Uganda Economic Update| December, 2023 © 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 Sanyuni to Derrick Ssenyonyi, 2022 – 2023 and Rachel Mabala (2021-2022) 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 Economic Update| December, 2023 Contents Acronymms and Abbreviations ..................................................................................................................................... v Foreword.......................................................................................................................................................................vi Acknowledgements...................................................................................................................................................... vii Executive Summary......................................................................................................................................................viii PART 1 State of the Economy.....................................................................................................................................12 1.1 Recent Economic Developments................................................................................................................................14 Global economic growth is projected to remain weak in 2023 due to the lingering effects of multiple crises........... 14 Growth has been broad-based, with rising output in the agricultural, industrial, and service sectors....................... 14 Monetary conditions in Uganda have eased in line with global developments...............................................................17 Challenges around revenue collection threaten the fiscal consolidation..........................................................................17 ......................................... 19 The current account remained stable as higher export revenues offset a surge in imports. 1.2 Economic Outlook, Risks, and Policy Actions...........................................................................................................21 Economic resilience underpinned by the prospects of the oil sector.................................................................................21 1.3 Summary and Recommendations............................................................................................................................ 23 PART 2 Assessing the Quality, Efficiency, and Effectiveness of Public Spending in Education...................................24 2.1 Structure and Governance....................................................................................................................................... 28 2.2 Key Education Outcomes ....................................................................................................................................... 30 2.3 Analysis of Public Spending on Education.............................................................................................................. 33 2.3.1 Adequacy............................................................................................................................................................................ 33 2.3.2 Efficiency . ......................................................................................................................................................................... 37 2.3.3 Equity.................................................................................................................................................................................40 2.4 Recommendations.................................................................................................................................................. 45 References.................................................................................................................................................................... 47 iii Uganda Economic Update| December, 2023 List of Figures Figure 1: Growth remained relatively strong despite adverse weather conditions and weak mining output........................ 15 Figure 2: The PMI has improved since 2022...................................................................................................................................... 17 Figure 3: Lower goods prices drove the decline in core inflation. .................................................................................................. 17 Figure 4: The ongoing fiscal consolidation is narrowing the deficit.............................................................................................. 17 Figure 5: The Ugandan shilling appreciated substantially during FY2023. ................................................................................. 19 Figure 7: Import coverage fell during FY2023.. ..................................................................................................................................20 Figure 6: Private inflows and government borrowing financed the current-account deficit. ...................................................20 Figure 8: The Structure and Organization of the Uganda´s Formal Education System...............................................................28 Figure 9. Gross Enrollment Rates, 2019 (%)......................................................................................................................................30 Figure 10. Early Grade Reading Assessment Results by Local Language, 2022. .......................................................................... 31 Figure 11. Public Spending on Education as a Share of GDP, 2018 or Latest Available Year........................................................ 33 Figure 13. Public Education Spending per Student as a Share of GDP per Capita, Latest Available Year.................................. 33 Figure 12. Public Spending on Education as a Share of Total Government Spending, 2018 or Latest Available Year............. 33 Figure 14. Public Spending by Education Level.................................................................................................................................34 Figure 15. Public Spending per Student by Education Level, 2010/11 – 2021/22 . .........................................................................34 Figure 16. Ratio of Teacher Salaries to Earnings of Similarly Educated Workers by Highest Degree Completed and Age Group, 2019/20.................................................................................................................................................................................35 Figure 17. Ratio of Teacher Salaries to Earnings of University Educated Workers by Level of Instruction, 2019/20 (25-64 Years Old). ........................................................................................................................................................................................35 Figure 18. Composition of Household Spending on Education by Level of Education and Type of School, 2019/20...............36 Figure 19. Learning Adjusted Years of School by GDP per Capita and Education Spending, 2020............................................. 37 Figure 20. Number of Students per Teacher and Total Number of Students in Government-Funded Primary Schools by Dis- trict, 2020/21.....................................................................................................................................................................................38 Figure 21. Number of Students per Teacher and Total Number of Students in Government-Funded Secondary Schools by District, 2020/21................................................................................................................................................................................38 Figure 23. School Attendance and Poverty Rates by Subregion, 2019/20..................................................................................... 41 Figure 22. Lorenz Curve of Education Spending in Uganda, 2019/20............................................................................................. 41 Figure 24. Learning Poverty in Primary Education and Poverty Level by Subregions, 2018/2019............................................42 Figure 25. Per-Student UPE Grants and Poverty Rates by Subregion, 2020/21............................................................................43 Figure 26. Per-Student USE Grants and Poverty Rates by Subregion, 2020/21............................................................................43 Figure 27. Learning Poverty in Literacy and Student-Teacher Ratios, Primary Education, 2020. .............................................44 Figure 28. Learning Poverty and per-Student UPE Transfers, Primary Education, 2020/21 ......................................................44 iv Uganda Economic Update| December, 2023 List of Tables Table 1: Quarterly Real GDP Growth (%)...................................................................................................................................... 16 Table 2. Key Fiscal Indicators (% of GDP).................................................................................................................................... 18 Table 3. Baseline Economic Outlook (annual % change unless otherwise indicated)..........................................................21 Table 4. Distribution of School Attendance by Education Level and School Type, 2019/20 (%).......................................... 29 Table 5. Distribution of Reasons Cited for Leaving Primary Education by Grade and Gender, 2019/20 (%).......................31 Table 7. Net Attendance Rate by Population Group, 2019/20.................................................................................................... 40 Acronymms and Abbreviations BOU Bank of Uganda BTVET Business, Technical and Vocational Education and Training CFR Charter of Fiscal Responsibility DSA Debt Sustainability Analysis ECF Extended Credit Facility EMIS Education Management Information System FDI Foreign Direct Investment FY Fiscal Year GDP Gross Domestic Product GoU Government of Uganda IGFTR Intergovernmental Fiscal Transfer Reforms IMF International Monetary Fund LAYS Learning Adjusted Years of Schooling MoES Ministry of Education and Sports MoFPED Ministry of Finance, Planning, and Economic Development NDP III Third National Development Plan PLE Primary Learning Examination RTI Research Triangle Institute SPA School Performance Assessment STEM Science, Technology, Engineering and Mathematics STR Student Teacher Ratio UBOS Uganda Bureau of Statistics UgIFT Uganda Intergovernmental Fiscal Transfer Reform Program UGX Ugandan Shilling UPE Universal Primary Education USE Universal Secondary Education v Uganda Economic Update| December, 2023 Foreword The Ugandan economy continues to recover from multiple shocks and a challenging global environment. Economic activity has been robust due to strong industrial activity and improved performance of the services sector. Although agricultural production was affected by adverse weather conditions, the sector recorded strong growth. Spillovers from the war in Ukraine led to higher food and fuel prices that broadened across other goods and services, contributing to a surge in inflation in the second half of 2022. Inflation began to decelerate in February 2023 and has since remained below the Bank of Uganda’s target rate of 5 percent due to its policy actions. Notwithstanding the resilience of the economy, the country’s growth trajectory is fragile. Recent global market turmoil and potential spillovers from the conflict in Sudan pose new policy challenges. Uganda will soon enter a pivotal stage in its development path where human capital – the knowledge, skills, and health that people accumulate throughout their lives – has the potential to be a central driver of the country’s progress. Yet even as Uganda’s population is projected to increase by 60 percent in the next 20 years, the country has been underinvesting in its human capital. The World Bank estimates that at current levels of investment in human capital, a child born in Uganda today will grow up to be only 38 percent as productive as he or she could be with complete education and full health. For Uganda to benefit from a demographic dividend, the country will need not only substantial resources to serve a larger population, but it must further elevate its investments in social services to improve the current poor levels of access and quality. In addition, providing equal access to human capital development is key to addressing the inequality of opportunities and making future growth more inclusive. This 22nd edition of the Uganda Economic Update focuses on a critical component of Uganda’s human capital development: the quality, efficiency, and effectiveness of public spending on education. Spending on education has been consistently low and inefficient in Uganda, contributing to inadequate and inequitable access as well as poor learning outcomes. Although the scale of the challenge may seem daunting, Uganda has many achievements to build on: one of the first countries to embrace the idea of universal primary education; a leader in employer-led skills development; and a world leader in its generosity toward refugees, including in their human development. The World Bank is ready to support Uganda’s efforts to seize this critical and time-bound opportunity by investing more, investing smarter, and investing now in the future productivity of its people. Keith Hansen Country Director Kenya, Rwanda, Somalia, and Uganda Africa Region vi Uganda Economic Update| December, 2023 Acknowledgements The Uganda Economic Update (UEU) analyses economic and structural issues in the Ugandan economy and situates them in a long-term domestic and global context. It is intended for a wide audience, including policymakers, business leaders, financial-market participants, think tanks, non-governmental organizations, and the community of analysts and professionals engaged in the Ugandan economy. The publication intends to foster well-informed policy analysis and debate regarding the key challenges facing Uganda as it strives to achieve inclusive and sustainable economic growth. This 22nd edition of the UEU was prepared by a team that included Sashana Whyte, Rachel K. Sebudde, Shawn Powers, Aziz Atamanov, and Daniel Lukwago (consultant). The team is grateful to Philip Schuler, Marek Hanusch, Tamoya Christie, and Shinsaku Nomura for their input and guidance on the structure and messages presented in the report. The UEU 22 was edited by Sean Lothrop. Pearl Namanya provided logistical support, while Bernard Tabaire managed the communications strategy and Karina Acevedo provided invaluable research assistance on the analysis of education expenditures. The Uganda Country Team provided valuable feedback, and the overall guidance provided by Abha Prasad (Practice Manager, Macroeconomics, Trade and Investment) and Mukami Kairuki (Country Manager) is gratefully acknowledged. Finally, the team would like to thank the staff of the Ministry of Finance, Planning, and Economic Development and the Ministry of Education and Sports for their commitment and productive collaboration. vii Uganda Economic Update| December, 2023 Executive Summary Uganda’s economy continued its recovery from multiple external shocks, despite a turbulent global environment. Uganda’s real GDP growth rate rose from 4.6 percent in FY2022 by the resumption of gold exports and a marginal recovery to 5.2 percent in FY20231, but domestic challenges persist, in travel inflows, exports increased by 2.7 percentage points and external conditions remain challenging. The services of GDP. Although spending on imports fell by 8.3 percent, the sector accounted for half of GDP growth, led by professional shilling’s real depreciation during the second half of the year services, administrative services, and accommodation and food caused import costs to rise by 2.4 percentage points of GDP, services. Agricultural output also rose by 4.8 percent during offsetting the sizable growth of exports. The current-account the period, driven by livestock and fishing, while irregular deficit was financed mainly through FDI in the oil and gas rainfall continued to adversely affect crop production. Growth sector and to a lesser extent by public-sector borrowing. in the industrial sector slowed to 3.5 percent due to declining Monetary tightening slowed the growth of credit to the mining and quarrying activity. High-frequency indicators private sector. After expanding by 8.9 percent in FY2022, suggest economic activity will remain solid through the end private-sector credit growth declined to 3.0 percent in FY2023. of the calendar year. Slowing credit growth primarily reflected the rising cost of Tighter monetary policies have helped ease inflationary credit, as the central bank raised rates to manage inflationary pressure. Influenced both by global and domestic factors2, pressures. While lending to the public sector risks crowding out headline inflation rose from 3.7 percent in FY2022 to 8.8 private-sector credit and slowing economic growth, personal percent in FY2023, well above the central bank’s target rate loans and commercial lending to the transport, trade, and of 5 percent. Rising prices for nonfood goods contributed mining and quarrying sectors continued to increase in FY2023. 