganda as President,which now became an executiveposition. He began his "move to the left" shortly thereafter,designedto turn Uganda into a socialist state. Some major private industrieswere nationalizedin 1968 and the Governmenttook a majority participation in a large number of banks and other companiesin 1970. 3. A -ilitary coup displaced the increasinglydictatorial Obote in January 1971 while he was in Singapore attending the CommonwealthHeads of State Conference. Major General Idi Amin, Commander of the Uganda armed forces since 1967, took over the Government. His regime began benignly enough,witb Great Britain the first country to recognizehim. However,news reports of massacres began to filter back to Europe and the U.S. The mood in 1972 when Amin expelledthe Isrealisand developedan became more negativc~. alliancewith Libya. The U.S. closed its embassy to protest the killing of two Americans by Amin's army under mysteriouscircumstances. In August 1972 Amin expelledmost of the Asians from the country. 4. These actions were followed by the abduction and disappearanceof Uganda'sChief Justice,the nationalization of British firms,more massacres, the breaking of diplomaticrelations by Britain, and the murder by Amin's army of the Archbishopof the Church of Uganda. All this contributedto the economic collapse described in Chapter I of the PPAM. The death knell of Amin's regime was suunded in October 1978 when Amin ordered his troops to attack Tanzania. Tanzaniantroops, accompanied by Ugandan exile armed forces respondedand, in April 1979, drove Amin into exile. 5. The Uganda economywas in ruins. In part reflectingthis, it would be nearly two years before political stability returned to Uganda. Yusufu Lule replacedAmir.as President in April, but was ousted in June by Godfrey Binaisa. Binaisa, in turn, was ousted by a six-man Military Commissionin May of 1980. Finally, in December 1980, general elections were held, the first since April 1962. Ex-President Milton Obote was the official winner w,ith58S of the contested seats in Parliament, and he held the Presidency until July 1985. 6. General Yoweri Museveni, the Minister of Defense in the first post- Amin government,whose party won just one seat in the elections,called the electionsa fraud. He returnedto the bush to take up armed struggleagainst the Obote Government,forming the NationalResistanceMovement. In the face  - 40 - APPENDIX Page 2 of 2 of increasingguerrillaactivityand of problemsdue to separatisttendencies in other areas of the country,Obote was forced into increasingdependenceon the army. 7. By the end of 1983 the security situation in Uganda was pro- gressivelyworsening. The death of the army Chief of Staff in an airplane crash in December 1983 precipitateda crisis. After a long hesitation,Obote named as his replacement a junior officer instead of one of several more senior officers. The new Chief of Staff could not command the loyalty of the other officers and new factions began to form in the army. Violence and disorder increased. 8. In January 1984 six expatriates, includingone employedunder Tech- nical Assistance I, were murdered. In May guerrillas attacked the ground satellite .tation at Mpoma. The Uganda army responded quickly, apparently killing and beating all those it could find. The news of this massacre could not be suppressed,and therewas widespreadinternational condemnation. 9. By 1985 the economic and political situationhad deterioratedsig- nificantly. Fighting betveen the Government and guerrilla forces inten- sified. In July 1985, several months before electionswere to have taken place, PresidentObote was ousted by a coup of his own military officersled by Brigadier General Tito Okello. The situation in Uganda was so unstable that the UNDP called for a temporary evacuationof all U.N. personnel from the country in July and again in Decemberand imposed travel restrictions. 10. The civil war intensifiedand in January 1986 General Museveni's NationalResistanceArmy capturedKampala, overthrowing the Interim Military Government. It subsequently consolidated its control over most of the remainder of the country. Museveni became Presidentof Uganda and Chairman of the National ResistanceCouncil,which took the place of Parliament. He has held these positionsever since.  - 41 - PROJECT COMPLETIONREPORT UGANDA FIRST TECHNICALASSISTANCEPROJECT (CREDIT1077-UG) April 7, 1989 Public Sector ManagementDivision TechnicalDepartment Africa Regional Office  - 43 - PROJECT COMPLETIONREPORT UGANDA FIRST TECHNICALASSISTANCE PROJECT (CREDIT1077-UG) 1. INTRODUCTION AND BACKGROUND 1.01 In April 1979,when the militaryregimefell, the Ugandan economywas in ruins. The war and related looting had damagedcrops and killed livestock.Many buildings had been destroyed and significantloss of supplies, records, equipmentand vehicleshad occurred. The 1970'shad seen the departureof most of the country's best skilled personnel,a haphazard expansion of the parastatalsector, and the deteriorationof the Government. The public service was demoralized and disorganized,and effective management of the ministriesand parastatals remainednext to impossible.Even after the changeof political regime, economicrecovery was slowerthan expecteddue to unsettled political conditionsespecially in Kampala. 1.02 In May 1979, at the invitation of GOU, a Commonwealth team of expertsreviewed the Ugandaneconomyand recommended a rehabilitation programof administrative and policyreform including the rehabilitation of institutions,human resources, and the policy environment for economic developmentas well as physical assets. In the fall of 1979.GOU adopted a two-phasestrategy to revivethe economy. The firstphasewas designed to restorethe production and sale,throughofficial channels, of exportcash crops (coffee,cotton,tea and tobacco) and to re-establish vital Governmentservices. The secondphasecovereda medium-term investment programdirected at the rehabilitation of key productive sectors and the country'sinfrastructure to the levelwhich prevailed in the 1970's. 1.03 While the Governmentwas still strugglingwith the firstphase of this strategy and furtherprogressseemeddependent on Government decisions in the exchangerate,fiscal,and price administration areas,the rehabilitation of critical productivefacilities made a slow beginning. Investment programs were developedfor the restoration of productive capacity of sectorssuch as coffee,tea, sugar,and cottonwhich provided significant foreignexchange earningsor saving. Therefore, it was important to reinforce these effortsin other sectorssuch as infrastructure. This would requirestrengthening the Government's planning capabilities to preparespecific proposals in a more systematic fashion. 1.04 Notwithstanding the lack of well-prepared projects, it was obviousthat the severeshortage of foreign exchangeresources was seriously affecting the reconstruction program. Commitments of foreign assistance also fell short of earlierexpectations and far shortof even the most elementary requirements associated with the reconstruction process. The dramaticshortfall in aid disbursements was not only a reflection of inadequate commitments due to uncertainty aboutthe political situation, but also the fact that the GOU had considerable problemsin absorbing available assistance effectively.Weak planning machinery of the  - 44 - Governmentadministration and the shortageof well-prepared projectshad much to do with this. Even under the most optimisticassumptions, imports in 1980 would have been far below the requirementsfor even the first six mouths of the reconstruction process,as identifiedby the Commonwealth team. II. ORIGIN AND NEED FOR THE PROJECT 2.01 There had been a hiatus in Bank Group commitmentsin Uganda from June 1971 through February1980. Throughoutthe 1970's, the Bank Group continuedto disbursefunds against prior loans and credits;two projects, the Second Highway Credit of US$11.6million (No. 164-UG) and the Second EducationCredit of US$ 7.3 million (No. 258-UG) had been under implementation. Completion and final disbursement of the highway credit was expected in December 1980. The education credit which was expected to close in December 1982 was adverselyaffectedby the fightingand subsequentlooting. 2.02 Followingthe change of regime in early 1979, the Bank Group began project identification in a number of sectorswith a view to establishing an active project pipeline. Since an initial reconnaissance mission in July 1979, particulareffortshad been made to assess the basic constraintsfacing the Governmentin the productivesectors.Industrial, agricultural, and transportsector reconnaissance missionshad already visited Uganda and project preparation was in process in some of these sectors. In order to assist in the medium- and longer-term requirementsof the rehabilitation process,IDA approved the First Reconstruction Credit (Cr. 983-UAN)in the amount of US$72.5million, including US$17.5 million from the Kingdom of the Netherlands. In addition,the Bank was responsible for executingan EEC SpecialAction Credit of US$20 mlliidn and a Canadian grant of US$3 million for the same purpose. 2.03 The most criticaldeficiencyfacing the Government was the near total absence of well-prepared investmentproposalsand the difficultyin rehabilitating existingprojects. The Ministry of Planningand Economic Development(MPED)was responsible for overseeingand coordinating developmentplanning. However,MPED's competencein macro and sectoral planning,as well as in project identification, preparationand appraisal was very limitedand needed to be upgraded. It was evident that if the countrywas to be successfulin its rehabilitation and reconstruction efforts as well as laying the foundations for achievingrapid economic growth, the capacityof the Governmentto prepare and implement rehabilitation and development projectswould need significant improvement. 2.04 Therefore,a technicalassistanceproject for project preparationand related institution buildingwas consideredappropriate. Simultaneously, a UNDP- financedand Bank-executed PlanningAssistance Project (UGA/79/011) was being negotiated. Its objectivewas to strengthen the planningand managementcapabilityof MPED by providingabout seven experts coveringall major sectorsof the economy. The idea was that the technicalassistanceprojectwould supplementthe effectiveness of aid programswhich would be availablefrom UNDP and bilateralsources.  - 45 - PREPARATION, II. PROJECT IDENTIFICATION, AND APPRAISAL 3.01 The need for technicalassistance was raised during an IDA reconnaissance mission which visitedUganda in July 1979. The mission revieweda report preparedby the Commonwealth team in mid 1979 and discussedmatters raised by GOU, such as balance of paymentssupport, reinstitution of the project pipeline,medium-termplanningassistance, and aid coordination with relevant ministries. It was agreed that there was an urgent need to build up a pipelineof adequatelyprepared investment projects for financingby externaldonors in the form of technical assistance. 3.02 In December 1979, an appraisalmission visited Uganda and assistedGOU with the preparationof a technicalassistanceproject. Negotiations were held in Washingtonin April/May 1980 which resultedin the Report and Recommendations of the President (therewas no appraisal report) dated November11, 1980. The ExecutiveDirectorsapprovedthe project on December2, 1980 and the Credit documentswere signed on January 21, 1981. The credit became effectiveon March 26, 1981. IV. PROJECTOBJECTIVESAND DESCRIPTION 4.01 The primary objectiveof the First TechnicalAssistanceCredit was to assist GOU and its agenciesin preparingsuitabledevelopment and rehabilitation projects for financingby IDA and other donor agencies,by completingcapacityutilizationstudies,strengthening Ugandan institutions involved in project preparationactivitiesand providingassistancein the implementation of the same projects. 