UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS i © 2023 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. 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Photo credits: Derrick Ssenyonyi, 2022 – 2023 and Rachel Mabala (2021-2022) Photo credit for the cover picture: Installation of solar water pumping technology for microscale irrigation for smallholder farmers, (MAAIF – DAIMWAP, 2022) 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 PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 iii INTERGOVERNMENTAL FISCAL TRANSFERS TABLE OF CONTENTS ACKNOWLEDGEMENTS .................................................................................................................................... xi EXECUTIVE SUMMARY .................................................................................................................................... xiii 1. INTRODUCTION .................................................................................................................................. 2 1.1. Background........................................................................................................................................................... 2 1.2 Approach and Methodology .......................................................................................................................... 2 2. UGANDA’S INTERGOVERNMENTAL FISCAL TRANSFER SYSTEM ....................................................... 5 2.1 EVOLUTION OF IGFTR REFORM OBJECTIVES AND STRATEGIES ............................................................. 5 2.2 LOCAL GOVERNMENT INSTITUTIONS AND ARCHTECTURE ................................................................... 10 2.3 PERFORMANCE OF THE IGFTR PROGRAM AGAINST OBJECTIVES ......................................................... 13 2.3.1 Grant Composition and consolidation ................................................................................................... 13 2.3.2 Adequacy of Transfers ................................................................................................................................. 14 2.3.3 Equity of Transfers ....................................................................................................................................... 18 2.3.4 Discretion and Allocative Efficiency ....................................................................................................... 21 2.3.5 Transparency, Reliability and Effectiveness ........................................................................................ 26 2.4 OTHER ISSUES PERTINENT TO THE IGFT REFORM .................................................................................. 29 2.4.1 Non-IGFT Funding of Local Government services ............................................................................... 29 2.4.2 LG Own Source Revenues ........................................................................................................................... 34 2.4.3 Data and Information Management Systems for IGFTR .................................................................. 37 2.4.4 Medium-Term Planning for Financing Service Delivery ................................................................... 44 2.4.5 Reform management and Ownership .................................................................................................... 52 2.4.6 Assessing the Foundation of a Sustanable IGFTR .............................................................................. 53 3. CONCLUSIONS AND RECOMMENDATIONS ...................................................................................... 58 3.1 SUMMARY OF IGFT REFORM ACHIEVEMENTS AND CHALLENGES ....................................................... 58 3.2 RECOMMENDATIONS AND WAY FORWARD ............................................................................................ 60 3.4 UGIFT SPECIFIC ISSUES AND RECOMMENDATIONS .............................................................................. 64 REFERENCES ........................................................................................................................................ 66 ANNEXES ............................................................................................................................................. 71 ANNEX 1 INSTITUTIONAL ARRANGEMENTS FOR IGFTRP ..........................................................................71 ANNEX 2: MTP 2017 AND 2021 ...................................................................................................................... 74 ANNEX 3: IGFT TRENDS (ADEQUACY) ......................................................................................................... 78 ANNEX 4 IGFT TRENDS (EQUITY) ................................................................................................................. 81 ANNEX 5: UNFUNDED/UNDERFUNDED FUNCTIONS IN LGS ................................................................... 87 Micro scale irrigation demonstration site funded by the UgIFT program in Mukono, Brian Amanya, 2022 iv UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 v INTERGOVERNMENTAL FISCAL TRANSFERS LIST OF TABLES LIST OF FIGURES Table 1: Main Findings and Recommendations ............................................................................................... xviii Figure 1: Local Government and Administrative Units: Layers, Number and Size (2022) ........................... 12 Table 2: Sampling of Local Governments for Fieldwork ..................................................................................... 3 Figure 2: IGFT Allocations By Economic Classification Fy2015/19-22/23 .......................................................... 15 Table 3: Summary of PER 2013 Recommendations .............................................................................................. 6 Figure 3: Real Per Capita Transfers (Share of Budget and Domestic Revenue) ............................................ 16 Table 4: Number of LG entities 2015–2022 ........................................................................................................... 11 Figure 4: Health Coverage Rates Compared to Allocations of Planned Hciii Upgrades ............................. 20 Table 5: Overview of the Consolidated Grant Framework ............................................................................... 13 Figure 5: Health Coverage Rates Compared to Allocations of Completted Hciii Upgrades ..................... 20 Table 6: Changes to the Primary and Secondary Education Capitation Grants, 2015/19–2022/23 Figure 6: Local Government Autonomy is Positively Related Government Effectiveness in Europe ........ 21 (nominal UGX) ................................................................................................................................................................ 17 Figure 7: Discretionary Development Equalization Grant (DDEG) Allocations .............................................. 23 Table 7: Equity of Fiscal Transfers by Economic Classification (FYs 2018/19-2022/23) ........................... 18 Figure 8: Share of Release of LG Grants Versus Approved Allocations, FY2018/19 to FY2021/22 ............ 26 Table 8: MTP Planned Wage Grant Increments for Least-Staffed LGs, FY 2021/22 .................................. 19 Figure 9: IGFTRP and UGIFT Results Chain .................................................................................................................. 27 Table 9: DDEG Allocations Disaggregated by Window FYs 2015/16–2022/23 .............................................. 23 Figure 10: Share of Sector Subventions Spending on Local Government Functions in Total Sector Spending ... 29 Table 10: Equity of the DDEG FYs 2019/20–2022/23 ............................................................................................ 24 Figure 11: Additionality of OGT and External Funding to IGFTR ................................................................................... 31 Table 11: Discretionary Development Equalization Grant per capita FY2016/17–FY2021/22 ................ 25 Figure 12: Sectoral Allocation of OGT and External Funding ............................................................................................................ 31 Table 12: Estimated Local Government Subventions by Sector (2015–19) UGX Billion ........................... 30 Figure 13: Additionality of OGT and External Funding at Individual LGs during FY2021/22 ....................... 32 Table 13: External Finance and Other Government Transfers in selected LG budgets, nominal Figure 14: Real Value of Local Government Own Source Revenue – FY1996/97 to FY2018/19 ................. 34 UGX per capita .............................................................................................................................................................. 32 Figure 15: Total MTP targets and Disbursements FY202017/18 and FY2021/22 .............................................. 46 Table 14: OSR in Fieldwork LGs and National Average 2018–2022 ............................................................... 35 Figure 16: Disaggregated MTP Targets and Disbursement to Local Governments (Ugx Billions) ......... 47 Table 15: Performance of Local Revenue against GDP and Local Governments Budgets .................... 36 Figure 17: IGFTRS – Oversight and Implementation Structures ........................................................................... 52 Table 16: Uganda’s Own Source Revenue Against International Comparators ...................................... 36 Figure 18: Simplified Intervention Logic for IGFTRP ............................................................................................... 60 Table 17: Data and Information Management Systems Underpinning IGFTR .......................................... 38 Table 18: Sample Projections of IPFs in FY2021/22 ............................................................................................ 49 Table 19: Trend of Division of Nationally Raised Revenue for South Africa 2019/20–2025/26 ........... 50 Table 20: Summary of main recommendations .................................................................................................. 61 Table 21: Summary of UgIFT Specific Recommendations ................................................................................ 65 Annex Table 3.1: Trends in Individual LG Grants (FY 2019/20-2022/23) ........................................................ 79 Annex Table 3.2: Compliance with the IGFTRP MTP Targets ......................................................................... 80 vi UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 vii INTERGOVERNMENTAL FISCAL TRANSFERS LIST OF BOXES ABBREVIATIONS AND ACRONOMS Box 1: Development Partners Support for Reforms ............................................................................................. 9 BoQs Bill of Quantities Box 2: The Uganda Local Government Institutional Architecture ................................................................ 12 DDEG Discretionary Development Equalization Grant Box 3: Summary of Key Issues regarding Equity of Fiscal Transfers ............................................................ 17 DLI Disbursement Linked Indicator Box 4: Summary of Key Issues regarding Equity of Fiscal Transfers ............................................................ 20 EMIS Education Management Information System Box 5: The Parish Development Model (PDM) ..................................................................................................... 22 FDSC Fiscal Decentralization Steering Committee Box 6: Summary of Key Issues Related to Discretion of IGFTS ...................................................................... 25 FDTC Fiscal Decentralization Technical Committee Box 7: Supplementary Budgets ................................................................................................................................ 27 FINMAP Financial Management and Accountability Program Box 8: Key Issues regarding IGFT Transparency, Reliability and Effectiveness ........................................ 29 FY Financial Year Box 9: Summary of Issues related to non-IGFT funding of LGs ...................................................................... 33 GoU Government of Uganda Box 10: Summary of Issues specific to external financing of LGs ................................................................. 33 IGFTR Intergovernmental Fiscal Transfer Reforms Box 11: Key Issues Regarding LG Own Source Revenue .................................................................................... 37 IGFTRP Intergovernmental Fiscal Transfer Reforms Program Box 12: Assumptions and Commitments for IGFT Medium-Term Plan FY2017/18–FY2021/22 ................ 44 IPF Indicative Planning Figure Box 13: Assumptions and Commitments for IGFT Medium-Term Plan FY2017/18–FY2021/22 ............... 45 LG Local Government Box 14: Select Regional Practices for Division of Nationally Raised Revenue ......................................... 50 LGFC Local Government Finance Commission Box 15: Summary of Key Issues for consideration in improving budgeting and planning for IGFTR ......... 51 LGPA Local Government Performance Assessment Box 16: Key Issues regarding reform Management ........................................................................................... 53 LGMSDP Local Government Management Service Delivery Project Box 17: Bridging PFM Reforms with Fiscal Decentralization ......................................................................... 54 LGPA Local Government Performance Assessment LGPITF Local Government Performance Improvement Task Force LRDP Luwero-Rwenzori Development Program MDA Ministry, Department or Agency MoES Ministry of Education and Sports MoFPED Ministry of Finance, Planning, and Economic Development MoES Ministry of Education and Sports MoH Ministry of Health MoLG Ministry of Local Government MoPS Ministry of Public Service viii UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 ix INTERGOVERNMENTAL FISCAL TRANSFERS ACKNOWLEDGEMENTS The Uganda Public Expenditure Review 2022–23 was undertaken as a programmatic, analytical, and advisory task by a joint team of the Government of Uganda and World Bank staff and consultants. At MoWE Ministry of Water and Environment the World Bank, the overall task of drafting and synthesizing the report was led by Rachel K. Sebudde (Senior Economist, EA1M1), while the Government was led by Charles Byaruhanga (Advisor, Budget). MTEF Medium Term Expenditure Framework MTP Medium Term Plan Specifically for the module pertaining to this report (Module II (B), the team included Rachel K Sebudde (Senior Economist), Barbara K. Magezi Ndamira and Timothy Williamson (Senior Governance NWR Non-Wage Recurrent Specialist); Per Tidemand of DEGE Consult (Lead Consultant); and Florence Kuteesa (Consultant). OPAMS Online Performance Assessment Management System The analytical work was strengthened by comments and suggestions from peer reviewers, including Timothy Williams (Senior Governance and Public Sector Specialist); and Joao Leonel Antunes Morgado OTIMS Online Transfer Information Management System (Public Sector Specialist). OPM Office of the Prime Minister OTIMS Online Transfer Information Management System At the Government, great collaboration and leadership was provided by Mr Ramathan Ggoobi, the Permanent Secretary and Secretary to Treasury and Mr Ishmael Magona (Ag Director Budget), and PDM Parish Development Model support from the core team included Mr Charles Byaruhanga (Advisor Budget), John Muheirwoha, Sam, PEF Program Expenditure Framework Opio, Collins Kityo, Antoine Pierre Michel Lacroix, Richard Ojilong, Paul Kyazze, Francis Muhumuza, and Mohammed Kabaale. PHC Primary Health Care PIP Performance Improvement Plan The team appreciates the overall guidance from Vivek Suri (Practice Manager, EAEM1), Philip Schuler (Lead economists/Ag. Practice Manager), Abha Prasad (Practice Manager AEEM1); Marek Hanusch PNFP Private Not-For Profit (Program Leader, AFCE2), Rosemary Mukami (Country Manager, AFMUG), and Keith Hansen (Country POM Program Operations Manual Director, AFCE2). The team would like to thank Esther Ampumuza and Pearl Namanya for providing logistical and administrative support throughout the process. We are also grateful to Virginia Larby PPDAA Public Procurement and Disposal of Assets Authority for excellent editorial support. PRD Peace Recovery and Development Plan RBF Results Based Financing We are thankful for the great partnership we enjoyed with the Ministry of Finance, Planning and Economic Development and the access given to most of the data used in this report. The preliminary SESIL Strengthening Education Systems for Improved Learning findings from this report were shared by the National Treasury and other line ministries. SPA School Performance Assessment TA Technical Assistance UgIFT Uganda Intergovernmental Fiscal Transfer Program UGX Uganda Shillings UPE Universal Primary Education UPOLET Universal Post O Level Education and Training URMCHIP Uganda Reproductive Maternal and Child health Improvement Project USE Universal Secondary Education USMID Uganda Support to Municipal Infrastructure Project WB World Bank x UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 xi INTERGOVERNMENTAL FISCAL TRANSFERS EXECUTIVE SUMMARY Since the early 1990s, the Government of Uganda (GoU) has pursued decentralisation as a key government policy for improved local service delivery. This has included various initiatives for the improvement of local government financing arrangements, such as the Fiscal Decentralisation Strategy (2001) and, more recently, the Intergovernmental Fiscal Transfers Reform Program IGFTRP of 2017. The latter was updated in 2021 and is being implemented currently with a medium-term expenditure outlook up to and including FY 2023/24. This report presents a review of the IGFTRP and its performance since 2015, as part of a broader Public Expenditure Review (PER) that aimed to explore avenues for improving efficiency effectiveness in cross cutting areas of service delivery. The report is based on extensive documentary review, analysis of available data on LG finances, fieldwork in selected LGs and consultations with national ministries, departments, and agencies (MDAs) involved in the management of the IGFTRP. The IGFTRP has gradually expanded its scope and is currently (since 2021) focused on four main objectives: 1. Improve the adequacy, equity and increase discretion in the financing of local service delivery. 2. Improve central government performance in the oversight, management, and delivery of LG services. 3. Improve LG performance in the management of local service delivery. 4. Improve the effectiveness and efficiency of service delivery by frontline providers. The IGFTRP has made substantive progress within most of these reform objectives. 1. Adequacy, equity, and discretion in the financing of local service delivery • Adequacy: The fiscal transfers increased by 33 percent in real per capita terms from UGX 80,552 in FY2015/16 to UGX 106,937 in FY2022/23. This overall improvement reflects an effort by the Government of Uganda to improve the adequacy of funding to key social sectors, urban infrastructure, and refugee-hosting local governments with the support of donor funding (EU budget support, and World Bank UgIFT and USMID programmes). However, some devolved sectors and functions have so far not been addressed through the plans for financing. Furthermore, in FY2022/23, this upward momentum was reversed due to the tightening of the fiscal space following the Covid-19 pandemic, debt-servicing demands, selected salary increases and the prioritisation of the Parish Development Model (PDM), which commenced in that financial year, with an allocation of slightly more than UGX 1 trillion. Without considering the exceptional FY2022/23, the increased level of funding through IGFT followed the agreed medium-term plan (MTP), which is supported by the World Bank funded Uganda Intergovernmental Fiscal Transfers (UgIFT) Program for Results. The UgIFT program focuses on education, water, microscale irrigation agriculture, and health throughout the reform period up to FY2021/22. 1 Interviews were undertaken in a total of 16 LGs: eight higher-level local governments and eight lower-level local governments were selected to represent geographical variation (northern, eastern, western, and central parts of Uganda) and type of local government (district councils, city councils, municipal councils, sub-counties, town councils, city and municipal divisions). 2 After adjusting for inflation and population growth 3 These devolved functions include: (i) social /community development; (ii) administration including LG planning functions and statutory bodies like district service commissions; (iii) work and transport; (iv) natural resource management; (v) trade and commerce; and (vi) pre-primary education. xii UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 xiii INTERGOVERNMENTAL FISCAL TRANSFERS Equity: This has been pursued through discussion for sector grants, which are still heavily earmarked 3. Local Government performance in the service delivery. These recommended approaches and agreement on formula-based grants for all – approximately 2/3 of sector grants are earmarked. management of local service delivery and actions include: sectors, managed through a solid system for The latter was successfully implemented up to • Since FY2017/18, the annual Local Government grant simulations (Online Transfer Information FY2020/21 with external support (i.e. European Union Management of Service Delivery Performance Management System - OTIMS), developed with budget support and World Bank Uganda Support to • Roll out a system for performance assessments Assessments (LGMSD PA), supported through the ODI assistance. The formula-based allocation Municipalities Institutional Development (USMID). at facility and lower-level LG levels. The UgIFT program, have been implemented through of Non-Wage Recurrent (NWR) grants has made However, DDEG grant allocations were reduced responsible GoU sector agencies and MoLG have a strengthened, comprehensive, objective, and them more equitable. In contract, whilst formulas in FY2021/22 and FY2022/23 due to a reduction designed and piloted performance assessments. timely system for all higher-level LGs (districts, for equitable allocation of development grants in the USMID allocation and domestic funding The roll-out of the LLG performance assessment cities, and municipalities). have also been developed, these grants are only in response to the shrinking fiscal space and a for FY2022/23 commenced in August 2022, while partially allocated in accordance with formula shift in government priorities aimed at improving • The LGMSD PA are linked to fiscal incentives, and implementation of the health sector Results (and performance) because of (a) grants are still household incomes through the new model (PDM). the results from the assessments influence the Based Finance (RBF) mainstreaming strategy and not consolidated (e.g., Discretionary Development The PDM more than tripled the total DDEG budget size of DDEG and formula-based sector grants a broader School Performance Assessment (SPA) Equalization grant (DDEG) is allocated by formula (domestically and externally financed), which (education, health, water/environment, and pilot is in process. but only within and not across the specific windows) amounted to about UGX 0.3 trillion. microscale irrigation). and (b) usage of alternative concepts of “equity” • The Office of the Prime Minister has increasingly 2. Central government performance in the • Non-IGFT financing to LGs service delivery. based on equal allocations by administrative taken charge of coordinating implementation oversight, management, and delivery of LG service External financing will continue to be a critical units. The reforms have only lately sought more of the LGMSD PA while the Ministry of Local systematically to address inequitable allocations • The IGFTRP has strengthened the way MDAs relate source of funding for sustained and improved Government coordinates related capacity of wages with emphasis on allocation of additional to LGs through improved oversight and technical service delivery at local governments. It building efforts. staff to underserved schools, health facilities, and support. manifests as direct donor support to LGs and LGs with critical staff shortages. For this purpose, • The results of the annual LGMSD PA have through Other Government Transfers from • Externally funded projects supporting the IGFTRP in the FY2021/22 budget, GoU strategically allocated improved gradually and consistently since Ministries to the LG annual budget estimates. have helped to improve systems, processes, an increment of UGX 74.2 billion to understaffed 2017/18, although still with substantive room However, the potential sources of external and capacity for improved service delivery LGs but fell short of additional planned increments for further improvements. The improvements financing have not been fully exploited nor across all four priority service delivery sectors. in FY2022/23. Effective employment of additional are driven by the internal efforts of LGs as they effectively coordinated to achieve the desired For example, under the UgIFT program, 43 of staff in LGs was furthermore constrained by (i) late seek fiscal incentives and recognition as well as IGFT reform objectives. In addition, the reform the 50 disbursement-linked indicators (DLIs) allocations through supplementary budgets, (ii) the Performance Improvement Plan (PIP) support to use local government systems for better related to implementing actions within a Local weaknesses in local and central government human from MOLG and MDAs. coordination of EF is still in infancy. To enhance Service Delivery Improvement Matrix (SDIM), resource management, and (iii) wage increases of coordination, use and impact of external had been achieved by end of FY 2022/23. The • Specific areas for improvement of IGFT science staff. financing on allocative efficiency and enhance seven outstanding actions related mostly include revenue mobilization, human resource service delivery, central government must Discretion: Since 2001, the IGFT system in Uganda to environmental and social safeguarding management and development, as well as support LGs to adopt the practices within the aid has been recognised as being overly conditional, requirements and the full transition of staff and monitoring and supervision of service delivery. management cycle, as articulated in the Treasury which limited the ability of LGs to allocate resources facilities (schools, health, and water) in refugee • The fiscal incentives could be strengthened Instructions, in a phased manner. The Ministry of in accordance with local needs and priorities leading hosting LGs to mainstream GoU systems. It is if a larger part of the education and health Finance, Planning and Economic Development to allocative inefficiencies. The IGFTRP has sought realised that more effort is required to address development IGFT was allocated on a formula (MFPED), working with the Ministry of Local to reduce earmarking and enhance discretion of gaps that remain in performing their functions basis rather than being earmarked for Health Government (MOLG) and all relevant ministries IGFTs, partly by reducing the earmarking of NWR – particularly in the areas of performance Centre IIIs (HCIIIs) and secondary seed schools. should commit to undertake the following: and the formula-based components of development improvement support to LGs, monitoring of transfers, and by increased funding for the DDEG. service delivery and construction projects, as well The former succeeded in part but is constrained by as provision of technical support. 4. Effectiveness and Efficiency of Service Delivery o Harmonize modalities for donor cooperation to the limited application of formula-based allocations promote consistency in the use of government Several issues still constraining efficiency and effectiveness improvements in the IGFT system in systems within LGs and between CG and LGs, delivering services are both crosscutting IGFT in including access to quality or reliable data on nature and sectoral. This supports the overarching donor support, and practices for integration of PER theme of raising efficiency to create fiscal donor support into IGFTs. This can be informed space for growth and service delivery. In the by examining the lessons learnt from previous context of a constrained fiscal framework, the and on-going reforms as well as regional or need for making the most efficient use of fiscal international good practices and prerequisites. resources allocated to LGs is crucial for improved 4 The reduction of USMID allocations from the World Bank was a response to the failure of government to re-vote funds back to MCs, that had been swept back to the Treasury as part of the TSA implementation. xiv UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 xv INTERGOVERNMENTAL FISCAL TRANSFERS o Institute a capacity building program for CG • Sustainability of medium-term plan for financing o GoU should consider adoption of a more increase the pool of funding applicable for fiscal and LG policy makers and technocrats aimed at service delivery. Over the last three or four fiscal binding fiscal policy for sustained equitable incentives through the LGPAs, and hence further enhancing their understanding and competence years, the annual budget estimates have always shares and allocations of national revenues for raise effectiveness. for integration of donor funding into budgetary been aligned with the agreed medium-term plan intergovernmental transfers. • Enhancing equity in allocation of resources decision-making, focusing on alignment of donor for increasing budget allocations to the transfers Moving forward, the Government must promote through prioritisation of formula-based grants funding to LG priority objectives and needs and but achieved largely through supplementary harmonization of expectations of stakeholders as financing of relatively underfunded LGs and accountability. expenditures. The persistent in-year adjustments within fiscal decentralization reforms, and pursue facilities, is likely to achieve greater efficiency of the IGFT estimates demonstrate challenges in o Formulate a technical assistance program to clear principles and practices for the IGFT reforms in gains than allocation of resources to relatively translation of the prior commitment into annual mobilize external resources to support design a transparent, consistent and coordinated manner. well funded LGs; this relates to both the sector and medium-term expenditures. To support the of manuals or guidelines; sensitize and build Accordingly, GoU should undertake a deliberate specific development grants as well as DDEG. commitment to reliable and predictable funding capacity of LGs to adopt the required reform effort to re-examine the implementation status of of enhanced service delivery, government has • Sector specific reform proposals. As has also been within an AID Management Framework and the fiscal decentralization policy to capture emerging to pursue realistic baseline (annual budget) highlighted under Module III of this PER, issues ensure donor support. These can be effectively good practices, challenges and lessons learnt. and forward estimates (outer years of the that require more attention at the sector level integrated in IGFT, where deemed appropriate. The aim of this would be to reflect the principles, MTEF) within a fiscal consolidation framework include: objectives and outcomes of fiscal decentralization supported by refinement of the medium-term • Affordable sector policy standard settings and prioritize the desired outcomes in the short, • Functionality of Data and Information planning and budgeting. In the short run, the / norms for local service delivery that are medium, and long term. The phasing would then Management Systems . Government has study recommends the following actions: politically endorsed at the highest level and inform the scope and sequencing of the critical IGFT established several data and information reform components, including the IT which should be subsequently can serve as a basis for enhancing management systems that are critical in the redesigned to support the realization of the desired adequacy of IGFTs to LGs for the delivery of these o Re-formulate the policy priority commitment, implementation of the IGFT reform agenda outcomes of the IGFTR agenda. standards. with effective LG engagement, to guide the including functions related to setting service construction of well prioritized, sequenced, and • Optimisation of sector policy priorities – delivery baselines, resource allocation through affordable spending programs for on-going and the current relative emphasis on secondary IPFs, formulation of service delivery targets, Crosscutting IGFT reform initiatives new constructions; development of realistic education at the expense of primary education tracking budget execution and accounting for expenditure baselines for the grants and setting • Strengthening political ownership of the reforms, is a case that requires policy review. Given fiscal progress towards enhanced service delivery. The of reliable fiscal transfer estimates at all levels reform coordination, policy consistency, and resource constraints, this may also require key systems include Program-Based Budgeting – aggregates, sectors, grants and LGs – that can implementation of MTP including the credibility rethinking public private partnerships. System (PBS), Online Transfer Information System be sustained within the period of the MTEF. of the medium-term expenditure framework (OTIMS) and Online Performance Assessment Several issue-specific challenges related to the (MTEF) planning. Management System (OPAMS), and sector data o Promote allocative efficiency driven by agreed progress of the IGFTRP were identified. Some of these and information management systems at both expenditure needs aligned with enhanced service • Enhancing discretionary funding for LGs issues relate to specific IGFTRP objectives, while Central and Local Government levels. A broad delivery targets; and underpinned by robust combined with strengthened performance others relate to the implementation of previous PER assessment of the systems noted that their examination or verification of fiscal transfer framework, including stronger fiscal incentives. recommendations or other aspects of LG finance. relevance and functionality is varied, with some proposals (provided as part of the indicative Globally, there is a proven relationship between The table below summarises the key findings and at the verge of being dysfunctional, complex, planning figures IPF), especially wage bill. LG autonomy and allocative efficiency that is yet provides recommendations. and costly hence not sustainable. GoU has not to be fully realised in Uganda. o Establishment of a systematic assessment of the readily provided a clear strategic direction for • Reallocating some of the most conditional annual fiscal transfer performance to identify the functionality, without which, the systems development grants towards the formula- issues that need to be addressed to improve may gradually lose their relevance, and /or based development grants or DDEG. This will the credibility of the IPFs over the rolling MTEF. become difficult to manage, and eventually be Once baseline IPFs are decided upon, they can be abandoned. Accordingly, GoU should undertake executed effectively (with minimum deviation) a more in-depth and systematic assessment of to form the baseline for the 2nd and 3rd year of the systems within the current evolving policy the MTEF. This would ensure that previous plans and strategic environment to secure evidence are still relevant at the time of implementation on salient issues and guidance on how to in the future. enhance utility, sustainability, and interface of the systems. xvi UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 xvii INTERGOVERNMENTAL FISCAL TRANSFERS Table 1: Main Findings and Recommendations Issue Main Findings Recommendations Issue Main Findings Recommendations 4. Discretion Discretion of IGFTs is very limited and has Prioritise enhancement of DDEG. 1. Grant Since 2015, the reforms have sought to Review details of grant earmarking and allocative deteriorated, despite reform intentions. Prioritize discretion within consolidation consolidate grants into a maximum of and enhance dialogue on grant efficiency Tight earmarking of funding undermines formula-based sector development three grants – one development grant, one consolidation. This would entail: (i) the potential for LG allocative efficiency grants. NWR grant, and one wage grant. This has creating a more uniform approach and leads to severe underfunding of a not been fully achieved as development to DDEG, with minimal “windows” range of mandatory LG functions, which are grants have several specific “windows” with as well as emphasis on one non-funded by conditional grants. internal grant earmarking, conditionalities formula-based development grant and implementation arrangements. for each sector. 