23rd Edition Uganda Economic Update Improving Public Spending on Health to Build Human Capital 1 © 2024 International Bank for Reconstruction and Development/International Development Association The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. The World Bank encourages dissemination of its knowledge, so this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; FAX: 202-522-2422; e-mail: pubrights@worldbank.org. Photo credits: Miriam Watsemba, 2024 & Morgan, 2017 Design/Layout: Artfield Graphics Printed in Uganda by Artfield Graphics Additional material relating to this report can be found on the World Bank Uganda website (www.worldbank.org/uganda). II Uganda Economic Update Improving Public Spending on Health to Build Human Capital Table of Contents Abbreviations vi Foreword vii Acknowledgements viii Executive Summary x 1 Part 1: The state of economy 1. Recent Economic Developments 1 2 1.1 The global recovery continues, but debt and inflation cloud the regional outlook. 2 1.2 The lingering effects of shocks threaten Uganda’s economic resilience. 3 1.3 Financing imbalances contributed to currency depreciation despite a stable current account 7 1.4 The central bank tightened monetary policy to curb resurgent inflationary pressures. 9 1.5 Revenue shortfalls and new spending pressures have undermined the fiscal consolidation. 11 2. Economic Outlook, Risks, and Policy Actions 16 2.1. Economic resilience is underpinned by the anticipated development of the oil sector. 16 2.2. Numerous risks threaten Uganda’s medium-term outlook 20 2 Part 2: Linking public spending on health to Human Capital Development 22 3. Assessing the Adequacy, Efficiency, Equity, and Effectiveness of Public Spending in Health 23 3.1 The key role of the health sector in developing Uganda’s human capital 23 3.2 The organisation of the health sector in Uganda 24 3.3 Key health outcomes 26 3.4 Spending on health and availability of core health workers and medicines 27 3.5 Efficiency and effectiveness of health spending 36 3.6 Equity indicators: benefit incidence and financial risk protection 38 4. Recommendations to Improve Spending to Generate Better Health outcomes 42 Uganda Economic Update Improving Public Spending on Health to Build Human Capital III List of Figures Figure 1: Growth stabilized as industry compensated for the weaker performance of services and agriculture. 4 Figure 2: The PMI remained at or above the 50-point mark in all but two of the last 24 months. 5 Figure 3. Rising imports have offset strong export growth, expanding the current-account balance before it stabilized. 7 Figure 4. FDI, and other private inflows continue to finance the current-account deficit. 7 Figure 5. The shilling’s nominal depreciation had a limited impact on the real exchange rate, but reserves declined 8 Figure 6. Headline inflation remains low, but price pressures increased during the third quarter of FY23/24. 9 Figure 7. The cost of credit increased as the central bank raised interest rates to counter rising inflation. 10 Figure 8. Credit growth began to recover before flattening out. 10 Figure 9: The fiscal deficit continued to narrow in FY23/24… 11 Figure 10. …as the under-execution of capital expenditures… 11 Figure 11. …compensated for the underperformance of revenues and grants. 11 Figure 12. The fiscal deficit was mainly financed by domestic borrowing. 13 Figure 13. Trends in the distribution of health facilities by ownership 26 Figure 14. Total current health spending, FY14/15 – FY20/21 28 Figure 15. General government health spending from domestic sources 29 Figure 16. General government health spending, Uganda and Comparators, FY20/21 30 Figure 17. On- and off-budget external financing of health expenditures 31 Figure 18. Top 10 causes of morbidity and mortality in Uganda (% change 2009–2019) 32 Figure 19. Total current health expenditures by diseases and conditions, FY16/17–FY20/21 32 Figure 20. The health-sector wage bill as a Share of Total Public Spending on Health 33 Figure 21. The availability of essential health workers 34 Figure 22. The adequacy of public spending on medicines and medical supplies 36 Figure 23. Health-sector budget performance 36 Figure 24. The efficiency and effectiveness of health spending, FY21/22 37 Figure 25. The productivity of skilled health providers, FY21/22 38 Figure 26. Trends in benefit incidence: public health centers and hospitals 39 Figure 27. Comparing total benefits with total needs: FY12/13–FY19/20 39 Figure 28. Trends in the incidence of CatHE 40 Figure 29. Incidence of CatHE by rural and urban setting and sub-regions at the 10 percent threshold 41 Figure 30. Incidence of impoverishment due to OOP spending on health 42 IV Uganda Economic Update Improving Public Spending on Health to Build Human Capital List of Tables Table 1: Quarterly real GDP growth by subsector (%) 6 Table 2. Fiscal operations (% of GDP) 13 Table 3. Baseline economic outlook (annual % change unless otherwise indicated) 18 Table 4: Health facilities in Uganda by type, 2023 25 Table 5. Universal health care index scores, Uganda and comparators 26 Table 6. Key demographic and health indicators 27 Table 7. Key health-finance indicators for FY20/21 28 List of Boxes Box 1: Supplementary expenditures are key challenge in fiscal management 15 Box 2: Strong fiscal institutions and wealth-management systems are required to maximize the benefits of oil revenue 20 Uganda Economic Update Improving Public Spending on Health to Build Human Capital V Abbreviations BoU Bank of Uganda CatHE Catastrophic Health Expenditure CFR Charter for Fiscal Responsibility CHE Current Health Expenditure COVID-19 Coronavirus Disease 2019 DSA Debt Sustainability Analysis FDI foreign direct investment FY fiscal Year GDP gross domestic product GoU Government of Uganda HAQ Health Access and Quality HCDP Human Capital Development Program HCI Human Capital Index HIV/AIDS Human Immunodeficiency Virus and Acquired Immunodeficiency Syndrome HRH Human Resources for Health IMF International Monetary Fund MMR Maternal Mortality Ratio NCDs Non-communicable diseases NDP National Development Plan NPA National Planning Authority OECD Organization for Economic Co-operation and Development OOP Out-Of-Pocket PER Public Expenditure Review PFM Public Finance Management PFP Private-for-Profit PHC Primary Health Care PMI Purchasing Managers Index PNFP Private-Not-For-Profit PRIR Petroleum Revenue Investment Reserve SDG Sustainable Development Goals SSA Sub Saharan Africa SHP Skilled Health Personnel USh Ugandan Shilling UHC Universal Health Coverage UNHS Uganda National Household Survey VAT Value Added Tax WHO World Health Organization VI Uganda Economic Update Improving Public Spending on Health to Build Human Capital Foreword The Ugandan economy remains resilient amid intensifying climate shocks and a challenging global environment. Economic activity has been robust due to strong oil-related industrial activity and a growing mining and quarrying sector. Although agricultural production was affected by adverse weather, supply conditions improved, and moderating prices for food and essential goods supported improvements in household welfare. Monetary and fiscal policy changes in advanced economies led to higher portfolio outflows, which intensified depreciation pressure on the Ugandan shilling in the first half of 2024, while declining disbursements from external development partners contributed to the erosion of international reserves. Despite Uganda’s economic resilience, its growth trajectory is vulnerable to multiple downside risks. A volatile geopolitical environment, including potential spillover effects of the conflict in the Middle East, could weigh on investment and exports, while the increasing frequency of droughts and floods heightens the vulnerability of Uganda’s businesses, farms, and households. Public spending allocation choices also pose a threat to the country’s long-term development trajectory. Human capital—the knowledge, skills, and physical health that enable people to be productive—will play a pivotal role in Uganda’s development. The population is projected to increase by 60 percent in the next 20 years, yet due to chronic investment in human capital a child born in Uganda today will grow up to be only about 38 percent as productive as she would have been had she received a complete education and full health. For Uganda to benefit from a demographic dividend, the government will need to invest more resources in education, health, and social protection while leveraging efficiency gains to maximize the impact of its limited resources. In addition, providing equal access to human capital development is key to addressing the inequality of opportunities and making future growth more inclusive. This 23rd edition of the Uganda Economic Update focuses on how to improve public spending on health. Complementing the previous edition, which focused on education spending, this analysis is designed to inform a comprehensive strategy for generating a demographic dividend that lifts living standards and improves the welfare of Ugandan households. Spending on health has been consistently low and has failed to keep pace with population growth. Underinvestment and expenditure inefficiency contribute to inadequate and inequitable access to healthcare and perpetuate poor health outcomes. The World Bank continues to support Uganda’s efforts to address these challenges and to seize this critical and fleeting opportunity to accelerate growth and development by investing in the future productivity of its people. Keith E. Hansen Country Director Kenya, Rwanda, Somalia, and Uganda Africa Region Uganda Economic Update Improving Public Spending on Health to Build Human Capital VII Acknowledgements This 23rd edition of the Uganda Economic Update was prepared by a team led by Rachel K. Sebudde and consisting of Sashana Whyte, Collins Chansa, Rogers Ayiko, Daniel Lukwago, and Aziz Atamanov. The team would like to thank Elizabeth Mabel Asege Ekochu, Julia Mensah, Brendan Michael, and Peter Okwero for their valuable contributions. The team is also grateful to Philip Schuler (Lead Economist, Macroeconomics, Trade, and Investment GP), Shruti Lakhtakia (Economist, Macroeconomics, Trade, ad Investment), and Laura Di Giorgio (Senior Economist, Health, Nutrition, and Population) for their guidance on the structure and messaging of the report. The report was edited by Sean Lothrop, with Pearl Namanya providing logistical support, while Bernard Tabaire managed the communications and dissemination strategy. The team gratefully acknowledges the overall guidance provided by Keith Hassen (Country Director), Mukami Kariuki (Country Manager), Abha Prasad (Practice Manager, Macroeconomics, Trade, and Investment), Francisca Ayodeji Akala (Practice Manager, Health, Nutrition, and Population), and Marek Hanusch (Program Leader, Equitable Growth, Finance, and Institutions). Finally, the team would like to thank the senior management and staff of the Ugandan Ministry of Finance, Planning, and Economic Development and Ministry of Health for their commitment and close collaboration during the preparation of this report. VIII Uganda Economic Update Improving Public Spending on Health to Build Human Capital Executive Summary The State of Uganda’s Economy Real GDP growth acceleration 6.2% in FY24/25 5.3% projected GDP growth Real GDP growth accelerated from 5.3% in FY22/23 Over 7% acelerated growth in the medium term 6% Exports and Accelerated t o an estimated manufacturing 6% in FY23/24 orders increased between August 2023 and May 2024. Uganda Economic Update Improving Public Spending on Health to Build Human Capital IX Executive Summary The State of Uganda’s Economy Economic activity has remained resilient despite price inflation turned negative in the second half of multiple successive shocks. Real GDP growth the year amid improving supply conditions, but rising accelerated from 5.3 percent in FY22/23 to an estimated global oil prices pushed the annual inflation rate for 6  percent in FY23/24. The expansion was driven by energy, fuel, and utilities to an average of 7.7 percent oil-related construction activity and the growth of the between January and April 2024. Overall inflation mining and quarrying sector, which benefited from has been rising, albeit modestly, since December sustained increases in gold prices and an improved 2023. Deprecation accelerated in February, and domestic environment for artisanal mining. While the inflation threatened to exceed the target of 5 percent, real estate sector continued to perform well, overall prompting the central bank to raise the main policy economic activity slowed during the second and third rate by a total of 75 basis points between March and quarter, and agricultural output remained volatile April 2024. Higher policy interest rates, coupled with due to rising input costs combined with droughts in the public sector’s substantial gross financing needs, some parts of the country and heavy rains in others. pushed up real lending rates. The low inflation and recovery of real income and Rising real interest rates have weighed on the employment bolstered consumption, while private modest recovery of credit to the private sector. After investment remained resilient despite tight domestic falling to 69 percent during the first quarter of FY23/24, and global financial conditions. As a result, exports the share of net credit to the government in total and manufacturing orders increased between August credit rebounded to over 70 percent during the third 2023 and May 2024. Per capita income reached about quarter. Increased credit to the government crowded US$980 in FY22/23, and continued growth will push out credit to the private sector, and the latter’s growth Uganda closer to the lower-middle-income threshold. rate slowed from 10.5 percent year-on-year during The external current-account balance is estimated the first three quarters of FY22/23 to an average of 7.9 to have remained broadly unchanged, but foreign- percent in the same period of FY23/24. Personal loans exchange reserves have deteriorated, while rising and building, mortgage, construction, and real estate portfolio outflows have increased depreciation loans continued to drive commercial-bank lending, pressure on the Ugandan shilling (USh). Rising while credit for manufacturing and trade slowed imports almost fully offset a surge in exports driven significantly. by the strong performance of gold and coffee, as well Revenue shortfalls and unplanned spending as oil-related foreign direct investment inflows. As through supplementary budgets threaten the fiscal public-sector loan disbursements declined, foreign- consolidation. Government revenue fell about 12 exchange reserves financed a larger share of debt percent below target between August 2023 and April service. By February 2024, reserves had fallen to 2024, as revenue from value-added tax and other taxes 3.3 months of import coverage. In Uganda’s small and on international trade failed to meet expectations, sensitive foreign-exchange market, the reversal of while weaknesses in tax administration eroded portfolio flows combined with deteriorating investor domestic tax collection. The revenue shortfall was sentiments put pressure on the Ugandan shilling, partially offset by underspending due to investment prompting the central bank to stabilize the exchange cuts and delays in implementing development rate by decreasing shilling liquidity. Nevertheless, the projects. The fiscal deficit fell to 4.3 percent of GDP shilling depreciated at an annualized rate of 9 percent during the first half of FY23/24, slightly below the in real terms between October 2023 and January target of 4.6 percent set forth in the Charter for Fiscal 2024, which should bolster export competitiveness. Responsibility (CFR). While revenue performance The central bank tightened its monetary policy remained weak into the second half of the fiscal year, as depreciation pressures worsened the inflation the USh 4.6 trillion supplementary budget passed outlook during the second half of FY23/24. Food- during the first three quarters exceeded the approved X Uganda Economic Update Improving Public Spending on Health to Build Human Capital budget by 9 percent and will push the overall fiscal the Parish Development Model (PDM) and other public deficit for FY23/24 above 4.5 percent of GDP, exceeding investment programs, along with improvements in the planned 3.5 percent. Additional spending may also infrastructure and a growing energy supply, could increase the debt stock well beyond the estimated further bolster aggregate demand. Over the medium 49.9 percent of GDP recorded in December 2023. term, oil exports will transform Uganda’s trade profile, while the government’s efforts to promote tourism Low levels of social spending undermine service and agro-industrialization should help foster export delivery. The education, health, and social protection diversification. sectors accounted for 14 percent of total government spending in the first half of FY23/24, with 5.5 percent With the fiscal consolidation agenda suspended and allocated to health and 8.2 percent to education. fiscal institutions weakening, fiscal vulnerabilities Budget allocations were below even the very may rise as oil revenues start to flow. The fiscal modest levels observed over the past decade, as the deficit is projected to reach above 5.0 percent of government prioritized closing infrastructure gaps— GDP during FY24/25, before declining slightly to especially in the energy and transport sectors— 4.3 percent in FY25/26, well above the targets of over investing in human capital. Education spending 4.2 percent and 3 percent, respectively, set forth in averaged 11.9 percent of total spending between the CFR. Given the slow revenue reform effort, non- FY15/16 and FY21/22, below the benchmark of at least oil revenue could rise by 0.2 and 0.4 percentage 15 percent set forth in the Education 2030 Framework points of GDP in FY24/25 and FY25/26, respectively, for Action. Education spending amounted to 2.1 with the latter year expected to be boosted by an percent of GDP, far below the benchmark of 4 percent. addition 1.4 percentage points of GDP on account of Meanwhile, health spending accounted for 7.2 percent oil related revenues. This is against weakening fiscal of total spending and just 1.3 percent of GDP. These institutions, with government failing to adhere to levels of social spending are insufficient to meet the self-imposed fiscal rule within the CFR and gaps the needs of Uganda’s rapidly growing population, in the framework for managing oil revenues. Public and budget adjustments will be necessary to foster debt, projected to reach 51 percent of GDP by FY25/26, sustainable and inclusive development. will keep debt-service costs high and exacerbate the risk of crowding out lending to the private sector. The medium-term outlook remains broadly positive, though uncertain. Real GDP is projected to grow by However, numerous risks threaten Uganda’s 6.2 percent in FY24/25 and accelerate to over 7 percent growth trajectory. A further deterioration of global in the medium term, due primarily to investment in economic conditions due to rising geopolitical the oil and gas sector. The forecast has been revised tensions or an escalation of the conflict in the Middle downward slightly since the December 2023 edition East would reduce Uganda’s exports while distorting of the Uganda Economic Update, as heightened import supply chains. Vulnerabilities in China and geopolitical tensions have put upward pressure on Europe pose particularly serious risks, as these are prices, prompting much tighter monetary policies the main sources of investment in the country’s than were envisaged six months ago. Further, the oil sector. Mounting inflationary pressures, more suspension of the fiscal consolidation agenda, as the expansionary fiscal policies, and prolonged monetary fiscal deficit rises to over 5 percent of GDP and debt tightening could constrain economic activity and to over 50 percent