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Introduction

The principal U.S. national interests in Uganda are supporting its continued integration into the global economy and enhancing its role in regional stability. Uganda's economy has grown at an average of 6% during the 1990s. This growth is a result of the country's efforts to create a policy framework to encourage sustainable economic development, attract foreign investment, and promote export and trade opportunities. The country has excellent potential to become a net food exporter, particularly to neighboring countries. Uganda contains unique ecosystems critical to the conservation of globally important biological diversity, many of which are of great interest to international tourism. Uganda's aggressive efforts to reduce the spread of HIV/AIDs are showing significant results: the rate of new infections has markedly declined, particularly among young adults. Primary education reform is one of the top Government of Uganda (GOU) priorities, accompanied by a new policy to increase school enrollment and retention among girls. GOU policy also includes devolving the responsibility for most government functions to 45 newly created district administrations, for the first time providing local communities direct access to local government policy makers. A major upcoming challenge is the July 2000 multi-party referendum.

Rebel insurgencies in northern and western Uganda continue to displace large numbers of people. Refugees from neighboring countries are in Uganda due to regional conflicts. Uganda is a key strategic player in conflicts and tensions in the Great Lakes and Horn of Africa regions, and its decisions affect U.S. policies toward Sudan, the Democratic Republic of the Congo (DRC), Rwanda and Burundi. Uganda's support for the Lusaka cease fire framework agreement on the DRC, and its participation in the Intergovernmental Authority on Development (IGAD) peace process for Sudan, will eventually lead to a settlement of these regional disputes.

The Development Challenge

Despite impressive economic gains, major issues still confront Uganda's growth and development, including heavy indebtedness, high levels of poverty, widespread corruption, and inadequate infrastructure. After nearly 25 years of repressive rule (1962-1986) accompanied by massive inter-ethnic violence, the GOU, led by President Yoweri Museveni since 1986, is still struggling for peace and reconciliation. While rebuilding a shattered country, Ugandans have had to cope with an especially severe AIDS epidemic. Further, the 13-year insurgency in the North and West, as well as involvement in regional conflicts, mean that the GOU (with the help of the non-governmental organization (NGO) and donor communities) must support large numbers of displaced Ugandans, Sudanese refugees, chronically food insecure families, people affected by clan disputes, and abducted children that have been returned to their families and suffer from psychological trauma. This continues to burden Uganda's already limited fiscal resources and creates significant problems for the delivery of social services and maintenance of infrastructure.

Uganda remains one of the poorest countries in the world. Life expectancy at 36 years (1995 DHS) is one of the lowest in the world; and adult literacy is 64% (1997). GDP per capita is $330 (1997). Infant and child mortality rates are high at 97 and 147 per 1,000 live births, respectively (1995). Maternal mortality due to pregnancy and childbirth is 506 deaths per 100,000 live births (1995), a figure that many believe to be conservative. One of the most serious constraints affecting Uganda is rapid population growth, currently running at around 2.9% per annum. At this growth rate, Uganda's population will double to 44 million in 24 years. Uganda remains a "Heavily Indebted Poor Country (HIPC)," with foreign debt (including the IMF) amounting to 66% of gross domestic product in 1998. For continued growth, Uganda will require external assistance to finance its budget: donor assistance has hovered around 10% of GDP for the past few years and nearly one-half of GOU public expenditure is externally financed. This indicates that a high percentage of Uganda's development budget will have to be externally financed for at least the next 10 years. Given this scenario, Uganda is not slated to graduate for the foreseeable future.

The broad GOU strategy is to improve economic and fiscal management, to devolve development decision-making to Uganda's 45 districts, and to increase funding for enhanced social welfare programs, while focusing on rapid economic growth. While decentralization has the potential to bring decision-making over the use of government resources much closer to the community level, it will intensify the strain on Uganda's already limited planning, administrative, financial management and performance monitoring skills. Over the past three years the GOU has taken major steps to plan and monitor fiscal expenditures more carefully, to make budget decisions more transparent to the public, the Parliament and the donors, and to increase tax revenues (by 0.5% of GDP per year) so as to gradually reduce its dependence on donor assistance.