5. IGFT IGFT transfers are executed in a transparent Strengthen MTEF planning and transparency manner and generally in accordance with execution to ensure all agreed 2. Local Additional LG structures are contentiously Introduce moratorium or strict and execution budgets. targets under IGFTRP (UgIFT) MTP government created, leading to local challenges of guidelines for creation of are achieved and that the need proliferation funding new service delivery facilities new administrative structures However, a major concern from LGs has for supplementary budgets is (e.g., HC IIIs and secondary schools), (districts, sub-counties, town been the late supplementary budgets that minimised. administrative buildings, staff structures, councils and parishes etc). have impacted effective execution. GoU and political representatives. Within the adherence to agreed MTP under UgIFT Review and reform the current last year, sub-counties increased from 1152 has often been achieved only through policies/criteria regarding to 1495 while the number of town councils supplementary budgets. The impact at allocation of facilities by more than doubled (to 583). LG level has been most significant for administrative unit rather than budgets that require more substantive LG The creation of new administrative units is populations served. preparations like recruitment of additional in part spurred by policies for allocation of staff and development expenditures. funding in accordance with administrative units (parishes and sub-counties) rather The use of supplementary budgets is a than population served. consequence of weak MTEF planning and execution. 3. Equity IGFTRP has successfully achieved more Development funding to prioritise equitable allocation of NWR in accordance formula-based grants and DDEG 6. Performance A comprehensive performance Closely monitor the planned with agreed formula. across windows. management management system under IGFTRP has: (i) expansion of performance for effective shown good results at LG levels, but (ii) assessments to LLG and facilities Allocation of development funding Sector development funding for use of is yet to be fully implemented at LLG and for evidence of their relevance for through need-based formula or targeting new facilities to prioritise most resources facility level. The completion and roll-out enhanced service delivery. equal distribution of infrastructure by underserved areas (defined as of these systems are critical for impact on administrative unit rather than population/ clients by facility) rather than Ensure fiscal – and relevant non- service delivery. formula has not been equitable. The solely focused on administrative fiscal – incentives for LLG and allocation of HC III and seed schools do not units. The fiscal incentives of the LGPA requires facility performance. follow other need-based criteria. a reasonable level of funding for the Wage: future allocations of formula-based development grants that DDEG is allocated in accordance with a wage to prioritise understaffed are currently squeezed by high levels of formula within specific windows of the facilities and LGs. Additional earmarked health and education sector DDEG, but allocation of DDEG across support required to strengthen funding and low levels of DDEG for non windows is very inequitable and can only central and LG staff allocation and USMID LGs. be achieved through grant consolidation. recruitment procedures. Wage: IGFTRP has initiated efforts for more equitable allocation of staff across facilities and LGs, but practical implementation falls short of intended budget allocations. Data on actual staff deployment in underfunded LGs is not readily available, and wage budget is not fully executed by LGs. xviii UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 xix INTERGOVERNMENTAL FISCAL TRANSFERS Issue Main Findings Recommendations Issue Main Findings Recommendations 7. External The level of subventions (funding of Review all elements of non- 9. Data and Data and information systems have evolved Undertake an in-depth systematic finance devolved LG functions through central devolved funding for possible information into complex, resource intensive, under- assessment of the systems to and other government votes) has increased in recent devolution and management management utilized, and costly initiatives that are determine measures that will government years and exceeds non-wage IGFTs. It is through the IGFT system. for IGFT difficult to manage. promote value and utility of the transfers a sign of incomplete decentralisation systems data and information stems. The Monitor distribution of OGT and EF Ongoing e-government reforms have that deserves closer analysis and action assessment should particularly and feed into future dialogue of implications on relevancy and/or – or at least closer monitoring, including focus on: (i) relevancy, (ii) resource allocations. interlinkage between the IGFTR – specific distribution patterns across LGs. functionality enhancement ad tools and the broader PFM tools like TSA. Undertake an in-depth study of accessibility, (iii) sustainability, Part of the subventions are captured in LG OGT and (iv) interface with overall budgets as “Other Government Transfers” e-governance systems, and (v) (OGT) or “External Finance” (EF). Both OGT effective application to improve and donor funding (EF) are distributed very accountability. unevenly with a bias towards rural LGs as well as significantly higher levels of 10. Medium-term Whereas the MTP has been adhered Formulate a clear financing funding in Northern Region compared to budgeting and to and has improved transfers to local strategy for IGFT, not necessarily other parts of Uganda. planning for government, it benefitted those areas driven by external funding. This financing of covered by the projects which are in turn will require: (i) undertaking a 8. Own source OSR has in real terms (adjusted for A comprehensive reform of OSR IGFT reforms externally funded. systematic re-examination of revenue (OSR) inflation and population growth) declined policy framework is required the approach to medium-term substantially over the last two decades to ensure that LGs in Uganda Persistent in-year adjustments of projections to assess resource and today it is less than a third of what generate levels of OSR that are transfers create uncertainties and affect implications for IGFTR and it was during the first decade of 2000s. comparable to other similar implementation. determining realistic objectives This is primarily because LGs never found countries. Medium term expenditure frame does and targets for the reform, (ii) an alternative and buoyant resource to not provide a binding anchor to plan and reformulating the IGFTR policy compensate for the abolishment of GPT. budget for financing of service delivery. priorities, and (iii) reformulating A policy review of LG OSR to be the expenditure baselines, LG OSR in Uganda is very low compared to MTEF estimates beyond the first year are as considered as a basis for future including for staff requirements international comparisons of OSR/GDP, only good as irrelevant for planning. OSR policy reforms. and implied wage bill, etc. about 25% of what the global average and e.g., 25% of LG OSR in Tanzania. Strengthen MTEF to enhance Several reforms are currently supporting TSA application on OSR to be sustainability and predictability LG OSR at the local level with improved reviewed – particularly for OSR of fiscal transfers. The priority is ICT based collection systems etc. However, supposedly retained at LLG levels. to improve multi-year budgeting national data on OSR suggest that these to improve reliability of forward are insufficient to overcome previous years’ MTP estimates. This will require: decline. (i) formulation of a realistic and affordable expenditure baseline The policy environment is currently not to guide aggregates and IPFs conducive for OSR strengthening as LGs for MTEF projections; (ii) MFPED, are not assigned revenue sources that have MPS, MLG, and other relevant high revenue potential, low collection costs MDAs to undertake a budget and without overlaps/ interference from function or verification of IPFs; central government. (iii) committing to using the The meagre generation of LG OSR provides IPFs, once credibly formulated; an added burden on central governments (iv) systematically assessing the to finance LGs solely through IGFTs and annual fiscal transfer performance weaken local accountability. by LG, region, and grant, and building consensus to measures The TSA application on OSR is causing to address the issues; and (v) significant cash flow problems in LGs and adopting a fiscal policy for warrants reconsideration of practices. sustainable equitable shares and allocations of national revenues for intergovernmental transfers. xx UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 xxi INTERGOVERNMENTAL FISCAL TRANSFERS Issue Main Findings Recommendations 11. Recentralization of accounting and Rethink the principles, objectives Strengthening reporting roles, while legal – both through and expected outcomes of the foundation constitutional amendment in 2005 and fiscal decentralization. This for IGFT the PFM Act 2015 – weakened local must incorporate the lessons of reform accountability and confused reporting lines implementation over the last two and accountability between CG and LGs. decades and desired practices for a sustainable IGFTR. Dependency on transfers from center, weak engagement between CG and LG in the prioritization and budget decision making, Develop one simple document containing the guidelines Uganda Public Expenditure Review etc have reduced LGs into administrative extensions of CG. and instructions to support implementation of IGFTR. 2022-23 Modules Weakened institutions and coordination Formulate and implement a arrangement – for example with the sensitization and institutional LGSC and MLG roles perforated, only the building program to create a externally funded institutions (FD-SC and shared appreciation as well as FD-TC) remain functional. build capacity. Lack of clear strategy to enhance own source revenue. 12. Reform MDA coordination and support to the Develop sector norms regarding awareness reforms have generally improved in recent equity of staffing and minimum years. The UgIFT incentives /DLIs have level of NWR support for political helped in this regard. endorsement. The development of such norms should be made IGFTRP documentation has improved in explicit for political endorsement visibility, but political endorsement is and commitment. not comprehensive, and some aspects of reform receive much more focus (schools and HCIIIs by sub-county in particular) than others (the performance management system and broader objectives of adequacy, Strengthen documentation and equity, and discretion) that require better visibility of IGFTRP results. communication and deeper policy dialogue. The NRM manifesto includes commitment to initiatives such as schools and HCIIIs Ensure that political leadership by sub-county and the Parish Development is engaged and committed to Model but is silent on wider service intended local service delivery delivery improvements through programs reforms through IGFTRP. like IGFTRP. Overall, sector norms regarding equity of staffing or minimum level of NWR More systematic effort to build support are available but lack political capacity across LGs will be needed endorsement. to ensure sustainability of the reform. This should also entail Technical assistance has proved critical for long term TA at national level for many aspects of systems development and reform management. MDA training, yet capacities are not yet fully built across LGs. xxii UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 1 INTERGOVERNMENTAL FISCAL TRANSFERS The report is based on analysis of information While most of the “hard evidence” of the reform from various background documents to the reform progress could be obtained from the central 1. INTRODUCTION including past PERs, operational documents, and quantitative analyses of the IGFTs as well as government management information systems and consultations, perspectives from the LGs, the interviews with stakeholders at central and select beneficiaries of the reforms were very useful. The local government levels. MoFPED provided data in sample of 16 local governments covered in the study 1.1. Background • Module II: Identifying options for enhancing various forms, and some data was publicly available represents the main types of LGs in Uganda – rural effectiveness, efficiency, and equity of spending at its website. MoFPED’s own data analysis on the district councils, city councils, municipal councils, The World Bank and Government of Uganda in two areas critical for service delivery: (a) IGFTRP was a very useful input for this PER. , It also sub-counties, town councils, and city and municipal undertook a Public Expenditure Review (PER) in public investment management; and (b) the includes data analysis on aspects of LG financing divisions (Table 2). The findings from the fieldwork Uganda, focusing on selected aspects of fiscal intergovernmental fiscal transfers (IGFT) system, outside the IGFTRP system, but with implications to consultations (summarized in a separate fieldwork policy management and outcomes with a view to including the plans/assumptions underpinning its delivery. These aspects include LG Own Source report) informed the understanding of issues related determine how Uganda can achieve a more inclusive the Medium-Term Plan (MTP) for financing of Revenues (OSR), Other Government Transfers (OGT) to LG proliferation and reform ownership, and the growth agenda. One of the areas of analysis for the local service delivery. This module also included and External Finance that are captured by LG budgets overall recommendations on how the system can PER was a review of the Intergovernmental Fiscal technical assistance to support government and reports (available on the MoFPED website). be improved. Transfer Reform Program (IGFTRP). in identifying immediate options to adjust the National long-term statistics on OSR were obtained IGFT reform programme to mitigate the fiscal The Government of Uganda (GoU) has been pursuing from the Local Government Finance Commission, impact on the adequacy and equity of funding the IGFTRP reform to strengthen the way it finances while more recent data was obtained from sample of essential services at the LG level. local governments (LGs) through fiscal transfers LGs and LG budgets on MoFPED website. for improved service delivery. The reform, which • Module III: Identifying options for enhancing began in 2015, aimed to improve adequacy and spending on human development, by delving equity of LG grants, reduce excessive earmarking into the efficiency, effectiveness, and equity of spending within the education and health Table 2: Sampling of Local Governments for Fieldwork of funds, improve efficiency in the implementation of services at the LG level, and coordinate central sectors. Rural local government Urban local government government ministries, departments, and agencies • Module IV: A summary report synthesising the Main region and corresponding lower-level local and corresponding lower-level local to effectively support LGs in implementing their core key messages from the preceding modules for government government service delivery mandates. Whilst also supported policy and decision makers, and is the concluding by development partners (e.g., World Bank, EU and product of the PER. Buikwe District Lugazi Municipality Central DFCDO), this assessment looked at the overall IGFTRP (Kiyindi Town council) (Central Municipal Division) and not only the subset of reforms supported by development partners. 1.2 Approach and Methodology Jinja District Jinja City East (Buwenge Sub-County) (Southern Division) There have been some improvements since the To assess the IGFTRP performance, the assessment reform started, yet the overall provision for the reviewed progress in attainment of the four Arua District Arua City mandates of LGs and prior policy commitments objectives of these reforms that in combination North (Vurra Sub-County) (Central Division) remains inadequate, and large disparities in per were expected to improve local delivery of capita allocations to LGs persist. This review aimed services. Kabarole District Fort Portal City to understand the progress of the IGFT Reform West • Adequacy of fiscal transfers compared to targets (Busoro Sub-County) (Central Division) Programme, the gaps, and challenges it is facing, set in the Medium-Term Plan (MTP) for the most and what measures are required to get it back needed interventions and in relation to historical on track within an increasingly constrained fiscal trends of inflation and population growth. environment and evolving government institutions and programs. It formed part of a broader public • Equity of fiscal transfers across local governments. expenditure review (PER) analysis and technical • Discretion for local governments to allocate assistance comprising four modules: resources in accordance with local priorities. • Module I: Identifying broad options for an • Effective use of local resources as incentivized effective and sustainable fiscal adjustment, by through the annual LG performance assessments considering key macroeconomic variables, fiscal (LGPA) and corresponding PIP support. policy priorities, spending trends and Uganda’s overall development needs. 5 MoFPED 2021a. 6 MoFPED 2023. 7 World Bank, 2022. Report of the Intergovernmental Fiscal Transfer Field Work to Inform the Public Expenditure Review 2022–23. Kampala Uganda. 2 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 3 INTERGOVERNMENTAL FISCAL TRANSFERS 2. UGANDA’S INTERGOVERNMENTAL FISCAL TRANSFER SYSTEM By 2013, Uganda’s decentralization efforts, which 2.1.1 The Origins of Fiscal began in the 1990s, had achieved an unusually Decentralization in Uganda Uganda’s Intergovernmental authentic and powerful local government reform, well above that of many other low-income countries. Fiscal Transfer System Institutionally, decentralization had deepened with the overall governance dynamics and creation of In the early 1990s, the Government of Uganda (GoU) adopted the Decentralization Policy. local councils and units, with a significant degree This policy later became enshrined in the 1995 of autonomy in delivering local services. However, Constitution of the Republic of Uganda and LG fiscal autonomy alludes the system, given that Act Cap 243. At the heart of this policy is the over 90 percent of local government funding ambition to empower people and institutions comes from transfers from central government, at every level of society; to improve access to while own-sourced revenues account for less than basic services; increase people’s participation 10 percent of their budgets. The efficiency and in decision-making and enhance government’s effectiveness of the intergovernmental transfer responsiveness, transparency, and accountability. system remains critical for local service delivery. Under the Decentralization Policy, LGs have the Having undergone reform since 2015, it is critical to primary mandate of providing frontline services, assess to what extent the reform objectives were while central government provides guidance through realized, what challenges the system is facing and sector policies, standards, budget guidelines, how they can be addressed to ensure efficiency and technical supervision, and support. Central effectiveness of the IGFT system. government also has a monitoring and evaluation role. This division of responsibilities is enshrined 2.1 Evolution of IGFTR Reform within the Constitution. While the Constitution Objectives And Strategies provides definite guidance on LG functions as well as the LG mandates for a highly decentralised system The IGFT Reform Programme has gradually evolved of human resource management, it was not so clear over the years. To inform the assessment of the on the local government financing arrangements, ongoing reform and its immediate implementation although Article 193 provides for three types of experiences from FY2015/16 to FY2020/21, this intergovernmental fiscal transfers – unconditional, section explored the origins of the reforms and how conditional and equalization grants. In addition, reform objectives and assumptions evolved since LGs are empowered by the Constitution and LG Act then. Having been informed by various analytical to raise revenues through local taxation and the works, including a previous PER in 2013, whose issuance of various licences. recommendations were incorporated into the reform agenda, this section also briefly summarises the extent to which such recommendations have been implemented. 8 GoU 1995. The Constitution of the Republic of Uganda, 1995. 9 GoU 1997. The Local Government Act, 1997. 10 The Constitution stipulates in chapter 11 that, “District councils shall have responsibility for any functions and services not specified in the Sixth Schedule to this Constitution.” The sixth schedule outlines a short list of responsibilities of central government with functions such as national security, banking, national roads, national forests, and other well defined national issues, whereas central government responsibilities for education, health, agriculture, and other local issues are strictly defined as “national policy.” 11 While most constitutions across the world only provide broad guidance on issues related to local governments and local government financing, the level of details in the Ugandan Constitution between LG human resource management powers and LG fiscal powers are striking. The seventh schedule provides some guidance to the Unconditional Grant that it should be “the minimum amount to be paid to the local governments to run the decentralised services” and adjusted annually according to inflation and wage increases. In other African countries where LG financing has been an issue for debate during the Constitution making process, a fixed percentage of national budget has been set aside – e.g., in Ghana and Kenya. 4 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 5 INTERGOVERNMENTAL FISCAL TRANSFERS 2.1.2 The Fiscal Decentralization undertaken, key among which focussed on local Although the 2013 PER refrained from making Phase 1 – consolidation of conditional grants. government financing and overall service delivery in detailed recommendations for all aspects of This was implemented in FY2015/16, with the Strategy 2002 the context of increased districts, in form of a public implementation – e.g., targets for uplifting fiscal establishment of a consolidated grant framework In the early 2000s, government was concerned with expenditure review by the World Bank in partnership transfers – it highlighted areas that needed further and the rationalization of all sectors’ conditional the numerous challenges – primarily of a fiscal nature with the MoFPED PER, 2013. The latter analysed the studying and consultations. In addition, it referred to grants. Each sector remained with a maximum of – that were affecting the smooth implementation fiscal and institutional arrangements for service the LGFC, 2012 study on the future direction of fiscal one wage grant, one non-wage recurrent grant, and of the Decentralization Policy. These challenges delivery by local governments in the context of reform including enhancing LG own source revenues. one development grant. Support services grants included fragmentation of fiscal transfers to LGs that district proliferation and then trends in national The direction of reform has been further informed by continued to fund large ad hoc non-wage activities prevented more holistic and efficient LG planning public finance to identify policy options that could various studies related to the design of the World such as the payment of pensions. Transitional and delivery of local services. A fiscal decentralization facilitate improved service delivery. Bank-supported Uganda Intergovernmental Fiscal development grants accommodated ad hoc donor study conducted in 2001 informed the development Transfers Program (UgIFT) – originally designed funding and other temporary funding that could not The PER, 2013 found that the number of LGs had of the Fiscal Decentralization Strategy (FDS) 2002, in June 2017 and substantially expanded with be integrated in the main sector development grant. increased dramatically from 45 in 1997 to 112 in whose key objectives were to strengthen the process additional financing in 2020 – as well as various Overall, the number of grants reduced from 56 in FY 2010, and expressed concerns about the potential of decentralization by increasing LG’s autonomy, GoU analyses including the LGFC-initiated Fiscal 2014/15 to 13 in FY 2015/16. However, as discussed in future effects on public finances if the institutional widening local participation in decision making and Decentralization Architecture (FDA) Study, 2017. section 2.3, the challenges with grant consolidation structures and funding mechanisms of district streamlining the fiscal transfer modalities to the have not been fully resolved. governments would not adjust to the new realities. LGs to increase the efficiency of the LGs to achieve The report noted that whilst the immediate effects 2.1.3 The Inter-Governmental Fiscal Phase 2 – revision of allocation formulae, budget national development goals within a transparent on public finance were limited as an increasing Transfers Reform since 2015 requirements, and consolidation of discretionary and accountable framework. number of positions in district governments development transfers. This was implemented in remained unfilled, with a recent bout of inflation In response to the findings of the two reports by the Implementation of the FDS had several achievements, FY 2016/17 by: (i) revising the allocation formulae and having eroded their wage bills, the quality of local LG Finance Commission and the World Bank PER including the streamlining of budgeting and principles for the respective sector grants to LGs; (ii) service provision (notably health and education) was 2013, a reform of inter-governmental fiscal transfers reporting processes, but it did not achieve the developing an Online Transfer Management System under stress due to, (i) declining real value of per was started in FY 2015/16, with the following main objectives of increasing autonomy and streamlining (OTIMS) to be used by Government in allocation of capita grant allocations to LGs (which accounted objectives: (i) increase discretion over allocation transfers. The number of conditional grants resources to LGs in an objective, rules-based and for 90% of LG budgets); (ii) the decline of LG own decisions to enable LGs to deliver services in line continued to increase and became increasingly ad transparent manner; (iii) redesigning sector transfers source revenues; (iii) the failure to fill all LG staff with local needs whilst ensuring that national hoc (rather than using clear allocation formulae). and establishing budgeting requirements instead vacancies; (iv) poor technical oversight, support, policies are implemented; (ii) restore adequacy and Furthermore, the allocation formulae in some of grant-based input conditions to guide the LGs and supervision from central government MDAs equity in allocation of funds for service delivery; sectors were difficult to comprehend and gave room to allocate resources to local needs that are within as well as a lack of effective incentives for LGs to (iii) shift from fragmented input-based conditions for possible manipulation. Concerns were also raised the national priorities; and (iv) consolidating and adhere to central government guidance; and (v) a towards accountability for allocation decisions, about the quality, timeliness, and local impact of redesigning discretionary development transfers fragmented system of fiscal transfers with limited expenditures, and results; (iv) use the transfer the ongoing annual LG performance assessments (LGMSDP, PRDP, LRDP, USMID and Equalisation potential for local budget prioritisations in response system to leverage institutional and service delivery undertaken internally by MoLG and without linkages Grant) into the DDEG. to local needs. The main recommendations from this performance; and (v) allow new national policies to to fiscal incentives to LGs. To address the observed While new allocation formulae were developed, the report focused on institutional reform and fiscal be funded via the transfer system, whilst avoiding shortcomings of the FDS (2002), other studies were available government resources were inadequate to management (Table 3). future fragmentation of transfers and reduction in discretion. This reform was in line with the country’s meet all the LG service delivery needs. Therefore, to Second National Development Plan (NDP-II) 2015/16- roll out the new allocation formulae for the health Table 3: Summary of PER 2013 Recommendations and education non-wage grants, a Medium-Term 2019/20 strategic objective 4, which focused on Institutional proposals Fiscal proposals “strengthening mechanisms for quality, effective Plan (MTP) was agreed upon for prioritisation of and efficient service delivery.” Nevertheless, it is IGFTS with additional resources to LGs through Establish a systematic technical process for the Enhance own-sourced revenues of the district important to note that the documentation and the Inter-Governmental Fiscal Transfers Reform creation of new districts governments degree of political endorsement of the reform Programme (ODI April 2017). Reform district civil services to adjust them to Simplify the conditional transfers system and objectives were at this stage limited as no official new realities and budget constraints improve its horizontal equity documents were printed or signed by GoU on the Deconcentrate selected departments of the Increase the share of unconditional transfers in reform then (discussed further later). line ministries to the regions and/or facilitate district funding, and design these transfers in a way The reform was undertaken in four phases, for which the development of inter-district cooperative that enhances district governments’ accountability the status of implementation can be summarized arrangements in the sectors where they are for their performance as follows: needed 12 GoU 2001. 15 https://projects.worldbank.org/en/projects-operations/project-detail/P172868 13 LGFC 2012. 16 ODI 2017. 14 World Bank 2013. 6 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 7 INTERGOVERNMENTAL FISCAL TRANSFERS Phase 3 – reforming frameworks for accountability • Reviewing centralised management of devolved Box 1: Development Partners Support for Reforms and strengthening incentives for performance. functions given that CG still financed a high Under the leadership of Office of Prime Minister proportion of local services through its votes • World Bank – Uganda Intergovernmental Fiscal Transfers Program for Results (PforR) (P160250), approved (OPM), government developed a system for (i.e., subventions amounted to UGX 1.9 trillion, in June 2017 and made effective May 2019, provided IDA US$200 million for support to health and assessing the performance of LGs. The system compared to a total LG budget of UGX 2.8 education sectors. intended to: (i) ensure that LGs adhere to core trillion). While continued centralised funding was budgeting and accountability requirements; (ii) justified partly on account of cost effectiveness, • World Bank – Uganda Intergovernmental Fiscal Transfers Program for Results (PforR), Additional Financing (P172868), approved September 2020, IDA US$ 300 million broadened the scope of support of improve functionality of cross cutting and sector it constituted an incomplete devolution. the 2017 UGIFT to include: (i) LG water and environment services; (ii) micro irrigation; and (iii) integration LG processes and systems; and (iii) improve service of services in refugee settlements into the LG system. • Establishing affordable local service delivery delivery results. The system was based on neutral, standards that would form the basis for future • European Union (EU) budget support agreement of 2020 with EUR 32 million to improve local investment independent, and credible assessments with LG grant allocations. and service delivery to citizens in line with the objectives of the IGFTRP. sufficient levels of quality assurance and reviews/ verification. This was complemented by a system of • Reducing the level of earmarking of funding • World Bank Uganda Support to Municipal Infrastructure Development Program (USMID) – IDA US$ 410 collecting comprehensive performance information to allow LGs more discretion and local budget million PforR to support the uplifting of infrastructure and improved institutional performance (including used to target monitoring, support supervision and prioritisations. own source revenue generation) in municipalities/cities and refugee-hosting local governments. capacity building – especially of the weaker LGs. • Reviewing and articulating LG OSR tax policy The first comprehensive manual for LG Performance within MoFPED National tax policy and enhance Assessments (LGPA) was completed in June 2017 In 2021, the IGFTR Program was substantially formulated the first comprehensive MTP (Annex 4.4) incentives for OSR generation in the fiscal and disseminated to all LGs and MDAs. The first updated as part of the World Bank funded UgIFT which included agreed GoU MTEF allocations and transfer system, to support sustainable financing assessments took place early in 2018, covered all Program Additional Financing design process. expected resources from WB UgIFT. The MTP was of LGs. The real value LG own source revenue had 162 LGs, and summarised its results in a report The update aimed to achieved four objectives: (i) substantively revised as part of the IGFTR program declined from UGX 20,000 per capita in 1998 to published in May 2018. The process of developing improve the adequacy and equity of – and increase update in 2021(Annex 4.5). The MTPs are central parts less than UGX 10,000 in 2015). Performance Improvement Plans and support for discretion in – the financing of local service delivery; of the reform strategy as discussed in further detail underperforming LGs was subsequently developed • Enhancing adequacy of grants – mainly through (ii) improve central government’s performance in the in section 2.12. and the annual assessments have gradually (still in uplifting non-wage recurrent and (discretionary) oversight, management, and delivery of LG services; Overall, while these MTPs were to a large extent process) been expanded to include assessments of development funding, for which a specific (iii) improve LG performance in the management successfully implemented, several challenges lower LG schools and health facilities. Medium-term plan (MTP) was proposed. of local service delivery; and (iv) improve the constrained achievement of expected results • Strengthening and expanding the LG performance effectiveness and efficiency of service delivery by Phase 4 – reforming the fiscal decentralization including: (i) the technically suboptimal assessments. frontline providers. Therefore, compared to the architecture and share of transfers. In 2017, the compromises at the expense of reform objectives, earlier reform (of 2017), the updated IGFTR program LG Finance Commission commissioned a study to: • Bolstering reform oversight and coordination such as use of different criteria by most development added emphasis and reform scope in several areas, (i) identify and propose the appropriate legal and by strengthening political oversight (through partners in allocating (schools and health facilities including enhancing wage allocations targeting policy frameworks for a new fiscal decentralization introduction of a Cabinet Committee, by sub-counties) rather than the technical rational the most understaffed LGs, schools, and health architecture; (ii) review LG mandates and estimate formalisation, and political approval of reform formula-based allocations under the reform facilities; expanding sector support to include water, the cost of adequately financing those mandates proposals, and strengthening the M&E of reforms to achieve equity; (ii) pursue of the adequacy environment, and agriculture; reinforcing discretion relative to the overall budget; (iii) review the by more rigorous and participatory annual reform objectively in an incremental manner, without of the UCG and DDEG grants and increasing appropriateness of revenue sources for LGs; and reviews). substantive questioning of sector policies that, for discretion within the