MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT ...€¦ · the republic of uganda national...

THE REPUBLIC OF UGANDA

NATIONAL

BUDGET FRAMEWORK PAPER

FY 2016/17 – FY 2020/21

MINISTRY OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT

DECEMBER 2015

National Budget Framework Paper FY 2016/17

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TABLE OF CONTENTS

Introduction.....................................................................................................................................................4

Part 1: Medium Term Macroeconomic Outlook and Indicative Revenue Framework

1.1 MEDIUM TERM MACROECONOMIC FORECAST ................................................................... 6

1.1.1. Macroeconomic Policy Framework ............................................................................................... 6

1.1.2. Key Macroeconomic Assumptions ................................................................................................. 7

Real GDP Growth ......................................................................................................................................... 8

Annual Inflation ................................................................................................................................................. 8

Employment ....................................................................................................................................................... 9

Exchange Rate ................................................................................................................................................... 9

Balance of Payments ....................................................................................................................................... 10

1.2 MEDIUM TERM FISCAL FRAMEWORK .................................................................................. 10

1.3 MEDIUM TERM FISCAL FORECAST ........................................................................................ 12

Domestic Revenue ........................................................................................................................................... 12

External Resource Commitments..................................................................................................................... 13

Overall Balance ............................................................................................................................................... 14

1.4 COMPLIANCE WITH THE CHARTER FOR FISCAL RESPONSIBILITY ........................... 14

1.5 STATEMENT OF THE RESOURCE FOR THE ANNUAL BUDGET FOR NEXT YEAR .... 14

1.6 STATEMENT OF POLICY MEASURES ...................................................................................... 16

1.6.1 Revenue Measures ............................................................................................................................ 16

1.6.2 Expenditure measures ...................................................................................................................... 17

Financing Strategy For The FY 2016/17 Budget ...................................................................................... 17

Sectoral Priorities For FY 2016/17 ............................................................................................................ 18

Key Policy Measures ................................................................................................................................... 29

1.7 FISCAL RISKS STATEMENT ....................................................................................................... 32

Structure of Detailed Medium Term Sector Plans and Expenditures .................................................. 35


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Part 2: Details of Proposed Sector Plans and Expenditure

Agriculture........................................................................................................................................................43

Lands and Housing......................................................................................................................................... ..63

Energy and Mineral Development....................................................................................................................69

Works and Transport.........................................................................................................................................79

Information Communication Technology ........................................................................................................90

Tourism, Trade and Industry.............................................................................................................................97

Education.........................................................................................................................................................122

Health..............................................................................................................................................................142

Water, Sanitation and Environment................................................................................................................169

Social Development........................................................................................................................................185

Security...........................................................................................................................................................207

Justice, Law and Order...................................................................................................................................213

Public Sector Management.............................................................................................................................237

Accountability.................................................................................................................................................278

Legislature.......................................................................................................................................................301

Public Administration.....................................................................................................................................305

Annexes

Annex 1. Medium Term Expenditure Framework by Vote FY2015/16 – FY2020/21..................................316

Annex 2. Approved Budget and Quarter One Outturns FY 2016/17 by Vote Function.................................320

Annex 3. Allocations to Central Government Votes by Major Economic/Output Classification

FY2015/16– FY2018/19.................................................................................................................................330

Annex 4. Poverty Action Fund Allocations by Programme and Project FY2015/16 and FY2016/17...........332

Annex 5. Overall Allocations to Service Delivery by Sector FY2015/16– FY2018/19.................................348

Annex 6. External Financing over the Medium Term FY2015/16– FY2018/19...........................................350

Annex 7. Off Budget Donor Projects over the Medium Term FY2015/16 - FY2018/19..............................355

Annex 8. Central Government Transfers to Local Governments FY2016/17................................................360

Annex 9. Allocation Criteria for Transfers to Local Governments FY 2016/17..........................................377


Introduction

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INTRODUCTION

The National Budget is the key instrument through which Government implements its policies. The National

Budget Framework Paper (BFP) provides the link between Government’s overall policies and the Annual Budget.

It lays out the fiscal policy framework and strategy for the budget year and sets out how the Government intends

to achieve its policy objectives over the medium term through the budget. The macroeconomic framework

presented in the BFP forms the basis for resource projections and indicative expenditure allocations. It also forms

the basis for the detailed estimates of revenue and expenditure which will be laid before Parliament.

The National Budget Framework Paper (BFP) outlines Government interventions for Social and Economic

Development in FY 2016/17 and the medium term in line with Government’s Macroeconomic Plan and Fiscal

strategy and the National Development Plan (NDP). The NDP II lays out the Government strategic five-year plan

from FY2015/16 to FY2019/20. The purpose of this document is to set out how the Government intends to

achieve its policy objectives over the medium term through the Budget. In doing so, the macroeconomic

framework presented in the BFP forms the basis for resource projections and indicative expenditure allocations.

Section 13 (2) of the Public Finance Management (PFM) Act 2015 requires that the national budget is prepared

in consultation with the relevant stakeholders. The National Budget Framework Paper has been done in line with

this section. These consultations included consultations with Local Governments, Sector Ministries, Departments

and Agencies, National Development Authority, Development Partners, representatives of the Private Sector and

finally discussed and approved by Cabinet.

To improve service delivery, Government has also strengthened collaboration with Civil Society Organisations

(CSOs) such as the Civil Society Budget Advisory Group (CSBAG) through enhanced collaboration and

partnership in budget monitoring and overall implementation of Government programs. Therefore, to enhance

Citizens voice in public finance management the Budget Strategy for the FY 2016/17 has taken into account the

recommendations of the CSOs.

The national BFP has two sections:

1. Part 1 sets out the Government’s Medium Term macroeconomic forecast, Medium Term Fiscal

Framework and Forecast, Charter of Fiscal Responsibility , the Resource Envelope and Annual Budget

for FY 2016/17, Policy measures, indicative expenditure framework in FY 2016/17 and the medium term

and Fiscal Risks;

2. Part 2 provides details of proposed sector plans and expenditures.

Part 1:Government’s Medium Term Macroeconomic Plan, Medium Term Fiscal Framework, Policy

Measures and Indicative Revenue Framework.


Introduction

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This section provides an overview of Government’s macroeconomic policies, recent macroeconomic

performance, and future plans. This section includes plans for domestic tax and non-tax revenue; external

resources from Uganda’s development partners; and the management of domestic and external debt consistent

with the Government’s macroeconomic policy. Finally, it indicates the resources available to Government for the

implementation of its programmes for social and economic development.

Part 2: Details of proposed sector plans and expenditures.

This section provides details of proposed sector plans and expenditures for the 16 sectors of Government:

Agriculture; Lands, Housing and Urban Development; Energy and Mineral Development; Works and Transport;

Information and Communications Technology; Tourism, Trade and Industry; Education; Health; Water and

Environment; Social Development; Security; Justice, Law and Order; Public Sector Management; Accountability;

Legislature and Public Administration. Each Sector section is structured by the three sector outcomes that public

expenditures are targeted towards improving. Each sector summary comprises of four subsections; S1 – S4.

S1 provides an overview of Sector Expenditures and sets out the Sector's contribution to the NDP, its

policy objectives, and key performance issues.

S2 describes past performance and plans to improve each sector outcome. For each outcome it sets out

outcome indicators, key sector outputs and actions to improve sector performance. It then sets out

analysis of the efficiency of sector allocations and major capital investments.

S3 sets out the proposed sector budget allocations for next financial year and the medium term, including

major areas of expenditures and any notable changes in allocations.

S4 sets out the highest priority outputs for next financial year and the medium term which the sector has

been unable to fund in its spending plans.



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1.1 MEDIUM TERM MACROECONOMIC FORECAST

National Development Plan

The National Development Plan (NDP) II came into force on 11th June 2015 and is the second in a series of

six five-year development plans. It constitutes the main policy framework underpinning Government’s

macroeconomic and development policy agenda over the FY2015/16 to FY2019/20 period. The plan

prioritizes 3 of the 9 opportunities identified in the Vision 2040 - agriculture; tourism; and mining, oil and

gas - and identifies infrastructure and human capital as two fundamental areas of development in order to

achieve the priorities.