of GDP, has raised uncertainties reduce household incomes. Uganda’s economy is and likely to squeeze private sector credit, with also exposed to regional insecurity, delays in the negative effects on investments. However, continued implementation of major infrastructure projects, investment in the oil sector, robust coffee and gold volatile portfolio and foreign direct investment exports are expected to boost economic activity in the inflows, and the possibility of diminished donor coming year. Meanwhile, the full implementation of financing as the 2026 election approaches. The Uganda Economic Update Improving Public Spending on Health to Build Human Capital XI materialization of these shocks could erode the fiscal to be among the lowest worldwide. According to balances, jeopardize the planned fiscal consolidation, the 2020 Human Capital Index (HCI), a Ugandan child and potentially raise Uganda’s risk of debt distress born in 2020 was expected to reach just 38 percent of from its current “moderate” level. what her lifetime productivity would have been had she enjoyed complete education and full health. This Going forward, stronger fiscal rules will be projection was based on health indicators such as the necessary to mitigate the impact of shocks and child survival rate, the stunting rate, and the adult manage Uganda’s transition to oil-exporter status, survival rate, as well as education indicators such and to increase social spending and greater as average years of schooling and average learning expenditure efficiency to ensure equitable and levels. Uganda had the highest stunting rate among sustainable growth. Along with specific measures children under age five of any country in the HCI, as to enhance the management of oil revenues, an well as one of the lowest adult survival rates (74). In improved CFR will be critical to maintain fiscal addition to their immense human cost, weak health discipline as oil exports commence. New regulations indicators are a major contributor to low productivity. will also be necessary to curb lending to the government via bank advances or the nonpayment Public health spending is low by the standards of of matured securities and supplementary spending, comparator countries. Households and external which reduce budgetary flexibility and narrow the development partners finance a combined 84 percent fiscal space to respond to shocks. Finally, in addition of total current health spending. About 84 percent of to reverting to fiscal consolidation, the government all external funding for the health sector is off budget, will need to adjust the allocation of expenditures which reduces the flexibility of resource allocation to build the human capital necessary for structural and limits the ability of policymakers to re-prioritize transformation by investing in education, health, and funding to address critical needs. Executing a larger social protection, which are also critical for inclusive share of health expenditures through the budget growth and poverty reduction. could also help improve public financial management systems. Linking Public Spending on Health to Human Capital Development The share of the government’s own resources that is devoted to health spending has declined in With a young and growing population, Uganda has recent years, indicating that policymakers have not a one-time opportunity to capture a demographic prioritized the health sector. General government dividend, but success is not guaranteed. As the health expenditures from domestic sources fell from economy grows and fertility and mortality rates 6.5 percent of total public spending in FY14/15 to 3.9 decline, countries pass through a period when the percent in FY20/21. Over the past decade, domestic size of the working-age population (ages 15–64) health expenditures have averaged 1.1 percent of GDP exceeds the dependent population of children and and have never exceeded 2 percent. At this level of the elderly. During this demographic transition, a public spending, Uganda is unlikely to achieve the country can leverage its changing age structure to health-related Sustainable Development Goals. accelerate economic growth, but only if workers are able to realize their full productive potential. Uganda Indicators of service availability and readiness at is a “pre-dividend” country, which means that today’s health facilities are still very low. At the district children will be the working-age population during level, the provision of quality healthcare is hindered the country’s demographic transition. To ensure by inadequate funding and staffing, an erratic supply that Uganda reaps a demographic dividend, the of medicines and medical supplies, and inadequate government must increase investment in human managerial capacity at health facilities. These gaps capital, with a focus on children and young people. are symptomatic of a poorly financed or managed health system. Due to persistent underspending on education, health, and social protection, the productivity of The share of spending on wages and salaries has Uganda’s next generation of workers is projected grown over the years but remains consistent with spending patterns in eastern Africa. However, the XII Uganda Economic Update Improving Public Spending on Health to Build Human Capital number of skilled healthcare providers working in the financial management. Accomplishing this objective public sector is below the global norm of 23 per 10,000 will require increasing advocacy and dialogue on people. The limited availability of essential health the inadequacy of government funding to the health workers in Uganda is exacerbated by high levels of sector, increasing government spending on health, absenteeism, which incur direct losses estimated at and developing sector-specific fiscal-sustainability USh 292 billion (US$78.5 million) each year. plans to mitigate dependency on uncertain external financing. The authorities should also bring donor Annual public spending on medicines and medical expenditures onto the budget and operationalize supplies has risen significantly in recent years joint compacts on the pooling of donor funds and but remains low at US$3.2 per capita. This level of aid effectiveness between the government and spending is far below the standard of US$13-25 per its development partners. To strengthen strategic capita among peer countries. Inadequate spending, purchasing in the health sector, the authorities should weak accountability, and widespread theft all scale up the implementation of the results-based contribute to shortages of medicines and supplies at financing mechanism and make it the centerpiece health facilities. of the proposed national health insurance scheme. Despite its low level of health spending per capita, Stronger health-financing systems will also require Uganda utilizes its resources more efficiently improvements in public financial management. than some of its peer countries. Uganda’s maternal (ii) Increasing investments in primary health outcomes, for example, are better than those healthcare, health promotion, and disease prevention of most comparators. However, there are substantial while cautiously scaling up investments in specialized disparities in maternal mortality ratios within the healthcare. Improving the primary healthcare system country. These disparities are due in part to differences will accelerate progress toward universal health in funding levels across sub-regions and in part to the coverage. Prioritizing spending at the primary health efficiency with which sub-regional health systems care level, health promotion and disease prevention utilize the available inputs. will help mitigate the elevated risks and costs Several major health-sector policies and programs associated with curative care while decongesting have significantly benefitted the poor. The share of referral facilities. Enhancing the capabilities of existing households facing catastrophic health expenditures health facilities will require increasing the availability or impoverishment due to health expenditures has of health workers, medicines, electricity, and water, declined. However, about 1.1 million households (4.9 sanitation, and hygiene amenities. million people) still experience catastrophic levels (iii) Updating and expanding the use of of health spending, and health spending pushes performance agreements with private facilities and about 233,328 households (1.1 million people) into improving the investment climate in the health sector. poverty. These risks are especially acute among rural The government should update its performance households. agreements with private nonprofit facilities and A combination of increased health spending and establish formal performance agreements with efficiency gains will be necessary to build Uganda’s private for-profit facilities, especially in areas that human capital and reap a demographic dividend. lack public facilities. The government must assume a much stronger role (iv) Improving the availability, occupational mix, in addressing the huge gaps in healthcare quality distributional equity, and productivity of the health and service availability in public health facilities. This workforce. This will require streamlining recruitment edition of the Uganda Economic Update recommends and deployment across regions, and additional that policymakers focus on six key areas: support should be provided to local governments (i) Strengthening the health-financing system with limited capacity to recruit and deploy staff. through increased resource mobilization, risk- It will also require the accreditation of health pooling, strategic purchasing of health services, and workers, training institutions, and health facilities, improved public investment management and public as well as the provision of regular in-service training Uganda Economic Update Improving Public Spending on Health to Build Human Capital XIII using competency-based training approaches and mentorship. To raise productivity, the authorities should introduce performance-based contracts for health workers at all levels and increase funding for the recruitment of health staff. (v) Reducing the incidence of catastrophic health spending and impoverishing health spending. Increasing government funding for essential medicines and strengthening the management of supplies can help reduce out-of-pocket costs. The authorities should upgrade the information- management systems that underpin the procurement and distribution of medicines, as well as the handling of patient information. The National Medical Stores should enhance its online requisition system, provide sufficient time for local authorities to verify deliveries, and link its logistics-management system with the Integrated Financial Management and Information System (IFMIS) at the Ministry of Finance. (vi) Enhancing the quality of care and promoting client engagement in health-service design, planning, delivery, and oversight. The authorities should scale up quality-improvement interventions across service- delivery platforms based in health facilities and schools. In addition, the client-centered grievance- redress systems should be strengthened, and the authorities should conduct regular client-satisfaction surveys and patient-reported-outcomes studies. XIV Uganda Economic Update Improving Public Spending on Health to Build Human Capital PART | 1 | THE STATE OF THE ECONOMY Uganda Economic Update Improving Public Spending on Health to Build Human Capital 1 1. Recent Economic Developments 1.1 The global recovery continues, but debt and inflation cloud the regional outlook. 1. Global economic conditions improved as well as new outbreaks of violence in Chad and in the first half of 2024, which was marked by Niger, are undermining regional stability. While an incipient monetary easing and an increase in anticipated decline in interest rates in major advanced trade, but global growth is projected to reach just economies may stimulate investment growth in 2025, 2.6 percent for the full year, stabilizing after the overall risks to the outlook are tilted to the downside. declining trend of the past three years1. While Uneven economic recoveries, the possible resurgence economic activity began to pick up during the first of inflation and consequent monetary tightening, quarter of 2024, the recovery varied significantly mounting regional tensions and ongoing conflicts, across regions, with the United States outperforming and the increased frequency and intensity of adverse the euro area while growth in China continued to weather events due to climate change could further falter. Inflation is moderating in emerging markets slow growth across SSA, exacerbating poverty and and developing economies (EMDEs), and economic leading to debt distress in some countries. activity is stabilizing despite the lingering effects of 3. While regional inflation is projected to fall shocks and elevated debt burdens. Global financial from 7.1 percent in 2023 to 5.1 percent in 2024 and conditions began to ease, but real policy interest rates 5 percent in 2025–26, it remains high compared to remain elevated, and persistently tight credit markets pre-pandemic levels. Inflation remains in double could dampen private investment and limit access to digits in 13 SSA countries, including Ethiopia, Nigeria, foreign exchange. Rising prices for oil, coffee, and Malawi, Sierra Leone, and Zimbabwe. In some cases, other commodities could slow disinflation but will a combination of monetary tightening and fiscal benefit commodity exporters.2 The recent downturn consolidation may be necessary to bring inflation in global trade growth may have bottomed out in under control, even at the expense of economic March 2024, as trade in goods rebounded despite growth. Moreover, stubbornly high food-price disruptions in the Suez and Panama canals, while inflation, due in part to frequent droughts and floods trade in services expanded. Global economic growth in eastern and southern Africa, is exacerbating food is currently expected to rise from 2.6 percent in 2024 insecurity in Ethiopia, Kenya, Mozambique, Somalia, to 2.7 percent in 2025.3 and Zambia. In March 2024, up to 105 million people 2. Aggregate economic growth in Sub- in the region faced severe food insecurity.5 Saharan Africa (SSA) is expected to accelerate 4. Across the region, high debt levels and from 2.6 percent in 2023 to 3.4 percent in 2024.4 liquidity challenges limit the fiscal space to The growth of private consumption is expected to response to shocks. While SSA’s aggregate public drive the recovery as declining inflation boosts debt stock is expected to decline from 61 percent of real household income. Meanwhile, interest rates GDP in 2023 to 57 percent in 2024, many countries are likely to remain elevated, which will weigh on remain at high risk of debt distress. The April 2024 investment, and fiscal consolidation will constrain edition of the World Bank Africa’s Pulse reported that the growth of government consumption. Economic more than half of SSA countries grapple with external activity is increasing across the region. At least three liquidity problems, face unsustainable debt burdens, of SSA’s 10 largest economies—Côte d’Ivoire, the or are actively seeking to restructure or reprofile their Democratic Republic of the Congo, and Kenya—are balance sheets. With several governments in the posting growth rates that exceed their long-term region highly exposed to commercial financing and average, and growth is expected to accelerate in non-Paris Club creditors, public debt service continued at least 70 percent of SSA economies during 2024. to rise, and an increase in external borrowing costs However, sustained conflicts, particularly in Sudan, has heightened refinancing risk.6 1. World Bank (2024b). Global Economic Prospects, June 2024. Washington, DC: World Bank. 2. Brent crude oil rose to US$87 per barrel while coffee prices reached a three-decade high in March 2024. 3. World Bank (2024a). Global Economic Prospects, January 2024. Washington, DC: World Bank. 4. World Bank (2024). Africa’s Pulse. April 2024. Washington DC. World Bank, DC. 5. Ibid. 6. For example, while Kenya’s sovereign spreads have declined over the past year, the yield on its recently issued Eurobond was 10.375 percent, compared to 6.875 percent on its the maturing 2024 Eurobond. 2 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 1.2 The lingering effects of shocks threaten increase in gold prices,9 improved production methods Uganda’s economic resilience. by artisanal miners, and an expanding commercial 5. During the first half of FY23/24, Uganda’s mining sector all contributed to the increase in gold economy maintained strong growth momentum exports. Manufacturing, which accounts for about despite successive domestic and external shocks. 54 percent of industrial output, continued to suffer Despite the uneven performance of the global from the aftereffects of supply-chain disruptions, the economy, fluctuations in commodity prices, rising instability of the Ugandan shilling (Ush), and credit geopolitical tensions, regional conflicts, and domestic constraints. As a result, the recovery observed during developments that likely affected investor sentiment, the first quarter of the fiscal year tapered off in the GDP grew at an average rate of 5.4 percent during second quarter. the period,7 albeit down from 6.8 percent during the 7. Credit constraints and fiscal consolidation first half of FY22/23.8 Exports rose, the terms of trade slowed the growth of the services sector, while improved, the tourism sector recovered, and activity variable weather conditions increased the volatility in the oil sector increased. Together, these trends of agricultural output during the first half of FY23/24. offset the adverse effect of slowing private-sector The continued normalization of international trade credit growth through the first half of the financial contributed to an ongoing expansion of trade and year. However, the central bank tightened its policy services, both within the region and globally, but its stance at the end of the third quarter of the financial growth slowed to 3.5 percent during the second half year, which further constrained the domestic credit of the year. The strong performance of information market. Weather conditions remained moderate, and communications services, accommodation and while the ongoing construction of oil infrastructure food services, education services, and real estate was attracted robust foreign direct investment (FDI) offset by reduced spending on public administration, inflows, which bolstered domestic investment and human health and social work, and arts, recreation, while consumption benefitted from the low inflation and entertainment. Atypical weather patterns environment. continue to disrupt agricultural production, especially 6. The industrial sector led the overall for food crops, which account for more than half of economic expansion, driven by a sustained the sector. A strong recovery during the first quarter increase in oil-related construction activity and faltered in the second quarter as the output of the improvements in the domestic mining environment. food-crop, fishery, and forestry subsectors contracted. Progress in the preparation of the Tilenga and Kingfisher oil-drilling project areas and their supportive infrastructure, including the construction of 700km of roads within or linking to the oil region, and Kabaale International Airport, continues to boost construction and related activities. The construction sector grew by 9.4 percent during the first half of FY23/24, more than doubling the growth rate observed GDP grew at an average rate of 5.4 both in the previous half year and the corresponding percent during the period, albeit period of FY22/23. Mining and quarrying contribute just 2 percent to GDP, but the subsector grew by down from 6.8 percent during the 142  percent as gold exports quadrupled. A sustained first half of FY22/23. 