UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 1 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment © 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. 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Photo credits: 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 PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Table of Contents LIST OF ACRONYMS AND ABBREVIATIONS.......................................................................................................................iii ACKNOWLEDGEMENTS....................................................................................................................................................vi EXECUTIVE SUMMARY.................................................................................................................................................... v 1. INTRODUCTION.......................................................................................................................................................... 2 1.1. BACKGROUND...............................................................................................................................................................................................2 1.2. EVOLUTION OF FISCAL POLICY MANAGEMENT..........................................................................................................................................2 1.3. DRIVERS OF PUBLIC INVESTMENT..............................................................................................................................................................7 2. ASSESSMENT OF THE PUBLIC INVESTMENT MANAGEMENT SYSTEM........................................................................... 9 2.1. KEY MILESTONES IN IMPLEMENTATION OF PIM REFORMS.....................................................................................................................9 2.2. PERSISTENT PROJECT IMPLEMENTATION PROBLEMS.............................................................................................................................11 2.3. ALIGNING PROJECT IMPLEMENTATION CHALLENGES TO THE PUBLIC INVESTMENT MANAGEMENT CYCLE....................................... 13 3. SUMMARY CONCLUSION AND RECOMMENDATIONS................................................................................................... 28 REFERENCES.................................................................................................................................................................. 35 ANNEXES....................................................................................................................................................................... 36 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 iii Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment List of Abbreviations AEC Architecture, Engineering and Construction BD Budget Department BMAU Budget Monitoring and Accountability Unit BIM Building Information Modelling CAPEX Capital Expenditure CBA Cost Benefit Analysis DC Development Committee EGP e-Government Procurement System GAPR Government Annual Performance Reports GDP Gross Domestic Product GoU Government of Uganda IBP Integrated Bank of Project KCCA Kampala Capital City Authority KPIs Key Performance Indicators LG Local Government LIDC Low Income Developing Countries MDAs & LGs Ministries, Departments, Agencies and Local Governments MoFPED Ministry of Finance, Planning, and Economic Development MoWE Ministry of Water and Environment NDP National Development Plan NPA National Planning Authority MDA Ministries, Departments and Agencies M&E Monitoring and Evaluation MLHUD Ministry of Land, Housing and Urban Development MOU Memorandum of Understanding MTEF Medium Term Expenditure Framework MTP Medium Term Plan iv UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment NPA National Planning Authority OAG Office of Auditor General O&M Operations and Maintenance OP Office of the President OPEX Operational Expenditure OPM Office of the Prime Minister PAP Project and Public Investment Department PCN Project Concept Note PEFA Public Expenditure Financial Accountability PER Public Expenditure Review PFMA Public Finance Management Act PIM Public Investment Management PIMA Public Investment Management Assessment PIMs Public Investment Management System PIP Public Investment Plan PIAP Program Implementation Action Plan PMP Project Management Professional PPDA Public Procurement and Disposal Authority PPP Public-Private Partnership PPPC PPP Committee PPPU Public Private Partnership Unit SOE State-Owned Enterprise SSA Sub-Saharan Africa TIP Traditionally Implemented Project WB The World Bank UGX Ugandan Shillings UPE Universal Primary Education UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 v Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Acknowledgements The Uganda Public Expenditure Review 2022–23 was undertaken as a programmatic, analytical, and advisory task executed jointly between the Government of Uganda and World Bank staff and consultants. On the World Bank side, the overall task was led by Rachel K. Sebudde (Senior Economist, EAEM1). Specifically for Module II(a), the team comprised of Rachel K. Sebudde (Senior Economist, EAEM1); Florence Kuteesa (Consultant) Jonas Arp Fallov (Senior Public Sector Specialist, EECG2); Edgardo Mimica Miranda (Lead Consultant); Fernando Bretos Ferlluga (Consultant), and Fred Kasalirwe (consultant). The analytical work was strengthened by comments and suggestions from peer reviewers, including Timothy Williams (Senior Governance and Public Sector Specialist, EAEG1); and Joao Leonel Antunes Morgado. On the government side, great collaboration and leadership was provided by the Permanent Secretary and Secretary to Treasury Mr Ramathan Ggoobi and Mr Ishmael Magona (Ag Director Budget), with the core team working closely with the World Bank led by Mr Charles Byaruhanga (Advisor Budget), and comprising Hannington Ashaba, Esther Ayebare, Calyst Ndomugabe, Patrick Ssemyalo, and staff of the Project Appraisal and Department. The team appreciates the overall guidance from Vivek Suri (Practice Manager, EA1M1), Philip Schuler (Lead economists/ Ag. Practice Manager), Abha Prasad (Practice Manager AE1M1); Marek Hanush (Program Leader, AFCE2), Rosemary Mukami (Country Manager, AFMUG), and Keith Hansen (Country Director, AFCE2). The team would like to thank Esther Ampumuza and Pearl Namanya for providing logistical and administrative support throughout the process. We are also grateful to Virginia Larby for excellent editorial support. We are thankful for the great partnership we enjoyed with the Ministry of Finance, Planning and Economic Development and the access given to most of the data used in this report. The preliminary findings from this report were shared by the National Treasury, and the discussions with government at various points enriched the outcome. Finally, the report summarizes the Public Investment Management Diagnostic which was supported under a four-year trust-funded technical assistance program. The financial support to this programme by the Foreign Commonwealth Development Organization, through the Multi-Donor Trust Fund program (TF073022) is greatly appreciated. The report is further informed by the recent World Bank Studies, including Public Expenditure Financial Accountability (PEFA) and Climate Responsive Public Financial Management. vi UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Executive Summary In line with its Charter of Fiscal Responsibility, the projects was set up to digitalize information across the Government of Uganda (GOU) has adopted a fiscal entire project cycle and aid the appraisal function of the consolidation agenda over the medium term. This is DC. Capacity enhancement effort in project preparation and expected to reduce the debt to GDP ratio and the debt appraisal, as well as selected strategic areas of procurement servicing burden while freeing up fiscal space for priority has preceded a sustainable capacity development drive spending that would otherwise go to debt servicing. The started through the Makerere University PIM Centre of main thrust of the policy is to reduce the fiscal vulnerabilities Excellence. by addressing the underlying issues related to a low These reforms have brought some good practices, yet several tax effort, disproportionately high current spending, challenges remain. There are instances in which measures and consistently ambitious capital spending marred by and guidelines have not been adhered to. Capacities would inefficiencies. Government acknowledges that rrealization need to be enhanced in some MDAs to undertake or even of the fiscal consolidation objectives will largely hinge on understand the studies that have been done by external enhancement of revenue mobilization, expenditure re- agents. Some externally funded projects have not followed prioritization, and efficiency to enhance fiscal sustainability. national guidelines and aspirations when undertaking Accordingly, GoU emphasizes increased efficiency of public feasibility studies. On top of this, other challenges crop up investment management (PIM) to enable more economic during the project cycle, such as securing the right of way growth and widen the revenue mobilization base. Given after projects have started implementation; inadequate the rigidity of the budget and stiff competition among counterpart funding to facilitate elements of projects that development priorities for limited fiscal space in the would ideally be funded by government under externally coming years, it becomes important to increase the output funded projects; and project operation and maintenance of for each shilling spent on public investment. Therefore, assets that have been created. In spite of a legal requirement Government recognizes the importance of exploiting the to use multi-year commitments to support lifetime project significant dividend from improving public investment financing, not all projects are funded systematically, which management (PIM) and urgency to address the existing results into cost- and time-overruns on projects; high inefficiencies, especially in infrastructure development. The commitment fees in case of externally funded projects, inefficiencies manifest as: (i) low completion rate of core and shortened life span of projects due to poor operation projects which are the major pre-requisites and enablers and maintenance of created physical assets. of high growth; and (ii) decline in the level of efficiency in The inefficiencies in PIM are traced back to defective project the utilization of public capital or assets. design and implementation issues. Not all funded projects Cognizant of the benefits that would accrue to closing are subject to rigorous climate responsive preliminary the efficiency gap, the Government of Uganda embarked assessment and feasibility studies, and hence approved on reforms that have administratively improved the pre- projects are not always necessarily bankable. While investment stages of its public investment management budgeting for multi-year expenditure commitments is (PIM) system. These included setting up a dedicated well established in the MTEF, it has not delivered reliable department in MoFPED to spearhead the PIM reforms. and predictable funding for PI portfolio. Many MDAs and This department has developed and promoted the use oversight agencies lack sufficient competence and the of standard guidelines and user manuals for project reliable data and information on PI needed to facilitate preparation and appraisal, national parameters to aid a professional execution of key PIM function in a timely in project and program appraisal, as well as criteria for manner. The major functions relate to preliminary screening, selecting projects into the public investment program (PIP) feasibility studies, project development, expenditure – all of which aim to streamline the process for preparation forecasting, project management and monitoring. of public projects. To strengthen the gatekeeping function The first and immediate step is for GoU to deepen reforms of for public projects, an inter-ministerial/inter-agency the pre-investment appraisal and planning stages of public arrangement – the Development Committee (DC) chaired projects. This would require the following: (i) streamlining by Permanent Secretary and Secretary to Treasury of pre-investment planning to reduce the overlaps and MoFEP – was constituted as an independent reviewer of redundancies and