The Ministry worked closely with the National Planning Authority (NPA) to ensure that the plan

incorporates the required infrastructure projects contained in Uganda’s Medium Term Macroeconomic

Framework. Effective implementation of these projects is critical for enhancing regional trade and

integration, preparing for oil production and improving the business environment. Projects are to be executed

in a manner consistent with the maintenance of macroeconomic stability, the absorptive implementation

capacity of the economy, and achievement of the East African Community Monetary Union (EAMU)

convergence criteria.

The plan will bring to completion a number of unfinished NDP I interventions, but also introduces a set of

new strategic interventions such as the standard-gauge railway; the oil refinery; infrastructure serving the

Albertine region; and a number of new road and electricity transmission projects. Given constrained

domestic resources and the limited availability of concessional financing for large infrastructure projects,

these projects will be financed largely by external loans on non-concessional but favourable terms and

through Public Private Partnerships (PPPs).

1.1.1. Macroeconomic Policy Framework

The overarching macroeconomic goal remains to deliver macroeconomic stability to support inclusive and

sustainable economic growth and socio- economic transformation.

Over the medium term, the specific macroeconomic objectives are to:

i. Achieve and maintain a rate of real economic growth of at least 6% per annum;

ii. Maintain annual core inflation close to the Bank of Uganda’s 5% target and annual headline inflation

within single digits;



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iii. Gradually build up foreign exchange reserve cover of at least the equivalent of 4.5 months of imports

of goods and services;

iv. Maintain a market determined real exchange rate, with foreign exchange interventions limited to

smoothing excess volatility.

v. Attain a high degree of monetary and economic convergence and compatibility within the EAC.

The macroeconomic policy framework for FY2016/17 prioritises infrastructure investment projects which

are necessary to facilitate private sector development and enhance the productive capacity of the economy.

Key projects programmed for the financial year include the Karuma and Isimba Hydropower projects; the

Standard Gauge Railway; Kampala-Jinja Highway; Kampala-Entebbe Express Highway; and Entebbe

Airport Rehabilitation.

The framework is consistent with maintaining macroeconomic stability and sustainable public finances. In

order to ensure infrastructure investment remains within the absorptive capacity of the economy,

Government plans to phase projects over a long time period.

The specific macroeconomic objectives underpinning the macroeconomic policy framework are also

consistent with achieving the EAMU Performance Convergence Criteria by 2021as required by the EAMU

Protocol.

1.1.2. Key Macroeconomic Assumptions

Table 1 details the key macroeconomic assumptions underlying the macroeconomic policy framework for

FY2016/17 and the medium term.

Table 1: Key Macroeconomic Assumptions

2013/14

Outturn

2014/15

Outturn

2015/16

Proj.

2016/17

Proj.

2017/18

Proj.

2018/19

Proj.

2019/20

Proj.

2020/21

Proj.

Real GDP growth 4.6% 5.0% 5.0% 5.8% 6.1% 6.3% 6.5% 6.5%

Annual Headline

Inflation (average) 6.7% 2.7% 7.7% 6.3% 5.0% 5.0% 5.0% 5.0%

Annual Core

Inflation (average) 5.2% 3.3% 7.9% 6.6% 5.0% 5.0% 5.0% 5.0%

Source: MoFPED



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Real GDP Growth

The economy expanded by 5.0% in FY2014/15, less than the 5.3% projected, but more than the 4.6%

recorded in FY2013/14. Drivers of growth include strong performance of the food crops sub-sector;

increased production in the manufacturing sector; enhanced value addition in the financial and insurance

subsectors; the scale up of public investments which provide a boost to the construction and mining and

quarrying sectors; and a continued recovery of the private sector supported by stronger credit growth.

Growth is expected to remain at 5.0% in FY 2015/16, constrained by the higher commercial bank rates

which are expected to hamper the private sector and a less-than-programmed fiscal expansion. Growth is

however expected to pick up to 5.8% in FY2016/17, mainly driven by a scale up in public infrastructure

spending and a rebound in private sector activity following the general election. Private sector investment is

expected to receive a boost as the monetary policy stance normalizes and FDI inflows linked to the planned

issuance of oil production licenses come on board.

In the medium term, growth is expected to average 6.2% per annum owing to the impact of public

investment projects. The stimulatory impact of new public investment projects will begin to have a large

impact on growth from FY2017/18, when the economy is expected to surpass its medium-term objective of

at least 6% real growth per annum

Annual Inflation

During the first quarter of the financial year 2015/16, both annual headline and core inflation increased to an

average of 5.8% and 5.9% respectively compared to 4.5% and 4.8% in the last quarter of FY2014/15. This

increase was driven by the recent depreciation of the Ugandan Shilling which contributed to higher import

costs and energy tariffs, and reduced food supplies during the end of the harvest season which translated into

increased prices for food crops. The unusually low inflation in the first quarter of FY2014/15 has also

contributed to the increased inflation figures.

Inflationary pressures continued to build in the second quarter of FY2015/16, with annual headline and core

inflation recording 9.1% and 6.7% respectively in November 2015. These pressures are expected to continue

during the course of the financial year. The exchange rate depreciation over the last year is yet to feed

through completely to prices and the El-Nino weather conditions are expected to translate into higher food

crop prices in the second and third quarters of the financial year.

However, on average annual headline inflation is projected to remain within single digits and annual core

inflation is expected to return to the Bank of Uganda’s medium term policy target of 5% by FY2017/18.

Inflationary pressures are expected to ease next financial year due to a pick-up in investor confidence



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following the general election; a recovery in the exchange rate; and improved conditions for the growing of

food crops.

Employment

According to the Uganda Bureau of Statistics (UBOS) Uganda National Household Survey (UNHS)

2012/13, Uganda’s total population was 34.1 million people. 16.5 million people, approximately 48 percent

of the total population, were regarded as working age population (between the ages of 14 – 64 years). 84.2

percent of Uganda’s total working population was engaged in economic activity, 43 percent of which were

engaged in subsistence production especially in rural areas where agriculture remains the main source of

economic activity and therefore income.

Unemployment is relatively low but increasing, particularly among those with higher education. Although

the majority of Ugandans lack wage employment, few are classified as unemployed. The unemployment

reported by Uganda Bureau of Statistics (UBOS) was 4.2% in 2009/10, and 9.4% in 2012/13.1 The youth are

slightly more likely to be unemployed compared to older workers.

The most common types of employment are own-account work and unpaid-family work. 80% of the labour

force works primarily for themselves or their families, mainly in the agricultural sector. Although most

individuals mainly work in agriculture, most households have diversified income streams. In rural areas

agriculture remains the most important source of income, on average accounting for slightly over half of

household income, but non-agricultural household enterprises and wage employment have emerged as

important supplementary income sources, accounting for 15% and 14% of average household income

respectively.2 This represents a major welfare-enhancing structural change.

Exchange Rate

The depreciation pressures that started in FY2014/15 continued through to the first quarter of FY2015/16.

The Shilling depreciated 40.0% year-on-year in September 2015, reaching an all-time low of Shs/US$

3,695.25 on September 30th 2015. The depreciation of the currency was largely driven by the global

strengthening of the US Dollar and speculative tendencies in the lead up to the general election.

The Shilling began to stabilize in October 2015. This was on account of an improvement in market sentiment

following the Bank of Uganda and Government’s more cautionary policy stance, and an increase in dollar

1 The way the unemployment rate is computed has changed, meaning that numbers for 2009/10 and 2012/13 are not directly comparable. 2 Uganda National Household Survey 2012/13.



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inflows, particularly from offshore players attracted by high yields on Government securities linked to the

increased CBR. The currency appreciated by 0.9% and 5.7% in October and November 2015 respectively.