7. Uganda Bureau of Statistics, 2024 8. In October 2023, the U.S. government issued a business advisory cautioning private investors against financial and reputational risks stemming from corruption and human rights restrictions in Uganda and removed Uganda from the African Growth and Opportunity Act (AGOA). 9. World Bank. Commodity Price Data (Pink Sheet), April 2024. Washington DC. Uganda Economic Update Improving Public Spending on Health to Build Human Capital 3 Figure 1: Growth stabilized as industry compensated for the weaker performance of services and agriculture. 10 Net Taxes 10.0 Services Industry 8 8.0 Percent contribution to GDP growth Agriculture Percent year-on-year change Real GDP 6 (RHS) 6.0 4 4.0 2 2.0 0 -2 (2.0) 01 02 03 04 01 02 03 04 01 02 FY21/22 FY22/23 FY23/24 Source: UBOS and World Bank Staff Calculations 8. High-frequency indicators suggest that activity continued to benefit from oil-related activity economic activity remained strong during the during the second half of the year and exceeded the second half of FY23/24 despite the impact of external levels registered during the corresponding period shocks. The Stanbic Bank Purchasing Managers Index of FY22/23. As a result, GDP growth is expected to (PMI), a proxy for business sentiment, remained accelerate from 5.3 percent in FY22/23 to about 6 above the 50-point mark until February 2024 as percent in FY23/24. While rapid population growth the Ugandan private sector registered a 16-month has partially offset rising output, per capita income expansion. The construction, industrial, services, and reached US$980 in FY22/23, bringing Uganda closer wholesale and retail sectors all grew substantially to the lower-middle-income threshold.10 over the period. While the index score ticked down to 49.3 in March 2024, new orders and employment rebounded in April and May even as input costs rose. Higher prices for fuel, materials, and utilities drove the increase in input costs, which prompted companies to raise output prices. The Composite Index of Economic Activity (CIEA) grew at a rate of 6.5 percent year-on- year in the second half of 2023 and continued to rise, GDP growth is expected to albeit at a slower rate, during the first three months of accelerate from 5.2 % in FY22/23 to 2024 before accelerating again toward the end of the fiscal year. The depreciation of the Ugandan shilling about 6% in FY23/24. and subsequent monetary tightening between March and April, coupled with demonstrations by traders against what they deemed to be an unfair tax regime, rattled business sentiment. Nevertheless, economic 10. According to the World Bank’s country classification by income level for 9FY23/24, the per capita gross national income thresholds were: are high income, using Atlas Method applied on FY21/22 data. As is the standard practice, these thresholds will be revised in line with global developments. The thresholds and new categories for FY24/25 will be effective and published on July 1, 2024. 4 Uganda Economic Update Improving Public Spending on Health to Build Human Capital Figure 2: The PMI remained at or above the 50-point mark in all but two of the last 24 months. 60 6 5 4 55 3 2 1 50 0 -1 -2 45 -3 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Deviation from 50 PMI >improvement since previous month Source: Stanbic Bank Uganda 9. Households reported lower employment spent USh 159,108 (US$42) per capita per year on rates, due in part to seasonal factors, but access health services, more than twice the amount spent to essential commodities and services improved. by households in the poorest quintile. According to the Ugandan Bureau of Statistics (UBOS) phone survey,11 reported employment12dropped from a peak of 82 percent in October/November 2023 to 75 percent in January/February 2024, with seasonal changes in employment and illness being the two most frequently cited causes. Nonseasonal economic factors such as the closure of businesses, layoffs, and the inability to buy inputs accounted for only 9 percent of all reported unemployment. While access to essential goods such as sugar, beans, sweet potatoes, cooking oil, and maize flour improved as supply recovered, a large gap between the richest and poorest households persists. More than 40 percent of households in the bottom consumption quintile reported being unable to access any bread, While those who needed health compared to just 5 percent of households in the top services typically received them, quintile. The survey also found that while those who needed health services typically received them, two- two-thirds paid out of pocket thirds paid out of pocket (OOP) for health services, (OOP) for health services” with the richest households spending the highest amounts. On average, households in the top quintile 11. In collaboration with the World Bank, UBOS implements the Uganda High Frequency Phone Survey (UHFPS) to monitor economic sentiment and the impact of shocks such as the COVID-19 pandemic, Russia’s invasion of Ukraine, disease outbreaks, and extreme weather events. Seventeen survey rounds were completed between June 2020 and February 2024. 12. The survey asks respondents whether they worked during seven days preceding the interview.Bank of Uganda is operating an inflation targeting regime, hence bases its monetary policy action not just on the realized inflation but on the foreseen forecasts. Uganda Economic Update Improving Public Spending on Health to Build Human Capital 5 Table 1: Quarterly real GDP growth by subsector (%)   FY21/22 FY22/23 FY23/24    Share of GDP Q1 Q2 Q3 Q4 Q1 Q2 AGRICULTURE 23.8 5.1 12.5 4.6 -2.5 3.7 1.6 Cash crops 2.5 0.8 -5.3 6.6 -3.7 -4.1 7.5 Food crops 11.6 8.4 19.8 -4.9 -9.6 1.9 -2.9 Livestock 4.0 8.9 9.0 9.7 8.5 8.4 8.9 Agriculture support services 0.0 4.1 5.1 0.1 -1.2 0.3 2.6 Forestry 3.6 3.3 3.3 2.5 3.4 9.7 8.3 Fishing 2.0 -35.5 26.1 32.0 12.7 25.8 -5.7 INDUSTRY 26.0 6.8 11.7 -3.0 0.1 5.9 11.9 Mining and quarrying 1.9 75.9 -55.4 -28.1 56.8 141.6 165.4 Manufacturing 15.6 15.4 1.2 -1.4 -1.5 5.2 -1.0 Electricity 1.1 0.9 1.3 2.6 6.4 11.7 10.8 Water 2.1 5.0 4.1 3.9 3.8 4.1 4.0 Construction 5.3 0.4 0.6 9.8 8.7 1.5 3.3 SERVICES 42.4 9.4 5.5 1.6 8.5 1.0 6.0 Trade and repairs 9.2 9.0 5.6 0.6 7.6 7.4 5.5 Transportation and storage 3.6 -6.1 -1.8 -10.3 -4.8 0.6 0.4 Accommodation and food service 2.2 -0.6 -1.6 14.2 37.9 29.5 4.9 Information and communication 1.5 4.2 4.0 12.0 20.8 34.3 27.0 Financial and insurance 2.8 1.8 14.3 -19.2 7.5 3.4 1.2 Real estate activities 6.1 9.5 7.8 6.3 6.2 3.9 3.9 Professional services 2.3 48.6 17.9 30.5 15.5 -45.1 39.7 Administrative and support service 2.0 18.0 14.7 20.4 18.0 2.3 1.2 Public administration 2.8 8.4 5.7 -9.7 -1.0 -21.3 0.4 Education 3.6 13.1 -1.0 -8.8 11.2 11.4 9.3 Human health and social work 3.3 11.9 1.3 4.2 0.2 -9.6 -6.7 Arts, entertainment, and recreation 0.1 -33.8 -4.9 30.6 41.2 -23.3 -14.0 Other service activities 2.0 4.2 3.7 2.4 -0.5 -0.9 -0.5 Activities of households 0.7 2.7 2.7 2.7 2.8 2.8 2.8 Taxes on products 7.9 15.3 2.5 2.0 9.7 15.9 10.6 GDP at market prices 4.6 9.0 4.5 1.8 5.4 5.3 5.5 Source: UBOS and World Bank Staff Calculations 6 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 1.3 Financing imbalances contributed to currency depreciation despite a stable current account 10. The current-account deficit narrowed rose to US$605  million in the first half of FY23/24, a slightly from 8.2 percent of GDP in FY22/23 to 8.1 30.5 percent y/y increase. Meanwhile, other exports percent in FY23/24 as a surge in imports offset the (excluding coffee and gold) grew by 18 percent y/y to recovery of goods exports and tourism. The total US$2.9 billion. Remittances reached US$711.8  million value of exports and imports rose from 40 percent of during the first half of FY23/24, down 4 percent y/y, GDP during the second half of FY22/23 to 46.6 percent but remained a key component of external finance. during the first half of FY23/24. Merchandise trade 12. External financing conditions remain represents over 90 percent of the current account. challenging due to high borrowing costs on 11. Imports rose from 24.7 percent of GDP international capital markets. The current-account in the second half of FY22/23 to 28.2 percent in deficit was financed primarily by FDI, followed by the first half of FY23/24, reflecting increased public-sector borrowing, which was largely on domestic demand, oil-related investments, and concessional terms. FDI inflows remained stable the normalization of global supply chains. The oil- at US$1.48 billion in the first half of FY23/24, still import bill for the first half of the fiscal year was 0.7 percent higher than US$1.48 billion received in US$898 million, up 5.3  percent year-on-year (y/y). the first half of FY22/23. International companies Other private-sector imports (excluding nonmonetary grappled with a range of shocks, but equity gold) also increased to support private investment, investments in enterprises still accounted for the bulk particularly in the oil and gas sector. This surge in of this increase. Other investment inflows, although imports offset a sizable increase in exports of goods lower than FDI, rose from US$207 million to US$309 and services, which rose by 2 percentage points of million over the period. The decision by the Financial GDP to 18.4 percent as gold exports continued to Action Taskforce (FATF) to remove Uganda from the rebound and coffee exports increased, supported by Grey List in February 2024 helped ameliorate investor elevated global prices. Despite the negative impact of sentiment, which could boost future capital inflows. domestic terrorist threats, travel and tourism receipts Figure 3. Rising imports have offset strong export Figure 4. FDI, and other private inflows continue to growth, expanding the current-account balance finance the current-account deficit. before it stabilized. The current-account balance (US$ millions) Current-account financing (US$ millions) 1000 0.0 2000.00 500.0 -200 -400 1500.00 0.0 -500.0 -600 1000.00 -800 -1000.0 -1000 500.00 -1500.0 -1200 -2000.0 0.0 -1400 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY21/22 FY22/23 FY23/24 FY21/22 FY22/23 FY23/24 -500.00 Government Borrowing Private Inflows Use of Reserves Goods and Services Trade Primary Income Errors & Omnissions Current account deficit Secondary Income Current accounts RHS Source: Bank of Uganda Source: Bank of Uganda Uganda Economic Update Improving Public Spending on Health to Build Human Capital 7 13. Portfolio-investment outflows narrowed, 14. Despite intense pressure in the third but imports and debt-service payments more quarter, y/y depreciation was modest in nominal than offset a decline in disbursements to the terms, and the real value of the shilling remains public sector, putting pressure on foreign reserves. above the level of three years ago, weakening export Portfolio-investment outflows fell to US$72.8 million competitiveness. Uganda’s money markets are in the first half of FY23/24, down 73 percent relative sensitive to portfolio flows and to currency holdings to the first half of FY22/23. These outflows included and deposits by non-residents despite their relatively sustained disinvestment from government securities, small share in the overall balance of payments. continuing a trend that began in the final quarter Foreign-exchange-denominated portfolio-investment of FY21/22. Net government borrowing dropped outflows, a decline in nonresident currency holdings to US$79.6 million as lingering project-execution and deposits, and broadly negative sentiment challenges and the government’s failure to access contributed to a 1.9 percent nominal depreciation planned budget support amid tightening credit during the first half of FY23/24. Between October markets reduced external disbursements to the 2023 and January 2024, the shilling depreciated at an government. The central bank’s foreign-exchange annualized rate of 9 percent in real terms. Portfolio purchases were insufficient to cover elevated external outflows continued into the second half of the year, and debt-service payments in a context of lower income. the shilling depreciated to a nadir of USh 3,944/US$ in As a result, nominal dollar-denominated reserves fell mid-February before appreciating to USh 3,885/US$ steadily through the first seven months of FY23/24, at end-March 2024. The pace of depreciation slowed from US$4.1 billion at end-June 2023 to US$3.5 billion between April and May 2024 amid tighter monetary at end-February 2024, eroding the central bank’s policies, weaker demand for foreign exchange, and capacity to respond to shocks. At 3.3 months of improving sentiment. The conclusion of the IMF’s imports, foreign reserves fell below the target of 4 fourth review of the ECF program was followed by months agreed upon under the IMF Extended Credit a US$120 million disbursement, and Uganda was Facility (ECF), as well as the East African Community removed from the FATF Grey List in February 2024. In target of 4.5 months. real terms, however, the shilling’s value remains at a three-year peak. Figure 5. The shilling’s nominal depreciation had a limited impact on the real exchange rate, but reserves declined a. Changes in nominal value b. Trends of nominal foreign-exchange reserves (LHS) and the real exchange rate (RHS) 4,700 104 4,000 10.0% 4,500 102 3900 8.0% 100 4,300 3800 6.0% 98 4,100 Index 2017=100 US millions 3700 96 percent year on year 4.0% 3,900 94 ugx millions 3600 3,700 2.0% 92 3500 3,500 0.0% 90 3400 3,300 88 -2.0% 3300 3,100 86 Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 3200 Year-on-year depreciation period -4.0% Average Rate (LHS Scale) 3100 -6.0% Gross foreign exchange reserves Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 REal E ective Exchange Rate(RHS) Source: Bank of Uganda and World Bank Staff Calculations 8 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 1.4 The central bank tightened monetary policy to curb resurgent inflationary pressures. 15. Inflation has gradually accelerated since and energy prices, closely followed trends in overall October 2023, but the headline rate remains below inflation. the central bank’s target of 5 percent. Tracking 16. Tightener monetary policy has increased trends in international crude oil prices, the annual borrowing costs. After lowering the policy rate by inflation rate for energy, fuel, and utilities fell 50 basis points in August 2023, the central bank kept to an average rate of 1.9 percent during the first the rate steady at 9.5 percent for seven consecutive quarter of FY23/24, then started to increase in months, encompassing four meetings of the Monetary October 2023 and averaged 7.7 percent in the third Policy Committee. However, as the pass-through quarter, boosted by the depreciating shilling. effect of the shilling’s depreciation threatened to push Upward pressure on energy prices was partially inflation above the 5 percent target, the central bank offset by declining food prices as supply conditions raised the policy rate by a total of 75 basis points improved—a sharp contrast to the annual increase between March and April 2024.13 Monetary tightening, of 26.7 percent in March 2023. Except for rice, coupled with the public sector’s substantial gross international food-commodity prices declined, while financing needs, has elevated real lending rates improved weather conditions bolstered the domestic on the back of low inflation while shortening loan food supply. Overall inflation fell to an average of maturities. As a result, the average real lending rate 2.9 percent during the first half of FY23/24, with rose from 13 percent at end-June 2023 to 16 percent in positive effects on investment and on consumption October 2023 before easing to 14.7 percent in February among poor households. Inflation accelerated during 2024. the second half of FY23/24 and reached 3.3 percent March. Core inflation, which excludes volatile food Figure 6. Headline inflation remains low, but price pressures increased during the third quarter of FY23/24. Other Items 12 Services Energy,Fuel 10 & Utilies Food crops and Percent(Year-on-Year change) Related items 8 Headline In ation 6 4 2 May-22 May-23 May-24 Aug-22 Aug-23 Nov-22 Nov-23 Dec-22 Dec-23 Mar-22 Mar-23 Mar-24 Sep-22 Sep-23 Feb-23 Feb-24 Apr-22 Apr-23 Apr-24 Oct-22 Oct-23 Jun-22 Jun-23 Jun-24 Jan-23 Jul-22 Jul-23 -2 Source: Bank of Uganda 13. Bank of Uganda is operating an inflation targeting regime, hence bases its monetary policy action not just on the realized inflation but on the foreseen forecasts. Uganda Economic Update Improving Public Spending on Health to Build Human Capital 9 17. The cost of credit increased even as nominal 18. Amid tepid activity in the credit market, interest rates were adjusted downwards, flattening the banking system remained stable and sound, the recovery in credit that had been observed though its contribution to growth was minimal. during the first quarter of FY23/24. High interest The banking system has proven resilient, and bank rates exacerbate other structural constraints on assets increased by 10 percent between June 2023 credit access, including the crowding-out effect of and March 2024. At 25.3 percent as of end-December deficit financing. After declining marginally to 69 2023, the ratio of capital to risk-weighted assets percent during the first quarter of FY23/24, the share remained at more than twice the mandatory level of of net credit to the government in total net domestic 10 percent. However, commercial banks’ exposure to credit returned to over 70 percent of total credit government debt has gradually increased. Claims on during the third quarter, further constraining lending the government by supervised financial institutions to the private sector. The growth rate of credit to the grew by 11.5 percent by February 2024, about the private sector slowed to an average of 7.9 percent same rate recorded between July 2022 and February y/y during the first three quarters of FY23/24, down 2023, as commercial banks increased their holdings from 10.5 percent in the same period of FY22/23. of short-term Treasury bills and other government Personal loans, which represent the largest share of debt. The share of nonperforming loans in total credit at 23 percent, remained the primary driver of credit declined through the first half of FY23/24 to 4.6 commercial-bank lending during the year. Loans to percent. The minimum capital requirement for banks the manufacturing and trade subsectors experienced will rise to USh 150 billion (about US$40 million) at the sharpest slowdown and contributed just 0.8 and end-June 2024, and three banks have been relegated 0.9 percentage points, respectively, to credit growth to the status of credit institutions, reducing the during the first three quarters of FY23/24, down from number of small, vulnerable banks.18 However, the 2 and 1.7 percentage points, respectively, in the first financial system’s contribution to private-sector-led three quarters of FY22/23. Lending to the building, growth remains limited. As a share of GDP, the stock mortgage, construction, and real estate subsectors of private-sector credit fell by a full percentage point accelerated late in the second half of FY23/24. of GDP between June 2022 and June 2023 before recovering to an estimated 12.3 percent by February 2024. Figure 7. The cost of credit increased as the central Figure 8. Credit growth began to recover before bank raised interest rates to counter rising inflation. flattening out. 12 10 25.00 8 6 20.00 4 Percent Percent 15.00 2 0 10.00 -2 -4 5.00 -6 Jul-22 Oct-22 Jan-23 Apr-23 Jul-23 Oct-23 Jan-23 Personal & Household loans Jun-21 Dec-21 Jun-22 Dec-22 Jun-23 Dec-23 Building, mortage,construction & real estate Other services Central Bank Rate Real Lending Rate Transport and communication Trade Nominal Lending Rate Manufacturing Agriculture Total credit growth (Y/Y) Source: Bank of Uganda Source: Bank of Uganda and World Bank Staff calculations 14. The central bank announced the minimum capital requirement of USh 150 billion in June 2022, requiring commercial banks to raise their capital by 500 percent from the USh 25 billion at that time. This policy shift aimed to strengthen the banking system capacity to manage shocks and meet the needs of a bigger economy. 