46 percent to the total increase in inflation in FY2023, as The central government’s fiscal deficit reached 5.6 percent of the shock of the external crises compounded the effects of GDP in FY2023, down from 7.4 percent in the previous fiscal adverse weather conditions, while food, energy, fuel, and year. Total central-government revenue rose to 14.2 percent utility prices also increased substantially during the year. of GDP, albeit well short of the policy target of 16-18 percent.3 The inflation rate began to decline in February 2023 and Improved tax administration pushed tax revenue from 13.4 reached 2.6 percent in November. Inflation is expected to percent of GDP to 13.7 percent, with increased collections of continue easing due to softening international commodity pay-as-you-earn tax, taxes on rental income, and casino taxes prices, especially for energy, as external shocks abate, and offsetting a decline in revenue from corporate income tax and supply-chain disruptions unwind. The relative stability of the withholding tax. Meanwhile, total spending fell from 21.5 Ugandan shilling also contributed to disinflation. percent of GDP to 19.9 percent. Development spending, much of Strong and sustained inflows of foreign direct investment (FDI) which remains focused on megaprojects, fell from 7.9 percent helped finance a large current-account deficit of 7.9 percent of of GDP to 5.8 percent. While part of this decline was planned GDP. The current-account deficit (including grants) remained as part of the fiscal consolidation agenda, development broadly unchanged from FY2022, as a surge in imports offset spending was also undercut by execution challenges both in the recovery of goods exports and tourism inflows. Driven domestically and externally financed projects. 1 The fiscal year in Uganda runs from July to June. 2 Adverse weather conditions, high energy and food prices and supply constraints 3 This target is defined in the Domestic Revenue Mobilization Strategy. viii Uganda Economic Update| December, 2023 A lady pours peas for sale into a basket in Nakasero Market. Derrick Senyonyi, 2023. Outlook, Risks, and Challenges or incomplete implementation of structural reforms in key areas such as private-sector development and climate-change The medium-term outlook remains broadly positive. Medium- adaptation in the agricultural and tourism sectors. On the upside, term growth prospects hinge on the anticipated development of rapid disinflation in advanced economies could lead to looser the oil and gas sector, which is expected to push the annual GDP monetary policies, easing financial constraints in global markets. growth rate to well above 6 percent in the medium term. The continued implementation of governance and product-market Assessing the Quality, Efficiency, and Effectiveness reforms designed to boost agri-business, encourage trade, of Public Spending in Education and foster private investment is also expected to contribute to medium-term growth. The implementation of the Domestic With a young and growing population, Uganda has a one-time Revenue Mobilization Strategy—particularly the reforms to opportunity to capture a demographic dividend, but success tax expenditures and value-added taxes—will support fiscal is not guaranteed. As improving economic, health, and social consolidation on the revenue side. Meanwhile, fiscal spending conditions lower first mortality rates and then fertility rates, aimed at easing constraints on growth, including investments in countries pass through a brief window in which the size of the energy and transport infrastructure, should help revive private working-age population (ages 15-64) far exceeds the dependent investment, boost agricultural production, and energize the light population of children and the elderly. During this demographic manufacturing sector. transition, a country can leverage its changing age structure to accelerate growth, but only if its workers are able realize their Risks to the medium-term outlook are substantial. Key risks productive potential. Uganda is a “pre-dividend” country, meaning include a further deterioration of global economic conditions that today’s children will be the working-age population during due to intensifying geopolitical tensions, an escalation of the the country’s demographic transition. To ensure that Uganda conflict in the Middle East, slower-than-expected growth in reaps a demographic dividend, the government must invest in China, a slowdown in economic activity in the United States, human capital. and/or a renewed rise in commodity prices. External economic shocks could necessitate a return to monetary policy tightening According to the Human Capital Index (HCI), a Ugandan child in Uganda, which would slow the recovery of business activity born today will be only 38 percent as productive during his/her and household income. In addition, weather-related shocks could lifetime as he or she could have been with the right investments further depress agricultural output and disrupt the mobility in human capital. The HCI combines health indicators such as the of goods and people. Domestic policy risks include the slow child survival rate, the stunting rate, and the adult survival rate ix Uganda Economic Update| December, 2023 Students at a secondary school within Kampala City Centre reading books. Derrick Senyonyi, 2023. x Uganda Economic Update| December, 2023 with education indicators such as average years of schooling out do so for cost-related reasons, though there are additional and average learning levels. Based on international evidence, gender-specific barriers such as pregnancy among girls. Public these indicators can be used to estimate the productivity of spending in education is pro-poor at the primary level but future workers against a benchmark of complete education becomes increasingly regressive as students progress through and full health. Uganda’s low levels of human capital derive the system, with postsecondary education virtually inaccessible primarily from poor educational outcomes, including one of the to the poorest households. lowest learning-adjusted years of schooling (LAYS) among all A massive increase in public education spending will be necessary economies in the HCI. Ugandan children can expect to complete for Uganda to meet its long-term development objectives, reap 6.8 years of pre-primary, primary, and secondary school by a demographic dividend, and ensure equitable access to high- age 18, but when scaled for learning quality this falls to just quality education. This report presents five recommendations, 4.3 LAYS—a gap of 2.5 years. each with a set of short, medium, and long-term actions the Uganda’s public education spending has been consistently low government of Uganda can take, together with other stakeholders in recent decades, falling well below international benchmarks and development partners, to achieve a demographic dividend. and average expenditures in other East African countries. Policies To address the challenges facing Uganda’s education sector aimed at ensuring universal access to primary and secondary and enable the country to achieve its development goals, schooling have greatly expanded education opportunities. policymakers should: However, the government will need to increase public spending • Gradually increase education spending to reflect an “expansion on education to achieve its goals while keeping pace with with quality” scenario that prioritizes investments in basic population growth, as households still bear a disproportionate education and skills over further increases in tertiary education. share of the burden of education financing. • Introduce one year of high-quality pre-primary education Inadequate and inefficient public spending on education provided through the public education system. contributes to low service quality, unequal access, and subpar learning outcomes. Uganda’s education outcomes as measured by • Comprehensively reform the teaching profession to improve LAYS are below what would be expected even for a country with compensation, strengthen accountability, and provide greater its low level of education spending, highlighting inefficiencies in support for teachers. the education system. Most children enrol in primary education, • Leverage technological solutions to address other systemic but completion rates are low, and learning outcomes are poor. inefficiencies. The rate of grade repetition at the primary level is high— especially in the first grade—due mainly to the under-provision • Reduce out-of-pocket education costs and other barriers to of early childhood education. Most children leave school before access. completing secondary education, and most of those who drop xi Uganda Economic Update| December, 2023 PART 1 State of the Economy 12 Uganda Economic Update| December, 2023 Busy, well maintained road transport on Ntinda Stretcher Road, Derrick Senyonyi, 2023. 13 Uganda Economic Update| December, 2023 1.1 Recent Economic Developments Global economic growth is projected to remain weak in 2023 due to the lingering effects of multiple crises. 1. Global economic growth is expected to reach 2.5 percent in edition of Africa’s Pulse, the region’s median public debt-to-GDP 2023—up 0.4 percentage points from the June 2023 forecast. ratio fell only slightly from 59 percent in 2021 to 57 percent in The better-than-previously-projected growth for 2023 reflects 2022.6 Meanwhile, a shift in the composition of the region’s the economic performance of the United States as household debt toward non-concessional borrowing has increased debt- consumption continues to recover and labour markets remain service costs, which rose from 16 percent of total revenue in resilient. Global inflation is projected to fall to 6.9 percent in 2012 to 31 percent in 2022, constraining the available fiscal space 2023, but rates will likely remain above target in many advanced and increasing vulnerability to shocks. Public gross financing economies due to the appreciation of the US dollar against major needs remain above historical levels at about 11 percent of GDP currencies, lower foreign-exchange reserves, and a delayed in 2020–22 and are projected to remain at 10 percent over the pass-through effect of higher energy and commodity prices. next five years. Chad, Ethiopia, Ghana, and Zambia have resorted to debt restructuring to resolve debt-sustainability issues and 2. The conflict in the Middle East has increased economic rebuild fiscal space. uncertainty and heightened the risk of food insecurity. In the third quarter of 2023 (July to September), the World Bank commodity price index increased by 5 percent, driven by an 11 Growth has been broad-based, with rising output in percent surge in oil prices after OPEC+ decided to cut supply. the agricultural, industrial, and service sectors The World Bank’s commodity market outlook (October 2023) indicates that the conflict in the Middle East will have a limited 5. Despite unfavorable global and domestic developments, impact on commodity prices—assuming hostilities remain Uganda’s economy has maintained its recent growth momentum. contained—with prices ultimately being driven by fundamental Real GDP growth reached 5.2 percent in FY2023, below the demand and supply factors. However, the conflict may intensify 5.7 percent projected in the June 2023 edition of the Uganda food insecurity in the Middle East by disrupting the food supply Economic Update. This lower growth outturn reflected slowing chain. economic activity in the second and third quarters of the fiscal year, driven by lower aggregate demand as the economy 3. Multiple internal and external factors are disrupting Africa’s grappled with tighter credit conditions, the Ebola outbreak, and economic recovery.5 In East Africa, economic output is expected adverse weather conditions. Sectoral data show that economic to grow by 1.9 percent in 2023, down from 3.6 percent in earlier growth mainly came from the agricultural and service sectors forecasts, as the conflict in Sudan has greatly reduced labor on the supply side and from consumption and investment on supply and destroyed the country’s industrial base. Economic the demand side. activity in Sub-Saharan Africa (SSA) is projected to grow by 2.5 percent in 2023, 0.7 percentage points below the level forecast in 6. Despite temporary disruptions in tourism during the first half June 2023. The downward revision reflects high (albeit declining) of the fiscal year, a strong expansion in services drove supply- inflation rates, tight global and domestic financial conditions, side growth. Supported by the gradual recovery of travel after slow global growth, and increased conflict and violence within the Ebola outbreak and increased business activity, the service the region. Adverse weather conditions are also weighing on sector registered a tremendous broad-based acceleration over the economic growth in SSA, including rising flood risks in the coastal fiscal year, with accommodation and food services, professional areas of East Africa. services, and administrative services increasing by an average of 12.4, 28, and 17 percent, respectively. Meanwhile, industrial 4. Despite efforts to strengthen fiscal management, average output rose by 3.5 percent, with the growth of construction (4.8 debt levels in SSA remain high. According to the October 2023 percent), water (4.2 percent), and manufacturing (3.1 percent) 4 These include COVID-19 pandemic, Russia’s invasion of Ukraine, and soaring consumer costs. 5 These include adverse weather conditions, rising conflict and violence, rapidly accelerating inflation, higher borrowing costs, and softer demand in major export markets. 6 Debt levels in Africa increased from 29 percent of GDP in 2012 to 52 percent in 2019 driven by persistent fiscal deficits and slowing growth. 14 Uganda Economic Update| December, 2023 Figure 1: Growth remained relatively strong despite adverse weather conditions and weak mining output Source: Uganda Bureau of Statistics (UBOS) accounting for more than 80 percent of the sector’s expansion. drove the increase in total investment, which contributed 1.4 Unfavorable weather notwithstanding, the agricultural sector percentage points to growth. The contribution of public investment grew by 4.8 percent, making a significant contribution to overall was positive but marginal at 0.5 ppt, due in part to the slow growth (Figure 1). execution of public infrastructure projects. Private investment increased by 8.6 percent year-on-year (y/y), adding 1.0 to growth. 7. Private consumption and investment drove growth on the A strong recovery in key sectors such as services, construction, demand side. Private consumption was the largest contributor to and manufacturing supported the strong performance of private growth at 3.6 percentage points, while government consumption investment, while the contribution of net exports was negative contributed 0.5 percentage points (Table 1). The oil and gas sector Tourist buying crafts from a craft shop at Buganda Road Craft Market, Derrick Ssenyonyi, 2023. 