4.02 The project consistedof a line of credit of SDR 6.4 million (US$8.0million) to GOU from which grants would be approvedfor governmentalministriesand other agenciesto finance the costs of the followingactivities: a) 'consultingservicesfor preparingprefeasibility and feasibilitystudies for productiveand infrastructural investments; b) consultingservicesfor preparing rehabilitationand capacity utilizationstudies,mainly in the industrial,agricultural, transportand communicationssectors; c) expatriatestaff assistancefor strengtheningthe planning capacityof Governmentministriesand other agencies, principallywith respectto project identification, preparation,and evaluation; d) expatriatestaff assistancefor providing short-termmanagerial and technicalstaff for operationalprojects,principally in the industrial,agricultural,transportand communications sectors;and  - 46 - * e) preparation, trainingof Ugandansfor project identification, evaluation,and implementation. 4.03 The projectwas administered by MPED. In order to ensure that MPED would have the capacityto (i) process subprojectapplications from potentialusers of the credit funds, (ii) communicate with IDA on subprojects and disbursements, and (iii) follow up on the implementation of approvedsubprojects, specialadministrative mechanismswere devisedand became conditionsof effectiveness for the First TechnicalAssistance Credit. First, it was decided that a Review Committee should be set up within MPED to approve all subprojectrequestsunder the Credit. The Committeewas to be chaired by the PermanentSecretaryof MPED and included as members the Secretiryof the Treasury,the Chief GovernmentDevelopment Economistof MPED, and at least four officialsfrom other ministriesand parastatals.Second, it was decided that a Project Coordinator(a senior administrative officer) shouldbe appointedin MPED to oversee the implementation of the project. 4.04 Proceedsfrom the Credit were to be allocatedin agreement between the Governmentand IDA for specificsubprojects. These were to be preparedby concernedministries, parastatalenterprisesor other public and private entities,reviewedand evaluatedby MPED, and then presentedto the Review Committee. All subprojects(exceptfor trainingsubprojects) costing US$10,000or more requiredprior approvalof IDA. Implementation of subprojects was the responsibility of the respectiveministriesand agencieswhile MPED was requiredto report on their progress to IDA. While MPED's weaknesswas recognizedto be a major risk, it was expectedthat MPED.would be strengthened by the UNDP-financed PlanningAssistanceProject for which IDA would act as the executingagency. It was agreed that appointment of the Chief TechnicalAdviser under that project should be also a conditionof effectiveness for this Credit. Therefdre,IDA staff concludedthat there was no need to provide additionallong-termtechnical staff to MPED under this Credit. V. PROJECT IMPLEMENTAT.ON 5.01 Based on the discussionsat the time of appraisaland negotiations, a Project Coordinatorwas appointedwith agreed on terms of reference. The Review Committeewas established with the prescribed membershipand agreed on terms of reference. On February1, 1981, the Project Coordinatorissued detailedinstructions to Governmentministries and agenciesin order to facilitateproject implementation. The only part of the administrative machinerythat had not been in place was the one for the UNDP-financed/Bank-executedPlanningAssistanceProject. 5.02 In September1981, the first subproject,TA-1: Audit of Uganda DevelopmentBank (UDB)was approvedby IDA within the free limit. However, it was not until February1982 that anothermajor subproject, PP-1: Preparation of Third EducationProject,was approved. The slow rate of disbursement that occurredwas largelydue to technicaland administrative weaknessat MPED in subprojectpreparation, review, and approvalprocess, and particularly, problemsfaced by the ProjectCoordinatorand the Review Committee in carryingout their assignedroles. The designatedProject  - 47 - Coordinatorhad other substantive duties in MPED and this was the cause for a low level of activity in implementation.Also, the roles of MPEDand the Review Committeewere largely of a formal rather than a substantive nature. Many of the subprojectproposalssubmittedto the Bank were inadequateand did not contain the requiredinformation, as set out in the DevelopmentCredit Agreement. Most common cases were the submissionof inadequatecost estimates,incompleteterms of reference without a short-listof consultants. The justification for the subproject was also weak in severalcases. 5.03 In the course of a supervisionmission by IDA staff in March/April1982, it was agreed with the PermanentSecretaryin MPED to revitalizethe Review Committeeand to appointa senior economiston a full-timebasis to help implementthe Credit, in addition to the administrative officer assistingthe project coordinator. However,even after the appointment of a senior economist,there was no substantial improvement. 5.04 The Credit was expectedto finance 100 percent of the foreign expendituresand 90 percent of local expenditures on consultantcontracts, vehiclesand equipmentfor the Project Unit, and overseastraining. Initially,the Credit was expectedto be fully disbursedfiscal 1985. As it turned out, actual cumulativedisbursements were much slower and no disbursements were made in the first year. Nevertheless, the Credit was fully disbursedin September1986. 5.05 A total of seven project preparationstudies (three prefeasibility/feasibilitystudies,four rehabilitation studies)and eleven subprojectsfeaturingexpatriatestaff assistance, were undertaken. Twenty-oneindividuals were sponsoredeither for trainingabroad or participationin short-termtraining,such as a seminarat the Eastern and SouthernAfrica ManagementInstitute (ESAMI)at Arusha and the Bank Urban Conferencein WashingtonD.C. 5.06 For project preparationstudies an amount of SDR 1.47 million was disbursed. IDA encouragedthe utilizationof project funds for the preparationof projects suitablefor its financingin order to reduce the risk that fundswould be used for studies unlikelyto lead to investments. As a result,most proposalsfor prefeasibility/feasibility studies and rehabilitation studiespreparedby the Borrowerand approvedby IDA were closely linked to IDA's lendingprogram. The Third EducationProject,the PetroleumExplorationPromotionProject and the Third and Fourth Highway Projects followedpreparatory work funded under the TA Credit. 5.07 For the expatriatestaff assistancesubprojects, which aimed at providingmanagerialand technicalservicesfor project preparation, appraisaland management,an amount of SDR 4.85 million was disbursed. While some problemswere encountered, overall,quite a few subprojects succeededin improvingthe planningand managementcapabilities of the individualagencies. 5.08 Good exampleswere a series of subprojects to assist UDB (TA-ls Auditing and Review of Accounts, TA-4: ConsultancyServicesto Carry Out ProjectAppraisals,TA-5: Assistanceto Improve OperatingSystems and  - 48 - ProiectAppraisals-- cost-sharing with UNDP), which systematically strengthenedthe internalmanagementof UDB so that it could handle the proposalof a IndustrialRehabilitation Credit. TA-7: Assistanceto AgriculturalSecretariatin the Bank of Uganda (BOU) establishedan effectiveframeworkfor the Agricultural Secretariat to play a central role in providing the Governmentwith policy advice especiallyon annual producerprice adjustments. Also, TA-8: Assistanceto MPED in Reviewing the 1984-82 RecoveryProgramwas successfulin strengthening the capability of MPED to plan and review the subsequentRecoveryProgram. 5.09 The training-related subprojects disbursedonly SDR 0.08 million against the initial expectation of SDR 0.8 million. IDA appr3vedten trainingcourses,of which eight were for short-termfellowshipsfor fairly senior officialsof four differentagencies,and two were for short-term trainingseminars. By the end of fiscal 1984, nine courses had been either completedor were in progress. Progresswas slow, as it proved difficult to integrateIDA-fundedfellowships into a systematicoverall training program allocatingthe availablefellowships to organizationsthat would match the skills of returningfellowsto job requirements. Only two trainingsubprojects, a procurementseminar at ESAMI and the Bank Urban Conference, were effectivelytargetedand organized. Also, since most fellowships had been until then both financedand administered by donor agencies,Governmenthad not yet needed to develop an internalcapacityto administertrainingprograms. Project design did not adequatelytake this into account. 5.10 The project progresswas seriously hampered by unsettled securityconditions. Politicalinstability which was prevalentat the beginningof the project deteriorated markedly in the subsequentyears. Two experts died in 1984; and 1985/86were noted for coup d'etats, evacuationof experts,and suspensionof travel by IDA staff to Uganda. Therefore,the project faced problems in recruitingexperts,interrupted servicesof experts and consultants, and of limited supervision by IDA. These difficulties were beyond control of both the Borrowerand IDA. VI. PERFORMANCE OVERALL AND INSTITUTIONAL DEVELOPMENT 6.01 The performance of the First Technical Assistance Credit has been, on the whole, quite satisfactory for a first TA project in a particularlydifficultenvironment. The Credit was successfulin terms of preparingprefeasibility and feasibility studies for productiveand infrastructural investments and project rehabilitation and capacity utilizationstudies. In terms of strengthening planningand project preparationcapacitiesat the relevantministriesand agencies,a good beginningwas achieved. 6.02 The Credit was effectivein establishinga strong pipelineof new investmentand rehabilitationprojects. As shewn in Annex I-A, all subprojectswere utilizedto complementthe projects in various sectors financedby IDA. Thus the First TechnicalAssistanceCredit proved to be a flexibleand effectiveinstrumentto help meet a broad range of urgent technicalassistancerequirements.  - 49 - 6.03 In terms of buildingthe institutional capacitiesof MPED, other Governmentministriesand agencies,a number of subprojects achieved significantimprovements in the capabilitiesof individualagenciesin implementing projects. On the other hand, there was little improvementyet in the capabilities of individualagenciesin preparingprojects,and of MPED and the Review Committeein reviewingand analyzingproject proposals. VII. IDA PERFORMANCE 7.01 Instead of allocatingthe credit budget to specificsubprojects, IDA devised a flexibleadministrative machinery. It established a Review Committeeand made it responsible for the review and approvalprocessof the subprojectrequests. This was a challenging exercise for MPED to learn and practice the administrative process of project planningand management. In general,considering the adverse circumstances in Uganda, IDA performedwell in providingbroad and flexibleassistancein the course of the subprojects preparation, appraisal,and implementation.As a multilateralinstitution, it was also better suited to provide technical assistancein sensitiveareas such as economicmanagementand public administration -han bilateraldonors. However,despite these achievements, it turned out that this administrative machinery containedseveral weaknessesand requireda particularly intensiveand wide supervision of both MPED and other agencies. 7.02 Practically,for the Review Committeeto work effectively,it was essentialthat MPED be equippedwith a certain level of planningand managementcapability. To ensure that MPED would have this capacity,a team of advisersunder a UNDP-financed PlanningAssistanceProjectwas to have been assignedto MPED during the reconstructionperiod. Difficulties in recruiting and retainingadvisersduring a period of politicalstrife, however,resultedin only limitedavailability of advisoryservicesand a lack of continuityin the assistance. 7.03 To reduce the risk that fundswould be used for studiesunlikely to lead to investments, IDA encouragedthe utilization of project funds for the preparationof projectssuitablefor Bank Group financing. This close involvement of IDA in the preparationprocess of subprojects helped speed up the preparationof subproject proposals. It is possible,however, that such close involvement may have lowered the motivationof MPED and the Review Committeeto carry out their functionsin the subprojectsreview and approvalprocess. 