rationalize the decision-making; (ii) project proposals before they enter the national budget. update guidelines and tools for preliminary screening and The guidelines that underpin the DC processes and project feasibility studies to incorporate issues related to gender, section criteria are publicized, and an integrated bank of equity and climate change and environment protection; UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 vii Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment (iii) develop sector-specific appraisal methodologies there is an urgent need to streamline the existing monitoring that should also incorporate impact assessments of processes – fragmented in many institutions – to remove cross-cutting issues. Government should also establish a duplication and redundancies with an aim to address the budgetary provision to support rigorous feasibility studies, inadequate co-ordination and duplication of data requests out-source feasibility studies and prepare complex public between several government entities (e.g. MFPED, BMAU, investments as well as criteria for accessing the funding. OPM and President’s Office). The ultimate objective would In addition, building competencies of the members of the be to provide a framework for shared responsibilities Development Committee (DC) and its secretariats (PAP towards production of relevant, comprehensive, and and PPA) will foster effective execution of the DC role as coherent public investment performance report(s). For an Independent Reviewer. example, a national consolidated PI Report should help track the financial and non-financial performance against Secondly, the existing medium-term planning and the targets for entire PI portfolio, identify emerging expenditure framework needs to be restored to support implementation issues like cost over-runs, facilitate and enhanced realism, and predictability of funding public support timely actions to resolve emerging risk issues investments. These range from newly approved and to prevent both delays and additional cost in PIM. Such on-going projects, and maintenance of existing assets. corrective decisions may warrant project redesigning, Enhancing the relevance and quality of multi-year planning rescheduling, and adjusting funding. and budgeting should be a priority in the on-ongoing budget planning and preparation reform agenda. The Furthermore, GoU should design and enforce standard agenda should underscore: (i) strengthening alignment of guidelines for ex-post evaluation and impact assessment public investments with national and sector priorities and to document the performance of PI portfolio against set resource availability; (ii) setting realistic and affordable targets (activities, outputs, and outcome). The evaluation expenditure estimates for approved new projects and on- or ex-post assessments should be undertaken within three going projects for the budget year and two outer years; distinct categories, as deemed appropriate, which include: and (iii) better multi-year budgeting for operation and (i) short term, with a focus on the project’s outputs; ii) maintenance of non-financial assets. medium term, focusing on intermediate outcomes; and iii) the long-term evaluation, focused on project impacts. Moreover, MoFPED, should undertake rigorous examination To pursue quality and relevant investment evaluations, of the allocative efficiency, cost effectiveness, and the guidelines should spell out clear and harmonized affordability of the public investment portfolio. Specifically, institutional responsibilities and ensure lessons learnt the Budget Directorate and DC should establish a systematic can influence the design, and implementation of the assessment of the annual public investment performance by entire PI portfolio. sector, MDA, and LG to identify emerging policy or efficiency issues and build consensus on affordable measures to To pursue the above reforms, a credible oversight institution address them during the annual budget preparation and is needed to spearhead the implementation of reform rolling over the MTEF. The main thrust is to formulate agenda and provide foundation for a sustained realisation reliable estimates for budget year and forward estimates of efficiency in PIM. The main thrust of the undertaking within the MTEF during the annual budget process, ensure is to establish an entity that will be mandated and given that previous multi-year commitment set in the previous sufficient authority to monitor, oversee, and promote years are still relevant and affordable at the time of a coordinated implementation of the PI portfolio, and implementation in the future. ensure that investments deliver the envisaged good value for money and economic returns. This will require an Effective project management and relevant monitoring of the assessment of the current organizational structures and envisaged investment outputs is fundamental for realizing functionality of PAP and PPP Unit and advise on measures outcomes from investments. First, Government needs to to leverage the resources in the form of a draft road map streamline and enforce standards for project management to support a gradual establishment and building capacity and support a capacity building program tailored to equip of approved authoritative entity. Below is the the reform relevant officials in MoFPED, sector MDAs, and LGs with action plan highlighting the recommended immediate knowledge, practices, and skills for harmonised and/ or actions and medium-term reforms. sector specific standards for project management. Likewise, viii UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Public Investment Management Reform Action Plan Reform Area Recommended Actions Lead Institutions Immediate or Medium Term 1. Appreciation #1.1 Design and undertake a sensitization program MoFPED(PAP) Immediate and Ownership to enhance appreciation of the importance of of PIM Reform an efficient PIM, including the reform agenda, Objectives targeting stakeholders at all levels. #2.1 Streamline and simplify processes in the MoFPED(PAP) and Immediate pre-investment planning stage to reduce the NPA overlap and redundant stages and rationalize the efficiency in decision-making. #2.2 Update the project preparation guidelines MoFPED(PAP) Immediate for preliminary screening (pre-feasibility studies) with elements of the project that have become critical including gender, circular economy, climate change, and intersectoral projects, that require a joint action taken by multiple government entities #2.3 Establish a capex threshold to support a MoFPED(PAP) Immediate fast-track process for projects that meet certain characteristics (less challenging projects in terms of demand analysis, technical design, and low budget). #2.4 Develop internal capacities for project MoFPED Medium term preparation, especially at a subnational level if 2. Strategic they are to engage in project preparation and Guidance and screening at the local government levels Preliminary #2.5 Strengthen the pre-screening of proposed NPA Medium term Screening investment ideas during the formulation of NDP IV. This would involve incorporating at the planning stage, a system for conducting a pre-appraisal analysis of investment initiates (pre-screening phase) before entering them into the NDP-03. Such a system would also generate a project code that can be traced to the rest of the project system within the IBP. #2.6 Update the project preparation guidelines MoFPED-PAP, PPP Immediate for formal appraisal (feasibility studies) with Unit and PPDA elements of the project that have become critical, including gender, circular economy, climate change, and intersectoral projects, that require a joint action taken by multiple government entities. #2.7 Make budgetary provision to support MoFPED – BD Immediate rigorous feasibility studies, including out-sourcing and preparation of complex designs of PI and formulate criteria for accessing the funding. MoFPED-PAP Immediate # 3.1 Support Makerere PIM Centre of Excellence MoFPED-PAP Immediate to sustainably build capacity of MDAs and public officials in financial modelling, economic analysis and risk analysis, critical in project preparation and appraisal to strengthen the in-house capacity in line ministries and agencies. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 ix Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Reform Area Recommended Actions Lead Institutions Immediate or Medium Term #3.2 Develop sector-specific appraisal MoFPED(PAP) Immediate methodologies, including updates of national parameters, and incorporate tools for impact assessments of cross-cutting issues, e.g., environment and climate change. #3.3 Plan and budget dedicated resources for project preparation. This could include strengthening the design and operationalization of the project preparation fund. 3. Formal Project #3.4 Update the PIM manual with new critical MoFPED(PAP) Immediate Appraisal issues including climate change, gender, green growth, resilient infrastructure, and social inclusion #3.5 Promote public access to IBP and an MoFPED Immediate effective feedback mechanism to allow effective engagement with stakeholders, including CSOs and the public during the pre-investment planning to seek views on the pros and cons of planned investment. #4.1 Define and adopt the concept and procedural MoFPED(PAP) Immediate arrangements for issuing a “Seal of Quality” ahead of any project being negotiated for financing. #4.2 Design and undertake a capacity building program tailored to address the competency needs for the members of the DC and ensure an effective independent reviewer. 4. Independent #4.3 Strengthen the formal authority to the MoFPED - PS Medium term Reviews PAP Department to match it with the importance of Project of its function. Organizationally, this could be Proposals possible if PAP Department and the PPP Unit are unified under the same umbrella. Alongside this, enhance the functionality of the PAP Department by instituting a PIM Technical Unit to continuously provide strategic thinking for the Unit including developing new technical tools and methodologies, and shadow prices for project appraisal. #5.1 Improve the credibility of the medium-term MDAs and NFPED Immediate expenditure framework (MTEF) by formulating realistic and affordable expenditure estimates for the budget year and two outer years of the MTEF. This would entail improving the process of allocating resources for operational and maintenance costs. Projects should not be separated into capital budgeting independent from their current budgeting. The ex-ante appraisal forecasts for each project should encompass both the project’s CAPEX and its OPEX. This also promotes the culture of project maintenance. x UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Reform Area Recommended Actions Lead Institutions Immediate or Medium Term #5.2 Undertake an effective budget challenge MDAs and NFPED Immediate function or verification of the proposed estimates by MDAs to enhance efficiency during the annual budgeting process. #5.3 Ensure the IBP and TSA work together efficiently – solutions worked on how various systems for efficiency improvement can support each other. Allocation of resources for projects must use the project life cycle approach and provide adequate resources for project preparation and close the gaps in budgeting for operational and maintenance costs. The medium- 5. Project term budget framework must be more efficient in Selection and providing resources for project implementation Budgeting over the entire project life cycle, rather than from one budget year to another. Relatedly, at the operational level, while Treasury Single Account calls for unused balances to be returned to the Consolidated Account, which is a good accounting practice, there must be a mechanism for ensuring availability of funding for continuing projects especially during the first few months of the financial year to allow for a smooth execution of projects. #5.4 Institute a system for continuous re- MoFPED and Immediate assessment of the GoU project portfolio (PIP Sector MDAs Immediate pipeline) to ensure they remain up to date and ready for financing #6.1 Formulation of harmonised and sector MoFPED-BD Immediate specific standards for project management with +PAP+BMAU a project management body of knowledge (e.g. the PMI®’s PMBoK® Project Management Body of Knowledge Standard for Project Implementation). #6.2 Design and implement a training program to MoFPED and MDAs Immediate to medium term equip relevant officials in MoFPED, sector MDAs, and LGs with knowledge, practices, and skills for adoption of a harmonised or sector specific standard for project management (e.g. PMP 6. Project certification). Implementation #6.3 Adopt and enforce standardization for MoFPED and MPS Medium term project execution. If for instance PMI® and PMBOK® are selected, these standards to be formalized and required by the GoU in project implementation, with increased effort to train to increase the pool of public officials with a PMP certification to support project implementation; and requirement for PMP certification included in biddings to incentivize contractors with PMP certified personnel and build demand for those professionals. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 xi Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Reform Area Recommended Actions Lead Institutions Immediate or Medium Term #6.4 Introduce and enforce sanctions to public MoFPED Immediate officials’ incompetence or outright corruption in project preparation and execution #6.5 Expedite the development of a sustainable MoFPED/ Immediate procurement framework to mainstream climate Procurement change and other cross-cutting issues in the Policy procurement system, so as to identify potential bottlenecks and timely corrective measures to mitigate adversary implications on project execution. #6.6 Build capacity across government to support MoFPED Immediate the procurement function to manage not only the process to the point of award of contract, but also contract management and supervisions #6.7 Explore technology to improve project MoFPED/ Medium term implementation (e.g. the Building Information President’s Office Modelling (BIM) – leading the digital transformation of the architecture, engineering, and construction (AEC) industry). #6.8 Integrate the e-governmental procurement MoFPED/PPDA/ Immediate system with the IBP, and other relevant data and Procurement information system, to link procurement contracts Policy (currently only identified as contract numbers) to IBP project codes – track all the procurement issues to their corresponding projects. #7.1 Review existing data and information MoFPED, OPM & Medium term systems to guide the streamlining of their NITAU functionality, relevance, interface within Government, and leverage synergies for evidence- based decision making. #7.3 Systematically assess the annual MoFPED-BD Immediate performance of the PI portfolio to identify +PAP+BMAU emerging policy or efficiency issues and submit recommendations to address them. #7.4 Publish public investments portfolio MoFPED-BD Immediate performance report at mid-year and end of fiscal +PAP+BMAU 7. Project year. Monitoring and #7.5 Review and streamline the current MoFPED Immediate Adjustments annual monitoring frameworks to improve coordination(interface), a avoid overlap, and redundancies and ensure usefulness in decision making. #7.6 Preparation and submission of a MoFPED Immediate memorandum for creation of a formal authority with proposed legal and regulatory framework for consideration and approval by Cabinet. #7.7 Support a gradual set-up and MoFPED Immediate Medium term operationalization of a formal authority using the approved road map in a well prioritized and sequenced manner. xii UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Reform Area Recommended Actions Lead Institutions Immediate or Medium Term #8.1 Enforce an effective institutional MoFPED Medium term arrangements and process for handover and effective facility operation or assets management. #8.2 Strengthen Assets Register – currently MoFPED & 8. Facility coordinated by Accountant General’s Office – to Accountant Operation support the facility management, maximising the General Office. and Asset return from the assets and preservation of value. Maintenance #8.3 Improvement of the annual budgeting for maintenance and repairs of assets to allow building realistic baseline expenditures which can form the basis for the outer year of the MTEF. #9.1 Formulate ex-post evaluation guidelines MoFPED Medium term and tools to inform harmonized institutional responsibilities and ensure evaluation outcomes influence the decision making under PIM. 9. Project #9.2 Provide financial support to facilitate MoFPED Medium term Evaluation enforcement of mandatory requirement for an and Impact immediate ex-post evaluation, and a standard Assessments project completion report (close-out) #9.3 Formulate guidelines to support enforcement MoFPED Medium term of mandatory requirement for ideally mid- term ex-post evaluation and (ii) the long-term evaluation, focused on project impacts #10.1: Review the functionality of existing MoFPED and OPM Immediate oversight entities and make recommendations to promote harmonized or coherent and relevant oversight functions. #10.2 Review of existing data and information MoFPED and OPM Immediate systems to guide the streamlining of their functionality, relevance, interface within Government, and leverage synergies for evidence- 10: Oversight based decision making. institutions, #10.3 Design and deliver the training program MoFPED and OPM Immediate Systems and tailor-made to address the competency gaps in Coordination the oversight function in a most cost-effective Framework manner at all levels of government. #10.4 Preparation and submission of a MoFPED-BD Medium term memorandum for creation of a formal authority with proposed legal and regulatory framework for consideration and approval by Cabinet. #10.5 Support a gradual set-up and MoFPED Medium term operationalization of a formal authority using the approved road map in a well prioritized and sequenced manner. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 xiii Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Uganda Public Expenditure Review 2022-23 Modules 14 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 1. INTRODUCTION 1.1. Background time and cost overruns; (ii) a low rate of absorption of committed (borrowed) funding; (iii) chronic under execution 1. The World Bank and Government of Uganda (through its of capital projects; and (iv) shortened project lifespan due Ministry of Finance, Planning and Economic Development) to poor operation and maintenance of created assets; and has undertaken a Public Expenditure Review (PER) of (v) unmet project objectives/outputs. These challenges selected aspects of fiscal policy management and outcomes undermine fiscal management and overall efficacy of fiscal with a view to determine how Uganda can achieve a more policy. This part of the PER assesses how the continued inclusive growth agenda. challenges in PIM are constraining fiscal policy and what needs to be done to improve efficiency and efficacy of 2. The Uganda Public Expenditure Review 2022–23 focused fiscal policy managements. on selected aspects of fiscal policy management and outcomes with a view to support a fiscal adjustment 4. The report assessed the performance of the public to a more inclusive growth agenda. The task delivered investment program and how it could have contributed jointly by the World Bank and the Government of Uganda to the evolution of fiscal policy over the last decade. It (through its Ministry of Finance, Planning and Economic therefore analysed the performance of the capital budget Development) was organized in four modules including: and fiscal outcomes; outlined the gaps in public investment (i) Module I: Identifying broad options for an effective and management and makes recommendations on the priorities sustainable fiscal adjustment; (ii) Module II: Identifying for the next phase of PIM reforms to improve efficiency and options to enhance effectiveness, efficiency, and equity of create fiscal space. The diagnostic is based on information spending in two areas critical for service delivery: (a) public and evidence gathered through desk reviews of government investment management; and (b) the intergovernmental documents and information gathered through interviews fiscal transfers (IGFT) system, including the plans/ of a wide range of stakeholders within government, non- assumptions underpinning the Medium-Term Plan (MTP) government organizations and academia, conducted during for financing of local service delivery; (iii) Module III: December of 2021 and April 2023. Identifying options for enhancing spending on human development, by delving into the efficiency, effectiveness, 1.2. Evolution of Fiscal Policy Management and equity of spending within the education and health sectors; and (iv) Module IV: A summary to synthesise 5. Government pursued an expansionary fiscal policy the key messages from the preceding modules for policy over the past 10 years to FY19/20, which inadvertently and decision makers, and be the concluding product of increased vulnerabilities. The policy framework aimed to the PER. This report focuses on Module II(a) related to support the implementation of the National Development raising fiscal space through efficiency improvements in Plans and the Vision 2040 geared towards transforming public investment management. the country to a middle-income status. Total expenditure gradually increased from 12 percent in FY10/11 to 21.7 percent 3. The Government of Uganda has long recognized the of GDP between FY20/21, with much of the acceleration importance of streamlining and improving efficiency of recorded after FY15/16. On the back of slow growth in the public investment management system to support revenues, the fiscal deficit widened significantly, from 2.6 its effort in transforming the economy. In response to percent in FY10/11 to 7.1 percent in FY19/20, before peaking the recommendations of the PER undertaken in 2013, at 9 percent in FY20/21 under the weight of COVID-19. and a follow-on, in-depth diagnostic of the PIM system Although the government has since embarked on a fiscal in 2015, it has been implementing an action plan with a consolidation effort, with the fiscal deficit declining to 7.4 set of reforms aimed to especially improve the quality of percent in FY21/22, it stayed well above the Charter of projects at entry into the public investment plan. The reform Fiscal Responsibility (CFR) that had aimed to keep the that has been on-going since 2016 aims to strengthen the deficit at 3 percent by FY21/22. Over this period, the stock PIM institutions, standardize guidance in project design, of public debt as a share of GDP, more than doubled from preparation, appraisal, selection, and monitoring and 17.5 percent in FY10/11 to 48.4 percent in FY 21/22. (Figure evaluation of projects; and enhancing the policy, legal 1c), while interest payments as a share of revenue jumped and regulatory framework. While there is progress with from 10 percent to 16 percent. respect to the implementation of the action plan, several challenges remain, including: (i) a high incidence of project UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 2 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Figure 1: Fiscal trends between (FY10/11-FY21/22) a. Fiscal Balance (percent of GDP) b. Total Expenditure (percent of GDP) c. Public debt (percent of GDP) d. Financing of the fiscal deficit (percent of GDP) Source: MoFPED 6. The decade of an expansionary fiscal policy (FY09/10– and mineral development, was set to increase during NDPI FY19/20) was consistent with the country’s ambitions to address the key binding constraints to growth and build as reflected by targets for the first and second National production capacities to exploit oil reserves. During this Development Plans, but deviated considerably within time, the spending targets for health and education had sectors, as sectoral targets were not met. The expansion been set to decline during NDP1 (FY10/11-FY14/15), but later in spending mainly went to infrastructure sectors, which increase over NDPII (FY15/16-FY19/20). This assumed a quick included large projects for major roads corridors and turn-around of the investments to remove infrastructure hydropower throughout the country, as the government related constraints to growth within the first plan, which shifted its fiscal policy from social spending to infrastructure would thereafter allow shifting of resources to human expansion. The funding for public works, transport, energy capital development and agriculture. Figure 2: Selected Sectors Budget Performance against NDP Targets (Percent of Total Expenditure) a. Works & Transport b.Education 30.0% 30.0% 25.0% 25.0% 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% NDPI NDPlI 