15 Uganda Economic Update| December, 2023 Table 1: Quarterly Real GDP Growth (%) FY2023 FY2022 FY2023 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of GDP Y/Y growth rates AGRICULTURE 23.2 5.1 -1.8 4.0 9.3 1.7 9.9 8.6 2.1 Cash crops 2.6 23.1 4.8 -3.8 1.1 1.4 -2.3 9.4 -1.1 Food crops 12.1 3.0 -4.3 4.7 12.0 3.1 13.5 5.6 -0.8 Livestock 3.6 8.4 8.3 8.2 8.4 8.6 8.8 9.6 8.5 Agriculture Support Services 0.0 7.0 2.2 3.9 3.1 4.0 5.0 0.1 -1.3 Forestry 3.4 4.9 -2.8 5.3 5.3 3.5 3.5 2.8 2.8 Fishing 1.6 -0.4 -13.6 4.5 12.9 -35.9 25.0 30.8 11.8 INDUSTRY 26.1 -0.1 7.9 5.5 6.9 11.9 -2.7 0.2 7.0 Mining & quarrying 1.7 -55.9 51.2 41.0 81.6 79.0 -54.2 -26.0 69.6 Manufacturing 14.6 -5.9 6.5 7.8 6.9 15.4 1.1 -1.4 -1.5 Electricity 1.4 6.3 4.3 2.1 0.1 0.9 1.3 2.6 6.4 Water 2.4 5.6 6.1 6.6 6.8 6.0 5.4 5.3 4.9 Construction 6.2 35.3 3.1 -5.8 -4.1 0.5 0.6 9.2 8.7 SERVICES 43.8 2.9 5.9 4.1 3.7 9.6 5.3 1.4 8.8 Trade & Repairs 8.3 -6.0 3.7 9.2 8.1 8.9 5.5 0.5 8.1 Transportation & Storage 2.5 -8.7 -2.1 3.2 -7.8 -6.9 -3.0 -11.5 -6.1 Accommodation & Food Service 2.5 1.3 15.4 -19.4 -4.9 1.3 0.9 17.4 28.9 Information & Communication 2.4 14.6 9.8 4.9 1.3 4.2 4.0 12.1 20.9 Financial & Insurance 2.8 0.9 4.2 6.3 6.4 0.5 6.5 -26.7 15.5 Real Estate Activities 7.2 6.9 10.0 10.5 10.5 10.2 8.5 6.9 6.7 Professional, Scientific & 2.6 28.1 5.4 -10.6 -6.6 48.5 17.7 30.3 15.3 Technical Administrative & Support 2.2 2.2 2.6 2.7 6.7 18.4 15.2 21.0 18.4 Service Public Administration 2.9 5.7 4.3 -4.4 9.8 8.4 5.6 -9.7 -1.0 Education 3.8 14.2 -3.1 4.6 -7.7 13.1 -0.9 -8.7 11.2 Human Health & Social Work 3.5 -5.1 17.3 15.9 11.1 12.7 2.3 5.3 1.1 Arts, Entertainment & Recre- 0.1 28.0 -2.9 -12.5 -19.0 -33.8 -5.1 30.4 40.9 ation Other Service Activities 2.4 5.4 4.9 4.1 4.7 4.4 4.0 2.8 -0.2 Activities of Households 0.7 2.8 2.8 2.8 2.7 2.7 2.7 2.7 2.8 ADJUSTMENTS Taxes on products 6.9 -1.0 9.1 21.8 1.4 14.6 1.7 1.1 8.9 GDP AT MARKET PRICES 2.6 4.9 5.6 5.6 8.1 3.8 2.4 6.8 Source: UBOS 16 Uganda Economic Update| December, 2023 at -0.4 percentage points, as the growth of investment-related CPI basket. Based on the consistent decline in the inflation rate, imports and foodstuffs outpaced export growth. the BoU reduced its policy rate by 50 basis points to 9.5 percent in August 2023. 8. High-frequency indicators suggest that the growth momentum observed in the last two fiscal years will likely persist into 10. An increase in personal loans contributed to private-sector FY2024. The composite index of economic activity posted a y/y credit growth as households borrowed to mitigate the impact growth rate of 6.6 percent in September 2023, reflecting improving of higher prices. As the BoU raised interest rates to control sentiments, rebounding agriculture output, and a resilient service inflation, higher borrowing costs slowed private-sector credit sector. Similarly, the Purchasing Managers Index (PMI) rose from growth from 8.9 percent in FY2022 to 3.0 percent in FY2023. 51.6 in September 2022 to 52.9 in September 2023, signaling an Sector-level data show that mortgage, construction, and real improvement in demand and underlying business conditions estate loans, which constitute 20 percent of all private-sector (Figure 2). A stronger business environment resulted in output lending, grew by 11 percent in FY2022 before falling by 1.7 percent growth, new orders, and rising employment, especially in the in FY2023. This decline was offset by a 21.7 percent increase in agriculture, construction, industry, services, and wholesale personal loans and an 8 percent increase in trade loans. Personal and retail categories. The BoU’s Business Tendency Index also loans represent about 22 percent of total private loans, and shows that perceptions about doing business in Uganda were trade loans account for about 18 percent. Shilling-denominated optimistic on balance during September 2023, with an index loans increased by 9.7 percent, while dollar-denominated loans score of 58.6, well above the 50-mark threshold. Optimism was declined by 10.2 percent, reflecting the impact of exchange-rate highest in the construction sector, followed by agriculture, other appreciation on repayment costs. The share of non-performing services, manufacturing, and wholesale trade. loans rose from 5.3 percent of total loans in FY2022 to 5.7 percent in FY2023, due primarily to tight domestic liquidity conditions. Figure 2: The PMI has improved since 2022. The banking sector remains resilient, with bank assets increasing by 8.4 percent in FY2023, driven by a 12.2 percent increase in holdings of government securities amid slowing credit growth. The capital adequacy ratio for commercial banks rose from 21.4 percent to 24.8 percent due to increases in after-tax profits and shareholder equity. Challenges around revenue collection threaten the Source: Bank of Uganda and Stanbic Bank Uganda fiscal consolidation Monetary conditions in Uganda have eased in line 11. Supported by the government’s effort at fiscal consolidation, with global developments the fiscal deficit declined in FY2023. The overall deficit, including grants, narrowed from 7.4 percent of GDP in FY2022 to 5.6 9. Headline inflation increased to 8.8 percent in FY2023 but percent in FY2023 (Figure 4). Lower development spending has since decelerated. The inflation rate began to decline in drove the consolidation. Development spending declined by February and reached 2.6 percent in November, driven by falling 0.8 percentage points, due primarily to the under-execution of energy prices and the normalization of global supply chains public investment, while recurrent spending increased as the (Figure 3). In addition, the relatively stable Ugandan shilling government boosted compensation for some civil servants. (UGX), coupled with tight monetary and fiscal policies, helped Fiscal revenue remained broadly unchanged at 14 percent of GDP, moderate aggregate demand, contributing to disinflation. As below the target specified in the Domestic Revenue Mobilization headline inflation began to decline in February 2023, so did core Strategy (DRMS). inflation, which accounts for more than 80 percent of Uganda’s Figure 3: Lower goods prices drove the decline in core inflation Figure 4: The ongoing fiscal consolidation is narrowing the deficit. Source: UBOS Source: Ministry of Finance, Planning and Economic Development 17 Uganda Economic Update| December, 2023 12. The fiscal consolidation has largely focused on cutting project execution. Recurrent spending increased from 13.1 percent of development spending, raising concerns about the government’s GDP in FY2022 to 13.6 percent in FY2023 as salary enhancements for ability to meet and maintain its commitment of a deficit of 3 scientists and some security personnel drove a 0.3 percentage-point percent of GDP established by the Charter of Fiscal Responsibility increase in wages and salaries. Interest payments also increased (CFR). Expenditures declined from 21.5 percent of GDP in FY2022 to 19.9 during the fiscal year due to a 0.1 percentage-point increase in percent in FY2023 (Table 2) as the under-execution of domestically external interest payments. Domestic interest payments, which and externally financed projects reduced development spending. represent 80 percent of total interest payments, remained high A lack of detailed feasibility studies and implementation plans, at 2.5 percent of GDP as the government reinstated a portion of the uncoordinated budgeting of government contributions, poor domestic interest payments that had been revised downward by planning for rights of way and land compensation, weak contract Parliament during budget discussions and increased interest rates management, and deficiencies in overall project management hamper on Treasury bills in line with the tighter monetary policy stance. 13. Uganda’s spending on social sectors is minimal. The Table 2. Key Fiscal Indicators (% of GDP) latest available data shows that the government’s investment in human capital has declined as the government prioritized closing FY2021 FY2022 FY2023 infrastructure gaps, especially in the energy and transport sectors. Total Revenues and Grants 14.7 14.1 14.2 Spending on education was 11.3 percent of total government expenditure in FY2020/21, below the benchmark encouraged by Revenues 13.4 13.4 13.7 the Education 2030 Framework for Action – which is at least 15 Tax 12.4 12.6 12.8 percent to 20 percent of public expenditure towards education. Non-tax 0.9 0.9 0.8 In the health sector, government spending stood at 3.9 percent of Grants 1.3 0.7 0.6 total government spending in 2020/21 (compared to 6.5 percent in 2014/15), less than 20 percent of total health spending, while external Expenditures and Lending 23.7 21.5 19.9 assistance accounts for about 50 percent, and out-of-pocket spending Current Expenditures 12.6 13.1 13.6 for about one-third. The findings of a recent Public Expenditure Wages and Salaries 3.5 3.5 3.8 Review (PER) undertaken by the World Bank and Uganda’s Ministry Interest Payments 2.7 3.1 3.2 of Finance, Planning and Economic Development indicated that because of the huge population pressure and because the social Domestic 2.1 2.6 2.5 sectors were underfunded in the past, funding needs for social External 0.6 0.5 0.6 sectors are enormous. Thus, there is need to readjust the budget Other Recurrent Expenditures 6.4 6.6 6.5 by reallocating resources to rebalance between the governance and security programs; integrated infrastructure program, and other Development Expenditures 10.2 7.9 5.8 productive sectors especially agro-industrialization, minerals and Domestic Development 3.7 5.0 3.9 manufacturing and social sectors especially health and education. External Development 6.5 2.9 1.9 14. The accumulation of domestic arrears and the use of Net Lending/Repayments 0.4 0.2 0.1 supplementary budgets continue to pose challenges for fiscal o/w: Hydropower Projects 0.1 0.2 0.1 management, damaging the credibility of the budget process. o/w: BOU Recapitalization 0.3 - 0.0 Arrears accumulated as the government ramped up efforts to provide liquidity to the private sector and support the post-pandemic economic Domestic Arrears Repayment 0.5 0.4 0.4 recovery. During FY2023, the government spent UGX 769 billion to Primary Balance -6.3 -4.3 -2.4 repay some of its outstanding arrears to private service providers, Overall Fiscal Balance (incl. Grants) -9.0 -7.4 -5.6 up from UGX 622 billion in FY2022, demonstrating its commitment to arrears clearance. Meanwhile, the use of supplementary budgeting Financing: 9.0 7.4 5.6 continues to undermine budgetary credibility. In FY2023, Parliament External Financing (net) 4.0 3.0 2.1 received UGX 3.0 trillion in supplementary spending requests to Disbursements 5.0 3.8 3.4 support local governments and the health, security, and education Budget-Support Loans 2.2 2.5 2.1 sectors. Though down from 4.4 trillion (or 8.5 percent of the approved budget) in FY2022, these requests were still above the 3 percent Project Loans 2.1 1.3 1.3 statutory limit established in the Public Financial Management Act. Amortization 1.0 1.1 1.3 15. Revenues rose slightly, supported by an increase in tax Domestic Financing (Net) 4.6 3.4 3.4 receipts. A 0.2 percentage-point increase in revenue from pay-as- Bank Financing (Net) 1.6 1.9 2.1 you-earn tax, taxes on rental income, and casino taxes boosted Non-bank Financing (Net) 3.0 1.8 1.3 total revenue collection to 14.2 percent of GDP in FY2023. Higher Errors and Omissions 0.4 1.0 0.2 salaries for scientists, promotions in the public service, and increased Source: Ministry of Finance, Planning, and Economic Development 18 Uganda Economic Update| December, 2023 employment in the private sector bolstered pay-as-you-earn of travel and tourism compensated for the weak performance of collections. Revenue from taxes on rental income increased as the other exports. The return of gold transactions8 starting in August government rationalized the tax treatment of individuals with that 2022 boosted trade flows, especially in the second half of the of companies and raised the effective rental tax rate of companies fiscal year. The recovery of the tourism sector from the effects of from 12 percent to 15 percent. Revenue from casino taxes increased the Ebola outbreak between September 2022 and January 2023 due to more effective enforcement of weekly returns as well as underpinned the increase in gross travel-services exports, which arrears recovery. However, the collection of withholding taxes and rose from US$978 million in FY2022 to US$1,066 million in FY2023. corporate income tax declined due to the diminished profitability of Remittances continued to recover and reached US$1,431 million in the banking sector. Non-tax revenue also fell despite the government’s FY2023, exceeding pre-COVID-19 levels. Remittances remain a key efforts to streamline non-tax revenue administration. source of income of Uganda households, especially in rural areas. 16. Anticipated oil-export receipts should keep Uganda’s public 18. The Ugandan shilling appreciated strongly through FY2023, debt sustainable over the medium term. Uganda’s public and reflecting increased inflows of foreign exchange and reduced publicly guaranteed debt stock stood at 50.6 percent of GDP at liquidity in the domestic market, but new shocks started to reverse the end of the fiscal year, up from 49.6 percent a year earlier. The the trend during the first quarter of FY2024. Strong foreign-exchange latest joint IMF-World Bank Debt Sustainability Analysis (DSA), inflows and the BoU’s monetary policy contributed to a 1.1 percent published in June 2023, rated Uganda’s risk of debt distress as nominal appreciation of the shilling during FY2023. As inflation in moderate with limited space to absorb shocks—unchanged from Uganda remained below the levels recorded in many of its trading the previous assessment. The DSA emphasized the importance of partners, the shilling appreciated even more strongly in real terms, continuing to access concessional financing while improving revenue rising by 8.3 percent in FY2023 after a 5.8 percent depreciation in mobilization and strengthening public investment management. FY2022. By the end of the fiscal year, the real value of the shilling Outstanding advances from the BoU contributed 2.1 percent of GDP significantly exceeded its pre-COVID level (Figure 5), raising the risk to domestic debt at the end of FY2023. The government completed of overvaluation which could hurt exports. Appreciation pressures its fourth review under the International Monetary Fund (IMF), continued into the first quarter of FY2024, but the shilling depreciated Extended Credit Facility (ECF) in June 2023, the review concluded by 3.3 percent, falling from UGX 3,667/US$1 at end-June to UGX that Uganda’s economic reform program is progressing well despite 3,780/US$1 at end-October 2023. a challenging global economic environment, and the authorities Figure 5: The Ugandan shilling appreciated substantially during remain committed to the ECF Arrangement. So far, the aggregate FY2023. disbursement under the ECF arrangement is US$750 million. The current account remained stable as higher export revenues offset a surge in imports 17. The current account deficit was 7.9 percent of GDP during FY2023, broadly unchanged from FY2022, as the recovery of goods exports, tourism, and remittances was offset by the surge in imports. After falling during the first half of the year due to distortions in global supply chains, tight financial conditions, and high transport costs, imports of goods and services increased by 2.4 percentage points of GDP. The oil-import bill surged by almost 32 percent to US$1.6 billion in FY2023, boosting the share of petroleum products in total non-gold imports from 17 percent to 21 percent. Other private-sector imports (excluding non-monetary gold) also increased to support private investment, particularly in the oil and gas sector. This surge in imports offset a sizable increase in exports of goods and services, which reached 2.7 percent of GDP, as the reappearance of gold exports and the