7.04 It turned out that the IDA-devised machinery for project administration proved complicatedand cumbersome. There were six supervision missions to Uganda by IDA staff, who, among other tasks, reviewedthe credit performance. Also, the ResidentMission in Kampala played a supplementary role in supervisionespeciallywhen travel to Uganda was suspended. However,with limitedexternalinputs, these effortswere not enough to strengthenthe institutional capacityof MPED, and the project might have benefitedfrom more intensivesupervision than it received.  - 50 - VIII. SUMMARYAND RECOMMENDATIONS 8.01 The First TechnicalAssistanceCredit successfully attained its primary objectiveof establishing a pipelineof productiveand infrastructural investment projectsas well as rehabilitation and capacity utilizationprojects. In terms of its secondaryobjective,institution building,achievements were more modest, even though significant improvement was achieved in the managementcapabilityof individual agenciesin the subprojectimplementation process. 8.02 This credit providedsome valuable lessons for future operations. First, there should be a more frequentand thorough supervision during the preparation and implementationphases of subprojects if at all possible,especiallyin the case of a first TA project. The supervisionshould be conductedjointlywith the relevantBank sector division,particularly when the Credit is divided into many subprojectsin various sectors. 8.03 Second, specialcare needs to be given to encouraging institutionbuildingand to ensuringthat IDA's operational proceduresand guidelinesincludingthe contractual proceduresand trainingarrangements are understoodby the Governmentfrom the early stages of the project. Finally,the Bank should carefullyappraisethe feasibilityof administrativearrangementsfor its technicalassistanceprojects. 8.04 In conclusion,considering the emergencysituationin which the project had to be launchedand the difficultsecurityenvironmentin Uganda, the Credit achievedremarkableresults. The contribution of expatriates who remainedin Uganda and assistedthe country'sdevelopment in the midst of politicaluncertainties deservesspecialmention.  - 51 - ANNEX1 Page 1 of 3 PROJECT REPORT COMPLETION First Technical UGANDA: taistance Project List of Subprojocte by Component Amount Amount Related No. Title Approved Disbursed IDACrodit -- ----(InSDR)- ---- A Project Preparation Studies PP-i Preparationof 344,866 299,762.79 ThirdEducation Third Education Project PP-2 Pr-peration of 223,026 177,205.02 Third Highway ThirdHighwayProjeet PP-3 PetroleumExploration 365,066 340,264.98 PetroleumExploration Project (Phas.I) Project (PhaseI) (under SecondTA Cr.) PP-4 RoadRehobilitation Proj. 230,37t 200,911.65 Fourth Highway (Kampala-Jinha) PP-6 RoadRehabilitation Proj. 175,100 92,350.28 FourthHighway (Mbarara-Ntungamo-Rubiaare) PP-a RoadRehabilitation Proj. 287,228 257,881.89 FourthHighway (Masaka-Ishaka-Katunguru) PP-7 RoadRehobilitation Proj. 282,725 106,003.35 ThirdHighway -(Macka-Lyantonde-Ubarara) Total- 7 Subprojects: 1,799,450 1,474,229.88 _________________---  - 52 - ANNEX1 Page 2 of 3 PROJECT REPORT COMPLETION Pro]jet UOANDA:Fir;tTehnicalAssistance Littof Subprojecte by Coeponont Amount Amount Related No. Titl- Approved Disbursed IDA Credit SDR) -_--------(In --- 8. Expatriate Staff Assistance TA-1 Audit of UDS 20,706 Rehab. 21,929.87 Industrial TA-2 Advisor* FourExpatriate 112,906 99,792.31 ThirdHighway In voW TA-3 to UTOC Assistance 118,660 Rehab./ 93,476.96 Agricultural SecondReconstruction TA-4 Consultance Serviesofor 376,006 Rehob. 379,951.30 Industrial Project to UD8 Approissls TA-S Assistanceto UDB 1,607,250 Rohab. 1,818,383.75 Industrial (coatsharingwith UNDP) TA-6 Assistanceto CT8 297,020 Reconstruction 308,937.88 Second TA-7 to Agricultural Assistance 1,299,00 Rohob./ 399,785.91 Agrieultural in BOU Secretariat Reconstruction Second TA-S to UPED (Review Assistance 156,096 Reconstruction 118,324.63 Socond Recovery of 1962-84 Progr.) TA-9 Assistanceto Treasury 2865,000 188,671.04 SecondReconstruction Depertment, MOF TA-1O Parostatal Accounting 175,000 161,008.98 - Study (PhaseI) TA-11 Parastatal Accounting 1,444,000 1,444,125.37 Study (Phaso 1I) Total - 11 Subprojects: ,662,405 4,850,288.10  - 53 - ANNEX1 Page 3 of 3 REPORT COMPLETION PROJECT ULOMDA: First Technical Assistance Project List of Subprojects by Component Amount Amount No. Participant8s Name/Position Approved Disbursed Description -- -------- -------- n SR---------------- C. Training (i) Individual Fe lowships tR-1 .- Mr. Olet 9,S06 7,478.60 Bradford Univ.,UK: Sr. Forester 3 months in. of Agriculture/Forestry tR-2 Mr. Okello 10,06 7,012.26 Institute of Devl. Branch Manager, UCG Adm., Dublin: 4 monthe R-a Y . Ibndy 10,060 10,908.39 U.S. Oept. of Scientific Officer Agriculture: 10 weoks Min. of Animal Ind./Fisherles TR-4 Dr. Bamusonighs, 7,66 6,893.63 U.S. Dept. of Head, Planning Unit Agriculture: S weeks Min. of Animal Ind./Fishories 73-C Mr. Otte 7,W0 6,990.48 U.S. Dept. of Sr. Agricultural Economist Agriculture: 6 weeks Hin. of Agriculture 7R-6 Mr. Sagedire ?,0oo 6,990.9 U.S. Dept. of Sr. Agricultural Economist Agriculture: 5 weeks Hin. of Agriculture TR-7 Ur. Serw a-Luwaga 9,000 9,521.79 Bradford Univ.,UK: Transport Statistician a weeks Ministry of Transport TR-8 Hr. asembe-Nteyfa 13,006 7,124.67 Univ. of Connecticut. DOputy Credit Manager, UCB U.S.: 6 weeks (11) Seminars TR-9 11 Ugandan Officials 14,700 8,113 Procurement Seminar (Esaml, Arusha): March 21-25, 1983 TR-If Hr. Mogulo 7,600 4,449 World Bank Conference, Minister "Improving the imn. of Housing/Urban Devel. Effectiveness of Urban £ AAssistance: Mr. Lubegn December 2-6, 1985 Secretaryfor Housing Hin. of Housing/Urban. Devl. Total - 10 SubproJects: 94,800 76,482.65 (21 porticipants)  ANNEX 2 Page 1 of 7 OF PROJECT PUEPARATION SUMMARY STUDIES Category: PP-1 Titles Preparation of Third EducationProject Government Implementing Agency: Ministry of Education (MOE) Date IDA Approved: February 1, 1982 Consultant: (1) British Council (2) Mr. R.J. Syme (equipmentconsultant) (3) Peatfield& Bodgener (4) Crown Agents Original Allocation: SDR 344,0C3 Final Disbursement: SDR 299,752.79 Background/Oblectives: 1.1 Shortly after the liberation, the Government requested assistance from IDA to rehabilitate the education sector. An Education Reconnaissance Mission visited Uganda in February1980 and a UNESCO Country Program Mission followedin April 1980. After one year of interruption due to the political instability, in January 1981, the Minister of Educationrequested IDA for assistanceto rehabilitate and upgrade the educationsystem in Uganda. The originalproject proposal for the Third EducationCredit (1329-UAN) was preparedby the UNESCO Mission of October 1981. As reported by an IDA mission of NovemberlDecember 1981, there was a need for help to expeditethe appraisaland later the implementation processes. 1.2 The resultingsubprojectaimed at helping Governmentofficialsin advancingthe preparation of the EducationCredit by designingand implementing a number of surveys financedunder the First Technical AssistanceCredit. The subproject was approvedby the Review Committeeon January 8, 1982 and the formal requestwas submittedby MPED on January 21, 1982. lmplementation: 1.3 On February1982, IDA agreed to allocateSDR 344,000 to the subproject. The subproject was completedin October 1982, and it was divided into the followingcomponents: a) Textbooks/library books: With assistancefrom the British Council, a Ugandan team consistingof eight Ministryofficialsvisited London in February1982 to identifyrelevanttextbooksand librarybooks for their institutions and to obtain advice on the selectionof those books, the preparation of their lists, and cost estimates. b) Science equipmentand teachingllearning materials:An equipment consultantstayed for three weeks from June 1982. He visited a cross sectionof schools in Uganda both around Kampala and up-  ANNEX 2 - 55 - Page 2 of 7 country and assistedofficialsof MOE in selectingand costing science equipmentand materials. c) Sample survey of school furnitureneeds and physical conditionsof buildings:Peatfieldand Bodgenerconducteda sample survey of of Governmentsubsidizedschools (primary, secondaryschoolsand primary Teacher Training College)in order to obtain information on furniture,text books, equipmentand supplies. d) Developmentof an optimalplan for the delivery system:Crown Agents devised the most efficientand secure system of distribution. The findingsand recommendations of the survey were discussedbetween the MOE officialsand the consultants. e) Study on the rehabilitationneeds of MakerereUniversity: Althoughthe Universitywas supposedto appoint a local firm of architectsto carry out the study, no progressoccurred. Finally, on September1982, the Governmentdecided to contractthe firm of Peatfieldand Bodgenerto do the study. - Evaluation/Follow-up: 1.4 The subprojectsuccessfully achievedits principalobjectiveof preparing the Third EducationCredit. The assignmentwas completedto the entire satisfaction of MOE and all activitieswere carried out in the spirit of close cooperation.  ANNEX 2 -56- Page 3 of 7 Category: PP-2 Title: Preparation of Third Highway Project Agency: GovernmentImplementing Ministryof Works (MOW) Date IDA Approved: March 24, 1982 Consultantt Louis Berger InternationalInc. OriginalAllocation: SDR 223,025 Final Disbursement: SDR 177,265.02 Background/Objectives: 2.1 IDA had already approvedthe First Highway Project (No. 108-UAN, US$5.0 million)and the Second Highway Project (No. 164-UAN,US$11.6 million) to help financethe construction of primary,secondaryand feeder roads in Uganda, includingthe feasibility study and detailedengineering. When the second credit was negotiatedin 1969, a third highway credit was planned as a follow-upand the Governmentagreed with IDA to prepare such projectwith fundingfrom the TA credit. 2.2 High prioritywas placed on the rehabilitation and reconstruction of the road infrastructure.Therefore,this subprojectaimed at updating the Highway Maintenanceand Organization Study preparedby Louis Berger in 1972 under the second credit. It was approvedby the Review Committeeat its third meeting held on September25, 1981 and the formal requestwas submitted by the MPED on October 29, 1981. Implementation: 2.3 On March 1982, IDA agreed to allocateSDR 223,025 to the subproject. A contractwas signed between the Governmentand Louis Berger International on May 3, 1982. The consultant verifiedMOW's inventorydata of the road network and drew up a road maintenanceprogram accordingto traffic levels and existingroad conditions. It also made recommendations for organizationand technicalassistance needs. The final report and updatingof the study was completedin March 1983. Evaluation/Follow-up: 2.4 The principalobjectiveof updatingthe HighwayMaintenanceand OrganizationStudy was achieved. The programdrawn by the consultantwas generallysatisfactory and it provideda frameworkfor appraisingthe maintenanceand technicalassistancecomponentsof the Third Highway Project (US$58million/SDR56.1 million). 2.5 The processingof the study requestwas slow. The first request submittedby MPED in October 1981 was incomplete,with no detailedcost estimateor equipmentspecification. Also not includedwere detailedjob descriptionsfor the proposedstaff and contractfees amounts.It was not until January 1982 that the requestwith additionalinformationwas processedby the Review Committee.  AMNEX 2 - 57 - Page 4 of 7 Category:PP-3 Titles PetroleumExplorationProjectsPhase I (AirmagSurvey,Equipment) Agencys Ministry of Lands, Minerals, and Water GovernmiitImplementing Resources (MLMW),GeologicalSurvey of Mines (GSM) Date IDA Approved: April 25, 1983 Consultant: Kenting Earth Science (Kenting), Exploration Data ConsultantsInc.