0.0% NDPI NDPlI 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 /1 /1 /1 /1 /1 /1 /1 /1 /1 /2 /1 /1 /1 /1 /1 /1 /1 /1 /1 /2 10 11 12 13 15 15 16 17 18 19 10 11 12 13 15 15 16 17 18 19 FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY c. Health d.Water & Environment 20.0% 5.0% 18.0% 16.0% 4.0% 14.0% 12.0% 3.0% 10.0% 8.0% 2.0% 6.0% 4.0% 1.0% 2.0% 0.0% NDPI NDPlI NDPI NDPlI 0.0% 1 2 3 4 5 6 7 8 9 0 11 12 13 14 15 16 17 18 19 20 /1 /1 /1 /1 /1 /1 /1 /1 /1 /2 / / / / / / / / / / 10 11 12 13 15 15 16 17 18 19 10 11 12 13 15 15 16 17 18 19 FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY 3 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment e.Energy & Mineral Development f. Agriculture 30.0% 7.0% 25.0% 6.0% 5.0% 20.0% 4.0% 15.0% 3.0% 10.0% 2.0% 5.0% 1.0% NDPI NDPlI 0.0% NDPI NDPlI 0.0% 1 2 3 4 5 6 7 8 9 0 11 12 13 14 15 16 17 18 19 20 /1 /1 /1 /1 /1 /1 /1 /1 /1 /2 0/ 1/ 2/ 3/ 5/ 5/ 6/ 7/ 8/ 9/ 10 11 12 13 15 15 16 17 18 19 1 1 1 1 1 1 1 1 1 1 FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY NDP Allocation Budget Allocation Source: MoFPED 7. In tandem with the infrastructure drive, the share of included the Entebbe Express Highway and the Karuma capital spending increased, albeit at a slower pace than and Isimba hydro power plants. This was against lower had been anticipated as the approved annual sectoral budget allocations compared to the NDP targets. Within budgets were generally lower than the NDP targets. The the road and transport sector, for instance, the actual share of capital expenditure in total spending increased budget allocations averaging 15 percent for the NDPI and from an average of 23 percent during NDPI to 26 percent NDPII period, were far lower than the average target of 21.7 during NDPII and 29 percent in the first two years of percent of the annual budget. At the same time, targets NDPIII. As a share of GDP, government capital expenditure2 on spending in social sectors like education and health, increased from an average of 3.1 percent of GDP during were missed, with undesirable effects on social service NDPI to 4.4 percent during NDPII. This share rose further delivery and social development. This raises questions to an average of 6.5 percent of GDP between FY20/21 and about realism of the NDP targets vis-à-vis the budget FY21/22, the first two years of NDPIII. Key infrastructure prioritization. projects that drove the increase in investment spending Figure 3: Acquisition of Non-Financial Assets Figure 4: Capital Expenditure as Share of Total Budget NDP I NDP II NDP III NDP I NDP II NDP III FY10/11 FY11/12 FY12/13 FY13/14 FY14/15 FY15/16 FY16/17 FY17/18 FY18/19 FY19/20 FY20/21 FY21/22 FY10/11 FY11/12 FY12/13 FY13/14 FY14/15 FY15/16 FY16/17 FY17/18 FY18/19 FY19/20 FY20/21 FY21/22 35% 8% 12.0 30% 7% 10.0 6% 25% 5% 8.0 20% 4% 6.0 15% 3% 10% 4.0 2% 5% 1% 2.0 0% 0% 0.0 External Source: MoFPED Source: MoFPED 8. Despite ambitious NDP targets, actual execution of rate of 107 percent. Conversely, externally financed projects allocated budgets, and particularly for capital spending, have persistently experienced low budget execution over has remained a challenge. The increase in allocations the same period (Figure 5). These trends are prevalent in to the development budget have not fully translated into the energy, public works and transport sectors which are capital formation because some parts of the capital budget the main expenditure drivers in the development budget have been unreliable and unpredictable. At an aggregate (Figure 6), with the low performance often attributed to level, domestically financed projects have received repeated delays in procurement, challenges in meeting conditionalities supplementary budgets and recorded an average execution – specifically counterpart funding, and acquiring land rights. 1 Capital expenditure refers to the acquisition of non-financial assets. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 4 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Figure 5: Trend in Capital Spending Figure 6: Expenditure Drivers of the Capital Budget FY10/11- FY20/21 FY10/11- FY20/21 35% 32% 30% 25% 20% 16% 15% 13% 11% 10% 9% 10% 8% 5% 0% Machinery and Equipment Roads and Bridges. Other Structures Other Fixed Assests GOU-funded Externally funded Expenditures Source: MoFPED, National Development Plan I, II & III Source: MoFPED, 9. The inconsistency between NDP targets and budget fiscal policy, at the expense of private investment which have allocations and the under-execution of the budget been declining as a share of GDP since mid-2000s (Figure have introduced uncertainties in policy execution and 1.5). The share of public investment in GDP increased from undermined the government’s overall objectives. Whereas an average of 4.8 percent over the NDPI and NDPII period to the envisioned plans and capital spending aspirations appear an average of 6.9 percent in the first two years of NDPIII. At to be well articulated, the extent to which they have been the same time, the share of private investment declined from translated into achievement of the government’s objectives 20.6 percent to 16.5 percent over the same period. Combined is uncertain. These challenges have constrained the efficacy with the decline in the efficiency in utilization of public capital of fiscal policy in attaining the stated national economic assets, public investments have not generated a boom in development objectives. productivity of the economy yet (see Module I of this PER). As a result, consumption has remained the key driver of 10. Increased focus on capital spending has had no effect growth in economic activity. on overall investment levels in the country as it was followed with a reduction, rather than a boost in private investments. Public investment has been a priority in Uganda’s Figure 8: Growth of Real Capital Formation Across Figure 7: Uganda Trend in Capital Formation Compararors (FY15/16 – FY20/21) (percent) NDP IN DP IIN DP III FY11/12 FY10/11 FY12/13 FY13/14 FY14/15 FY15/16 FY16/17 FY17/18 FY18/19 FY19/20 FY20/21 FY21/22 30.0% 27.5% 26.0% 24.9% 24.4% 24.9% 24.9% 24.1% 23.8% 23.5% 23.5% 25.0% 23.3% 23.3% 20.0% 15.0% 10.0% 5.0% 0.0% Source: MoFPED, Source: WDI 11. The slow investment growth has contributed to a slower on account of the COVID-19 pandemic and climate change output growth than expected during formulation of the related challenges. There have been some improvements NDPs. Real GDP growth averaged at 5.4 percent during NDPI, over the past 10 years, such as installed energy capacity, but declined to 4.7 percent during NDPII, before declining which increased from 800 to 1300 megawatts,2 and the further to 4.1 percent in the first two years of NDPIII, partly paved stock of the road network which grew from 3,000 to 2 Ministry of Energy and Mineral Development – Energy Regulatory Authority 5 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 5500 kilometres.3 However, the outputs are yet to translate 13. The medium-term fiscal outlook has adopted into high private sector take up and stronger investments to a two-cleft fiscal consolidation path with enhanced drive faster growth. revenue mobilization and expenditure re-prioritization, and efficiency to enhance fiscal sustainability. 5 This 12. The NDPIII mid-term review4 underscores a range encompasses a commitment to reduce fiscal vulnerabilities by of public investment management factors that could addressing the key underlying issues related to a low tax effort, have contributed to slower investments and growth. It disproportionately high current spending, and consistently argues that the slow implementation of public investments ambitious capital spending marred by inefficiencies. In line has hampered the realization of expected gains from capital with its Charter of Fiscal Responsibility, the government is investment, while investment in the productive sectors of committed to reduce the deficit from 5.1 percent in FY22/23 the economy were inadequate, resulting in low returns on to 3 percent and 2.7 percent in FY23/24 and FY24/25, infrastructure investments thus not optimizing economic respectively. It intends to achieve this by pursuing several growth rates. The review indicates that the lack of predictable policy measures that rationalize expenditures (allocative funding for infrastructure investment has contributed to a huge efficiency), improving spending efficiency, and enhancing backlog of infrastructure investments and has significantly domestic revenue mobilization interventions.6 The measures, undermined the impact of the government’s fiscal policy on as articulated in FY23/24 Macro-Fiscal Strategy, and those the overall development program. Inefficiencies in investments that relate to continued investment in public infrastructure manifest in inadequate transmission capacities to fully utilize for inclusive growth include: (i) moratorium on borrowing in the energy generated, loopholes in distribution networks the short to medium term (starting in FY23/24) to minimize leading to persistent energy losses, poor road conditions, a the share of debt service to domestic revenue – freeing up lack of maintenance, and high fatalities. While quite optimistic resources to fund critical development priorities; and (ii) no that the economy will recover despite current challenges new commencement of non-concessional projects except resulting from external shocks such as climate change and the those already in the debt framework. Russia Ukraine war, the review underscores the need to raise efficiency of the capital budget to generate more economic 14. Realization of fiscal consolidation objectives will largely growth and contribute more dynamically to fiscal consolidation hinge on increased efficiency of investment to enable more and sustainability. Accordingly, the government, through growth. Given the rigidity of the budget and stiff competition implementation of NDP IIII, is committed to strengthen public among development priorities for limited fiscal space in the investment management and pursue fiscal policies that will coming years, it becomes important to increase the output facilitate an enhanced rate of returns and economic value of for each shilling spent on public investment by improving public investments only if the capital budgets are based on public investment management (PIM) – the institutions, bankable projects (well-designed) and effectively executed. systems, and processes guiding decisions on how to prepare, implement, operate, and manage public investment projects. Figure 9: Real GDP growth has fallen below the NDP target (percent per annum) 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 3 Ministry of Works and Transport – Uganda National Roads Authority 1.0 4 NDP111 Mid-Term Review Chapter 31: Economic Management 0.0 5 Republic of Uganda – Budget Framework Paper FY 2023/24–FY 2027/28. Chapter 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 21/22 on Macro-fiscal Framework page 14-17. Published by MoFPED, December 2022 6 Enhancing domestic revenue mobilisation will entail interventions, rationalization of inefficient and costly tax expenditures, introduction of value- added tax legal reforms as well as tax administration reforms as spelt out in the Domestic Revenue Mobilization Strategy (DRMS). These reforms are expected to Actual NDP target yield a 0.5 percent of GDP in revenue in the medium term. Further forward, oil production is expected to start in FY24/25 and is estimated to boost domestic revenue in the medium term by between 0.5 and 4 per cent of GDP. Source: NPA and UBOS UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 6 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 1.3. Drivers of Public Investment of 9.3 percent, and Water and Environment by 4.7 percent. In contrast, some sectors reduced investments in fixed assets 15. Despite the investment drive envisioned within the – with the energy and mineral development sector declining national development plans, public investment levels in by 20.3 percent, public sector management by 13.5 percent, Uganda have been generally low, even compared to the sub- and accountability by 2 percent. Saharan Africa (SSA) and Low-Income Developing Country (LIDC) averages. While public investment took a back seat during the post 1986 (after civil war) recovery period, there Figure 11: Sector Share of Fixed Assets Investment, was an increase in public investment since then. This happened Average FY09/10-FY20/21(percent) as government shifted policy to invest in infrastructure Rest of the Sectors 