10 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 1.5 Revenue shortfalls and new spending pressures have undermined the fiscal consolidation. 19. Reduced capital investment has helped Fiscal Responsibility (CFR).16 While revenue remained narrow the primary fiscal deficit but may constrain weak into the second half of the financial year, the future economic growth.15 During the first half of supplementary budget passed at end-April 2024 FY23/24, the overall fiscal deficit including grants increased total spending to Ush 4.6 trillion (9 percent equaled 4.3  percent of GDP, down from 5.4 percent above the approved budget), pushing expenditures during the same period in FY22/23. The under- as much as 2 percentage points of GDP higher than execution of the capital budget offset a huge shortfall planned. The overall fiscal deficit for FY23/24 is in revenue and grants during the first half of the estimated to exceed 4.5 percent of GDP, well above financial year, narrowing the fiscal deficit to within the both the planned 3.5 percent and the CFR target. target of 4.6 percent of GDP set out in the Charter for Figure 9: The fiscal deficit continued to narrow in FY23/24… 28 10.0 24 9.0 8.0 20 7.0 percent of GDP 16 6.0 12 5.0 8 4.0 4 3.0 0 2.0 FY19 FY20 FY21 FY22 FY23 FY24 (H1) FY24(est) Tax Revenue Expenditure Fiscal Deficit (RHS) CRF Target 1 (RHS) CRF Target 2 (RHS) Note: CFR Target 1 ran between FY16/17 - FY20/21 and was a flat 3.0 percent without interim targets. CFRTarget 2 covers the period FY21/22-FY24/25 and carried a path to gradually reduce the deficit from 6.4 ercent of GDP to 3.0 percent. Source: MoFPED and World Bank Staff calculations Figure 10. …as the under-execution Figure 11. …compensated for the of capital expenditures… underperformance of revenues and grants. Expenditures during H1 FY23/24 Revenue and grants during H1 FY23/24 25000 18,000 10000 16,000 14,000 15000 12,000 US$ Billion 10,000 USH Billion 10000 8,000 6,000 5000 4,000 2,000 0 Expenditure Current Development 0 Lending Expenditure expenditure Revenue & Grants Revenue Grants Program Outturn Program Outturn Source: MoFPED Source: MoFPED 15. The primary deficit is the difference between revenues and expenditures, excluding interest payments. 16. MoFPED (2024), Half Year Macroeconomic & Fiscal Performance Report Financial Year 2023/24. https://mepd.finance.go.ug/reports.html Uganda Economic Update Improving Public Spending on Health to Build Human Capital 11 20. Government revenues are projected weaknesses in overall project management continue to reach 14.0 percent of GDP in FY23/24. Efforts to hamper project execution.18 As the implementation to strengthen tax administration increased tax of development projects accelerates during the receipts between the first and second quarters of second half of FY23/24, expenditures and net lending the financial year, though revenue still fell short could reach 19.8 percent of GDP. of its target by 0.9 percentage points of GDP. Tax 22. Spending on the social sectors remains collection increased y/y across all tax heads. Revenue inadequate to meet Uganda’s development needs. from direct domestic taxes experienced the strongest Expenditures on human capital accounted for just growth, as the deployment of digital instruments about 16 percent of total government spending in the such as the Electronic Fiscal Receipting and Invoicing first half of FY23/24. Spending on education, health, System (EFRIS) increased the efficiency of value- social protection, and water, sanitation and hygiene added tax (VAT) collection, the use of Unstructured (WASH) amounted to 8.2 percent, 5.5 percent, 0.4 Supplementary Service Data (USSD) platforms percent, and 1.5 percent of the budget, respectively.19 increased tax registration, and mobile-money These spending levels are below those recorded over platforms facilitated payments. International taxes the past decade, and public investment in human grew at a much slower pace due to declining prices capital has declined as the government has prioritized through most of the first half of FY23/24. closing infrastructure gaps, especially in the energy 21. Total expenditures rose by 6 percentage and transport sectors. According to government data, points of GDP between the first and second quarters education expenditures averaged 2.1 percent of GDP or of FY23/24, slightly exceeding the target. At an 11.9 percent of total public spending between FY15/16 estimated 19.9 percent of GDP, expenditures and and FY21/22, below the benchmark of 15-20 percent net lending marginally surpassed the target of set out in the Education 2030 Framework for Action.20 19.7 percent for the first half of FY23/24. Recurrent Health spending amounted to 1.3 percent of GDP or 7.2 spending increased due in part to a sharp rise in percent of total public expenditures during the period, other non-categorized expenditures, which were and the government contributed less than 20 percent 13 percent above the target. Interest payments of all health spending. External assistance accounted edged up and continued to be driven by domestic for about 50 percent of health spending, and OOP debt service, which accounts for 80 percent of total spending financed the remaining 30 percent—a interest payments. Increased spending in these distribution that may not be sustainable given the areas offset the reduction in spending resulting from country’s rapidly growing population. As described expenditure-rationalization measures implemented in the special focus section of this edition of the during FY23/24,17 which included a moratorium on Uganda Economic Update, increasing public health budget increases across all ministries, departments, spending is vital to ensure sustainable and inclusive and agencies, tighter restrictions on international development. travel by government officials, the suspension of 23. Domestic borrowing to finance the deficit salary increases and staff recruitment, a freeze exceeded planned levels during the first half of on most vehicle purchases, and reduced spending FY23/24,. As external financing disbursements on workshops and seminars. As in previous years, slowed and global financial conditions tightened, the the under-execution of externally funded projects authorities increased borrowing from the domestic contributed the most to the reduction in the fiscal banking system from 5.9 percent of GDP in the first deficit, as capital spending fell 29 percent below its half of FY22/23 to 7.8 percent in the first half of target. Incomplete project preparation (including FY23/24.21 A continued reliance on domestic borrowing a lack of feasibility studies and/or implementation will further constrain private-sector credit growth and plans), uncoordinated budgeting of the government’s hinder economic activity. contribution, poor planning for rights of way and land compensation, inadequate contract management, and 17. MoFPED (2023a), The Second Budget Call Circular on Finalization of Budget Estimates for FY 2023/24. https://budget.finance.go.ug/sites/default/ files/THE%20SECOND%20BUDGET%20CALL%20CIRCULAR%20%282nd%20BCC%29%20ON%20FINALISATION%20OF%20THE%20BUDGET%20 ESTIMATES%20FOR%20FINANCIAL%20YEAR%202023-2024.pdf 18. See World Bank 2022. Uganda Economic Update, 19th Edition. Fiscal Sustainability through Deeper Reforms to Public Investment Management. Washington DC, and World Bank 2023. Uganda Public Expenditure Review Module II(A): Improving Public Investments to Raise Efficiency to Support Fiscal Adjustment. Washington DC. 19. MoFPED (2024), Semi Annual Budget Performance Report FY 2023-24 20. World Bank 2023. Uganda Public Expenditure Review: Options for a Sustainable Fiscal Adjustment. Washington DC. 21. MoFPED (2022 and 2023b), Quarterly Debt Statistical Bulletin and Public Debt Portfolio Analysis. 12 Uganda Economic Update Improving Public Spending on Health to Build Human Capital Figure 12. The fiscal deficit was mainly financed by domestic borrowing. 10 8 Percent of GDP 6 4 2 0 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24(H1) Domestic(net) External(net) Errors & Ommission Fiscal deficit Source: MoFPED and World Bank Staff Calculations Others: 84% Education: 8.2% Health: 5.5% Social protection: 0.4% Water, Sanitation & Hygiene (WAaSH): 1.5% Uganda Economic Update Improving Public Spending on Health to Build Human Capital 13 Table 2. Fiscal operations (% of GDP)   FY20/21 FY21/22 FY22/23 FY22/23 (H1) FY23/24 (H1) Total Revenues and Grants 14.6 14.0 14.2 13.3 13.5 Revenues 13.3 13.3 13.6 12.4 12.9 Tax 12.3 12.5 12.8 11.6 12.0 Non-Tax 0.0 0.0 0.9 0.9 0.9 Grants 1.3 0.7 0.5 0.9 0.6 Expenditure and Lending 23.6 21.4 19.9 18.5 17.7 Current Expenditures 12.5 13.0 13.6 12.5 11.9 Wages and Salaries 3.5 3.4 3.9 3.7 3.5 Interest Payments 2.7 3.0 3.2 3.0 3.0 Domestic 2.1 2.5 2.5 2.4 2.4 External 0.6 0.5 0.6 0.6 0.6 Other Recurr. Expenditures 6.3 6.6 6.5 5.8 5.4 Development Expenditures 10.1 7.8 5.8 5.1 5.4 Domestic Development 6.5 5.0 3.9 2.6 3.3 External Development 3.7 2.8 1.9 2.5 2.1 Net Lending/Repayments 0.4 0.2 0.1 0.1 0.2 O/w: Hydropower projects 0.1 0.2 0.1 0.1 0.0 O/w: BOU Recapitalisation 0.3 0.0 0.0 0.0 0.2 Domestic Arrears Repaym. 0.5 0.4 0.4 0.7 0.2 Primary Balance -6.3 -4.3 -2.6 -2.3 -1.2 Overall Fiscal Bal. (incl. Grants) -9.0 -7.3 -5.7 -5.3 -4.2 Financing: 9.0 7.3 5.7 5.3 4.2 External Financing (Net) 4.0 2.9 2.1 0.2 0.2 Disbursements 5.0 4.0 3.4 1.5 1.4 Budget Support Loans 2.2 1.5 2.1 0.0 0.0 Project Loans 2.8 2.5 1.3 1.5 1.4 Amortization 1.0 1.0 1.3 1.2 1.2 Domestic Financing (Net) 4.6 3.4 3.3 3.8 3.1 Bank Financing (Net) 1.6 1.7 2.1 2.9 1.2 Non-bank Financing (Net) 2.9 1.7 1.3 1.0 1.9 Errors and omissions 0.4 1.0 0.3 1.2 1.0 Note: The debt stock stood at US$24.69 billion by end-December 2023. Source: MoFPED 14 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 24. Poor planning, the routine use of funded through borrowing, is inconsistent with the supplementary budgeting, and weaknesses in budgetary discipline necessary to implement the overall public financial management have led to fiscal consolidation agenda (Box 1). During the first overspending, fiscal slippages, and the sustained three quarters of FY23/24, a supplementary budget accumulation of domestic arrears. During the first of USh 4.6 trillion (9.1 percent of the approved budget) half of FY23/24, the government paid down USh was adopted to finance the State House and the 164 billion in domestic arrears. While this amount President’s Office, as well as the public health and exceeded the target by 5 percent, it was still too security sectors, and expenditures have already small to address the growing problem of arrears, surpassed USh 2.8 trillion (5.7 percent of the approved especially as the government continues to tighten budget). This level of excess spending is almost three spending as part of its fiscal consolidation. According times the limit of 3 percent established by the 2015 to the Auditor General’s Report for FY22/23, by Public Finance Management Act. The supplementary June 2023 total domestic arrears had increased by expenditures were financed in part by internal 34 percent to USh 10.8 trillion, amounting to 20.6 budget cuts, which hindered the implementation percent of the revised national budget. The persistent of plans and activities,22 and in part by anticipated accumulation of arrears indicates a failure in the borrowing. These practices undermine the credibility commitment-control system and runs contrary to of the budget and make it difficult to achieve fiscal the 2021 Domestic Arrears Strategy. Similarly, the objectives. repeated use of supplementary budgets, sometimes Box 1: Supplementary expenditures are key challenge in fiscal management Supplementary spending declined for three years to about 5.7 percent of the budget in FY22/23, but this trend has since reversed. Over the first three quarters ending in March 2024, approved supplementary spending amounted to USh 4.54 trillion, or 8.9 percent of the approved budget for FY23/24. While the State House and Ministry of Defense tend to be among the main recipients of supplementary spending, the practice is spread across many ministries, departments, and agencies, implying it has become the norm for budgeting in Uganda. In the current fiscal year, the largest shares of supplementary spending went to the Ministry of Science, Technology and Innovation, local governments, the State House, the Ministry of Energy and Mineral Development, and the National Identification & Registration Authority. Supplementary spending continues to undermine the credibility of annual planning and budgeting. Supplementary spending was used to finance support for investments in the pharmaceutical industry under DEI BioPharma Ltd; startup costs for the Karuma hydropower plant; and the procurement of the new National Security Information System; among others. Resources for these activities could have been allocated through the annual budget, and they likely fail to meet the definition of “unavoidable and unforeseeable” costs that would justify supplementary spending under the 2016 Public Finance Management Regulations. In addition to distorting the budget, supplementary spending reduces the transparency of the budgeting process and alters expenditure priorities. For example, the FY23/24 sup- plementary budget exceeded the total amount that the government spent on health and agriculture for FY24. In addition to undermining public financial management, supplementary budgeting heightens mac- roeconomic risks. The additional resources to finance supplementary budgets are mainly obtained through borrowing, which has adverse implications for debt management. Moreover, large share of this borrowing is domestic, which crowds out credit to the private sector. In some cases, the additional costs are offset by internal budget cuts, which disrupts the implementation of approved programs and investments and may increase domestic arrears. 22. Office of the Auditor General (2023), Annual Report of the Auditor General to Parliament for the Financial Year Ended 30th June 2023 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 15 Box Figure 1: Supplementary spending is rising again. Box Figure 2: Supplementary budgets are used across many ministries, departments and agencies. 4800 3800 10 8 Percent of GDP 2800 Amount Ushs Billion 6 4 1800 2 0 800 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24(H1) -200 Domestic (net) External(net) FY 19/20 FY 20/21 FY 21/22 FY 22/23 FY 23/24 Errors % Ommision Fiscal deficit Others(>46MDAS) Ministry of sci,Tech & Innovation MoD,State House & Presidency Local Gov’ts MEMD MoFPED MoH Min of Trade Industry &Co-operations Box Figure 3: Supplementary budget allocations are mainly financed through additional domestic borrowing. 0% 12% 24% 13% 27% 1% 17% 22% 34% 21% 73% 68% 54% 34% FY20/21 FY21/22 FY22/23 FY23/234(Q1-Q3) Borrowing Suppression of Budget (cuts) Additional Revenue External Funding Source: Parliament Budget office. 16 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 25. Relatively low and stable fiscal deficits debt-service-to-revenue ratio, and the external-debt- have moderated the growth of Uganda’s debt service-to-exports ratio all exceed their respective stock, but vulnerabilities persist due to increased thresholds under a combined-shock scenario, which non-concessional borrowing. Uganda’s total public could result in a liquidity crisis.25 While simulated debt stood at US$24.69 billion (49.9 percent of GDP) shocks that increase domestic debt levels do not at end-December 2023,23 versus US$21.74 billion worsen solvency indicators, liquidity declines as debt- (49.6 percent of GDP) in December 2022. Domestic service costs rise. Since June 2023, debt reprofiling debt, which accounts for 41 percent of the debt and higher interest costs have increased debt-service stock, grew by 13.1 percent over the period to reach payments, which reached USh 3.1 trillion in the first US$10.05 billion.24 The latest joint World Bank-IMF half of FY23/24, 0.5 percentage points of GDP greater Debt Sustainability Analysis (DSA), published in June than anticipated. Interest payments accounted for 16.8 2023, concluded that Uganda is still solvent, with the percent of total spending in the first half of FY23/24, present value of external debt relative to GDP and up from 14.7 percent during the first half of FY22/23, as exports leaving substantial scope to manage even the concessional share of Uganda’s debt continued to the most extreme shocks. However, the present value shrink. The debt level is estimated to have remained of the external debt-to-exports ratio, the external- below 50 percent of GDP in FY23/24. 23. MoFPED (2023c), Quarterly Debt Statistical Bulletin and Public Debt Portfolio Analysis. Issue No. 35 24. MoFPED (2022), Quarterly Debt Statistical Bulletin and Public Debt Portfolio Analysis. Issue No. 1 25. IMF (2024), Fifth Review Under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria. IMF Country Report No. 24/77 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 17 2. ECONOMIC OUTLOOK, RISKS, AND POLICY ACTIONS The State of Uganda’s Economy Economic resilience is underpinned by the anticipated development of the oil sector. Real GDP is projected to grow by 6.2% in FY24/25 and accelerate to over 6.2% in 7% in the medium FY24/25 term, driven by investments in oil and gas. Accelerate to over 7% 18 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 2. ECONOMIC OUTLOOK, RISKS, AND POLICY ACTIONS 2.1. Economic resilience is underpinned by the anticipated development of the oil sector. 26. Real GDP is projected to grow by 6.2 28. Recent inflationary pressures are expected percent in FY24/25 and accelerate to over 7 percent to subside in the medium term, boosting economic in the medium term, driven by investments in oil growth, employment, and real household income. and gas. This growth projection is slightly below the The recent depreciation of the Ugandan shilling and level forecasted in the December 2023 edition of the increased energy prices are putting upward pressure Uganda Economic Update,26 as heightened geopolitical on inflation. In addition, the upcoming El Niño season tensions are keeping upward pressures on prices, may reduce agricultural production and raise food resulting in much tighter monetary policy than was prices. Prudent monetary and fiscal policies will be envisaged six months ago. Nevertheless, growth essential to keep inflation close to the target rate will remain buoyant given the strong momentum of of 5 percent. The central bank will need to continue investment in the oil sector, as well as an expected guarding against the inflationary pass-through increase in coffee and gold exports. Meanwhile, the effects of the shilling’s depreciation and volatile implementation of the Parish Development Model commodity prices. Inflation-focused monetary (PDM)27 and infrastructure projects could further policies, a risk-averse banking system, and tight bolster aggregate demand. Over the medium term, global liquidity conditions will continue to suppress oil exports will transform Uganda’s trade profile, private-sector credit, investment, and aggregate while the government’s efforts to promote tourism demand in the short term, though easing inflation and agro-industrialization should help foster export should facilitate stronger growth over the medium diversification. term. More effective coordination of monetary and fiscal policies will mitigate the impact of inflationary 27. The ongoing construction of an estimated pressures while supporting private-sector growth. US$20 billion in oil-related infrastructure will keep economic activity strong until oil production takes off in 2025. The preparation of the Tilenga and Kingfisher oil-drilling project areas and investments in supportive infrastructure both within and outside the oil-producing region, including the Kabaale International Airport and the 1,400km East Africa Pipeline, will further boost construction and related activities. However, the start of oil production in 2025 will hinge on the timely acquisition of the remaining 60 percent of pipeline financing, which is expected to come from external creditors. The private sector is also developing financing arrangements to support production. The oil-driven surge in investments is expected to compensate for the adverse effect of Over the medium term, relatively tight monetary policies, the ongoing fiscal oil exports will transform consolidation, the uncertainty caused by the conflict Uganda’s trade profile in the Middle East, and adverse weather conditions. 