(EDCON) OriginalAllocation: SDR 357,000 Final Disbursement: SDR 340,284.97 Background/Obiectivest 3.1 On December23 1982, GOU requestedIDA for an advance to finance the preparationof the PetroleumExploration PromotionProjectwhich aimed at promoting prospective areas for exploration by oil companies. During the Preparation Mission in late January 1983, it was agreed that the projectwould be implemented in three phases and that the first phase (early/mid-1983) should include the Airmag (Aeromagnetic) Survey and the urgent rehabilitation of the physicalinfrastructure of GSM in order to support the contractorsfor the Survey.Also it was decided the Airmag Survey should be part of an EasternAfrican Regional Survey including Uganda, Kenya, Tanzania,and Zaire. 3.2 Therefore,the subproject was designed to provide Airmag Survey, equipmentfor GSH (3 land rovers, 2 typewriters, photocopier, and office equipment),and trainingof two geologistsin petroleum geology and two geophysicistsin geophysical data processingand interpretation. Implementation: - 3.3 In April 1983, IDA agreed to allocateSDR 357,000 to the subproject. Renting (contractor) and EDCOM (qualitycontrol/supervision) were selectedas consultantson May 19, 1983 at the joint committee with representatives from EasternAfrican countries (Uganda,Kenya, Tanzania, and Zaire) and a contractwas signed in June 1983. Regarding implementation of the survey, the same contractorwas chosen for the survey of the entire area in order to minimizecosts and to achieve a consistent product. 3.4 Flying of the Airmag began in July. Due to bad weather in the Lake Albert/Mobuturegion, the survey was delayed by one month beyond the original scheduleand was completedin October 1983. Preliminary interpretationswere presentedby Renting and EDCON in early August 1984. After receiving indications that a number of oil companieswould be interestedin the area, the Governmentdecided to offer explorationacreage through a public bidding process. EvaluationlFollow-up: 3.5 The objectiveof facilitating the preparationof the Petroleum ExplorationPromotionProjectwas successfully achieved. GSM had well qualifiedand highly motivated staff and there was excellentcooperation  ANNE 2 -58- Page 5 of 7 between GSM and IDA. IDA had been instrumental in helping prepare and implementthe East African Regional Airmag Survey which was designedto promote large areas for exploration by oil companies. IDA's main contribution was to help bring togetherthe four Governments and to prepare specifications.Apart from substantial cost savings,the regionaleffort resulted in much better possibilities for geologic interpretation. 3.6 A promotionmeeting for the Lake Albert and Lake Tanganyikaarea was scheduledto be held by Uganda, Tanzaniaand Zaire in October 30- 31, 1984 in London. Since the proposedPetroleumExplorationPromotionProject would not become effectivebefore mid-1985,the Governmentof Uganda separatelyrequestedIDA to help financetechnicalassistanceand consultingservicesneeded during the promotionmeeting and subsequent evaluationof bids for exploration/production licensesunder the Second TechnicalAssistanceCredit; The subproject was approvedon January 10, 1985 with an allocationof SDR 139,000.  ANNEX2 - 59 -VPage 6 of 7 Categorv: PP-4, 5, 6, 7 Titles Road Rehabilitation Program (Feasibility Study & Detailed Engineering) - - PP-4: Kampala-Jinja Road (72 km) PP-5: Mbarara-Ntungamo-Rubaare Road (135 km) PP-6: Masaka-Ishaka-Katunguru Road (84 km) PP-7s Masaka-Lyantonde-Hbarara Road (122 km) Agency: Ministry of Works (MOW) Governmentimplementing Date IDA Approved: May 11, 1983 Consultants PP-4: RenardetS.A. PP-S & 7: Schroder-Planung GMBH & Co. KG PP-6: Carl BrothersInternational S OriginalAllocations PP-4s SDR 230,375 PP-5: SDR 175,100 PP-6: SDR 267,225 PP-7: SDR 202,725 Final Disbursement: PP-4: SDR 200,911.55 PP-5: SDR 92,350.28 PP-6: SDR 257,661.89 PP-7: SDR 106,003.35 BackaroundlObiectives: 4.1 As mentioned in PP-2 (para. 2.1), the First and Second Highway Projectsfinancedfeasibility and engineeringstudies for the primary road system which included the four roads being considered high-priority candidates for rehabilitation under the 1982-84 Recovery Program. Therefore, the subproject aimed at updating the previousfeasibility and engineeringstudiesfor the four roads, assessingthe appropriatelevel of road rehabilitation and strengthening measureswhich would improve road conditionsand prevent furtherdeterioration. The formal requestwas submittedby MPED on June 23, 1982. Implementation: 4.2 In the process of selectingconsultants, the Government encountered several problems. In December 1982, it submittedto IDA an evaluationreport on the consultants' proposals for the studies,without any information on the weights assignedto various criteria,in accordance with IDA guidelines. At the requestof a Review Mission in January/February 1983,MOW submitteda detailedevaluationreport. There were also protractednegotiations with one of the consultingfirms, mostly due to a change requestedin the phasing of the work. Evaluation/Follow-up: 4.3. As a whole, on the basis of the technicaland economic criteria, the studies achieved their originalobjectives. The feasibilitystudies showed all the works to be well justifiedwith economic returns for  ANNEX 2 Page 7 of 7 - 60 - individual (ections ranging from 172 to 95S. in January .985,the Government requested IDA to assist in obtaining financing for the three most urgent roads (215 km) leaving the Mbarara-Masaka roads to be resurfaced in the second phase of the Third Highway Project. The rehabilitation of these three roads were to be financed under the Fourth Highway Project. 4.4 In view of the Government's inexperiencein the selectionand hiring of consultants, IDA should have providedearlier,or more intensive, assistance or trainingto Governmentstaff.  _ 61 - ANNEX 3 Page 1 of 14 OF EXPATRIATE STAFF ASSISTANCE SUBPROJECTS SUMHARY Category: TA-1 Titles Audit of Uganda Development Bank (free limit subproject) Agency: GovernmentImplementing Uganda Development Bank (UDB) Date IDA Approved: September14, 1981 Consultant: Price Waterhouse OriginalAllocation: SDR 20,705 Final Disbursement: SDR 21,929.87 Background/Obiectives: 1.1 Although the accountsof UDB had been audited by a local firm since its inceptionin September1972, its accountingsystem needed to be upgradedto an internationally acceptablelevel so that it could handle foreign lines of credit. In addition,IDA consideredthat this should be a preconditionto implementthe proposedIndustrialRehabilitation Credit (No. 1248-UAN). 1.2 This subprojectproposedto carry out the evaluationand redesigning of the accountingsystem and the review of UDB's accounts. The proposalwas approvedby the Review Committeeat its second meeting held on July 29, 1981 and the formal requestwas submittedby MPED on August 21, 1981. Implementation: - 1.3 In September 1981, IDA agreed to allocateSDR 20,705 to the subproject within a free limit budget. Price Waterhouse was selectedas their Nairobi office had carried out a preliminarysurvey of the auditing of UDB's accounts in November1980. 1.4 Price Waterhousehad conductedan audit of UDB's accounts in 1980 in accordance with generallyacceptedstandards. They also discussed the presentation of the draft 1979 accountswith UDB's ouditors,reviewed their working papers for the 1979 examination,and issued a confidential report on their findings. Evaluation/Follow-up: 1.5 The subprojectachievedits objective to improveUDB's accountingcapabilityby settingup a new accountingsystem aud reviewing the portfolio. It contributed to establishinga frameworkwhere UDE could play a central role in the preparationand implementationof the Industrial Rehabilitation Credit and other foreign loans. The audits of the accounts and independent reviews of the portfoliohave been satisfactorily conducted by UDB on a regularbasis.  ANNEX 3 -62- Page 2 of 14 Categorys TA-2 Titles Four ExpatriateAdvisers in Ministryof Works Agencys Ministryof Works (MOW) GovernmentImplementing Date IDA Approvedt November17, 1982 OriginalAllocation: SDR 112,800 Final Disbursement: SDR 99,792.31 Background/Oblectives: 2.1 The Second Highway Credit (No. 164-UAN)and the Highway Maintenanceand Road Rehabilitation Studies providedthe servicesof four experts. There was a need to provide bridge financingfor the continuation of their services. Implementation: 2.2 On November17, 1982, IDA agreed to the Governmentrequestto a finance the four experts. The four experts (a Chief TransportEconomist., Chief Design and DocumentationEngineer,a Road HaintenanceEngineer,and a MaintenanceEngineer)assistedMOW in conductingstudies on traffic counts and an inventoryof the road network. Evaluation/Follow-up: 2.3 The results of this subprojectwere requiredprior to the launchingof the Highway Maintenanceand Organization Study carried out by Louis Berger and helped prepare the proposedThird Highway Credit.  ANNEX 3 -63- Page 3 of 14 Category: TA-3 Title: Assistanceto Uganda Tea Grower's Ccrporation Agency: Uganda Tea Grower'sCorporation(UTGC) GovernmentImplementing Date IDA Approved: June 2, 1982 Consultantt George WilliamsonTechnicalServicesLtd. OriginalAllocations SDR 116,650 Final Disbursement: SDR 93,476.96 Background/Objectivess 3.1 The tea manufacturing sector dealingwith the smallholder sector had sufferedfrom a lack of fully trainedand experiencedstaff to maintain the machinery and the quality of made tea. IDA staff had been preparing the AgriculturalRehabilitation Credit (No. 1328-UAN) which includedthe program to rehabilitate the smallholder tea leaf collection facilities. 3.2 This subprojectwould provide two experts (a tea maker and a factoryengineer)to assist in rehabilitating existingequipment,improving tea making standards,and to give intensivetrainingto the staff so that new equipmentto be purchasedunder the above-mentioned credit could be properlymaintainedand the anticipatedincreaseof tea productionbe made to standards. The formal requestwas submittedby HPED on April 19. 1982. Implementation: 3.3 In June 1982, IDA agreed to allocate SDR 116,650million to the subproject. George WilliamsonTechnicalServicesLtd., which had a office in Nairobi,was approvedas a consultantand a contractwas signed in September1982. 3.4 Two experts (a tea maker and an engineer)spent two months on each of the four factories (Igara,Hpanga, Habale, and Kayonza)endeavoring to get them functioning as soon as possible. One vehicle and some equipmentwere purchasedas requiredunder the contractand shippedto Kampala during the second half of September. The experts prepareda shoppinglist of needed machinery and parts with cost estimatesand submittedit with a detailedinventoryreport in October 1982. Evaluation/Follow-up: 3.5 The subprojectachievedits primary objective. The report and shoppinglist of machinerypreparedby the two expertswas satisfactory and contributed to evaluatingthe needs for physicalfacilitiesand machinery necessary to implementthe proposedCredit. The Credit placed a high priorityon the rehabilitation of tea factoriesand US$7.7 million was allocated to this component. The Second ReconstructionCredit also provided funds to improvegreen leaf transportand factory capacityfor the smallholder crop.  ANNEX 3 -64- Page 4 of 14 Category: TA-4 Titles Consultancy Servicesto carry out Project Appraisalsfor Uganda Development Bank Agency: Uganda DevelopmentBank (UDB) GovernmentImPlementing Date IDA Approvedt November2, 1982 Ccnsultants P-E InternationalOperationsLtd. OriginalAllocations SDR 375,000 Final Disbursement: SDR 379,951.50 Background/Objectives: 4.1 UDB had been providingshort,medium and long term development financing,advice on managerial,technicaland administrative matters,and other servicesfor the benefit of projectsin the agricultural, industrial and commercialsectors of the economy. As part of the EconomicRecovery Program, it was envisagedthat UDB would play an expanded role particularly in the mobilizationof externalfunds and provisionsof projectsfinanced under the rehabilitation, reconstructionand developmentprograms. UDB was expectedto administera total of US$ 100 million from IDA's Industrial Rehabilitation Credit (US$30million),OPEC funds (US$15million),European InvestmentBank funds (US$10million),and funds raised from other sources such as Saudi, Kuwait and IslamicDevelopmentBank (US$50million). 