7.1% expansion, raise public capital and address binding constraints Agriculture 3.1% to growth, consistent with the recommendation of the PER Health 3.3% of 2007. In absolute terms, public capital spending more 3.4% Water and Environment than doubled over the last 10 years, maintaining pace with 5.5% Accountability 7.0% economic growth. It shot up since FY17/18, with the average Public Sector Management 7.4% share in total spending rising to 28 percent during the period Security 9.9% FY18/19 to FY20/21. Nevertheless, Uganda’s capital expenditure 11.5% share in GDP has averaged 3.1 percent, and remains lower Energy and Mineral Development 13.1% Works and Transport 28.6% than that of its regional peers and comparators (Figure 10). Therefore, despite pursuing an economic infrastructure-led Source: MFPED, BOOST policy, Uganda has lagged regional comparators with similar infrastructure needs (Kenya, Rwanda, and Tanzania) by approximately 2 percentage points of GDP. Figure 12: Sector Changes in Fixed Asset Investment NDPI and NDPII Gain/Loss (percent) Losers Figure 10: Capital Expenditure in Selected Regional Countries, Average 2016-21 (percent GDP) Accountability -8.2% Public Sector Management -13.5% Energy and Mineral Development -20.3% Gainers Water and Environment 4.7% Security 9.3% 04 Works and Transport 37.8% Source: MFPED, BOOST, World Bank Staff Calculations 17. The capital budget grew strongly over the NDPI and NDPII periods, before changing course during the first two Source: WDI years of NDPIII. The capital budget grew at an average of 19 percent during NDP I (FY10/11-FY14/15) and 16 percent during NDP II (FY15/16-FY19/20). In line with the fiscal consolidation 16. The economic infrastructure sector accounts for over agenda, the capital budget reduced by 9 percent between two thirds of total public investment, with spending FY20/21 to FY21/22 (Figure 14). As a result, the average share of mostly going to the works and transport sector. The the capital budget to the total budget grew steadily over the works and transport sector took the largest share of the 10 years to FY20/21 but started declining since then (Figure fixed asset investment averaging 28.64 percent between 13). The average share of capital spending declined from 46 period FY2010/11–FY2020/21, followed by Energy and Mineral percent during NDPI (FY10/11-FY14/15), to 40 percent during Development with 13.15 percent and Justice, Law & Order at NDP II (FY15/16-FY19/20), and it further reduced to 36 percent 11.49 percent (Figure 11) Likewise, whilst the impact of the in NDP III (FY20/21-FY21/22). expansionary fiscal policy on fixed asset investments varied across sectors during NDP I and NDP II (Figure 12), the biggest gains were registered in the Works and Transport sector with an increment of 37.8 percent. Security followed with a share 7 World Bank (2007) 7 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 18. Compared to what was recorded during the NDPII III (Figure 14). Local government and public corporations period, the share of capital investments funded through accounted for an estimated 5 percent and 3 percent of the government’s own resources has increased recently . total investments, respectively. Central government accounted The share of government fully funded projects to the total for over 90 percent of total investment. The share of the LG capital budget declined steadily between NDP I and NDP development budget to the total capital budget declined II, and reached 15 percent in FY18/19, before reversing the from 12 percent FY2010/11 to 3 percent in FY17/18 but rose to trend to reach 47 percent during the first two years of NDP 7 percent in FY21/22. Figure 13: Capital Budget and the Total budget Trends (Nominal-UGX, percent) 50,000 60% 14 45,000 40,000 48% 49% 50% 47% 44% 43% 35,000 41% 40% 40% 40% 39% 40% 40% UGX Billion 30,000 33% 25,000 30% 20,000 15,000 20% 10,000 10% 5,000 - 0% FY10/11 FY11/12 FY12/13 FY13/14 FY14/15 FY15/16 FY16/17 FY17/18 FY18/19 FY19/20 FY20/21 FY21/22 Total Budget Total Capital Budget % Share Source: MFPED 19. The strong improvement that had been realized with years starting FY19/20, this situation turned around, partly respect to the execution of the government’s funded reflecting the persistent challenges in the implementation of projects also seems to have disappeared over the past three capital projects. On the other hand, the failures in releasing years. With exception of FY12/13, government funded capital funding have been seen to frustrate the implementation of was more than 100 percent released. However, during the three GoU fully funded public investments. Figure 14: Contribution of GOU Funded Project to the Figure 15: Variance between Release and Budget for GoU Fully Total Capital Budget ((Nominal-UGX, percent) Funded Projects (Nominal-UGX and percent of Release) 20,000 50% 8,000.00 15% 47% 12% 18,000 45% 7,000.00 10% 16,000 40% 5% 6,000.00 3% 2% 14,000 35% 1% 1% 1% 0% 0% 32% 5,000.00 12,000 30% -4% UGX,Billion -5% -5% 26% 4,000.00 10,000 24% 25% 23% 23% -10% -11% 21% 3,000.00 8,000 20% 20% 18% -15% 16% 16% 6,000 15% 15% 2,000.00 -18% -20% 4,000 10% 1,000.00 -24% -25% 2,000 5% - -30% - 0% FY10/11 FY11/12 FY12/13 FY13/14 FY14/15 FY15/16 FY16/17 FY17/18 FY18/19 FY19/20 FY20/21 FY21/22 FY10/11 FY11/12 FY12/13 FY13/14 FY14/15 FY15/16 FY16/17 FY17/18 FY18/19 FY19/20 FY20/21 FY21/22 Total Capital Budget GoU Fully Funded Projects Budget % share Budget Release Source: MFPED Source: MFPED UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 8 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 2. ASSESSMENT OF THE PUBLIC INVESTMENT MANAGEMENT SYSTEM Cognizant of the various reforms that authorities have – was established to spearhead the PIM reforms within a undertaken since 2015 to improve the PIM system, this chapter clear PIM framework of operation. The key functions of the aims to identify the challenges that constrain efficiency of PAP Department have included developing and promoting public investment management and threaten the realisation of the use of standard guidelines and user manuals for project fiscal objectives. The assessment focuses on the functionality preparation and appraisal, national parameters, and economic of the PIM system through the lens of the World Bank’s eight- conversion factors to aid in project and program appraisal, as stage functions of a standard PIM system, namely preliminary well as selection criteria for projects into the public investment screening of projects, formal project appraisal; independent program (PIP). Such guidelines and standard documentation review of appraisals; project implementation and adjustment, would ensure that the same approach and process is used asset operation and management; and ex-post evaluation across government in preparation of projects. and impact assessment. The assessment is informed by the recent World Bank Studies on Public Expenditure Financial 21. The National Climate Change Act (2021) provides Accountability (PEFA), Climate Responsive Public Financial impetus for improved fiscal scrutiny of climate change Management and Technical Assistance Mission on PIM in actions in investments, including climate finance and Uganda. its impacts. Accordingly, as part of the climate responsive expenditure that has been defined, the NDP III established 2.1. Key Milestones in Implementation a framework for budget alignment with climate change of PIM Reforms strategies.9 In addition, the National Planning Authority is empowered to review and issue a certificate on climate 20. Since 2015, Uganda has implemented a series of reforms change responsiveness of the annual budget. The Standing to strengthen its public investment management (PIM) Committee on Climate Change (Parliament of Uganda) provides systems. The main thrust of the reform agenda was to exploit oversight on the responsiveness of government to climate the benefits attributed to improving efficiency in PIM and change – mitigation and adaptation. The Ministry of Water promoting overall fiscal management. The reforms followed and Environment (MoWE) coordinates the implementation a comprehensive multi-year action plan derived from a PIM of the National Climate Change Policy 2015,8 and MoFPED diagnostic adopted in 2015, as a first step to strengthen the spearheads the resource mobilization for climate change pre-investment phase, including preparation and selection actions, as provided in the PFMA 2015 and the National of projects into the budget. The diagnostic had established Climate Change Act 2021. The PIM manual, though not detailed, that ‘quality at entry’ was poor and leading to many of the indicates the economic value of the project’s contribution to problems that projects were facing during implementation. increasing resilience to current and future climate change Since then, a dedicated department in MoFPED – the Project and reducing vulnerability risks (Box 3.1). Analysis and Public Investment Management (PAP) Department Box 3.1 Guidance and Requirements for Climate Responsive PIM The PIM manual and the DC’s guidelines incorporate climate concerns by approving and reviewing the Public Investments. The main thrust is to determine likely environmental impacts, the cost of reducing the negative impact, the risk without the project, technical measures to reduce the impacts, and the cost of alternatives. Specifically, feasibility studies are required to contain an analysis of: (i) demand; (ii) technical feasibility; (iii) environmental impacts; (iv) human resources and administrative support; (v) institutional and legal module, financial or private evaluation module; (vii) economic or social evaluation module; (viii) distributional module; and (ix) risk analysis module. The Environmental Analysis is expected to be published in an Environmental and Social Impact Assessment (ESIA) and must be approved by the National Environment Management Authority (NEMA) before the project commences. To address poverty vulnerabilities and climate change by supporting communities in disaster prone areas, the Budget Call Circular (FY 2020/21) issued guidelines to all accounting officers advising them to: (i) strengthen early warning systems such as the use of seismic and accurate weather information on climate change issues; (ii) institutionalise disaster risk planning in programmes; (iii) enhance the capacity for resettlement of persons at risk of disaster; (iv) mobilise and significantly increase financial resources from all sources to conserve and sustainably use natural resources; and (v) strengthen the operation of the environmental police in the enforcement of environmental laws and curbing environmental offenders. Source: PEFA: Assessment of Climate Responsive Public Financial Management Uganda. Final Report January 2023. 9 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 22. Indeed, where preliminary screening has been handled (PFM) and monitoring systems (including Aid Management in a systematic manner, it has allowed a sequenced and Platform, Program Based Budget System, Integrated Financial systematic examination of the merits of a project. The Management System, e-Government Procurement System, assessment has focused on the internal logic, coherence and Prime Minister’s Information Management System) to with government and sector strategic priorities that underpin enable tracking of the projects throughout the entire project an emphasis on both envisaged highest value returns, cycle. These interfaces eliminate duplication and maximize and efficiency in PIM system. Specifically, it has enhanced synergies between and across government. understanding of the key components of project development10 and facilitated early identification and rejection of a project 25. The reforms were enforced by a concerted and strategic that is either poorly designed, or not aligned with national capacity-building effort aiming to improve MDAs’ capacities and sector priorities. In addition, it has helped to prevent across the PIM cycle. Over 200 government officials drawn wastage of resources in preparing and appraising non- from the PAP Department and select MDAs13 have been trained bankable proposals; and hindered them from entering the in project appraisal skills and other critical areas across the budget process or compete for funds. According to the recent PIM cycle, including in procurement and impact evaluation. 