The outlook for the Ugandan Shilling for the remainder of the financial year remains uncertain. It will

depend on when and how quickly the Federal Reserve decides to increase the Federal Funds Rate – this

decision will be influenced by whether improvements in the US labour market continue and whether US

inflation moves back towards the Central Bank’s 2% medium term objective. The performance of the

Shilling will also depend on market sentiment and associated speculative behavior in the lead up to the

general election. In FY2016/17 and FY2017/18, however, the currency is expected to rebound owing to a

pick-up in investor confidence and an increase in Foreign Direct Investments particularly in the Oil and Gas

Sector.

Balance of Payments

The current account deficit (including grants) widened to 10.0% (US$ 2,357.8 million) in FY2014/15

compared to 8.6% (US$ 2,266.9 million) in FY2013/14. This was on account of deterioration in the foreign

trade in services, largely due to increased outflows related to other business services. The primary income

balance remained large compared to the years before FY2013/14 – largely due to an increase in repatriated

profits, dividend and interest income on account of strong corporate profits.

The financial account surplus reduced from US$ 1,936.5 million in FY2013/14 to US$ 1,378.7 million in FY

2014/15 at the same time as the current account deficit widened. This was driven by a reduction in direct and

portfolio investment inflows. Surpluses on the capital and financial accounts in FY 2014/15 were not

sufficient to finance the current account deficit which led to a deficit in the Balance of Payments and a US$

354.4 million decline in reserves over the financial year, compared to a US$ 372.0 million accumulation in

reserve assets the previous financial year.

The current account deficit (including grants) is projected to record 9.6% in FY2015/16 and is expected to

temporarily deteriorate in the medium term due to higher imports associated with Governments public

investment programme. Increased deficits will be more than offset by higher external financing inflows so

that reserve cover is expected to remain at adequate levels.

1.2 MEDIUM TERM FISCAL FRAMEWORK

Fiscal policy in FY2016/17 and the medium term will continue to support the maintenance of

macroeconomic stability, at the same time as stimulating economic growth and reducing Uganda’s



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infrastructure deficit. As in previous years, there will be close coordination between fiscal and monetary

policies.

FY2016/17 will be the first financial year Government’s fiscal policy is underpinned by the Charter for

Fiscal Responsibility (CFR), a requirement of the Public Finance Management Act (PFMA) 2015. The

Charter will specify measurable fiscal objectives for the medium term, which shall be based on the following

fiscal principles:

1. Sufficiency in revenue mobilisation to finance Government programmes;

2. Maintenance of prudent and sustainable levels of public debt;

3. Ensuring that the fiscal balance, when calculated without petroleum revenues, is maintained at a

sustainable level over the medium term;

4. Management of revenues from petroleum resources and other finite natural resources for the benefit

of current and future generations;

5. Management of fiscal risks in a prudent manner;

6. Consistency of the Medium Term Expenditure Framework to the National Development Plan; and

7. Efficiency, effectiveness and value for money in expenditure.

On the domestic revenue front, Government will continue to target an annual increase in the tax-to-GDP

ratio of 0.5 percentage points. To achieve this Government will expand the tax base; reduce the size of the

informal sector; reform the structure of taxation and improve efficiency in tax collection and compliance.

The medium term fiscal framework is summarized in Table 2.



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Table 2: Medium Term Fiscal Framework

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Total revenue and grants 13.0% 14.8% 15.8% 15.9% 15.8% 16.1% 16.5% 16.6%

Revenue 11.9% 13.5% 13.9% 14.4% 14.8% 15.3% 15.8% 16.3%

Tax revenue 11.7% 13.0% 13.3% 13.9% 14.4% 14.9% 15.3% 15.8%

Infrastructure levy 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

Non-tax revenue 0.2% 0.3% 0.3% 0.3% 0.3% 0.4% 0.4% 0.4%

Oil revenues 0.0% 0.2% 0.2% 0.1% 0.0% 0.0% 0.0% 0.0%

Grants 1.0% 1.2% 1.9% 1.5% 1.0% 0.7% 0.6% 0.2%

Budget support 0.3% 0.3% 0.5% 0.3% 0.2% 0.2% 0.2% 0.2%

Project grants 0.7% 0.9% 1.5% 1.2% 0.7% 0.5% 0.4% 0.0%

Expenditures and net lending 17.1% 19.2% 22.2% 22.4% 22.0% 22.4% 21.6% 19.9%

Current expenditures 9.8% 10.3% 10.3% 10.2% 10.4% 10.8% 10.9% 10.7%

Development expenditures 7.2% 7.0% 8.6% 9.8% 9.6% 10.2% 9.9% 7.8%

Net lending and investment 0.0% 1.7% 3.1% 2.0% 1.8% 1.1% 0.5% 1.2%

Other spending (clearance of arrears, etc.) 0.0% 0.3% 0.1% 0.2% 0.2% 0.2% 0.1% 0.1%

Overall balance -4.1% -4.5% -6.4% -6.4% -6.2% -6.4% -5.2% -3.4%

Primary balance -2.7% -2.8% -4.2% -4.2% -3.9% -3.9% -2.7% -0.9%

Financing 4.1% 4.6% 6.4% 6.4% 6.2% 6.4% 5.2% 3.4%

External financing (net) 1.3% 1.2% 5.2% 5.1% 5.7% 5.6% 4.5% 2.6%

Disbursement 1.7% 1.6% 5.7% 5.5% 6.1% 6.1% 5.0% 3.1%

Budget support 0.0% 0.0% 0.0% 0.3% 0.0% 0.0% 0.0% 0.0%

Concessional project loans 1.7% 1.6% 1.7% 2.3% 1.4% 2.0% 1.6% 1.8%

Amortisation (-) -0.3% -0.3% -0.5% -0.4% -0.4% -0.4% -0.5% -0.6%

Domestic financing (net) 2.4% 3.3% 1.1% 1.3% 0.5% 0.7% 0.6% 0.8%

Bank financing 0.9% 1.7% 0.8% 0.8% 0.3% 0.4% 0.3% 0.4%

Bank of Uganda -0.3% 1.4% -5.1% 0.3% 0.1% 0.1% 0.0% 0.0%

Commercial banks 1.2% 0.3% 5.9% 0.5% 0.2% 0.3% 0.3% 0.4%

Non-Bank financing 1.5% 1.6% 0.3% 0.5% 0.2% 0.3% 0.3% 0.4%

Source: MFPED

1.3 MEDIUM TERM FISCAL FORECAST

Domestic Revenue

Domestic revenues are expected to increase from 13.9% of GDP in FY2015/16 to 16.3% of GDP in

FY2020/21. Tax revenue is projected to reach 15.8% of GDP by FY2020/21, whereas Non Tax Revenue

(NTR) is projected to reach 0.4% of GDP. The increase in domestic revenue will help to offset the projected

decline in external grants, both in the form of budget and project support.

Government’s comprehensive tax policy package and Uganda Revenue Authority’s compliance programme

for FY2014/15 yielded significant gains. In the medium term, tax administration will be a key driver for

domestic revenue enhancement. In particular, measures will be introduced targeting sectors that currently

contribute a large amount to GDP but little to tax effort (e.g. agriculture, construction, hotels, real estate and

education). This will include sensitisation; comprehensive audits; tapping into the informal sector through



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collaboration with key stakeholders such as Kampala Capital City Authority (KCCA), Local Governments,

Uganda Registration Services Bureau (URSB); and use of the National Identification Project.

External Resource Commitments

During FY2016/17, a total of US$ 1,238.8 million of external assistance is projected to support the budget.

Of this, US$ 330.8 million (26.7%) will be in the form of grants, while the remainder will take the form of

concessional loans. 79% will be loan financing to be source from multilateral lending institutions. Table 3

summarizes the external resource envelope for the medium term.

Table 3: External Resource envelope for the Medium Term (US$ Million)

Outturn Outturn Proj. Proj. Proj.