4.2 This subprojectwas proposedduring the negotiationsof the Second Reconstruction (No. 1252-UAN)and the IndustrialRehabilitationCredit (No. 1248-USN)in April 1982. It would provide the technicalappraisal capabilityUDB needed for the appraisaland preparationof subprojects under the IndustrialRehabilitation Credit. Implementation: 4.3 In November1982, IDA agreed to allocateSDR 375,000 to this subproject. P-E International OperationsLtd. was selectedas a consultant on February25, 1983. Ten expertsbegan its work in July 1983 and their serviceswere phased in two years (9 manmonths in 1982; 21 manmonths in 1983). They assistedUDB in the appraisalof 11 subprojects in the industrialcredit. The consultants finishedworking in May 1984. 4.4 The Project PlanningCenter (PPC) of the Universityof Bradford providedon-the-jobtrainingto UDB personnelin project appraisaland implementation techniques, which took place in the offices of UDB in Kampala from October 22 to November16. 1984. This trainingprogram wa- a follow-upto a previousone given by PPC in January 1984. Evaluation/Follow-up: 4.5 The subprojectachievedits primaryobjectiveof improvingproject preparationand appraisalcapabilities at UDB. The report preparedby the consultant was satisfactoryalthoughmore could have been done in terms of on-the-jobtrainingof UDB staff. The trainingprogram conductedby PPC proved to be effectiveand was carried out under the Second Technical AssistanceCredit.  ANNEX3 -65- Page 5 of 14 4.6 Based on the consultant'srecommendation,UDB reviewed11 projects which were submittedto IDA for final approval. Most of the projects approvedby UDB were implemented under Credit 1248-UAN: Approvedby UDBs TUMPECO Uganda Bata Shoe Company Ltd. Uganda Leather & Tanning Industry Madhvani Soap Industries Nytil United CarbideLtd. Uganda Breweries Rejected: UGMA Engineering Corporation Ltd. Kirinya Sugar Estate EHCO Oil RefineriesLtd. Deferred: National Sugar Works Ltd.  ANNEX 3 -66- Page 6 of 14 Catetory: TA-S Titles Assistanceto Uganda Development Bank (cost-sharing with UNDP; IDA as ExecutingAgency) - UGA#80/017 Government Implementing Atency: Uganda Development Bank (UDB) Date IDA Approved: January 14, 1983 Consultant: AMEX Consultancy Ltd. OriginalAllocation: SDR 1,607,250 Final Disbursement: SDR 1,616,383.75 Background/ObJectivess 5.1 hs mentioned in TA-4 (para.4.1), UDB needed technicalassistance in managing US$100 million of financialresourcesfrom externaldonors. This subprojectwas proposedwith TA-3 during the negotiations of the Second Reconstruction and IndustrialRehabilitation Credit. MPED submitted the formal requestto UNDP in May 1982. 5.2 The subprojectaimed at assistingUDB in improvingits internal. operational proceduresand systemsand in strengthening its capabilityfor investmentplanning,project formulation/preparation/appraisal/ management. In order to complementinsufficient UNDP funds, it was agreed that the ProjectUGA/80/017should be financedby both UNDP (US$240,000) and IDA (US$1,780,000) with the latter acting as executingagency. The projectwas signed on December 21, 1982. Implementation: 5.3 In January 1983, IDA agreed to allocateSDR 1,607,250to this subproject with an originalprovisionof: six experts (an AssistantGeneral Manager for Finance & Operations,a Directorof Project Implementation and Supervision, a Chief Accountant,an IndustrialEngineer,a Financial Analyst, and a Supervision Specialist), training (in-countryand overseas fellowships), and equipment (a photocopier, typewriters,office equipment, and vehicles). Three of the six expertswere contracted with AMEX ConsultancyLtd. 5.4 However,due to the politicalinstability, the subprojectfaced a series of difficulties such as the death of two experts,two subsequent coup d'etats, the evacuationof project personnel,and the suspensionof IDA staff travel to Uganda, the contractwith AMEX was suspendedon December18, 1985. 5.5 At the time of the tripartitereview in February1986, the subproject was extendeduntil the end of 1987 and the number of expertswas reduced to two. The Ugandan counterparts who stepped in after the evacuationof expatriates had been performingwell. However, therewas still a need to fill with expatriatesthe positionsof AssistantGeneral Managers for Finance and Operationsand of Directorfor Project Implementation and Supervision since the concerneddepartmentsrequired this type of support.  ANNEX 3 -67- Page 7 of 14 EvaluationlFollow-ups 5.6 Based on agreementsat the tripartitereview, two expertswouald be provideduntil the end of 1987. The implementation of the subprojectwas seriously hampered by the securityand housing conditions;the recruitment of expertswas slow and the time scheduleconsiderably delayed. The lack of counterparts, especiallyat higher levels,was another problem. In addition, two top Ugandan accountingstaff were transferredout of the department. 5.7 Despite these difficulties, the subproject was successfulto the extent that without UNDP and IDA assistance, UDB's liquidityand portfolio problemswould have been even greater. The two expertswere highly appreciated by UDB and contributed to the computerization of UDB's accounting system, the rewritingof its loan receivablerecords to reflect retroactive decisions of Government to assume foreign exchange risk, and the establishment of sound systemsand procedures. As for training, in-countryand on-the-jobtrainingproved to be much more effectiveand beneficialto UDB than overseasfellowships.  ANNEX 3 - 68- Page 8 of 14 Category: TA-6 Titles Assistance to Central Tender Board Government implementingAgency: Central Tender Board (CTB) Date IDA Approved: March 25, 1983 Consultant: Crown Agents Original Allocation: SDR 297.000 Final Disbursements SDR 306,937.88 Background/Obiectivess 6.1 Although CTB was principally responsiblefor supervisingall procurement for government agencies, its capabilityhad been limited to the review of recommendationson award and related documentationsubmitted by other government organizations. In order to carry out its new and much broader procurement responsibilities as required for the implementationof the Second ReconstructionCredit (No. 1252-UAN), it was necessary to supplement the staff of the CTB Secretariat. 6.2 The subprojectwas proposed during an IDA Review Mission in October 1982 and the subsequentnegotiation of the above-mentionedcredit and a formal request by MPED was submitted on November 13, 1982. It would assist CTB staff in improving procurementpractices and procedures related to the IDA credit and in preparing recommendationsfor the long-term strengtheningof CTB. Implementation: 6.3 In March 1983, IDA agreed to allocate SDR 297,000 to the subproject. Crown Agents consultantswere selected and a contract was signed on February 25, 1983. Although the subprojectwas originally intended to provide two experts (a Senior ProcurementSpecialist and a Senior Accountant Specialist) for a period of twelve months, a six-month extension was made. The cost of the extensionwas financed out of the savings from several subprojects,including the Road Rehabilitation projects. 6.4 Procurementwas accomplishedin accordancewith the terms of reference. C2B conducted 80 evaluationsof competitivebids. The experts provided on-the-job training for two counterparts in the procurement process. The final evaluation report containing recommendationsfor the institution-building of CTB in the long-term and for coordinatingthe procurement and supply management functionwas presented on November 5, 1984. Evaluntion/Follow-up: 6.5 The subprojectwas successfulin speeding up procurement activities financed under the credit. Recommendationsfor improved procurement p-ocedureswere made, but have yet to be adopted by government. CTB performed well in the program in spite of a tight schedule and limited resources. However, it remained functionallyweak in its ability to create motivation within beneficiaryorganizations,in evaluationanalysis, in financial control and auditing, and in the follow-upon contractual issues. As a result, many beneficiarieswere not able to handle disputes beneficiarieswere not able to handle disputes with suppliers and additional training in procurementpractices was required.  ANNEX 3 -69- Page 9 of 14 Categorys TA-7 Title: Assistanceto Agricultural Secretariatin Bank of Uganda GovernmentImplemeaLingAgency: Bank of Uganda (BOU) Date IDA Approved: April 21, 1983 Consultant: Commonwealth Funds for Technical Cooperation(CFTC) OriginalAllocation: SDR 1,299,000 Final Disbursement: SDR 399,785.91 Backgroundlobjectives: 7.1 In August 1982, GOU establishedan Agricultural Policy Committee (APC)which would support and rationalize policy making in pricing, marketingof export commoditiesand resourceallocationin the agricultural sector.During the IDA Review Mission in October 1982, it was agreed that GOU should set up an AgriculturalSecretariat(AS) in BOU to supportAPC in its analyticalfunctionsand that the emploi.entof AS staff would be a conditionof effectiveness for the proposedAgricultural Rehabilitation Credit (No. 1328-UAN)and for disbursingthe second tranche of the Second Reconstruction Credit (No. 1252-UAN). The formal request for this subproject was submitted by MPED on November13, 1982. 7.2 Therefore,it was designedto provide all the necessaryelements for the establishmentof AS, includingprovisionof expatriatestaff, short-termconsultants, trainingof local staff and, vehicles and office equipment. Implementation: 7.3 In April 1983, IDA agreed to allocateSDR 1,299,000to the subproject. GOU requestedthe Commonwealth Fund for TechnicalCooperation (CFTC) to assist with the establishment of AS in BOU and a contractwas signed on December10, 1982. Within the eleven staff positionsin AS, CFTC providedfive long-termexperts (a Director,an Agricultural Economist,an Economist/Statistician, an Agriculturalist, and a FinancialAnalyst) for two years, and short-termconsultants(18 manmonths). It also provided equipmentsuch as office equipment,furniture,appliances, and vehicles for the Secretariat and a trainingprogram for local staff such as short-term overseasfellowships and locallyorganizedtrainingcourses. 7.4 These activitieswere interrupted by the evacuationof the expatriatesbecauseof the politicalinstability in the country and the two coup d'etats in 1985. Three of the originalfive long-termexperts remainedin Kampala and their contracts with CFTC were extendedto April 1987. EvaluationIFollow-up: 7.5 The subprojectsuccessfullyachievedits main objectives. AS and APC have acquireda reputationof great professional competence. AS has contributedin making policy recommendationin such area as export crop pricing.  ANNEX 3 Page 10 of 14 - 70 - Categorys TA-8 Titles Assistance to MPED in Reviewing the 1982-84 Recovery Program Government ImplementingAgencyt Ministry of Planning and Economic Development (MPED) Date IDA Approved: July 25, 1983 Consultantt Mokoro Group Original Allocation: SDR 150,000 Final Disbursement: SDR 118,324.53 Backaround/Obiectives: 8.1 In early 1982, the Government formulateda *1982-84 Reco-:ery Program' to revitalizeits economy through the rehabilitationof productive facilities and equipment in strategic sectors of the economy and had started implementingit in July 1982. 8.2 In spite of the Government'sefforts to mobilize considerable external financial and technical resources for the Recovery Program, it was apparent that the process of economic recovery would not have been fully completed by June 1984. In order to maintain a continuous recovery process until the country became capable to formulate a more conventional medium-term developmentplan, the Government intended to extend the present program in such a way that the plan would be reviewed,modified and extended each year to encompass another period of two years including the last year of previous period and the subsequentyear ('RollingPlan'). For this purpose, the Cabinet Committee for Mobilization of External Resources was revived and a team of local professionalsreporting to the Cabinet Committee was organized in MPED. This was also a precondition for disbursing the second tranche of the proposed IDA-financedSecond ReconstructionCredit which carried out a program to strengthenMPED. 