26. World Bank 2023. Uganda Economic Update, 22nd Edition (December 2023). More Effective, Efficiency and Equitable Spending in Education will help Uganda Realize its Potential. Washington DC. 27. Bank of Uganda (2023), State of the Economy, December 2023 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 19 Table 3. Baseline economic outlook (annual % change unless otherwise indicated)   FY23 FY24f FY25f FY26f Real GDP growth (baseline) 5.3 6.0 6.2 6.6 Private consumption 4.4 5.6 5.8 5.8 Government consumption 5.5 5.1 5.3 4.6 Gross fixed capital investment 6.0 8.2 9.3 9.3 Exports of goods and services 7.0 7.7 8.3 8.4 Imports of goods and services 3.2 8.6 8.7 8.8 Agriculture growth 4.8 4.9 5.0 5.1 Industry growth 3.8 6.2 6.5 6.5 Services growth 6.2 6.4 6.6 7.4 Inflation (CPI) 8.8 3.1 4.5 5.0 Current account (% GDP) -8.2 -8.1 -7.4 -6.9 Net FDI inflow (% GDP) 5.9 8.7 10.9 9.9 Fiscal balance (% GDP) -5.5 -4.5 -5.0 -4.3 Public debt (% GDP) 50.2 48.8 50.5 51.9 Sources: UBOS, MoFPED, BoU, and World Bank staff estimates 29. Accelerated growth and lower inflation are substituting into high-value products from Uganda expected to reduce poverty. A continued increase in as the country builds its capacity for value addition. nonfarm income and declining inflation are expected Robust export growth and slowing imports would to boost consumption, and accelerated growth could allay concerns around “Dutch disease,” especially reduce the poverty rate (measured at US$2.15 per if the shilling also continues to appreciate in real person per day) from 41.3 percent in 2024 to 40.1 terms.28 Remittances are expected to grow in line percent by 2026. High commodity prices are expected with global growth and as employment conditions in to bolster the income of cash-crop-producing source countries improve. agricultural households, and although they remain 31. Oil-related FDI and external debt inflows a small share of all households due to the low level will continue to finance a large share of the current- of agricultural commercialization, income gains account deficit. FDI is projected to exceed 10 percent among them will likely have positive spillovers on of GDP in FY24/25, supported by the development other sectors. However, given the limited capacity of of the oil sector and the unlocking of flows to other Ugandan households to cope with shocks, the pace sectors following Uganda’s removal from the FATF of poverty reduction will ultimately depend on the Grey List in February 2024. Large FDI inflows will evolution of food access and affordability, as well as ease financing needs in the private sector, minimize weather conditions and other environmental shocks. pressure on the foreign-exchange market, and provide The extent to which oil production benefits poor a more conducive environment for the central bank households will hinge on the quality of economic to gradually accumulate foreign-exchange reserves. policies and the strength of public institutions. Moreover, the use of external non-concessional 30. The current-account balance is projected to financing is likely to be limited given the authorities’ improve in the medium term as oil-related capital strategy to maximize concessional financing to imports decline. Non oil exports are also projected maintain sustainable debt dynamics. to expand, driven by coffee and minerals, especially 32. By raising spending by over 2 percent of gold and iron ore. Rising regional demand could GDP in FY24/25, amidst low revenues, government further increase commodity exports if consumers start has suspended the fiscal consolidation agenda. The 28. World Bank (2010). Dealing with Dutch Disease. Economic Premise. Poverty Reduction and Economic Management Network. June 2010, Number 16. Report Number 53687. Washington DC 20 Uganda Economic Update Improving Public Spending on Health to Build Human Capital fiscal deficit is projected to reach above 5.0 percent as oil exports commence. Negative debt dynamics of GDP during FY24/25, before declining slightly to should keep debt-service costs high and exacerbate 4.3 percent in FY25/26. Considering the perennial the risk of crowding out lending to the private sector, execution challenges, our projection is slightly further emphasizing need for better coordination of lower than government’s official budget projection fiscal and monetary policies to support a smoother of 5.7 percent and 4.3 percent of GDP in FY24/25 and adjustment. In addition to maximizing concessional FY25/26, respectively, but remains well above the financing, reducing recourse to net borrowing CFR’s fiscal deficit target of 4.2 percent and 3 percent, through bank advances and/or the non-payment respectively. The implementation of the Domestic of matured securities would increase budgetary Revenue Mobilization Strategy (DRMS) remains slow. flexibility and expand the fiscal space to respond to Reforms to tax expenditures and VAT, coupled with shocks. Greater domestic revenue mobilization and improvements in tax administration, are expected more efficient public investment management would to raise non-oil revenue by 0.2 and 0.4 percentage further bolster fiscal sustainability. To avoid creating points of GDP in FY24/25 and FY25/26, respectively, new vulnerabilities, oil revenues must be managed with the latter year expected to be boosted by an efficiently through stronger institutions and systems addition 1.4 percentage points of GDP on account of oil (Box 2). In addition to reverting to fiscal consolidation, related revenues, including capital gains from change the government will need to adjust the allocation of of ownership in some of the fields. While it remains expenditures to build the human capital necessary for sustainable, debt will also increase to about 51 percent structural transformation by investing in education, of GDP by FY25/26—hence violate the CFR targets— health, and social protection, which are also critical with a stagnation in the debt-to-GDP ratio expected for inclusive growth and poverty reduction. Box 2: Strong fiscal institutions and wealth-management systems are required to maximize the benefits of oil revenue Fiscal rules: The government has adopted a fiscal rule under its current CFR (FY21/22-FY25/26) that, if adhered to, could have helped manage volatility during the transition and the anticipated revenue boom as oil exports grow. However, the implementation of the rule has been uneven. As oil revenues increase, the authorities will need to adopt a fiscal-sustainability framework that will enable the scaling up of public investment in line with the country’s macroeconomic objectives, absorptive capacity, and revenue volatility. Such a framework must be backed by a mechanism to ensure compliance with fiscal rules and expenditure targets, with realistic penalties to minimize political interference. Transparency: Uganda joined the Extractive Industries Transparency Initiative (EITI) to improve transparency in the management of revenues from extractive industries, including the oil sector. The EITI offers a framework for determining the amount and variability of oil revenues, considering uncertainties about production, price, and other factors. To anchor expectations and raise awareness about the challenges associated with oil revenues, the government must increase public outreach on issues around fiscal management, including the expected size and volatility of oil revenues, fiscal targets and fiscal rules, and areas for investing oil revenues. Savings versus investments: Uganda established a Petroleum Fund to manage excess oil revenue, but there is no framework for determining how much revenue to save, when to save it, or how reserves from the fund should be spent. Without this framework, the Petroleum Fund’s sustainability and capacity to maintain the country’s wealth as it depletes its natural assets will be severely compromised. The legal and regulatory framework for oil-revenue management: The frameworks for managing oil revenue, including the Oil and Gas Revenue Management Policy (2012) and the PFM Act (2015), need to be updated and strengthened. The regulations underpinning the Petroleum Revenue Investment Reserve (PRIR) must be revised to clarify its design and functions, provide legal certainty, clarify roles and responsibilities, and transform it into a genuine sovereign wealth fund. Source: Adapted from World Bank, 2021. Uganda Oil Revenue Management – Closing Gaps in the Fiscal and Savings Frameworks to Maximize Benefits EFI Insight-MTI and Finance. Washington, DC. Uganda Economic Update Improving Public Spending on Health to Build Human Capital 21 33. A combination of macroeconomic and structural 35. The increasing frequency of droughts and policies will be necessary to prevent Dutch disease floods heightens the vulnerability of Uganda’s by increasing productivity and diversifying the businesses, farms, and households. Many economy. Structural reforms will establish the basis households rely on the agricultural sector as their for robust private-sector-led growth in line with the primary source of livelihood, and they often have Third National Development Plan and the strategic limited capacity to adapt to natural disasters and orientation of its successor. The structural external climatic stressors. Increased weather-related shocks current-account deficit is likely to persist as import could reduce agricultural yields, lower export earnings, growth continues to outpace export growth in the intensify food insecurity, and exacerbate poverty. short-to-medium term. The authorities will need to While the country has escaped the El Niño rains avoid exchange-rate misalignments, especially as that have caused havoc among regional neighbors oil exports commence, while investing heavily in the like Malawi and Zambia, uncertainty around the nonoil economy to enhance productivity and boost anticipated La Niña phenomenon persists, and longer export growth. Export-promotion efforts must extend drought conditions could heavily affect agricultural beyond Uganda’s traditional export commodities, output. Moreover, the country’s vulnerability to and the authorities should aggressively promote climate change and environmental stressors raise service exports. Other priorities include improving questions regarding: (i) how different climate futures governance and reducing corruption, strengthening might impact the country’s growth path; (ii) how financial stability, expanding access to finance, and the country’s increasingly oil-reliant growth path enhancing the central bank’s independence. may evolve amid ongoing global action towards decarbonization; and (iii) how the implementation 2.2. Numerous risks threaten Uganda’s of the Nationally Determined Contribution under the medium-term outlook Paris Climate Agreement can promote a more green 34. The medium-term outlook is subject and sustainable growth path. to considerable uncertainty. A more severe 36. Under a downside scenario, annual GDP deterioration of the global economy due to rising growth could fall to about 5 percent in FY24/25 geopolitical tension or an escalation of the conflict before marginally recovering to 5.5 percent in in the Middle East would reduce Uganda’s exports FY25/26. This scenario assumes that slowing global and distort import supply chains. Vulnerabilities in economic activity will reduce demand for Uganda’s China and Europe pose particularly serious risks, as exports, weigh on remittances and FDI, and lower these are the main sources of investment in Uganda’s commodity prices. The resulting depreciation oil sector. Slower disbursements, especially as the pressures and pass-through effect on domestic 2026 election draws closer, could complicate fiscal inflation will require further monetary tightening, policy, further reduce foreign-exchange reserves, with adverse implications for credit to the private and raise the risk of a balance-of-payments crisis sector and overall growth. as the authorities increasingly close gaps with non- concessional financing or fail to secure financing. A 37. Slower growth would also undermine the steeper depreciation of the exchange rate and rising fiscal consolidation. In addition to reducing fiscal inflationary pressures could also necessitate tighter revenue, which remains highly sensitive to shocks, monetary policy, slowing the recovery of business slow growth will increase spending pressure and activity and household income. Additional monetary undermine efforts at fiscal adjustment. External tightening could erode asset quality in the banking shocks and the increasing frequency of natural sector, raising costs and further constraining access disasters due to climate change could also worsen to finance for firms. The tourism sector remains highly the country’s debt profile. Increased government sensitive to shocks, including outbreaks of Ebola borrowing from commercial banks would crowd out virus and other infectious diseases, travel warnings credit to the private sector, with negative implications imposed by major source countries, and adverse for consumption and investment. domestic developments. 22 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 38. Uganda’s risk of debt distress is rated “moderate,” but debt vulnerability could increase. Lower growth could further limit the fiscal space to absorb shocks. In addition to an uncertain external outlook, environmental shocks, inconsistent reform efforts, delays in oil production, and the finite capacity of commercial banks to provide deficit financing could heighten the risk of debt distress. The most extreme shock to the public debt profile could come from the materialization of contingent liabilities, which could push the debt-service-to-revenue ratio to 65 percent, while a steep decline in exports poses the greatest risk to external debt sustainability. Increased government borrowing from commercial banks would crowd out credit to the private sector, with negative implications for consumption and investment. Uganda Economic Update Improving Public Spending on Health to Build Human Capital 23 PART | 2 | LINKING PUBLIC SPENDING ON HEALTH TO HUMAN CAPITAL DEVELOPMENT 24 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 3. ASSESSING THE ADEQUACY, EFFICIENCY, EQUITY, AND EFFECTIVENESS OF PUBLIC SPENDING IN HEALTH 3.1 The key role of the health sector in developing Uganda’s human capital 39. Health and nutrition are key determinants the Ugandan government makes now regarding of human capital development and economic investments in public health will play a key role in growth. Access to high-quality health services determining whether the country seizes, or misses, reduces the prevalence of disability and premature the opportunity presented by the demographic death, while positive health outcomes are associated dividend. with increased worker productivity and gains in 42. Due in part to chronic underinvestment social development indicators. Each additional year in public health, the productivity of Uganda’s of life raises GDP by an estimated 4 percent29 and next generation of workers is among the lowest increases gross FDI inflows by as much as 9 percent.30 worldwide. Uganda’s score on the 2020 Human Underscoring the positive and complementary impact Capital Index (HCI) was 0.38, indicating that a child of health and nutrition, a one-centimeter increase born today will reach only 38 percent of what her in stature is associated with a 4 percent increase in lifetime productivity could have been had she received wages for men and a 6 percent increase for women.31 a complete education and been in full health. Uganda The child and adult survival rates also influence ranked 154th out of 174 countries on the 2020 HCI, and the demographic age structure, and in Uganda, its score was close to the averages for SSA and low- where half of the population is below the age of 16, income countries worldwide. Investments in health investments in health and nutrition can help generate and nutrition directly affect three of the four HCI a demographic dividend.32 indicators—the under-five stunting rate, the under- 40. Significant investments in human capital five mortality rate, and the adult mortality rate. will be vital for Uganda to achieve a demographic 43. Investments in health and nutrition have dividend. Uganda is currently a pre-demographic- yielded important gains, but rapid population growth dividend country, with high fertility rates and a large and other challenges limit the country’s capacity population of young people. With an annual growth to provide adequate health services. The Ugandan rate of 3 percent, Uganda’s population is expected to government has worked closely with development reach 71.5 million by 2040. The total fertility rate is high partners to implement investments in health and at 5.2 children per woman, and the adolescent fertility nutrition, and the 2022-23 Uganda Demographic and rate is 108 births per 1,000 women ages 15-19. With Health Survey revealed substantial improvements large cohorts of adolescents reaching reproductive in key maternal and child health indicators, such as age, rapid population growth threatens to undermine the share of deliveries at health facilities and the Uganda’s social and economic development. maternal mortality rate. Nevertheless, most health 41. To attain a demographic dividend, the indicators are still below national, regional, and global government must invest in human capital.33 targets. The health sector faces a range of critical Countries that moved from low- to high-income status challenges around financing, human resources, in a matter of decades, such as Singapore and the access to medical supplies, and the availability of Republic of Korea, invested heavily in education and high-quality infrastructure and equipment.35 As the health during their dividend window.34 The decisions population continues to grow, achieving universal 29. Bloom and Canning 2003; He and Li 2020 30. Alsan et al. 2006 31. McGovern et al. 2017 32. A demographic dividend occurs when the size of the working-age population surges relative to the dependent population, yielding rapid gains in economic output per capita. To achieve a demographic dividend, adequate employment opportunities must be available, and workers must possess the skills demanded by the labor market. 33. Human capital refers to the combination of “knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realize their potential as productive members of society” (World Bank 2023). 