In 1997 the GOU announced its Poverty Eradication Action Plan (PEAP), a blueprint to eliminate poverty in Uganda within 20 years, which has become the guiding strategy for all GOU development efforts. The PEAP contains two objectives: 1) to increase household incomes through rapid economic growth, and 2) to improve the quality of life through improved delivery of public services, especially health, education, rural roads, water and sanitation, and agricultural extension. To accomplish the latter, the PEAP provided increased budget financing for those priority poverty areas, and guaranteed those funding levels against future budget cuts. To accomplish the former, the GOU pressed ahead with reforms to trade policy, the civil service, and others. Since mid-1998, however, the privatization effort has stalled and the closing of four commercial banks revealed an ineffective system of bank supervision and monitoring. To correct these problems, a parliamentary investigation recommended reforms to the privatization process that will make it more transparent and accountable, and the Bank of Uganda, with USAID assistance, intensified efforts to strengthen its supervision and monitoring.

Since June 1998, the GOU has introduced four major reforms to make the budget process more fiscally responsible, transparent and accountable. First is the Medium Term Expenditure Framework (MTEF) that the GOU uses to ensure that expenditure requests by line ministries are kept within overall resource availability (tax revenue plus donor grants). Second is the Poverty Action Fund (PAF), serving as a transparent mechanism to program the fiscal resources freed-up by the debt relief Uganda receives under the HIPC Initiative; the PAF funds priority poverty eradication programs under the PEAP. Third is the GOU commitment to implement a performance monitoring system for public expenditures at the central and district levels. And fourth is an intensified effort to solicit the participation of donors, civil society organizations, the private sector, and local governments in developing the next MTEF. Together, these reforms have the potential to create a more responsive, accountable, transparent and effective budget process: more efficient and effective public expenditures on economic infrastructure and social services should make a major contribution to improved social outcomes.

USAID's program aims to increase the incomes of Ugandans by encouraging broad-based economic growth; conserving biodiversity and the natural resource base; strengthening primary education and reproductive, maternal and child health services; and enhancing government accountability and transparency through institutional strengthening of Parliament and district governments. USAID efforts have led to increases in rural incomes through higher production of food crops such as maize and beans and through introduction of non-traditional agricultural exports such as cut flowers, fruits, vegetables and spices. The former also improved food security in Uganda. USAID initiated support for efforts by the private sector to forge a partnership with government to further liberalize trade policy. And the number of USAID-assisted micro-finance providers has increased well beyond anticipated levels. USAID has helped improve management of Uganda's system of 22 parks and reserves containing globally important biologically diverse areas, including the highly endangered mountain gorilla.

USAID's policy dialogue in the education sector has served as a catalyst to open the school textbook market to competition, improve teachers' contracts, and construct hundreds of classrooms. USAID has also provided in-service, refresher or management training to thousands of teachers. The use of contraceptives has increased from 12% to nearly 20% in districts where USAID's activities are involved, and Ministry of Health data indicate that HIV prevalence has declined significantly since the 1980s (by 50% among pre-natal clients at urban sentinel clinics). In 1999, USAID initiated a decentralization activity to strengthen the capacity of local governments to manage financial resources and monitor program implementation, and to enhance the capacity of civil society organizations to demand accountability on the part of their local government officials. USAID's humanitarian assistance continues to provide emergency relief to 350,000 Ugandan internally displaced persons, 160,000 Sudanese refugees, and other affected groups.

Other Donors

The United States is among the largest donors to Uganda. In December 1998, donors held their annual Consultative Group (CG) Meeting -- for the first time -- in Kampala, Uganda. This historic meeting included the participation of President Museveni and Uganda's private sector and non-governmental communities. The donor community pledged $2.2 billion dollars to Uganda over the ensuing three years. Donor resources provide nearly half of Uganda's operating budget and are focused on infrastructure development, social service provision, private sector development, decentralization, and agriculture modernization as well as policy and institutional reform. In October 1999, the World Bank and the GOU presented Uganda's Comprehensive Development Framework (CDF) to a wide array of the GOU's development partners. The GOU intends to use the CDF to coordinate the development activities of donors and other partners in implementing its poverty eradication action plan.

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