existing conditional grants; (iv) examine the institutional roles to determine instance, overly prioritised secondary education at In 2017, the GoU formalised the reform by adopting increasing emphasis on service delivery results, avenues for improvement. The study recommended the expense of primary education; (iii) the limited the IGFTR Program 2017 as an official government while expanding the LGPA to include both lower-level deepening the ongoing reform effort (rather than attention paid to discretion within the MTP; and (iv) document that aimed to secure additional resources LGs as well as the performance of schools and health shifting to a completely new policy framework (such the misalignment with the overall MTEF financing to achieve the unfulfilled objectives of equity and facilities; increasing emphasis on the role of central as the Kenyan model, which was deemed unlikely framework as many of the MTP targets were only adequacy in the allocation of resources with a government MDAs for their effective oversight and to be politically accepted in Uganda at this stage). achieved through supplementary budget allocations, recommended MTP for uplifting LG Grants. The 2017 technical support to LGs; and strengthening overall Some of the recommendations were subsequently rather than original budgets, thus causing challenges IGFTRP received support from development partners reform management and coordination, through integrated into the updated IGFRP of June 2021, with budget execution as discussed in detail in (DPs), some of which is still on-going as summarised enhanced cabinet oversight, strengthened result including: section 2.12. in Box 1. framework, and proposed Joint Annual Review modalities. Central to the IGFTRP has been the medium-term plan (MTP) that set out IGFT funding priorities, and hence evolved alongside the reforms. The MTP sought to focus fiscal allocation on those funding priorities 19 The EU – GoU agreement for “Fiscal decentralisation and service that were deemed most critical to improvements delivery”, CRIS decision number: UG/FED/041-736 included a maximum of EUR 32 million for budget support, of which US$ 10 million was released and of local service delivery. The 2017 IGFTR program targeted DDEG 8 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 9 INTERGOVERNMENTAL FISCAL TRANSFERS 2.2 Local Government the Resistance Council system, which in effect established decentralization as an overall guiding Parish Development Model adopted in FY22/23, also transferred the authority to plan, make decisions, principle of governance: The State shall be guided allocates resources to parishes in equal shares, Institutions and Architecture administer local justice, and provide services to the by the principle of decentralization and devolution irrespective of population or other needs criteria. communities. of governmental functions and powers to the people This could trigger future demands for the creation The local government architecture in Uganda has at appropriate levels where they can best manage of new parishes. evolved significantly over the last decade, with The current dispensation or system of democratic and direct their own affairs. important implications to public service delivery. decentralization introduced under the 1993 As result, Uganda has experienced a rapid increase This overview of the local government (LG) Resistance Council Statute was the outcome of a in the number of districts, especially within the structures highlights the overall hierarchy of levels review of the resistance council system and related 2.2.2 LG Fragmentation period 2000 to 2011 where the number doubled from of governments and administrative levels within the statutory instruments. The statute was reviewed 56 to 111. The 2013 PER indicated that the drastic Article 179 (4) of the Constitution stipulates that: overall LG system and recent trends of rapid increase between 1993 and 1995 and led to the development of increase in the number of LGs from 45 in 1997 to 112 “Any measure for the alteration of the boundaries of higher levels of LG structures. It also assesses the the existing decentralization policy framework, borne in 2010 would adversely impact public finances if the of or the creation of districts or administrative financial costs for phasing in the new structures – as out of the desire to make local governments effective institutional structures and funding mechanisms of units shall be based on the necessity for effective an input to the discussion on establishing adequacy centers of local and democratic decision making district governments were not adjusted to the new administration and the need to bring services closer of LG financing. for planning, implementation, and management realities. It noted that even as the initial effects to the people, and it may take into account the means of development services and ensure support were limited as positions in district governments of communication, geographical features, density of 2.2.1 General evolution of the LG from the local level. The 1995 Constitution further population, economic viability and the wishes of remained vacant, and inflation had eroded their consolidated the decentralization policy, ensuring its wage bills, it was not sustainable. However, the system in Uganda the people concerned.” Since this provision is not application at all local government levels. Following number of LGs increased further – not so much in very restrictive or well defined, the wishes of local Since Independence in 1962, Uganda has experienced the promulgation of the Constitution, the Local terms of districts, but through creation of urban and politics have tended to override all the other factors. both decentralized and extremely centralized Governments Act, 1997 was enacted accordingly, lower local governments, which have the same call Among the reasons compelling the population to forms of governance. The 1962 Constitution further elaborating the LG set-up and structures, on public resources. Since 2013, several additional demand districts wherever an opportunity arises, promulgated at Independence provided, under a LG responsibilities for service delivery, LG revenue districts have been approved and the number rose to is the fact that some of the government policies federal arrangement, for devolution of significant sharing arrangements and election procedures for 145 (135 districts + 10 cities) in FY 2022/23. Whereas and programs allocate resources to the districts powers and functions to kingdoms and urban and local leaders, as well as arrangements for execution the number of municipal councils was relatively equally, without considering their population size district councils. Regarding urban areas, the British and coordination of LG monitoring and inspection. stable since the inception of decentralization – in or geographical area. Political leaders at all levels colonial government regulated the planning and 2010, nine new municipal councils were created, The LG-Act, 1997, has been amended several therefore promise the delivery of a district as a basis administration of almost all the urban areas in with the inclusion of 19 in 2016/17. In addition, just times. The amendments in the LGs Act reflect for service delivery and hence their election. For Uganda under the Urban Authorities Act 1958, which within the last two fiscal years, the number of town the need to take stock of lessons and experiences instance, it is government policy to provide an HC III was later amended to the Urban Authorities Act, councils increased from 225 to 583 and the number during implementation, changes in the political unit and secondary school at every sub-county and/ 1964. of sub-counties from 1152 to 1495. The interaction environment, some affected by the introduction or town council (irrespective of population or other between the different administrative units is The 1967 Constitution and the Local Administration of the multiparty system at both central and local need criteria). This has spurred the recent increase summarized in Figure 1. Act of 1967 re-centralized all the decision-making levels, and the need to review the decentralization in numbers of sub-counties and town councils. The powers. The military government abolished local framework to reflect the changing contexts. The councils altogether in the 1970s. The re-centralization amendments are also testimony to government’s Table 4: Number of LG Entities 2015-2022 process, and the general decline in the economy, led realization of the dynamic nature of implementation Number of Number of Number of Number of Number of Number of of the policy where the process of implementation Year to significant collapse of the services provided by Districts Municipalities Cities Town Councils sub-counties Divisions the district administrations. After the takeover of involves learning, conflict testing, attitudinal and 1959–1979 16-33 13 1 power in January 1986 by NRM, the new government behavioural change, and attainment of requisite new 1980–2000 33-56 13 1 soon established a commission of enquiry into skills, and the changes in the political environment. local government (Mamdani Report) on which 2006/07 80 13 1 Overall, the practice notwithstanding, the main basis a white paper was prepared and submitted decentralization policy thrust in Uganda is inclined 2009/10 97 13 1 to Cabinet. Based on the desire to re-introduce towards devolution. Its intentions are to transfer 2010/11 112 22 1 political participation and democratization, in responsibilities for decision making and delivery of 2015/16 112 22 1 1987, the NRM government enacted the Resistance services to local governments which elect their own Councils and Committees Statute, which repealed 2016/17 115 41 1 chairpersons and councils, raise their own revenues, Part 1 of the Local Administration Act of 1967 and the and have independent authority to make investment 2017/18 121 41 1 Urban Authorities Act, 1964. The statute introduced decisions. Indeed, the Constitution of Uganda 2018/19 127 41 1 2019/20 134 41 1 20 MoLG, National Urban Policy Development Support, Draft Urban Situation Analysis Report, April 2010. 2020/21 135 31 10 21 In this report, the LG Act 1997 is quoted synonymous to LG Act Cap 243. 22 The Local Governments (Amendment) Act, 2001; The Local Governments (Amendment) (No. 2) Act, 2001; The Local Governments (Amendment) Act 2021/22 135 31 10 225 1152 109 2005; The Local Governments (Amendment) Act, 2006; The Local Governments (Amendment) (No. 2) Act, 2006; The Local Governments (Amendment) Act, 2008; and The Local Governments (Amendment) (No. 2) Act, 2008. The Local Governments (Amendment) Act, 2010 (Act no 16), and The Local Governments 2022/23 135 31 10 583 1495 109 (Amendment) Act, (Act no 7) 2015. Source: MOLG 2011 with updated figures from UBOS and MOFPED. 10 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 11 INTERGOVERNMENTAL FISCAL TRANSFERS Note: Kampala City Council, which was a district, became a city authority in March 2011. Ten Cities became effective Each level of the LG system from LC1 (village) to 2.3.1 Grant Composition and Consolidation on 1st July 2020, bringing the total number of districts to 145 (a city has a district status). LC5 (District and City Councils) has its own elected As discussed in section 2.1 on the evolution of The creation of the administrative units has led to a number of challenges: inadequate human resources in political leadership (council and executive). The reform, the consolidation of LG grants in 2015 was both the new and mother districts (distorting the original LG model structures); affected staffing levels in functions (expenditure assignments) for local service the first step in the reform process, and it reduced municipalities, as staff prefer to take up higher level positions in newly created districts; performance gaps delivery across levels of LGs form an important part the number of LG grants from 56 in FY 2014/15 to 13 in key functional areas (undoing the performance improvement gains arising out of capacity building efforts of assessment of efficiency of the IGFT system, as in FY 2015/16. Each sector remained with a maximum as well as the various incentive schemes); inadequate physical infrastructure especially in the new districts; highlighted chapter 3. It should be noted that while of one wage grant, one non-wage recurrent grant, hiking of administration costs and overheads; and creation of supervision burden to the central government most of the responsibilities for provision of service and one development grant. This reform resulted agencies. Moreover, the additional costs of the new districts have not been fully compensated, as the total delivery in sectors such as education, health, water, into the consolidation of the various (some of real value of the grants per capita has declined, and as the UCG has not followed the development in prices roads, and agriculture lie with the higher levels of which were very small) discretionary development and extra costs. local government, then the lowest level of the LG grants (LGMSDP, PRDP, LRDP, USMID and the system (LC1 and LC2) plays important functions Box 2: The Uganda Local Government Institutional Architecture constitutionally mandated Equalization Grant) into as courts and as direct intermediary between one grant – the DDEG. To accommodate ad hoc donor communities and government. funding and other temporary development funding which cannot be integrated in the main sector The local government system in Uganda has a rather intricate system of levels of local governments 2.3 Performance of the IGFTR development grants, transitional development and local administrative structures. Article 176 (1) of the Constitution and the LGA Cap 243 (section 3), stipulate that the system of local governments shall be based on a district as a unit under which there Program Against Objectives grants were retained. In addition, support services grants were retained to fund large ad hoc non-wage shall be lower local governments and administrative units. It further states that, the local governments The assessment of IGFTRP is reported along five key activities such as the payment of pensions. The include district and sub-county councils in rural areas, city and city division councils in a city, municipal dimensions, closely following the original objectives consolidation was intended to provide LGs with and municipal division councils in a municipal, and town councils in a town. In addition, section 45 of of the reform. These include: (i) the composition of some discretion in decision making, increase the the LGA Cap 243 specifies that the administrative units include: the county, parish, and village in rural grants and consolidation progress; (ii) the adequacy transparency in the allocation process, and reduce areas; parish or ward, town board, and the village in urban areas. Subject to article 197 of the Constitution of transfers; (iii) the equity of transfers; (iv) the the administrative and reporting burden. By 2023, and section 79 of the LG Act cap 243, a municipal or a town council shall be a lower local government of trends in level of discretion of transfers; and (v) the IGFT system had evolved to 14 sector grants, two the district in which it is situated transparency, execution, and effectiveness of IGFTs ad-hoc grants and three types of discretionary grants and IGFTRP reform efforts. (Table 5). Table 5: Overview of the Consolidated Grant Framework Sector Recurrent Development Sector Conditional Grants Health Wage Non-Wage Development Education Wage Non-Wage Development Agriculture & Commerce Wage Non-Wage Development Water & Environment Non-Wage Development Works & Transport Non-Wage Development Community Development Non-Wage Ad Hoc Grants Support Services Non-Wage Transitional Development Development Discretionary Grants Unconditional Grant Wage Non-Wage 23 For example, all districts have the same number of district chairpersons and members of the district executive committees receive the same remuneration. Other programs include the University Bursary Scheme, which sponsors ten students per district to universities irrespective of size. Staff structures at each level Discretionary Development Equalization Development of LG have also been relatively unrelated to population. 24 112 if Kampala was included – but it was established as a separate city authority the same FY year. 25 Note 112 if Kampala is included. However, Kampala was also established as a separate City Authority the same FY year, and the number of LGs in this Source: Compiled by authors from MoFPED data. manner was reduced to 111. 26 City Councils have the same status district councils 27 The staffing structures provide for principal positions in districts yet only senior positions in municipalities, e.g., the provision for principal planners and personnel officers in districts yet, is not the same in municipalities. 12 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 13 INTERGOVERNMENTAL FISCAL TRANSFERS While the consolidation has simplified the IGFT within the overall ambition to pursue the IGFTRP. • Development funding to health and education, inflation and population growth) up to FY 2021/22 system to a certain extent, there are still several with additional funding for formula-based (Figure 3). However, the regular growth trends • Due to the meagre funds for the unconditional challenges as most sectors have de-facto kept development grants for the rehabilitation and observed since the start of the reform were partly NWR grant, LG staff also prefer some of the sub-grants and/or maintained substantive expansion of existing facilities, although with reversed in FY2022/23 as the total allocations earmarking as it protects them from having to earmarking of the specific grants, as highlighted relative emphasis on construction of at least decreased by 4 percent. As illustrated in Figure 2, get into a collision path with the LG political below: 259 seed secondary schools and upgrading of the decrease in total LG allocations was driven by leaders who might prioritise the use of the UCG 331 health facilities to HC III. The education, a large fall in development allocations as well as • The education and health sector development otherwise – i.e., away from the key operational health, and water/environment sectors would non-wage recurrent allocations. grants are composed of separate segments – priorities such as IFMIS, payroll printing, boards, also get additional funds for refugee-hosting only partially formula-based development grants and ex-gratia. The positive performance prior to FY2022/23, reflected LGs, while water and environment would target that LGs subsequently can prioritise – but mainly government efforts to improve the adequacy of The impact of this composition of grant allocations sub-counties not achieving the safe water earmarked funding for seed secondary schools funding to key social sectors, urban infrastructure, includes: national targets, and within agriculture providing and health facility upgrades. and refugee-hosting local governments with the • Central government political visibility in local smallholder farmers with access to micro-scale support of donor funding (e.g., UgIFT and USMID • Within the water development conditional irrigation. investment decisions, which motivates central programs). Even then, during the period of growth in grant, there are sub-grants such as (i) the piped government to make the allocations in the first Notably, the IGFTRP 2021 did not include explicit real per capita allocations they were accommodated water sub-grant, (ii) rural water and sanitation place. targets for enhancing discretionary funding (the within 20 percent of total domestic revenue and a sub-grant, and (iii) water and environment • Reduced LG discretion and thus ability to make UCG and DDG), with the intention that Government minor increase of the share of total budget from development conditional grant. local investment decisions in accordance with would review and prepare detailed proposals (further 15.9 percent in FY 2016/17 to 16.7 percent in FY2021/22 • The DDEG only partially merged the larger details in section 2.6). implying that the reforms were undertaken without local needs and priorities (further discussed in three grants: PRDP, LRDP, and USMID that have necessarily reallocating funds from other parts of section 2.6). Total IGFTs have grown substantially in nominal remained de facto as separate projects targeting the budget. • Reduced fiscal incentives in the allocation system, terms, from about UGX 2.7 trillion in FY2017/18 only selected LGs with subsequent lack of since only the formula-based development grants (the start of the reform) to UGX 4.8 trillion in the application of formula across these windows/ are adjusted in accordance with the results of the FY2022/23. This strong nominal growth drove a real projects (see further discussion in section 2.6 on LGPA. per capita growth (nominal values adjusted for DDEG and discretionary funding). • The Unconditional Non-Wage Recurrent Grant is 2.3.2 Adequacy of Transfers Figure 2: IGFT Allocations By Economic Classification FY 2015/19-22/23 de facto earmarked for several sub-items such At the onset of the reforms in 2017, it was realised (Nominal, UGX Billions) as: IFMIS, payroll printing, boards, and ex-gratia. that funding for LG service delivery was highly This earmarking creates additional challenges, inadequate and declining. Hence, a key objective including: (i) limiting discretion at LGs level as the CG of the reform was to reverse a trend of declining will have prescribed each of the grant allocations to real value of fiscal transfers. Therefore, the first the detail; and (ii) increasing demand and tendency stage of the reform from 2017 focused on uplifting of ‘projectizing’ the allocations. For example, in the the value of non-wage recurrent and development water sector, MoFPED created a separate sub-grant allocations for the education and health sectors. to differentiate the UgIFT-funded interventions from The second stage of the reform, starting from 2021, others done within the same grant. expanded adequacy targets to include other sectors as well as allocations for wages. This resulted into Moreover, even though they were created as the following categorization of transfers: temporary measures, none of the transitional development grants have been folded back into • Wage allocations to enable the recruitment sector development grants, although plans are of teachers (10,000 for primary and 8,000 for underway to merge some other existing funding secondary, and 7,000 health workers in the most modalities (most notably the health RBF) into the understaffed LGs and facilities, and filing key IGFT system. vacancies in LGs (e.g., water and environment). Source: MoFPED Vol II Approved Budget Estimates for Respective Years. Other factors explaining the direction of reform • NWR – continued uplift of education (mainly include: capitation grants) and health (mainly facility funding) but also additional allocations for water • Central government’s preference for nationally and the environment and transitioning primary politically visible investments such as the seed schools and health facilities in refugee hosting secondary school and HC III per sub-county. districts into LGs. • The desire by MoFPED to demonstrate 28 MFPED 2021a. accountability for the UgIFT part of the funds 29 See details of allocation by grant by year in annex. 14 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 15 INTERGOVERNMENTAL FISCAL TRANSFERS essential medicines, which at PHC levels have • Non UgIFT-funded sectors and functions Figure 3: Real Per Capita Transfers (Share of Budget and Domestic Revenue)30 been estimated at about 55 percent of needs still rely entirely on OSR and UCG funding or according to National Medical Stores (NMS). And project financing outside the IGFT. This includes since the health sector staffing levels have been several administrative/crosscutting and political growing below the rate of population growth, the functions as well as social development, works share of positions filled across all primary care and transport, natural resource management, facilities decreased from 75 percent in FY2015/16 commercial services, and pre-primary education to 67 percent in FY2020/21. (details in annex 4.5) • Water and agriculture funding is quite low with • NWR for social development and trade and development funding only about UGX 1800 per development funding for works has declined over capita. the last four years (annex 4.5) Table 6: Changes to the Primary and Secondary Education Capitation Grants, 2015/19–2022/23 (nominal UGX) Education Non-Wage Recurrent Actuals Fixed Costs % Change 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 15/16 - Source: MFPED 22/23 Note: Data for FY 2023/24 based on the approved budget, whereas figures for other years are actual transfers UPE Capitation The trends of per capita income allocation for of UGX 63,546 for urban schools and UGX 59,503 fixed per 1,350,000 1,350,000 1,350,000 1,350,000 1,350,000 1,350,000 1,350,000 1,350,000 0% different grants varied somewhat. Wage allocations for rural schools as a minimum condition to school for health, agriculture and UCG increased attain quality primary education. As of FY 2021/22, UPE significantly over the period, whereas education the UPE capitation rate stood at UGX 20,000, Capitation 7,000* 7,000* 10,000 10,000 12,000 17,000 20,000 14,500 107% declined slightly. Similarly, the non-wage recurrent less than a third of the NPA recommendation per student allocations improved for water/environment, health – and this was reduced further in the approved and UCG, but reduced for trade and industry, social budget for FY2022/23 (Table 6). As noted by USE Capitation 80,000 80,000 80,000 123,000 165,000 175,000 180,000 160,000 100% development, and education, which had increased up the recent UgIFT Impact Study, allocations for per student to FY2021/22, before capitation grants were reduced primary education in Uganda significantly lag again. On the development side, funding allocations those of other low-income countries (LICs). In UPOLET increased for education, health, agriculture, water, fact, primary education spends 50 percent below Capitation 80,000 80,000 80,000 240,000 264,000 270,000 285,000 260,000 225% and environment. However, DDEG declined drastically the LIC median. However, secondary education per student (-40%) due to a reduction in USMID funding and the expenditure is well above the per capita LIC The UPE fixed cost applied only to pupils above a threshold of 192 reallocation of funds from the DDEG-PRDP and LRDP median (85 percent higher) as of FY2021/22, which Source: Education Grant Guidelines windows to fund the Parish Development Model raises questions on the allocative efficiency of (PDM), whereas works and transport remained stable the sector’s resources as discussed in Module Box 3: Key Issues regarding Adequacy of Fiscal Transfers in nominal terms (declining slightly when adjusted 3 of this PER. On the back of the low funding, for inflation and population growth). the primary education pupil-to-teacher ratio • Significant nominal improvement at the aggregate level of funding between FY201516 and FY2021/22, before worsened since FY2015/16, averaging 57 pupils the decline in FY2022/23. In general, even as most of the grant allocations per teacher by FY2022/23, compared to the • Targets for IGFT adequacy have largely been met except for FY2022/23. complied with agreed IGFTRP targets over the national target of 53. LGs and other sector players • IGFTRP targts have focused on education and health but levels of funding for health and primary education reform period to FY2021/22, before the shortfalls in are still low by international comparisons. underscore underfinancing of primary education FY2022/23, several challenges remain with regards • On the other hand, funding for secondary education is high by international comparisons. as a major challenge constraining quality of to grant adequacies as highlighted below by sector: • Primary education pupil to teacher ratios have worsened (as enrolment has surged). education outcomes. • Water/environment and micro-scale irrigation have improved significantly in relative terms, but they are • Education: Funding remains below national still at rather low levels. • Health: Primary health care (PHC) allocations targets. For instance, the NPA recommended a • Other sectors receive very low, declining or no funding through IGFT. per capita were 30 percent below the median LIC. Universal Primary Education (UPE) capitation rate This low allocation underlies the undersupply of 32 ODI 2022. 33 Calculations by UgIFT Impact Study based on analysis of http://data.uis.unesco.org/ 30 Note: data for FY 2023/24 are based on the approved budget, whereas figures for other years are actual transfers. 34 ODI 2022, iix. 35 ODI 2022, based on data analsysis of https://apps.who.int/nha/database 31 Financing and Costing UPA: http://npa.go.ug/wp-content/uploads/2019/02/Thematic-Report-5-Financing-and- 36 ODI 2022, vii–viii. Costing-of-UPE-080119.pdf 37 ODI 2022. 16 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 17 INTERGOVERNMENTAL FISCAL TRANSFERS 2.3.3 Equity of Transfers Based on the Gini coefficient, the equity of overall To better understand the trends in equity, it is crucial manner for education (primary and secondary), aggregate allocation has improved slightly at to move beyond these indicators that depict the and health sectors. This has targeted the newly A key objective of the IGFTRP is to ensure a least up to FY2021/22 (Table 7). This improvement degree of overall equality (equal allocations per constructed HC IIIs and seed schools, but also more equitable allocation of funds across LGs in was mainly driven by changes in allocation of capita), but do not pay attention to the relative the most underserved LGs as well as 12 refugee accordance with need-based criteria. As stipulated development grants, partly given that an explicit differences in the needs of populations in different hosting districts. In addition, other critical LG staff in the IGFTRP 2021, the GoU aims to ensure that policy is applied through formulae for allocations to LGs). Based on the agreed formulas for IGFT were foreseen to be recruited in understaffed LGs, non-wage recurrent and development grants are segments of education and health. However, this was allocations that were introduced under IGFTRP (see including school inspectors and water officers. allocated based on objective, transparent, and offset by the decline in DDEG funding of previously Annex 4.6 for details on formula and sector specific In the FY 2021/22 budget, the GoU strategically equitable allocation formulae. In addition, it wants well-funded LGs through project modalities such as trends of equity), progress has been made with allocated an increment of UGX 74.2 billion to to address the marked disparities across LGs in USMID (that decreased over the period) and PRDP, respect to equity in the following areas: the wage grants of LGs whose staffing levels of terms of the availability of critical staff by prioritizing and abolition of LRDP. Development grants remain primary and secondary education – and primary additional wage allocations to the least staffed • Non-wage recurrent (NWR) transfers have the most unequally distributed while equity of wage health care staff – were below levels deemed LGs to enable them to fill key sectoral positions. In been allocated in accordance with agreed formula allocations has not improved despite IGFTRP plans. critical (see table 8). Although the increment addition, GoU seeks to pursue equitable deployment since FY2019/20. Overtime, some adjustments was meant to double in size in FY2022/23, only of staff across facilities (schools and health units) as to the formula have made the allocations more a fraction of the planned wage increments was well as across lower local governments. sensitive to relative needs (the formula for allocated (54 percent for primary education – 0 education sector NWR has increased the relative percent for secondary education and 23 percent allocation by students, whereas the fixed amount Table 7: Equity of Fiscal Transfers by Economic Classification (2018/19-2022/23) for primary health care) – presumably due to by school has remained constant.) due to the tightening of the fiscal space, as well FY 19/20 FY20/21 FY21/22 FY22/23 FY19/20 FY20/21 FY21/22 FY22/23 • Development grants have only partially been as financing of new programs, such as the PDM. Equity of Fiscal Transfers allocated in accordance with the formula. Details of equity trends for sector grants are Aggregate Wage Within education, approximately 33 percent of enclosed as annex 4.6. the development grant is allocated according to Average Transfer It should be noted that whilst there is significant 135,671 138,364 146,682 129,077 70,983 70,313 72,554 75,062 formula (FY2022/23), with the bulk of development per Capita consensus of the use of formula-based allocations funding provided for secondary seed schools in for NWR, there is less consensus on the use 20 Least Funded selected sub-counties without secondary schools. of formula for development funding. Within LGs/Average For health, 31 percent is allocated in accordance 64% 62% 68% 62% 69% 66% 70% 65% the education and health sector, most of the Transfer per with the agreed formula, with the rest used Capita development funding is allocated for infrastructure for upgrading of facilities to HCIIIs in selected development and an alternative principle for sub-counties without HCIII. For the DDEG, the equity is applied. In this case, administrative Gini Coefficient 25% 26% 22% 22% 20% 23% 20% 21% agreed formula has been applied only within the structures, such as sub-counties, are used as basis project windows (USMID, PRDP, LRDP etc) leading for allocation irrespective of population or other Non-Wage Recurrent Development to significant variation of funding (see further need criteria beyond having a specific infrastructure discussion in chapter 2.6 on DDEG). established. The UgIFT impact study notes that the Average Transfer • Wage allocations do not follow any formula, but 29,489 31,508 36,151 26,698 35,198 36,542 37,978 27,316 actual allocation of seed secondary schools or HC per Capita the IGFTRP strives to ensure a more equitable III selected for upgrades, do not coincide well with allocation of staff across LGs and facilities by other need indicators (Figure 4 and Figure 5). 20 Least Funded LGs/Average allocating funds for additional staff in a targeted 63% 58% 68% 59% 30% 34% 49% 44% Transfer per Capita The PDM. Details of equity trends for sector grants are enclosed as annex 4.6. 54% 52% 46% 45% Table 8: MTP Planned Wage Grant Increments for Least-Staffed LGs, FY 2021/22 Gini Coefficient 23% 24% 20% 23% Cumulative Allocation Increment Source: MoFPED IGFTRP Implementation Report 2022 –UGX Bn UGX Minimum Staffing # Beneficiary Wage Grant Level to be LGs Achieved 2021/22 2022/23 Primary Education 24.1 48.2 81% Positions Filled 62/176 Secondary Education 22.9 45.9 57% Positions Filled 111/176 Primary Health Care 27.2 54.3 82% Positions Filled 143/176 38 Gini coefficient measures inequities: 0% would imply perfect equality, while 100% implies perfect inequality. For the indictor in the table: ”20 least funded LGs/average transfer per capita”, the higher the number – the more equitable the allocations. Source: MoFPED IGFTRP Implementation Report 2022 18 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 19 INTERGOVERNMENTAL FISCAL TRANSFERS Figure 4: Health Coverage Rates Compared to Allocations of Planned HCIII Upgrades 2.3.4 Discretion and Allocative Efficiency than central government for certain (devolved) functions, is a core premise for devolution and Reform Objectives and Strategy fiscal decentralization internationally as well Since the 2001 FDS, it emerged that IGFTs in Uganda as in Uganda. The relationship between local were highly conditional and earmarked to the extent autonomy and government effectiveness is that LGs were unable to meaningfully prioritize not straightforward, but evidence of a general their budgetary needs. Consequently, LGs were relationship has nevertheless been documented unable to allocate fiscal resources in accordance on several occasions, such as a recent study that with local needs and priorities and thereby enhance analysed most European economies (figure 6). Given allocative efficiency. This defeated the essence of the limited fiscal resources for local service delivery better services through decentralised planning in Uganda, it is critical that an optimal balance for than otherwise could be obtained through central local autonomy and LG discretionary budgeting is planning for the same amount of money. The ability achieved to maximise allocative efficiency. of LGs to make more efficient budget allocations Figure 6: Local Government Autonomy is Positively Related Government Effectiveness in Europe Figure 5: Health Coverage Rates Compared to Allocations of Completted HCIII Upgrades Source: UgIFT Joint Monitoring data, UBOS population estimates. Data on coverage rate from OTIMS correlated with planned allocation of HC III facility upgrades – analysis by ODI team. Box 4: Summary of Key Issues regarding Equity of Fiscal Transfers The Ugandan government has articulated its the GoU intends to improve the balance between intention to enhance LG fiscal discretion on several earmarked (conditional) and discretionary transfers IGFTRP has successfully achieved more equitable allocation of NWR in accordance with agreed formula. occasions. Firstly, with the FDS in 2001, then more for both development and recurrent funding. The • There is no consensus on how best to achieve equitable allocation of development funding as IGFTRP both allocate funds recently in 2021, government included discretion as 2021 IGFTRP strives to achieve this through the through needs-based (largely population based) formula and targeting equal distribution of infrastructure by administrative an explicit objective of the 2021 IGFTRP – although it following interventions: unit (health and school facilities by sub-counties). The latter distorts outcomes that would be derived from a population/ need based formula. was not an objective of the 2017 IGFTRP. In general, • DDEG is allocated in accordance with a formula within specific windows of the DDEG, but the allocation of DDEG across windows is very inequitable and can only be achieved through grant consolidation. • Wage: IGFTRP has initiated efforts for more equitable staff allocation across facilities and LGs, but practical implementation falls short of intended budget allocations. Data generation on actual staff employment in underfunded and wage budgets are not fully executed by LGs 39 The IGFTRP 2021 document only gives a broad indication of the targets, while the UgIFT POM pages 19-24 and Vol 2, Annex 3 provides details by LG. 41 Bahl and Bird 2018. 