34. OFCD 2010 35. MoH 2019 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 25 health coverage and meeting the health-related SDGs under the NDP III (FY20/21– FY24/25),37 the third of six will require sustained improvements in the efficiency, plans that together aim to achieve the country’s long- equity, and effectiveness of health spending, along term national development agenda, the Vision 2040. with a substantial increase both in overall funding for The HCDP strives to address human development the health sector and in the share of funding provided challenges around health, nutrition, education, by the government. gender equity, and youth empowerment. In the health sector, the HCDP’s goal is to increase the share 44. The Ugandan government is committed to of the population with universal health coverage. improving human capital. Ensuring the equitable provision of high-quality health services and 47. Uganda’s three-tiered health system improving nutrition indicators are key objectives includes a total of 8,386 public and privately of the third National Development Plan (NDP III). In managed health facilities at the primary, secondary, July 2023, the government committed to the Dar es and tertiary levels. At the primary level, Health Center Salaam Declaration on Human Capital Development,36 IIs are typically the first points of entry into the health reaffirming its commitment to achieve the SDGs and system, and they are designed to provide outpatient other global targets by 2030. Key objectives include and outreach services. Other primary health facilities raising the childhood-immunization rate to over 90 in the referral system include Health Center IIIs, Health percent, reducing the under-five mortality rate to Center IVs, and general hospitals. At the secondary less than 25 deaths per 1,000 live births, cutting the level are regional referral hospitals, while the tertiary under-five stunting rate by 40 percent, and lowering level consists of national and specialized hospitals. the maternal mortality rate to no more than 70 deaths In FY22/23, private for-profit providers operated 46 per 100,000 live births. percent (3,856) of Uganda’s health facilities, followed by the government at 41 percent (3,448), and private 45. Drawing on the findings of the World nonprofit providers at 13 percent (1,082). Because most Bank’s 2022-23 Uganda Public Expenditure Review, of the country’s largest and busiest health facilities this edition of the Uganda Economic Update are publicly owned and operated, the government is examines how the government can improve the the leading healthcare provider and employer in the financing and provision of health services to build health sector. Public healthcare facilities account for human capital. The following section assesses the 79 percent of outpatient visits, followed by private adequacy, efficiency, effectiveness, and equity of nonprofit facilities (14 percent), and private for-profit health spending and provides recommendations for facilities (7 percent). Public facilities also receive 67 addressing key challenges in the heath sector. percent of inpatient admissions, followed by private 3.2 The organisation of the health sector nonprofit facilities at 27 percent and private for-profit in Uganda facilities at 6 percent. However, the volume of patients treated at private facilities may be underestimated 46. The Ministry of Health (MoH) is due to the low reporting levels among private health responsible for policy formulation, strategic providers. planning, and the delivery of specialized health services, while primary healthcare services are provided mainly by local governments. The 1995 Constitution, the 1935 Public Health Act, and the 1997 Local Government Act all assign responsibility to the MoH for leadership and strategic direction, policy, and planning, and monitoring and evaluation of performance in the health sector. Uganda’s strategy for the development of the health sector is part of the Human Capital Development Program (HCDP) 36. Dar es Salaam Declaration on Human Capital Development, 26th July 2023. Accessed from: https://documents1.worldbank.org/curated/ en/099437408012323869/pdf/IDU00fcd4a900d09e0425a0af8c02a2df6c51237.pdf 37. NPA 2020 26 Uganda Economic Update Improving Public Spending on Health to Build Human Capital Table 4: Health facilities in Uganda by type, 2023 Ownership Share of facility type Type of Facility Govt PFP PNFP Total Govt PFP PNFP Health Center II 1,815 3,418 558 5,791 31% 59% 10% Health Center III 1,357 321 389 2,067 66% 16% 19% Health Center IV 197 41 30 268 74% 15% 11% Special Clinic 0 2 28 30 0% 7% 93% General Hospital 55 72 73 200 28% 36% 37% Regional Referral Hospital 16 0 0 16 100% 0% 0% Specialized Hospital 3 2 4 9 33% 22% 44% National Referral Hospital 5 0 0 5 100% 0% 0% Total 3,448 3,856 1,082 8,386 Share of Total 41% 46% 13% 100% Note: Govt=government, PFP=private-for-profit, and PNFP=private-not-for-profit. Health Center II includes clinics. Source: World Bank staff construction from MoH 2022/23 Master Facility List. 48. Over the past 10 years, the number of health their inability to deliver high-quality healthcare. Most facilities in Uganda increased significantly, driven private for-profit facilities are small and fall below by private for-profit providers. Overall, the number the Health Center II designation, and many private of health facilities rose by 68 percent between FY11/12 facilities employ health workers who also work and FY22/23. Though the government built new at government health facilities38. Despite the slow health facilities and modernized and restored several expansion of public health facilities, the government existing ones, the number of government facilities remains the country’s leading healthcare provider, as only increased by 29 percent while the number of most government facilities are national and attend private nonprofit providers and private for-profit to a very large volume of patients. Nevertheless, the facilities increased by 24 percent and 170 percent, growing share of private health facilities in Uganda respectively, over the period. The rapidly growing warrants strong public-private partnerships to number of privately run healthcare facilities suggests promote robust service delivery. a conducive environment for private investment in the health sector, though it may also reflect the limited availability of public health facilities and/or 38. This phenomenon could be referred to as moonlighting in some jurisdictions if the contracting allows for one to work second job but after the normal hours for the first job Uganda Economic Update Improving Public Spending on Health to Build Human Capital 27 Figure 13. Trends in the distribution of health facilities by ownership 1,430 1,488 1,488 1,809 3,856 2,373 2,795 2,793 871 874 873 170% 1,229 947 1,009 982 1,082 2,680 2,867 2,932 3,084 3,133 3,129 3,194 3,448 24% 29% 2011/12 2011/12 2012/13 2011/12 2015/16 1015/16 2016/17 2016/17 2017/18 2017/19 2018/19 2018/19 2019/20 2019/20 2022/23 2011/12 GROWTH Govt PNFP PFP Govt=government, PNFP=private-not-for-profit, and PFP=private-for-profit Source: World Bank staff construction from MoH Reports and 2022/23 Master Facility List. 3.3 Key health outcomes 49. Over the past two decades, Uganda has The index measures the coverage of essential health made significant progress towards achieving services and their impact on health outcomes. Despite universal health coverage. Uganda’s score on these important gains, overall coverage remains the Universal Health Care service coverage index relatively low at just 49 percent, and additional increased by 123 percent between 2000 and 2021— investments will be needed to improve health and the third highest increase among peer countries after nutrition outcomes. Ethiopia (169 percent) and Rwanda (158 percent). Table 5. Universal health care index scores, Uganda and comparators Peer Countries 2000 2015 2021 Increase (2021 vs 2000) Sudan 25 43 44 76% Kenya 28 50 53 89% Congo, Rep. 21 38 41 95% Cameroon 22 42 44 100% Uganda 22 43 49 123% Rwanda 19 44 49 158% Ethiopia 13 34 35 169% Source: World Bank staff construction from World Development Indicators data 28 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 50. Increased access to health services over quality.39 The index score for general service readiness the past decade has contributed to better health and (which measures the presence of basic amenities, nutrition outcomes. Several of Uganda’s health and equipment, diagnostics, staff training and guidelines, nutrition indicators are better than the average for medicines and commodities) in the 2022 Harmonized low-income countries. However, the share of children Health Facility Assessment in Uganda40 was just between the ages of 12-23 months with all basic 0.59, indicating that only 59 percent of all public and vaccinations remained very low at an estimated 54 private health facilities in Uganda were able to provide percent in 2022, while both the total and adolescent quality health services in 2022. Low readiness levels fertility rate are above the low-income-country underscore the importance of increasing investment average. Weak indicators of service availability and in the quality of health services. readiness at health facilities undermine healthcare Table 6. Key demographic and health indicators Uganda LIC Indicator 2011 2016 2022 2022 Population, total (millions)** 32.3 40.1 47.2 - Immunization, all basic vaccinations (% of children aged 12–23 months)* 52 55 54 - Fertility rate, total (births per woman)* 6.2 5.4 5.2 4.6 Adolescent fertility rate (births per 1,000 women ages 15-19) 128.5 117.8 107.9 95.6 Teenage mothers (% of women ages 15–19 who have had children 23.8 24.8 24.0 - or are currently pregnant) Prevalence of stunting, height for age (% of children under 5 years)* 33 29 26 33.5 Mortality rate, under-5 (per 1,000 live births)* 90 64 52 67.4 Maternal Mortality Ratio (deaths per 100,000 live births)* 438 336 189 409 Life expectancy at birth, total (years)^ 58.0 61.6 62.7 62.5 Data sources: Uganda data from *Uganda Demographic and Health Survey (UBOS 2022), **World Population Review, ^World Development Indicators. LIC=Low-Income Country. LIC data from World Development Indicators. LIC data is latest year available. 3.4 Spending on health and availability of core health workers and medicines Adequacy of overall health spending typical low-income country41 as well as the average of US$75.6 per capita among aspirational peers. 51. The overall level of health spending in Rapid population growth is intensifying pressure Uganda is inadequate. Current spending in the health on healthcare resources, and a significant increase sector was 5.7 percent of GDP in FY20/21, just above the in the budget allocated to the health sector will be World Health Organization (WHO) recommendation of necessary to raise per capita spending to the required 5 percent and in line with the averages of 5.2 percent level. for structural peers. However, total current health spending was just US$50.5 per capita, far below the estimated US$86 per capita recommended for a 39. MoH and WHO (2023) 40. McIntyre et al. 2017 41. McIntyre et al. 2017 Burt et al. 2021; Ahmed et al. 2022 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 29 Table 7. Key health-finance indicators for FY20/21 Current health General government health spending from Health sector spending domestic sources wage bill Country % of % of current % of total government % of public health per capita % of GDP GDP spending spending spending Uganda 50.5 5.7 0.7 13.4 3.9 37 Benchmarks 86a 5.0b 15.0c 45-60d Data source: MoH 2023; Government financial data; World Development Indicators; Vujicic, Ohiri, and Sparkes 2009. GGHE-D = General government health expenditure (domestic sources); PEH=Public Expenditure on Health. a= McIntyre et al (2017), b=WHO, c=Abuja target (WHO), and d=Chisholm and Evans (2010). 52. Households and external development between FY15/16 and FY18/19 before support from partners finance a combined 85 percent of current external development partners reversed this trend. health spending. External development partners Nevertheless, current spending amounted to just 5.7 financed the majority of current spending during percent of GDP in FY20/21, down from 6.2 percent in FY14/15–FY20/21. In FY20/21, external support was FY14/15. Households spend most of their money on responsible for 55 percent of current spending, medicines and medical commodities which took 49 while out-of-pocket expenditures by households percent of their spending by FY19/20. This can be accounted for 30 percent. Public expenditures attributed to the low availability of medicines and represented just 13 percent of current spending, while medical commodities at public health facilities in employers (corporations) contributed 1.8 percent. Uganda. Overall health spending in Uganda declined sharply Figure 14. Total current health spending, FY14/15 – FY20/21 100% 7.0% 6.2% 4.6% 46.6% 6.0% 5.7% 80% 44.5% 5.1% 5.0% 4.1% Share of CHE (%) CHE AS % GDP 60% 4.0% 3.0% 40% 38.8% 36.8% 30.8% 2.0% 20% 1.0% 0% CHE % GDP 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Average Government Corporations Households Development Partners CHE % GDP Source: World Bank staff construction from MoH 2020a; 2023. 30 Uganda Economic Update Improving Public Spending on Health to Build Human Capital The adequacy of government health expenditures for peer countries, both in SSA and worldwide. Low levels of public financing constrain the health sector’s 53. The government has not adequately ability to procure sufficient goods and services and prioritized health spending. In nominal terms, to effectively respond to public health emergencies, general government health spending from domestic resulting in the disruption of essential services and sources declined from 6.5 percent of total health foregone care. For instance, the COVID-19 pandemic spending in FY14/15 to 3.9 percent in FY20/21, negatively affected the provision of maternal, increasing the share borne by households and neonatal, and child healthcare services in Uganda; external development partners. During FY14/15– and threatened to reverse recent gains in health- FY20/21, domestically financed government health service delivery and health outcomes.42 spending averaged US$6.2 per capita, and by FY20/21 it had risen to just US$6.8—well below the average Figure 15. General government health spending from domestic sources 1,100,000 7.0% 1,000,000 6.5% 6.0% 900,000 5.9% 800,000 5.0% 700,000 3.9% 4.0% 4.0% USh millions 4.0% 3.3% 600,000 3.2% Percent 3.0% 500,000 400,000 2.0% 300,000 1,027,885 1,027,885 803,339 728,556 856,316 813,087 739,041 1.0% 200,000 100,000 0.0% 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Nominal GGHE-D (USh million) GGHE-D as share of TGE Note: GGHE-D=General Government Health Expenditure – Domestic; TGE=Total Government Expenditure Source: World Bank staff construction from government financial reports. Figure 16. General government health spending, Uganda and Comparators, FY20/21 Kenya 42 39 Congo 36 33 GGHE-D per capita (current US$) 30 Aspirational Peers 27 Structural Peers 24 21 18 15 12 Sudan Structural Peers 9 LICs Cameroon Ethiopia 6 3 Chad Uganda 0 0 500 1,000 1,500 2,000 2,500 GDP per capita (current US$) World Development Indicators data. GGHE-D=General Government Health Expenditure–Domestic; LICs=Low Income Countries Source: World Bank staff construction from Uganda government financial reports and 42. Burt et al. 2021; Ahmed et al. 2022 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 31 The administration of health funding and its aid agencies and nongovernmental organizations alignment to the disease burden via their own planning, financing, procurement, and 54. Much of the external funding provided to monitoring systems. This approach reduces the the health sector is executed off-budget. On-budget flexibility of resource allocation and limits the ability donor expenditures accounted for an average of just of policymakers to re-prioritize funding to address 16 percent of total donor funding in the health sector critical needs. Executing a larger share of health in FY14/15–FY20/21, while the other 84 percent of expenditures through the budget could help improve donor spending was off-budget. High levels of off- the government’s public financial management budget donor support may reflect a lack of confidence systems while promoting national ownership, in the country’s public financial management system. increasing the efficiency and effectiveness of spending, Most off-budget donor funding is administered by and fostering greater financial sustainability. Figure 17. On- and off-budget external financing of health expenditures 98% 99% 96% 96% 93% 55% 74% 84% 2% 1% 4% 4% 45% 26% 16% 7% 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 PERIOD AVERAGE On-Budget Off-Budget Source: World Bank staff construction from previous National Health Account survey reports and MoH 2023. 55. Health expenditures from the main measles, and road injuries increased over the period, financing sources are aligned with the disease which may reflect inadequate funding, changes in the burden. The top 10 causes of morbidity and mortality health system, and contextual factors. Furthermore, in Uganda between 2009 and 2019 were neonatal while close to 80 percent of total current spending on disorders, malaria, HIV/AIDS, lower respiratory health goes to communicable diseases, the incidence infections, diarrheal diseases, congenital defects, and burden of non-communicable diseases has tuberculosis, sexually transmitted infections, measles, been increasing. This trend underscores the need for and road injuries. Overall spending patterns in the increased investment in preventing and treating non- health sector are consistent with this disease profile. communicable diseases, especially given that these Focusing health expenditures on the leading causes are long-term conditions and are costly to manage. of mortality and morbidity has significantly reduced the prevalence of the most common diseases and conditions. For example, the prevalence of neonatal disorders, malaria, and HIV/AIDS fell by 7.1, 43.4, and 69.2 percent, respectively, during 2009–2019. However, the prevalence of sexually transmitted infections, 32 Uganda Economic Update Improving Public Spending on Health to Build Human Capital Figure 18. Top 10 causes of morbidity and mortality in Uganda (% change 2009–2019) 1 Neonatal disorders -7.09 Malaria -43.4 2 HIV/AIDS -69.2 3 Lower respiratory infect -21.4 Type pf change 4 Diarrheal diseases -16.1 5 Congental defects -3.45 6 Tuberculosis -8.07 7 STIs 92.6 8 Measels 4.37 9 Road injusries 18.4 10 -80 -60 -40 -20 0 20 40 60 80 100 Percentage change Source: World Bank staff construction from IHME (2023). Figure 19. Total current health expenditures by diseases and conditions, FY16/17–FY20/21 100% 14% Other Diseases 14% 18% 20% 19% 80% 6% RH 6% 10% 11% 11% 60% HIV/AIDS 27% 28% 23% 20% 16% 40% NCDs 22% 20% 25% 25% 27% 20% Malaria 22% 30% 17% 14% 13% 0% 2016/17 2017/18 2018/19 2019/20 2020/21 Malaria NCDs HIV/AIDS RH TB ND VPD Other diseases Note: RH=Reproductive Health, RI=Respiratory Infections, TB=Tuberculosis, Nutritional Deficiencies=ND, VPD=Vaccine Preventable Diseases, NCDs=Non-communicable Diseases (includes injuries) Source: World Bank staff construction from previous National Health Account survey reports and MoH 2023. Adequacy of health workforce spending and Spending on Uganda’s health-sector wage bill is availability of core health workers close to the levels of Kenya and Tanzania but lower than those of Malawi, Seychelles, Zimbabwe, and 56. The share of public health spending Zambia, as well as the recommended range of 45-60 devoted to wages and salaries has increased over percent for low-income countries.43 The recruitment the years and is broadly consistent with spending of additional health workers has driven the recent patterns elsewhere in eastern Africa. The wage increase in personnel costs, but the number of skilled bill rose from 24 percent of total public spending on health providers per capita remains lower than what the health sector in FY16/17 to 37 percent in FY20/21. would be expected given Uganda’s income level. 