marginal recovery Source: Bank of Uganda 8 Gold exports were halted in July 2021 following a disagreement between gold importers and the government about the introduction of a gold levy. 19 Uganda Economic Update| December, 2023 19. External borrowing declined as rising inflation prompted major Project support disbursements declined from US$906 million to central banks to raise interest rates, increasing borrowing costs on US$680 million over the period due to issues with project execution, the international capital market. The current-account deficit was as described in the section on fiscal policy. financed mainly through foreign direct investment (FDI) and, to a Figure 6: Private inflows and government borrowing financed less extent, by public-sector borrowing, largely on concessional the current-account deficit. terms (Figure 6). Even as international companies grappled with a range of shocks, FDI inflows to Uganda surged to US$2.8 billion (about 5.8 percent of GDP) in FY2023, up from US$1.7 billion (about 3.7 percent of GDP) in FY2022. Equity investments in enterprises accounted for the bulk of this growth, as oil-related activities accelerated. Meanwhile, portfolio-investment outflows more than doubled, rising from US$274 million in FY2022 to US$617 million in FY2023, as capital continued to exit frontier markets amid rising interest rates and tighter global financial conditions. These outflows included sustained disinvestment from government securities, mainly long-term Treasury bonds, a trend which began during the last quarter of FY2022. Net government borrowing, however, dropped from US$1,427 million in FY2022 to US$1,022 million, or 3.5 percent of GDP, in FY2023, reflecting higher debt-service cost. Budget-support disbursements became the dominant form of borrowing, almost doubling from US$654 million in FY2022 to US$1,104 million in FY2023. These include IMF disbursements under the current program as well as borrowing from commercial banks. Source: Bank of Uganda Figure 7: Import coverage fell during FY2023. Source: Source: Bank of Uganda 20. Uganda’s foreign reserves declined, weakening its buffers investment income enabled the BoU to rebuild its stock of foreign against external shocks. Nominal dollar-denominated reserves fell reserves to US$ 4.1 billion (or 3.4 months of import coverage) by from US$4.1 billion in FY2022 to US$3.6 billion in the third quarter the end of the fiscal year. However, this level of reserves is below of FY2023, while import coverage declined from 4.8 months to 3.1 the IMF ECF program target of 4 months and the East African months, due to fast-growing interest payments and a mounting Community target of 4.5 months of imports. import bill. Subsequent government loan disbursements and 20 Uganda Economic Update| December, 2023 1.2 Economic Outlook, Risks, and Policy Actions Economic resilience underpinned by the prospects of the oil sector 21. The annual real GDP growth rate is projected to rise to about 6 development of the oil sector, that is attracting foreign investment percent during FY2024, marginally below the forecast in the June which is forecast to reach 11 percent of GDP by FY2025. Medium-term 2023 edition of the Uganda Economic Update, reflecting lower- growth also depends on domestic private investment in oil-related than-anticipated outturns in FY2023. Building on its resilience to infrastructure ahead of the start of oil production in 2025, as well several recent shocks—including high commodity prices, disrupted as the economic impact of oil production itself. Lower inflationary global supply chains, tighter global financial markets, and policy expectations could also prompt the BoU to ease monetary policy. uncertainty—the Ugandan economy is expected to continue Supported by a resurgent tourism sector, export diversification, growing at a robust pace, thereby narrowing the output gap. The and agro-industrialization, real GDP growth should return to its sustained push to start oil production by 2025 has accelerated the long-term trend of 6.5 percent and above. construction of about US$20 billion in oil-related infrastructure. 23. Disinflation is also expected to boost the recovery of firm However, other private investments are expected to be constrained employment and real household income. While high commodity by the difficult economic environment, especially liquidity constraints prices are expected to bolster the income of cash-crop-producing underpinned by relatively tight monetary policies and the ongoing agricultural households, these are a small share of all households fiscal consolidation, the uncertainty caused by the conflict in the due to the low level of agricultural commercialization. However, Middle East, and adverse weather conditions. Public investment the continued growth of non-farm income and declining inflation is also expected to decelerate in line with the fiscal consolidation. are expected to boost consumption, and accelerated growth could Nevertheless, the recent oil-driven surge in private investment is reduce the poverty rate (measured at US$2.15 per person per day) expected to offset the negative impact of these shocks (Table 3). from 41.7 percent in 2023 to 40.7 percent by 2024. However, given 22. Uganda’s recovery is expected to continue in the medium term, the limited capacity of Ugandan households to cope with shocks, the though risks to the outlook include a global economic slowdown, pace of poverty reduction will ultimately depend on the evolution worsening conditions in global financial markets, and additional of food access and affordability, as well as weather conditions. weather-related shocks. The country’s medium-term prospects 24. With uncertainty weakening global commodity prices, the BoU hinge on the continued rebound of tourism activity and the further may further ease monetary policy. The BoU must guard against the Table 3. Baseline Economic Outlook (annual % change unless otherwise indicated) FY22 FY23 FY24f FY25f Real GDP growth (baseline) 4.7 5.2 6.0 6.6 Private consumption 3.4 4.4 5.6 5.8 Government consumption -17.4 5.1 5.0 5.3 Gross fixed capital investment 20.1 5.5 8.2 9.3 Exports of goods and services -18.6 7.0 7.8 8.7 Imports of goods and services -8.9 3.2 8.6 8.8 Agriculture growth 4.4 5.0 5.1 5.3 Industry growth 5.4 3.9 5.6 6.5 Services growth 4.4 6.3 6.8 7.3 Inflation (CPI) 3.7 8.8 5.2 5.0 Current account (% GDP) -7.9 -7.9 -9.4 -11.6 Net FDI inflow (% GDP) 3.1 5.8 8.7 11.0 Fiscal balance (% GDP) -7.4 5.6 -3.4 -3.4 Public debt (% GDP) 50.7 50.6 47.7 46.8 Sources: UBOS, MoFPED, BoU, and World Bank staff estimates 21 Uganda Economic Update| December, 2023 pass-through effect of the shilling’s depreciation while inflationary impacted by a more severe deterioration of the global economy pressures subside. A monetary policy aimed at controlling inflation, due to rising geopolitical tensions, an escalation of the conflict in a risk-averse banking system, and tight global liquidity conditions the Middle East, slower growth in China, the further fragmentation will continue to suppress aggregate demand. Weak demand will of the world trading system, or a renewed increase in commodity adversely affect the recovery and further expand the output gap, prices. Moreover, inflation in advanced economies may be stickier which in turn will accelerate disinflation. Core inflation was already than expected, which would require more monetary tightening and well below its target in May and is expected to fall below 5 percent cause further capital outflows in developing countries. Additional by end-FY2024. risks threaten the global financial sector, and a strong pass-through effect on Uganda’s economy could necessitate a return to monetary 25. The current account is projected to deteriorate further due to policy tightening, slowing the recovery of businesses and household continued oil-related imports. Slowing global economic activity income. A slower global economy and the conflict in Sudan could could weigh on the growth of commodity exports—including coffee, also widen the trade deficit and reduce remittances, tourism, and maize, and tea—which has recently gained momentum. Regional FDI, including investments in oil production. Vulnerabilities in China demand could increase commodity exports if consumers start and Europe pose particularly serious risks, as these are the main substituting into high-value products from Uganda as the country sources of investment in Uganda’s oil sector. Tighter monetary expands its capacity for value addition. Despite the recovery of policy could cause a sharper deterioration in the asset quality in tourism activity, recent acts of terrorism pose a serious threat to the banking sector, raising costs and further constraining access the tourism sector, and several embassies have issued security to finance for firms. advisories to their citizens about visiting Uganda. The modest outlook for exports contrasts sharply with the expected acceleration 29. The increased frequency of droughts and floods increases of imports to support investments in oil production. Rising imports, the vulnerability of Uganda’s firms, farms, and households. along with large FDI inflows and real appreciation, raise concerns Many households rely on the agricultural sector for their primary that Uganda could already be facing some elements of “Dutch livelihood, and they often have limited capacity to adapt to natural disease.”9 Remittances are expected to grow moderately due to disasters and climatic stressors. Increased weather-related shocks slower global growth in FY2024 before recovering over the medium could reduce agricultural yields, lower export earnings, intensify term as employment conditions in source countries improve. food insecurity, and exacerbate poverty. 26. FDI is expected to continue to finance the largest share of the 30. Under a downside scenario, annual GDP growth could fall to current account. Supported by the growth of the oil sector, FDI is about 5 percent in FY2024 before marginally recovering to 5.5 projected to exceed 10 percent of GDP in FY2025. Large FDI inflows percent in FY2025. This scenario assumes that slowing global will ease financing needs, minimize government borrowing, and economic activity will reduce demand for Uganda’s exports, lower allow a gradual accumulation of foreign-exchange reserves. Non- commodity prices, and create renewed inflationary pressures. If concessional financing is likely to be limited given the authorities’ these pressures pass through to domestic inflation, the BoU will strategy to maximize the use of concessional financing to maintain have to assume a more aggressive monetary policy stance, with sustainable debt dynamics. adverse implications for growth. 27. Fiscal consolidation should reduce the deficit to about 3.4 31. Slower growth would also undermine the planned fiscal percent of GDP in FY2024 and enable the government to achieve consolidation. In addition to reducing fiscal revenues, which remain the CFR’s target by FY2026. The implementation of the DRMS is highly sensitive to shocks, slow growth will increase spending, expected to drive the improvement in the fiscal balance. Reforms to exerting pressures and make it harder for the government to tax expenditures and value-added taxes coupled with improvements complete its fiscal adjustment. The uncertainty around the external in tax administration are expected to raise revenue by the targeted outlook and the increased frequency of natural disasters due to 0.6 and 0.5 percentage points of GDP in FY2024 and FY2025, climate change could also worsen the country’s debt profile. respectively. This consolidation is expected to return the debt to a 32. Uganda’s risk of debt distress is rated “moderate,” but debt more sustainable path, and a debt burden of about 47 percent of dynamics are vulnerable to shocks. The June 2023 Joint World Bank- GDP by FY2025—consistent with CFR targets—should limit the risk IMF DSA found that Uganda has limited space to absorb shocks. Key of crowing out lending to the private sector. The fiscal consolidation risks to the debt outlook include environmental shocks, a further notwithstanding, the government will need to sustain its efforts tightening of global financial conditions, inconsistent reform effort, to support the recovery and revitalization of education, health, and delayed oil exports. The most extreme shock to public debt and social protection, which are critical for inclusive growth and service could come from the materialization of contingent liabilities, poverty reduction. which could push the debt-service-to-revenue ratio to 65 percent, Numerous risks threaten Uganda’s medium-term while a steep decline in exports poses the biggest risk to external outlook debt sustainability. 28. The medium-term outlook is clouded by considerable uncertainty, with risks tilted to the downside. First, economic growth may be 9 Dutch disease refers to a phenomenon in which the rapid development of one sector of the economy, typically an extractive industry, precipitates a decline in other sectors by generating changes in relative prices that cause the appreciation of the domestic currency. 22 Uganda Economic Update| December, 2023 1.3 Summary and Recommendations 33. Uganda’s economy has weathered multiple shocks, but the payment of matured securities would reduce budgetary flexibility prospect of accelerating growth into the medium term is fragile. and narrow the fiscal space to respond to shocks. Adverse weather-related shocks and commodity prices threaten 36. Third, a combination of macroeconomic and structural policies livelihoods and living standards and could reverse progress on will be necessary to prevent Dutch disease by increasing productivity poverty reduction. Government interventions are likely to be and diversifying the economy. The structural external current- constrained by limited fiscal space due to revenue shortfalls, project account deficit is likely to persist as import growth continues to execution challenges, and rising public debt vulnerabilities. In line outpace export growth in the short-to-medium term. The government with the analysis above, attention to the following four priority will need to avoid exchange-rate misalignments, especially as the areas is required to sustain a resilient and inclusive recovery. capital flows generated by the oil sector intensify, while investing 34. First, the fiscal adjustment should ringfence public investment heavily in the non-oil economy to enhance productivity and boost and human capital spending. In addition to raising revenues export growth. Export-promotion efforts must extend beyond and rationalizing spending, especially recurrent expenditures, the traditional export commodities, and the authorities should the government must use the capital budget more efficiently by aggressively promote service export. deepening reforms to public investment management. In particular, 37. Finally, to counter more frequent and intense shocks, the the authorities must ensure that projects have sufficient resources for government needs to adopt well-targeted interventions that their execution. Increasing public investment in education, health and effectively support vulnerable households. The government must social protection is critical to support inclusive growth and poverty accelerate the creation of a national social registry of vulnerable reduction, as detailed in the special focus section of this edition of households to enable public agencies to respond quickly and expand the Uganda Economic Update. The government must boost spending support beyond current beneficiaries of social assistance programs. in these areas while avoiding recourse to domestic financing of the Strengthening and expanding the digital payment systems would deficit, which would increase the exposure of the domestic financial allow for the efficient and transparent distribution of support to system to macro-fiscal risks, or to the renewed accumulation of affected households. Developing a disaster risk financing strategy domestic arrears, which would harm the private sector. Instead, the will be crucial to strengthen the country’s financial resilience to authorities must focus on rationalizing expenditures while tapping disasters and facilitate a timely response. Poor and vulnerable additional sources of concessional financing. households can be supported through labor-intensive public 35. Second, monetary policy must be more closely coordinated works and livelihoods programs designed to reduce negative with fiscal policy. Harmonizing monetary and fiscal policy would coping strategies such as reducing food intake, selling productive help ensure a less painful adjustment of inflationary expectations assets, and pulling children out of school. In the longer term, these and pressure while supporting private-sector growth. Increased net programs can help households increase income, build assets, and lending to the government through bank advances and/or the non- develop resilience. A happy customer poses for a picture with two sacks of colorful tomatoes in Nakasero Market, Kampala, Derrick Ssenyonyi, 2023. 