40 This analysis and table are extracted from MoFPED IGFTRP Implementation Report 2022. Note that the MTP targets do not consider existing inequities of 42 For fiscal decentralization to deliver results effectively some preconditions need to be fulfilled, e.g., IMF 2015. Data in OECD/Europe can allow an analysis of schools but only aim to ensure more equitable staffing across schools. comparisons between Government effectiveness and local autonomy. Similar data sets are not available for African countries. 20 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 21 INTERGOVERNMENTAL FISCAL TRANSFERS • Conditional grants: To reduce internal disrupted by COVID-19 and subsequent PDM program. Figure 7: Discretionary Development Equalization Grant (DDEG) Allocations earmarking of non-wage recurrent grants; In its IGFTRP annual report 2022, emphasis was (UGX billion) the IGFTRP refers mainly to the ambition of placed on the criticality of improving the DDEG’s mainstreaming the health RBF through the IGFT adequacy and equity to increase flexibility in the system. For development funding, emphasis is financing of decentralised service delivery. Domestic given to formula and performance-based grants, allocations to the DDEG increased in the FY 2021/22 hence inherently earmarked. approved budget, for the first time since 2018/19, in compliance with the EU Budget Support Program’s • Discretionary Grants: Whilst the unconditional objectives. An increment to the domestic allocations grant (UCG) is highly earmarked, the IGFTRP of the DDEG was initially planned in FY 2020/21 prioritized adequacy and hence suggests that supported by the EU Budget Support funding (i.e., “once the overall adequacy of the grant has UGX30.9 billion/ EUR 7.5 million). However, due to the increased, it will be possible to ease the de-facto impact of the COVID-19 pandemic these funds were earmarking of the UCG.” In the IGFTRP, the allocated across all LGs instead as a subvention DDEG is considered to be the main vehicle for from the Ministry of Local Government to support enhanced discretion as it allows LGs to prioritise the COVID-19 response effort at the local level. development spending across all functions within Furthermore, following a shift in government priority Source: MFPED 2023 their legal mandate. Nevertheless, the DDEG towards implementation of the Parish Development remained unevenly distributed, with some LGs Model (PDM), a reallocation was made away from Whilst the total allocations for the DDEG increased between FY2016/17 and FY2021/22, the bulk of the receiving only minuscule levels of funding. The the DDEG domestic window, resulting in a drop of improvements can be mapped to externally funded development programs, which had variant objectives. A IGFTRP sought to enhance adequacy and equity more than 60 percent in FY 2022/23 compared the key objective of the EU budget support was to increase the funding to the two least funded DDEG windows of the grant with the assistance of EU Budget previous year. in per capita terms – the Luwero Rwenzori Development Program (LRDP) and the Local Government Grant Support. (LGG) – to improve the equity of the DDEG grant (see policy costing section for further details). This objective Reform Progress and Challenges was achieved in FY2021/22 with an increase of UGX 39.4 billion to these two windows (approximately EUR 10 In recognition that the DDEG is the main source of million). However, funding to the Peace Recovery and Development Plan (PRDP targeting LGs in Northern discretionary funding to LGs, government increased Uganda) was reduced by approximately UGX 21 billion (Table 9). These resources were, nonetheless, funding through this grant before this trend was reallocated to the PDM in FY2021/22. The full implementation of the PDM in FY2022/23 further stretched the available resources, requiring a complete defunding of the PRDP and LRDP windows, which led to a UGX 97 billion reduction in the district DDEG allocation as compared to the previous financial year. Box 5: The Parish Development Model (PDM) Table 9: Discretionary Development Equalization Grant per Capita – FY2019/20-FY2022/23 The Parish Development Model is a top priority of government driven by the NRM Election manifesto % Change 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2017/18- (2021–2026). The PDM is implemented at the parish level and intends to support economic transformation 2022/23 of subsistence farmers through some capacity building activities, but foremost through the provision District - 123.9 121.9 121.9 168.0 186.1 191.3 83.0 -32% of micro credit. In FY 2021/22, UGX 200 billion were provided for various preparatory activities. In FY 2022/23, UGX 1.053 trillion was allocated to enable approximately UGX 100 million to be allocated for USMID-Refugees - - - - 46.1 64.2 50.7 39.3 NA (WB Funding) each of the 10,694 parishes across the country. PRDP - - 92.9 92.9 92.9 92.9 72.1 - -100% Source: MOFPED Budget estimates, NRM Election Manifesto and PDM Guidelines. LRDP - - 13.4 13.4 13.4 13.4 24.8 - -100% LGG - - 15.6 15.6 15.6 15.6 43.7 43.7 180% Urban - 17.2 12.6 19.2 251.7 366.4 324.4 196.3 74% Total funding to the DDEG has been mainly supported through externally funded project funding. The USMID (WB increase in allocations between FY2019/20 and FY2020/21 (i.e., UGX 133 billion) resulted from enhanced Funding) - - 93.4 - 232.5 347.2 305.2 177.1 90% funding from the World Bank funded Uganda Support to Municipal Infrastructure Development Program Non-USMID - - 19.2 19.2 19.2 19.2 19.2 19.2 0% (USMID). As USMID disbursements fell by almost half, the allocations to the DDEG also dropped by UGX 55 billion and UGX 140 billion in FY2021/22 and FY2022/23 respectively. The volatility in USMID disbursements Total DDEG - 141.1 234.5 141.1 419.7 552.5 515.7 279.3 19% is built into the program because the release of funds is dependent on the achievement of key results by Total DDEG – - - 141.1 141.1 141.1 141.1 159.8 62.9 -55% GoU and the participating LGs. Domestic Source: MoFPED Volume II Approved Budget Estimates 43 EUR 9.59 million at the https://www1.oanda.com/ exchange rate of 06/10/2021 of 4106 UGX/EUR. 44 MoFPED made the reduction of DDEG elements very clear as part of the funding strategy for PDM – ref. Budget note from PS dated 14 June 2021: “Budget allocations for the Parish Development Model (PDM) for FY 2021/22”. 22 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 23 INTERGOVERNMENTAL FISCAL TRANSFERS The project-funded interventions contributed strongly to equity in allocation of funding for DDEG. The Table 11: Discretionary Development Equalization Grant per capita FY2016/17–FY2021/22 targeted increments to the LRDP and LGG allocations, together with the reduction in USMID allocation, Local Government 2017/18 2018/19 2019/20 2020/21 2021/22 significantly reduced the spread between the highest and lowest DDEG allocation per capita in FY2021/22 (see Table 10). The ratio was further reduced as USMID funding to urban LGs decreased in FY2022/23. Arua City 91,362 5,440 152,029 38,232 29,299 Arua District 6,865 6,954 19,205 116,602 15,010 Table 10: Equity of DDEG - FY2019/20–FY2022/23 Buikwe District 520 1,152 1,186 1,166 3,702 Equity - DDEG Grant 2019/20 2020/21 2021/22 2022/23 DDEG – Aggregate Fort-Portal City 77,879 3,796 126,504 78,284 81,615 Average Transfer per capita 23,323 23,318 21,062 11,566 20 least funded LGs/ Average Transfer per 7% 7% 17% 10% Jinja City 76,764 4,369 130,224 41,711 58,347 capita Max/Min Ratio 312 303 231 214 Jinja District 929 1,013 990 1,715 4,017 Average Transfer per capita 6,787 7,154 5,002 0 PRDP Max/Min Ratio 3 5 3 N/A Kabarole District 1,438 2,193 2,148 2,608 5,399 Average Transfer per capita 2,352 2,253 3,875 0 LRDP Lugazi Municipality 2,582 2,206 102,636 132,412 140,352 Max/Min Ratio 8 8 7 N/A District Average Transfer per capita 1,341 1,285 3,395 1,249 National Average 6,207 3,650 10,563 13,456 15,308 LGG Max/Min Ratio 2 2 3 8 Source; MoFPED, OTIMS Average Transfer per capita 18,152 33,768 16,260 13,817 Refugee Hosting Max/Min Ratio 3 8 3 4 Box 6: Summary of Key Issues Related to Discretion of IGFTS Average Transfer per capita 140,871 135,589 125,258 72,433 USMID Max/Min Ratio 3 8 12 13 • A degree of LG discretion in prioritisation of resource allocations is critical to promote allocative Urban efficiency and value for money. Average Transfer per capita 4,385 2,771 2,373 2,473 Non - USMID Max/Min Ratio 5 11 3 4 • The IGFT system in Uganda is dominated by conditional grants that have also been characterised internally by significant earmarking. Average Urban USMID pc/Average District LGG pc 105 106 37 58 Source: MOFPED 2023 • The unconditional NWR and wage grants are earmarked de facto and not subject to effective local budget prioritisation. According to the field findings, the views of local • The DDEG was widely recognized as critical for • To date, IGFTRP has pursued efforts to enhance discretion through (i) lessening earmarking of stakeholders with respect to earmarking of funding meaningful local planning and budgeting. It is conditional grants, and (ii) creation of DDEG and efforts to ensure its adequacy and equity. and importance of discretion can be summarized also the only development grant for LLGs and • Some limited progress has been made on establishing less earmarked funding in the health sector as follows: hence critical for the relevance of local budget in accordance with the MTP, but education sector development transfers for instance are mainly process. earmarked for few seed schools. There is no formal strategy to further enhance discretion of • Some degree of earmarking is useful – particularly the earmarking of funds across sectors as full • DDEG funding varied tremendously across conditional grants. discretion would lead to complex and heated the fieldwork LGs (see table 11), with USMID- • The main vehicle for enhancing discretion has been DDEG. Funding for DDEG has over the years been LG debates, likely with insufficient adherence to benefitting urban LGAs having by far the largest very dependent on GoU project-specific funding (PRDP and LRDP) and WB support for USMID. The national sector standards and policy guidance. allocations (Lugazi received US$ 37 per capita in project dependent funding of DDEG led to significant inequities across LGs as the formula only was one year), followed by refugee-hosting rural LGs applied within project windows and not across. It also raises the issue of sustainability, as reductions • Earmarking of some of the very small grants was such as Arua. Some rural LGs like Buikwe received in project funding, as with USMID, have been followed with reduced allocations. also deemed useful because the level of funding less than US$ 0.5 per capita for most years, is so low, for instance for the Unconditional • Recent EU support has enabled GoU to gradually establish more equitable DDEG funding across although it experienced some slight increases NWR, making it impossible to accommodate all LGs but these efforts have been jeopardised by DDEG budget cuts (reallocation of PRDP and LRDP in 2021. legitimate local demands. to PDM) during FY2022/23. New policies like PDM, are inconsistent with the IGFTRP framework, and • However, earmarking within sector grants was likely to have implications on its sustainability. often deemed too excessive. Local discretion on • While the overall reduction of GoU DDEG funding is a set-back for the IGFTRP, it also presents an education and health sector funding could be opportunity for a new and non-project dependent GoU approach to enhancing discretionary funding increased. 45 World Bank, 2022. to LGs. 24 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 25 INTERGOVERNMENTAL FISCAL TRANSFERS 2.3.5 Transparency, Reliability and These systems were developed with the support of Box 7: Supplementary Budgets Effectiveness the ODI TA team in close collaboration with the FDU, which helped build local capacities. The systems Transparency have been largely handed over to the GoU, although Between FY2015/16–FY2019/20, there was a drastic increase in the number of supplementary budgets The GoU recognises the importance of transparency the ODI maintains a significant supporting role. considered. The total supplementary expenditure approved by Parliament increased from UGX 889 billion in fiscal allocation as well as in how the funds are (3.7 percent of the approved budget) in FY2015/16, to UGX 3.249 trillion (8.0 percent of the approved Reliability utilized by LGs. However, there are no explicit IGFTRP budget) in FY2019/20. reform objectives related to this, as these aspects IGFT budgets have largely been executed (transferred Source: https://parliamentwatch.ug/news-amp-updates/govt-commits-to-end-the-fiscal-indiscipline- have been dealt with partly in earlier phases of the to LGs) in accordance with budgets. Over the period of-supplementary-budgets/ IGFTRP or addressed through other PFM initiatives FY2018/19–FY2021/22, the GoU effectively released and institutions. These include the PBS, the Budget funds to LGs in accordance with the approved During FY2021/22, the Government appropriated four rounds of supplementary budgets amounting to Monitoring and Accountability Unit, and the work budgets although the rates differed across the over UGX 9.138 trillion ($2.538 billion). See https://politicalfinanceafrica.org/what-explains-governments- of the Auditor General and the Accountant General. different grants categories (Figure 8). In FY2018/19, fondness-for-supplementary-budgets-which-have-no-impact-on-gdp-growth/ the overall amount of funds released was higher than The GoU has established a highly transparent Starting in FY2022/2023, the government committed to end the fiscal indiscipline of supplementary the budgeted amounts, largely driven by over-release budget website https://budget.finance.go.ug/ with budgets. In presenting the UGX47 trillion national budget to Parliament, the state Minister for Finance for the non-wage recurrent grant. The subsequent detailed data on both central and local government (General Duties) had indicated their determination to “limit supplementary expenditures to 3 percent years recorded some deterioration across all the budgets. The level of detail and comprehensiveness of the total approved budget as provided for in the law”. grant categories because of the COVID-19 pandemic. of information is very high and among the best in With school closures, for instance, GoU withheld SSA. The Online Transfer Information Management part of the education non-wage recurrent grants, System (OTIMS) provides a transparent system for reducing the execution rate to just 93 percent. Efficiency identified in the annual assessments, as well as simulation and application of grant formulas. https:// thematic performance improvement planning otims.finance.go.ug/. Enhancing LG management capacities through a support for all LGs within thematic areas. These are system of annual LG performance assessments can areas where most or all LGs underperform. Since improve efficiency of the intergovernmental transfer Figure 8: Share of Release of LG Grants Versus Approved Allocations, FY2018/19 to FY2021/22 2017, when the annual LG performance system was system. This would include inbuilt fiscal incentives first operationalized, several components have been where well-performing LGs receive additional added, and others are in process of being added, to formula-based development funding. It also provides deepen and strengthen the system for performance- MDA oversight and support – including performance based management (Figure 9). improvement planning for underperforming LGs Figure 9: IGFTRP and UGIFT Results Chain RA1: Enhancing Adequacy and Equity of Financing LG Services Adequate and Equitable wage and Non Wage recurrent funding for LG services (supported by DLI 1) RA3: Improvement in Adequate and Targeted Development Management of Services RA4: Improvement in Delivery Funding for Service Delivery by LGS of Services and Infrastructure Infrastructure and Equipment Linked Strengthened Capacity, by LGS Source: MoFPED 2023. to Performance (Supported by DLI 2) Staff Deployment, Adequate Staff at Task and Improved Montoring of and Support Service RA2: Improved Oversight of Service Motivated, Community to Service Provision, While the transfers have been released in accordance with budgets, the funding has not always proved Delivery by Central Government Selection of Projects, Involvement, Adequate Delivery Operational Inputs. Functional Outcomes reliable from an LG perspective. Key concerns for LGs are the frequent and late budget amendments in the Key Actions taken to Strengthen Procurement, Contract & Facilities and Equipment, Safeguards Management form of supplementary budgets. Several of the MTP targets were not included in original budgets but only Processes, Systems and capacity for LG (Supported by DLI 5) Appropriate Guidance Systems Service Delivery (supported by DLI 3) and Tools (Supported by DLI 6) in later supplementary budgets. The late supplementary budgets for recruitment of additional staff proved Strengthened, especially difficult to manage and contributed to a lack of execution of wage budget in LGs, as many failed Routne Oversight and Performance Performance to recruit the additional staff provided for in the (late) budgets.47 Technical Support for Assessment Assessment Facility Subcountry Local Service Delivery Performance Improvement by Central government Improvement LG Performance Frameworks (supported by DLI 3) Plan Improvement Plan 46 MoFPED 2022a. 47 Note that by the time of analysis (end of 2022), detailed data on the extent to which planned additional staff had been employed in LGs in accordance with budgets, was not available. However, interviews of LG stakeholders indicated significant shortfalls in actual employment compared to planned employment. Without deep analysis of the Integrated Personnel and Payroll System data, it is difficult to determine which staff have been hired as part of the least staffed interventions or not. However, at the aggregate level, the staffing level in FY21/22 and FY20/21 fell significantly short of the recruitment targets for primary Source: MFPED 2023 education. It was better for health, and the target was met for secondary education. 26 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 27 INTERGOVERNMENTAL FISCAL TRANSFERS While the LGPA became operational nationally of Health Centre IIIs, IVs and General Hospitals, Box 8: Key Issues regarding IGFT Transparency, Reliability and Effectiveness. and coordinated under OPM, other parts of the and it will be used from FY22/23. Similarly, on performance management system have only more the education side, the School Performance recently been put in place (or are still in the process Assessment (SPA) tool has been developed. The • IGFT transfers are executed in a transparent manner and generally in accordance with budgets. of being fully developed): SPA assesses school performance against key • A main concern from LGs has been the late supplementary budgets that have had an impact on service delivery standards that influence learning • The LGPA, which is coordinated by OPM, was effective execution. outcomes. The outcome of the assessment nationally operational from 2017, following then informs the size of school grants and • A comprehensive performance management system under IGFTRP has (i) shown good results at LG a long process of redesign and strengthening performance improvement support needed. MoES levels but (ii) is yet to be fully implemented at LLG and facility level. The completion and roll out of a previous LGPA system. This design process has pre-tested the SPA in four HLGs and three these systems are critical for impact on service delivery. benefitted from a 2011 review that had identified primary schools in each of the LGs in Eastern • The fiscal incentives of the LGPA requires a reasonable level of funding for the formula-based the shortcomings of the past system. The annual Uganda to determine the overall appropriateness development grants that are currently squeezed by high levels of earmarked health and education results published since then have facilitated of the assessment procedures as well as the sector funding and low levels of DDEG for non-USMID LGs. monitoring, with a gradual improvement of LG relevance of the proposed performance measures performance observed in most indicators, while and indicators to inform refinements to the SPA also helping them focus efforts for performance manual. A broader SPA pilot is to be undertaken improvements by MDAs. after school operations have stabilized in the 3rd 2.4 Other Issues Pertinent to development partners. Therefore, LGs have access to • The system for the provision of targeted other sources of funds, well beyond the IGFT system, performance improvement planning support was Term of the school calendar. the IGFT Reform that in some cases allow them to close gaps in • A system for the assessment of LGs has been adequacy and equity in financing of their activities. designed as part of the IGFTRP 2017 and UgIFT. The It should be noted that achievement of the under consideration since 2016, though only agreed targets were: (i) in FY2017/18, performance objectives of the reform would not merely depend The first of these are the “subventions”, which became active in 2019. The LGPA system improvement plans would be prepared for and on the transfers from central government to have been defined as funding for devolved services developed in the late 1990s had successfully agreed with at least 5 LGs; and (ii) in FY2018/19 LGs, but rather a multitude of other factors and financed through CG votes, according to the 2017 included LLGs. In consideration of the insufficient and FY2019/20, performance improvement plans developments This section reviewed XX of such key FDA study. Examples of services funded include resources that were being transferred to LLGs would be prepared for and agreed within at least issues to determine to what extent they could have the procurement of drugs, textbooks, agricultural and hence limited incentive for performance 20 LGs annually. Likewise, targets were set for impacted the outcomes. They include: (i) non-IGFT inputs, other equipment, as well as various centrally improvement, implementation of the LGPA was development of annual thematic PIPs. Generally, funding flows of local services to LGs through other managed projects – for instance in support of social postponed by the LGPA Task Force in 2016. It support to the performance improvement government transfers and external transfers; (ii) protection. The total budgeted amount for these was only re-activated in 2019, during the design planning has been beneficial; even though its LGs’ own revenues; (iii) relevancy and functionality subventions was estimated as UGX 1.9 trillion for of UgIFT Additional Financing, on realization impact depends on its quality. The annual IGFTRP of data and information systems, (iv) reliability FY2017/18, compared to a total LG budget of UGX that deepening service delivery hinged on the and PA reports indicate that (i) some sectors have and sustainability of medium-term budgeting 2.8 trillion – more than total non-wage IGFTs. LLGs’ effective performance of their respective performed better than others – crosscutting, and planning for financing service delivery, and Subventions are partially a reflection of central roles. With support from the World Bank, the micro-scale irrigation and health assessment foundation for sustainable IGFTR. government’s agreement with LGs on how most LGPA Task Force re-activated the assessment areas improved more than education and water/ efficiently to manage a specific function – but is of LLGs focusing on: crosscutting areas such as 2.4.1 Non-IGFT Funding Of Local Government environment; and (ii) some approaches worked also a reflection of incomplete sector devolution planning and budgeting, procurement, revenue Services more effectively than others, e.g., the initial that warrants a more systematic review. Except for mobilisation, execution, gender, and environment ODI facilitated five underperforming LGs, which Whether by design or otherwise, several functions the education sector, most sectors finance local as well as the extent to which the LLGs performs showed significantly greater improvement than that are legally devolved to LGs are financed outside government responsibilities predominantly through its sector (education, health, water, micro-scale other similar interventions. the IGFT system by government and/or external subventions rather than LG fiscal transfers (Figure 10). irrigation) support functions. In FY2021/22, • A system for school and health facility the LLG PA manual was approved by Fiscal performance assessments was envisaged in 2015 Decentralization Technical Committee, following Figure 10: Share of Sector Subventions Spending on Local Government to be rolled out nationally as part of the IGFTRP. a pre-test in six HLGs and 25 LLGs selected from Functions in Total Sector Spending This would be based on existing systems for sector the four regions of the country. LGs and HLGs performance assessments (school inspection were oriented on the: i) objectives of the LLG PA; and the health sector’s Results Based Financing ii) principles and scope for the design of the LLG (RBF) system). Since 2017, significant work has PA; iii) performance measures, indicators, and been put into reviewing past sector experiences means of verification; and iv) the online reporting as well as the design and piloting of national system. The roll-out of the LLG performance systems for facility assessments. For the health assessment for FY2022/23 commenced in August sector, a harmonized RBF facility assessment tool 2022 and as at the end of September 2022, more developed in 2022, elaborated on the process and than 130 LGs had provided online assessment organization for the assessment of performance reports of their respective LLGs. 49 MoFPED 2022a. Source: IgIFT PAD 50 MoFPED 2023. 28 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 29 INTERGOVERNMENTAL FISCAL TRANSFERS According to the IGFTRP 2021, levels of funding for devolved services increased through these kinds of Figure 11: Additionality of OGT and External Funding to IGFTR “subventions” from UGX 0.4 trillion in FY2015/16 to UGX 1.9 trillion in FY2018/19 (Table 12). Subventions contribute over 50 percent of funding for health, agriculture, and social development. An in-depth analysis 6000.0 of the health sector, following-up the 2017 FDA study and IGFTRP, recommended options for integration of 4.6% the Results Based Financing (RBF) into IGFTRP, as a way of addressing this problem. 5000.0 5.0% Table 12: Estimated Local Government Subventions by Sector (2014/15–2018/19) UGX Billion 4000.0 5.7% UGX, billions 4.3% SECTOR 2015/16 2016/17 2017/18 2018/19 3000.0 Agriculture 3.19 204.61 426.64 412.35 2000.0 Education 77.64 96.29 87.28 54.4 Health 106.38 195.65 364.55 428.87 1000.0 Public Sector Management 0 67.08 287.86 513.92 0.0 2017/18 2018/19 2019/20 2020/21 Social Development 33 116.91 106.45 103.73 IGFTransfers OGT Water and Environment 57.8 98.39 111.65 134.17 Works and Transport 140.44 138.86 138.86 214.73 Source: MFPED Grand Total 418.44 917.81 1,523.28 1,862.18 Source: MoFPED IGFTRP program document 2021. Across sectors, the allocation through OGTs grew steadily over the four years to FY2020/21, driven mainly by funding to the agricultural sector, and to a smaller extent, the public sector management. On the other hand, These subventions may reflect central government’s and underpin use of governments in disbursements while small in comparison to overall financing requirement by LGs, external financing still plays a significant resistance to devolve funds in accordance with and eventually improve transparency, credibility, role, especially in health and education. Improper budget planning on the part of LGs and haphazard financial agreed division of expenditure assignments (as per reporting and accountability of donor resources. forecasting of the MTEF constrains the utilization and proper management of this resource. Constitution) or because procurement is deemed These are officially defined as “off-budget” by the more effective when done centrally (e.g., the case central governments. for NMS). A more thorough review of subventions to Figure 12: Sectoral Allocation of OGT and External Funding • Other Government Transfers (OGT) from identify areas of funding that could and should be Central Government MDAs integrated into the IGFTS is still critically needed. OGT are, to a large extent, financed by programs External Financing Other Government Transfers The other type of funding available to LG units that are funded by external development partners, 200 800 is classified respectively as “Other Government and included in the LG budgets (in contrast to the 700 Transfers” and “External Financing”. Section 44(1) subventions that are spent locally, but cannot be 150 600 of the Public Finance Management Act, 2015, UGX, billions UGX, billions traced through LG budgets). Central Government 500 allows the minister responsible for finance to grant MDAs communicate the Indicative Planned Figures 100 400 authority to accounting officers to various MDAs and (IPFs) for the specific program to the beneficiary 300 local governments to receive grants on behalf of LGs during the budget process in October. This is 50 200 government. Accordingly, government has adopted expected to facilitate comprehensive budgeting 100 two aid modalities that are coordinated directly or 0 0 at LG level and capturing of IPFs in the budget 2017/18 2018/19 2019/20 2020/21 2017/18 2018/19 2019/20 2020/21 indirectly by LGs. framework papers and program budget estimates. • Direct external financing flows to LGs: Public sector management Agriclture Public sector management Agriclture As of FY2020/21, the combined contribution of EFs Health Education Health Education and OGTs was estimated at UGX 938.1 billion (about LG accounting officers liaise with DPs to agree on Other Other 23 percent of the total LG sector grants), up from UGX a program, secure funding, and capture projections 399.6 billion (or 15 percent) received in FY2017/18. Source: MFPED, Budget website. Source: MFPED, Budget website. for off-budget estimates in their Budget Framework Additionality of OGT is more pronounced, as its Papers and Annual budgets. LGs usually formulate contribution rose 8 percentage points of the total a memorandum of understanding (MoU) with intergovernmental transfers over the four years to donors and sometimes, coordinated by a national OGTs are distributed quite unevenly, mainly targeting rural rather than urban LGs, and with relative emphasis 18 percent over and above the intergovernmental MoU issued by the sector ministry. The modality is on Northern region and, to a lesser degree, Western regions compared to Central and Eastern regions. transfers to LGs during FY2020/21 (Figure 11). envisaged to promote EF appropriation by Parliament Notable recipients of OGTs over the period FY2018/19 to FY2020/21, among the district visited during this PER study included Arua District, Buikwe District, and Fort Portal City. 51 It should be noted that a certain level of inter-subjective judgement is required for classification of CG votes as (primarily) financing devolved serviced or not. The team that analysed the budget under the FDA study and the figure applied in IGFTRP 2021 differs by approximately 10 percent 52 The FDU and ODI team has also engaged with MGLSD for review of social development spending arrangements. 53 The external financing is reflected in Part 1: Table A.1 on Revenue Performance and Plans by Source in the annual Local Government Budget Estimates and categorized as (i) External Financing indicating expenditure estimates funded by donors but planned and disbursements outside government systems; and (ii) Other Government Transfers (OGT) to execute programs coordinated by the MDAs, largely financed by donors. 