43. Chisholm and Evans 2010 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 33 Figure 20. The health-sector wage bill as a Share of Total Public Spending on Health 70 60 62 60 50 54 51 Percentage % 40 43 41 37 30 20 10 0 Uganda Kenya Tanzania Malawi Seychelles Zimbabwe Zambia Source: World Bank staff construction from World Bank Health PERs. 57. The increasing share of public health 58. The number of skilled health providers46 expenditures devoted to wages and salaries reflects in Uganda is critically low, and their distribution is the government’s commitment to improving health skewed across sub-regions. For example, the Bugisu, outcomes. Enhancing the productivity and social Kigezi, and Kampala sub-regions have significantly wellbeing of the population is a key objective of more skilled health providers per capita than the the HCDP,44 and the 2020-2030 Human Resources rest of the country. These differences are due in part for Health (HRH)45 strategy aims “to develop and to the number, type, and size of health facilities in maintain a well-performing appropriately skilled these sub-regions, as well as their socio-economic health workforce, equitably deployed and accessible characteristics. In 2022, Kampala had 13.6 skilled at all levels of the health care system, providing health providers per 10,000 people, more than twice quality health services.” The HRH interventions that the national average of 5.9, while no sub-region came have been implemented have yielded improvements close to reaching the target level of 23. Uganda is even in the health workforce, with the number of staff further from the SDG target of 44.5 doctors, nurses, in-post rising from 59,105 in FY16/17 to 64,808 in and midwives per 10,000 people, underscoring the FY19/20. However, the number of core health workers urgent need to invest in staff training, recruitment, in-post as a share of all health-sector staff is below and retention.47 However, the data only include the national standard of 85 percent. In FY19/20, only skilled health providers in the public sector, and the 74 percent of the required positions for core health density and distribution patterns would be different if workers had been filled. Furthermore, though the the private sector were included. total number of health training institutions in Uganda 59. Despite the low number of skilled health has increased over the years, the annual number of providers, the recruitment of new staff from health- health workers graduating from these institutions training institutions is very limited. This can be has risen only slightly, from 5,911 in FY16/17 to 6,481 in attributed to: (i) inefficiencies in the decentralized FY19/20. 44. NPA 2020 45. MoH 2021a 46. A skilled health provider is an accredited health professional “who has been educated and trained to proficiency in the skills needed to manage normal (uncomplicated) pregnancies, childbirth and the immediate postnatal period and in the identification, management and referral of complications in women and newborns.” WHO (2004, p.1). In Uganda, skilled health providers are doctors, clinical officers, midwives, and nurses. 47. In WHO’s 2016 Global Strategy on Human Resources for Health, the threshold for aggregate health worker density was set at 44.5 doctors, nurses, and midwives per 10,000 people. 34 Uganda Economic Update Improving Public Spending on Health to Build Human Capital system of recruitment, as some districts fail to fully areas. In FY22/23, the authorities raised the salaries absorb their wage budgets each year; (ii) weak and wages for existing health workers by between coordination between the health and education 41 and 132 percent rather than increasing recruitment, sectors, leading to the training of health workers that which is likely to affect the number and distribution the health sector does not need;48 (iii) a weak system of health workers. While the health wage bill will for redistributing existing health workers across increase, the number of health workers in-post will districts to optimize the staffing levels and skills- likely remain the same or may even shrink due to mix; and (iv) ineffective human-resources retention attrition. and management strategies for staff working in rural Figure 21. The availability of essential health workers a. Staff in-post and training outputs b. SHP by Sub-Region, 2022 14.0 13.6 78% 70,000 75% 74% 80% 12.0 Number per 10,000 Population 60,000 70% Number in-post and training output 10.0 9.3 60% 50,000 50% 8.0 7.5 40,000 6.8 6.8 6.1 6.4 40% 6.0 5.7 5.7 5.9 6.0 5.3 4.9 5.1 64,808 62,445 59,105 30,000 4.3 30% 3.6 4.0 20,000 20% 2.0 6,245 6,481 5,911 10,000 10% 0.0 l 0% ra o nt ng ro a al di so a le le ro li ja u zi la 2016/17 2017/18 2019/20 Ce La nyo sog ntr uke Te and t Ni nko Too cho mo ugis ige pa th Bu Bu h Ce B Ug es A A ra B K am S ou rt W Ka K Clinical health workers in-post No Training Output Percentage of filled positions Source: World Bank staff construction from HRH system data, and MoH 2020b; 2021a. SHP= Skilled Health Providers 60. High absenteeism rates exacerbate low in the form of salary payments to absent healthcare staffing levels among essential health workers.49 workers. As many as half of Uganda’s health workers may be absent on any given day.50 A high absenteeism The availability and adequacy of spending on essential medicines rate can increase the workload of the remaining staff, hindering the provision of timely and high- 61. Access to high-quality, affordable quality health services and contributing to poor essential medicines and medical products is vital health outcomes, including the high rates of maternal to improving health and achieving the SDGs. In mortality observed in some sub-regions. At 46 nominal terms, the government boosted its spending percent, Uganda’s health-sector absenteeism rate is on medicines and medical supplies by about 65 comparable to that of Kenya (53 percent) but much percent between FY16/17 and FY20/21, from USh 265.1 higher than countries in eastern and southern Africa.51 billion (US$77.5 million) to USh 393.6 billion (US$105.9 The PER estimated the direct annual losses incurred million)—an annual average increase of about 14 due to absenteeism at USh292 billion (US$78.5 percent. However, spending on medicines and medical million) while a study by the Uganda Inspectorate products declined from 44 percent of total public of Government estimated the annual loss at USh495 health spending in FY16/17 to 29 percent in FY20/21, billion (US$133.1 million)52 Most of these losses are below the SSA average of 33 percent.53 48. According to the HRH Strategic Plan 2020–2030, training institutions produce several types of health workers that are not needed in the health sector. 49. The absenteeism rate is defined as the share of health professionals who are not present for their assigned duties at a given facility during an unannounced visit (Hafez 2020). 50. Wane and Martin 2013 51. Estimates for Madagascar (27 percent), Mozambique (24 percent), Malawi (46 percent), Zambia (16 percent), and Tanzania (14 percent) (Di Giorgio et al 2020; Hafez 2020; World Bank 2018; World Bank 2019b; World Bank 2019c;) 52. Inspectorate of Government 2021 53. Bennett et al. 1997 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 35 In FY20/21, the government spent just US$3.2 per study on the extent and cost of corruption in the capita on medicines and medical products, which is health sector revealed that the theft of medicines is below the US$13-25 recommended for low-income rampant at public health facilities.57 Theft leads to countries by the Lancet Commission on Essential direct monetary losses and increases OOP spending, Medicines.54 as households are forced to purchase medicines from private pharmacies at exorbitant prices. In addition, 62. Insufficient supplies of medicines and the procurement system at the National Medical medical products result in limited access to quality Stores (NMS) is not linked to the Integrated Financial healthcare. In FY19/20 and FY20/21, only 46 percent of Management Information System (IFMIS). As a health facilities had more than 95 percent of the tracer result, contracts for medicines and medical supplies medicines and commodities,55 and in 2022 only 49 are signed and managed outside the IFMIS, and percent of health facilities had all essential medicines each contract must be checked manually to ensure available.56 The inadequate supply of medicines and consistency with budget allocations—a situation that medical supplies is likely due to a combination of could lead to financial mismanagement. low spending and widespread theft. A government Figure 22. The adequacy of public spending on medicines and medical supplies 50% 3.5 3.2 45% Share of public spending on health 44% 3.0 40% 2.5 41% 35% 2.5 2.1 30% 2.2 2.0 2.2 29% 29% 25% 26% 1.5 20% 15% 1.0 10% 0.5 5% 0% 0.0 2016/17 2017/18 2018/19 2018/19 2020/21 Drugs as a share of Total Public Spending on Health Per Capita Spending on Drugs (US$) Source: World Bank staff construction from government financial reports and IFMIS data. 54. MoH 2021b 55. MoH and WHO, 2023 56. Inspectorate of Government 2021 57. Inspectorate of Government 2021 36 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 3.5 Efficiency and effectiveness of health spending 63. The health budget performed well over the FY16/17–FY20/21 period. Budget performance is assessed by analyzing the disbursement and use of budgeted funds. Between FY16/17 and FY20/21, about 97 percent of budgeted funds were released, and 97 percent of the released funds were used. However, given the inadequate funding in the health sector, policymakers should aim to reach 100 percent disbursement and use of the available funds each year. Figure 23. Health-sector budget performance 2,000 98.8% 100% 97.8% 97.7% 1,800 96.8% 96.9% 98% 97.7% 1,600 97.1% 96% 96.3% 1,400 94% 1,200 92% Billions (UGX) 92.2% 1,000 90% 800 88% 600 86% 400 84% 200 82% 0 80% 2016/17 2017/18 2018/19 2019/20 2020/21 Budget Disbursed Expenditure Absorption Rate Budget Execution Source: World Bank staff construction from government financial reports and IFMIS data 64. Despite the challenges described above, to its greater expenditure efficiency. Benchmarking Uganda uses its limited health resources more across countries also masks variations at the regional efficiently than many peer countries. At US$50.5 and sub-national level. per capita, current health spending in Uganda is 65. Uganda is more effective than its peers below the levels of Kenya, Rwanda, Cameroon, and at transforming the available health services into aspirational peers, but the country’s score of 32.4 on better maternal health outcomes. At 189 deaths the Health Access and Quality (HAQ) index is close per 100,000 live births, Uganda’s maternal mortality to the scores of its comparators.58 This suggests ratio is better than what its overall HAQ score would that Uganda is more efficient than Rwanda and predict, and many structural and aspirational peer Kenya and aspirational peer countries at using its countries have higher HAQ scores than Uganda but limited resources to produce quality health services. worse maternal mortality ratios. However, within However, this analysis does not consider differences Uganda, maternal mortality ratios vary substantially in the cost-of-service provision, the healthcare across sub-regions. policies being implemented by the various countries, or the extent of wasted or misused resources. Apart from imported technologies, the cost of local inputs in Uganda is generally low, which likely contributes 58. Using a benchmarking approach (Hafez 2020), potential inefficiencies were analysed by associating scores from the HAQ index to current health spending per capita. The HAQ index (Fullman et al 2018) is comprised of 32 diseases and conditions that are amenable to health care. The 32 diseases and conditions include maternal and perinatal conditions; infectious diseases; neoplasms; nutritional, endocrine, and metabolic diseases; neurologic disorders; cardiovascular diseases; respiratory and digestive system diseases; genitourinary system diseases; and external causes. Mortality amenable to health care is defined as “those premature deaths that should have not occurred in the presence of timely and effective health care” https://www.paho. org/hq/dmdocuments/2013/annex-basic-indicators-2013.pdf.pdf. Uganda Economic Update Improving Public Spending on Health to Build Human Capital 37 Figure 24. The efficiency and effectiveness of health spending, FY21/22 a. Services produced with available funding b. Transplanting services into health outcomes 50 45 Sudan 1,000 Chad MMR (Deaths per 100,000 LIve Births) Health Access and Quality Index 40 Aspirational peers 800 35 Congo Rep Uganda Cameroon 600 Kenya Kenya Structural 30 Ethiopia Peers Structural Cameroon peers 400 Congo Rep 25 Chad Ethiopia Sudan 200 Rwanda Aspirational 20 Uganda Peers 15 25 35 45 55 65 75 85 95 0 20 25 30 35 40 45 50 CHE per capita ( current US$ ) Health access and Quality index CHE=Current Health Expenditure. MMR=Maternal Mortality Ratio Source: World Bank staff construction from UBOS (2023), Uganda government financial reports, and World Development Indicators data. Productivity of the health-sector workforce 66. Sub-regions with greater numbers of skilled health providers generally have higher rates of births in health facilities, but this does not automatically translate into better maternal health outcomes. In the Karamoja and Kigezi sub-regions, the rate of births in health facilities is low despite relatively high numbers of skilled health providers. However, Bukedi, Tooro, and Kigezi have even higher numbers of skilled health providers and lower maternal mortality ratios. Kampala and Acholi have relatively high numbers of skilled healthcare providers and relatively high maternal mortality ratios. Overall, these results suggest differences in productivity of health workers and the uneven quality of maternal healthcare services across the sub-regions. Figure 25. The productivity of skilled health providers, FY21/22 a. Institutional Deliveries vs Sta ng Level b. Institutional MMR vs Sta ng Level 0.055 250 Per capita institutional Deliveries Kampala 0.050 Kampala Deaths per 100,000 Live births 200 Bugisu 0.045 North Central 0.040 150 Ankole Toro Bukedi Bunyoro Kigezi Acholi 0.035 Busoga West Nile 100 North Central Ankole West Nile Bunyoro South Central 0.030 Lago Teso Bugisu Teso Karamoja Kigezi Busoga 50 Karamoja 0.025 Lango Bukedi Tooro South Central 0.020 0 2 4 6 8 10 12 14 2 4 6 8 10 12 14 Skilled Health Providers per 10,000 Population Skilled Health Providers per 10,000 Population MMR=Maternal Mortality Ratio Source: World Bank staff construction from HRH and Maternal and Perinatal Death Surveillance and Response (MPDSR) data. 38 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 3.6 Equity indicators: benefit incidence and households fell from 20 percent in FY16/17 to 14.1 financial risk protection percent in FY19/20. This pattern indicates that the distribution of health benefits at public hospitals Trends in benefits received compared to health needs is inequitable. Therefore, there is need for the 67. Over the years, the distribution of health government to remove barriers to access public benefits at public health centers has become hospitals among the poor households. Considering increasingly pro-poor, but this is not the case at that most poor households in Uganda access health large public hospitals. A benefit-incidence analysis services from lower levels of the health system (i.e. shows that poor households benefit the most from health centers), providing basic hospital services at public health centers, whereas wealthier households lower-level facilities and enhancing service quality benefit the most from public hospitals. The share of could improve the equity of healthcare access. benefits of public hospitals accruing to the poorest Figure 26. Trends in benefit incidence: public health centers and hospitals a. Public Health Centers b. Pubic Hospitals 24.8 25.6 25.9 23.2 23.1 24.6 20.6 23.1 21.4 20.0 20.4 21.1 20.1 21.6 21.6 20.5 18.9 20.6 20.0 17.5 19.3 19.4 17.0 18.8 16.5 19.1 15.8 15.8 14.1 10.0 Poorest Poorer Middle Richer Richest Poorest Poorer Middle Richer Richest Poorest Poorer Middle Richer Richest Poorest Poorer Middle Richer Richest Poorest Poorer Middle Richer Richest Poorest Poorer Middle Richer Richest Public Health Centre Public Health Centre Public Health Centre 2012/13 2016/17 2019/10 Public Health Centre Public Health Centre Public Health Centre 2012/13 2016/17 2019/10 Source: World Bank staff computations based on UNHS FY12/13, FY16/17 and FY19/20 datasets 68. Between FY12/13 and FY19/20, the health in Uganda are very low. In 2022, the general service needs and benefits of poor households increased, readiness index score for public health facilities in while the health needs and benefits of the wealthiest Uganda was 0.55, well below the scores at private for- households declined. These trends indicate that the profit (0.63) and private nonprofit facilities (0.68).59 policies, programs, and interventions that have been Greater readiness at private health facilities explains implemented in Uganda’s health sector over these why wealthier households increasingly seek health years have progressively benefited poor households. care from these facilities. In rural areas, the general However, it is important to note that benefit-incidence service readiness index score was 0.55, compared analysis does not account for the quality of care to 0.66 in urban areas,60 highlighting the need to provided at the health facilities. Service availability increase investments in the quality of health services and readiness at most of the public health facilities at public health facilities in rural areas. 59. MoH and WHO (2023) 60. MoH and WHO (2023) Uganda Economic Update Improving Public Spending on Health to Build Human Capital 39 Figure 27. Comparing total benefits with total needs: FY12/13–FY19/20 21.9 22.8 16.9 16.9 21.3 19.3 19.4 20.1 20.7 20.9 20.8 20.7 21.8 19.3 19.3 19.7 21.2 18.0 21.9 20.2 19.2 18.7 17.2 19.2 19.0 18.2 20.1 17.8 19.1 19.0 2012/13 2016/17 2019/20 2012/13 2016/17 2019/20 BENEFIT NEED Poorest Poorer Middle Richer Richest Source: World Bank staff computations based on UNHS 2012/13, 2016/17 and 2019/20 datasets Catastrophic health spending because they: (a) cannot afford to pay for the health services, (b) fear contracting a contagious disease 69. The share of households incurring if they go to a health facility, or (c) perceive the catastrophic health expenditures (CatHE) has quality of services at the health facility to be poor. declined over the last decade, yet 4.9 million A 2014 study in Liberia found that the percentage of people still faced CatHE in FY19/20. These trends households forgoing healthcare in was four times are consistent both at the 10 percent and 25 percent higher than the percentage of households incurring thresholds for CatHE. The share of households CatHE.62 Conducting a similar study on forgone health that incurred CatHE by spending 10 percent of their care in Uganda would help to: (a) evaluate how many total budget on health fell from 22.4 percent in households cannot or do not access health services FY05/06 to 11.9 percent in FY19/20, with the latter when in need, (b) understand the reasons for forgoing figure representing 1.07 million households and 4.9 health care, and (c) obtain a deeper understanding of million people.61 However, the declining incidence of the impact of OOP spending on health on the equity of CatHE does not necessarily imply greater financial access to health care and financial risk protection. protection for poor households. Instead, it may also imply that some poor households forgo health care 61. In 2019/20, there were 8,974,142 households in Uganda with a national average household size of 4.6 (UBOS, 2020), which implies that 11.9 percent is equivalent to 1.07 million households and abotu 4.9 million people. 62. Gabani and Guinness (2019) 40 Uganda Economic Update Improving Public Spending on Health to Build Human Capital Figure 28. Trends in the incidence of CatHE 22.4 21.4 13.8 14.2 11.9 5.9 5.4 2.6 2.7 2.2 Headcount - 10% Threshold Headcount - 25% Threshold 2005/06 2009/10 2012/13 2016/17 2019/20 Source: World Bank staff computation based on the UNHS 2019/20. Findings for 2005/06-2016/17 (Kwesiga et al 2015; 2020). 