2013/14 2014/15 2015/16 2016/17 2017/18

Grants 225.3 275.7 376.8 330.8 227.2

Budget Support 24.0 37.8 40.7 15.0 9.2

Project Support 201.3 237.9 336.1 315.7 218.0

Concessional Loans 737.1 683.6 720.8 908.0 619.3

Budget Support 0.0 0.0 0.0 7.5 0.0

Project Support 444.5 416.3 384.7 592.2 401.4

Other 292.5 267.3 336.1 315.7 218.0

Total 962.4 959.3 1097.6 1238.8 846.5

Source: MFPED

In the next FY2016/17 external assistance is projected to increase reflecting a US$ 187.2 million increase in

the value of concessional loans. External financing is projected to decline in the FY2017/18 on account of

both lower grants and concessional financing. It is difficult to project external financing beyond this date.

A key important aspect of external assistance in recent years is the low disbursement for the various projects

and programmes funded by different multilateral agencies, which are an indication of absorptive capacity

challenges and a lack of preparedness on behalf of the implementing agencies. Moving forward, Government

reforms in public finance management, the new PFM Act and planned public investment management

guidelines are expected to help ensure the effective use of available resources for committed purposes and

reduce delays in procurement and the execution of projects.

Expenditure and Net Lending

Total government expenditure and net lending is projected to rise to about 22.4% of GDP in FY2016/17.

The bulk of the increase in spending will largely be driven by development spending, as Government scales

up spending on infrastructure projects. Development related spending is projected to rise by 20% during

FY2016/17 and will continue to increase steadily over the medium term. Recurrent expenditures as a



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percentage of GDP are projected to remain fairly stable over the next two fiscal years. Net lending is

projected to decline as a percentage of GDP and mainly represents Government spending on Karuma and

Isimba hydropower projects.

Overall Balance

The planned scale up in public investment is expected to contribute to a temporary increase in the overall

fiscal deficit, peaking at 6.4% in FY2015/16 and FY2016/17. Higher fiscal deficits will enable investment to

increase the economy’s long-term productive capacity. When excluding one-off expenditures and interest

payments that will have limited impact on domestic liquidity, the primary deficit is projected to contract

significantly. The fiscal deficit is projected to return to 3.4% of GDP by FY2020/21.

1.4 COMPLIANCE WITH THE CHARTER FOR FISCAL RESPONSIBILITY

The Public Finance Management Act 2015 requires the Minister to submit to Parliament, not later than three

months after the first sitting of Parliament following a general election, a Charter for Fiscal Responsibility

(CFR) relating to the formulation and implementation of fiscal policy.

The Ministry of Finance has developed the draft Charter for Fiscal Responsibility FY2016/17-FY2020/21.

The Draft Charter includes a statement of measurable fiscal objectives subject to Parliamentary oversight,

fiscal policy operation guidelines and fiscal reporting requirements. From FY2016/17, fiscal policy will be

underpinned by the five-year CFR, which will help to strengthen the accountability, transparency and

stability of Government’s fiscal policy framework.

1.5 STATEMENT OF THE RESOURCE FOR THE ANNUAL BUDGET FOR NEXT YEAR

Resources available for budget expenditure are obtained from domestic tax and non-tax revenue, donor

grants and external borrowing, excluding external and domestic debt repayments and the change in

Government’s position with the domestic banking system that is consistent with monetary policy objectives.

Government’s objectives are to limit expenditure to the resources available in order to meet its inflation

objective, which is key to maintaining macroeconomic stability.

Table 4 below provides a summary of the FY2016/17 Budget Framework. The total resources available for

spending (excl. debt repayments and arrears) is projected to rise from Shs. 12,713.7 billion in FY2015/16 to

Shs. 13,425.5 billion during FY2016/17. The largest component of the resource envelope is domestic



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resources (comprising of domestic revenue and net domestic financing), which comprises close to 70% of

next year’s projected resources.

Table 4: Showing the Summary of the Resource Envelope for the FY 2015/16 and FY 2016/17 (Ushs. Billion)

S/N Source FY 2015/16

Budget

FY 2016/17

Projections Variance

1 Domestic Revenues 11,333.00 12,417.53 1,084.53

O/w URA Revenue 11,061.50 12,056.70 995.20

O/w Non-Tax Revenue 271.50 286.53 15.03

0/w infrastructure levy 0.00 74.31 74.31

2 Budget Support 51.30 322.29 270.99

3 Net Domestic Financing 1,581.45 943.82 -637.63

4 Project Support 5,597.50 6,046.36 448.86

Total Resource Inflow (1+2+3+4) 18,563.25 19,730.01 1,166.76

5 External Debt Repayments -172.04 -178.19 -6.15

6 GoU Resource Envelope Less External Debt Repayments 18,391.21 19,551.82 1,160.61

7 Domestic Arrears Payment 80.00 80.00 0.00

8 GoU Resource Envelope Less External Debt Payment

and Arrears 18,311.21 19,471.82 1,160.61

9 GoU Resource Envelope Less External Debt Payment,

Arrears and Projects 12,713.71 13,425.46 711.75

Interest payments 1,656.19 2,014.01 357.82

10 GoU Resource Envelope Less Projects, Interest

Payments and Arrears 11,057.52 11,411.45 353.93

Note: The Resource Envelope for the FY 2015/16 and FY 16/17 exclude Treasury Debt Redemptions and AIA.

Source: MoFPED

From Table 4 above, the total inflows are projected to increase from Ushs 18,563.2 billion in FY 2015/16 to

Ushs.19,730.01 billion in FY 2016/17. This will comprise of UShs 12,417.53 billion from domestic



16

revenues, UShs.322.29 billion of budget support, UShs.6,046.36 billion from project support and

UShs.943.82 billion is domestic financing on a net basis from the banking system.

Excluding debt repayments, projected at UShs.178.19 billion, payments for domestic arrears (Ushs 80

billion), External Financing ( Ushs. 6,046.36 billion) and interest payments (UShs.2,014.01 billion), the

preliminary discretionary resources available for Government expenditure in FY 2016/17 will amount to

Shs.11,411.51 billion. This translates into an additional resource of Ushs 353.9 billion over and above the

FY 2015/16 budget as shown in Table 4 above.

Whereas there is a projected increase in domestic revenue for FY 2016/17 by Ushs 1,084.53 billion as

indicated in Table 2 above, this has been offset by the projected reduction in domestic borrowing by Ushs

637.63 billion, increase in external debt repayments by Ushs 6.15 billion and the increase in interest

payments by Ushs 357.82 billion) owing to exchange rate depreciation.

Therefore, the overall increase in the resource envelope for the FY 2016/17 over the FY 2015/16 budget is

Ushs 353.93 billion. In addition, there is Ushs 381.89 billion from the one-off expenditures in the FY

2015/16. This translates into an additional resource available for Government expenditure in the FY 2016/17

to UShs 735.8 billion.

1.6 STATEMENT OF POLICY MEASURES 1.6.1 Revenue Measures

The focus of increasing tax revenues for FY2016/17 is based on a strategy that will improve compliance by

further improving tax administration efforts and allowing for implementation of policies put in place over the

years.

Efforts to ease tax administration will include measures to eliminate ambiguities within the tax laws so that

compliance can be enforced by Uganda Revenue Authority (URA).

It is projected that total revenues collected will be about Shs 12,418 billion, The details are shown in table 5.

Table 5: Summary of expected Tax collections for FY2016/17

No. Items Amount estimated

(Shs bn) 1. URA Revenue 12,031.6 3. Non Tax Revenue 386.4

Total 12,418.0

Source: MOFPED



17

1.6.2 Expenditure measures

Financing Strategy For The FY 2016/17 Budget

Under the National Development (NDP2), Government committed to raise the revenue to GDP ratio from the

current 13% to 15% by the end of FY 2015/16. However, this target will obviously not be achieved given that our

tax/GDP ratio remains between 12 and 13 percent years despite the various tax measure put in place mainly due to

the big informal sector.

Based on the above scenario, the financing strategy for the FY 2016/17 budget will continue to be driven by the

Government objective of mobilizing more domestic revenue to reduce the risks associated with external

financing.