30 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 31 INTERGOVERNMENTAL FISCAL TRANSFERS Figure 13: Additionality of OGT and External Funding at Individual LGs during FY2021/22 interest to work with non-governmental organisations (NGOs) as community-based agencies, to promote outreach and interaction with target groups, such as the poor and vulnerable; and (iii) flexibility to their own or most appropriate procurement procedures and implementation modalities. Yet several practices have obscured transparency, alignment of funding to LG priorities, leveraging different sources of donor support, and realization of sustained improvement in service delivery. Box 9: Summary of Issues Related to Non-IGFT Funding of LGs • The level of subventions (funding of devolved LG functions through central government votes) has increased in recent years, and levels of funding exceeded non-wage IGFTs. It is a sign of incomplete decentralisation that deserves closer analysis and action – or at least closer monitoring, including distribution patterns across LGs. • Part of the subventions are captured in LG budgets as “Other Government Transfers” (OGT) or “External Source: MFPED website Source: MFPED website Finance” (EF). • Both OGT and external funding (EF) are distributed very unevenly, with a bias towards rural LGs as External finance is also unevenly distributed. Among the districts that were visited during this study, Buikwe well as significantly higher levels of funding in Northern Region compared to other parts of Uganda. District particularly receives significant amounts of external finance (from Iceland Aid), almost 20 times However, there is no deliberate effort for these extra resources to be directed towards LGs that are the per capita flows at national level. Overall, even though LGs in the Northern region have a significantly underfunded through the IGFT system. higher inflow of both external funding and other government transfers, these additional resources widely vary across districts, with no clear targeting of those that are underfunded LGs (Figure 13). Table 13: External Finance and other Government Transfers in Selected LG Budgets, Box 10: Summary of Issues Specific to External Financing of LGs Nominal Ugx Per Capita Other Government Transfers External Finance • Recording and budgeting inconsistences – external funding is treated as “off-budget” by central Local Government 2018/19 2019/20 2020/21 2021/22 Local Government 2018/19 2019/20 2020/21 2021/22 government, but LGs treat it as “on-budget”. At the same time, donor funded programs executed by MDAs are transferred as OGT as captured in LG budget estimates. EF estimates are not harmonized. Arua City 21,802 17,848 1,156 5,328 Arua City - - - - Annual Budget Estimates do not capture the off-budget, which, on the other hand, is appropriated Arua District 21,091 28,735 101,464 79,981 Arua District 34,298 17,698 64,851 9,386 as external financing in the Local Government budgets. Consequently, the provision for external Buikwe District 15,568 15,743 19,544 24,370 Buikwe District 92,912 57,530 100,612 88,834 financing for LGs in the MTEF has been blank for the period 2015/16 to 202/22, reflecting an inadequate Fort - Portal City 21,812 14,444 7,095 11,443 Fort - Portal City 1,141 - - - picture of donor inflows for public service delivery. Jinja City 19,219 13,010 4,877 4,570 Jinja City - - - - • More so, cognisant that EF estimates are captured in different formats, it is impossible to conduct Jinja District 6,003 4,880 6,101 9,197 Jinja District 1,325 1,306 2,012 1,930 a comprehensive geographical allocation of both on-budget and off-budget financial resources. Kabarole District 7,836 6,899 34,761 7,072 Kabarole District 1,215 1,256 1,482 1,285 According to MoFPED, this is due to inadequate guidance on the collection and capturing of the Lugazi Muncipal Council 6,919 5,885 6,349 4,904 Lugazi Muncipal Council - - - - estimates on donor support and lack of a systematic process to verify the EF estimates with donors to promote authenticity of the estimates. Consequently, MoFPED is always reluctant to reflect the National p.c 13,174 14,280 22,669 13,308 National p.c 4,694 4,950 5449 4,895 estimates from the LGs in the MTEF and any other published budget documentation. This leaves the Source: MFPED Budget website MTEF incomplete and hence reduces its meaningfulness in guiding, planning processes, expenditures, and resource mobilization at the LG level. While external financing/donor funding for LGs to LGs. The low disbursements for external financing • Quality and Reliability Data Sources. is provided outside the IGFT system, the funding could be attributed to the low absorption of funds modalities are often well-aligned with LG PFM which, according to the various budget performance • Over the past decade, MoFPED has embarked on initiatives to improve access and use of information systems, according to the LG perspective. For reports, was caused by lengthy procurement on external financial resources; strengthen the collaboration amongst existing databases to map instance, the Iceland Aid to Buikwe follows LG processes and delays. all development partner support; and specifically track donor financial resources to the Government tendering and procurement procedures to a larger of Uganda. Despite efforts to strengthen coordination of extent than the hybrid procurement of seed schools development cooperation or external support in and HCIIIs under UgIFT, or the use of the army for Uganda, some bilateral development partners prefer other procurement under GoU funding through channelling their support outside the government LGs. Nonetheless, only a fraction of the budgeted system. This preference has been attributed to (i) the resources under this modality of funding is disbursed need to deliver emergency support expeditiously; (ii) 32 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 33 INTERGOVERNMENTAL FISCAL TRANSFERS 2.4.2 LG Own Source Revenues Table 14: Performance of Local Revenues in Selected LGs While IGFTs currently constitute the bulk of LG revenue, the LG’s own source revenues are also considered Local Government 2018/19 2019/20 2020/21 2021/22 very important – not least due to assumed governance impact (making LGs more accountable and more Arua City 3,598 6,811 259 7,314 prudent in the use of fiscal resources). Funds from the OSR are expected to contribute to service delivery and finance a wide range of administrative and political core functions. However, the real value of OSR (i.e., Arua District 1,994 1,926 2,658 978 the nominal value adjusted for inflation and population growth) has declined since 1998, following the Buikwe District 5,649 6,917 5,859 5,923 removal of the Graduated Personal Tax (GPT) and failure of new measures to pick up, let alone keeping Fort - Portal City 50,390 14,388 24,915 23,103 pace with inflation. Consequently, the real value of almost all the various categories of own source revenue have been static since 2012. Jinja City 86,218 61,768 18,784 27,062 Jinja District 11,844 11,599 11,591 5,982 Figure 14: Real Value of Local Government Own Source Revenue – FY1996/97 to FY2018/19 Kabarole District 2,061 3,186 1,503 2,227 30000 Lugazi Muncipal Council 10,575 3,320 7,554 6,676 National p.c 4,087 5,061 2,867 2,840 Source MoFPED 2022 budget data on website 25000 20000 One important area of progress has been the OSR expenditure policy and administration could Other expansion of the digital revenue administration create some disincentives for LGs to exert more Uganda shillings License 15000 User Fees system for LGs – the Integrated Revenue effort at collection revenues. LGs interviewed Property Tax Administration System (IRAS). This locally designed during the study expressed concern over the delays Graduated Tax Local Government Hotel Tax web-based system operated on mobile phones is in issuance of cash limits by MoFPED to allow them 10000 Local Service Tax now being rolled out to approximately 35 LGs – use of OSR. For example, the late receipt of the cash especially cities and municipalities. There are also limits for the first quarter of FY2022/23 undermined efforts to undertake property evaluations in cities the facilitation of councillors meetings, and the 5000 and municipalities and to digitise the system to payments for waste collection. Clearer guidelines improve property tax collections. The use of IRAS is, on OSR and sensitisation of LGs, especially LLG, on according to interviews, showing positive results practices related to Treasury Single Account would 0 with revenue collection more than doubling within be useful to improve efficiency in use, as well as 8 9 0 1 1 3 4 5 /9 /9 /0 /0 /0 /0 /0 /0 /0 6 07 08 09 10 11 12 13 14 15 16 17 18 19 / / / / / / / / / / / / / a year of installation in LGs. However, this is yet incentivise LGs to collect OSR. 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 to be substantiated by national OSR data that (as discussed above) continue a downward trend. Source: Local Government Financed Commission data on LG own Source Revenue, Bank of Uganda inflation data and UBOS Population data. World Bank calculations based on update of 2017 FDA study. The urban local governments collect significantly the amount it collected in FY2018/19. OSR revenue more revenues than the rural LGs, but the fluctuations contributes, according to LG budgets, between 1% and general down trend of OSR collections spreads (Arua District) and 13% (Jinja Municipality/City) of across LGs. Among the select LGs interviewed the LG budgets. A LG Own Source Revenue Strategy during the study, Jinja City, which seems to be much that GoU is currently working on will be crucial to better than other LGs, also collected only a third of enhance this important source of financing for LGs. 54 GPT was gradually abolished from 2001 to 2005. See Therkildsen 2006. Note that Therkildsen mainly discusses the governance aspects of the GPT and not the fiscal impact on LGs. 55 In 2008, the Local Governments Act was amended to introduce the Local Service Tax and Local Government Hotel Tax. This has the main aim to compensate for the vacuum created by abolition of graduated personal tax. 34 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 35 INTERGOVERNMENTAL FISCAL TRANSFERS Table 15: Performance of Local Revenue against GDP and Local Governments Budgets Box 11: Key Issues Regarding LG Own Source Revenue (Billions UGX) Year GDP Local revenue LG budget LR to GDP LR to LG Budget • OSR has in real terms (adjusted for inflation and population growth) declined substantially over the last two decades and is today less than a third of what it used to be – primarily because LGs never 2007 21,186.56 found an alternative and buoyant resource to compensate for the abolishment of GPT. 2008 24,497.45 116.89 2,151.07 0.48% 5.4% • LG OSR in Uganda is very low compared to international comparisons of OSR/GDP – only about 25% of what is average globally for less developed countries. 2009 48,286.94 130.76 1,796.13 0.27% 7.3% • Several reforms are currently supporting LG OSR at the local level, with improved ICT-based collection 2010 53,884.87 128.42 2,089.24 0.24% 6.1% systems etc. However, national data on OSR suggest that these are insufficient to overcome the decline of previous years – on the contrary, evidence suggests that the OSR decline is continuous. 2011 64,481.51 115.79 2,247.61 0.18% 5.2% • Lack of LG OSR generation provided an added burden on central governments to finance LGs solely 2012 69,525.37 133.01 1,755.60 0.19% 7.6% through IGFTs and weaken local accountability. 2013 74,602.44 150.74 2,846.89 0.20% 5.3% • The TSA application on OSR is causing significant cash flow problems in LGs and requires a reconsideration of practices – especially for the LLGs. 2014 82,415.82 165.11 3,092.28 0.20% 5.3% • Currently, the policy environment appears not conducive for OSR strengthening as LGs complain 2015 91,188.86 185.71 2,353.86 0.20% 7.9% about a lack of clear tax mandates, and central government interference. The property tax for instance is not a tax on all properties but, de facto, a double tax (also taxed by TRA) on rental properties. It 2016 100,116.78 195.44 2,534.70 0.20% 7.7% is recommended that an in-depth study of OSR is undertaken, to objectively assess the revenue 2017 108,518.04 220.79 2,721.80 0.20% 8.1% potential and revenue collection costs of various own-source revenue sources to rationalise revenue bases. 2018 120,431.04 246.08 2,940.67 0.20% 8.4% 2019 131,405.94 184.41 3,415.78 0.14% 5.4% 2.4.3 Data and Information Management Systems for IGFTR Source: Eficon consultant 2021 analysis of LGFC data and World Development Indicators The IGFT reforms have been underpinned by various data and information management systems. The design and implementation of the Intergovernmental Fiscal Transfer Reform Program (UGIFTR) started in fiscal year FY2015/16, hinged on several data and information management systems, which have evolved over time (see As a share of GDP, OSR shrank from 0.48 percent to 0.14 percent over the period 2007–2019. This widened Table 17). Ongoing system reforms expected to have implications on the design and functionality of the IGFT the gap between Uganda and her peers, including Tanzania which collects 0.5 percent of GDP. Even though in the future include (i) e-governance, specifically enhancing the interface between existing government this type of revenue normally increases as countries grow, Uganda will need a stronger effort to get into systems; (ii) the Programme Budgeting System, newly launched planning and budgeting reform to better that track, given its current level that remains far behind other low-income countries. align budgetary decision-making to key programs of NDPIII, and envisage revisions to the formula-based resource allocation for IGFTs; and (iii) the newly launched Integrated Bank of Projects aimed at collating all investment project data at both central government and L/G level. Table 16: Uganda’s Own Source Revenue Against International Comparators LGA % Share of domestic Category of country LGA OSR % Share of GDP revenue Low Income 0.4 2.2 Lower Middle Income 2.1 10.3 Upper Middle Income 2.8 13.0 High Income 4.9 19.2 Uganda 0.14 1.1 Source: OECD/UCLG (2016), Subnational governments around the World: Structure and Finance. Page 50, table 38. the data is collected from a sample of 101 countries across the world. 56 Consultancy Services to Review the Legal, Policy and Administrative Framework for Local Government Revenue Management and Design of a Local Government Own Source Revenue Mobilization Strategy. Reference No. MOFPED/REAP/CONS/19-20/00012 Eficon Consultants May 2021. 57 Bank of Tanzania – annual reports - https://www.bot.go.tz/. These figures have remained constant for the last ten years. 36 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 37 INTERGOVERNMENTAL FISCAL TRANSFERS Table 17: Data and Information Management Systems Underpinning IGFTR A broad assessment of the relevance and b) Budget decision-making at the LG level is still functionality of the five major systems that have input-driven and not fully aligned to program Type of System Purpose – Host and Interface been at the core of the IGFT system, namely PBS, objectives or service delivery targets. Some LG OTIMs, IFMIS, OPAMS and Sector based Information officials interviewed indicated that the IPFs A platform for systematic use of performance information to inform decisions about budgetary priorities and spending plans based on the program classification Management Systems aimed to establish: (i) the shared by MoFPED are mainly used for capturing 1. Program Based of expenditure between competing programs and sectors. extent to which that system has enabled realization and balancing the “figures” within the economic Budgeting System (PBS) of the IGFT reform objectives; (ii) the existing classification items of the budget as directed started in FY2017/18 Host:: MFPED. challenges in functionality and relevance; and (iii) by the grants’ guidelines. This is consistent with Interface: IFIMS, Integrated Personnel and Payroll Systems (IPPS) and OTIMS. potential elements of the systems that should what was also highlighted by WHO (2021) which be further examined in a more systematic and notes that the IPFs shared by MoFPED during A simple, transparent formula-based system to calculating local government 2. Online Transfer integrated planning figures (IPFs) for the current grant structure. coordinated manner. It employed multiple methods budget preparation are still grant specific and Information System including secondary from literature review, as well as do not present any correlation with the PBS (OTIMS) started in 2016 Hosted by OTIMIS, an external agency. Efforts to transfer the hosting from an primary data collected from key informant interviews outcomes as defined by the PBS structure for LGs. external agency to MoFPED is in advanced stages. from front end users. The findings were summarized At LG level, budget control and reporting remain Interfaces with PBS, IFIMS, and Integrated Personnel and Payroll Systems (IPPS). below. focused on the grant’s economic classification. This limits any effort to prioritize and set service 3. Online Performance Purposed for capturing and reporting data on the annual Local Government 1. Program based budgeting system (PBS). Assessment Performance Assessment (LGPA. delivery targets (outputs or outcomes), and to The assessment concluded that to a good Management System align it to resource allocation. (OPMAS) started in 2019 Hosted by OTIMS and Office of the Prime Minister. extent, the PBS has successfully supported the budgetary decision making, in line with the Supports generation and access of timely, quality, and accurate financial data functions envisioned at set up. This includes aimed at improving fiscal management; ensuring transparency and accountability c) Inadequate access to quality and reliable supporting MDAs and LGs to link financial 4. Integrated Financial in the handling and use of public resources at all levels of local and central performance information for service delivery Management governments. budgets with results (outputs/outcomes) during baselines and targets at the LG level. Given that Information System budget preparation; budget policy analysis and (IFMIS) started in 2002 Host: MFPED. most of the data is not systematically monitored consolidation of national budget documents, for quality, appropriate storage and accessibility, Interface: Integrated Personnel and Payroll Systems (IPPS) and PBS including the budget framework papers, annual some LGs and MDAs have limited evidence on budget estimates for budget preparation, Is a government-wide computerized Human Resource Management Information impacts of public spending to inform their ministerial policy statements, and performance System that supports automation of human resource functions – payroll budgeting and/or influence spending decisions. management, pension management, establishment control and training contracts; supporting the budget execution, WHO (2021) also highlights that at sub-national management. It enhances access to electronic records – Electronic Document reporting and accountability of public spending, Management System (EDMS) and provision of reliable and timely information for level, there are very small improvements in 5. Integrated Personnel decision making and accountability of government salary and pension payments. including production of periodic and annual and Payroll System budget preparation, execution or reporting since budget performance and monitoring reports; (IPPS) the introduction of the PBS reform. IPPS is being upgraded to an integrated Human Capital Management System and facilitating other institutions to fulfil their (HCMS) to enable automation of all human resource functions and processes Therefore, cognizant of the importance of a fully roles in the budget process, these include the Host MPS: Interface: Integrated Financial Management System (IFMS), National legislative budget debate and parliamentary operational and relevant PBS for a successful Security Information System and Programme Based Budgeting among others. oversight. However, the assessment noted that realization of the IGFT reform objectives, the the PBS relevance remains constrained by some government has committed to the adoption of 6. Integrated Revenue A web and mobile application platform that aids municipalities in collection of Administration System local revenue from registration, assessment, billing, payment sensitization of challenges, including: the new Programme Planning Approach (PPA), (IRAS) taxpayers and linking the citizens to municipalities spearheaded by NDPIII, and enforced by recently introduced Program Implementation Action Plans 7. Local Government Revenue Collection a) Gaps in understanding of the overall objective (PIAPs). This requires a review of the design and E-logrev is an automated online solution for taxpayers’ registration assessments, and Management and principles of the PBS among technocrats and functionality of existing PBS to promote practices e-payment, enforcement, reporting, reconciliation and interfacing/integration with Information System policy makers in both LGs and CG MDAs. It was that generate reliable, relevant, and consistent other government agencies, telecom, and commercial bank systems, and URA (LGRMIS) code named (e-logrev) noted that the PBS has largely been adopted as financial and performance information. Such a budgeting information system with limited information is critical in capturing programme Source of sector specific indicators for (i) variables used in the formula-based attention to promoting a strong link between targets and outcomes; monitor progress towards the 8. Sector information allocation for IPFs; and (ii) setting the service delivery baseline and targets which Management Systems budget appropriations and improved service attainment of targets, oversight, and accountability can be in form of inputs, outputs and/ or outcomes delivery. The World Health Organization (2021) for enhanced service delivery. 9. Local Government Source of LG specific indicators for (i) variables used in the formula-based also noted that the PBS reform was largely Information allocation for IPFs; and (ii) setting the service delivery baseline and targets which Management Systems can be in form of inputs, outputs and/ or outcomes at HLG and LLG. understood to be an introduction of a new budgeting software (PBS), rather than a different Source of indicators for (i) variables used in the formula-based allocation for IPFs; decision-making approach to budget formulation 10. Uganda Bureau of and (ii) setting the service delivery baseline and targets which can be in form of 59 MoFPED 2016. Statistic (UBOS) and execution. outputs or outcomes. 60 WHO 2021. 38 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 39 INTERGOVERNMENTAL FISCAL TRANSFERS 2. Integrated Financial Management Information c) Untimely release of funding to LGs. Shortfalls a) Without a clear government owned strategic c) The centre-based resource allocation process System (IFMIS). This system has been effective in in cash releases for OGT, donor disbursement, framework and road map, OTIMS could become undermines the discretion of LGs for allocative meeting some of the objectives such as increasing and/or OSR appropriated during a fiscal year, too complex, duplicative, and unmanageable. efficiency and alignment with service delivery efficiency, accountability, transparency, and call for supplementary appropriation approval Adaptation to expanding tasks/activities has targets. This is further facilitated by the delays in control of public finances. The adoption of IFMIS from Parliament. This does not only dent the evolved OTMIS into a more complex mechanism the sharing of final IPFs by MoFPED to LG, which enhanced comprehensiveness and transparency credibility of the overall budgeting process, but than originally envisioned at the request of constrains the latter to consult on priority needs of public expenditure at LGs, confidence, and also severely distorts the timeliness of funding MoFPED. Some of the functions assimilated into or service delivery targets and, even deal with credibility of the annual budget execution. and service delivery, given the usually lengthy OTMIS could arguably be executed through the errors generated from the automated process The standardized financial management (mostly over two months) approval process. PBS, hence the need to streamline the interface due to lack of updated data. Such errors can arise and accounting functions within each LG has between the two systems. Furthermore, as for instance, when the wage bill is generated 3. Online Transfer Information System (OTMIS). enforced financial discipline, improved budget the system has evolved into a complex and without accounting for need for additional staff Aimed at simplifying and ensuring transparency controls, and facilitated timely cash release complicated system, its use, maintenance and because of new/refurbished infrastructure for of the formula-based mechanism of LGs and expenditures tracking and accounting for functionality hinge on specialized knowledge and both health and education facilities. Integrated Planning Figures (IPFs) for the current the actuals against the approved estimates expertise, which need to be constantly sustained grant structure, the system was hinged on three Therefore, to ensure full functionality and of both transfers and OSR. This system further amongst users. The transfer of the system host key principles: (i) transparency, requiring that sustainability, government must streamline the strengthened the efficacy of financial controls rights to government must be accompanied with all data underpinning indicators is available OTIMS into a simplified mechanism that can be used and oversight by generating comprehensive, sufficient in-house capacity to ensure adequate for all stakeholders and hence reduce scope by all stakeholders, interfaced with, but avoiding reliable, and timely financial information use and sustainability. for manipulation; (ii) easy access, requiring duplication of functions of other critical functions, which can be accessed by the Auditor General, availability of the system for all users at all such as the IGMIS, PBS, etc., and flexible for effective Parliament, and other oversight agencies, as may times, with a synchronized list of indicators, stakeholder engagement in budgetary decision- be needed. However, several MDAs, especially b) The formula-based allocation, in-built in cost centers, etc. through an online platform; making. the Office of the Accountant General, highlight OTIMS, does not generate reliable outcomes and (iii) alignment with the sector rules or grant challenges in the implementation of IFMIS and (IPFs) for all the three objectives of adequacy, formulae. its functionality in linking public expenditure equity, and results-based financing. According 4. Online Performance Assessment Management and service delivery within a fiscal decentralized to responses from select government entities, System (OPAMS). This is a very critical tool framework. These include: the formula-based resource allocation for Over time, the functionality of the OTIMS database for monitoring performance of the LG under non-wage recurrent expenditure generated has been restructured to provide for several other the IGFT system, that has been used since IPFs in a sequenced manner which prioritizes functions such as: (i) automation of the transfer of FY2017/18. Linked to the OTMIS, the OPMAS a) The slow uptake of IFMIS services in newly created capitation grant and the “reminder “subject data between OTIMS and the PBS through Application has automated the collection of annual Local LGs. This has been attributed to the lack of to the available pool of resources, would be Programming Interfaces (APIs); (ii) management Government Performance Assessment (LGPA) preliminary prerequisites, such as infrastructure allocated to items in a secondary category, of cost center lists at LLGs and automation of the results, their aggregation, and conversion into and technical support, which hindered timeliness including school inspection, which sometimes aggregation of local government from cost center formula allocation variables. The assessment of transactions and the generation of timely and end up with nil or negative allocations. As an level data; (iii) incorporation of the budget release is undertaken by contracted private firms and quality financial data in the IFMIS system. example, Kisoro Municipality has received zero module; and (iv) automation of the collection of verified by several stakeholders. Specifically, allocation for the secondary category of NMR b) Slow uptake of the Treasury Single Account performance assessment results, their aggregation, OPAMS facilitates: (i) data collection, capturing over the previous three fiscal years. The formula (TSA). The TSA, adopted in 2013, has the main and conversion into formula allocation variables; and real-time data entry of the assessment and its windows have not delivered the desired aim of eliminating revenue loopholes, promoting and (v) introduction of quarterly joint monitoring of results; (ii) reporting, analysis and uploading reform objective of prioritization nor addressing transparency and accountability, preventing facility construction. The system has been hosted by the LGPA findings undertaken by OPM; and the equity needs for the conditional grants. mismanagement of government resources, external agents since it was set up in 2016 but plans (iii) providing access of the LGPA results and Among others, the challenge arises due to: (i) unifying government bank accounts, improving to transfer it to MoFPED are in advanced stages. collecting feedback from stakeholders. The resource ceiling constraint for a specific grant, the processing of payments and collections, and Although front-end users within MoH, MoFPED results of the LGPA are used in allocation (ii) inadequate access to reliable, timely, and reducing borrowing costs. While the TSA would and MoES have underscored the usefulness of formulae to create incentives for performance. quality data for some variables used in the particularly enhance collection and disbursement OTIMS, particularly in enhancing transparency and OPAMS has been used to carry out three LGPAs so formula-based allocation; and (iii) lack of shared of own source revenue and external financing credibility of resource allocations for fiscal transfers far (2017/18–2019/20), with two years of IPFs being understanding of the reform objectives of equity at the LG level, it is still in infancy and not fully across LGs, they highlighted issues on relevancy and affected by their scores (FY19/20 and FY20/21). and results-based financing and mechanisms for understood within LG administration. In fact, it is functionality, including: mainstreaming the funding arrangement within Generally, OPMAS is appreciated as a mechanism facing resistance within some LGs due to lack of existing budget structures. for incentivising LGs to adhere to processes and full appreciation of the reform and its objectives. 61 Techno Brain Empowering Lives (2016), Integrated Financial Management System for Local Governments in Uganda. 1st Africa Initiative. 2016. www. technobraingroup.com 62 World Bank 2022. 40 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 41 INTERGOVERNMENTAL FISCAL TRANSFERS systems to support service delivery, which has need to either consider governance, decision- 5. Sector-based information Management System and LLG in redesign to ensure data provided supports recorded several achievements. According to making, or provision of services as part of the (for education -EMIS and health -HMIS). budgeting, planning, and monitoring at district level users interviewed, OPMAS is credited for several criteria for deciding on creation of new local and institutional facilities. The sector-based information systems for education achievements: (i) it provides an evidence-based administration units, or to be realistic and adjust and health are fully fledged systems expected On the health side, the 15-year-old HMIS captures mechanism to guide the rewards and sanctions for the assessment to fit the maturity of the various to collect, capture, process, store, retrieve, and data using a hybrid of paper forms, registers, and the respective performance of LGs. (ii) it enforces administrative units. This makes the critical disseminate data from different sources, to tally sheets from all levels of the health system compliance of LG and MDAs with the national reform path for improving performance and aid decisions within the functions of planning, including the village or grassroots health unit, guidelines and policies for IGFT; (iii) it provides service delivery more challenging. budgeting, operations, management, and oversight parish, sub-county, health sub-district, district and a platform for bringing together stakeholders, c) Quality of some of the assessments raises on the respective sector performance. national level. The HMIS has improved disease including councillors (policy makers) and questions on the experience and skills of the surveillance, reporting and monitoring within technocrats at the LG level, to assess and appreciate On the education side, the system has since assessors. Some LG officials indicated that the administrative units that have used it, but it also performance gaps and underlying causes, and then evolved to be sector-wide and decentralized to assessment reports sometimes have gaps and faces several challenges that need to be addressed build consensus on corrective measures and their districts, to maintain management data on key are inconsistent with the realities on the ground. to improve its functionality. Umezuruike et al implementation; and (iv) it has generated noticeable performance indicators of the sector, including This raises questions on the adequacy (including (2017) attributed low utilization of the HMIS to the improvements in service delivery in select facilities. data in institutions, teachers, pupils, infrastructure knowledge and experience of LG operations) following factors: (i) poor quality of data; (ii) late Its expansion to the recently launched Lower Local (i.e., school module), finances and audit (i.e., finance of some of the assessors to undertake the submission of reports; (iii) incompleteness given Government Facility Performance Assessment, module), and school inspection. However, the quality assessments effectively and objectively. that it does not capture data from the private that commenced in September 2022, provides and comprehensiveness of the Annual School Census Moreover, the multi-layered validation process health providers and community health facilities; information to evaluate LLG’s enforcement of the (ASC), one of the main activities that generates data of the assessment results, including additional (iv) inadequate disaggregation of the data; (v) grant guidelines, capacity of LLGs in budgeting, and information for EMIS, deteriorated during the independent agents, has made the process more Inadequate ICT facilities; (vi) weak institutional financial management accountability and reporting; last decade and led to its discontinuation in 2017. complex, lengthy, and costly. and individual capacity; (vii) incompatibility and and standardization of reporting and performance This undermined the relevance of EMIS – UNECSO interoperability problems; (viii) user engagement management of staff at LLG level. The achievements d) There are concerns about the frequency, (2021) highlights fundamental issues including: problems; and (ix) inadequate funding for HMIS. An to date notwithstanding, several shortcomings of the relevancy, and cost effectiveness of the (i) lack of a legal and policy framework to drive in-depth evaluation of the system at all levels of assessment framework were highlighted as follows: annual assessment cycle. Some stakeholders the process; (ii) limited or poor compliance with the healthcare delivery in Uganda would generate argued that the one-year cycle does not allow reporting requirements by both government-aided evidence to support the realization of a functional sufficient time to adopt new measures or and private schools; and (iii) manual data entry from National HMIS, which would form the foundation a) Assessment measures do not provide an practices and demonstrate sustained tangible sheer volume of paper returns which increased the for setting the health service delivery baselines and accurate picture of the progress towards improvements. As the annual assessment would likelihood of errors. This review also observes that targets, inform the resource allocation decisions, improved service delivery. This is because not capture change in any function or practice, with funding based on enrolment and allocated on and help track the impact of health spending on the assessment prioritizes local government it could compel local authorities to ‘fake good or needs, carries an in-built incentive for respondents service delivery targets. administration and has limited focus on improved performance”. to exaggerate both. To address these issues, the progress towards attainment of desired government is revamping the ASC, and subsequently, e) Inefficiencies at the centre are partly responsible service delivery which, in turn, has perpetually implementation of a new EMIS that will involve HLG for the poor performance at LG level. Some of the undermined prioritization of service delivery for weaknesses at the center that have significantly IGFT. While the IGFT design intended to address affected performance of LGs, relate to the delay this issue, this aspect of the program has not in meeting deadlines for budget submissions and been implemented. fiscal reporting requirements, which are largely b) The standardized assessment criteria for attributed to functionality issues of the PBS and every LG, regardless of the maturity does not IFMIS under the jurisdiction of MoFPED and ICT take account of operational and governance last-mile connections. Use of supplementary challenges of new administrative units. The budgeting to meet UgIFT requirements also newly created local authorities, only at the stage meant that funds are often approved and of putting in place the prerequisites for operation, disbursed very late in the financial year, creating consider it unrealistic that they are assessed on a false impression of low absorption capacity the same criteria alongside their long-standing by the LGs. Given that these challenges are not fully-established peers. This underscores the recognized by the assessment, LGs are penalized 63 For example, for FY 2021/2022 a supplementary was approved in February 2022 and received in May 2022 – only one (1) month to the close of the financial year. In such cases, reflection of supplementary amounts on the PBS. for faults beyond their control. 64 UNESCO 2021. 