23 Uganda Economic Update| December, 2023 PART 2 Assessing the Quality, Efficiency, and Effectiveness of Public Spending in Education 24 Uganda Economic Update| December, 2023 Students at a Secondary School enjoying playtime during their lunch break. Derrick Ssenyonyi, 2023. 25 Uganda Economic Update| December, 2023 38. With a young and growing population, Uganda has a one-time 41. According to the Human Capital Index (HCI), a Ugandan child opportunity to capture a demographic dividend. As improving born today will be only 38 percent as productive during his/her economic, health, and social conditions lower first mortality rates lifetime as he or she could have been with the right investments and then fertility rates, countries pass through a brief window in in human capital.15 The HCI combines health indicators such as which the size of the working-age population (ages 15-64) far exceeds the child survival rate, the stunting rate, and the adult survival the dependent population of children and the elderly. During this rate with education indicators such as average years of schooling demographic transition, a country can leverage its changing age and average learning levels. Based on international evidence, structure to accelerate growth, but only if its workers can realize these indicators can be used to estimate the productivity of future their productive potential. Many of the world’s emerging and workers against a benchmark of complete education and full health. advanced economies—including the “East Asian tigers”—experienced Uganda ranked 154th out of 174 economies on the 2020 HCI, and its demographic dividends between the 1970s and the early 2000s. performance was close to the averages for SSA and low-income Uganda is currently a “pre-dividend” country, meaning that today’s countries worldwide. Uganda’s HCI score was below that of Kenya children will be the working-age population during the country’s (0.55) but similar to those of its East African neighbors, including demographic transition.10 Rwanda (0.38), Tanzania (0.39), and Ethiopia (0.38). The HCI factors in expected years of schooling and Learning Adjusted Years of 39. However, the demographic dividend is not guaranteed. To ensure Schooling (LAYS), which takes account of what children learn as that Uganda reaps a demographic dividend, the government must measured by internationally benchmarked assessments. Ugandan invest in human capital. Human capital refers to the combination of children can expect to complete 6.8 years of pre-primary, primary “knowledge, skills, and health that people invest in and accumulate and secondary school by age 18. However, in terms of LAYS, this is throughout their lives, enabling them to realize their potential as only equivalent to 4.3 years – a learning gap of 2.5 years. productive members of society.”11 Countries that moved from low to high-income status in a matter of decades, such as Singapore 42. The government has committed to improving human capital and the Republic of Korea, invested heavily in education and through the third National Development Plan (NDP III), but the health during their dividend window.12 The decisions the Ugandan country is not on track to achieve its goals. NDP III set ambitious government makes now about its human capital investments will targets, aiming to increase average years of schooling to 11 years determine whether the country seizes, or misses, the opportunity and LAYS to 7 years while also boosting the ratio of science and presented by the demographic dividend. technology graduates to arts graduates and increasing employer satisfaction with skills-training programs. However, the NDP III’s 40. Quality education is essential to human capital formation, Mid-Term Review found that the country is not likely to achieve innovation, and growth. The international literature highlights three these objectives.16 The 66 weeks of pandemic-related school closures mechanisms through which education affects economic growth: between March 2020 and January 2022 caused substantial learning i). by increasing workforce productivity; losses, especially for the most disadvantaged students. According ii). by boosting the innovative capacity of the economy; and to national assessments, the percentage of students rated proficient in English literacy dropped from 32 percent in 2018 to 27 percent iii). by accelerating the creation, uptake, and diffusion of knowledge in 2021, and the proficiency rate for numeracy dropped from 55 and modern technologies.13 percent to 41 percent.17 While access to school and educational attainment both matter for growth, educational attainment has a greater impact. Cross- 43. Uganda joined other African countries in making bold new country data show that increasing access to school and improving commitments to human capital development through the Dar basic literacy and numeracy boost a country’s future GDP growth. es Salaam Declaration. On July 26, 2023, Her Excellency Jessica However, improving learning alone yields higher returns than Alupo, Vice President of the Republic of Uganda, joined heads improving access alone, and the highest benefits come from universal of state and their representatives from 44 African countries to access and universal basic skills, with the lowest-income countries ratify the Declaration at the Africa Heads of State Human Capital gaining the most.14 Summit. Through the Declaration, Uganda and other countries jointly committed to achieve several concrete targets for education, 10 UNICEF, 2020 11 World Bank’s definition. For details and country data see https://www.worldbank.org/en/publication/human-capital 12 OECD, 2010 13 Hanushek & Woessmann, 2010; Mankiw, Romer, & Weil, 1992; Lucas, 1988; Benhabib and Spiegel, 1994 14 Hanushek & Woessmann, 2021 15 For definition and methodology see https://www.worldbank.org/en/publication/human-capital 16 NPA, 2023 17 UNEB, 2021 26 Uganda Economic Update| December, 2023 The main school library of a tertiary institution in Kampala, Uganda. Derrick Ssenyonyi, 2023. health, and social protection by 2030. These include increasing P1 level, mainly due to poorly prepared learners entering the the accessibility, affordability, and quality of education; reducing system without access to quality early childhood education. learning poverty by at least 25 percent; boosting literacy rates to ii). Public spending on education has been consistently low by the at least 75 percent; increasing access to secondary and tertiary standards of comparable countries and is not consistent with education among adolescent girls; providing training on digital skills; Uganda’s population growth rate or development aspirations. and increasing domestic investment in human capital by 3 percent. Low and inefficient public spending on education contribute to 44. This special focus section reviews public spending on education low and inequitable access, as well as poor learning outcomes. in Uganda and provides recommendations to enable the country iii). Households finance the majority of spending on education, to achieve its human capital and development goals. This section which contributes to inequitable access. Private schools play builds on a recent Public Expenditure Review (PER) undertaken an important role in the education sector, but even students by the World Bank and Uganda’s Ministry of Finance, Planning, attending government schools face high out-of-pocket costs. and Economic Development. While focusing on basic education Among those who drop out of primary or secondary school, this section will also discuss other levels of education – including most do so for cost-related reasons. Business, Technical and Vocational Education and Training (BTVET) iv). Public spending on education is pro-poor at the primary level and tertiary education – when relevant to understanding system- but becomes increasingly regressive at higher levels. wide issues. The analysis also explores the overall adequacy, efficiency, effectiveness, and equity of public spending across the v). Challenges with the efficiency, effectiveness and equity of education sector. The analysis reveals that: education spending are interrelated, and there are opportunities i). Most Ugandan children enroll in primary education, but completion to make progress on multiple objectives through greater rates are low, and most children do not master basic literacy investments in early childhood education, teacher preparedness and numeracy skills. Grade repetition is high, especially at the and motivation, and interventions to increase participation and reduce dropout. 27 Uganda Economic Update| December, 2023 2.1 Structure and Governance 45. Uganda’s formal education system encompasses pre-primary, (P1-P7), serving children ages 6-12. At the secondary level, students primary, secondary, and tertiary education. As stipulated in have two options: general secondary education (O-level and the 2008 Education Act, pre-primary education (ages 2-5) is the A-level) or vocational and technical education (BTVET institutions). responsibility of the private sector, while the government retains Vocational education can take place at secondary, post-secondary a role in regulation, quality assurance, and teacher training. The and tertiary levels. Primary school graduates can also opt to enter primary level is free and compulsory and consists of seven grades four-year teacher training colleges (Figure 8). Figure 8: The Structure and Organization of the Uganda´s Formal Education System. Source: UNESCO-IBE (2012) 46. A student’s progression through the various levels of education Among African countries, Uganda was an early adopter of free depends on his or her performance on national learning assessments. primary education, passing the Universal Primary Education (UPE) National examinations are designed for certification and selection. policy in 1997. Primary enrollment increased from 2.6 million in The Primary Leaving Examination (PLE) is a mandatory examination 1995 to 8.7 million by 2017. Although in practice the UPE policy did that certifies completion of primary education and determines not eliminate school fees or other out-of-pocket costs borne by progression into O-level or lower secondary education. At the end households, it increased educational attainment, improved child of O-level, students sit for the Uganda Certificate of Education (UCE) health, and enhanced employment outcomes and future earnings.18 examination. Only UCE holders are eligible for A-level or upper To consolidate the gains from the UPE policy and expand equitable secondary education. At the end of upper secondary education, access to secondary education, in 2007 the government introduced students sit for the Uganda Advanced Certificate of Education the Universal Post Primary Education & Training (UPPET) program, (UACE) examination, their performance on which determines their commonly known as Universal Secondary Education (USE). In 2019, eligibility for university education. Uganda hosted an estimated 1.27 million refugees and asylum seekers, the most of any country in Africa, and its progressive 47. Uganda has a history of progressive and inclusive education policy framework provides for free access to education and training policies. The right to education is guaranteed in the Constitution. for refugees. 18 Keats, 2018 28 Uganda Economic Update| December, 2023 Table 4. Distribution of School Attendance by Education Level and School Type, 2019/20 (%) Post-Primary Post-Sec- Pre-Primary Primary Secondary School Type/ Education Level Vocational ondary and Total Education Education Education Education above Government 20 62 43 20 45 53 Private 76 36 55 73 51 45 NGO /Religious/ Other 3 1 2 7 4 2 Number of students 2,360,102 10,647,073 2,216,000 152,004 289,135 15,587,730 Source: World Bank based on the Uganda National Household Survey 2019/20. 48. Students in Uganda are significantly more likely to attend special needs; and technical and vocational education.20 During private institutions than are their counterparts in peer countries. FY2022, local governments executed 94 percent of the national During 2019/20 school year, about 62 percent of primary students education budget for primary education and about 95 percent of attended government-supported institutions, well below the average the national budget for secondary education. The national budget is of 92 percent for Ethiopia, Kenya, Rwanda, and Tanzania.19 At the the main source of revenue for local government, and its resources secondary level, nearly 43 percent of student attended government- are provided through unconditional transfers, conditional transfers, supported institutions, almost half the regional average of 85 and equalization grants. Unconditional transfers are designed to percent. Among pre-primary-aged children, public schools account provide the minimum funding needed for local governments to for 20 percent of attendance, far below the regional average of supply decentralized services. Conditional transfers finance specific 76 percent (Table 4). Since pre-primary education is not formally programs, and the funds must be utilized for specific purposes provided in government schools, the 20 percent enrollment in according to conditions agreed upon between the central and local government-supported schools likely represents the underage governments. Equalization grants provide additional funds to the enrollment of pre-primary-aged children in primary schools. MoES least-developed districts. Locally mobilized revenues make up less has undertaken initiatives to leverage higher-performing private than 1 percent of the approved budgets of local governments. The schools to help improve government schools, including school government has allowed local governments greater autonomy twinning with mentoring for school leaders, as well including over expenditure decisions, but some aspects of education services private schools in quality enhancement projects. have not been fully devolved. During FY2022, the MoES executed 57 percent of the national education budget, while the Uganda 49. Most education spending is decentralized through local National Examinations Board executed 21 percent. governments. Decentralization in Uganda began in 1986 with the aim of promoting participation in the democratic process and 51. Uganda has made progress toward developing a private-sector- improving public service delivery. Uganda’s 1995 Constitution and 1997 led BTVET system. With support from the World Bank and other Local Government Act specified the devolution of functions. During development partners, the government is implementing the Skilling FY2022, about 20 percent of education spending was executed by Uganda Strategic Plan, which includes the formation of private- central government agencies such as the Ministry of Education and sector-led skills councils and reforms to enhance the capacity of Sports (MoES) and the Kampala Capital City Authority, 24 percent BTVET institutions to deliver high-quality, demand-driven training by universities, and 56 percent by local governments. programs in the agriculture, construction, and manufacturing sectors. The government and the Private Sector Foundation of 50. Pre-primary, primary, and secondary education are mainly Uganda (PSFU) have launched an innovative Skills Development provided by local governments. According to the Local Government Facility (SDF) that fosters collaboration between training providers Act, district and municipal councils are responsible for providing pre- and employers to develop market-relevant skills. primary; primary; secondary; science, technology, and innovation; 19 Calculations based on UNESCO UIS (2021). 