As indicated above, the largest component of the total resource envelope is domestic resources (comprising of

domestic revenue and net domestic financing), which comprises close to 70% of next year’s projected resources.

The main focus in the medium term is to ensure continued stability of the tax system and improve the collections

through tax administration compliance, especially non tax revenues. Given the limited options on increasing tax

rates, revenue mobilisation will largely hinge on revenue administration measures and enhancing efficiency

measures. The projected tax revenue in the medium-term assumes stability of the tax system. This implies that

any pressures to de-stabilise the tax system must be resisted.

In the past, Government has increased revenues through modest adjustments of tax rates or introduction of new

policy options. However, within the current economic context, this avenue seems to have been constrained,

particularly by high inflation and costs of production as evidenced by increasing pressures to reduce the same

rates and removal of taxes on some goods and services.

In terms of external financing, external assistance is projected to broadly remain at the FY2015/16 levels and fall

by about 32% the following year. A key important aspect of external assistance in recent years is the low

disbursement for the various projects and programmes funded by different multilateral agencies, which are an

indication of capacity challenges and a lack of preparedness on behalf of the implementing agencies.

Continued poor performance may make it difficult for Government to access soft loans, since commitment and

disbursement decisions are based on recipient’s abilities to meet project objectives during planned timelines.

The budget for the FY 2016/17 will therefore aim at refocusing the revenue enhancement strategy to enforce the

current tax regime by URA. The main focus will be on expansion of the tax base by gradually formalizing the

large informal sector, improving efficiency in tax collection and compliance and efficiency in allocation of the



18

available resources to facilitate faster growth and developments for purposes of generating more domestic revenue

to achieve the policy target of 0.5 percentage point of GDP through:

i. Improving taxpayer compliance through enforcement and tax payer awareness campaigns;

ii. Strengthening multi-institutional collaboration by URA, KCCA, URSB and Local Governments for

revenue generation and management;

iii. Continue to strengthen the capacity of URA to raise and tap into the informal sector, building the

audit capacity under tax administration as well as strengthening the current system for collection and

administration of tax and Non-tax Revenue.

Prioritization of Government Expenditure

Provisional projections show that there will be no major increase in the overall resource envelope in the FY

2016/17. There is therefore, need to re-orient Government expenditure towards promotion of investment,

production and value addition. However, we must at the same time sustain financing of the projects especially in

infrastructure (Transport and Energy) while improving access to critical services like health, education and water,

among others.

Implementation of the Second National Development Plan requires us to bring to completion a number of

unfinished NDP I interventions, but also introduce new projects critical for enhancing economic growth and

development with emphasis on regional trade and integration, preparing for oil production, and improving the

business environment.

These projects include the standard-gauge railway, the oil refinery, oil-related infrastructure serving the Albertine

region, and a number of new roads and electricity transmission projects. These are consistent with Uganda’s

vision 2040, the medium term macroeconomic framework and the EAC Monetary Union Convergence criteria.

However, it is also evident that we must identify additional interventions that will spur faster growth and

development especially strategic investment in production and value in the strategic areas of the economy. Given

the absence of additional resources, the only option we have is to prioritize the financing and implementation of

these projects within the available resources.

Sectoral Priorities For FY 2016/17

The FY 2016/17 Budget strategy will be guided by the Vision 2040, the Second National Development Plan

(NDP2) and the Sustainable Development Goals (SDGs). Vision 2040 aims at socio-economic transformation and

propelling Uganda into a lower middle income country by the year 2020 as enshrined in the Second National

Development Plan (NDP2).



19

Through the SDGs, Uganda signed to the international commitment of building on the achievements under the

Millennium Development Goals (MDGs) with the major objective of eradicating poverty as well as achieving

sustainable development in its three dimensions –economic, social and environmental –in a balanced and

integrated manner by the year 2030.

Hence, through the budget for the FY 2016/17, we must ensure that the Government policy framework, budget

priorities and programmes are properly aligned towards achieving the commitments under the SDGs within the

overall framework of the NDP2 but paying adequate attention to the above underlying challenges to economic

growth and development.

Accordingly, the budget for the FY 2016/17 will focus on the following areas:

i. Maintaining and sustaining National Security and Defense as a fundamental condition for economic

growth and development;

ii. Promotion of Production, Productivity, Investment and Export of Goods and Services through Value

addition to Strategic Commodities;

iii. Sustaining the Development and Maintenance of Strategic Infrastructure with emphasis on Energy

and Transport to Accelerate the country's competitiveness;

iv. Enhancing Human Capital Development by improving Access to Quality Critical Social Services

and Skills Development;

v. Enhancing Domestic Revenue Mobilization; and

vi. Strengthening the Quality of Public Service Delivery to Facilitate Private Sector Investment.

Through the above strategic objectives, the budget for the FY 2016/17 will give priority to enhancement of

national security, promotion of production and productivity through support to NAADS and value addition in the

key growth sectors of the economy, scientific research and innovation, infrastructure development, supporting

wealth creation with special focus on the Youth and Women Entrepreneurship Programme, Microfinance, as well

as raising the quality of social services to improve the general welfare of Ugandans.

National Defense and Security

The Government strategy for strengthening and sustaining national security and defence has been and will

continue to facilitate the process of professionalizing and modernizing of the defence and security forces. Specific

interventions will include further acquisition and maintenance of modern equipment, welfare improvement and

human capital development to enable the security agencies to maintain peace and stability, participation in

community service and implementation of national development projects. Accordingly, the budget for the FY



20

2016/17 will sustain the current level of financing for the security sector to facilitate implementation of these

interventions.

Promotion of Production, Productivity, Investment and Export of Goods and Services through Value Addition to

Strategic Commodities

Evidence from various studies indicates that the economy continues to suffer from the low productivity of the key

growth sectors. For instance, most of the growth in Agricultural income is being driven by increases in area under

cultivation, good weather, and high prices as well improved access to markets in neighboring countries but only

marginally because of an increase in the use of modern production technologies.

Low productivity is largely due to limited access to and use of productivity-enhancing factors such as technology,

training, water, land management and farm-to-market infrastructure, especially for agriculture. All these render

the agriculture sector highly vulnerable to exogenous shocks such as climatic changes and price falls that reduce

the welfare of households.

Agricultural productivity has also been greatly reduced by loss of soil fertility due to poor farming practices

especially over-cultivation and slow progress in adoption of improved appropriate farming methods including use

of fertilizers and improved high yield crop and animal species.

In line with the strategic objective of the Second National Development Plan (NDP2), the strategy for increasing

sustainable production, productivity and value addition will focus on facilitating value addition to the strategic

commodity enterprises identified in the NDPII and the draft National Export Development Strategy (NEDS).

These are: Cotton, Coffee, Tea, Maize, Rice, Cassava, Beans, Fish, Beef, Milk, Citrus and Bananas. Minerals, oil

and gas, tourism and ICT services have also been identified based on their contribution to household food security

and contribution to export revenue.

In the FY 2016/17, priority will be given to 1) Coffee and Coffee products, 2)Tea and Tea Products, 3) Fish and

Fish Products, 4) Livestock and livestock products (dairy and beef), 5) Grains (maize and beans), 6) Horticultural

crops, 7) Cotton and cotton products, 8) Minerals and mineral Products (iron ore and dimension stones) as well as

9) Oil and Gas (accelerators of the industry).

The strategy will involve addressing constraints in the entire value chain process right from research to provision

of inputs, extension services, access to finance, post-harvest handling and storage, agro-processing, quality

control and marketing.



21

Priority will also be put on strengthening the institutions responsible for Investment and Export Promotion such as

Uganda Investment Authority, Export Promotion Board, and Uganda Registration Services Bureau, among others.

This will also include further development of the Industrial Parks and Free Trade Zones.