42 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 43 INTERGOVERNMENTAL FISCAL TRANSFERS Box 12: Assumptions and Commitments for IGFT Medium-Term Plan FY2017/18–FY2021/22 Box 13: Assumptions and Commitments for IGFT Medium-Term Plan FY2017/18–FY2021/22 • Overall, the data and information management systems have, over time, evolved into complex, Assumption # 1: Disbursement Commitment resource intensive, under-utilised, and costly initiatives, which may gradually lose their relevance, and /or become difficult to manage, and eventually completely lose any functionality in supporting The specific disbursement commitments included the following: the IGFT system. • The ongoing reforms such as in e-governance which also aim at integrating all systems within a) World Bank (UgIFT program) to contributes US$ 500 million, which was approximately equivalent government – including fiscal decentralization and public financial management – will likely have to the value of development allocations within the target sectors. implications on the relevance and functionality of the existing systems for IGFT. Whilst automation b) GoU to contribute US$ 793 million (57% of total funding for the program), compared toUS$ 587 of decision-making processes is a critical driver of change, it needs to be aligned to the underlying million (74% of the original program US$ 1385 million ), which was approximately equivalent to the objective of the desired IGFT reform agenda. value of recurrent allocations. • Government needs to adopt a clear and firm strategic direction for the relevance and functionality c) Refugee window and PBA grant element of US$ 60 million (estimated allocations to non-wage of data and information management systems, especially those with significant influence on the recurrent and development sector conditional grants to refugee hosting LGs from FY2021/22 to UgIFT program. An in-depth and systematic assessment of the systems within the current evolving FY2022/23 in the expenditure framework (US$57 million). environment should generate evidence-based understanding of the measures to promote the value Assumptions: macroeconomic risks remain moderate with a ‘low’ risk of debt distress rating based on and utility of the systems in an integrated manner: the Debt Sustainability Assessment (2017) and a strong record of macroeconomic management and • Improved relevance – the extent to which the systems provide transparency access to less but quality aggregate fiscal discipline. and reliable data and information on financial and performance information that is critical in the pursuit of the IGFT reform agenda – the link between public expenditure and service delivery within Assumption #2: Sustainability or Predictability of Funding HLG and LLGs. GoU commitments (i) sustaining the improvements in adequacy and equity of transfers to sectors • Enhanced functionality – the extent to which systems support desired key functions envisaged under which are underpinned by sectoral policy commitments; (ii) sustaining these changes incrementally the reform agenda which range from prioritization, setting service delivery baselines and targets, over time; and (iii) ensure the share of World Bank resources underpinning those increases are reduced alignment of resources with local priorities in budget execution, reporting and accountability impact gradually over time. on access and quality of service delivery. • Sustainability – the extent to which the institutional capacity can generate quality or relevant data Other assumptions and promote process efficiency within the available resource environment (financial and human expertise) at all levels – CH, HLG and LLG. a) Risk of refugee protection remains moderate: Uganda’s asylum space and refugee policies would accommodate the potential strain on services and the natural environment; and deal with gender • Interface with e-governance – to determine value and design of physical connection of existing issues (gender-based violence) and inequalities arising from (??) the continuing growth and systems within and between Centre of HLG and LLGs that should involve clear definition of the goals high proportion of women and girls and other vulnerable people which pose specific protection and the proposed exchanges of data or information as well as incorporation of reform considerations. challenges. • Effective application of existing data sources and information to improve accountability. b) Greater sector coordination and oversight: Required establishing or strengthening existing coordination structures and enhancing the capacity and ability of central stakeholders to maintain the quality of reforms, incentives and associated systems that underpin the IGFTR reform agenda. c) Continued demonstration of strong ownership, leadership, and commitment towards providing a clear intervention logic, and advancing institutional reforms for the achievement of the strengthened 2.4.4 Medium-Term Planning For Financing The MTP covered: (i) fiscal transfers allocations for service delivery performance (Project Development Objective for UgIFT). This would require profound Service Delivery local service delivery in education, health, water partnership between (i) MoFPED and sector ministries; and (ii) MDAs at the Centre and LGs; to pursue and environment, and micro-irrigation sectors; and Over the period FY2017/19 and FY2022/23, the an IFTRP in a systematic and coordinated manner. (ii) allocations for central government oversight, implementation of the IGFT program has been systems strengthening and capacity development d) Funding activities that underpin effective disbursement and absorption of resources. The underpinned by a medium-term plan to help ensure in local governments. To ensure implementation of interventions included: (i) routine oversight, technical support, and capacity building of central financing and achievement of the objectives of the medium-term plan, GoU committed to several agencies to provide adequate technical support and routine oversight to LGs; (ii) developing local the World Bank-funded component of the IGFT undertakings, which also formed the assumptions capacity for effective service delivery and provision of quality services and infrastructure; and (iii) program – the UgIFT program for the first and for delivery (see summary in Box 13). actions aimed at performance assessment and targeted performance improvement. second results areas on adequacy, predictability, and equity of transfers to LGs for service delivery. 64 UNESCO 2021. 44 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 45 INTERGOVERNMENTAL FISCAL TRANSFERS Overall, the commitments under the MTP have to increase funding to local governments to UGX Figure 16: Disaggregated MTP Targets and Disbursement to Local Governments (UGX Billions) been adhered to, which has allowed the transfers 3,406.3 billion in the five financial years to FY2021/22. to LGs to increase three-fold since the reform Actual disbursements of additional financing to local A. Education B. Health started. The enhanced transfers have reversed the governments reached UGX 3,306.11 billion, recording 750 300 hitherto long-term erosion in the value of transfers a shortfall of UGX 100 billion, which was only over 250 to local governments for spending in the health, the most recent years of FY2020/21 and FY2021/22 600 education, water, and environment sectors. At (Figure 15). 200 the aggregate level, government had committed 450 150 100 300 50 150 Figure 15: Total MTP targets and Disbursements FY202017/18 and FY2021/22 2020/21 2021/22 2017/18 2018/19 2019/20 (50) 1,061.25 (100) 2020/21 2021/22 2017/18 2018/19 2019/20 1,200 921.25 (150) (150) 807.22 1,000 MTP Disbur sement Variation 742.03 MTP Disbur sement Variation 631.09 625.92 558.04 560.52 800 C. Water and Environment D. Central Government Oversight 362.84 360.33 600 400 100.00 80.00 90.00 200 7.49 2.48 4.17 80.00 60.00 70.00 2017/18 2018/19 2019/20 2020/21 2021/22 (65.19) (200) 60.00 (145.00) 40.00 50.00 (400) 40.00 MTP Disbur sement Variation 20.00 30.00 20.00 Source: (UGX Billions) 10.00 2020/21 2021/22 2017/18 2018/19 2019/20 2020/21 2021/22 2017/18 2018/19 2019/20 (20.00) At sectoral level, most of the targets were fully having realized total disbursements of UGX 499 MTP Disbur sement Variation MTP Disbur sement Variation achieved for water and environment, and education. billion, which was only 73 percent of the MTP target Education, the biggest beneficiary of the reform, of UGX 684 billion. This shortfall was attributed Source: MFPED achieved the most commendable performance, to non-release of the health development grant. meeting the MTP targets through the four years Even though quite small compared to the plan, to FY2020/21, before a shortfall of about 9 percent the disbursements to the water and environment The substantial increments in nominal values of The macro-fiscal environment changed drastically of target in FY2021/22. Health, the second largest sector and central government oversight, system transfers notwithstanding, some LGs note that the since the original MTP was set up, which effective beneficiary of the reform, however, only met its strengthening and capacity development, have fully financing has been erratic and inadequate in some FY2020/21 constrained grants within a reduced MTP targets in the first two years and consequently matched the MTP. critical spending areas and poorly absorbed in select resource envelope. COVID-19, followed by global became the main contributor to the shortfall, cases. Preliminary data for FY2022/23 indicated a upheaval and commodity price shocks, changed severe reduction in the Discretional Development Uganda’s macro-fiscal outlook and its risk of Equalization Grant (DDEG). Whilst the changes to the debt distress increased from ‘low’ to ‘medium’. macro-fiscal environment account have contributed Government embarked on a fiscal consolidation to some of these non-performance of the IGFT effort to reign in debt and support the disinflation system; persistent in-year adjustment of annual effort. Whilst government continued to protect the estimates for IGFT and an unreliable medium-term financing of local governments (LGs), the tapering expenditure framework have been highlighted as key trend of government resourcing at the LG level – factors undermining performance. especially effective FY2022/23 – will adversely affect 65 World Bank 2022. 46 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 47 INTERGOVERNMENTAL FISCAL TRANSFERS service delivery and program implementation and commitments on the outer years’ estimates. Table 18 Sample Projections of IPFs in FY2021/22 lead to slow disbursement of the results-based The IPFs are always below the provision under A: Development Grant IPFs for Education World Bank-funded project funds. According to World current budget year, and in most cases, do not Bank (2023), on account of the fiscal constraints, incorporate the in-year adjustments to the 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 GoU would not meet the allocation target for annual appropriation which have implications Devpt Transfer in 46.65 60.65 72.77 87.33 87.33 the wage and nonwage recurrent grants to the on spending decisions on the forward estimates. 2017/18 budget health and education sectors and for the nonwage (ii) This challenge has created a vicious cycle with Devpt Transfer in 46.7 56.9 68.3 68.3 68.3 recurrent and development grants to the water and lack of attention to estimates for outer years. 2018/19 budget environment sector as agreed under the MTP for A sample of the development IPFs covering Devpt Transfer in 152.2 182.7 182.7 182.7 182.7 the UgIFT Program during FY2022/23. Indeed, the new school constructions indicates that for 2019/20 budget planned budget allocations to LG grants fell short of the 2nd and 3rd year of MTEF did not have Devpt Transfer in 154.3 154.3 154.3 154.3 154.3 UgIFT fiscal targets by UGX 282 billion. Nevertheless, any change in projections for each fiscal year 2020/21 budget these developments have implications for overall 2018/19 to 2020/21. This suggests no attention budgetary developments, where allocations to social Devpt Transfer in 188.4 188.4 was accorded to the cost implications of ongoing services remain so low, with adverse impacts on 2021/22 budget construction and planned new civil works during long-term human capital development (see Module B: Wage Grant IPFs for Education the budget process. Likewise, there is limited I and Module II of this PER). effort to incorporate the wage implications of 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 Beyond the macro constraints, persistent in-year operationalization of completed new facilities Devpt Transfer in 1154.78 1212.52 1273.15 1336.81 1403.65 adjustments of approved IGFT estimates created at LLG within the medium-term expenditure 2017/18 budget uncertainties and affected implementation. Over framework. While construction work continues, Devpt Transfer in 1,155.5 1,271.1 1,334.6 1,401.0 1,471.4 the last three fiscal years, the appropriated IGFT has it appears that the works do not influence the 2018/19 budget persistently been adjusted using the supplementary wage recurrent estimates for future years as the Devpt Transfer in 1,251.8 1,314.3 1,380.1 1,449.1 1,521.5 budget to achieve the MTP targets. In FY2021/22, for same numbers are carried forward without any 2019/20 budget instance, allocations to LG grants were adjusted in adjustment for each fiscal year (Table 18). November 2021 through a supplementary budget Devpt Transfer in 1328.27 1328.27 1328.27 1328.27 1328.27 (iii) Lack of clear prioritization and sequencing of of UGX 104 billion, to meet the program’s financing 2020/21 budget capital and recurrent spending requirements for targets. This was again the case for FY2022/23 when Devpt Transfer in 1,420.5 1,420.5 new local governments (structures) resulting in a supplementary funding worth UGX XXX billion was 2021/22 budget spreading the limited resources even thinner to passed just before the end of the financial year to extra capital and administrative pressures. meet the program requirements. The recurrence of These challenges are not unique to Uganda as is In contrast, a well-designed and well-implemented in-year adjustments of the fiscal transfer estimates Underfunding of critical functions, programs, (iv) demonstrated by experiences from other countries. rule-based system of inter-governmental fiscal demonstrates challenges in translation of the or services that would have enhanced equity, The Decentralized DPWG-LGD’s (2009) notes that transfers brings greater stability, predictability, prior commitment into annual and medium-term improved services delivery and fostered countries too often enter the process of grant design and discretion to local government finances, and expenditures and lack of clear financing strategy local economic development. The extremely without clear objectives for what the transfer system thereby promotes good planning and efficient local for fiscal decentralization which could be realized underfunded areas include staff houses for is to accomplish. The intergovernmental transfer service delivery. The most critical step in the design through proper planning and budgeting. schools and health centers, capitation grant systems, just like any fiscal policy, will always differ of an effective grant system is the determination for schools, non-wage expenses for hospitals, The budgeting and planning challenge is expounded in objective, design, and impact at any point in time. of the “distributable pool” – the total amount to be and operations expenses for department of by the weaknesses within the medium-term If designed poorly, the system will not only fail to transferred among the sub-national governments. commerce and trade. expenditure framework, which has not provided address imbalances, but also generate additional This could be as a fixed share of national government reliable estimates for the IPFs for the budget year (v) Weakness in the “automated or digitalized simple problems. For example, some governments prefer to revenues, or as part of the annual budget decision. and two outer years. Staff at central government formula-based allocation” has undermined the decide the total amount in the distributable pool in Given that there is no legal provision or fiscal rule level indicate that the published MTEF are not very systematic assessment of capital and recurrent accordance with budgetary priorities as part of the or policy for determination of fiscal transfers and relevant for the outer years or forward estimates of financial implications of new policy decisions; annual budget decision. With this system, the central the competing political pressures for constrained the MTP. Accordingly, there is no reliable framework and desired effective engagement of key MDAs government exercises a significant amount of control resource envelope, commitment to adequacy and for translation of the MTP targets into reliable and and LGs in prioritization, and determination over sub-national governments, and determination certainty of inter-government transfers in Uganda predictable funding for sustaining prior expenditure of expenditure baseline and reliable planning of the pool becomes an ad hoc exercise. In addition, is very weak. Consistent with international best commitments. The budgetary challenges include: figures (outer-year projections) needed for in the event of a national recession or decrease in practices also applied within the region (See improved service delivery. central revenues, sub-national governments will face Box 14), GoU should consider adoption of a more (i) The weak link between annual budgetary big revenue cuts, making the system more prone to binding fiscal policy for sustained equitable process and multi-year commitments. The 66 MoFPED 2022c. 1st Budget Call Circular (BCC) for FY 2023/24 and medium term. The BCC explains the risk for the macro fiscal framework 2023/24 political pressures. shares and allocations of national revenues for budgetary decision-making process pays limited that include: (i) economic slowdown reducing the revenue potential for both central and local government; (ii) rising inflation impact on unit costs intergovernmental transfers. attention beyond the current budget year, which for service delivery; (iii) salary enhancement for scientists; (iv) prevention and treatment of Coronavirus and Ebola pandemic; and (v) demands from marginalizes the implications of multi-year refugee influx, landslides, drought and other disasters. 67 World Bank 2022a 68 DPWG-LGD 2009. 48 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 49 INTERGOVERNMENTAL FISCAL TRANSFERS Box 14: Select Regional Practices for Division of Nationally Raised Revenue Box 15: Summary of Key Issues for Consideration in Improving Budgeting and Planning for IGFTR Republic of Kenya a) Setting Reliable and Affordable IGFT Targets requires a commitment to formulate and implement a The Constitution, 2010, Part 4. Revenue Allocation makes provisions for nationally raised revenue. First, clear financing strategy for IGFT, not necessarily driven by external financing (i.e., UgFIT), especially, during an an equitable sharing of revenue raised by the national governments between the national and county uncertain macro-fiscal outlook and fragile political economy. The strategy should be underpinned by realistic governments, and among the county governments as provided for under Section 216(1) of the Commission and affordable expenditure baselines and targets at an aggregate and program level. To achieve this, MoFPED on Revenue Allocation . Second, once every five years, the Senate, by resolution, determines the basis are encouraged to: for allocating among the counties the share of annual national revenue (Section 217). Third, annual Division and Allocation of Revenue Bills must be passed at least two months before the end of each o Undertake a systematic examination of medium-term macro-fiscal projections, starting with the FY2024/25, financial year by Parliament. The Bill divides revenue raised by the national government among the to assess implications on the resource envelope for IGFTs; and advise on realistic IGFT objectives and targets national and county levels of government (Section 218). underpinned by local government spending priorities for the medium term. o Re-formulate the policy priority commitments to guide the construction of credible and reliable fiscal Republic of South Africa, transfer estimates at all levels – aggregates, sectors, grants, and LGs that can be sustained within the three years of the 2023/24 MTEF. Specifically, this will require a systematic assessment of current and planned The Constitution of the 1996 (17th Amendment) Article 214 provides for an Act of Parliament to guide on spending priorities, mainly in the sectors of education, health, construction (work) and start-up costs for the equitable division of revenue raised nationally among the national, provincial, and local spheres of new structures in recently created LGs, and deliver a prioritized, sequenced, and affordable program over the government. It also provides for the determination of each province’s equitable share of the revenue. medium-term. This is enforced within the annual budget as demonstrated in the table below which shows a sustained funding commitment and increasing share for local governments over the period. o Re-formulate the expenditure baseline for the IGFT program informed by systematic assessments that include: (i) a review of the institutional structures to establish the in-post staff, and formulation of a realistic baseline for wage bill, taking into consideration the implications of recent salary enhancement of scientists; and (ii) stock-taking of on-going construction of new facilities to determine cost implications for proper operation and maintenance of the facilities, targeting provision of equipment, staff houses, toilet Table 19: Trend of Division of Nationally Raised Revenue for South Africa 2019/20–2025/26 and water sources to address issues of equity, and improved service delivery, and ensure incorporation in Rand Billion Outcome Revised Est Medium-Term Estimates the MTEF. 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 b) Restoring medium-term planning and budgeting. Strengthening the medium-term expenditure framework A: Division of Revenue (MTEF) is a prerequisite for enhancing sustainability and predictability of fiscal transfers. Strengthening multi- year budgeting to improve the reliability of forward MTP estimates must be prioritized. This will require: National Departments 749.8 790.5 823 854.4 826.6 835.7 877.9 Provinces 613.4 628.8 660.8 694.6 695.1 720.5 754.7 o Formulation of realistic and affordable expenditure baseline estimates that will guide aggregates and IPF for the outer years of the MTEF. The baseline estimates should reflect basic, or priority needs for enhanced Local Governments 123.0 137.1 135.6 147.8 164.0 174.4 183.3 service delivery and promote allocative efficiency as guided by specific LGs and hence shift toward needs- B: Percentage Share based resource allocation. National Departments 50.4 40.4 50.8 50.4 49.1 48.3 48.3 o MoFPED, MPS, MLG and responsible sector MDAs undertake an effective budget challenge function or Provinces 41.3 40.4 40.8 40.9 41.2 41.6 41.6 verification of the proposed spending decisions or IPFs or programs. The function should aim to examine the allocative efficiency, affordability, and cost effectiveness and identify in-year spending decisions, such Local Governments 8.3 8.8 8.4 8.7 9.7 10.1 10.1 as supplementary and underspending against approved budgets, that may have implications on the new Source: Budget 2023 - Budget Review, National Treasury, Republic of South Africa budget year within an MTEF. o Commit to ensure that once the indicative credible IPFs are decided upon, they can be executed effectively (with minimum deviation); and form the baseline for the determination of 2nd and 3rd year of the MTEF. o Systematically assess the annual fiscal transfer performance by LG or region or grant to identify emerging policy issues or service delivery challenges and build consensus on affordable measures to address them during the annual budget preparation and rolling over the MTEF. o Adopt a more binding fiscal policy for sustained equitable shares and allocations of national revenues for intergovernmental transfers. 50 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 51 INTERGOVERNMENTAL FISCAL TRANSFERS 2.4.5 Reform Management And Ownership Technical Committee. Implementation is undertaken • Political ownership of reforms is also lacking in through approval of the World Bank funded by various MDAs (Annex 4.3), whose core functions some areas – or at least not made explicit. UgIFT. The IGFTRP is implemented through and by GoU in the reform and lead department are highlighted existing structures without any parallel or project • The NRM Manifesto (2021–26) includes no • TA support from ODI has proved critical for the below (Figure 17). Technical assistance to the MDAs specific structures. The reform oversight structures references to fiscal decentralization or wider continued systems development, some aspects for reform management has been provided by UgIFT include: (i) the IGFTR Oversight Committee chaired objectives and strategies of IGFTRP except of reporting and systems maintenance and financed contract staff as well as by the ODI (UK and by MoFPED at cabinet level; (ii) the IGFTR Steering general refences to local service delivery and to operations (although the latter as a role of the EU funded). Committee; and (iii) the Fiscal Decentralization the Parish Development Model, and the targets ODI is diminishing). ODI TA has largely relied on of construction of secondary schools and HC III UK funding that is now being phased out and in every sub-county. The NRM references are substitute funding for TA is yet to be identified. Figure 17: IGFTRS – Oversight and Implementation Structures largely a reflection of sector policies that are • Policy has not been very consistent with regards politically visible. to GoU commitment to some critical aspects • Cabinet (or Parliament) has not made of IGFRTP such as enhancing LG discretionary an endorsement of the IGFTRP or fiscal development spending decentralization (since the 2001 FDS); although Parliament indirectly endorsed the IGFTRP Box 16: Key Issues Regarding Reform Management a. MDA Coordination and support to the reforms have generally improved in recent years. The UgIFT incentives /DLIs have helped in this regard. b. IGFTRP documentation has improved in visibility, but political endorsement is not comprehensive; some aspects of reform receive much more focus (the schools and HC IIIs by sub-county etc) than others (the Source: MoFPED. performance management system and broader objectives of adequacy, equity and discretion) that require better communication and deeper policy dialogue. The institutional arrangements have evolved over • Reform visibility and communication has c. Sector norms regarding equity of staffing or a minimum level of NWR support could be made more explicit the reform period, including the addition of explicit improved in recent years: for political endorsement. cabinet oversight for instance. Another change of the • IGFTRP reform documentation – the 2021 version reform management occurred in relation to the start d. The ODI TA has proved to be critical for many aspects of systems development and MDA training but is was printed in several hard copies and signed by of UgIFT AF, whereby a Reform Coordination Unit unfunded from mid-2023. the PS/ST, whereas the 2017 (and 2015) reform (RCU) was introduced that has helped with central documents were only circulated in soft copy GoU procurement of consultancy work for example without indication of formal endorsement. and equipment related to the central government Service Delivery Improvement Matrix (SDIM)70. • Reform progress reporting has improved; 2.4.6 Assessing The Foundation of a delivery in LGs over the period 2017/18–2021/22 MoFPED issued a comprehensive Annual Reform Sustanable IGFTR as discussed in earlier chapters of this report. GoU reform management has also improved over However, implementation of the IGFT reform is Implementation Report for FY2019/20 by May the years in several aspects: As discussed in Chapter 2.1, fiscal decentralization 2021 (the report for FYs 2020/2021–2021/22 is facing challenges that will hinder sustainable has evolved through several legal, policy and • Cross MDA cooperation has improved and is drafted but yet to be formally issued). delivery of reform objectives, particularly on account institutional reforms since 1998. Key among these reflected in joint supervision visits and joint of the emerging paradox in pursuit of the public However, there are also challenges: were the Constitution 1995, the Local Government work on PIP in response to the (joint) annual financial management and fiscal decentralization Act 2007, and Public Financial Management Act 2016, LGPA etc. • Reform awareness is low in some areas across reforms. The reforms have generated mixed which had significant implications on the principles MDAs and LGs: e.g., with regards to strategies signals and inconsistencies in government • MDA functional support to LG service delivery is of fiscal decentralization. and specific targets for enhancing adequacy systems and operations, raising concerns over the strengthened (incentivized and documented by and equity of IGFTs; whereas MDAs and LGs are There have been important strides made by effectiveness of coordination and sequencing of the DLI structure of UgIFT) more aware of the stated objectives regarding Government in enhancing resource allocation, fiscal decentralization and PFM reforms, which establishment of seed schools and HC IIIs. adequacy, and equity in financing of service is not a unique phenomenon to Uganda (see 69 An MTEF constitutes a set of interrelated processes, and institutional arrangements that generate robust revenue and expenditure projections, enhance 71 To date, the ODI TA has included a number of activities related to wider IGFTRP systems development as well as activities more related to UgIFT such as (i) credibility of the annual budget and medium-term forecasts, and improve predictability in flow of resources. Specifically, the framework constitutes the develop systems such as OTIMS and OPAMS, and later training of GoU staff in use of these, (ii) develop and train staff in the use of DLI dashboard for UgIFT systems, rules, and procedures that help government to manage the tension between demands for expenditure (“needs”) and the resources availability over a reporting, (iii) support budget preparations in compliance with DLIs, (iv) actions for meeting staffing targets in transitioned refugee schools, (v) assist in multi-year period, and ultimately ensure effective allocation and use of expenditure; and predictability of funding for the accounting officers over several years. development of BCCs, (vi) backstop MDAs to provide PIP support, (vii) prepare reviews of PIPs and suggest improvements, (viii) support OPM to develop and implement LGPA and facility assessments, (ix) support MDAs in use of DLI verification tools, and (x) UgIFT Impact study and annual IGFTRP report etc. 70 Related to UgiFT DLI number 5. 52 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 53 INTERGOVERNMENTAL FISCAL TRANSFERS Box 16). Uganda, just like other low developing b) Declining devolution and diminishing decade have perforated the foundation for in terms of access and quality of service delivery, countries, has introduced several public service decision-making power has reduced LGs fiscal decentralization and public financial the improvements have not been sustained and reforms that, unintentionally, have undermined to administrative extensions of the central management reforms. While set up as an outreach is not universal, especially in “hard to local government autonomy and ability to respond government. The LGs’ powers to exercise their autonomous arm of government responsible reach” and “hard to work” areas. The weak link directly to the expressed needs of their constituents right and obligation to formulate, approve, and for advising central and local governments on has been attributed to (i) lack of clear set service as demonstrated below: execute their budgets as provided for by the issues of fiscal decentralisation, the LGFC has delivery targets for each service at HLG and LLG LG Act 2017 Section 77 and Constitution Article been increasingly dysfunctional. Similarly, MLG’s annual programs and medium-term development a) Recentralization of the Accounting and 176(2d) has diminished for a variety reasons. On role in fiscal decentralization has diminished and plans; (ii) limited collaboration between Reporting Role: The Constitutional amendment one hand, the dependence on fiscal transfers has institutional coordination arrangement round all departments, in both HLG and LLGs; (iii) of 2005 changed the LG accounting officers from increased, in line with the reduced own source fiscal decentralization weakened. Collaboration misalignment of donor funding to non-priorities being employees of District or Municipal Councils revenue (see section 2.9). On the other, the between CG and LGs, remains weak; while the in local areas; and (iv) inadequate articulation to being centrally appointed. In addition, the PFM limited engagement of LGs in the prioritization lower tiers of government have lower capacity and attention to priorities critical to enhanced Act 2015 centralized accountability to the center and budgetary decision-making reduces their to manage public finances, they do not get service, especially, in “hard to reach areas” and which, arguably contradicts the decentralization ability to influence their priorities and equity clear guidance from the HLG on policy priorities “hard to work areas.” policy and LGA 2007. While in appreciation of needs. Moreover, the centrally driven budget and targets and how to work towards common the intended objectives of PFM reforms, the e) Lack of a clear strategy to enhance local reforms in a piecemeal and frequent manner, service c) Weak institutional roles and unintentional outcomes of the reforms include revenue mobilisation: This has created a amidst limited LGs institutional capacity, has coordination arrangement. Many changes to the excessive control by the center, and hence, sense of neglect for critical functions such as generated reform fatigue. institutions and coordination arrangement over softened local accountability, confused lines revenue administration that would improve the last decade have perforated the foundation of reporting and accountability between local c) Weak institutional roles and coordination efficiency in collecting revenues, as well as local for fiscal decentralization and public financial leaders and the central government, and reduced arrangement. Many changes to the institutions economic initiatives, e.g., tourism, cooperatives, management reforms. While set up as an effectiveness of local governance. and coordination arrangement over the last plus business and industry development, that autonomous arm of government responsible would expand the base for collection. This adds for advising central and local governments on to the limited reliability and predictability of Box 17: Bridging PFM Reforms with Fiscal Decentralization issues of fiscal decentralisation, the LGFC has funding of local service delivery, and hence been increasingly dysfunctional. Similarly, MLG’s fiscal decentralization. Sustainable financing has role in fiscal decentralization has diminished and There is no doubt that PFM reforms are vital to attaining the expected benefits of fiscal decentralization been attributed to persistent under-budgeting institutional coordination arrangement round because of their critical role in maintaining fiscal discipline, efficient provision of public services, and of service delivery and priorities, leading to fiscal decentralization weakened. Collaboration accountability to policy makers. At the same time, sub-national governments are also critical in the frequent use of annual supplementary budgeting; between CG and LGs, remains weak; while the effective implementation of PFM reforms, especially where they are fiscally empowered through fiscal and recent relocation of resources from DDEG, lower tiers of government have lower capacity decentralization reforms. priority development programs, to other political to manage public finances, they do not get clear priorities. guidance from the HLG on policy priorities and The relationship between these reforms, however apparent in principle, is not well established in practice. targets and how to work towards common service Going forward, a stronger commitment is required Balancing central control and local autonomy is important but not necessarily easy, especially in situations delivery objectives, outputs, and outcomes from to promote harmonization of expectations of where coordination of public sector reforms is laxed and institutional capacity is often spread too thin, facilities which are under their jurisdiction. The stakeholders during the design and implementation chasing too many and sometimes incompatible reform initiatives. institutions that have been fully functional, such of IGFT and related reforms; address the existing as the FD-SC and FD-TC, have tended to focus constraints and emerging inconsistencies in the The two reforms are often formulated through independent initiatives and managed by different national on implementation of UgIFT projects and not fiscal decentralization reform and pursue clear agencies with somewhat contradictory perspectives and objectives. More so in developing countries, the necessarily provide oversight of the overall IGFT principles and practices for the reforms in a two reforms are typically supported by different international organizations with similarly conflicting reform agenda. These governance and oversight consistent and coordinated manner. priorities. Conflict between those responsible for PFM reform and those responsible for decentralization policy is not uncommon, and the two efforts may also start at different times. practices have not provided an opportunity to In line with the observations above, the following is consolidate the fiscal decentralization reform. recommended: Source: Fedelino and Smoke 2013 d) Weak Link between fiscal transfers and (i) Re-think the principles, objectives, and outcomes service delivery. Evidence on the impact of of fiscal decentralization and prioritize the fiscal decentralization on access to and quality of desired outcomes over the immediate, medium service delivery remains mixed. Whilst the recent term, and long term. The phasing would then increase in intergovernmental transfers for basic inform the scope and sequencing of the critical social services has brought some improvements 72 Principles of fiscal decentralization as laid out in the Constitutions 1995 include: the devolution of powers, fiscal and planning autonomy, grant structure and management, powers to levy taxes and collect revenue, and institutional roles and co-ordinational arrangements. 