20 MoES, 2021 29 Uganda Economic Update| December, 2023 2.2 Key Education Outcomes 52. Uganda has made significant progress toward its goal of to high rates of grade repetition, which further undermine the ensuring universal primary education, but secondary enrollment efficiency of primary education. In the 2019/20 school year, about rates continue to lag. In 2019, the gross attendance ratio (GAR) 18 percent of P1 students were repeaters, and repetition rates were for primary education stood at 123 percent, above the levels of far higher in public schools (26 percent) than in private schools other East African countries. A GAR over 100 percent reflects both (7 percent). Grade repetition in P1 is especially common among near-universal access to primary education and a sizable share of the most socioeconomically vulnerable children, including those children attending primary school despite being outside the official in the poorest income quintile (27 percent) and those living in the age range. In 2019, the GAR21 for secondary education stood at 39 northern parts of the country (29 percent). Research indicates that percent, compared to 49 percent among regional peers (Figure these patterns largely reflect differences in access to pre-primary 9). Estimates based on official administrative data rather than education, which is crucial to enable children to arrive at primary household self-reports, which are less up-to-date than the GAR,22 school ready to learn.24 reveal that enrollment in secondary education increase by only two 54. Only 60 percent of children who start primary education in percentage points between 2007 and 2016 despite the introduction Uganda remain in school at the end of P7, and cost is the most of the USE policy. The lack of progress in increasing secondary common barrier to education.25 Just 17 percent of young adults enrollment is likely due to rapid population growth, insufficient between the ages of 25 and 34 have completed at least one grade infrastructure, and social factors such as early marriage. In 2019, at the secondary level, while 52 percent left school during the enrollment rates at the pre-primary level lagged those of Kenya primary level. Among that group, “no funding” and “too expensive” and other regional peers. are the two most-cited reasons for leaving primary education, and 53. A combination of late enrollment and high repetition undermines both become increasingly relevant at higher primary grade levels26. the efficiency and quality of primary education. About one-third Poor academic performance and discouragement were also cited, of P1 students are overage,23 which means they entered primary especially among boys and those leaving school in early grades, education at age 8 or above instead of 6-7. Late entry contributes to while pregnancy is a major barrier for girls in the later primary overcrowded classrooms and increases pressure on limited learning years (Table 5). The COVID-19 pandemic exacerbated the problem resources in the early primary grades. These conditions contribute of teenage pregnancy. Figure 9. Gross Enrollment Rates, 2019 (%) Note: The gross attendance ratio (GAR) for Uganda, based on the National Household Survey 2019/20. Source: UNESCO 2023, Uganda National Household Survey 2019/20, and Cerdan-Infantes & De Andrade Falcao, 2022 21 The gross attendance ratio (GAR) is the total number of students attending primary school, regardless of age, expressed as a percentage of the official primary school-age population. It is based on household survey data. 22 Uganda is in the process of rolling out a new Education Management Information System (EMIS) which, when fully functional, will enable more precise computation of official enrollment rates. 23 Excluding repeaters. World Bank calculations based on Uganda National Household Survey, 2019/20. 24 Weatherholt et al, 2018 25 UBOS, 2022. 26 The metadata of the household surveys does not offer a clear differentiation between “No funding” and “Too expensive”. 30 Uganda Economic Update| December, 2023 Table 5. Distribution of Reasons Cited for Leaving Primary Education by Grade and Gender, 2019/20 (%) Note: Each column totals 100%. Source: World Bank based on Uganda National Household Survey, 2019/20 56. Uganda’s education system is not effectively teaching basic meet proficiency standards in English literacy, and 39 percent skills to most students. Despite the country’s remarkable progress meet proficiency standards in mathematics. Moreover, proficiency in increasing primary enrollment rates, most students do not leave rates in both subjects have declined in the wake of the pandemic. the system with basic competencies in literacy and numeracy. An Early Grade Reading Assessment administered in 2022 found According to the most recent results of the National Assessment that most P2 students cannot read a single word in their local of Progress in Education (NAPE),27 only 52 percent of P7 students language (Figure 10). Figure 10. Early Grade Reading Assessment Results by Local Language, 2022 Source: USAID. “Learning Recovery in Primary Schools in Uganda.” PowerPoint presentation, 6 December 2022. 27 The NAPE is administered by the Uganda National Examinations Board. It has assessed Grade 3 and Grade 6 (ISCED 1) students since 1996 and started assessing Grade 9 (ISCED 2) students in 2008. It includes students in public and private schools. 31 Uganda Economic Update| December, 2023 Administration block of a Vocational Training College in Uganda. Derrick Ssenyonyi, 2023. 57. Uganda’s young and growing workforce faces immense skilling in higher education and training, enrollment rates for STEM programs needs. Uganda’s labor market is characterized by high levels of remain well short of the targets set in the NDP III. For example, the vulnerable employment in agriculture and informal services. ratio of science to humanities courses is 2:5, while the target ratio is Employers across the formal and informal sectors cite the lack of 3:5.30 This disparity can hinder the development of a skilled workforce managerial, entrepreneurial, socio-emotional, technical, digital, capable of driving technological innovation and industrialization and practical skills as key constraints to productivity. 28 Nearly (NPA, 2022). half of the 10.5 million young people between the ages of 15 and 59. Refugees in Uganda face additional obstacles, including costs 29 require skills training to participate fully in the economy, and and language barriers, that discourage enrollment and contribute projections indicate a rising demand for entry-level and mid-level to high dropout rates at all education levels. Financial barriers BTVET skills to support industrialization and structural economic are particularly severe among refugees, who are about 33 percent transformation. Despite these opportunities, enrollment in BTVET more likely to cite financial problems as the reason for dropping programs is hindered by high tuition costs and other fees, academic out than Ugandans. Language barriers create additional learning entry requirements, and negative attitudes toward BTVET training. difficulties for refugees, as many come to Uganda speaking a wide Furthermore, inadequate career guidance in secondary schools, variety of native languages but little or no English. Many refugee limited career paths for BTVET graduates, and insufficient integration children are already past the typical school-entry age when they with industry hinder the attractiveness of BTVET programs. Limited arrive in hosting communities. In certain areas, the long distances access to startup capital, equipment, and markets exacerbates that children must travel to reach schools make the situation even the challenges faced by aspiring BTVET learners.29 Gender gaps in more challenging. Morevoer, long distances to secondary schools BTVET are severe, with female trainees representing 36 percent raises concerns about the purpose of attending primary school of enrollment. when further education opportunities are limited. According to 58. 58. Low enrollment rates in science, technology, engineering, the Education Response Plan for Refugees and Host Communities and mathematics (STEM) programs in Ugandan universities hinder in Uganda (ERP II), 88 percent of secondary-age refugee children the development of a skilled workforce capable of supporting are not in school, and only 8 percent of refugees have received technological innovation and industrialization. Despite advancements vocational education or skills training. 28 Uganda Skills Needs Assessment, 2020 29 NPA, 2022 30 Ibid. 31 This figure includes allocations to the education sector through the Human Capital Development Program and does not include education and skills strategies under other NDP III programs. However, the MoES is responsible for regulating, supporting, guiding, and coordinating all educational institutions in Uganda, and any other education programs are likely informal. 32 MoFPED, 2022 33 See UNESCO Institute for Statistics (UIS), 2022. The Education 2030 Framework for Action aims to advance progress on the Sustainable Development Goal for education and its targets. The framework urges adherence to benchmarks established in the Addis Ababa Action Agenda of the Third International Conference on Financing for Development, which include allocating at least 4-6 percent of GDP and/or 15-20 percent of total public spending to education. https://unesdoc.unesco. org/ark:/48223/pf0000245656. As a member of the United Nations, Uganda is party to all conventions, resolutions, and commitments to sustainable development. https://unesco-uganda.ug/wp-content/uploads/2022/10/Uganda-National-Education-for-Sustainable-Development-2030-Framework.pdf 32 Uganda Economic Update| December, 2023 2.3 Analysis of Public Spending on Education 2.3.1 Adequacy 60. Uganda’s education spending is well below the levels of most 61. Public education spending per student at the primary, secondary, East African countries and international comparator groups. The and tertiary levels is consistently below the regional average. As education budget is primarily financed through domestic resources. a share of GDP per capita, the per-student government expenditure In FY2022, public education spending from the national budget across all levels of education are below the regional average, totaled UGX 3,629 billion,31 while development partners contributed including tertiary education. Uganda spends the equivalent of 3 UGX 83 billion.32 Local governments are encouraged to top off percent of per capita GDP at the primary level, far below the regional transfers from the central government with locally mobilized average of 9 percent. Public spending per student at the secondary resources, but these revenues represent a small fraction of the level is equal to 10 percent of GDP per capita, also well below the consolidated budget. Public education spending equaled 2.7 of GDP regional average of 19 percent. Even at the tertiary level, where in 2021, far below both the 4.2 percent average for selected East costs are high across the region, spending per student in Uganda African countries and the 4 percent minimum level recommended is equal to just 63 percent of per capita GDP, whereas the regional by the Education 2030 Framework for Action (Figure 11).33 Education average is 98 percent (Figure 13). spending represented 11.3 percent of total government spending in 2021, also the lowest level among regional peers and below the Education 2030 benchmark of 15 percent (Figure 12). Figure 11. Public Spending on Education as a Share of GDP, 2018 Figure 12. Public Spending on Education as a Share of Total or Latest Available Year Government Spending, 2018 or Latest Available Year Source: UNESCO UIS (2022) Source: UNESCO UIS (2022) Figure 13. Public Education Spending per Student as a Share of GDP per Capita, Latest Available Year Source: UNESCO UIS (2022) 33 Uganda Economic Update| December, 2023 62. Primary education receives the largest amount of total public 63. Public education spending has grown over the past decade, funding, but the second-largest amount goes to tertiary education, driven by an increase in expenditures on higher education. Between which tends to benefit students from better-off households. Primary FY2011 and FY2022, domestically financed public education spending education accounts for the largest share of domestically financed rose by 76 percent in real terms—an average annual increase of education spending (36 percent), followed by higher education (25 6.9 percent. About 43 percent of these additional resources were percent), secondary education (20 percent), and BTVET (6 percent). directed to tertiary education, especially to finance the establishment High levels of public spending on higher education raise equity of new universities in sub-regions without them. Another 24 percent concerns, as students from wealthier households are more likely to of expenditures were not classified by education level (Figure be enrolled at the tertiary level (Figure 14a). Indeed, expenditures 14b).34 As a result, average spending per student has risen at the on higher education are the most regressive of any level. tertiary level while declining at the primary and secondary levels (Figure 15).35 Figure 14. Public Spending by Education Level a) Percentage distribution b) Expenditures in 2021 prices (millions) 100% 3% 5% 7% 12% 11% 12% 80% 5% 22% 10% 25% 23% 7% 60% 22% 6% 17% 20% 40% 57% 51% 20% 47% 36% 0% 2010/112 014/15 2018/192 021/22 Skills Development Note: Domestic funding only; excludes external financing and arrears Source: World Bank based on Annual Budget Performance Reports from the Ministry of Finance Figure 15. Public Spending per Student by Education Level, 2010/11 – 2021/22 Note: Enrollment in 2018 and 2021 was projected using 2011-2016 trend. Source: World Bank based on Annual Budget Performance Reports from the Ministry of Finance and MoES fact sheets and the 2020 school census. 34 Expenses not classified by level of education include resources to support national policies and programs under central agencies such as the MoES, the Uganda National Examinations Board, the Kampala Capital City Authority, the National Curriculum Development Centre, and the Education Service Commission. 