2022 PEFA assessment, the percentage of projects that are Government has also set up a PIM Center of Excellence in underpinned by a cost-benefit analysis – out of the total Makerere University to build capacity in this area sustainably entering the Public Investment Plan – stood at 37 percent and affordably. In select sectors, MDA staff can prepare good for FY20/21, up from 15 percent in FY18/19. PCNs, and the DC secretariat can do the vetting and screening. The pre-feasibility and feasibility studies, where utilised, have 23. In line with the requirement of the PIM framework, supported evidence-based public investment decision-making the Development Committee (DC) was reconstituted to which involve trade-offs between competing claims, and the perform the role of independent reviewer of projects or optimum use of resource. This has also enabled rejection of gatekeeping function and build a pipeline of bankable weak or poorly designed projects in a timely manner and projects. Members of the DC are drawn from most crucial avoided potential challenges at later stages of the project cycle. stakeholder institutions in the project management process.11 The Permanent Secretary and Secretary to Treasury chairs 26. These reforms have brought some good practices to the DC, and PAP is the secretariat. The DC is entrusted with Uganda’s PIM system. One of the most important developments the task of appraising the project proposals submitted by has been putting in place a standard process for improving the programs, ministries, or agencies as per a standardized the quality of projects that are entered into the national PIMS framework and using specific guidelines for review budget. Not only are there guidelines for government officials and approval of investment projects. The main tool of the to prepare projects, but there is also a systematic process for DC is the Development Committee Guidelines which were reviewing and appraising the projects before they are included published in 2016 and used to review and appraise project in the budget. Alongside these reforms, a comprehensive proposals for feasibility and viability before they enter the and authoritative national development strategy is linked pipeline of ready-to-finance project proposals. To guide the to programs and their program implementation action plan. selection of projects out of the pipeline for financing (i.e., into It provides clear strategic guidance on required investments the budget), the DC uses a published criteria for selection of through a list of investment initiatives within the National projects into the public investment plan (PIP).12 Development Plan (NDP III), including their indicative cost. The effects of these reforms are already visible in the improved 24. Furthermore, to streamline project information and quality of projects submitted by MDAs to the Development digitalize the appraisal function in MoFPED, an integrated Committee for approval and admission into the PIP. Moreover, bank of projects (IBP) was set up. The IBP system is the the percentage of projects that are underpinned by a cost- central tool for MoFPED to manage Government capital benefit analysis (CBA) out of the total entering the PIP, while investments through four interlinked subsystems, which ideally still low, has improved from 10 percent by FY14/15, to 37 percent operate as the four decision gates through which a project for FY20/21, as reported by MoFPED. The impacts of some of must pass before it is approved – these include project concept, these reforms may take some time to be realized, but they project profile, prefeasibility study, and feasibility study. The raise hope that investments are starting to be managed well. system will interface with other public finance management 8 MoFPED 2016. 9 NDP III is hinged on the Programme Implementation Action Plan (PIAP) which has generally included climate change actions in their medium-term planning frameworks. These are covered under the following: (i) Agro-Industrialisation Programme; (ii) Natural Resources; (iii) Environment; (iii) Climate Change, Land and Water Resources Management; (iv) Sustainable Urbanisation and Housing Programmes; (v) Integrated Transport Infrastructure and Services; and (vi) Energy Development Programmes. 10 Scope of the project, project idea, project concept notes, project profile, the use of log-frame and the theory of change. 11 Membership includes Office of the President, Office of the Prime Minister, Office of the Solicitor General, Public Procurement and Disposal of Assets Authority, National Planning Authority and MoFPED. 12 MoFPED 2021. 13 Key MDAs that were trained included MoFPED – PAP/PIM, PPPU, Debt and Cash Policy, National Planning Authority, MLHUD, Uganda Revenue Authority, MoWE, PPDA and Ministry of Agriculture Animal Industry and Fisheries. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 10 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 2.2. Persistent Project Implementation Problems Act (Amended 2015) imposes a legal requirement for multi- year commitments to support a lifetime project financing for 27. Notwithstanding the progress achieved in putting activities that require more than one year to be executed. Yet processes in place through the implementation of the not all projects are funded systematically. As a result, overruns PIM action plan, several challenges remain, which has in cost and time on projects persist, as do high commitment significantly weakened the impact of the fiscal policy fees in the case of externally funded projects, and shortened and effectiveness of the overall development program. life span of projects due to poor operation and maintenance As was highlighted in Module I of this PER (macro-fiscal of created physical assets. In part, these arise due to lack of challenges), given the delays in implementation of projects timely and accurate recording of multiyear commitments. There during NDPI and NDPII (i.e. FY09/10 to FY19/20), the level of is no verification process for multiyear commitments, which actual development expenditure remained well below the undermines the effectiveness of the multiyear commitment levels envisaged under the plans. According to the Public statement (MYCS) and the large infrastructure agencies have Investment Plan (PIP), only 78 percent of planned investments reported the repeated accumulation of arrears due to unpaid were realized in this period. As a result, the value of the contracts. For instance, UNRA’s unpaid interim payment backlog of planned infrastructure investments had increased certificates have averaged around UGX400 billion per year by more than US$ 1 billion by the end of the first NDP. Under- in the five years FY15/16 to FY19/20 but had almost doubled execution continues to undermine the effectiveness of fiscal to UGX700 billion in FY20/21. More than half of the projects policy by lowering the multiplier effect, especially from the in the PIP receive insufficient funds for implementation. As a expenditures that have on average fallen below plans by result, projects are delayed, subjected to cost overruns and/ about 2 percentage points each financial year. The under- or stalled, with those that are delayed estimated to account execution of the infrastructure budget arises from a multitude for 5 percent of total capital spending, as cited in the FY20/21 of factors that can be traced throughout the entire project Auditor General’s report. The delays in implementation of road cycle, as discussed below. works contracts, is estimated to cost over UGX 2.5 billion per month. This underscores the importance of integrating the 28. Some MDAs have not adjusted to adhere to the MYCS process into the mainstream budget review process to new measures and guidelines, partly due to a lack of ensure there are more stringent mechanisms to provide and appreciation for the new process and also due to parallel to protect funding for ongoing projects. processes – especially with externally funded projects. According to the Auditor General’s Report for FY20/21,14 out 31. Inadequate funding for routine and capital maintenance of a sample of 371 projects in the public investment program, has led to quicker depletion of capital assets. While 245 projects (66 percent) with total project values of UGX643.4 capital expenditures more than doubled from 0.69 percent trillion did not have feasibility studies undertaken before of GDP during NDPI to 2.81 percent during NDP II, the budget they were allocated financing. It is also noted that capacities for maintenance expenditure remained unchanged at 0.1 would need to be enhanced in some MDAs to even understand percent of GDP (Figure 16). This level of funding is below the studies that have been done by external agents. Some the minimum acceptable standards of at least 25 percent of externally funded projects have not followed national the capital budget. As a result, many agencies were unable guidelines and aspirations when undertaking feasibility to carry out the routine maintenance of capital assets or studies. On top of this, other challenges crop up along the postponed maintenance to later stages which increased project cycle, such as securing the right of way after projects rehabilitation and asset replacement costs. Within the road have started implementation; inadequate counterpart funding sector, Uganda loses about 10 percent per annum of road to facilitate elements of projects that would ideally be funded assets due to poor road maintenance. The routine and periodic by government under externally funded projects; and poor maintenance cost for the entire life of a road is estimated project operation and maintenance of assets that have been to be between 2 percent to 3 percent of the initial capital created. investment. However, this amount is likely to more than triple due to delayed maintenance. On average, only 49 percent 29.The Auditor General’s Report for FY20/21 again noted of the annual road maintenance needs were funded from that out of a sample of 371 projects in the PIP, 342 projects FY14/15 to FY20/21 (Figure 17). There is need for increased (92.2 percent) with budgets totalling UGX39 trillion had gone funding for routine maintenance of capital assets since this past their planned exit periods, with some extended by more will result in substantial savings in the medium and long than 12 years and only 40 percent of the projects in the Public term on expensive rehabilitation works. Investment Plan (PIP) were still within their expected time. 30. Projects are not systematically funded through the implementation phase, which causes disruptions during implementation. Section 23 of the Public Finance Management 14 Auditor General Report, FY 2020/21. 11 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Figure 16: Mismatch between Capital and Maintenance Expenditures (percent of GDP) Source: MFPED BOOST Figure 17: Funding Requirement Versus Provisions for Road Maintenance Source: MoFPED 32. The persistent PIM challenges underscore the complexity thereby converting the project into an economically unviable of reforming PIM frameworks, given the many institutions, venture. Globally, it is well known that whilst the PIM process processes and mandates that must work together to form is rooted within the theory of economic efficiency that aims a system that is able to manage investments efficiently. to maximize the returns on investment, the practical process It is not sufficient to prepare and appraise projects so that of project selection, funding and implementation can be quite they meet criteria for economic return when the budgetary political. This introduces another critical aspect that must be allocation process would not fund them efficiently. Nor is it well understood because reforms that threaten the status useful if implementation weaknesses raise project costs well quo can be met with public or covert resistance. above the original estimates from the cost-benefit analysis, 15 ibid 16 IMF 2022. 17 Byaruhanga and Basheka 2017. 18 BMAU 2019. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 12 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 33. Overall, the reform progress around the administrative methodologies, the assessments are consistent in many ways processes is being discounted by challenges in critical and can inform a strategy and action plan to inform the next areas, including project prioritization and selection, sequence of reforms that should help address weaknesses in budgeting, and implementation. The PIMA assessment (2022) PIM and help the country realize higher returns to investments. highlights Uganda’s progress in designing the elements of a good PIMs system, which on the other hand, are not effective. 