Key specific priorities and measures will include:

i) Commodity based research for the strategic commodities;

ii) Enhancing the National Agricultural Advisory Services (NAADS) through Operation Wealth

Creation through enhanced provision of improved inputs like seedlings and breeding materials,

promotion of fertilizer use, pests and disease control;

iii) Strengthening extension services through the Single Spine Extension Scheme,

iv) Improving post-harvest handling by supporting construction of storage facilities through a PPP

arrangement;

v) Supporting agricultural financing and value addition through increased funding to the Agricultural

Credit Facility;

vi) Work with the private sector to introduce a more affordable Agriculture Insurance Scheme to hedge

against risk under a Public Private Partnership Arrangement.

vii) Strengthening the regulation and enforcement of standards for quality control, fishing and

environmental protection;

viii) Continued development of agricultural infrastructure such as rural feeder roads and markets and

rural electrification to support agro-processing; and;

The interventions for promotion and development of Tourism and tourism products will include:

i). Development of new products including community and faith-based tourism. This will include

redesigning of strategic facilities such as the source of the Nile at Jinja to international standards and

redeveloping Namugongo Martyrs shrine to equip it with necessary amenities,

ii). Aggressive marketing and promotion of tourism products including strengthening the institutions

responsible for tourism promotion such as Uganda Tourism Board and Ugandan Missions Abroad;

iii). Skills development mainly through continued revamping of the Hotel and Tourism Training Institute

(HTTI),

iv). Improving strategic tourism infrastructure like tourist roads, rural electrification, hotel and tour services,

among others; and

v). Sustaining national peace and security in all parts of the country to further enhance international

confidence in Uganda as a final tourist destination



22

In order to increase Uganda’s competitiveness and economic diversification, the budget will continue to facilitate

the private sector as an engine of growth and development through the following interventions;

i). Increasing access to low cost finance for firms, including long-term finance by addressing the

challenges in the finance sector such as commercial bank interest rates, supporting the development

of micro-finance institutions including SACCOS and capitalisation of Uganda Development Bank to

provide long-term investment capital;

ii). Reducing administrative costs associated with business licensing and registration, lands, building

plans, construction permits, boarder crossings and basic infrastructure through the One-Stop Centre;

iii). Improving land markets by reducing the cost of transferring land including further improvements in

the land registry system.

Sustaining the Development and Maintenance of Strategic Infrastructure in Energy and Transport to Accelerate

the Country’s Competitiveness

As part of the Government programme for increasing the stock and quality of physical infrastructure, the budget

for the FY 2016/17 will maintain financing of the ongoing construction of major infrastructure projects with

special focus on those which will directly benefit the urgent need to boost value addition and export. These

projects will need to be completed in time while providing the necessary resources for proper maintenance of

completed ones.

In the roads sub-sector, emphasis has been on upgrading of numerous gravel national roads to bitumen standard,

and the rehabilitation and reconstruction as well as maintenance of national, district, urban and community access

roads. While resources will continue to be provided to facilitate the completion of the ongoing projects, priority

will also be put on proper maintenance and sustainability of the completed projects.

To complement the road infrastructure, reduce damage to the roads network, lower cost of freight especially for

bulky commodities and increase competitiveness of the economy, resources will be provided to fast track the

process for construction of the Standard Gauge Railway (SGR) starting with the Eastern Route from Malaba to

Kampala.

Government will also work with the private sector to improve the existing marine infrastructure so as to reduce

the cost of transportation and increase connectivity in order to increase the volume of passenger and cargo traffic

by marine transport.

Under air transport, emphasis will continue to be on:



23

i). Upgrade and improve the quality of operation and maintenance at Entebbe International Airport. The

scope of works upgrade includes, among others, construction of a new cargo center, new passenger

terminal, strengthening runways, and the replacement of navigation aids; and

ii). Further improvement of regional aerodromes and an airport at Kabale (Hoima) to ease the

development of the oil refinery will be fast-tracked.

Under the electricity sub-sector, emphasis will be on;

i). Accelerating the construction of the major projects such as Karuma, Isimba and Ayago hydropower

projects, mini-hydro power projects such as Muzizi and Nyagak HEPl as well as Power Sub-stations;

and;

ii). Construction of transmission lines under the Rural Electrification Programme with specific focus on

transmission of energy infrastructure to the prioritized activities to accelerate value addition for

export.

Under the Oil and Gas sub-sector, the budget for the FY 2016/17 will continue to facilitate the following

programmes:

i). Further exploration and production of oil and other valuable minerals such as Iron Ore and

Phosphates through issuance of Production Licenses;

ii). Streamlining petroleum supply and distribution, development of the petroleum refining and pipeline

transportation infrastructure by concretizing the development of the Oil Refinery, Crude Oil Pipeline

to the Indian Ocean and petroleum products pipelines.

iii). Strengthening the institutional framework by operationalizing the National Petroleum Authority and

establishment of the National Oil Company;

iv). Acquisition of land for the airport in Kabaale, for the products pipeline and for the utility service line;

v). Implementation of the Local Content Policy and the Workforce Skills Development Strategy and Plan

and;

vi). Exploitation and value addition to other strategic minerals by reviewing the mineral rights and

streamlining award of licenses, fast tracking the establishment of the mineral analysis lab and mining

equipment and provision of electricity to mineral rich areas.



24

Under ICT, focus will be on improving access to efficient and affordable ICT services and also lower the cost of

doing business. Specific interventions will include construction of the ICT Park, finalization of the analogue to

digital migration and completion of the third phase of the National Backbone Infrastructure.

Enhancing Human Capital Development by Improving the Quality and Access to Critical Social Services and

Skills Development

The Government strategy for improving Human Capital Development has been on improving the state of facilities

in the key service sectors like Education and Training, and Health. This has greatly improved access to services in

these sectors.

Under the Health sector, Uganda has registered improvement in key health sector indicators. For instance, under-

five mortality rate has fallen from 169.5 per 1,000 live births to 54.5 in the last two decades.

There are also significant improvements in other indicators such as maternal mortality rates, HIV/AIDS

prevalence, availability of essential drugs and medicines, malaria incidence and immunization against the major

killer diseases, among other indicators.

However, it is also evident that Uganda is unlikely to meet many of the Millennium Development Goal (MDGs)

targets for the various health indicators. Therefore the FY 2016/17, focus will be placed on improving Health

Service delivery in the following key areas:

i). Continue with the provision of adequate essential drugs in all health centres;

ii). Health infrastructure development with specific attention on continued rehabilitation, equipping and

functionalization of health facilities including district Hospitals and HCIIIs in all Sub counties;

iii). Strengthening Human resources for Health, including community extension workers and development

of specialised care in heart and cancer;

iv). Strengthening the national referral system, including establishment of regional offices and operational

structures and a fleet of ambulance vehicles, equipment and supplies;

v). Enhancing preventive health care, with particular focus on mass malaria screening, testing, treatment

and larviciding as well as investing in sanitation at household, community and institutional levels;

vi). Address the challenge of health financing, by fast tracking establishment of the National Health

Insurance Scheme and provision of a Medical Credit Fund for private health sector players; and

vii). Provision of family planning services to address the challenge of high fertility rates and its

implications on other health indicators such as infant and maternal mortality rates.



25

Under Education and skills development, we have made great advances in increasing access to Primary and

Secondary education and thus towards achieving the millennium development Goal of ensuring that by 2015 all

school going children will be able to complete primary schooling. However, reports such as the MDG report

2015 have indicated that the target on primary school completion is likely not to be achieved despite the increase

from 46% in 2002 to 72% in 2014/15.

Among the key challenges faced under the education sector include the slow progress in improving the education

outcomes such as completion rates, proficiency, numeracy, literacy and skills development, at various levels of

the education system.

The medium to long-term development of human capital calls not only for immediate, but also concerted and

coordinated investment in skills development. Government’s priority will be in consolidation of the investments

and gains made in the education sector by extending access to secondary education through the universal

secondary education (USE) programme, while maintaining the already high enrolment at primary level; and

improving quality in both primary and secondary education to improve learner performance and reduce system

wastages such as drop-out and repetition.