73 Fedelino and Smoke, 2013. 74 The CAOs and their municipal equivalents, town clerks, are now appointed centrally by the MoLG and continue to be responsible for implementing planned and budgeted activities at the district level. The CAO also serves as the responsible Accounting Officer (AO) within Uganda’s budget process and is accountable for implementing the district allocation in the national budget. Both the RDCs and the CAOs are posted to districts on a rotational basis, and as a result, they often base themselves in Kampala and visit their assigned locations (Green 2015). 54 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 55 INTERGOVERNMENTAL FISCAL TRANSFERS reform components, including the IT which fiscal decentralization strategy and a sequenced should be redesigned to support the realization road map to support implementation of the of the desired outcomes of IGFT reform agenda. reform agenda. (ii) Review and re-design the fiscal decentralization D evelop one simplified document that (iv) agenda to mainstream developments over consolidates all guidelines and instructions the past two decades. This would require a to support implementation of all elements of re-examination of the implementation status IGFT in a systematic and coordinated manner. of the fiscal decentralization policy to capture The document, in form of “a popular version”, emerging good practices, emerging challenges, should explain the envisaged reform outcomes, and adopt the lessons learnt to provide clear strategic guidance, desired practices, and practices, institutional roles, cooperation between different levels of government (CG, Uganda’s Intergovernmental institutional framework for a sustained IGFT reform agenda. The policy should help address the HLG and LLG) and build ownership, in pursuit of enhanced impact of public expenditure on service Fiscal Transfer System emerging inconsistencies and misconceptions delivery. within fiscal decentralization, and harmonization (v) Formulate and implement a sensitization of the expectations of stakeholders in the and institutional capacity building program implementation of related reforms. to promote a shared understanding of IGFT (iii) Formulating the next stage of the IGFT reform reform agenda and provide training as well as should incorporate coherent reform objectives, technical and mentoring support to aid fiscal smart deliverables, strategies, processes, and decentralization policy and IGFT reform. arrangements for interfacing with the overall Central GOVERNMENT provides guidance through sector policies Local Governments have the primary mandate of providing frontline services 56 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS 80 UGANDA PUBLIC EXPENDITURE REVIEW 2022�23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 57 INTERGOVERNMENTAL FISCAL TRANSFERS schools, health facilities and LGs with critical seven outstanding actions relate mostly to staff shortages. The GoU, in the FY2021/22 budget, environmental and social safeguard requirements 3. CONCLUSIONS AND RECOMMENDATIONS strategically allocated an increment of UGX 74.2 billion to understaffed LGs but fell short of and fully transitioning staff and facilities (schools, health, and water) in refugee hosting additional planned increments in FY 2022/23. LGs to mainstream GoU systems. It is realised Effective recruitment of additional staff in LGs that more effort is required to address gaps that 3.1 Summary of IGFT Reform The IGFTRP has made substantive progress within was further constrained by (i) late allocations remain in performing their functions, particularly most of these reform objectives as summarized Achievements and Challenges below. through supplementary budgets, (ii) weaknesses in the areas of performance improvement in local and central government HRM, and (iii) support to LGs, monitoring of service delivery The current form of the IGFTRP was initiated in 2017 in 1. Adequacy, equity, and discretion in the wage increases of science staff. and construction projects, as well as provision response to serious issues with LG adequacy, equity, financing of local service delivery: of technical support. • Discretion: Since 2001, the IGFT system in and efficiency funding. The reforms were initially • Adequacy: fiscal transfers have increased by 33 Uganda has been recognised as being overly 3. Improve LG performance in the management undertaken with focus on NWR and development percent in real per capita terms from UGX 80,552 conditional which limited LGs’ ability to allocate of local service delivery. funding for education and health sectors (supported in FY 2015/16 to UGX 106,937 in FY 2022/23. In FY resources in accordance with local needs and by UgIFT while USMID provided discretionary funding • Since FY 2017/18, the annual Local Government 2022/23 however, this upward momentum was priorities leading to allocative inefficiencies. for the larger urban LGs). The reforms were updated Management of Service Delivery Performance reversed due to the tightening of the fiscal space The IGFTRP has sought to reduce earmarking in 2021 with the added sectors of agriculture and Assessments (LGMSD PA) have been implemented following the COVID-19 pandemic, debt-servicing and enhance discretion of IGFTs – partly by water, added staff support in most understaffed through a strengthened, comprehensive, demands, selected salary increases and GoU reduction of earmarking of NWR and the formula- areas (thus added wage grants), added emphasis objective, and timely system of all HLGs (districts, prioritisation of non IGFT programs. In particular, based components of development transfers on improving discretionary funding (included as cities, and municipalities). the PDM (with an allocation above UGX 1 trillion – and by increased funding for the DDEG. The separate reform objectives and additional external in FY2022/23) has an impact on the ability of GoU former succeeded in part but is constrained • The LG assessments are linked to fiscal incentives support from EU) as well as efforts to expand the to fund intended IGFTs in that year. Except for the by the limited application of formula-based as the results influence the size of DDEG and institutional performance assessment beyond HLG current FY, the increased level of funding through allocations for sector grants (approximately 2/3 formula-based sector grants (education, health, levels to include facilities and LLGs. IGFT followed the agreed (and UgIFT supported) of sector grants are earmarked). The latter was water/environment, and microscale irrigation). The IGFTRP (MoFPED June 2021) recognises several MTP, with particular emphasis on education and successfully implemented up to FY2020/21 with • The Office of the Prime Minister has increasingly complimentary reforms including (i) efforts for health up to and including FY2021/22. However, EU budget support and WB/USMID. However, taken full charge of coordinated implementation improving LG OSR, spearheaded by LGFC and some devolved sectors and functions have so far DDEG grant allocations reduced in FY2021/22 of the system and the Ministry of Local MoLG, (ii) Treasury Single Account system since not been addressed through the MTP. and 2022/23 due to a reduction in the USMID Government coordinated related capacity 2013, and (iii) organisational restructuring of LGs • Equity in IGFT allocations has been pursued performance-based allocation and domestic building efforts. by MoPS and MoFPED. The IGFTRP is aligned with through discussion and agreement on formula- funding in response to the shrinking fiscal space the Third National Development Plans (NDP III) and a shift in government priorities aimed at • The results of the annual LGMSD PA have based grants for all sectors. A solid system for 2021–2014/25 and supports selected elements of improving household incomes through the PDM, improved gradually and consistently since grant simulations (OTIMS) have been developed key sector strategies for education, health, water, which is not implemented through the IGFT 2017/18, although still with substantive room (with ODI assistance) and currently managed and agriculture. system. for improvement. The improvements are driven by GoU. Equity in grant allocations have so far by the internal efforts of LGs as they seek fiscal The IGFTRP has gradually expanded its scope and, primarily been achieved through formula-based 2. Improve central government performance in incentives and recognition as well as PIP support since 2021, has been focused on four main objectives: allocation of non-wage recurrent (NWR) grants. the oversight, management, and delivery of from MOLG and MDAs. Formulas for equitable allocation of development LG service. a. Improve the adequacy, equity and increase • The IGFTRP considers that there is room for grants have also been developed – but these are discretion in the financing of local service • The IGFTRP has strengthened the way MDAs improvement – especially regarding revenue in practice only partially allocated in accordance delivery. relate to LGs through improved oversight and mobilization, and human resource management with formula (and performance) but challenged technical support. and development, as well as monitoring and b. Improve central government performance in by (a) lack of grant consolidation (e.g., DDEG is the oversight, management, and delivery of LG allocated by formula but only within and not • UgIGT included DLIs related to implementing supervision of service delivery. services. across the specific windows), and (b) alternative 50 target actions from a Local Service Delivery • The fiscal incentives could be strengthened concepts of “equity” based on equal allocations Improvement Matrix (SDIM) to improve if a larger part of the education and health c. Improve LG performance in the management of by administrative units. The reforms have only systems, processes, and capacity for improved development IGFT was allocated on a formula local service delivery. lately sought more systematically to address service delivery across all four priority service basis rather than being earmarked for HCIIIs and d. Improve the effectiveness and efficiency of inequitable allocations of wage with emphasis delivery sectors. All but seven out of the fifty secondary seed schools. service delivery by frontline providers. on allocation of additional staff to underserved target key actions have been achieved. The 75 adjusted for inflation and population growth. 58 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 59 INTERGOVERNMENTAL FISCAL TRANSFERS 4. Improving the Effectiveness and Efficiency of 3.2 Recommendations and Way Sector specific reform proposals are somehow Taking forward the IGFTR agenda will still require Service Delivery beyond the scope of this PER. However, issues a multi-faced effort. In response to the challenges Forward that require more work include: related to progress of the IGFTRP identified in this • The IGFTRP intends to roll out a system for analysis, several recommendations have been put performance assessments at facility and lower It is recognised that the IGFTRP is a complex reform • Affordable sector policy standard settings / norms forward – some specific to the IGFTRP objectives, LG levels. with many different elements, subprograms, and for local service delivery that are politically but others relating to the implementation subcomponents with competing demands for endorsed at the highest level and subsequently • The responsible GoU sector agencies and of previous PER recommendations or issues resources. Given the fiscal constraints, it is important can serve as a basis for enhancing adequacy of MoLG have designed and piloted performance related to strengthening other aspects of fiscal to prioritise elements that mutually support the IGFTs to LGs for the delivery of these standards. assessments. The roll-out of the LLG performance decentralization. Table 20 summarises these key assessment for FY 2022/23 commenced in August overall reform intervention logic as illustrated in • Optimisation of sector policy priorities: the findings and provides tentative recommendations. 2022, while implementation of the health sector’s Figure 18. current relative emphasis on secondary education Results Based Finance (RBF) mainstreaming at the expense of primary education requires strategy and a broader School Performance policy review. Given fiscal resource constraints, Assessment (SPA) pilot is in process. this may also require rethinking of public private partnerships. Figure 18: Simplified Intervention Logic for IGFTRP Table 20: Summary of main recommendations Issue Main findings Recommendations 1. Grant The reforms have, since 2015, sought to Review details of grant earmarking and consolidation consolidate grants into a maximum of one enhance dialogue on grant consolidation. development grant, one NWR and one wage grant. This would entail efforts to (i) create a more This has not been fully achieved as development uniform approach to DDEG with minimal grants have several specific “windows” with “windows” as well as emphasis on one internal grant earmarking, conditionalities and formula-based development grant for each implementation arrangements. sector. 2. LG Additional LG structures are contentiously Introduce moratorium or strict guidelines for Proliferation created, leading to local challenges of funding creation of new administrative structures new service delivery facilities (HC IIIs and (districts, sub-counties, town councils, and secondary schools), administrative buildings, staff parishes etc). structures and political representatives. During 2022, the sub-counties increased from 1152 to 1495 Review and reform the current policies while the number of town councils more than regarding allocation of facilities by doubled (now 583). administrative unit rather than population served. The fiscal framework is constrained, which underlines yet to be fully realised in Uganda. Increase of While seen by many as a political issue, the the need for making most efficient use of fiscal DDEG will also allow for incentivization of fiscal creation of new administrative units Is in part resources allocated to LGs for improved service allocations to the lower-level local governments spurred by policies regarding the allocation delivery. This can be achieved through crosscutting – the DDEG is the only development grant of funding in accordance with administrative IGFT reform approaches as well as through sector administered at these levels. units (parishes and sub-counties) rather than specific strategies. population served. • A reallocation of some of the most conditional Crosscutting IGFT reform initiatives includes development grants towards the formula-based foremost prioritisation of: development grants (which also will cater for much need maintenance and rehabilitation • Strengthening reform coordination, policy at facility levels) and/or DDEG. The types of consistency, and implementation of MTP development funds will also increase the pool including the credibility of MTEF planning. of funding applicable for fiscal incentives through This includes added efforts to ensure political the LGPAs, which will also improve effectiveness. ownership of reforms. • Enhancing more equitable allocation of resources • Enhancing discretionary funding for LGs as financing of relatively underfunded LGs and combined with strengthened performance facilities is likely to achieve greater efficiency framework including stronger fiscal incentives. gains than allocation of resources to relatively Globally there is a proven relationship between well funded LGs. LG autonomy and allocative efficiency that is 60 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 61 INTERGOVERNMENTAL FISCAL TRANSFERS Issue Main findings Recommendations Issue Main findings Recommendations 3. Equity IGFTRP has successfully achieved more equitable Development funding should prioritise 6. A comprehensive performance management Closely monitor the planned expansion allocation of NWR in accordance with agreed formula-based grants and DDEG across Performance system under IGFTRP has (i) shown good results at of performance assessments to LLG and formula. windows. management LG levels, but (ii) is yet to be fully implemented at facilities for evidence of their relevance for for effective LLG and facility level. The completion and roll out enhanced service delivery. There is less consensus on how best to achieve Sector development funding for new facilities use of of these systems are critical for impact on service equitable allocation of development funding to prioritise most underserved areas (defined resources delivery. Ensure fiscal – and relevant non-fiscal through needs-based formula or targeting equal as clients by facility) rather than focus solely incentives for LLG and facility performance. distribution of infrastructure by administrative on administrative units. The fiscal incentives of the LGPA requires a unit rather than population/formula. The practical reasonable level of funding for the formula-based allocation of HC III and seed schools do not follow Wage: future allocations of wages to development grants that currently are squeezed other needs-based criteria. prioritise understaffed facilities and LGs. by a high level of earmarked health and education Additional support required to strengthen sector funding and low levels of DDEG for non DDEG is allocated in accordance with a formula central and LG staff allocation and USMID LGs. within specific windows of the DDEG, but recruitment procedures. allocation of DDEG across windows is very 7. The level of subventions (funding of devolved LG Review all elements of non-devolved funding inequitable and can only be achieved through External functions through central government votes) has for possible devolution and management grant consolidation. Finance increased in recent years and exceed non-wage through IGFT system. and Other IGFTs. It is a sign of incomplete decentralisation Wage: IGFTRP has initiated efforts for more Government that deserves closer analysis and action – or at Monitor distribution of OGT and EF and feed equitable allocation of staff across facilities and Transfers least closer monitoring, including distribution into future dialogue of resource allocations. LGs, but practical implementation falls short of patterns across LGs. Undertake an in-depth study of OGT and EF intended budget allocations. Data on actual staff Part of the subventions are captured in LG allocations across LGs. deployment in underfunded LGs is not readily available and wage budget is not fully executed budgets as “Other Government Transfers” (OGT) by LGs. or “External Finance” (EF). Both OGT and donor funding (EF) are distributed very unevenly with 4. Discretion Discretion of IGFTs is very limited and has Prioritise enhancement of DDEG. a bias towards rural LGs as well as significantly and allocative deteriorated, despite reform intentions. higher levels of funding in Northern Region efficiency Prioritise discretion within formula-based compared to other parts of Uganda Tight earmarking of funding undermines the sector development grants. potential for LG allocative efficiency and 8. OSR has in real terms (adjusted for inflation and A comprehensive reform of OSR policy leads to severe underfunding of a range of Own source population growth) declined substantially over framework is required to ensure that LGs mandatory LG functions, which are non-funded revenue (OSR) the last two decades and is today less than a in Uganda generate levels of OSR that are by conditional grants. third of what it was in the first decade of 2000s – comparable to other similar countries. primarily because LGs never found an alternative 5. IGFT IGFT transfers are executed in a transparent Strengthen MTEF planning and execution and buoyant resource to compensate for the transparency manner and generally in accordance with budgets. to ensure all agreed targets under IGFTRP abolishment of GPT. and execution (UgIFT) MTP are achieved and that the need A policy review of LG OSR to be considered as However, a major concern from LGs has been the for supplementary budgets is minimised. LG OSR in Uganda is very low compared to basis for future OSR policy reforms. late supplementary budgets that have had an international comparisons of OSR/GDP; only about impact on effective execution. GoU adherence to 25% of what is average globally and e.g., 25% of agreed MTP under UgIFT has often been achieved LG OSR in Tanzania. only through supplementary budgets. The impact TSA application on OSR to be reviewed– at LG level has been most significant for budgets Several reforms are currently supporting LG particularly for OSR supposedly retained at that require more substantive LG preparations like OSR at the local level, with improved ICT based LLG levels. recruitment of additional staff and development collection systems etc. However, national data expenditures. on OSR suggest that these are insufficient to overcome the decline of previous years. The use of supplementary budgets is a consequence of weak MTEF planning and The policy environment is currently not conducive execution. for OSR strengthening as LGs are not assigned revenue sources that have high revenue potential, low collection costs and without overlaps/ interference from central government. The property tax is for instance de facto a double tax on rental properties only (and also taxed by TSA). 62 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 63 INTERGOVERNMENTAL FISCAL TRANSFERS Issue Main findings Recommendations Table 21: Summary of UgIFT Specific Recommendations The meagre generation of LG OSR provides an Implementation Challenge/issue Recommendation added burden on central governments to finance Period LGs solely through IGFTs and weaken local accountability. Ensure that all UgIFT funded construction work is equipped and staffed prior to investment in The TSA application on OSR is causing significant additional infrastructures. cash flow problems in LGs and warrants a 1. Operation and Maintenance reconsideration of practices. of Investments and facilities Undertake (sample) survey of staffing and O&M 9. MDA coordination and support to the reforms Develop sector norms regarding equity of Within the requirements across LG infrastructure – to determine Reform have generally improved in recent years. The UgIFT staffing and minimum level of NWR support Several of the UgIFT supported HC current UgIFT funding requirement prior to UgIFT II. IIIs and secondary schools are not Program awareness incentives /DLIs have helped in this regard. for political endorsement. The development yet fully operational. In addition, of such norms should be made explicit for LGs face significant challenges Ensure targets for minimum level of staffing in each IGFTRP documentation has improved in visibility, political endorsement and commitment. with general O&M of facilities LG as defined by UgIFT AF is adhered to. but political endorsement is not comprehensive, across all sectors; the current and some aspects of reform receive much Strengthen documentation and visibility of level of formula based (education more focus (schools and HC IIIs by sub-county IGFTRP results. and health) development funding Ensure that levels of formula-based development in particular) than others (the performance (that also cater for repairs and funding are enhanced to cater for O&M requirement management system and broader objectives of Ensure that political leadership is engaged rehabilitations) amount to less as well as gradual needs-based (population/client- adequacy, equity, and discretion) that require and committed to intended local service than 1% of the capital stock. based) expansion of services. Informed by survey better communication and deeper policy delivery reforms through IGFTRP. of O&M requirements and investment needs best dialogue. NRM Manifesto includes commitment catered for through formula-based development Post UgIFT to initiatives such as schools and HC IIIs by sub- Greater systematic effort to build capacity grant. county and the Parish Development Model but across LGs will be needed to ensure is silent on wider service delivery improvements sustainability of the reform. This should 2. Adequacy and Predictability Most critical aspects of agreed MTP to be through programs like IGFTRP. also entail long term TA at national level for (MTEF). included in next year’s agreed budget, MTEF reform management. and as supplementary budget for this year. This Overall, sector norms regarding equity of staffing Several MTP targets have been includes foremost NWR as well as the formula- or minimum level of NWR support are available achieved in budget only through based development funding which also feed into but lack political endorsement. supplementary budgets. This is performance incentives and thus enhance overall Within the problematic as (i) the allocations effectiveness of use of funding. current UgIFT TA has proved critical for many aspects of systems thereafter are not locked into Program development and MDA training, yet capacities are subsequent budget/MTEF and (ii) Prepare process of budget prioritizations with sectors not fully built across LGs. late supplementary budgets have – taking issues of current Public Expenditure Review an impact on the ability of LGs to into consideration for possible UgIFT II. execute budgets. The agreed MTP targets have not Strengthening of MTEF process to ensure allocative been reached for FY 2022/23. efficiency and budget reliability. 3.4 UgIFT Specific Issues and Bank funded UgIFT program – the largest contributor Many LG services are Post UgIFT to this reform. The timing of the review coincided Ensure all agreed MTP targets are included in original Recommendations with the Mid-Term Review (MTR) of the UgIFT inadequately catered for in the MTP. budgets and minimize use of supplementary budgets. Program. Table 21 summarises issues of specific Even as this PER reviewed the entire GoU relevance to the UgIFT MTR. Intergovernmental Fiscal Transfer Reform Program, Undertake rapid desk-based survey of LGs that remain irrespective of the source of funding, it yielded some understaffed (ref UgIFT DPO indicators) and develop work programs that address bottlenecks including: insights pertinent to the management of the World i) facilitating the DSC and the ESC to undertake recruitments (e.g., some recruitment processes like advertising and shortlisting could be done centrally to limit the delays), ii) MoPS providing hands-on support to the HROs in wage analysis, recruitment planning and intra-district staff deployment, and Within the 3. Staffing of LGs (equity and iii) government allocating more wage to match the current UgIFT adequacy). enhancement of wages and salaries for science-based Programme professionals. MoFPED should ensure that release of funds (specifically the supplementary for the wage and re- voting back the un-utilized funds) is done in time so the funds are utilized. 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Kampala. 66 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 67 INTERGOVERNMENTAL FISCAL TRANSFERS Fiscal Challenges and Opportunities for Reforms.” Sector-specific grant and service delivery International comparisons In Fiscal equalization: Challenges in the design of Washington, DC. Report No. ACS4421. documents intergovernmental transfers (pp. 291-343). Boston, • Bahl, R. and Bird, R. 2008. “Subnational Taxes in MA: Springer US. World Bank 2022. Uganda Public Expenditure Review • PRDP operational manuals Developing Countries: The Way Forward” Public Field Report, Kampala. 2022 Budgeting & Finance 28 (4): 1-25. • Farvacque-Vitkovic, C. D. and Kopanyi, M. 2014. • Service Standards and Service Delivery Standards Municipal Finances: A Handbook for Local World Bank. 2022a. Uganda Intergovernmental Fiscal for the Health Sector 2016 • Bahl, R. and Linn, J. 2014. “Governing and Governments. Washington, DC: World Bank. Transfers Program (P160250). Implementation Status • Guidelines to the Local Government Planning Financing Cities in the Developing World.” Policy Focus Report. Cambridge, MA: Lincoln Institute of • Fjeldstad, O. and Heggstad, K. 2012. “Local & Results Report Process, Health Sector Supplement, 2016 Land Policy. Government Revenue Mobilisation in Anglophone WHO (World Health Organization). 2021. Study on • District Implementation Manual for the Ministry Africa.” Working Paper 7. International Centre for of Water and Environment, 2013 • Bird, R. 2002. “Intergovernmental Fiscal Transfers: Transition to Programme Budgeting in Uganda: Tax and Development. Brighton: University of International Lessons for Developing Countries”, Status of the Reform and Preliminary Lessons for Sussex. World Development 30 (6): 899-912. Health, 2021, Geneva. • Hart, T and Welham, B. 2016. Fiscal Decentralisation policy material • Boadway, R. W., & Shah, A. (Eds.). (2007). decentralisation: a Public Financial Management • Fiscal Decentralisation Strategy, 2002 “Intergovernmental fiscal transfers: principles introductory guide. London: Overseas Legislation and practices”. World Bank Publications. • Report on Consolidation of Intergovernmental Development Institute. • Constitution 1995 (revised 2015) Fiscal Transfers in Uganda, 2015 • Boex, J., & Martinez-Vazquez, J. (2007). Designing intergovernmental equalization transfers with • Local Government Act 1997 (revised 2005) imperfect data: Concepts, practices, and lessons. • Public Finance Management Act 2015 Donor projects and research and advisory reports • Public Finance Management Regulations 2016 • World Bank Draft Project Appraisal Document for • Local Governments (Finance and Accounting) the IGFT Reform, Program for Results Regulations 2007 • World Bank 2012 Public Expenditure Review: • Audit Act 2008 Service Delivery with More Districts • Local Government Finance Commission Act 2003 • World Bank 2014 Economic Update: do more National budget documents districts mean better service delivery? • National Development Plan II • USAID 2005 Review of implementation of the Decentralisation Policy • National Budget Framework Paper • BTC 2010 Trends in decentralisation and • National Budget Volume I harmonisation of DP Support in Uganda • National Budget Volume II • URF 2012 Study on the budget allocation formula • First Budget Call Circular • Singiza and de Visser 2009 The creation of new • Local Governments Audit Reports districts in Uganda Standard grant and sector documents • Grant and Budget Guidelines Local Government Finance Commission • Sector Performance Reports • Review of Local Government Financing, 2012 • Conditional Grant Utilization Agreements • Annual Reports • Draft Performance Assessment Manual • LG Revenue Performance in Uganda, 2013 • Budget Preparation Guidelines for Local • Proposal for Local Revenue Enhancement Governments Interventions, 2017 (and later) • Financing Issues in Health Service Delivery in Local Governments, 2015 68 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 69 INTERGOVERNMENTAL FISCAL TRANSFERS ANNEX 1 be the secretary. The FD Steering Committee will be responsible for providing strategic direction to the design and implementation of all aspects of the Intergovernmental Fiscal Transfer Reforms, including but not limited to: (i) final approval of Annex 1 Institutional the LG Performance Assessment Manual and Arrangements for IGFTRP Annual LG Performance Assessment Results; (ii) final approval of the grant allocation formulae; The IGFTRP is implemented through and by GoU (iii) providing oversight and ensuring the ANNEXES existing structures and no parallel implementation achievement of results envisioned in the reform and oversight structures will be created. The Figure program; and (iv) any other function that requires 17 outlines the oversight structures as well as strategic guidance related to the implementation implementation arrangements specifying the lead of the IGFTRs. department for each of the core functions of the iii.) The IGFTR Technical Committee: The TC is reform. chaired by the director of budget, MoFPED, and IGFTR Oversight Structures co-chaired by: (i) director research and revenue, The oversight structures are: (i) the IGFTR Oversight LGFC; and (ii) director, M&E, OPM. It is composed Committee (ii) the IGFTR Steering Committee; and of representatives with members who handle (iii) the Fiscal Decentralization Technical Committee. transfers at a senior (commissioner) level from MoFPED (BPED, ISSD), MoLG, LGFC, OPM, MoWE, i.) The IGFTR Oversight Committee is chaired by MAAIF, MoLHUD, MoWT, MoGLSD, PPDA, and the Minister of Finance, Planning and Economic NEMA. Representatives from LGs (UAAU, ULGA, Development. The members will be ministers etc.) DPs supporting IGFTRS and BTI Partners will of education and sports, health, water and be ex-officials. The secretary will be commissioner environment, agriculture, animal industries BPED, MoFPED. The IGFTR TC is responsible for and fisheries, local government, general duties overseeing and coordinating, at a technical (OPM), public service, works and transport, lands, level, the grants, assessment and targeted housing and urban development, gender, labor technical support including but not limited to: and social development, and the chairperson (i) the implementation of the grant allocation of the Local Government Finance Commission. formulae to ensure equitable allocation of funds Other Ministers will be co-opted depending on across LGs; (ii) the releases to LGs, ensuring the issue being discussed. Development partners timeliness; (iii) technical review and verification supporting IGFTRs will be ex-officials. The of the LG performance assessment manuals permanent secretary/secretary to the Treasury as well as results and ensuring application of will be the secretary. The IGFTR Oversight the results during the allocation of grants; (iv) Committee will be responsible for providing policy handle grievances related to LG transfers and guidance to the design and implementation of results of the LG performance assessment; (v) all aspects of Intergovernmental Fiscal Transfer offer technical guidance on the provision of Reforms. targeted support to the weak LGs to ensure that ii.) The IGFTR Steering Committee is chaired by the the identified gaps are addressed; (vi) coordinate permanent secretary/secretary to the Treasury. joint monitoring of the implementation of The members will be permanent secretaries of reforms at the LG level; (vii) offer technical MoH, MoES, MoWE, MAAIF, OPM, MoLG, MoPS, guidance on the design and implementation of MoLHUD, MoWT, MoGLSD, executive directors of the budget transparency initiative; (vii) compile, PPDA and NEMA and the secretary of the LGFC. monitor and troubleshoot the achievement of all Other permanent secretaries will be co-opted results envisioned in the reform program; and depending on the issue being discussed. (viii) coordinate joint annual reporting and review Development partners supporting IGFTRs will be of the Intergovernmental Fiscal Transfer Reforms. ex-officials. The director of budget, MoFPED, will 76 Co-chairing will depend on the issue being discussed: (i) when discussing the size and allocation of grants, the co-chair will be the director research and revenue, LGFC; and (ii) when discussing the LG performance assessment, the co-chair will be the director, M&E OPM. 70 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 71 INTERGOVERNMENTAL FISCAL TRANSFERS IGFTR Implementation Structures iii.) The function of providing advice on improving v.) LG Performance Improvement function will Department will: (i) ensure that the respective LG financing will be coordinated by the be coordinated by the District Administration sector ministries conduct monthly routine The implementation arrangements also involve Directorate of Research and Revenue, LGFC. The