35. The World Bank’s PIM system framework is characterized This demonstrates the implementation challenges and lack of as a complete system of public investment management enforcement. Therefore, even as the reforms have progressed, that allows for the transformation of investment ideas there are still numerous cases of low execution rates – into investment outcomes and, economic and social especially on externally funded projects; lengthy approval development. This system should take projects through a and sometimes convoluted processes (this occurred as the complete project life cycle that on one hand “filters” them PIM processes are increasingly convoluted with additional to systematically stop bad, uneconomic projects from taking processes of approval, hence defeating the original objective up resources that would otherwise be invested in beneficial, of improving efficiency); lengthy implementation delays; cost economic projects; and on the other hand, ensures efficient and time overruns on projects; high commitment fees in the and effective execution, operation, and eventual management case of some externally funded projects – especially those of the assets created to maximize the return on investment. financed through commercial loans; shortened life span of To assess the efficiency and effectiveness of a country’s PIM project investments due to poor operation and maintenance system, such a framework provides a comprehensive view of created physical assets; low capacity of some MDAs and; of the public investment cycle, allowing the identification of continued non-compliance of many projects to the guidelines. institutional and procedural gaps across the eight essential features and functions, now commonly referred to as the 2.3. Aligning Project Implementation Challenges “8-Must-Have Functions” (Figure 18 and Box 2).19 Government’s to the Public Investment Management Cycle PIM framework, re-organizes this into four phases: (i) project identification (guidance), (ii) pre-investment (appraisal and 34. Several institutions have recently assessed the PIM independent review), (iii) investment (implementation and system to decipher reasons for the remaining gaps and adjustment); and operation and ex-poste evaluation (operation map a way forward for the next phase of actions. In and evaluation). As was done in 2015 PIM diagnostic exercise, addition to a World Bank PIM Diagnostic Update Technical this assessment follows the same structure to provide a Assistance Mission carried out in 2022, the IMF completed a stage-by-stage assessment of the PIM cycle. PIMA while PEFA was conducted in 2023. While using different Figure 18: The Public Investment Management Cycle Authority to screen and reject project 1 23 45 6 78 Independent Adjustment Appralsal Guldance review Link to a development strategy Source: Rajaram et al. 2014 19 Ibid. 13 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Box 2: The Eight Must-Have Functions of a Good PIM System 1. The strategic investment guidance, project concept development, and pre-appraisal screening: Broad strategic guidance to guide sector-level decision-makers and preliminary screening to ensure that project concepts meet minimum consistency criteria with the government’s strategic objectives and economic classification. 2. A formal project appraisal process: A regulated set of project preparation steps that involve pre-feasibility and feasibility studies must be completed before a project can be approved for funding and appropriate methods to guide the technical analysis according to the project’s scale and scope. 3. Independent review of the appraisal: Review by the corresponding authority (MoFPED, in the case of Uganda) to counter optimism bias – overestimating demand and underestimating costs. 4. Selection and budgeting: The final decision on project selection and budgeting using a well-managed budget process and linking the appraisal and the choice of public investment projects to the budget cycle, even if the project evaluation cycle is on a different timetable; verification of project eligibility and priority; scrutiny of forwarding costs and funding during budgeting. 5. Efficient project implementation: Scrutiny for implementation realism includes organizational arrangements, procurement planning, a timetable; adequate monitoring systems; and systems for managing total project costs. 6. Ability to make project adjustments: Flexibility to allow changes in the disbursement profile – including discontinuation of nonperforming projects – to take account of changes in project circumstances. 7. Provision for sustainable operation of facilities: Processes to ensure that a new facility is ready for operation and that the intended services can be delivered on a sustainable basis; requires effective handover of management responsibility for operation and maintenance and upkeep of robust and up-to-date capital asset registers. 8. Basic completion reviews and ex-post evaluation: A systematic review of all projects upon completion to assess whether a project was delivered as specified, on time, and according to budget, and to introduce a more sophisticated ex-post evaluation of the project outputs and outcomes against objectives established in the design. Source: Rajaram et al. 2014 2.3.1 Project Identification and Guidance (The strategic investment guidance, project concept development, and pre- appraisal screening) Box 3.2: Highlights of Guidance, Project Concept Development, and Pre-appraisal Uganda has long-standing national and sectoral planning processes that support initial screening of projects to ensure their alignment with medium-term national development priorities and sector strategic plans. For example, NDP III provides a comprehensive and authoritative national development strategy for period 2021-2025 with a list of investment initiatives, including indicative multi-year investment estimates. The PIM policy framework and guidelines provide for a rigorous pre-investment study or preliminary screening of potential investments or project concepts. Project alignment to government’s economic and social strategies have to some extent, helped MDAs and LGs to focus spending on the highest value areas. Meanwhile, the sector strategies and priorities can provide guidance for investment prioritisation and capital budgeting. Government of Uganda has invested in building competence within MDAs to adopt relevant manuals and templates and undertake pre-feasibility studies. However, the adoption of the pre-appraisal process remains ad-hoc for some parts of government, while it is cumbersome and very challenging in other sectors. Source: World Bank: Public Investment Management Diagnostic, 2022. 36. This phase of public investment management has future investment cost estimates. Several strategies and improved strongly, and hence scores highly in comparison investment plans at the subnational and program levels are to international comparators, yet several gaps need coordinated through and draw from the NDPs. The National to be closed. Uganda has long-standing national and Planning Authority operates a geo-spatial system that will sectoral planning processes that support initial screening of in future provide an overarching strategic framework based projects to ensure their alignment with medium-term national on a long-term vision of the spatial development of the development priorities and sector strategic plans. The NDPs country. Strategic documents governing the activities in have a list of indicative investment initiatives, including their the various programs are, however, quite general and do UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 14 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment not provide specific guidance for the development of public 40. With no sector or program specific manuals and investment projects. Furthermore, project proposals are methodologies, project preparation is not properly guided initiated with reference to high-level strategic guidance, and hence quality varies across MDAs. While the need to but the project codes in the NDP3 are different from those in incorporate new concepts like sustainable development, the IBP, and hence are not linked to the electronic database green economy, circular economy, resilient infrastructure, of submitted, approved, and on-going projects, making it climate change, environmental aspects, gender issues, and difficult to distinguish the proportion of projects within the social inclusion (disabilities) are appreciated within the NDP PIP reflecting originally set national priorities from those III, these are yet to be implemented. In addition, because generated within the sector programs. the program policies and plans – as well as their costed objectives – are not adhered to as guides to investment 37. The PIM manual and IBP provide clear guidelines on decisions, they have not been used to anchor decisions on project profiling, as well as unified requirements for first- externally funded projects. level screening of project ideas for strategic relevance. The first-level screening of project ideas is supposed to be 41. Overall, while project proposals are initiated with done at the line ministry or local government level and the reference to high-level strategic guidance, the linkage program working group (sector working groups before FY22). with the final PIP is limited. For instance, project codes The main thrust of the phase is to screen proposals for public allocated to the NDP III are different from the codes acquired investment projects for relevance with their respective sector in the IBP. Hence, the NDP projects are not linked to the policies, before passage through the first gate of the IBP, until electronic database of submitted, approved, and on-going they have demonstrated the strategic relevance to national projects, making it difficult to distinguish the proportion priorities. However, enforcement of the functionality remains of projects within the PIP reflecting originally set national weak because manual and guidelines for the preliminary priorities from those generated within the sector programs. screening are, quite generic and do not provide specific guidance for the development of public investment projects 42. According to the World Bank PIM Diagnostic Mission, for specific sectors. the challenges in this stage are largely due to: 38. Specifically, the practice follows various procedures a) A lack of shared understanding of the PIM reform objectives depending on the type of financing – external donor or and related practices, especially the required rigorous domestic budget financing – for the different sectors’ preliminary screening within central government, and PPPs, or at different levels of government. The project local governments. preparation guidelines are silent on the procedures run by b) Inadequate capacity within MoFPED, MDAs and LGs to state-owned enterprises and some local governments feel pursue rigorous preliminary screening. Specifically, excluded from the PIM process. Similarly, externally funded preliminary screening of projects in LGs is weak and projects are prepared according to the standard requirements ad hoc, as many LGs do not receive sufficient strategic of the financiers, which sometimes flout the processes that guidance and neither have the competence needed have been established. According to MoFPED, this is sometimes to undertake relevant preliminary screening to make driven by the fact that such projects are supply-driven, hence evidence-informed decisions on the projects. do not have sufficient roots within government to support the processing. MoFPED will need to strengthen the incentives and c) Failure to follow PIM guidelines with the pursuit of penalties as well as sensitize all stakeholders on the need “top-down project concepts” undermining adoption to standardize processes to improve efficiency by removing of preliminary screening and transparency in project the inherent institutional fragmentation, duplication, and development. GoU continues to prioritise a significant lack of clarity on procedures and regulations. number of projects that have been initiated by availability of funding from a donor and political directives. 