Uganda - Economic and Financial Management Project

..d ,/~ A1-/' -- ()-r Documnt of The World Bank FOR OFFICL4L USE ONLY Rqopt No. P-5633-UG MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED IDA CREDIT OF SDR 21.2 MILLION (US$29.0 MILLION) TO THE REPUBLIC OF UGANDA IN SUPPORT OF AN ECONOMIC AND FINANCIAL MANAGEMENT PROJECT JULY 13, 1992 c.<_rt -Nr.P i' - It:i-13JG Tyt. U1--f This document has a restricted distribution and may be used by recipients oniy in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  )~~~~~~~~~~~~~~~~~~~~ Currency Equivalents Currency Unit = Uganda Shillings (U Sh) USS1.00 U Sh 1100.00 U Sh 1.00 = US$0.00091 Weights and Measures Metric System Government FUiscal Year July 1 - June 30 Abbreviations and Acronyms BOU Bank of Uganda BPU Budget Policy Unit CISAC Central Information Systems Advisory Committee EFMP Economic and Financial Management Project EFMCP Economic and Financial Management Capacity Program FSAC Financial Sector Adjustment Credit FIS Financial Information Systems MFEP Ministry of Finance and Economic Planning MPS Ministry of Public Service MPU Ministerial Planning Department NRM National Resistance Movement OAG Office of Auditor General ODA Overseas Development Administration (UK) PATID Public Administration Training and Institutional Development PCC Project Coordination Committee SAC Structural Adjustment Credit SPD Sector Planning Department UCS Uganda Computer Service URA Uganda Revenue Authority  FOR OMCIL USE ONLY REPUBLIC OF UGANDA Eoonomic and Hnancial Managemeait Project Credit and Project Summary Dorrower: Government of Uganda Beneficiies: Ministry of Finance and Economic Planning, Bank of Uganda, Ministry of Public Service Credi Amout: SDR 21.2 million (US$29.0 million equivalent) Tenms: Standard, with 40 years maturity JTaclag P1w Govenmen US$ 4.0 million IDA US$ 29.0 million TOTAL US$ 33.0 Million Ecoaoic Rate of Rewam Not Applicable Stff ApnAiesl Repoot: None; a Technical Annex is attached This document has a festrkted distribution and may be used by recipients only in the performLnce of their offilcial dutics. Its contents may not otherwise be disclosed without World Bank authoriztion.  MEMORANDUM AND RECOMMEDATION OF THE PRESIDENT OF THE INTENTIONAL DEVELPMENT ASSOCIATION To THE EXECUTVE DIREcFoRS ON A ftoPOSED CZDff To THE RUhaC OF UGANDA FOR AN ECONOMIC AND FINANCAL MANAGEMENT PROJECT 1. The following report on a proposed development credit to the Republic of Uganda, in the amount of SDR 21.2 million (US$29.0 million equivalent) is submitted for approval. The proposed credit would be at standard IDA teIms with a 40 year repayment period. It would assist in financing a project within the Government's overall program for strengthening economic and financial management as part of the efforts towards economic stabilization and structural reform. 2. The immediate beneficiaries of the credit will be the Ministry of Finance and Economic Planning (MFEP), Ministry of Public Servce (MPS) and the Bank of Uganda (BOU) (the central bank). 3. Background. Uganda has made progress over the past few years in stabilizing the economy and the Government focus is now shifting increasingly towards structural reform. This reform is oriented primarily towards, a) strengthening and assisting private sector growth and initiatives, particularly through liberalized marketing, exchange and trade policies, and an improved investment climate; and b) hnproving public sector eficiency, particularly through, i) the divestiture of parastatal enterprises, ii) reallocaticn of public expenditure priorities, especially in support of human resource and private sector development, iii) reform of the civil service and iv) improved capacity for economic management. The emphasis on structural reform Is placing additional management responsibilites on a very thin cadre of govermnent analysts and policymakers. If the reform program is to be successful, the public sector overall and the core agencies in particular must significanty strengthen their capacities to analyze, plan and manage financial and economic decisions. The Government's recent decision (April 1992) to me.rge the Ministry of Finance and the Miistry of Planning and Economic Development is evidence of a commitment to this objective. 