Uganda Intergovernmental Fiscal Transfers Program

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The objective of the Intergovernmental Fiscal Transfers Program Project for Uganda is to improve the adequacy and equity of fiscal transfers and improve fiscal management of resources by Local Governments for health and education services. Uganda has performed well in terms of economic growth and poverty reduction over the last decades, despite a recent slowdown. Uganda is a low-income country with gross domestic product (GDP) per capita of US$600 (2016). GDP growth has averaged more than 6 percent for the past 20 years. This growth can be attributed to macroeconomic stability, post-conflict rebound and pro-market reforms. This growth benefitted the poorest households, and during the last decade, Uganda managed to reduce the proportion of households living under international extreme poverty line faster than any other country in Sub-Saharan Africa (SSA). More recently the rate of economic expansion decelerated from an average of 7.6 percent a year during FY06-FY10 to 5.5 percent from FY11-FY15. This is because of external factors, inconsistent fiscal and monetary policies, a slowdown in the efforts by the Government to implement further reforms and low domestic revenue collection, which have created fiscal constraints for the Government. These constraints might ease when Uganda begins exporting oil, but the timing of this is uncertain. The Uganda Intergovernmental Fiscal Transfer Program (UgIFT) has high strategic relevance because it will address the binding constraint of low and inequitable levels of funding for health and education at the local level. The UgIFT Program is based on a premise that improved local government financing of education and health services is a necessary condition for improved outcomes, but it needs to be complemented with sustained policy improvements and investment in health and educations sectors. Funding levels for social services in most local governments (LGs) are too low to achieve improvements in outcomes. Specifically, the program addresses three constraints that have a major adverse impact on service delivery: (a) the large-scale horizontal inequities in the per capita amounts of transfers received by the LGs; (b) the inadequate level of per capita social expenditures in poorer LGs; and (c) the poor fiscal management of resources by LGs.