Statement by Joaquim Carvalho at the Board meeting of May 20, 1997

International Bank for Reconstruction and Development 86838 International Development Association International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS97-160 May 19,1997 Board Meeting of Tuesday, May 20, 1997 Statement by Joaquim Carvalho UGANDA: Country Assistance Strategy The Ugandan authorities have been implementing reform programs since 1986 when President Museveni assumed office. As is well documented, the reform programs have on the whole achieved impressive results, with the growth rate averaging 6.4 percent during the past decade, and 8.1 percent during the past three years; inflation has been reduced to single digits and the level·· of private sector participation has increased substantially. This level of performance is clearly higher than that of many other low income countries. In spite of these achievements, however, my Ugandan authorities realize that they will have to redouble their efforts if they are to meet the challenges that lie ahead. The Country Assistance Strategy before the Board today, prepared after extensive consultation in the country, does a good job of capturing the mood of the country as well as supporting the priorities set in the country's development agenda. I should like at this point to pay tribute to the Uganda team led by the Vice President Calista Madavo and the Country Director Jim Adams, for their tireless efforts during the last few years including, and especially, their role in preparing and bringing to the Board the HIPC initiative for Uganda which was approved in April this year. Of course, I would be remiss in my comments if I did not commend Uganda's other development partners, including the African Development Bank, the IMF, the European Union as well as bilaterals and other multilateral organizations for their role in assisting the Ugandan Authorities as they implement their development programs. Since there has already been extensive discussion on the issues contained in the CAS document between the Bank and various segments of the Ugandan society, I merely wish to highlight in this statement some of the major issues that have emerged during the discussions which may need augmentation and perhaps elaboration. First, it is important to remember that the legacy of fifteen years of civil instability and economic mismanagement (1971-1986) will require substantial efforts and time to correct. Even with the impressive levels of growth noted above and in the CAS, substantial investments, and additional reforms will be required to sustain growth at fairly high levels, and to assist the country in meeting the objectives stated in its Poverty Eradication Action Plan (PEAP). We therefore, support the CAS's preference for a higher case scenario which, in our view, should This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  2 keep the growth rate, on average, above 7 percent and hence have a significant impact on poverty reduction. Second, Uganda's economy, dependent on one major export, coffee, is extremely vulnerable to external shocks. Although Uganda has fared well in managing the recent coffee boom, the projected decline in price levels could be extremely difficult for the economy. It is with this in mind that we urge the Bank to assist Uganda in developing a viable strategy for export diversification. To some extent, the liberalization process will lead to new investment opportunities and open up new sectors for the private sector. However, without a clear strategy and program to diversify the export base, such opportunities may not reach their full potential. Third, human resources development in general, and capacity building in particular, are critical elements in the government's development strategy. The Universal Primary Education (UPE) program, with its emphasis on girls' education, is clear evidence of how much importance the authorities attach to this issue. They are aware, however, that a large influx of new students into the system will place great demands on both physical as well as financial resources, but are prepared to allocate a higher level of resources to the sector. Equally, in the health sector, the government is working hard to improve access as well as the quality of services. As far as ·capacity issues are concerned, Uganda has for sometime been undertaking some reforms, particularly in the civil service, to build new capacity and to improve the utilization of existing capacity. Additionally, Uganda is one of the strongest proponents of the African Capacity Building Initiative, which was launched during the 1996 World Bank/IMF Annual Meetings and discussed at the recent Development Committee Meetings. Accordingly, the authorities have established a Capacity Building Secretariat through which all capacity issues will be channeled. We are pleased to note that the CAS identifies the importance of developing human resources, as well as capacity building, and consider the various activities to be financed by the Bank in this area, particularly the Education Sector Operation planned for FY99, to be appropriate responses to the country's program. Fourth, my Ugandan authorities strongly believe that the private sector should be given a much more prominent role in economic activities than hitherto if the goals of poverty eradication, and that of sustainable growth, are to be realized. Much has been accomplished in this regard, but much more needs to be done, as the CAS correctly points out. In this regard, I would urge the Bank to work closely with the authorities to continue with the privatization process which is already underway, as well as deepen the reform of the financial sector. Additionally, in advancing programs in this area, we hope that IFC, MIGA and CGAP activities, especially in the micro, small and medium scale enterprise subsectors, will be expanded and coordinated with IDA's programs. An important tool for the expansion of private sector activities is tax policy. In our view, a delicate balance needs to be struck. While it is correct that tax revenues have in the past been low, we agree with the CAS that efforts to raise revenue through substantial tax hikes could be detrimental to private investment and growth, which is a high priority in the country's development agenda. The authorities, however, are not averse to periodically reviewing their tax policy so as to ensure that the tax levels so established do not only generate adequate  3 revenue levels, but also encourage private sector activities in the country, especially in rural areas. Finally, it is the view of my Ugandan authorities that an important element in their objective of poverty eradication is the development of appropriate policies relating to the agricultural sector. In this regard, current efforts to improve the delivery of agricultural services, rural infrastructure and even decentralization are critical to the realization of this objective. Accordingly, my authorities have placed great emphasis on the improvement of roads, especially rural roads, to facilitate both private sector activities and the movement of agricultural products. We appreciate the Bank's assistance in this regard and hope other development partners will also favorably respond to the government's call for participation in the roads program. In closing, I wish to emphasize that in spite of its stellar performance during the past ten years, Uganda is still a low income country whose incidence of poverty is very high, especially in the rural areas; whose economy is extremely vulnerable to external shocks, and which, the benefits of the HIPC initiative notwithstanding, will continue to face a substantial financial resource gap. Hence Uganda will need the cooperation and assistance of its development partners in order to sustain the recent growth levels. It is therefore my Ugandan authorities' hope that the goodwill that the development partners have demonstrated in the past will future . continue in the .·