4. A key constraint on economic and financial management in Uganda, particularly improved fiscal performance, is the lack of timely information and data on which decisions can be based. This constaint affects all the major economic miistries and agencies, the most important for economic management being the recendy merged Ministry of Finance, with Economic Planning (MFEP), and the Bank of Uganda (BOU). The constraints involve inadequate, and in some cases nonexistent, systems for generating, compiling and presenting information and data; poorly trained and remunerated personnel, (especially accounting and computing staffs); and a lack of proper facilities and equipment, including computers. For example, in the MFEP the lack of consistent, accurae and up-to-date government accounts constrains the monitoring and contol of public expenditures and receipts, thereby severely weakening macroeconomic management. Also, the data bases for effective macroeconomic and secoral planning are inadequate, including national accouns, employment and social daa; plus, monitoring of trade flows is weak. At the BOU, accounts are not being kept properly and the flow ot data from the banking system Is deficient Consequently, prudential oversight of the banking system and the generation of information relevant to the conduct of monetary policy are less than adequate. In the two separato buildings that house MFEP staff their efficiency Is severely consttained by the inadequacy of office accommodation and equipment and, in common with the entire civil service, by inadeute pay, lack of accountability and extremely lax personnel management.  -iiv S. Projed Objectves. The proposed Economic and Financial Management Proeact (EFMP) forms a major part of Government's overall strengthening efforts and thus shares an overall objective of building greater institutional capacity In key Government organizations. Specifically, the EFMP would deepen and extend work in the flnancial areas begun under the IDA Tewhnical Assistance Ill project by further increasing and improving the quantitv, quality and timeliness of kev 1nanc,al data tat underpin decision making through the Introduction of new systems, prov.dures, equipment and skill levels at MFEP, the Uganda Revenue Authorlty (URA) and BOU. Concurrently, it would complement elements of Governmsnt's general capacity building efforts being financad by UNDP and bilateral donors, Assistance for MPS will also greatly facilitate the required changes at the core institutions through the implementation of imporant elements of the civil service reform pro.:am. 6. ProJect Description. The project Includes a number of components to improve financial management and economic policy-making at MFEP and EOU. It also provides financing to assist with the start-up costs and development of financial systems of the newly established URA, and to assist MPS in tu design and implementation of the civil service reform program. The estimated total cost of the project is US$33 million of which this IDA credit would provide US$29.0 million. The main components of the project, grouped by focal area, with estmated costs, (excluding contingencies) are as follows: (a) Improving Economic Management (US$5.4 millUon) at MFEP: (i) strengthening survey and analytical work in the Statistics Department, with an orientation to trade data, national accounting and other data; (ii) strwhening of capacity to undertake studies and policy analysis. (b) Improving Filnancial Management (US$23.1 million) at MFEP: assistance in (i) computerization, Including the provision of training; (i) planning and budgeting systems and processes; (iii) improvements in building infrastructure and office facilities, Including the wiring, etc., needed for installation and use of computers; and financial management, accounting and auditing systems, including skills development through training in (iv) the Treasury Department and (v) Office of the Auditor General; plus (vi) management activities associated with implementation of the project components. at URA: (vil) provision of needed facilities, equipment, and training, and the development of computerized revenue and trade monitoring system. at BOU: (viii) strengthening MIS and accounting systems; improving debt monitoring and foreig exchange management systems; improving .-lytical capacity in the Research Departnent, and, Improving general management and human resource skills. (c) Improving PubUc Adndnistration (US$1.7 million) at MPS: assistance In improving the general capacity of the Minitry to design and cary out the civil service reform program. This asistance would be dict to: designin and Implementing the civil service reenchment program and the program of phased  - iii - enhancerment of salaries and incentives; introducing personmel information systems to enable proper management of the staff reduction program; and strengthening skills within the management services department. 