Statement by Jean-Daniel Gerber at the Board meeting of May 20, 1997

International Bank for Reconstruction and Development 86839 International Development Association International Finance Corportation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY EDS97-16I CONFIDENTIAL May 19,1997 Board Meeting of May 20,1997 Statement by Jean-Daniel Gerber UGANDA- Country Assistance Strategy 1.- The remarkable performance of Uganda in the last ten years is well known. In the context of the recent HIPC discussions·, the Board had an opportunity to express its positive opinion on the stabilization program as well as the structural and institutional reforms implemented during the last decade. The comprehensive and well-written CAS adequately underlines these impressive achievements which have allowed Uganda to emerge as the most consistent good performer in sub-Saharan Africa. Uganda's success gives a strong signal to the other countries of the region. On one hand, it unequivocally illustrates that policies matter, even in countries burdened with a painful legacy, and on the other hand, it demonstrates the responsiveness of the international community towards good performers. A lot is at stake with Uganda's future development, above all for the Ugandan people, for the region, but also for the development assistance community. 2.- The CAS, appropriately so, leaves no room for complacency. It strikes the right balance between legitimate enthusiasm in view of past accomplishments and an emphasis on the many unresolved difficulties and challenges ahead. This being said, we are somewhat concerned with the strong push for high growth. We agree that the poverty level can only be reduced by an increased growth rate, however we have doubts about the sustainability of the high case scenario. • For one, it relies on keeping the tax base at a relatively low level by substituting revenues with increased borrowing from IDA. In this respect, it is important to get clarification on the impact of a sustained high lending rate from IDA on Uganda's external debt situation (the CAS being vague on this issue).We would also like to obtain clarification about the degree to which Uganda will be able to benefit from IDA grants instead of credits in connection with the HIPC Initiative. • Second, the performance of the Bank's portfolio is indeed disappointing for a country which ranges among the top performers in terms of macroeconomic management. The percentage of successful projects is merely 50 percent, the average for Africa. The stated Bank's 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 objective of attaining a 75% rate of success is ambitious and may well result in lower than expected annual disbursement and thus slower growth. Substantial capacity building in order to ensure maximum efficiency in the use of resources is required and will take time. • Third, the Bank's growth projections rely to a large extent on the relatively high expectations for private sector investment levels. The basis for these assumptions is unclear to us, given that a detailed analysis of recent investment patterns has yet to be carried out. Furthermore, we would have appreciated it if the part of the CAS devoted to IFC had been more elaborated. To merely indicate that the IFC envisages investing about 40 million per annum in the next three years does not give us much indication of its strategy, its objectives or the means put at the disposal of the Corporation's staff working on Uganda. In fact, we would have liked a more forceful statement from the IFC on the importance it attaches to developing a substantial program in Uganda • Fourth, it assumes that security can be contained. The present situation in the region is not a source of great optimism in this regard. 3.- Ten years of strong adjustment have not yet have a significant impact on poverty reduction. Although hard-core poverty seems to have decreased, there are still more than 60% of Ugandans below the poverty line. In this regard, the strong synergy between the Government's Poverty Eradication Action Plan (PEAP) and the Bank's CAS, to whose preparation the civil society as well as the private sector have been associated, is welcome and lends extra credibility to one another. We are in agreement with the Bank's focus as presented in par. 53. To ensure a better performance of the present and future portfolio is indeed a high priority. A 50% of successful projects by ICR estimates is not satisfactory and clearly at odds with Uganda's performance in general. In this respect, we fully share the view that the Bank needs to give special attention to strengthening its analytical basis, through a comprehensive and meaningful ESW program, as well as improved management of the existing portfolio. Attachment 3 "Portfolio Overview and Improvement Strategy" attests that the Bank and Government have been giving priority to this aspect in the last two years and some positive results are starting to appear. Continuous effort, through intense supervision and implementation support with a strong involvement of the resident mission are warranted. More than half of the population of Uganda are rural poor. The potential impact of poverty- focused new lending in rural areas is, therefore, indisputable. However, new operations will have to be chosen carefully in view of the limited implementation capacity of the Ugandan administration. New lending cannot substitute for a quantitative and qualitative increase of the social expenditures in rural areas, for this would have a direct and rapid impact on the living condition of the majority, including a large share of the poorest. However, the capacity of the social ministries to adequately administer additional funds in the short run is questionable; the same holds true with regard to the indispensable improvement of the service delivery (Box 3 and 4 are self explanatory in this regard). We are satisfied that the Bank fully acknowledges the necessity of tackling these crucial issues and will assist the Government in this complex task.