8.3 In April 1983, MPED requestedthe assistance of five external consultantsto help the national team, so that they could complete the review of the plan on schedule. Therefore, the subprojectwas designed to assist MPED with the revision of the Recovery Program from both macroeconomic and sectoral aspects and the elaboration of a complete draft 1983-85 Recovery Program. Implementation: 8.4 In July 1983, IDA allocated SDR 150,000 to the subproject.At the request of the Government,the CommonwealthFunds for Technical Cooperation (CFTC), which had been helping in the preparationof the 1982-84 Recovery Program, assisted in the recruitmentof the team of external consultants and the Mokoro Group was recommended. Since Hokoro was comparatively unknown, it was agreed that CFTC would take overall responsibilityfor providing a team. 8.5 The consulting firm designateda team consisting of two macroeconomists(trade policy and public finance) and three sectoral specialists (agriculture,industry and mining, and social planning) to work under the overall leadershipof the national team at MPED. The combined team of local officials and external consultantsadvised on all aspects of  Annex 3 -71 - Page 11 of 14 the elaboration of the revised and extended Recovery Program, and their reports and findings were presented to the Cabinet Committee on Mobilization of External Resources through MPED. Evaluation/Follow-up: 8.6 The subproject succeeded in achieving institution building within MPED and in strengthening its capability to formulate and review the medium-term development plan. The consultants cooperated closely with the staff of MPEDand with relevant technical ministries, parastatal and other bodies involved in the economic recovery program. The 1984-86 Recovery Program was prepared satisfactorily by national staff without external assistance.  Annex 3 -72- Page 12 of 14 Category: TA-9 Title: Assistanceto Ministryof Finance, TreasuryDepartment GovernmentImplementing Agency: Ministryof Finance (MOF) Date IDA Approveds July 29, 1983 OriginalAllocation: SDR 285,000 Final Disbursement: SDR 188,571.04 Background/Obiectives: 9.1 During the IDA Review Mission in October 1982, the need for technicalassistanceon expenditure controlwas raised by the Commonwealth Team which had been helping the Governmentprepare a two-yearRecovery Program. The TreasuryDepartmentstaff in the MOF which was responsible for recordingand monitoringdirect governmentdebt, was experiencing some difficulties. As the IMF had startedto assist on externaldebt management at the Budget Departtient,getting assistancein the expenditure control in the TreasuryDepartmentbecame a central issue for MOF. IDA also made it a preconditionfor disbursingthe second trancheof the Second Reconstruction Credit which would improvethe functionsof MOF. 9.2 Therefore,the subproject was designedto strengthenthe capacity of the TreasuryDepartmentby providingthe servicesof two senior accountants (DeputyCommissioner TreasuryOfficer and Accounts/Headof the Treasury Inspectorate)for one year. The formal requestwas submittedby MPED on February7, 1984. Implementation: 9.3 In July 1983, IDA agreed to allocateSDR 285,000 to the subproject. The UNDP Office of Project Execution (OPE)was selectedfor the administration of the experts'contract,and the contractof management serviceswas signed between UNDP/OPEand the Government. The subproject originallyconsistedof the servicesof two senior experts and the provision of small equipment. However,in September1985, it was amended to include trainingof 40 accountingstaff from MOF at the Eastern and SouthernAfrican ManagementInstitute(ESAMI)in Arusha, Tanzania. 9.4 The progressof the subproject was hamperedby political instability. Although the expertswere to be on board by May 1, 1984, the subprojectdid not start until February1985. Recruitment of the expert for the Treasury Inepectoratewas slow, he was evacuatedsoon after his arrival and the post was never filled again. The other expert remainedin the TreasuryDepartmentand his serviceswere extendedfor another two years. Evaluation/Follow-up: 9.5 Despite difficultiesdue to the securityconditions,the Deputy Commissioner/TreasuryOfficer fulfilled his duties satisfactorily and his work was well appreciatedby the Government;he drew up and implementeda program for improvingthe managementcapabilityof the TreasuryDepartment, updated accountsand producedaudited accounts. To this extent, the subprojectcontributedto institution buildingin the TreasuryDepartment.  Annex 3 73 - Page 13 of 14 CateEory: TA-10, 11 Titlet Parastatal AccountingStudy (Phase 1/ Phase I) Government Implementing Agencys Ministry of Finance (MOF) Date IDA Approved: April 19, 1984/February 20, 1985 Consultants Continental Development Association (CODA) Original Allocation: SDR 175,000/SDR 1,444,000 Final Disbursements SDR 181,008.981 SDR 1,444,125.37 Background/Ob1ectivess 10.1 As a result of the politicalinstability and economic deterioration in the country during the 1970's, parastatalorganizations faced serious accountingand financialproblemswhich resultedin a constraintto the Government's rehabilitationprogram. The need for updatingparastatalaccountswas identifiedby the Bank EconomicMission in August 1981. The DMF had also pressed the Governmentfor a study to help improve its financialposition. Two subprojects were identifiedby IDA during the Post-Appraisal Mission of the Second Reconstruction Credit in January 1982 and the subsequentReview Mission in March/April1982. 10.2 The study (in two phases)would identifyand define the problems of selectedparastatals and recoimenddefiniteand practicalmeasures for resolvingthese problems. The formal requestwas submittedby MPED on November13, 1982. Implementation: 10.3 In April 1984, IDA agreed to allocate SDR 175,000 to phase I of the study. A consultingfirm, Continental Development Association (CODA), was selectedand startedwork in May 1984. As one step if a broader effort, Phase I was designedto study 10 parastatalsin Uganda and to work out a methodology,scope and scheme of work for a more detailedand extensivestudy of Uganda parastatals during phase II of the study. 10.4 The expertswere divided into two groups (MOF and UDC Production Companies). The MOF Group consistedof six experts (a Chief Financial Adviser, a Financial Adviser, a Senior Accountant, an Accountant, a Computer Specialist, and a Training Specialist). The UDC Group consisted of five experts (a Senior FinancialAdviser, three FinancialAdvisers in Accounting,Industry,and Commerce,and an Accountant). The overall responsibility was assignedto MOF Chief FinancialAdviser. His group addressedthe agricultural marketingboards and the public service corporations. The second group addressedthe productioncompanies. The consultants worked with the mnagement and financialstaff of the organizations and compilediarious financialstatementsand advisory reports. The Phase I draft reportwas submittedto the Governmentin July 30, 1984. 10.5 A new contractfor Phase II of the study was signed between the Governmentand CODA on December24, 1984 and with an IDA allocationof SDR 1,444,000. Phase II was designedto examine 15 additionalparaststals in order to improve their accounting and operational systems and to make recommendations for a stronger and more efficient public sector.  Annex 3 - 74 - Page 14 of 14 10.6 The servicesof twelve experts (72 staffmonths) were providedin the followingcapacitiest a ProjectDirector, a Chief Economist,a Sr. FinancialAd%iser,an AccountingAdviser, an EconomicAdviser, an Accountant, a Computer Specialist, a Training Specialist, 3 Financial Advisers,and a Legal Expert. Although ten of the fifteen planned case studieswere completedby the due date of December 1985. others were delayed by a few months and completed in March 1986. The 15 case studies presentedin the draft final report were reviewedat a TechnicalSteering Committeeheld by GOU in mid-June 1986. Evaluation/Follow-uDs 10.7 The subproject was successfulin identifyingthe problems of parastatalorganizations. Due to political disturbances and subsequent evacuation of staff from Uganda, the consultants had to limit their recommendations on how to overcome the identified problems to rather general advice.  - 75 - PROJECTCOMPLETION REPORT U¢^A FIRST TECHNICAL ASSISTANCEPROJECT Project Costs (In SDR million) Estimate Actual 1. Preftesibility/F.asibility Studies 5.44 0.62 Utilixation 2. Rehabilitatlon/Capacity Studies 0.88 0.65 3. Technical Assistance for Strengthening Planning/ Project Preparation Institutions 0.8 ) } 4.865 4. Short-Term Management/Technical Assistance for 1 Existing Projects 0.40 3 5. Training 0.81 .08 Totl 6.40 6.40 Jan-89  - 77 - COMPLETION PROGRAM REPORT UGANDA PROGRAMS SECOND AND THIRD RECONSTRUCTION (CREDITS1252-UGAND 1474-UG) May 30, 1989 Country Operations Division Eastern Africa Department Africa Regional Office  - 79 - PROGRAM COMPLETION REPORT UGANDA SECOND ANDTHIRD RECONSTRUCTION PROGRAMS (CREDITS1252-UGAND 1474-UG) A. Background 1. Uganda is a country endowedwith substantial potential for economic development, includingan ample supply of fertile land. However,economicand institutional devastationtook place during the Amin regime (1972-78). Macy propertieswere nationalizedand many trained personnel left the country, yieldingdislocationin the industrialand commercialsectors. Corruptionand insecuritybecame widespread. Large budgetarydeficitswere accompanied by rapid monetary growth,while the officialexchangerate was kept practically fixed and agriculturalproducerprices were increasedonly marginally. As a result of the unfavorableeconomicenvironment, real GDP declinedby about 202 between 1972 and 1978. The war with Tanzania in 1979 led to more destruction and a furtherdecline in real GDP. 2. Followingtwo years of politicalinstability, an administration led by PresidentObote came to power in early 1981. In June 1981 the Government adopted a comprehensive economicand financialRecoveryProgram. In order to correct severe price distortionsand encouragetransactions to shift from parallel to officialmarkets, the currencywas devalued from 8 shillingsper US$ to 78 shillingsper US$. Price controlswere removed,except for major export crops, petroleum products,and public utility tariffs,for which there were major price increases. Fiscal deficitsand monetary growth were to be reduced substantially. In response,IDA releasedthe second tranche of the Reconstruction I credit (committedin 1980), and the IMP approveda one-year Standby arrangement. 3. The country situationrequireda comprehensive program of financial stabilization, physicalreconstruction, institutional reconstruction, resolutionof ownershipuncertainties in the industrialsector, and provision of nonprojectaid to facilitatea recoveryof capacityutilizationin the economy. This was attemptedduring 1981-84. In further support of the Government's efforts,the IMF committedadditionalone-yearStandby Arrangementsin 1982 and 1983, focussingon exchangerate management,fiscal policy, domesticcredit control,and key prices in the economy. IDA committed a Reconstruction II credit (1982),a Reconstruction III credit (1984),an IndustrialRehabilitation credit (1982),an Agricultural Rehabilitation credit (1983),and two technicalassistancecredits,as well as project lending. Co- financingfor the Reconstruction creditswas providedby the Governments of Canada and the Netherlands. The support of donors was mobilized through annual meetings of the Consultative Group for Uganda. A calendar of events related to the reconstructioneffort is attachedas Table 1.  - 80 - 4. The Government'sintentions under the Reconstruction credits were recordedin the form of Memorandaof Understanding. Many of the measures supportedunder the Reconstruction creditswere not unique to the Reconstruction credits,but ratherwere also supportedunder other lending operations,such as the two technicalassistanceprojectsaimed at institutional development. Thus, the Reconstruction credits provided additionalreinforcement for the implementation of such measures, in addition to financingimportsnecessaryfor greater capacityutilizationin the economy. of the Program Supportedby the Second Reconstruction B. Implementation Credit 5. As shown in Table 2, the Reconstruction II credit, approvedin May 1982, supportedsteps in the areas of public administration/public finance, agricultural pricing and marketing,and parastatals. The program focussed primarilyon institutional development and on the preparationof policy measures, rather than on the implementation of policy measures. This was understandable in view of the limitedcapacityfor policy formulation and implementation prevailingat that time. It was planned that a review by September30, 1982, would determine whether the conditionsfor releaseof the second tranche had been met. The steps includedunder the programwere eventuallycarried out, but over a much longer period of time than originally planned,as a result of which the second tranchewas releasedonly in November 1983. Particularlysignificant were the establishment of an Agricultural Secretariatto make recommendations on agricultural producerprices, and the passage of the Expropriated Properties Act to facilitatethe transferof nationalized propertiesto the private sector. 6. An importantdevelopment during this period, not originallyforeseen. was the establishmentof a dual exchange rate system,with an officialrate and an auction-determinedrate, in August 1982. The Governmentmet the performancecriteriaof the 1981/82and 1982/83 Standby arrangements, and the economy began to improve,with inflationreduced to 30Z and output growth recoveringto 62. of the ProgramSupportedby the Third Reconstruction C. Implementation Credit 7. As shown in Table 3, the ReconstructionIII credit, approvedin May 1984, was designedto support reunification of the exchange rate on the basis of the auction,complementary pricing adjustments,institutional development of the core economicmanagementagencies,and resolutionof the ownershipof expropriated properties. The credit was not tranched. 8. The macroeconomicframework went off track soon after the credit was approved. The domesticcredit ceilingunder the Standbywas exceededat end- June 1984, and the Standby became inoperative, following which Uganda was without an IMF agreementfor three years. The 1984/85 budget provided for a quadrupling of Governmentwages, but without any reductionin Government employment. (The Bank and IMF recognized the need for a substantial increase in Governmentwages, but believedthat this should be implemented as part of a package includingreductionin Governmentemployment.) The actual budgetary outcomewas even more unsatisfactory than the adopted budget. There was major  - 81 - overspending, much of it military-related,on the recurrentbudget, and underspending on the developmentbudget, resultingin low absorptionof aid commitments. The amount and composition of budget deficit financingled to rapid increasesin the mcney supply. Inflationaccelerated, reaching126Z in 1985, and the exchangerate depreciatedsharply. 9. Combat between the Governmentforces and the NationalResistance Movement (NI7L)intensified. In July 1985, PresidentObote was ousted by a militarycoup, but the civil war continued. In January 1986, the NRH assumed control of Kampala,and it subsequently consolidated control over the remainderof the country. 10. Under these circumstances,it is unsurprising that increasesin administeredprices were overtakenby general inflation,and strengthening of public administration was very limited. In a small number of cases, the Governmententered into joint ventureswith private firms for the ownership and operationof expropriated properties,but the ownershipof the great majorityof expropriated propertiesremained unresolved. During 1985 the civil strife diminishedthe availability of export receipts,and the Governmentresponded with increasedinterference in the managementof the auction. In February1986 the new administration suspendedthe auction and set up a ForeignExchangeAllocationCommitteeto allocateforeignexchange. D. Utilizationof Funds Providedby the Credits 11. At the time that the Reconstruction II credit was negotiated, foreignexchangewas allocatedby the Bank of Uganda, on the basis of prioritiesset by an inter-ministerial ExternalResourcesMobilization Committee,which had identified priorityend-users. The procurementand disbursementarrangements under the Credit were fitted into this framework. End-users were requiredto use international competitive bidding for procurement of US$1 million or more, and to utilize the competitive bidding proceduresof the Central Tender Board for procurements of less than US$1 million. The funds made availableunder the Credit were to be used primarily for importation of agricultural and industrialinputs and spare parts, but the importation of basic consumerand incentivegoods was not excludedif a clear foreign exchangesaving could be demonstrated. As shown in Table 4, the actual distribution of imports financedby the credit was as follows:spare parts and capital goods, 47.61; raw materialsand other inputs, 45.82s 'other' (presumably consumer)goods, 6.61. The import financingcontributedto 4tng sugar, bicycle parts increaseddomesticproductionof some goods, incluA and tires, and simple agricultural implements. Originally,disbursements were expectedto be completedby September1983, but the second tranchewas releasedonly in November1983, and disbursements were completedonly in 1985. 12. Under the Reconstruction III credit, importsfinancedby the credit were purchasedthroughthe foreignexchangeauction system. At least 801 of the fundswere reservedfor firms not needing Governmentsupport,with no more than 202 reservedfor governmentministries, or parastatalsrequiring Governmentsupport. Capitalequipmentand agricultural inputs were excluded from Reconstruction III since they were being financedunder other credits. In order to ensure a spread of importsamong importantindustrial, transportation, and social sector activities, ceilingswere established for  - 82 - ten import categories,some of which were broadly defined (spare parts; raw and semi-processedmaterials for manufacture), and others of which were more narrowly defined (pharmaceuticals;tires and tubes). Disbursements were expectedto be completedby December 1985, but actuallywere completedonly in 1987. The actual distribution of imports financedby Reconstruction III is displayedin Table 5. E. Impact on the Economy 13. Tables 6 and 7 comparethe actual balance of paymentsand nationalaccountsgrowth outcomes, with the projections of the Reconstruction II President's Report. The outcomesdiffer substantially from what was projected. In the balance of payments,exportswere broadly as projected during 1983 and 1984, but then declinedin 1985 as the civil war intensified. Imports,insteadof growing rapidlyas projected,remainedstable in nominal dollar terms. This was undoubtedly because capital inflowswere much less than projected. The President's Report had projectedgrants and net capital inflows amountingto $1369 million during 1983-85,of which $818 million was financinggap. In the actual event, grants and net capital inflows during 1983-85were only $293 million. This reflectedthe Government's difficulty, due to administrative weaknesses,in absorbingaid commitments; it may also have reflectedreluctanceof donors to increasetheir aid to Uganda in view of insecurityand reportsof human rights abuses. In the nationalaccounts, agricultural production was less in 1985 than in 1982, and industrial productionstagnated. Real GDP declinedslightly. F. Conclusion 14. The Reconstruction II and III creditswere intendedto supporta rapid and sustainedrecoveryof the Ugandan economy. The President'sReports for the two credits clearly recognizedthe risk that securityconditionscould deteriorate,thereby frustrating the recovery. The economy began to recover in 1983, but in 1984 economicpolicieswent off track and securityconditions worsened,and the economybegan to deteriorate once again. The objectiveof sustainedrecoverywas thereforenot achievedduring the period of credit disbursement. In the absence of the import financing made availableby the credits,however,the economicoutcomecould have been even worse. 15. After peace was restoredin 1986, the people of Uganda and the international communitywere faced for the sevond time with the task of reconstructing the Ugandan economy. This is an ongoing effort, and many of the issues now being addressed,such as agricultural pricingmethodologies, resolutionof ownershipissues in the industrialsector,and the strengthening of public administration were also grappledwith by Governmentofficialsand Bank staff during Reconstruction II and III. The present effortshave benefittedfrom the esperiencegained during the earlier period.  - 83 - Tubl- ls RELATO EVENTS OF THESECOND TO rAULEMEMTATZO ANDTH1RD - Rss"xCTas a~~CEDm - - RICUNSIIW------------ 0= Date Event 9166 June Governmentled by President Obot. odeptm a comprehonsiveeconemic and financiel Recovery Program. Exchangerate to devalud fr 8 USh/US to 76 USh/USS. Price controle rmoved except for major export crops, petroleum products, and public utility tariftf, for which there were major priee lnereas IDA release eancod tranche of Reconstructlon I Credit. One-yer Standby Arrangemen (SUA) with IMP become effective. 1982 May IDA Board approves Reconstruction 11 Credit, August Goernwent adopte * dual exchangerate systm, with som tranacctions subject to the official rate, and other transactions subject to an auction-determined rate. A econd one-year SSAbeca effective. September A third one-yer SOAbecome effective. November IDA releasesecond tranche It. of Recontruction Iay Dual exchange ratesystemreplaced by a unified, auction-detrmlned exchang rate. IDABord approves Reconstruction III Credit. June Domestic credit ceilingunder SSAexceeded, folleoing whichthe final SOR SO million comltted under SA reainedundrawn, and U0&.sd remaindwithout an Ill agreemnt until June 1966. The 1694/65 budget provides for a quadrupling of Governmentwae; flscalpolicy becomes a markedly oxpangionary and inflation accelerates. June Reconstruction It Credit is closed. July by silitary Obet aministretionueuted coup. January NotionalResitanceMovemnt eUmee control of Governrent in Kempla. February the forelgn exchange ab*ndons Now administration auction. September Reconstructlon III Creit Is closed.  - 84 - OFTE PROGRAM Table 2: IMPLEIENTATION 5UORTEDBY THESECON CREDIT RECONSTRtCTION ArP Steps To Be Taken Steps Taken PUBLIC AND ADMINISTRATION PUBLCFINACE Extornal Debt Progra to streng;hen external debt unit to External Debt,Mangment Office Managent be prepared by 9/30/82. estblished In the Bank of Uganda in January 1983. Planning Programto strengthen Ministry of Finance IDA SecondTechnical Assistance and UPEDto be prepared by 9/80/62. Project approved In December 1988. Taxation Tax administration with beingstrengthened 'Taxadministrationha -n assistancefromCommonwealth Secrtariat, with technic. strengthened and training.' assistance (Recon. IIIPresidont'. Report). Expenditure Governmont willuseRecoveryProgram for 'The developmentbudget has budget preparation, 1982/8S included expendituresnot reflected In the Recovery Program.* (Recon.IUI President's Report). AGRICULTURE Government of export will study Improvement Export crop sub-sector studies crop marketing. financed under Agricultural Rehabilitation Credit. Government willestablish a unitto PolicyComitteeand Agricultural recomendagricultural based on prices, Agricultural Secretariat analysis factore of relevant In June1968. established PARASTATALS Trms of reference andtimetable for Consultaten to carryout productionof audits andfinancial analysis parastatal accounting tudy of parastatalsto be decidedby 6/80/62 selected In 198. Government will Introducelegislation to Expropriated PropertisAct return business to foraer owners by 6/380/2. passedIn February 1983. Howver, properties have not been well-maintained and progrsrs In reeIving tenure and title uncertainties has beenslow. Government on the reorganization willdecide has decided to "TheGovernment of UDC by 12/81/82. reorganizUDC' (Recon.III PresldentsReport).  - 85 - OFTHE PROGRAM Table 3: IMPLEMENTATION BYTHETHIRD SUPPORTED CREDIT RECaNSTRUCTION Ara Steps to be Taken Steps Taken RATE EXCHANGE PRICING ANDOTHER POLICIES regime Exchange Dualexchangeratesystm toImplomentedMay 1964. be replacedby unified However, the laxityof flocal exchange *nd monetary auction-deterined control ledto rate. rapid and continuous depreciation of theexchange rategenerating a eclma of uncertainty. 'Manipulation of the auctlon causso transactions to shift back to tho parallel market.' (1988 CEM). In February 1988the nw administration suspended the auction and reverted to administrative allocatlon of foreign exchange. Export crop pricing Agricultural Secretariat to Agricultural produce pries prepare price were Increased by 27-2S In recommendations for the 1984 June 1094. Thoy wore *eason for consultation with Increased further by 46-021 in IDA, prior to announcing October 1984. these In June 1984. Petroleum producte (Prics were Increased In 'Despite the periodic January 1984to reflect adjustmenta, during the scood Import parity), half of 1983/84 the priesa of petroleum products and public utility tariffs were overtaken by rising unit costs.' Utility tariffs Being studied In the context of ongoing and proposed project. PUBLIC AND ADINISTRAnTION PUBLICFINANCE External dsb4management By 6/80/84, Governmentwould 'Delays In establishing the and aid coordination devise guldellnes for aid utillaFtion register have oxternal borrowing, occured.' (1901 CEM) establish a borrowing apprval coamittes, and rm-plete establishmentof a systemfor monitoring aid.  - 86 - Arna Steps to be Take" Ste,p Takon Budget The 19S4/85development Fiscal performnce willonly include budget In sharply deteriorated projects With to tse WP. 1994/05, related over-expenditure and on recurrent on under-expenditure development. Planning Qovernont will the review lovertheyors, PD has structure stalingand gained strength Ineconomic functions of departmnts In analysis and projections, MPED. planning and aid coordination, andetalf moralo has improved.' Civil service By 6/30/84 mnt wtil Covern The already overstaffed civil start review of ministerial ervice grew further In *ela. functions as the basisfor Nominal wags hadquadrupled concentratingreoures. In June1984. (1999CEM) The elective free" on recrultmentwill continue. Major salary adjustments wouldbe limited to specific kill requirements. PARASTATALS By 6/80/U4theGovernmont *Actul transfer of ownership WIll deermineoa program, to tho privatesecor heobeon timetble,andpriorities slow. (10M6 CEM) ownrship for settling sou".  - 87 - Table 4: OF FUNDS UTIUIZATION BY THERECONSRUWCTION PROVIDED It CREDIT Category RC It Dutech/CIDA Total X of (SDRmllion) Total Spar. parts/capital goods 29.20 4.66 88.0# 47.64 Raw materials 22.64 2.04 24.88 $4.91 Other Inputs 6.22 1.58 7.76 10.08 Other goods 4.62 0.16 4.66 6.57 Total 62.97 8.80 71.26 100.00 Source: Bank of Uganda  -88 - Table S: UTIUZATIONOf FUWS PROVIDEDBY TE LII CREDIT RECONSTRUCTION Catogory Actual X of the J UtilIzation Total Raw materials 9.15 211.0 Spar.parts 11.86 27.0? and other Lime,cement, aatarials constructlon 7.12 16.90 excluding Vehicles, cars passenger 8.48 8.17 Tires and tubes 2.28 6.81 PharmaceuticalI 1.46 8.48 Precision equipment 8.S6 0.44 Office eulpment, books andstationery 1.40 8.84 Packing material 2.27 6.41 Totsl 41.0? 100.00 sank of Ugandb Source:  - 89 - Table Si SALANC OFPA*TIINOS SECtS OM Z1IC*TUS - *I168 mill1ion. La Prejese is lsc.ntrvci.e U Preelsmdut'Rap.4 LAtusi am am 184 1= IUI son 1m4 1on tr& le -W -U -n- - bp.rte, f.o.b. 814 87 418 480 8 410 841 ortst, *.M. . 541 814 1 as m 4S s80 410 Servies eW trenfa -108 -11 -1n -1 48 -4 -a 48 (e) Current Acasat Etclditng Orea -82 -875 -4 43 -1o -1m -4 -m officlal Great. in 1n 144 14 St so s s Current Accout, locludimg Se*ts -186 _- 3 470 48 4 Capital Accoat (st) 1n6 5 46 -1 so so (ot WiAks fl¢la g) (1P) () (w5 (S) ov1rIl_ 3e1 -41 -6 8 64 -a U 7 Oer ZadsaterOo Grew reserve at per's end i so 14 Ceesmr price intlatioa (middl Inme Grow$ p# am) .1 4.1 40.t 1M. Official ehange rat 08h/S n of pwerod a/ 1. 580.0 520.0 140.0 Mal efetlve exchag rat (pereet cbhag, flscal yetr andlng Ju 4S 41 -40 * The excbhng rate wee 7.57 at end-1i0 and6.15 at endIOU.  - 90 - Table 7: RL RO RATES, PIOJECTEDAMD i19-2S ACTUAL, -( per annm) As Projee In Recontruction U1 President's Report Actuel Grow D_oetic Produc 6.6 -0.6 Monetary eyleriltore 10.0 -0.2 Subsisten aericulture 8.5 -5.6 Induetry 10.0 0.8 Other seors 5.0 2.8 aross Investmt 9.7 2.6 Exports 18.1 2.1 Imports 12.7 1.8  - 91 - 1 ATTACHMENT - UDRLDBANK TMSS - - Comments Received from the Borrower ZCZCOERP0621 UBU1734 OEDD2 .TCP MT i ********* * OEDD2 $ 1 173490.05.08.1001 197688UORLDBANK 61368BTZMPEDUG ALENXANDERHDRUICKI DIVISIONCHIEF POLICY-BASED INDUSTRY. LENDING, PUBLICUTILITIESANDURBANSECTORS THEUORLDBANK, D.C. WASHINGTON AND 2ND AND3RD RECONSTRUCTION RE: IST TA PROJECT PROGRAMMES(CR.1077-UG DRAT PROGRAM AND 1474-UG) PERFORMANCEAUDITREPORT (PPAR) JE HAVE READTHEPPARSATTACHED TO YOUR MARCH LETTER 2 d, 1990. AGREE WITHTHEREPORT NOTHING HAVE IN ENTIRETY. USEFUL TO SAY/COMMENTON REPORTS. REGARDS E. TUMUSIIME-MUTEBILE SECRETARY PERMANENT QTB QTB =05081158 NNW  - 93 - Agence c dTTACHMENT 2 interational C6gveloppement Agency Development A Page 1 of 4 200,otnmnaf du P~ttSE 2OO duP~rae Promenade Hull (Oufe) MUll Quetec CANAOA CANAtIA KIA 0G4 0G4 KIA Vf rdftie o CommentsRaceived from CIDA (and the Bank's Re UZI o) April 6, 1990 942/10799 Mr. Alexander Nowicki Division Chief, Policy Based Lending World Bank 1818 H Street, N.W. Washington, D.C., 20433 U.S.A. Re: Uganda - Draft Program Performance Audit Report Dear Mr. Nowicki: I would like to acknowledge receipt of your letter of 26 March and the accompanying report on the First Technical Assistance Project and Second and Third Reconstruction Programs in Uganda. This World Bank report has been reviewed with interest by CIDA and we would like to offer the following observations: a) the data in the report relating to the CIDA contribution to the Second Reconstruction program is accurate; b) we find the analysis in the report convincing and concur with the main findings as noted in the evaluation summary, para 10-12; c) we note in paragraph 49 of the report that some delays were experienced in disbursing the Canadian (and Dutch) contributions to the Second Reconstruction Program. It would appear that the CIDA contribution was forwarded to the World Bank some time prior to it being utilized. During the period that the World Bank was holding the CIDA-provided funds, was any interest income earned from the CIDA resources? And, if so, how was this interest income utilized? d) we note from the various tables in the text (Table 3, page 30 for example) the allocations of resources from the Second and Third Reconstruction credit. All parties are also aware of the severe civil strife that was prevalent in Uganda during the mid-1980's, the financial constraints that the then Obote government faced, and the desperation that can face a government under seige. In this situation, it would not be greatly surprising to find some pressure within the recipient government to deviate from earlier utilization 2 Canada'  ATTACHMNT 2 94 - Page 2 of 4 plans for the project and instead address different, more pressing, but also more questionable needs. Does the World Bank have any evidence or information to indicate that any of the funding provided, either under your own credit or that of the cofinanciers, was used to purchase goods on the 'proscribed' list? Were the management controls in place sufficient to ensure that proscribed purchases were avoided? As a final comment, one supposes that the real opportunities for the Second and Third Reconstruction credits to be effective development mechanisms revolved more around political factors in Uganda than in any detailed design issue or fine point of economic theory. It would appear that virtually from the arrival of the second Obote regime in late 1980 to the January 1986 seizure of power by the Nuseveni government civil strife of varying intensity grasped Uganda and that the opportunities to undertake sound, sustainable development activities were very few. Most donor investments during the 1980-85 period can be seen as essentially lost, although they may have had some short- term impact upon disbursement. Many donors, including CIDA, increased our investment programs during the early 1980's in the hope that something somehow would work: the realistic expectation should have been different, that virtually no lasting development projects/programs can be implemented during a civil war. When the three projects the World Bank report evaluates are considered within this context of limited opportunities to provide sustainable development, it is probably fair to say that they did what they could: if the projects were to be considered in a broader context, in a world of limited resources and many Choices, these three projects should be seen as a failure of political judgement leading to a wastage of time and money. CIDA will be interested to review your report when it is finalized. Once again, thank you for the opportunity to read and comment on the draft. Yours sincerely, Victor R. Carvell Country Program Analyst Kenya/Uganda Program Anglophone Africa Branch VRC/mpa-l  ATTACHMENT2 _95 - Page 3 of 4 The World Bank 181 H Sree NW. (2 477.1234 INTERNATiONAL BANKFORRECONSTRUCTION ANDDEVELOPMENT Washington, D.C. 204& CableAddrm INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.SA CableAddres: INOEVAS May 10, 1990 Mr. Victor R. Carvell Country Program Analyst Kenya/Uganda Program AnglophoneAfrica Branch CanadianInternational DevelopmentAgency 200 Promenade du Portage Hull, Quebec Canada KlA OG4 Dear Mr. Carvell: Re: UGANDA: First TechnicalAssistanceProject and Second and Third ReconstructionPrograms (Credits1077-UG,1252-UG and 1474-UG) Draft Program PerformanceAudit Regort This will acknowledgewith thanks your letter of April 6, 1990, commentingon the above draft report. We appreciateyour observations and will reproduce them, as is our normal practice, as an attachment to the final report. You asked in particularabout the delay in disbursingthe Canadian (and Dutch) contributions to the Second Reconstruction Program. As you are aware, these funds were depositedwith IDA in December 1983. It was antici- pated at that time that prioritywould be given to their disbursement over IDA's own funds. However, their disbursement could not begin until Develop- ment Grant Agreements between IDA and Uganda covering the funds had been executed. As the documentation for both the Canadian and the Dutch cofinancingwas processed together, this depended on obtaining the Dutch Government'sapproval of the Administration Agreement between IDA and the Netherlands;the parallel agreement between Canada and IDA was already in place. * Once this AdministrationAgreement was approved, the two Develop- ment Grant Agreementswere presentedto our Board and approved. They became effective,though, only in Novrember1984 when the Uganda Governmentfinally submitted the necessary legal opinions. At this point, prioritywas given to the disbursementof the two cofinancinggrants. During the time that the Canadian grant funds were on deposit awaiting disbursement,interest income was earned. As had been earlier agreed between the parties, this income accrued to IDA and was used in its normal operations.  ATTACHMENT2 -96 - Page 4 of 4 You also asked vhether we had any evidence L'-< the funding was used to provided under the Second and Third ReconstructionProgram;3 purchase goods on the "proscribed" list. While no pF- arement control system can be perfect, we have no evidence that IDA or CTDA funds were diverted to purchasesuch goods. Again, thank you for your thoughtfulcomments. We will be pleased to send you a copy of the final reportwhen it is available. Sin-o r c- exander Nowicki Division Chief Policy-Based Lending,Industry, Public Utilitiesand Urban Sectors