7. To accomplish the project's objectives, technical assistance would need to be provided In the form of: (i) advisors, (ii) short-term consultancies, (iii) local and overseas :aining, and (iv) twinning arrangements. Advisors would be needed at: MEP for the introduction of computerization and strengthening of the planning and budgeting systems; at Treasury Accounts and in the Office of the Auditor General for integration of the new accounting s,stems and processes, linked to extensive training and the improvement in organizational structures; and at the project office to assist with project management and financial accounts; BQM for the accounting and computing functions; and MP$ for program management of the Civil Service Reform. Counterpart arrangements would be in place in all areas where advisors are utilized. 8. Costs. A breakdown of costs and the financing plan are shown in Sc.hedule A. Amounts and methods of procurement and disbursements and the disbursement schedule are shown in Schedule B. A timetable of the key project processing events and status of Bank Group Operations in Uganda are given in Schedules C and D respectively. 9. Parallel Financing. Over the last two years there has been considerable donor activity in the areas covered by Government's overall program for strengthening economic and financial management. During preparation of this project, IDA approached the main donors to seek their agreement to an integrated program, rather than having separate projects over different time periods and in unrelated sequences. The response from USAID, EEC, UK-ODA and UNDP, was very positive. Regular meetings have been held at all stages of preparation and draft documents have been exchanged. It is anticipated that Government will receive the support needed from donors to fund its overall program, beyond those portions covered by this IDA project. 10. Environmental Impact. The project objectivas and implementation will not have any direct impact on the environment. Indirect benefits resulting from improved economic decision maing may be achieved over the longer term. 11. Implementation. Overall project administration will be handled by a Project Coordination Committee, chaired by MFEP; a project office in MFEP will act as the secretariat to the Committee. Each of the 11 defined project components will have a named component manager. Yearly work plans will be agreed and Government will provide MDA with quarterly progress reports on each component. Regular supervision of individual components of the project will be undertaken and the overall project would be subject to a mid-term review after two years to allow any needed changes in component objectives, management or inputs. 12. Sustalnabllity. Much of the project is concerned with enhancing and converting Government manual and semi automated systems of fiscal and financial sector management to fully computerized systems. Once fully converted, it is unlikely that these systems would revert to manual operations, based on experience in other countries. The sustainability of the project depends largely on the training and consultancy services provided under the project for skills development in the participating agencies. The policy studies component would, of course, only be suswtained to the extent that studies lead to policy related reforms.  - iv - 13. Applied Lessons from Prevhous Project Expaience. Preparation of the EFMP has been a process of continuous interaction with Government officials who will now manage the individual components. Moreover, for the most part, the project components have been finalized based on extensive work carried out under prior financing. Thus very litfle further analysis is required before implementation. As the project design took place concurrendy with supervision of ongoing work, and final refinemtnts were completed following a successful Country Implementation Review of project experience, Government developed full understanding and ownership of the EFMP. The direct linkage of past assistance, with its successes and failures, with new initiatives, has also enabled special attention to he paid to the key questions of project management and of sustainability. This has resulted in all components following a particular " TA model', with strong emphasis at the early stages of implementoton on: (i) procurement of needed equipment; (ii) local staffing, and (iii) the development of skills. The design process al-o helped reinforce for Government the necessity and advantages of appointing component managers and for a decentralized management approach within a strong central framework. 