Department, MoLG. The commissioner, monitoring of construction and maintenance the mandated departments coordinating with director of research and revenue, LGFC will ensure District Administration, MoLG will ensure the of facilities; (ii) coordinate the joint quarterly the relevant stakeholders to ensure that the core the participation of officers in the Directorate participation of representatives from MoLG monitoring of construction and maintenance of functions regarding the reforms are implemented: of Research and Revenue, LGFC; officers from (Urban Administration, District Inspection; Urban facilities; (iii) ensure that Ministry of Works and i.) The LG Grant Management function is MoLG, MoFPED and sectors making transfers Inspection and Local Council Development); Office Transport organizes spot checks on key issues coordinated by the Fiscal Decentralization to LGs. Performing the function will involve: (i) of the Prime Minister; LG Finance Commission; identified from the routine and joint monitoring Section, Budget Policy, and Evaluation coordinating the annual negotiations between ministries of finance, planning, and economic exercises; and (iv) conduct (Office of the Auditor Department, MoFPED. The commissioner, Budget ministries, departments and agencies on one development; public service; education and General) annual technical infrastructure audits as Policy and Evaluation Department will ensure hand and LGs on the other, regarding transfers sports; health; agriculture, animal industries and well as VFM service delivery audits every second the participation of: (i) officers in the Fiscal to LGs (size, formulas, modalities, systems and fisheries; water and environment; lands, housing, year starting in FY 2020/21. Decentralization Section; (ii) the respective procedures etc;) (ii) conducting studies and and urban development as well as ULGA and vii.) Sector grant management function will sectoral desk officers; and (iii) officers from providing advice on LG finance, especially on UAAU. Representatives from other MDAs will be coordinated by the policy and planning the accountant general’s office responsible for how to improve grants, own source revenues and be co-opted depending on the subject being department of the respective MDA making making releases to LGs. The function will involve other sources of LG financing; and (iii) verifying discussed. The function will involve coordinating transfers to LGs. The commissioner of policy coordinating the reform as well as the LG budget the achievement and reporting to the technical and managing the multi-sectoral National and planning of the respective MDA will ensure formulation and execution functions. The specific committee on the results envisioned in the Resource Pool supporting the preparation of the participation of officers from policy and tasks include: (i) coordinating consultations with Reform Program relating to the adequacy and Performance Improvement Plans, dissemination planning; the relevant departments in the MDA LGs to inform the development of the respective equity of LG transfers. of guidelines and other core activities to LGs. (e.g., officers from primary education; secondary grant guidelines – through the LG Budget iv.) The Performance Assessment function will be This will involve: (i) developing the framework, education; Directorate of Education Standards; Workshops; (ii) coordinating the application of the coordinated by the M&E Department, OPM. The principles and modalities for providing targeted and BTVET in the education sector); as well as grants allocation formulae approved by the sector commissioner M&E, Office of Prime Minister will performance improvement support to LGs; (ii) sector desk officers from MoFPED, MoPS and and generating IPFs; (iii) coordinating the release ensure the participation of representatives from determining the most appropriate institutions MoLG. The tasks will include: (i) developing of transfers to LGs; (iv) coordinating LG budget OPM, MoLG, LGFC, MoFPED, MAAIF, MoPS, MoES, to provide the support and method of support sector policies and strategies that govern local reporting; (v) coordinating the implementation MoH, MoWE, ULGA and UAAU. Representatives (based on the recommendations of the LG PA service delivery; (ii) developing and issuing grant of quarterly joint monitoring visits to LGs from other MDAs will also be co-opted depending results); (iii) coordinating the development of guidelines including associated formulae, budget covering safeguards, contract management and on the subject discussed. Performing the training materials tailored to addressing the requirements and medium-term grant allocations procurement; and (vi) ensuring achievement and function will involve coordinating the design and identified gaps; (iv) coordinating the provision of within sector ceilings; (iii) provision of data for reporting on the results envisioned in the Reform implementation of the performance assessment technical advice, supervision and training by the formulae variables not available from UBOS Program relating to the adequacy and equity of system for MDAs, local governments, and respective sectors according to their mandates; (e.g., enrolment); (iv) follow up on assessment LG transfers. service delivery units. The key tasks include: (i) (v) maintaining an up-to-date inventory, of the LG draft BFP papers and draft budgets for ii.) The Budget Transparency function is coordinating the formulation (and refinement) co-ordinating and ensuring harmonisation of compliance with the budgeting requirements; coordinated by the Budget Evaluation Section, of the Performance Assessment Manuals; (ii) government and externally-funded capacity- (v) verification/accreditation of cost center data Budget Policy and Evaluation Department, procuring and managing the firms contracted building initiatives directed at LGs; and (vi) submitted by LGs and used in the IFMS/PBS; (vi) MoFPED. The Commissioner, Budget Policy to conduct the LG performance assessment ensuring achievement and reporting on the participate in LG performance improvement and Evaluation Department will ensure the exercises and the quality assurance team; results (relating to planning and effectiveness exercises and support to the LG Performance participation of officers in the Budget Evaluation (iii) coordinating the orientation and training of targeted technical support as envisioned in Assessment System, and (vii) develop/refine Section; officers from FDS, the respective sectoral of LGs and teams contracted to conduct the the reform program.) LG performance assessment parameters in the desk officers and BMAU. The function will involve LG performance assessment exercises; (iv) vi.) Joint Monitoring Function: Monitoring the sector. publicizing budget information. The specific validating the results of the LG PA and presenting construction and maintenance of facilities A positive development has been the formation of tasks include: (i) overseeing the development, to the Technical Committee with a clear function will be coordinated by the Fiscal multi-sectoral National Resource Pools which support management and popularizing of the tools that recommendation on the impact of the results to Decentralization Section, Budget Policy the preparation of Performance Improvement Plans, are used to publicize budget information e.g., the the allocation of grants, the poorly performing and Evaluation Department, MoFPED. The the dissemination of guidelines, and the newly budget website and call center; (ii) ensuring that LGs that require support, and common thematic commissioner, Budget Policy and Evaluation established quarterly joint monitoring exercises. comprehensive and accurate budget information areas of underperformance requiring support; is provided on time e.g., to the budget website, (v) coordinating the dissemination and use newspapers, and others; (iii) coordinating the of the LG performance assessment results process of receiving feedback on the publicized including presentation to GAPR; and (vi) ensuring budget information and service delivery in achievement and reporting on the results relating general; and (iv) coordinating the process of to LG assessment and performance as envisioned responding to feedback. in the Reform Program. 72 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 73 INTERGOVERNMENTAL FISCAL TRANSFERS Annex 2: MTP 2017 and 2021     2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Water and Environment Rural Water Supply 4 5 6 7 7 7 and Sanitation Annex Table 2.1: MTP as per IGFTRP 2017 Urban Water Supply 3 3 3 4 4 4 and Sanitation Detailed Expenditure Framework (Absolute), Proposed annual expenditure in UGX billion 77 Natural Resources 1 1 1 1 1 1     2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Management Sector Wage Grants               Water and 8 9 10 12 12 12 Agriculture Agriculture 40 42 44 46 48 50 Environment Total Extension Social Development Com. Mobilisation 8 9 10 12 12 12 Agriculture Total 40 42 44 46 48 50 and Empowerment Education Primary Education 906 951 999 1,049 1,101 1,156 Social Development 8 9 10 12 12 12 Total Secondary 214 225 236 248 261 274 Education Non-Wage Recurrent Total   299 389 458 532 592 657 Skills Development 35 36 38 40 42 44 Sector Development               Education Total 1,155 1,213 1,273 1,337 1,404 1,474 Agriculture Development   7 8 10 12 12 13 Health Primary Health and 290 304 320 336 352 370 Works and Transport Development 23 30 36 43 43 45 Sanitation Services Education Development   33 73 80 100 104 107 District Hospital n/a n/a n/a n/a n/a n/a Health Sector Development   0 50 61 68 73 77 Services Water and Environment Development 48 63 76 91 91 95 Health Total 290 304 320 336 352 370 Development Total   110 224 263 314 323 337 Wage Recurrent Total   1,484 1,559 1,636 1,718 1,804 1,894 Unconditional Grant               Sector Non-Wage Recurrent             District Wage Recurrent 173 181 190 200 210 220 Agriculture Production & 7 8 9 10 10 10 Commercial Non-Wage 81 98 107 123 123 130 Services Recurrent Agriculture Total 7 8 9 10 10 10 Total District 254 279 298 323 333 350 Education Primary Education 68 90 106 120 132 144 Urban Wage Recurrent 46 48 51 53 56 59 Secondary 127 162 190 217 242 265 Non-Wage 28 34 37 43 43 45 Education Recurrent Skills Development 32 38 42 48 48 51 Total Urban 74 82 88 96 98 103 Education 5 6 6 7 7 7 Discretionary Recurrent Total 328 361 385 419 432 453 Management and Inspection Discretionary Development Equalisation Grant              Education Total 231 296 344 392 430 467 District PRDP 93 93 93 96 96 100 Health Primary Health and 27 42 54 68 83 100 LRDP 13 23 34 46 46 48 Sanitation Services Other 16 43 63 87 87 91 District Hospital 19 25 31 38 46 54 Total District 122 158 190 228 228 240 Services Health n/a n/a n/a n/a n/a n/a Management Health Total 46 67 85 107 129 155 Water and Environment Rural Water Supply 4 5 6 7 7 7 and Sanitation Urban Water Supply 3 3 3 4 4 4 and Sanitation Natural Resources 1 1 1 1 1 1 Management Water and 8 9 10 12 12 12 77 As explained in section 3.2, the proposed health and education sector figures include the WB PfR resources. All other figures are as per the draft budget FY Environment Total 2017/18 MTEF. 74 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 75 INTERGOVERNMENTAL FISCAL TRANSFERS     2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Annex Table 2.2: Proposed Annual Expenditure in UGX. Billion78 Urban Large 98 13 17 21 21 22 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 Municipalities Financial Year (UGX. Bn) (USMID) Approved Budgets 2021/22 MTEF Commitments Other 9 6 7 9 9 10 Sector Wage Grants               Municipalities and Divisions Agriculture 39.5 71.6 73.5 77.3 80.5 84.5 88.7 Town Councils 6 6 6 6 6 6 Education 1155.5 1251.7 1328.3 1420.5 1529.1 1615.6 1696.4 Total Urban 113 25 30 36 36 38 Health 291.4 424.5 437.0 452.2 500.1 527.3 553.7 DDEG Total   234 183 220 264 264 277 Wage Total 1486.5 1747.9 1838.8 1949.9 2109.6 2227.4 2338.8 Transition and Support Services             Sector Non-Wage Recurrent Grants               Recurrent Pensions & Gratuity 236 160 176 203 203 203 Agriculture 6.5 36.0 33.8 33.8 198.4 198.4 220.3 Total Non-Wage 236 160 176 203 203 203 Education 226.7 255.3 298.1 335.3 384.7 438.4 597.2 Development Education 14 14 14 0 0 0 Transitional Grants Health 39.9 39.9 56.2 85.9 131.4 140.1 205.5 Health Transitional 10 3 2 1 0 0 Grants Water and Environment 5.3 5.3 7.8 15.5 16.0 16.6 18.4 PSM 12 13 13 13 13 13 Social Development 7.6 7.6 7.6 7.6 7.8 7.8 13.6 Water Transitional 3 3 0 0 0 0 Trade and Industry 0.0 0.0 2.2 2.2 2.2 2.2 2.5 Grants Non-Wage Recurrent Total 286.1 344.1 405.7 480.4 740.5 803.5 1057.5 Total 39 24 15 14 13 13 Sector Development Grants               Transition and Support Services Total 275 194 206 217 216 216 Agriculture 5.5 15.4 15.4 18.7 80.7 97.7 183.3 Total grants   2,731 2,910 3,169 3,464 3,631 3,835 Works and Transport 10.9 10.9 22.9 24.8 33.7 33.7 37.1 Education 32.5 128.6 153.6 188.4 186.2 239.2 249.0 Wage Recurrent Total 1,484 1,559 1,636 1,718 1,804 1,894 Health 0.0 69.4 56.3 85.2 139.5 126.5 160.5 Water and Environment 48.4 48.4 51.5 79.4 80.3 100.9 110.9 Non-Wage Recurrent Total 299 389 458 532 592 657 Development Total 97.4 272.7 299.7 396.5 520.3 598.0 740.9 Unconditional Grant               Development Total 110 224 263 314 323 337 Wage Recurrent 110.5 264.7 277.8 286.2 321.1 341.5 358.5 Discretionary Recurrent 328 361 385 419 432 453 Non-Wage Recurrent 110.5 120.5 120.5 127.1 127.6 127.6 141.6 Total Discretionary Recurrent Total 221.1 385.3 398.3 413.4 448.7 469.1 500.2 DDEG Total 234 183 220 264 264 277 Discretionary Development Equalisation               Grant (DDEG) Transition and Support 275 194 206 217 216 216 Services Total DDEG Total (including External 234.5 141.1 419.7 558.6 515.7 180.3 187.8 Financing) MTP 2021 Public Sector Management (PSM)               Annex Table 2.2 corresponds to the Medium-Term Expenditure Framework for Financing of Local Government Recurrent 235.4 215.9 241.6 346.9 318.7 318.7 353.8 Services (Published in IGFTRP 2021). This MTEF incorporates the commitment to uplift the financing of the Education, Health, Water & Environment and Agriculture conditional grants, the DDEG, and the commitments Development 12.6 12.6 17.4 4.9 4.9 4.9 5.4 made for other sectors in the FY2021/22 approved budget MTEF. Changes in scope – addition of new policy PSM Total 248.0 228.5 259.0 351.8 323.6 323.6 359.1 areas and mandates to the LG grants from MDA controlled finances – would require additional resources to the allocations outlined below. Central MDAs – Routine Oversight & 0.0 11.2 16.9 18.2 63.0 62.9 56.4 Systems Strengthening 78 The proposed Health, Education, Agriculture and Water & Development sector figures include the WB PfR resources. All other figures are as per the approved budget for FY 2020/21 MTEF. 76 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 77 INTERGOVERNMENTAL FISCAL TRANSFERS MTEF Aggregated 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 Annex Table 3.1: Trends in Individual LG Grants (FY 2019/20-2022/23) Total Grants 2,573.5 3,118.1 3,620.7 4,163.9 4,716.6 4,660.0 5,235.3 Nominal (UGX, Billions) Real Per Capita (UGX, FY2021/22 prices) Age recurrent total 1,597.0 2,012.6 2,116.5 2,430.8 2,568.9 2,236.2 2,697.3 Grant Sector Change Change Non-Wage Recurrent Total 767.8 1,186.8 1,249.8 FY20 632.0 680.6 954.4 1,552.9 FY20 19/20- 19/20 20/21 21/22 22/23 19/20 20/21 21/22 22/23 19/20- FY2022/23 2022/23 (%) (%) Development Total 413.8 719.5 1,036.0 778.3 344.4 955.1 928.7 Central MDAs – Routine Education 1,404.8 1,457.9 1,545.6 11% 37,473 36,945 36,487 -7% 1,560.0 34,715 Oversight & Systems - 11.2 16.9 18.2 63.0 62.9 56.4 Strengthening Health 447.3 459.1 596.1 68% 11,931 11,635 14,073 16,731 40% 751.8 Wage Annex 3: IGFT Trends (Adequacy) Agriculture 76.9 82.6 83.7 120.7 57% 2,051 2,093 1,975 2,687 31% Annex Figure 3.1: Trends in Transfers Allocations by Economic Classification (Real Per Capita Values- Ugx Fy2021/22) Unconditional 284.9 293.7 334.0 422.8 48% 7,600 7,443 7,885 9,408 24% Education 298.1 340.3 385.2 12% 7,951 8,624 9,093 -6% 335.1 7,458 Health 78.4 92.0 179.2 21% 2,091 2,331 4,229 2,111 1% 94.9 Agriculture 33.8 33.8 198.4 31% 901 856 4,685 9% 44.3 985 Non-Wage Water and 7.8 15.5 15.5 99% 208 393 366 66% Rec. Environment 15.5 345 Trade and 2.2 2.2 2.2 0% 60 57 53 -17% Industry 2.2 50 Aggregate allocations to LG Grants consistently surpassed the targets set in the MTP over FYs 2020/2021– 2022/23, demonstrating the government’s commitment to improve the adequacy of local government Social financing (Annex Figure 3.2). Nevertheless, while the targets for wage and development grants were met Development 7.6 7.6 7.8 7.6 0% 204 194 183 170 -17% consistently, non-wage recurrent grant allocations were lower than projected MTP targets in approved budgets of FYs 2020/21-2022/23. This disparity suggests that a higher effort might be necessary in future Unconditional 122.1 127.2 136.2 32% 3,257 3,224 3,215 10% financial years to re-establish the adequacy of non-wage recurrent grant allocations. 161.6 3,596 Annex Figure 3.2: LG Grant Allocations 2020/21–2022/23 (UGX. Bn): vis-a-vis UgIFT Additional Financing MTP Targets Education 181.5 199.1 243.0 238.8 32% 4,842 5,045 5,738 5,314 10% Health 80.1 95.4 161.5 50% 2,136 2,419 3,812 25% 120.1 2,673 Agriculture 15.4 18.2 80.2 420% 410 460 1,893 334% 79.9 1,778 Develop. Water and 48.4 77.0 77.7 59% 1,292 1,951 1,833 33% Environment 77.0 1,714 Works and 10.9 10.9 10.9 0% 291 276 258 243 -17% Transport 10.9 DDEG 419.7 552.5 515.7 -33% 10,816 13,692 12,174 -40% 279.3 6,482 Source: MoFPED 2023: IGFTRP Annual Performance Report (September 2022 draft) 78 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 79 INTERGOVERNMENTAL FISCAL TRANSFERS Annex Table 3.2 shows the extent to which budget allocations at the grant level complied with the Annex 4 IGFT Trends (Equity) IGFTRP (2021) MTP over FY 2018/19-2022/23 (i.e., difference between approved allocations and MTP targets). This annex is an extract of the MoFPED Annual Report FY 2020/21-21/22 Annex Figure 4.1: Correlation between Transfers Per Capita and Poverty Rate by Local Government Annex Table 3.2: Compliance with the IGFTRP MTP Targets: Approved Budget Allocations – MTP Targets (Compliant=Green, Uncompliant=white) FY 2019/20 FY 2022/23 Comparison Budgets vs MTP (in UGX Billion) Grant Sector 2018/19 2019/20 2020/21 2021/22 2022/23 Education 38.7 55.3 0.6 0 -46.7 Health 120.5 117 0 0 -20.8 Wage Agriculture 29.6 29.5 0 0 0 Unconditional 35.7 36.8 -0.6 0 -4.2 Education -40.7 -45.9 1.3 0.5 -103.3 Health -27.1 -28.8 0 47.7 -45.2 Agriculture 28 24.8 0 0 0 Non-Wage Recurrent Water and Environment -0.4 -1.4 0 -0.5 -1.0 Social Development -1.4 -2.4 0 0 0 Unconditional -11.5 -23.5 0 0 0 Equity of Priority Local Government Grants incentivize efficiency in the usage of these funds. Education 57.2 73.6 0 58.7 1.4 The other 66 percent of the Education Development Health 24.2 -2 1.9 28.4 0.0 Substantial progress was made in improving the Grant is being used to construct secondary seed equity of grant allocations in priority sectors. The Agriculture 7.4 5.4 0 0.1 0.0 schools in sub-counties without one according to a following subsection provides an overview of the Development policy priority established by the central government. Water and Environment -11.1 -24.5 0 0.2 -21.0 evolution of the equity of non-wage recurrent and Works & Transport -6.6 -13.1 0 0.0 0.0 development grants in the education, health and The allocation formulae for the grants mentioned water and environment grants. above have undergone changes in the budgets of DDEG -199.9 9.7 0 0.0 0.0 FYs 2018/19-2022/23 with implications on the equity a) Education Conditional Grants of their distribution. The value of the capitation Wage Grants: Up to FY2021/22, only the unconditional grants allocations failed to comply with MTP targets. In the education sector, the primary and secondary grant provided to primary and secondary schools – However, in FY2022/23 all wage grants allocations (health, education, and unconditional) failed to comply education non-wage recurrent sub-grants and the main variable in the allocation of the primary/ with the MTP targets. approximately 33 percent of the development secondary non-wage recurrent grant – increased by Non-Wage Recurrent Grants: For FY20/21 and FY21/22, the MTP NWR targets for sectors have been marked grant (as of FY 2022/23) are allocated according to 106% and 46% percent, respectively over 2018/19- by total compliance reflecting the efforts of GoU to comply with the program objectives. However, this allocation formulae in order to increase the fairness 2021/22. However, as a result of the tightening of trend was not sustained in FY22/23 as the allocations for Education, Health and Water & Environment fell of fund distribution across LGs. The allocation of the fiscal space in FY2022/23, 55% and 35% of those short of the targets. the formula-based component of the development gains were offset in FY2022/23 for primary and grant is also influenced by the results obtained by secondary non-wage recurrent grants respectively Overall, the development grant allocations have showed a relatively high compliance to the MTP targets. each local government in the annual performance (Annex Table 4.1). While only half the grants complied with the targets in the first two years of the programme, all targets were assessment (education indicators only) in order to met in the two subsequent years. [NB: See the Discretion sub-section for further details on the DDEG grant.] 79 In 2018/19, the overall development grant was allocated via the formulae. Once the funds had been allocated, MoES informed the relevant local governments of how much had to be spent on the construction of seed schools. 80 50 percent of the development allocation to each local government is weighted by the coefficient between their LGPA result and the average across all local governments. Local governments with above-average results will receive a top up to their formula-based allocation and vice-versa. 81 These funds are jointly managed (including the procurement process) by MoES and the respective local governments. 80 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 81 INTERGOVERNMENTAL FISCAL TRANSFERS Annex Table 4.1: Changes to Education Capitation Grants, 2018/19 - 2022/23 Annex Table 4.3: Equity of Education Conditional Grants, 2018/19-2022/23 Capitation per % Change 2018/19 2019/20 2020/21 2021/22 2022/23 Student (UGX) 18/19–22/23 Non-Wage Recurrent Development UPE Capitation Equity 1,350,000 1,350,000 1,350,000 1,350,000 1,350,000 0% fixed per school Education (Primary & Secondary) Formula-Based Note Grants UPE Capitation per 10,000 12,000 17,000 20,000 14,500 45% 18/19 19/20 20/21 21/22 22/23 18/19 19/20 20/21 21/22 22/23 student USE Capitation per Average 123,000 165,000 175,000 180,000 160,000 30% student Transfer per 21,121 20,761 23,375 24,980 20,555 12,564 3,660 4,092 4,973 5,660   UPOLET Capitation school-age 240,000 264,000 270,000 285,000 260,000 8% per student population 20 least funded LGs The allocation formula of the education development grant has remained unchanged except for the / Average Higher Transfer 60% 60% 57% 66% 53% 73% 66% 59% 52% 56% introduction of the urban population variable and a minor reweighting of three other variables since FY better per 2019/20 (Annex Table 4.2). school-age population Max/Min Annex Table 4.2: Education Conditional Development Grant Allocation Formulae Ratio (per 11 20 19 15 13 8 20 29 15 15 Lower school-age Better population) Variables 2018/19 2019/20-2022/23 Gini Lower Fixed Allocation 20.0% 19.0% 22% 24% 25% 21% 23% 20% 24% 27% 31% 28% Coefficient Better Inverse Net Enrolment 30.0% 30.0% Note: For comparability purposes, the FY 2018/19 equity indicators concern the total development grant since it was 100% allocated via the formulae. Island Dummy 0.5% 0.5% b) Health Conditional Grants Land Area (Hectares) 2.0% 2.5% In the health sector, the Primary Health Care (PHC) and Primary Health Care - Hospital (PHC - Hospital) Performance Index UPE 5.0% 5.0% Non-Wage Recurrent Sub-Grants and 31 percent of the Development Grant (as of FY 2022/23) are also allocated according to allocation formulae (see Annex Table 4.4). The allocation of the Formula-Based Performance Index USE 5.0% 5.0% Health Development Grant is also influenced by the performance of each local government in the health indicators of annual performance assessment in order to incentivize efficiency. The other 69 Pop. in Hard to Reach Hard to Stay Areas 2.5% 3.0% percent of the Health Development Grant is being used to upgrade HC IIs to HC IIIs in sub-counties without one according to a policy priority established by the central government. Pop. of Primary & Secondary School Age 35.0% 30.0% Urban Population 0.0% 5.0% Annex Table 4.3 reports on key equity indicators for the primary and secondary non-wage recurrent sub-grants and the formula-based development grant. The equity of the non-wage grant allocation per school age population remained stable according to the Gini index between FY2018/19 and FY2022/23, although the max/min ratio increased slightly from 11 to 15. The equity of the formula-based development grant on the other hand, worsened since FY2019/20 as a smaller proportion (33%) of the grant is subjected to an objective allocation formula. As illustrated in Table 6, the ratio between the per capita allocation to the 20 least funded local governments and the national average decreased from 73 to 56 percent between 2018/19 and 2022/23. In addition, the higher dispersion in the 2020/21 and 2021/22 education sector LGMSD PA results across local governments, translated into higher variability in per capita allocations. The standard deviation of the education sector performance measures increased from 14.93 to 15.89 between the 2018/19 and 2019/20 evaluations. 82 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 83 INTERGOVERNMENTAL FISCAL TRANSFERS Annex Table 4.4: Health Conditional Grants Allocation Formulae The formulae of the two Non-Wage Recurrent Sub-Grants (PHC-HCs and Hospitals) were first introduced in FY 2019/20, translating into considerable improvements in the equity of allocations (see annex table 4.5). The changes made to the formulae in the subsequent financial year made the distribution of these funds Variables 2018/19 2019/20 2020/21 2021/22 & 2022/23 less equitable but largely sustained the gains made in relation to FY 2018/19. Overall, the ratio between the per capita allocation to the 20 least funded local governments and the national average increased from 45 Primary Health Care – NWR to 53 percent between 2018/19 and 2022/23. In addition, the ratio between highest and least funded local governments in per capita terms dropped substantially from a factor of 25 in 2018/19 to 8 in 2022/23 after Fixed Cost – GOV HC II/PNFP HC   2,000,000/1,000,000 2,000,000 II (UGXUGX) witnessing a decline in the interim years. Fixed Cost – GOV HC III/PNFP HC   4,000,000/2,000,000 4,000,000 Annex Table 4.5: Equity of Health Conditional Grants, 2018/19-2022/23 III (UGXUGX) Fixed Cost – GOV HC IV/PNFP HC Non-Wage Recurrent Development – Formula Based Note   8,000,000/4,000,000 20,000,000 Equity – IV (UGXUGX) Health Grants 18/19 19/20 20/21 21/22 22/23 18/19 19/20 20/21 21/22 22/23 Proportion of HC III 17%     Average Transfer 1,347 2,344 2,683 4,919 2,218 2,491 283 569 1,195 1,229   Proportion of HC IV N/A 7%     per capita Fixed Allocation Ratio 4%     20 least funded LGs / Higher Poverty Headcount Ratio (%) 2% 20% 20% 45% 56% 48% 64% 53% 7% 34% 51% 51% 48% Average better Transfer per capita Infant Mortality (%) 8% 10% 10% Max/Min Lower Population (%) 60% 60% 60% 25 8 49 8 32 395 119 72 20 22 Ratio Better Population in Hard to Reach Lower 2% 10% 10% Gini Coeff. 36% 25% 31% 21% 28% 55% 45% 34% 33% 34% Better Hard to Stay Areas (%) Similar improvements were observed in the equity of the allocation of the Formula-Based Development Grant (which was only effectively Hospital – NWR introduced in FY 2019/20). The max/min ratio of the formulae-based development allocations dropped from 395 to 22 and the Gini coefficient dropped from 55% to 34% since FY2018/19. Fixed Cost – Public Hospitals   100,000,000 250,000,000 c) Water & Environment Conditional Grants (UGXUGX) Fixed Cost – Hospital Located in In the water and environment sector, Non-Wage Recurrent Sub-Grants (i.e., Rural Water & Sanitation, and the Vicinity of a Highway (Gov.     15,000,000 Natural Resources) and the Development Grant are allocated through allocation formulae (see Annex Table Hospitals only) 4.6). The allocation of the Development Grant is also influenced by the performance of each local government in the water and environment indicators of the annual performance assessment (as of FY 2019/20) in order Fixed Cost – PNFP Hospitals   50,000,000 50,000,000 to incentivize efficiency. In FY2022/23, the Water and Environment Development Grant was sub-divided into (UGXUGX) a Piped Water Development Sub-Grant and a Rural Water & Sanitation Development Sub-Grant but the Hospital Catchment Population N/A original formulae were used to allocate the two sub-grants. 82% 60% 60% (%) Hospital Catch. Pop. in Hard-to-   10% 10% Reach Areas (%) Infant Mortality (in Hospital 10% 10% 10% Catch. Pop.) Poverty Headcount Ratio (in 2% 20% 20% Hospital Catch. Pop.) Health Conditional Development Number of Existing GoU HCIIIs, 50% 50% 50% HCIVs & Hospitals N/A Pop. per GoU/PNFP HCIIIs, HCIVs 50% 50% 50% & Hospitals 84 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 85 INTERGOVERNMENTAL FISCAL TRANSFERS Annex Table 4.6: Water & Environment Conditional Grants Allocation Formulae Annex Table 4.7: Equity of Water & Environment Conditional Grants, 2018/19-2021/22 Water and Rural Water Piped Water Water & Sanitation Natural Resources Environment - & Sanitation Equity – Non-Wage Recurrent Development – Formula-Based Development Water & NWR NWR Development Development Sub-Grant Environment Note Variables Conditional Grant Sub-Grant Grants 2018/19- 2020/21- 2018/19- 2020/21- 2018/19- 2020/21- 18/19 19/20 20/21 21/22 22/23 18/19 19/20 20/21 21/22 22/23 2022/23 2022/23 19/20 2022/23 19/20 2022/23 19/20 21/22 Average Transfer per 302 278 537 502 471 1,788 1,651 2,540 2,368 2,248   Pop. in Hard to capita Reach Hard to 3% 3% 2% 2%         20 least Stay Areas funded LGs Higher / Average 45% 47% 61% 63% 59% 67% 64% 73% 70% 67% better Transfer per capita Fixed 82% 43%     30% 20% 20% 20% Allocation Lower Max/Min Ratio 46 47 15 19 19 11 10 14 9 7 Better Land Area 10% 10%   10%   5% 5% 5% Gini Lower 53% 53% 42% 41% 46% 35% 35% 31% 33% 38% Coefficient Better Rural 5% 44% 83% 63%   35% 35% 35% Note: Only LGs receiving Water and Environment Grants were included in those analyses Population Wetland Area     5% 15%         Annex 5: Unfunded/Underfunded functions in LGs Sub Program Key LG responsibilities Underfunded/Unfunded mandates Poverty Headcount     10% 10%   15% 15% 15% Ratio Administration The non-wage unconditional grant The first phase of the current fiscal decentralization combined with own resources finance: reform agenda aimed to consolidate excessive Cost of earmarking of the non-wage unconditional grant. Providing • Administrative functions; However, following the consolidation of the non-         5%       Water Per wage unconditional grant, LG’s themselves began Capita (est.) o Integrated Payroll Processing insisting on a return to earmarking of the grant per System (IPPS) the functions outlined, simultaneously abandoning Rural Served the discretion provided through consolidation. LG’s         20%       Population o Payroll printing reasons for this are simple. They contend that the overall value of the grant combined with their own Rural Unserved • Financial management and resources is insufficient to carry out their functional Pop. for SCs accountability; mandates. Therefore, they would rather that funds < National         45% 25% 25% 25% be earmarked so that they can avoid excessive target (i.e. 77%) o Integrated Financial Management bargaining for scarce resources. Information System (IFMIS) Substantial changes were made to the three formulae used in the water and environment sector in FY • The functioning of statutory bodies; 2020/21 as part of the expansion of the scope of the UgIFT Programme to this sector. These modifications significantly increased the equity of the allocation of both non-wage recurrent and development funds (in o Boards and Commissions particular the lower weight assigned to fixed allocations). o Councillor allowances and Ex gratia Overall, the ratio between the per capita allocation to the 20 least funded local governments over the • Local government planning national average increased by 14 percentage points for the Non-Wage Recurrent Grant between 2018/19 functions; (45%) and 2022/23 (59%) but stayed stable for the Development Grant see Annex Table 4.7). In addition, the ratios between the highest and least funded local governments in per capita terms also decreased • The internal audit functions. considerably for both grants, i.e., from a factor of 46 to 19 for NWR and for development, dropping from a Works and The sector non-wage conditional The functional assignment does not correspond factor of 11 to 7. transport grant (URF) finances the maintenance with available financing, e.g., of existing district, urban, and community access roads. • Rehabilitation of roads should be an LG function as per the LG Act, but the Ministry of Works has taken this over. 86 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 87 INTERGOVERNMENTAL FISCAL TRANSFERS • Funds for road maintenance provided to LGs NOTES through the URF are inadequate given most roads require rehabilitation which calls for far more funding • LGs are unable to afford the maintenance of their equipment. Natural To increase productivity of the natural The amendment of the Natural Resources Resources resource base and harnessing natural Management (NRM) Act 2019 widened the scope of Management resources in a sustainable manner the portfolio without transferring commensurate resources to facilitate the enforcement of the law. The district does not receive an unconditional grant. Commercial To support policies, strategies, LGs receive meagre resources, as low as UGX Services plans, and programs that promote 8m per year, to promote trade services in the and ensure the expansion and community, training on initiatives of GoU e.g., diversification of trade, cooperatives, Emyoga, PDM. There is no additional funding environmentally sustainable from such programs to support field activities. industrialization, appropriate Neither is funding from OSR forthcoming. technology development, transfer, and use to generate wealth for poverty eradication and benefit the district and the country socially and economically. Social The sector non-wage conditional grants Underfunding of the sector’s functional Development finance: assignments, partly because of the duplication of these functions under other sectors. The unfunded • Community mobilisation for mandates provided for under Schedule 2 of the LG development. Act (CAP. 243) include: • Council activities in accordance with the Women, Youth and • Social Rehabilitation Disability Council acts. • Labor and Industrial relations • Community empowerment and • Probation and welfare (social protection for the income generating activities. vulnerable groups) • Street children and orphans • The sector non-wage conditional grants finance: • Women in development • Community development • Community mobilisation for development. • Youth Affairs • Cultural Affairs • Council activities in accordance with the Women, Youth and • Information services Disability Council acts. • Community empowerment and income generating activities. Pre-Primary Schedule 2 of the LG Act, mandates • This function is unfunded. Education the LGs to provide education services, • The provision of pre-primary education is left in which cover pre-primary (nursery), the hands and discretion of the providers/the primary, secondary, teacher education, private sector. science technology innovation, special needs, and technical and • There is no framework for inspection and vocational education. support supervision of pre-primary schools. • This has posed part of the challenge of delay in the foundation stages especially in rural areas, as pre-primary is concentrated in urban centers. There is need to relive the ideals of the Education Act (section 9) that requires primary school age going to range from 6-12 years. It is not consistent with the current rampant dispensation of 13-17 years for the primary cycle. 88 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 89 INTERGOVERNMENTAL FISCAL TRANSFERS NOTES Rweshama Secondary School funded by the UgIFT program (Brian Amanya, 2022) 90 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 91 INTERGOVERNMENTAL FISCAL TRANSFERS 92 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 INTERGOVERNMENTAL FISCAL TRANSFERS