Accordingly, the budget for the FY 2016/17 will prioritise the following:

i. Continue with the ongoing development and maintenance of education infrastructure at primary, post

primary and tertiary levels;

ii. Equipping of facilities like science and computer laboratories and libraries and completion of secondary

school structures already started;

iii. Improving staff motivation through provision of staff houses, salary enhancements and implementation

of the scheme of service to provide for career growth for teachers;

iv. Strengthening monitoring and supervision to address staff absenteeism;

v. Support to early childhood development (ECD) as the indispensable foundation of the country’s future

workforce. This will include ECD components in education, health and community development; and

vi. Continue with curriculum reviews to make the education system more focused on skills development

and responsive to developments in the labour market.



26

The strategy for skills development will focus on:

i) Curriculum development in key skills to focus on producing relevant and skilled workforce as well as

operationalization of a training levy in an effort to involve employers/industries in the training of the

country’s human resource;

ii) Enhancing the already ongoing interventions for skills development such the Presidential Initiative for

Science and Technology Innovation Programme, Youth Venture Capital Fund and Youth Livelihood

Programme, among others;

iii) Building the capacity of key training and vocational institutions in particular the already existing skills

training institutions, proposed centers of excellence and trainers to improve response to market demands;

and

iv) Institute mechanisms for international standardization and certification of skills to make Ugandan labour

force competitive.

To enhance Social Development and inclusive growth, the budget will focus on improving the capacity of the

youth to harness their potential and increase self-employment, productivity and competitiveness, with specific

investment in:

i) Enhancing the current programmes for supporting and promoting economic empowerment of various

interest groups. These include the Youth Livelihood Programme, Women Entrepreneurship Fund with

specific emphasis on capacity building for innovation, investment and entrepreneurship;

ii) Improving resilience and productive capacity of other vulnerable groups, with specific investment in the

expansion of social protection interventions such as SAGE.

The strategy for employment creation will involve the development and prioritization of the following

interventions:

i) Value addition in the sectors with high multiplier effect to increase productivity, output and absorption of

excess labour;

ii) Establishment of a labour market information system to link labour market demands to labour supply

requirements, support data collection on labour and employment statistics;

iii) Development of a national content policy to promote local capacity in terms of labour, business and

products;

iv) Enhance competences through making apprenticeship and internship mandatory, and support mind set

change programmes.



27

In order to improve access to safe water and sanitation, Government priority has been on improving key

infrastructure through construction and expansion of piped water schemes, urban sanitation facilities, rural water

facilities like boreholes, protected wells and gravity flow schemes among others. These have significantly

contributed to access to improved water and sanitation facilities across the country.

Recent studies by the World Bank shows that nearly 65 percent of the Ugandan population has access to safe

water but about 35 percent of the Ugandan population does not have access to safe water which includes over 10

million people in rural areas and 1.7million people in urban areas. The principle inequality lies in service delivery

to rural versus urban households primarily because of infrastructure related costs of providing water in remote and

rural areas.

Therefore, the budget for 2016/17 will aim to address these challenges by sustaining the on-going programme for

improving access to water and sanitation facilities in both urban and rural areas with emphasis on underserved

areas of the country.

Strengthening the Quality of Public Service Delivery

In order to facilitate the process of improving the quality of services offered by Government Ministries,

Departments and Agencies (MDAs), Government has been and will continue to implement various efficiency

measures at both national and local government levels. One of the major challenges has been in project

implementation in form of poor project preparation, cost over runs, delay in implementation, duplication of

projects, poor contract management, and deviation from intended outputs, among others.

In order to address the above challenges, Government has introduced new reforms to ensure efficient and effective

Public Investment Management System (PIMS). These include (i) revision and establishment of the Public

Investment Management System (PIMS) by developing a general manual for project preparation and appraisal,

developing of Specific Project Evaluation Methodologies, (ii) Guidelines and Norms given sectoral variations and

complexities in projects, (iii) Development of National Parameters such as Shadow Prices and a National

Discount rate to support financial and economic analysis of proposed projects (iv) Establishment of an IT based

Integrated Bank of Projects (IBP) and (v) Establishing a capacity building program to help create a critical mass

of PIM experts. Therefore, in order to realize an effective and efficient Public Investment Management System

(PIMS), all Ministries Departments and Agencies (MDAs) are now required to adhere to the following;

i. The revised Public Investment Management Manual.

ii. Issued guidelines for approval and review of the Public Investment Plan (PIP).



28

iii. Establish an Asset Management Strategy in compliance with the Public Finance Management Act,

2015.

iv. Producing project completion reports for both ending projects and phased projects.

Details of these interventions as well as the outcome of the PIP review process and their implications will be

communicated to all all Minstries, Departments and Agencies in the subsequent circulars for the FY 2016/17.

Other measures for improving efficiency in public service delivery will inlcude:

i). Enforcing efficiency in Government expenditure to improve absorption of funds and ensure timely

completion of Government programmes and projects;

ii). Strengthening Government procurement through better procurement planning, enforcement of

procurement regulations, E-procurement, procurement audits and contract management, among others;

iii). Strengthen the operational capacity of key institutions like UNRA and URF to ensure proper planning,

procurement and supervision of works;

iv). Performance orientation of the budget by focusing on the achievement of service delivery

results/outcomes rather than outputs only through programme based budgeting;

v). Develop and implement a high level Result Matrix to Monitor and fast track the implementation of the

strategic interventions presented in the Budget Strategy. This will clearly indicate the key

undertakings, performance benchmarks, responsibility centres and implementation timelines.

vi). Strengthen Monitoring and Evaluation of Government programmes including establishing of a Service

Delivery Unit in Office of the Prime Minister;

vii). Continue to deepen Fiscal Decentralisation by devolving more financial decisions closer to the

frontline service delivery units including consolidating the decentralised budgeting and payment of

salaries, pension and gratuity;

viii). Gradually eliminate domestic arrears including Salaries, Pension and Gratuity as well as other forms of

Government arrears; and

ix). Enhance budget transparency to promote the voice and accountability of citizens by encouraging

citizen participation in monitoring and supervision of Government programmes. . Government will

specially develop an action matrix that will facilitate adequate collaboration and engagement

with CSOs.



29

Key Policy Measures

During the budget consultations, we have identified the following policy measures that Government needs to

undertake in FY 2016/17.

i). Enforcing performance contracts for Accounting Officers and gradually to all public servants including

penalties against Public Officers who do not achieve Government’s programmed targets;

ii). Ensuring that all local contracts should be in Uganda Shillings to minimise the impact of cost overruns

on project implementation due to exchange rate fluctuations;

iii). Deepen Fiscal Decentralisation by devolving more financial decisions to local governments; and

iv). Embark on the star-rating system in line with international best practice to motivate public service

delivery units especially individual education and health facilities to recognize and reward managerial

effort;

v). Enhancing Gender and Equity orientation of the national budget at both national and local government

levels to ensure that it adequately addresses the socio-economic needs of all sections of the population;

and

vi). To eliminate persistent wage bill overruns, all recruitment of staff should strictly be planned for within

the Appropriated Budget of a given Vote and any additional staff appointed in the course of the

financial year beyond the Approved Budget should only be accessed to the payroll at the beginning of

the next financial year.

Gender and Equity Orientation of the Budget

Section 9 of the Public Finance Management (PFM) Act 2015 requires the budget to be gender and Equity

compliant through various costed interventions to address gender and equity issues. For inclusive growth, the

agriculture sector will distribute maize seeds to 103 districts and bean seeds to 94 districts. These are both cash

and food crops benefiting both women and men. Land is a critical productive asset and the Lands sector will roll

out the land information system in the remaining 15 zonal offices and digitization of the land titles country wide.

The energy sector is funding biogas projects, and rural electrification. Under works, rehabilitation and

maintenance of district, urban and community roads is being boosted to address equity concerns.