14. Rationale for IDA Support. Assistance to the Government in carrying out its adjustment program in a more efficient and effective manner is a key objective of the Bank's overall development strategy in Uganda. The Bank is particularly well placed to play a catalytic role in providing assistance to the target agencies to modernize their practices and operations and successful implementation is a major element of the capacity building program for the country. 15. Agreed Actions. At negotiations, Goverment agreed to the following conditions: For (a) Conditions of Effectiveness, the credit will become effective upon (i) deposit of Government's first quarterly contribution equivalent to US$200,000; (ii) Government's appointment of the Central Information Systems Advisory Committee, the Services Manager and the Systems Manager at UCS and (iii) appointment of the Chairman and members of the Project Coordination Committee and a project administrator. For (b) Conditio ofDisbunement, agreement has been reached with Government on the following: (i) for MFEP, an acceptable work plan, including the appointments of suitable experts in the Budget Department, Treasury and Office of the Auditor General; a managing agency for civil works; and for use of the ERP fund, written requests from the Permanent Secretary/Secretary to the Treasury; (ii) for the project office, appointnent of a procurement expert and project accountant; (iii) for URA, creation of an organization acceptable to IDA; (iv) for BOU, an acceptable work plan and (v) for MPS, appointment of an acceptable chief technical advisor. Also, (c) Other Actions/Areas Agreed, with Government were for: (i) all first year work programs, and related TORs; (ii) Government's financial contribution to the project and procedures for accessing funds under project components; (iii) the managerial strucwre and appointments for managing and coordinating all the components of the project; and (iv) the TOR, and use of, a mid-term project review. 16. Program Objective Categories. The project is direcdy supportive of the Government's structural adjustment program. It also includes a substantial amount of technical assistance for institution and capacity building (categorized as institutional development assistance), through provision of training, consultant services and support for the design of new processes and systems plus implementation. Remaining elements of technical assistance, (categorized as 'substitution TA"), are directed towards improved policy formulation, advice and monitoring. Successful implementation of the project should have a beneficial effect upon poverty issues, as a result of improved prioritization and control of public expenditures.  . v - 17. Benetits and Risks. The improved quality and timeliness of economic and financial data are expected to lead to better economic management, including more effective implementation of the stabilization and structural reform programs. Planning and budgeting should be enhanced and pIublic expenditure monitoring and control are expected to improve subsnially, based on new systems and procedures and furher facilitated by stronger accounting and auditing. Investment programming should be strengthened considerably by the project and government receipts should be greaty enhanced with the institutional development of the Uganda Revenue Authority and the introduction of new (computerized) systems, processes and proceoures. The improvements cited above will all be underpinned through civil sen reform. In total the results of the project would significantly raise the implementation capacity of key government minis' ies and agencies in the areas of economic and financial management. 18. The risks of the EFMOP might avpear large, given the nbAd for inter-ministerial/agency linlages within the project components and the complexity of some of the project components themselves. Moreover, it would appear that the seemingly large amount of technical assistance could be beyond the management capacity of the Government. However, the overall size and uumber of components in the project are fewer than has been the case in the last five year period. Moreover, many of the components have either evolved from current improvement efforts or have been carefully prepared, with very significant input from government staff. Ihe risks are further mitigated by the establishment of the Coordination Committee and its members' past involvement in, and commitment to, the project. 19. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Lewis T.Preston President Attacments Washington, D.C. July 13, 1992  -vi- Schedule A Page 1 of 2 Project Costs and Tianeing Plan (US$ MNion) A. Cost Table LOCI'J Forep Toal ECONOMIC MANAGEMENT A. AtMNW" (i) Statistics Deportment 1.0 0.9 1.9 (ii) Implementation cf-SP 1.4. 2.1 3.S Sub Total 11 FINANCIAL MANAGEMENT B. At MFW (i) Government Computing and UCS 2.2 0.3 2.5 (ii)a. Central budgeting and planning 1.5 0.9 2.4 (ii)b. Local Administration budgeting 0.4 0.7 1.1 (iii) Building Refurbishment/Redeployment MFEP Staff 1.4 0.6 2.0 (iv) Treasury Departm 1.9 2.4 4.3 (v) Auditor Generals Office 0.5 0.8 1.3 (vi) Project office 0.4 0.2 0.6 (vii) At URA 1.7 3.1 4.8 (viii) At BOTJ 1.3 2.8 4.1 Sub Total C. PUBLIC ADMINISTRATION CI) At--S 0# CONTINGENCIES Total Project Costs , _  -vi - Schedul A Pap 2 of 2 S. mn.ndng plan Proposd Proet plnnng (US$ Milion) Source of Funds Loald FIorei Total IDA 12.3 16.7 29.0 Goverment 4.0 0.0 4.0 _X1-~~~~~~~~~~~~~~~~ An I Edimat C* (imcluding co'ntngenies) Techoical Asdstance 3.7 9.0 12.7 Traninng 3.1 2.7 5.8 CompAearlsoftwe 0.0 2.0 2.0 Vehicles 0.0 0.8 0.8 Civl Wors/FursIn 3.1 0.8 3.9 Office Egu_/Supplies 0.3 1.4 1.7 In!remn Oprating costs 6.1 0.0 6.1  - viii - Schedule B Page 1 of 2 Sinumary of Proposed Procurement Arrangements Procureent Method (US$ million equivalent) Preurment Method Project l3ement ICB LCB Other N/A Total Cost Works Rehabilitatiou 3.8 3.8 (3.8) (3.8) Goods Computers/Software 2.0 2.0 (2.0) (2.0) Vehicles .8 .8 (.8) (.8) Furnishings .10 .10 (.10) (.10) Consultancies Technical Assistance 12.7 12.7 (12.7) (12.7) Trinng 5.8 5.8 (5.8) (5.8) Miscellaneous Office Equipmen Supplies 1.4 .05 .25 1.7 (1.4) (.05) (.25) (1.7) Incremental Operating Costs 6.1 6.1 (2.1) (2.1) a. Amounts in parenthesis are the respective amounts financed by IDA. b. Amounts without pareatheses are totas. c. Technical Assistance and Training will be procured in accordance with IDA guidelines.  -ix - Schedule B Page 2 of 2 Disbursements of Credit Proceeds Category Alocsted Pe"tages ___________________ (US million)_____ 1. Civil Works 3.8 100% 2. Vehicles, Computers/Software, 100% Office Equipment/Supplies 4.6 l 3. Technical Assistance/Training 185 100% 4. Incremental Oeaing Costs 2.1 30 % Emitiated Disbursements: IDA (FY) US$ Millon (standard profl:e). Annual 1.8 T 2.3 5.8 4.6 7-0 52. 23 cumulative 1.8 | 4.1 9.91 14.5 21.5 26.7 | 29.0  -K- Schedule C Tlmetable of Key Projed Procming Events a ime taken to prepare: Eighteen months b. Prepared by: IDA staff in consultation with Government* c. First DA mission: November 1990 d. Appraisal mission departure: April 1991 e. Negotiations: March 1992 f. Paned Date of Effactiveness: September 1992 S. List of relevant PCRs: Uganda: Firs Technical Assistance Credit April 1989 * The project was prepaed by I. Knapp, Task Manager; L. Roberts, Senior Public Sector Management Specialist; and S. Johnson, Financial Consultant, and received significant imput for the fial design adopted from the Uganda Country Team.  -xi - STATUS OF SANK GROUW OPERATIOUS IN UGANDA cheouto 0 ......................................... Pap 1of 3 A. STATENOET Of BANK LOANS AND IDA CREITS (as of March 31, 1992) -. US$ Nliton --. Amt t(Les C ellettiom) Loan or Fiscal Uhdis- Credit No. Year Berrower Purpose Bank IDA bursed ...... ... ..... ......... ...... ............ ....... ......... .... ....... . ..... One (1) toan and twenty-three (23) futty disbursed, 8.40 475.45 Of abich SECALs, SALs and Program Loans/Crodits a/ Cr. 03400 1988 Uganda Economic Recovery Credit/SAF 24.00 Cr. 18411 1989 ugandb Economic Recovery Credit 0.00 1.70 Cr. 12520 1982 uganda Reconstruction Credit St 0.00 70.00 Cr. 14740 19864 Ugnda Reconstruction III 0.00 50.00 Cr. 18440 1988 Uganda Economic Recovery Credit 0.00 65.00 Cr. 18443 1990 Uganda Economic Recovery Credit 0.00 1.50 Cr. 20871 1991 Uganda Economic Recovery Credit it 0.00 2.00 Cr.12480 1982 Uganda IDF I 35.00 0.53 Cr.13280 1963 Uganda Agricultural Rehabititation 70.00 5.1S Cr.14340 1984 Uganda Second Technicat Assistance 15.00 0.17 Cr.14450 1984 Uganda Third Highway 58.00 8.33 Cr.15390 19S Uwanda Agricultural Development 10.00 4.66 Cr.15600 1985 Uganda Second Power 26.80 9.40 Cr.15610 1985 Uwanda Petroltai Exploration Prom 5.10 3.82 Cr.18034 1967 Usanda Fourth Highway 18.00 2.60 Cr.18240 1988 Uganda Forestry Rehabilitation 13.00 5.03 Cr.186