70. The incidence of CatHE has fallen both in for-profit providers; and therefore, the observed rural and urban areas, but it remains more prevalent disparities may reflect the distribution of service in rural areas. The incidence of CatHE also varies providers across the country. The disparities can also across sub-regions. The highest incidence of CatHE in be explained by differences in the cost of healthcare, 2019/20 was in the Teso sub-region, followed by West availability of pre-payment arrangements, and Nile and Toro, respectively. The sub-regions with the income levels. Nationwide, households most likely lowest incidence of CatHE in 2019/20 were Kigezi and to incur CatHE were those below the poverty line, Acholi. In Teso, the incidence of CatHE was 2.6 times the those with children under age five, and those headed incidence in Kigezi. Of Uganda’s 15 sub-regions, seven by people over age 60. In general, these results call had CatHE rates above the national average of 11.9 for policy makers to consider variations between percent in FY19/20. In some sub-regions, households rural and urban areas and across sub-regions when access a large share of their health care from private- designing health programs and interventions. Figure 29. Incidence of CatHE by rural and urban setting and sub-regions at the 10 percent threshold a. CatHE by Rural-Urban Setting b. CatHE by Sub- Region: 2019/20 25 23.5 21.7 20.3 20 16.4 19.5 14.9 15.3 13.2 13.3 12.3 12.4 12.9 Percentage 15 16.2 12.5 11.7 10.8 10.9 9.8 13.5 9.1 13 7.9 8.1 8.2 10 10.1 5 So li A i Ka uth ra a Bu ja ga El i a n An th Bu le Bu ga La o o es o ile so z d nd cho or W Tor Ka pal ng nd go ge o ke ko r Te 0 tN so No m ny Ki m a 2005/06 2009/10 2012/13 2016/17 2019/20 ga Bu Bu Rural Urban Source: World Bank staff computation based on the UNHS 2019/20. Findings for 2005/06-2016/17 (Kwesiga et al 2015; 2020). Uganda Economic Update Improving Public Spending on Health to Build Human Capital 41 Impoverishment due to health spending 72. OOP spending on health continues to 71. The incidence of households falling below impoverish a large share of rural households. Based the poverty line due to OOP spending on health has on the international poverty line, the share of rural declined over the years. Based on Uganda’s national households impoverished due to OOP spending on poverty line, the share of households that were health decreased from 5.6 percent in FY05/06 to 2.9 impoverished due to OOP spending on health fell percent in FY19/20, representing 181,374 households from 4.6 percent in FY05/06 to 2.3 percent in FY19/20. or 870,597 people. Over the same period, the share in When the international poverty line is used, these urban areas fell from 2.9 to 1.9 percent, representing shares are 5.2 percent and 2.6 percent, respectively. 51,677 households or 206,709 people.63 These findings In FY19/20, OOP spending on health pushed about imply that though impoverishment due to health 206,405 households (949,464 people) below the spending has reduced over the years in Uganda, national poverty line, while 233,328 households (1.1 there is urgent need to further enhance financial risk million people) fell below the international poverty protection, especially for rural households. line. Figure 30. Incidence of impoverishment due to OOP spending on health a. Impoverishment by Poverty Thresholds b. Impoverishment by Rural-Urban Setting 5.5 5.2 5.2 6.0 5.6 5 4.9 4.5 5.0 4.5 4.6 4.1 4 Percentage 4.0 4.0 Percentage 3.5 3.2 3.1 2.9 2.5 2.9 3.0 3 2.5 2.2 2.5 1.9 2.0 1.6 2.7 2 2.3 2.0 1.0 1.5 1 0.0 2005/06 2009/10 2012/13 2016/17 2019/20 2005/06 2009/10 2012/13 2016/17 2019/20 Rural Urban International Poverty Line Uganda Poverty Line Source: World Bank staff computation from UNHS 2019/20. Findings for 2005/06-2016/17 (Kwesiga et al 2015; 2020). OOP=out-of-pocket. 63. In 2019/20, there were 6,254,292 households in rural areas and 2,719,850 households in urban areas in Uganda. The average household sizes in rural and urban areas were 4.8 and 4.0, respectively (UBOS, 2020). 42 Uganda Economic Update Improving Public Spending on Health to Build Human Capital Based on Uganda’s national poverty line, the share of households that were impoverished due to OOP spending on health fell from 4.6 percent in FY05/06 to 2.3 percent in FY19/20. Uganda Economic Update Improving Public Spending on Health to Build Human Capital 43 RECOMMENDATIONS 44 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 4. RECOMMENDATIONS TO IMPROVE SPENDING TO GENERATE BETTER HEALTH OUTCOMES 72. The government and other stakeholders can implement a range of policy actions and interventions to address the challenges identified above. Six high-level recommendations and corresponding actions are summarized in Table 8. Strengthen the health- financing system through increased resource mobilization, risk-pooling, strategic purchasing of health services, and improvements in public Strengthen public- investment management private partnership and public financial for health through management performance agreements with private facilities. Increase investments in primary health care, health promotion, and disease prevention while optimizing investments in specialized healthcare. Improve the availability and productivity of the health workforce by streamlining recruitment and deployment Increase access to efficacious and affordable medicines and medical commodities Improve healthcare service quality and client engagement Uganda Economic Update Improving Public Spending on Health to Build Human Capital 45 Table 8. Summary of key recommendations and required actions Recommendation Required Action 1. Strengthen the a. Increase advocacy and dialogue on the inadequate government fund- health-financing ing to the health sector. system through b. Increase government spending on health and implement fiscal increased resource sustainability plans to: (i) mitigate the uncertainty around external mobilization, financing, and (ii) reduce the burden of OOP health financing spend- risk-pooling, stra- ing by households. tegic purchasing of health services, and c. Strengthen alignment of donor financing to government priorities by: improvements in (i) negotiating on-budget external support, (ii) operationalizing ac- public investment countability mechanisms like compacts on the pooling of donor funds management and and aid effectiveness between the government and its development public financial partners. management d. Strengthen strategic purchasing in the health sector by: (i) sustaining and scaling up the implementation of results-based financing mecha- nisms; and (ii) implementing the proposed national health insurance scheme.64 e. Ensure that the revised formula for allocating nonwage recurrent grants for primary healthcare facilities is fully implemented and continually monitored to enhance its positive impact on equity and efficiency. f. Ensure an equitable distribution of health workers, medicines, infra- structure, and medical equipment. g. Strengthen the public financial management system. 2. Strengthen pub- As part of the strategic-purchasing agenda: (i) update existing perfor- lic-private part- mance agreements with private nonprofit providers; (ii) establish perfor- nership for health mance agreements with new private nonprofit providers; and (iii) estab- through perfor- lish formal performance agreements with private for-profit providers. mance agree- ments with private facilities. 3. Increase invest- a. Prioritize spending on primary healthcare, health promotion and ments in primary disease prevention to reduce the risks and cost of curative care, and health care, health to decongest hospitals and other referral facilities. promotion, and b. Improve the functionality of existing health facilities by enhancing the disease prevention provision of staffing, medicines, and equipment rather than construct- while optimizing ing new facilities. investments in spe- cialized healthcare. c. Carefully roll out specialized health services through a constrained regional approach. 64. A national health insurance scheme could help to pool resources that households incur through OOP spending on health, enhance strategic purchasing, and promote transparency and accountability in health service provision. However, a wealth of evidence has shown that health insurance does not generate significant resources for health. Further, in most cases, there is inadequate health insurance coverage for the poor and vulnerable population. 46 Uganda Economic Update Improving Public Spending on Health to Build Human Capital 4. Improve the a. Enhance the training of health workers by (i) adopting compe- availability and tence-based training approaches; and (ii) streamlining in-service productivity of the training, mentorship, supervision, and accreditation of health workers, health workforce training institutions, and health facilities. by streamlining b. Enhance the use of performance contracts. recruitment and deployment c. Support local governments that have limited capacity to recruit staff and redistribute staff across sub-regions. d. Increase the personnel budget to reflect staffing needs. e. Implement the Auditor General’s recommendations for addressing discrepancies in staffing and payroll management. 5. Increase access a. Increase funding for essential medicines to reduce household spend- to efficacious and ing on health. affordable medi- b. Strengthen the procurement and distribution system for medicines cines and medical and patient management information systems, including the online commodities requisition system at the NMS, and provide sufficient time for local authorities to verify deliveries from the NMS. c. Integrate the procurement system at the NMS with the IFMIS at the Ministry of Finance. d. Conduct a study foregone healthcare in Uganda and estimate the overall impact of OOP spending on the equity of access to healthcare and financial risk protection. 6. Improve healthcare a. Scale up quality-improvement interventions at all health facilities. service quality and b. Strengthen client-centered grievance-redress systems, implement client engagement client-satisfaction surveys, and record patient-reported outcomes. Uganda Economic Update Improving Public Spending on Health to Build Human Capital 47 REFERENCES 48 Uganda Economic Update Improving Public Spending on Health to Build Human Capital REFERENCES Ahmed, T.; Roberton, T.; Vergeer, P.; Hansen, P.M.; Peters, M.A.; Ofosu, A.A.; Mwansambo, C.; Nzelu, C.; Wesseh, C.S.; Smart, F.; and Alfred, J.P. 2022. “Healthcare Utilization and Maternal and Child Mortality During the COVID-19 Pandemic in 18 Low-And Middle-Income Countries: An Interrupted Time-Series Analysis With Mathematical Modeling of Administrative Data.” PLoS Medicine, 19(8), p.e1004070. Alsan, M., Bloom, D.E. and Canning, D., 2006. The effect of population health on foreign direct investment inflows to low-and middle-income countries. World development, 34(4), pp.613-630. Bennett, S.; Quick, J.D.; and Velasquez G. 1997. “Public-Private Roles in the Pharmaceutical Sector: Implications for Equitable Access and Rational Drug Use.” Geneva: World Health Organization. Bloom, D. and Canning, D., 2003. Health as human capital and its impact on economic performance. The Geneva Papers on Risk and Insurance. Issues and Practice, 28(2), pp.304-315. BoU (Bank of Uganda). 2023. State of the Economy, December 2023. Kampala: BoU BoU (Bank of Uganda). 2024. Monetary Policy Statement, March 2024. Kampala: BoU Burt, J.F.; Ouma, J.; Lubyayi, L.; Amone, A.; Aol, L.; Sekikubo, M.; Nakimuli, A.; Nakabembe, E.; Mboizi, R.; Musoke, P.; and Kyohere, M. 2021. “Indirect Effects of COVID-19 on Maternal, Neonatal, Child, Sexual and Reproductive Health Services in Kampala, Uganda.” BMJ Global Health, 6(8), p.e006102. Chisholm D. and Evans D.B. 2010. “Improving Health System Efficiency as a Means Of Moving Towards Universal Coverage.” World Health Report 2010 Background Paper No. 28. Accessed from https://cdn.who.int/ media/docs/default-source/health-financing/technical-briefs-background-papers/whr-2010-background- paper-28.pdf on June 16, 2023. Di Giorgio, L.; Evans, D.K.; Lindelow, M.; Nguyen, S.N.; Svensson, J.; Wane, W.; Tärneberg, A.W. 2020. Analysis of clinical knowledge, absenteeism and availability of resources for maternal and child health: a cross-sectional quality of care study in 10 African countries. BMJ Global Health, 5(12), p.e003377. Fullman, N.; Yearwood, J.; Abay, S. M.; Abbafati, C.; Abd-Allah, F.; Abdela, J.; ... and Chang, H. Y. 2018. Measuring performance on the Healthcare Access and Quality Index for 195 countries and territories and selected subnational locations: a systematic analysis from the Global Burden of Disease Study 2016. The Lancet, 391(10136), 2236- 2271. Gabani, J., and Guinness, L. (2019). Households forgoing healthcare as a measure of financial risk protection: an application to Liberia. Int J Equity Health 18, 193. https://doi.org/10.1186/s12939-019-1095-y. Hafez, R., ed. 2020. “Measuring Health System Efficiency in Low- and Middle-Income Countries: A Resource Guide.” Joint Learning Network for Universal Health Coverage. He, L. and Li, N., 2020. The linkages between life expectancy and economic growth: some new evidence. Empirical Economics, 58(5), pp.2381-2402. IHME (Institute for Health Metrics and Evaluation). 2023. “Uganda. What causes the most death and disability combined?” https://www.healthdata.org/research-analysis/health-by-location/profiles/uganda IMF (International Monetary Fund). 2024. Fifth Review Under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria. IMF Country Report No. 24/77 Inspectorate of Government. 2021. “Extent and costs of corruption in the health sector in Uganda.” Kampala: Inspectorate of Government. Kwesiga, B.; Zikusooka, C.M. and Ataguba, J.E., 2015. “Assessing catastrophic and impoverishing effects of health care payments in Uganda.” BMC health services research, 15(1). https://doi.org/10.1186/s12913-015- 0682-x Uganda Economic Update Improving Public Spending on Health to Build Human Capital 49 Kwesiga, B.; Aliti, T.; Nabukhonzo, P.; Najuko, S.; Byawaka, P.; Hsu, J.; Ataguba, J.E.; and Kabaniha, G., 2020. What has been the progress in addressing financial risk in Uganda? Analysis of catastrophe and impoverishment due to health payments. BMC health services research, 20, pp.1-8. https://doi.org/10.1186/ s12913-020-05500-2 McGovern, M.E., Krishna, A., Aguayo, V.M. and Subramanian, S.V., 2017. A review of the evidence linking child stunting to economic outcomes. International journal of epidemiology, 46(4), pp.1171-1191. McIntyre, D., Meheus, F., and Røttingen, J.A., 2017. “What Level of Domestic Government Health Expenditure Should we Aspire to for Universal Health Coverage?” Health Economics, Policy and Law, 12(2), pp.125-137. MoFPED (Ministry of Finance, Planning and Economic Development). 2022. Quarterly Debt Statistical Bulletin and Public Debt Portfolio Analysis. Issue No. 1. Kampala: MoFPED MoFPED (Ministry of Finance, Planning and Economic Development). 2023a. National Budget Framework Paper for FY24/25–FY28/29. Kampala: MoFPED MoFPED (Ministry of Finance, Planning and Economic Development). 2023b. Quarterly Debt Statistical Bulletin and Public Debt Portfolio Analysis. Issue No. 35. Kampala: MoFPED MoFPED. (Ministry of Finance, Planning and Economic Development). 2023c. The Second Budget Call Circular on Finalization of Budget Estimates for FY23/24. Kampala: MoFPED MoFPED (Ministry of Finance, Planning and Economic Development). 2024. Half Year Macroeconomic and Fiscal Performance Report FY23/24. Kampala: MoFPED MoH (Ministry of Health). 2019a. “Annual Health Sector Performance Report 2018/19.” Kampala: Ministry of Health. MoH (Ministry of Health). 2019b. “Service Availability and Readiness Assessment and Data Quality Review.” Kampala: Ministry of Health. MoH (Ministry of Health). 2020a. “National Health Accounts 2016–2019.” Kampala: Ministry of Health. MoH (Ministry of Health). 2020b. “Human Resources for Health Audit Report 2019/2020.” Kampala: Ministry of Health. MoH (Ministry of Health). 2021a. “Health Resources for Health Strategic Plan 2020–2030.” Kampala: Ministry of Health. MoH (Ministry of Health). 2021b. “Annual Health Sector Performance Report 2020/21.” Kampala: Ministry of Health. MoH (Ministry of Health). 2023. “Draft National Health Accounts 2019/20 and 2020/21.” Kampala: Ministry of Health. MoH (Ministry of Health) and WHO (World Health Organization). 2023. “Harmonized Health Facility Assessment in Uganda, 2022.” Kampala: Ministry of Health. NPA (National Planning Authority). 2020. “Third National Development Plan (NDP III) 2020/21- 2024/25.” Kampala: National Planning Authority. OAG (Office of the Auditor General). 2023. Annual Report of the Auditor General to Parliament for the Financial Year Ended 30th June 2023. Kampala: OAG OECD (Organization for Economic Co-operation and Development). 2010. Rapid Improvement Followed by Strong Performance. In Strong Performers and Successful Reformers in Education: Lessons from PISA for the United States. https://www.oecd.org/countries/singapore/46581101.pdf UBOS (Uganda Bureau of Statistics). 2016. Uganda National Household Survey Report 2016. Kampala: Uganda 50 Uganda Economic Update Improving Public Spending on Health to Build Human Capital Bureau of Statistics. UBOS (Uganda Bureau of Statistics). 2017. Demographic and Health Survey 2017. Kampala: Uganda Bureau of Statistics. UBOS (Uganda Bureau of Statistics). 2020. Uganda National Household Survey Report 2020. Kampala: Uganda Bureau of Statistics. UBOS (Uganda Bureau of Statistics). 2023. Uganda Demographic and Health Survey 2022: Key Findings. Kampala: Uganda Bureau of Statistics. Vujicic, M., Ohiri, K., and Sparkes, S. 2009. “Working in health: financing and managing the public sector health workforce.” Washington, DC: World Bank. Wane, W. and Martin, G. 2013. “Education and health services in Uganda: Data for Results and Accountability.” Washington, DC: World Bank. WHO (World Health Organization). 2004. “Making Pregnancy Safer: The Critical Role of the Skilled Attendant.” A Joint Statement by WHO, ICM, and FIGO. Geneva: WHO. WHO (World Health Organization). 2013. “A Universal Truth: No Health Without a Workforce.” Geneva: WHO. WHO (World Health Organization). 2016. “Global strategy on human resources for health: workforce 2030.” Geneva: WHO. WHO (World Health Organization). 2022. “Cross programmatic efficiency assessment for selected health programs in Uganda: 2015-2020.” Geneva: WHO. Wirtz, V.J., Hogerzeil, H.V., Gray, A.L., Bigdeli, M., de Joncheere, C.P., Ewen, M.A., Gyansa-Lutterodt, M., Jing, S., Luiza, V.L., Mbindyo, R.M., and Möller, H. 2016. Essential medicines for universal health coverage. The Lancet, 389(10067), pp.403-476. World Bank. 2016. “Fiscal Space for Health in Malawi and Revenue Potential of Innovative Financing.” Washington, DC: World Bank. World Bank. 2018. “Zambia Health Sector Public Expenditure Review.” Washington, DC: World Bank. World Bank. 2019a. “Kenya Health Service Delivery Indicator Survey 2018 Report.” Washington DC: World Bank. World Bank. 2019b. “Uganda Poverty Monitoring and Analysis. Uganda Poverty Update Note.” Washington, DC: World Bank. World Bank. 2019c. “Malawi Harmonized Health Facility Assessment: 2018-2019 Main Report.” Washington, DC: World Bank World Bank. 2020. “Malawi Public Expenditure Review 2020: Strengthening Expenditure for Human Capital.” Washington, DC: World Bank. World Bank. 2022a. “Ghana Health Public Expenditure Review 2022.” Washington, DC: World Bank. World Bank. 2022b. “Uganda Intergovernmental Fiscal Transfer Program. Impact and Lessons Learned Report.” Kampala: World Bank. World Bank. 2022c. World Development Indicators Database. Accessed April 2022. https://databank. worldbank.org/source/world-development-indicators World Bank. 2023. Human Capital Country Brief: Uganda. Accessed online from: https://thedocs.worldbank. org/en/doc/64e578cbeaa522631f08f0cafba8960e-0140062023/related/HCI-AM23-UGA.pdf World Bank. 2024. “Uganda Public Expenditure Review 2022-23: Module 3B.” Kampala: World Bank. Uganda Economic Update Improving Public Spending on Health to Build Human Capital 51 NOTES 52 Uganda Economic Update Improving Public Spending on Health to Build Human Capital Uganda Economic Update Improving Public Spending on Health to Build Human Capital 53 54 Uganda Economic Update Improving Public Spending on Health to Build Human Capital