There are interventions for equitable social services. Access to education is to be enhanced with more education

facilities, including sanitation, being constructed. Specific attention has been given to special needs education,

guidance and counseling. The health sector will fund the elimination of mother to child transmission of

HIV/AIDs, family planning, immunization and other reproductive health services. The sector also plans to



30

strengthen services through referral hospitals. The water sector will continue to focus on rural water provision,

while enhancing functionality of the water sources.

Other sectors also have costed interventions. The security sector will provide medical services for officers,

militants and their families, as well as education for their children. In addition, rehabilitation services and support

to vulnerable officers and men will be provided. The JLOS sector plans to provide 79 percent of the districts with

basic frontline services. The public sector management sector will ensure that hard to reach allowances are paid to

officers in the 18 hard to reach districts. The accountability sector will operationalize the gender and equity clause

of the Public Sector Management Act 2015.

Sector MTEF Allocations For FY 2016/17

The total additional resources available for the FY 2016/17 is Ushs 735.82 billion. This has been allocated as

follows:

i) Salary Enhancement -Ushs 211.5 billion

o/w Primary and Secondary School Teachers -Ushs 133 billion

o/w Teaching and Non-Teaching Staff of Public Universities -Ushs 78.5 billion

ii) Salary, Pension and Gratuity Shortfalls -Ushs 172.39 billion

iii) Provision of Inputs under NAADS -Ushs 100 billion;

iv) Youth Fund -Ushs 50 billion;

v) Women Fund -Ushs 50 billion; and

vi) Capitalisation of BOU - Ushs 150 billion;

vii) Service Delivery Unit (Office of Prime Minister) -Ushs 2 billion

Total -Ushs 735.82 billion

Given the above situation, Government is required to exercise a high degree of allocation and operational

efficiency in order to enhance the strategic objectives of the FY 2016/17 budget.

Arising out of the above priorities, the resultant sectoral nominal allocations in the Medium Term Expenditure

Framework for the FY 2016/17 compared to FY 2015/16 are shown in Table 6 below and detailed in the Medium

Term Expenditure Framework (MTEF) attached in Annex 1.



31

Table 6: Showing the Sectoral Nominal Allocations in Ushs Billion and Percentage Shares for the

FY 2015/16 and FY 2016/17 (Excluding External Debt Repayments and Arrears)

SECTOR

2015/16

Approved

Budget

2016/17

Budget

Projection

% of Budget

FY 2015/16

Budget

FY

2016/17

Works And Transport 3,328.8 3,786.9 18% 19%

Energy and Mineral Development 2,826.4 2,352.6 15% 12%

Education 2,029.1 2,195.1 11% 11%

Interest Payments Due 1,656.2 2,014.0 9% 10%

Security 1,636.1 1,503.9 9% 8%

Health 1,270.8 1,385.4 7% 7%

Accountability 1,005.5 1,130.9 5% 6%

Justice/Law and Order 1,051.3 1,025.0 6% 5%

Public Sector Management 948.1 981.1 5% 5%

Agriculture 480.0 627.7 3% 3%

Water and Environment 547.3 519.9 3% 3%

Public Administration 757.7 503.8 4% 3%

Gratuity, Pension and salary shortfalls 383.9 0% 2%

Legislature 371.3 318.9 2% 2%

Taxes - 230.0 0% 1%

Lands, Housing And Urban

Development 164.8 224.8 1% 1%

Social Development 90.2 189.3 0% 1%

Tourism, Trade And Industry 81.2 76.6 0% 0.4%

Information Communication

Technology 66.7 22.1 0% 0.1%

Grand Total 18,311.4 19,471.8 100% 100%



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The nominal and percentage allocations in Table 6 above depict the financing of the activities that are directly

implemented by the relevant sector. However, Government does not operate in silos and as such, there is an inter

sectoral collaboration between the various sectors, because activities under one sector impact on the other.

Therefore, the above percentage shares should not be looked at in isolation of other sectors. For example,

whereas the activities that are directly implemented by the Agriculture sector constitute of 3% of the MTEF

allocations, these are complimented by activities under rural roads, agricultural financing, value addition, water

for production to mention but a few.

1.7 FISCAL RISKS STATEMENT

Government remains committed to managing fiscal risks in a transparent and prudent manner to enhance the

credibility of fiscal policy and to ensure macroeconomic stability. To this end, this section identifies the key

sources of fiscal risks to the budget and the medium term fiscal framework and how Government intends to

manage these risks.

Macroeconomic risks

Divergence from the macroeconomic assumptions underpinning Government’s fiscal framework poses a risk

to fiscal policy objectives. Uganda’s medium-term growth projections partly depend on the stimulatory

impact of new public investment projects, particularly in infrastructure. Prolonged delays in the execution of

these projects due to absorptive capacity constraints could therefore negatively impact Uganda’s growth

performance and fiscal indicators.

Management strategy

Government reforms in public finance management, the new PFM Act and planned public investment

management guidelines are expected to help ensure the effective use of available resources for committed

purposes and reduce delays in procurement and the execution of projects.

Public Debt risks

Given limited domestic resources and concessional financing, a number of planned infrastructure projects are

to be financed in part by external loans on non-concessional but favourable terms. In recent years,

Government has also begun to issue securities for fiscal policy purposes. Both of these financing

mechanisms are associated with higher borrowing costs when compared to conventional concessional

borrowing and therefore impose higher fiscal costs on Government.



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Interest rates have increased on all tenors of Treasury instruments over the last year which increases the costs

of domestic borrowing. Foreign currency denominated debt comes with an added exchange rate risk, which

represents a particular concern following the recent depreciation of the Ugandan Shilling against the US

dollar; and delayed or reduced availability of external funds could delay execution of Government’s

investment programme.

Management strategy

Government is improving the quality of public debt management by enhancing the analysis underpinning the

medium-term debt strategy, and broadening the range of instruments, markets and financiers to reduce

borrowing costs and improve risk management. To avoid interest rate risks, Government shall aim to only

contract external debt on fixed interest terms in the medium term. Foreign exchange rate risk will be

controlled and monitored by ensuring that the proportion of foreign currency debt in total debt does not rise

above a maximum of 80% in the medium term.

Debt Sustainability Analysis

Current debt numbers indicate that Uganda’s public debt, which includes both external and domestic debt, is

sustainable and under no debt distress with the Net Present Value (NPV) of public debt-to-GDP ratio

standing at 24.1 percent as of end June 2015. This is significantly below the Public Debt Management

Framework threshold and the EAMU Convergence Criteria of 50 percent.

The Ministry of Finance conducts an annual Debt Sustainability Analysis. Preliminary results of the 2015

Debt Sustainability Analysis indicate that the present value of the public debt-to-GDP ratio shall peak at

about 33.9% of GDP in FY2018/19 and FY2019/20, at a sustainable level and at low risk of distress (Table

5). The macroeconomic assumptions and planned infrastructure projects underpinning the DSA are consistent

with the medium term macroeconomic framework. Table 7 summarises the preliminary results of the 2015

DSA.



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Table 7: Summary of the Debt Sustainability Analysis, 2015 (%)

Source: 2015 Debt Sustainability Analysis, Ministry of Finance, Planning and Economic Development

Risks from volatile financing

Government’s infrastructure investment programme is dependent on external financing, which if not readily

available, may pose serious risks to the country’s ability to complete future projects and those already

underway.

Uganda has experienced an increase in the share of non-performing external loans in recent years.

Government still incurs costs on undisbursed funds in the form of commitment fees. Low levels of

disbursement largely reflect low absorption of implementing agencies, related to poor project selection,

delays in acquiring land and covering compensation costs, and procurement and financial management

related challenges. Slow utilisation and absorption capacity constraints increase overall costs for executing

Government’s public investment programme. Delays in approving loan agreements automatically feed into

delays in project implementation and disbursement, accumulated commitment fees and greater fiscal costs.

Management strategy

Government is improving its methods for project selection, design, appraisal, implementation and evaluation.

For example, the projects appraisal process of the Development Committee in the Ministry of Finance,

Planning and Economic Development has been strengthened. The process now requires a

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