35 This report follows the methodology for calculating expenditures per student established by UNESCO, which facilitates cross-country comparisons. A recent report by MoES using a different methodology found higher expenditures per student, though spending was still low at the primary level. These methodological issues are discussed in the full PER. 34 Uganda Economic Update| December, 2023 64. Wages account for the largest share of public spending on not all teachers at the primary level currently have a university education, but Ugandan teachers are not well compensated degree, teacher compensation will be an important consideration relative to comparably educated workers. Over most of the past as Uganda moves toward requiring all pre-primary and primary decade, wages represented about 62 percent of the total education teachers to have a degree under the 2019 Teachers Policy. Raising spending, above the regional average of 49 percent. At the primary teacher salaries without implementing other reforms to increase and secondary levels, wages account for 79 percent and 58 percent professionalism and accountability will likely have little or no impact of expenditures, respectively. However, salaries for teachers with a on learning, but compensation is an important incentive that the university degree are 37-42 percent lower than the national average government can use to attract the best candidates into teaching. salaries for other professionals (Figure 16 and Figure 17). While 65. Complementary investments in infrastructure, materials, and Figure 16. Ratio of Teacher Salaries to Earnings of Similarly teacher training are also crucial to improve learning outcomes but Educated Workers by Highest Degree Completed and Age Group, have not kept pace with increases in enrollment. Uganda’s non- 2019/20 wage recurrent expenditures, which finance items that enhance learning such as textbooks and other teaching materials, are lower than in peer countries.37 Capital expenditures have increased but remain inadequate to address the country’s severe infrastructure challenges. Capital expenditures now average 14 percent of total domestic and external education spending, with a sharp increase after 2018. Nevertheless, an uptick in classroom construction has not kept pace with the vast increase in enrollment. At the primary level, the average pupil-to-school ratio has steadily increased, rising from 582 in FY2018 to 690 in FY2022, with the fastest growth observed in local government that already had a relatively high ratio. At the secondary level, access indicators performed slightly better than at the primary level until FY2021, as many donor-funded projects have focused on secondary-school construction. Meanwhile, about 26 percent of the existing primary-school classrooms are still in temporary structures.36 66. Private spending on education is high, as Ugandan households spend more on education than the government does. In 2019/20, private spending on education amounted to 3.2 percent of GDP, well Figure 17. Ratio of Teacher Salaries to Earnings of University above the historical average of 2.2 percent for public spending. In Educated Workers by Level of Instruction, 2019/20 (25-64 Years other words, for every UGX 1,000 the government spends on education, Old) households spend UGX 1,450. Private spending on education in Uganda exceeds the global average of 1.9 percent of GDP and the levels of regional peers such as Ethiopia (0.3 percent) and Tanzania (1.4 percent).40 For years, public spending on education has barely kept pace with the growth of the school-age population, which likely compelled households to spend more of their own resources.41 67. Household spending per student is high, especially at the secondary and post-secondary levels. Even among students attending government-funded schools, the transition from primary to secondary education often imposes a high cost on households. On average, the cost per student in lower secondary education is nine times the cost in primary education. Household spending per student on post-primary vocational education and post-secondary education is even higher in government-funded schools than in private schools (Figure 18). As a result, households may struggle financially to keep children in school, especially those with many children and with students in advanced levels. Source: World Bank based on Uganda National Household Survey, 2019/20 (median salaries for teachers and similarly professionals had the same trend before and during COVID.) 36 Béteille and Evans, 2019 37 See PER for a detailed presentation. 38 ODI, 2022 39 Annual School Census, 2020 40 UNESCO, 2022 (https://www.education-progress.org/en/articles/finance) 41 NPA, 2018 35 Uganda Economic Update| December, 2023 Figure 18. Composition of Household Spending on Education by Level of Education and Type of School, 2019/20 Note: *including contribution to school development fund **e.g., swimming, sports, school trips, pocket money, coaching etc. This figure includes the whole sample (pre-and during COVID-19). Source: World Bank based in Uganda National Household Survey 2019/20. 68. Despite the public resources devoted to the UPE and USE 69. The government must substantially increase education spending policies, households still pay school fees in government-funded to cope with population growth and meet its goals for education schools. Household expenditures include direct payment to quality and accessibility. Based on middle-range assumptions for schools and spending on goods and services required for school population growth, Uganda’s primary-age population is projected attendance. Although households should not have to pay tuition to grow from 9.4 million in 2020 to 12.9 million in 2040, while its fees at government-funded primary schools, such fees remain secondary-age population expands from 6.6 million to 10.6 million. common, and they represent a large share of household education Even under a “business as usual” scenario, in which the system merely spending at all levels of the school system. Books and school keeps pace with population growth, Uganda will need 48,000 more supplies are the second-largest category of household spending, primary teachers, 35,000 more primary classrooms, and 6.2 million followed by “expenses that cannot be broken down.”42 Uniforms more primary textbooks over that period. Maintaining “business as and sports clothes, pocket money, and exam fees are the next usual” education indicators would cost an additional US$89 million largest categories. Boarding expenses represent the smallest at the primary level and US$50 million at the secondary level each share of household spending, except among students attending year. Under an “expansion with quality” scenario, which assumes government-funded post-primary vocational schools. that increased investments improve access and quality in line with the Education Sector Strategic Plan, total education spending would need to increase by more than US$1.1 billion by 2040.43 42 The survey instruments do not make clear which items are included in “expenses that cannot be broken down.” This category may include school meals, but it may also include payments to a provider (teacher, examiner, etc.) for the delivery of a service that should be free—i.e., bribes. Motivations for bribe-paying in public education may include obtaining good grades, securing a place for a student, or passing a test (Fazekas et al 2021). These expenses may also include extra lessons provided by teachers at a cost outside of school hours, which can have a negative impact on teachers’ performance during the school day. 43 World Bank 2021 36 Uganda Economic Update| December, 2023 2.3.2 Efficiency 70. While increased spending on education is urgently needed, development and with similar spending levels (Figure 19). When more could be achieved with current resources through efficiency GDP per capita, education spending, and the share of the population improvements. Greater efficiency requires that funding be directed aged 24 and below are accounted for, LAYS in Uganda are 11 percent to the areas where it can produce the greatest value for money.44 below what would be expected. However, the scope for efficiency Uganda and most of its regional peers, except Kenya,45 have LAYS gains is even much higher, as this comparison is with the average below the average for countries at similar levels of economic country, not the efficiency frontier. Figure 19. Learning Adjusted Years of School by GDP per Capita and Education Spending, 2020 a) LAYS vs GPD per capita 14 12 10 Learning-Adjusted Years of School Kenya 8 6 Tanzania Ethiopia 4 Uganda Rwanda 2 0 0 2 4 6 8 10 12 Expenditure on Educa on as a share of GDP (Average 10 years) b) LAYS vs Education Spending Source: World Bank based on Human Capital project (HCP) and World Development Indicators (2022) 44 OECD, 2017a 45 In the past two decades, Kenya implemented policies to ensure that education is free for everyone, leading to a remarkable rise in enrollment rates. The Free Primary Education policy, introduced in 2003, encompasses the pre-primary level. In 2018, Kenya also abolished tuition fees for secondary schools. The government has since initiated new reforms designed to enhance education quality, which include introducing a competency-based curriculum, reforming teacher management and development, increasing the accessibility of textbooks, infrastructure, and other school resources, strengthening school management structures, and gradually decentralizing management in the Ministry of Education and the Teachers Service Commission to the county and sub-county levels (Cerdan-Infantes and De Andrade 2022). 37 Uganda Economic Update| December, 2023 71. At the primary level, efficiency could be improved by investing STRs: some districts have over 100 primary students per teacher, more in pre-primary education. Indeed, such a policy would likely while others have fewer than 30 (Figure 20). A similar pattern is pay for itself over the medium term. RTI Uganda Early Years Study evident at the secondary level (Figure 21). Some districts have an suggests that actual repetition rates may be even higher than acute deficit of teachers in almost all their schools, while other those reported in official statistics and that students who did not districts have a surplus, and in some the existing teachers could attend pre-primary were 3.8 times as likely to repeat a grade as be reallocated across schools. Nationwide, 47 percent of schools students who did. The RTI study finds that these inefficiencies cost have a deficit of teachers, while 37 percent have a surplus.46 While the government US$177 million per year. In addition, the RTI model recruiting and retaining teachers is typically more of a challenge in projects that investments in pre-primary education, combined rural areas, due in part to limited resources and opportunities for with qualitative improvements in primary education, could pay for families, there is little relationship between district populations and themselves in 12 years by reducing repetition rates. STRs. Disparities across districts likely result from the allocation of wage grants to local governments “on the basis of a bargaining 72. Teachers are not distributed efficiently across or within districts. process with little transparency between the central government In government-funded schools, the average student-teacher ratio and local governments.”47 The inefficient distribution of teachers (STR) at the primary level is 53, which is consistent with national also raises equity concerns on public spending. standards. However, both at the primary and secondary levels, districts with a similar number of students have different average Figure 20. Number of Students per Teacher and Total Number Figure 21. Number of Students per Teacher and Total Number of of Students in Government-Funded Primary Schools by District, Students in Government-Funded Secondary Schools by District, 2020/21 2020/21 Source: School census, 2020 (September 30th) 46 Weatherholt et al, 2018 47 Refer to the PER for a more detailed analysis. 48 Fraser and Lockheed, 2021 38 Uganda Economic Update| December, 2023 and Mityana Districts found that absence rates of 25 percent are a social expectation among teachers and that interventions such as structured meetings where teachers deliberate on the importance of attendance can help change norms and reduce absenteeism.51 74 Corruption and persistent problems with “ghost accounts” are important sources of efficiency losses. An empirical study aimed at estimating the cost and extent of corruption in Uganda’s education sector exposed various practices that reduce the impact of public spending, including the payment of bribes to education providers for the delivery of a service that should be free (UGX 39.1 billion), the diversion of funds or supplies intended for public education (UGX 244.6 billion), and the employment of unqualified teachers (UGX 16 billion), among others.52 Eliminating these practices could yield an annual savings of nearly UGX 299.7 billion, equal to about 10 percent of total government education spending in 2019. In addition, an estimated UGX 50 billion is lost each year to “ghost accounts,” which refer to schools and teachers that receive payments but do not exist, are duplicates, or are not providing services. 75. The lack of a sustainable, accountable, and efficient education management information system (EMIS) inhibits efforts to enhance service delivery. Currently, Uganda’s EMIS is being upgraded to track enrollment, dropout, and retention rates and to uniquely identify students, teachers, and institutions. The new system will be connected to the National Identification and Registration Authority (NIRA) database for all bioinformation, and all students will have identification numbers. The EMIS is linked to the Uganda National Examinations Board and other educational testing bodies to analyze performance, and it incorporates other variables such as infrastructure, instructional materials, nutrition, and water, Primary school pupils during their break time, Derrock Ssenyonyi, 2023 sanitation, and hygiene.53 An effective EMIS is necessary to support overall education management and can lead to greater student 73. Chronic teacher absenteeism compromises education quality achievement and a stronger education system. The implementation and reduces spending efficiency. Inefficiency of public spending can of unique identifiers for students, teachers, and schools is also be estimated by multiplying the average primary teacher salary by crucial to address the problem of “ghost accounts.” the number of teachers chronically absent from their classrooms. 76. School supervision is inadequate to enforce education standards According to the most recent Service Delivery Indicators Report and support the delivery of quality services. Both the Directorate for Uganda, 23.3 percent of public school teachers were absent of Education Standards at MoES and local governments are acutely from work and 52.3 percent were not teaching in the classroom underfunded and unable to ensure reliable school-level supervision. when the survey was conducted. In other words, 47.7 percent of In 2021/22, the budget for school inspections was UGX 112,000 public school teachers were not actively teaching at any given per primary school, but the minimum cost of such inspections time. 49 This indicates an efficiency loss of about UGX 449.5 billion was estimated at UGX 152,292 in 2018. Finally, under the Teacher in FY2019, representing 12 percent of the total public education Development and Management System, Uganda is divided into 539 expenditure.50 More recent work has confirmed the scale of the Coordinating Centers, which are managed by Coordinating Center problem and identified means to address it. A 2023 government Tutors. These tutors are responsible for providing instructional report estimated losses from foregone instructional time at UGX 1.5 support to teachers in consultation with school leaders. However, trillion and noted the problem of “moonlighting,” where teachers many Coordinating Centers are understaffed, resulting in infrequent take on additional jobs to supplement their income. A study in Hoima classroom visits for most teachers. 49 Wane and Martin, 2016 50 In these calculations, only teachers in government-funded schools are considered. 51 Ferraz et al., 2023 52 Fazekas et al., 2021 53 MoFPED, 2022 39 Uganda Economic Update| December, 2023 2.3.3 Equity 77. Education opportunities in Uganda are closely linked with attendance rates are relatively high overall, but a significant gap students’ household income and place of residence, underscoring is still evident between attendance among students from the the extent to which public education spending does not compensate wealthiest households (88 percent) and the poorest households for socioeconomic disadvantages. Across all education levels, (72 percent). Disparities by household income level and place of school attendance rates are highest among children from better-off residence widen at the lower secondary level, while upper secondary households and those living in urban areas. Net attendance rates and higher education remain inaccessible to most students from for children ages 3-5 range from 57 percent among the wealthiest poor households and rural communities (Table 7). households to 17 percent among the poorest. At the primary level, Table 7. Net Attendance Rate by Population Group, 2019/20 Pre-Primary Primary Edu- Lower Second- Upper Second- Post-Secondary Education cation ary Education ary Education and Above Total 34 81 23 6 5 Female 33 82 26 6 5 Sex Male 35 79 21 6 6 Quintile 1 17 72 7 1 0 Quintile 2 28 79 15 2 1 Income quintiles Quintile 3 33 81 20 4 2 Quintile 4 44 86 34 6 4 Quintile 5 57 88 49 17 15 Rural 30 79 18 4 3 Urban Urban 50 85 40 11 11 Mountainous Mountainous 34 80 27 5 4 Areas Non-Mountainous 34 81 23 6 6 Central 54 82 39 13 9 Eastern 26 84 20 3 4 Region Northern 18 74 8 3 3 Western 38 81 24 5 4 Source: Ministry of Finance, Planning, and Economic Development 78. Overall, public spending on primary education and post-primary of enrollment in government-funded schools and the distribution vocational education is pro-poor, but it becomes regressive in of government subsidies as a proxy for public spending by income secondary education and very regressive in post-secondary quintile (Figure 22). Regressive expenditures cause the curve to education. Benefit incidence analysis is a method used to compare the bow downward, while progressive expenditures cause it to bow distribution of public expenditures to the distribution of household upward. In Uganda, public education spending is largely pro-poor income or wealth. Expenditures are categorized as either progressive, at the primary and post-primary vocational levels, but it becomes indicating that they disproportionately benefit poorer households, or increasingly regressive at higher levels of education. Public spending regressive, indicating that most of the benefits accrue to wealthier on lower and upper secondary education tends to benefit better- households. A Lorenz curve can show education expenditures at off students, while public spending on post-secondary education different levels based on household wealth, taking the distribution is highly regressive. 54 54 The regressivity of public spending in tertiary education is also common across most education systems in the world. Inequities in access to tertiary education is determined mostly by factors experienced earlier in life and at preceding levels of education. Most disadvantaged students are under-represented among those students who are eligible to access tertiary level. These include early school-leavers, students who opt for vocational tracks of secondary education which do not give direct access to tertiary education and students who do not meet the required qualifications (OECD 2022). 40 Uganda Economic Update| December, 2023 Figure 22. Lorenz Curve of Education Spending in Uganda, 2019/20 predictor of school attendance at the pre-primary, secondary, and post-secondary levels. However, the disparity is modest at the primary level, as primary education is closer to universal, and out-of-pocket costs are lower than at other levels. Overall, the poorest subregions, such as Acholi and Karamoja, also have the lowest levels of school attendance. Both subregions are located at the northern part of the country. The Karamoja subregion has the highest poverty rate in northern Uganda at 74 percent. The Acholi subregion has the second-highest poverty rate, followed by the West Nile subregion, which is also in the north (Figure 23)54. b) Primary Education Source: World Bank calculations based on Uganda National Panel Survey 2019/20 Note: The curve’s horizontal axis can be interpreted as an ordering of students from poorest to richest, while the curve’s height indicates the cumulative spending on students up to that point in the wealth distribution. Students benefiting from public investment either attend a public school or receive subsidies/ scholarship from the government. 79. Poverty rates are closely correlated with school attendance across all levels of education, but the link is weakest at the primary level. Within each subregion, poverty rates are a strong Figure 23. School Attendance and Poverty Rates by Subregion, 2019/20 a) Pre-Primary Education Source: World Bank based on Household Survey 2019/20 54 The regressivity of public spending in tertiary education is also common across most education systems in the world. Inequities in access to tertiary education is determined mostly by factors experienced earlier in life and at preceding levels of education. Most disadvantaged students are under-represented among those students who are eligible to access tertiary level. These include early school-leavers, students who opt for vocational tracks of secondary education which do not give direct access to tertiary education and students who do not meet the required qualifications (OECD 2022). 41 Uganda Economic Update| December, 2023 a) Pre-Primary Education b) Primary Education 80. Learning poverty, an indicator which covers both access and alone indicating that poorer regions suffer from lower education quality gaps, also correlates with poverty within subregions, even quality in addition to lower access.56 Addressing imbalances both in at the primary level.55 Subregional poverty rates explain most of education quality and access is crucial to narrow regional disparities the variation in learning poverty (Figure 24). Indeed, the poverty and increase socioeconomic prosperity across the country. rate is a better predictor of learning poverty than it is of access Figure 24. Learning Poverty in Primary Education and Poverty Level by Subregions, 2018/2019 a) Literacy b) Numeracy Note: Learning poverty is based on the share of students that do not meet the minimum level of proficiency in NAPE P6 Source: World Bank calculations based on P6 NAPE Results 2018 and Uganda National Household Survey 2019/20 55 The World Bank developed an index of learning poverty that combines the shares of children who are out of school, unable to read a simple text, or both. Figure 24 presents a version of this index using the share of students that do not meet the minimum level of proficiency in NAPE P6. However, the results cannot be directly compared with the World Bank indicator because the data on learning outcomes are from different sources, with varying thresholds for proficiency and age groups of students. 56 The amount of variation explained by poverty is summarized in the R-squared (R²), a statistical measure that represents the proportion of the variance in a dependent variable (education outcomes) that can be explained by an independent variable or variables in a regression model (poverty levels). R-squared ranges from 0 to 1, with a value of 0 indicating that none of the variance in the dependent variable is explained by the independent variables, and a value of 1 indicating that all of the variance in the dependent variable is explained by the independent variables. In general, a higher R-squared value indicates a better fit between the regression model and the data. 42 Uganda Economic Update| December, 2023 81. Uganda’s historically inequitable distribution of public spending uneven distribution of wages and nonwage expenditures, which has tended to reinforce patterns of poverty and disadvantage. In exacerbates disparities in access to high-quality education (Figure many countries, per capita education spending is significantly lower 27 and Figure 28). Resource allocation criteria have traditionally in poorer regions than in wealthier ones.57 In Uganda, poorer regions been input-based, following students, staffing and infrastructure, do not necessarily receive more public resources per student, yet which tend to be higher in better-off areas. The ongoing reform the instructional costs of disadvantaged students tend to be higher of intergovernmental fiscal transfers has helped address the (Figure 25 and Figure 26). The unbalanced distribution of teachers inequitable distribution of resources by incorporating parameters and per-pupil direct transfers to schools results in a similarly of need into the formulas for capitation grants. Figure 25. Per-Student UPE Grants and Poverty Rates by Figure 26. Per-Student USE Grants and Poverty Rates by Subregion, Subregion, 2020/21 2020/21 20000 80 19500 70 19000 60 18500 50 18000 40 17500 30 17000 20 16500 10 16000 0 Per-studentU PE Grant Poverty Source: World bank calculations based Uganda National Household Survey 2019/20 and MoFPED (Education IPF). 57 Al-Samarrai and Lewis, 2021 43 Uganda Economic Update| December, 2023 Figure 27. Learning Poverty in Literacy and Student-Teacher Figure 28. Learning Poverty and per-Student UPE Transfers, Ratios, Primary Education, 2020 Primary Education, 2020/21 80 80 Lango Busoga Lango 70 70 Busoga Bukedi Karamoja Acholi Toro Acholi Karamoja Bukedi Teso BugandaN orth Kigezi Teso Learning Poverty Literacy 60 West Nile Toro 60 West Nile Elgon Bunyoro Elgon Bunyoro Learning PovertY 50 Kigezi 50 BugandaN orth 40 BugandaS outh 40 BugandaS outh Ankole Ankole 30 30 20 20 10 10 0 0 17,000 17,500 18,000 18,500 19,000 19,500 20,000 01 02 03 04 05 06 07 08 0 Per-studentU PE transfer STR Source: World Bank calculations based on P6 NAPE Results 2018, Uganda National Household Survey 2019/20, school census 2020 and MoFPED (Education IPF). 82. Under the Ugandan Intergovernmental Fiscal Transfers (UgIFT) are required to recruit extra staff to reach the target by the end of program, the government has been working to address large the program. However, the extra staff needed to satisfy the national disparities in the availability of key staff across local governments, standards would exceed the available resources provided by UgIFT. but further efforts will be necessary. The UgIFT program aims to Therefore, the government will have to create additional fiscal improve both the adequacy and equity of wage-budget allocations space and introduce more sustainable mechanisms to encourage to local governments, enabling them to hire more teachers and an equitable distribution of teachers both between and within increase staffing to a minimum level. Staffing gaps among local districts. The UgIFT program also includes measures to strengthen governments were estimated to inform the minimum staffing the recruitment, deployment and management of teachers. requirements. Local governments with PTRs above the minimum 44 Uganda Economic Update| December, 2023 2.4 Recommendations 83. This section concludes with recommendations to address the digitization strategies such as the draft Digital Agenda Strategy cross-cutting issues of low, inequitable, and inefficient public in education (recommendation 4), and efforts to implement investment in education. Five high-level recommendations are compulsory free education for all (recommendation 5). presented with short-term, medium-term, and long-term actions. iii). Based on Uganda-specific and international evidence. The The selection of the recommendations and actions are based on recommendations draw from the 2023 PER, the World Bank’s the following criteria: 2021 study Tackling the Demographic Challenge in Uganda,59 i). Address the main challenges identified in the analysis. The table and GoU research cited throughout the Update. When relevant below maps the recommendations to the main challenges in it also draws on summaries of international evidence, including adequacy, efficiency, and equity. In most cases, actions address Evans and Beteille (2019) on teachers (Recommendation 3) more than one challenge. For example, implementation of pre- and the Global Evidence in Education Advisory Panel’s (GEEAP) primary education would address efficiency (by reducing early 2023 review of rigorous international evidence (in particular grade repetition and dropout) and equity (by ameliorating supporting actions 1c, 2b-c, and 5a).60 differences in readiness for school rooted in household ability iv). Sequenced for phased implementation and in recognition of to pay for privately provided pre-primary education). Uganda’s fiscal challenges in the short run. Given immediate ii). Aligned with the direction of Government of Uganda policy. fiscal constraints, the short-term actions focus on reversing The recommendations prioritize actions that align with NDP downward trends in per-student expenditures (1a), policy III priorities such as building primary schools in underserved and feasibility study (2a), relatively low-cost but high-impact areas (1c) and implementing EGR nationwide (3d), and project actions (3b, 5a), regulatory changes (3a) and fully implementing ideas such as piloting one year of government-financed pre- government initiatives in progress (4a). The medium- and primary education (2b). Other actions support key policies and long-term actions complement and support implementation strategies such as the 2019 Teachers Policy (recommendation 3), and scale-up of these early actions. Recommendation Related Challenges Actions Gradually increase education Adequacy Short term (1 year) s p e n d i n g to re f l e c t a n Efficiency 1a. Reverse the decline in per-student spending on basic education by ensuring the “expansion with quality” adequacy of grants s c e n a r i o , p r i o r i t i z i n g Equity basic education and skills Medium term (2-5 years) development over further 1b. Increase capitation grants to levels recommended by the National Planning Au- increases in tertiary thority and provide grants to schools awaiting grant aid education. 1c. Expand primary-level infrastructure in underserved areas to complement external- ly financed projects in secondary education 1d. Increase BTVET allocations and consider establishing a training fund to provide dedicated resources, e.g. through a levy Long term (5+ years) 1e. Ensure education expenditures are on a path to achieve the goals of the “expan- sion with quality” scenario by 2030 58 ODI, 2022 59 World Bank, 2021b. 60 Banerjee et al., 2023. 45 Uganda Economic Update| December, 2023 Recommendation Related Challenges Actions Introduce one year of Efficiency Short term (1 year) quality pre-primary Equity 2a. Conduct a policy review and feasibility study education provided through the public Medium term (2-5 years) education system. 2b. Pilot, evaluate, and begin to implement one year of pre-primary education, either directly in public schools or through public-private partnerships or subsidies Comprehensively reform Efficiency Short term (1 year) the teaching profession, Equity 3a. Adopt a more transparent and formula-based approach to allocate teachers, taking into consideration reduce variance in STRs across districts and subregions not only compensation and accountability but also 3b. Provide sufficient funding for CCTs support for teachers. Medium term (2-5 years) 3c. Gradually increase teacher salaries while strengthening merit-based recruiting and accountability measures (e.g., a probationary period) 3d. Ensure all pre-service and in-service training incorporates at least 50 percent hands-on practice, beginning with EGR 3e. Use technology to ensure frequent and coordinated classroom support visits Long term (5+ years) 3f. Align teacher salaries with those of workers with comparable education, experi- ence, and working hours Leverage technology to Efficiency Short term (1 year) reduce other inefficiencies Equity 4a. Roll out the revamped EMIS and strengthen the implementation of the Teacher in the system. Effectiveness and Learner Achievement (TELA) system Medium term (2-5 years) 4b. Ensure integration across data systems 4c. Use data to determine grant allocations, improve equity, and strengthen perfor- mance-based funding 4d. Use EMIS to pilot an early warning system to reduce dropout rates Take actions to reduce Adequacy Short term (1 year) the out-of-pocket costs Efficiency 5a. Pilot low-cost outreach and behavioral-change campaigns designed to encourage of education borne by enrollment and retention, including for pregnant girls households and other Equity barriers to participation. Medium term (2-5 years) 5b. Revisit the role of the Primary Learning Examination and deescalate the high- stakes examination culture 5c. Implement free and compulsory UPE and USE by providing adequate public sup- port for school functions currently financed by fee Source: World Bank based on the Uganda National Household Survey 2019/20. 46 Uganda Economic Update| December, 2023 References Abdul Latif Jameel Poverty Action Lab. 2013. Governance Review Paper: J-PAL Governance Initiative. Cambridge, MA: Massachusetts Institute of Technology. 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