39. More so, not all SOEs and externally funded proposals for public investment projects are subject to systematic d) Lack of stakeholder involvement, which undermines screening. Some of the line ministries review financial plans ownership and support during implementation. The of SOEs that they control on an annual basis, and these plans preliminary screening, where it is undertaken, does not include a list of projects, but some ministries and financiers always provide an opportunity for the stakeholders in tend to be concerned with the overall capital investment both government and civil society to participate in the envelope rather than the feasibility of individual projects. project selection or voice their concerns on prioritisation In cases where they are externally funded, some project and potential implication on socio-economic and proposals are developed through to approval stage before environment aspects within the community. being exposed to any form of screening. Furthermore, the adoption of the pre-appraisal process remains ad-hoc for some parts of government, while it is cumbersome and very challenging in others. 15 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 2.3.2 Formal Project Appraisal 46. However, not all projects have been subjected to these sophisticated processes. According to information in the 43. The project appraisal function has strongly benefitted public investment program (PIP), while there has been some from the PIM reforms which started in 2015. The function is increase in the number of projects studying the economic executed by MoFPED through its Public Appraisal and Public and financial viability of their projects before they requested Investment (PAP) department) and the multi-disciplinary funding, only 37 percent of projects that entered the PIP in Development Committee. In addition to guidance on writing FY20/21 had undertaken the full cost-benefit analysis, with project concept, project profile, pre-feasibility options, and this number reducing to 21 percent in FY21/22, due to COVID- feasibility alternatives, the manual carries an integrated 19-related projects that could have been processed on unusual menu of appraisal options. These include financial, economic, terms. This is mainly due to limited capacity, both in terms distributive, project selection, risk analysis and management, of funding, tools and human skills. The capacity building distributive analysis, cost effectiveness analysis, and public- effort that has been spearheaded by MoFPED is yet to create private partnership project appraisals. Combined with the a sufficient pool of such skills across line ministries, state- project preparation templates, guidelines and methodologies, owned enterprises, and subnational governments. Makerere the conversion factor software, and the national parameters, University’s Centre of Excellence in PIM is a significant step these facilitate the project appraisal process. in the right direction, to create this capacity sustainably. 44. The appraisal function has supported evidence-based 47. Generally, the quality of feasibility studies varied due public investment decision-making in projects that followed to capacity challenges, resource constraints, and related the standard process (i.e., effectively executed the PIM differential application of the requirements. Most of the process). This has also enabled rejection of weak or poorly tools are sophisticated. Many MDAs outsource or subcontract designed projects in a timely manner and avoided potential to external agencies to undertake their pre-feasibility and challenges at later stages of the project cycle. This has also feasibility studies, for which they may sometimes not be allowed trade-offs between competing claims, and the optimum able to qualitatively supervise or appropriately interpret. The use of resource. However, the relevance and functionality of tools are also expensive and have not yet been afforded to the process remains constrained by capacity and funding all MDAs. Feasibility studies were generally of better quality challenges. On account of these challenges, the actual quality in the transport and energy infrastructure projects which of project appraisal falls short of the requirements due to included detailed cost estimation, demand analysis, and project differential application and capacity gaps. alternatives, including the option of doing nothing. These projects also conducted an economic analysis and calculated 45. The PIM manual has worked well for infrastructure the net present value (NPV) and internal rate of return (IRR). programs but requires adjustments to improve guidance In fact, the roads sector has, since FY09/10, developed a for projects with a social development objective (e.g., practice of preparing a pipeline of projects that are funded as building schools or hospitals), and to incorporate specific finances materialize. More capacity enhancement is needed methodologies. The PIM manual was designed mainly for for other sectors. However, without a more sustainable and infrastructure projects, hence has had to be adjusted to efficient approach to financing project preparation, MDAs are fit social projects. This has particularly been recognized in not able to conduct rigorous project appraisal resulting in respect to the requirement for all projects to have a 70:30 poorly formulated projects. capex/opex ratio, which is not applicable for some projects. It has also been noted by users that the PIM manual provides 48. Existing appraisal tools are generic and not relevant very generic guidance, leaving lots more subjectivity than for specific sectors or for incorporating cross-cutting would be desired in the process of preparing projects. MoFPED climate, social, and environment issues. The approaches would need to spearhead and supervise preparation of are not necessarily relevant for specific sector appraisal program specific methodologies to streamline the process nor helpful for ex-ante assessment of socio-economic, further. These would include program project preparation and gender, equity and environmental implications for the target appraisal methodologies with templates, case studies, and investments – as required in existing legal and regulatory training. Moreover, for the roads, a further differentiation of frameworks.20 In addition, there is a lack of essential data the methodologies is required, including for major highways, and information needed for the feasibility studies. Without urban roads, and rural feeder roads. MoFPED taking the lead and providing guidance to the respective MDAs, the PIM Manual has remained generic with 20 For example, in the case of transportation and roads projects, there is a lack of data to calculate traffic demand; thus, guidelines cannot be followed completely. In addition, some essential national parameters are missing for road projects, like the value of time, the value of life, the value of tires, lubricants, and fuel, and the wear and tear of vehicles – WB Uganda Technical Assistance Mission on PIM, 2022. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 16 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment gaps in emerging critical issues such as climate responsive project’s cost structure. A comprehensive, integrated project appraisal methodologies, specific sector project preparation appraisal would be mandatory for medium, large, and mega- and appraisal methodologies. Relatedly, there is no clarity projects and all PPPs. Furthermore, MoFPED would have to on the type and source of data and information needs with develop project-specific project preparation and appraisal templates, case studies, and training needs. However, at the methodologies to provide more specific guidance to the MDAs. time of the climate responsive PEFA assessment in 2022, Government had not adopted standard methodology for 2.3.3 Independent Review of the Appraisal mainstreaming climate change actions in PIAPs. 52. The Development Committee (DC) is the independent 49. Specific to climate change and climate disaster risk reviewer and gatekeeper of GoU, which mimics the good management, gaps need to be addressed. Technical practice for projects to be subjected to independent assistance has supported authorities to develop climate scrutiny. Through its technical sub-committee, the DC screening tools that should be incorporated into the project assesses projects for their economic viability, although cycle at the project identification, prefeasibility and feasibility the extent and depth to which this is done is not clear. The stages as tier assessment and to have these embedded into strategic case for projects is undertaken by the main DC as the IBP. At the same time, training in climate change and wider the final “gatekeeper”, and hence provides the no-objection environment and social risks management in projects being for the project to proceed into the PIP for consideration for spearheaded between authorities and academic institutions funding. Projects can be approved, fully rejected, or rejected (especially at Makerere University’s PIM Centre of Excellence) with comments for revision at the four decision gates. This has will help strengthen capacity to undertake these project provided some form of handholding, mentoring, and capacity appraisals at various stages. enhancement for project teams which are guided by the DC to improve on their project proposals. At the same time, projects 50. The government’s established appraisal process has are also rejected – out of 222 project proposals that were sometimes been side-lined by requirements under donor considered by DC during FY19/20, nineteen (19) were rejected funded projects, resulting in unequal application and/ at concept stage, one at profile stage (Figure 19). Nevertheless, or parallel and duplicated processes. External financiers even prior to the COVID-19 disruption, only about 37 percent have own processes and requirements that some MDAs use of new projects in the PIP completed the DC process, which as the standard. Whilst some donor requirements use very indicates that some projects are proceeding even if they have detailed, specific requirements for construction projects, not been cleared by the DC (Figure 20), suggesting that the others either have gaps or fall below the bar that has been DC is not properly performing its gatekeeper role. Indeed, set by the government. The current practice ensures that the DC process has not yet matured into a standard process these projects are subject to assessment of their feasibility, with an official or formal ‘Seal of Quality’, including binding including both the financial and socioeconomic viability, the limits on what type and what proportion of projects can be intensity differs and could jeopardize the project outcomes. allowed to jump the processes or queue. This also causes delays as it creates parallel channels through which projects are processed. As the administrative processes 53. Overall, the independent review function has progressed, become entrenched and formalized, it is crucial to streamline but its gatekeeping authority would need to be enhanced these processes to drive more efficiency. to close the gaps. While the composition of experts in the committee allows the economic case of the projects to be 51. A single appraisal process for all projects irrespective assessed, the extent and depth to which this occurs in practice of their size, complexity, or risk, has made the PIM process is unclear. The projection of the workload and requirements lengthy and cumbersome. So far, the practice of undertaking on DC members could overload their capacity. At the same pre-feasibility and feasibility studies applying integrated time, while the DC has exercised its authority and rejected project appraisals has been minimal in the Government of some projects, not all projects in PIP have completed the Uganda. Adopting thresholds in the project’s CAPEX would DC process, which is indicative of gaps in the gatekeeping ease the effort in project appraisal. Thus, small projects function. The PIM diagnostic summarized the issues to be would not require a complete cost-benefit analysis and could addressed to strengthen this function as follows: only fill out an enhanced project concept note providing the 17 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Figure 19: Development Committee Appraisal Figure 20: New Projects in the Public Investment Process in FY19/20 and FY20/21 Program and the DC process 120 100 80 60 40 20 0 FY19/20 FY20/21 FY19/20 FY20/21 FY19/20 FY20/21 Approved at stage Deferred at stage Rejected at stage Project Concept Pre-feasibility Study Feasibility Study Source: MFPED and World Bank Staff Calculations Source: MFPED and World Bank Staff Calculations 54. There is no mechanism to ensure DC decisions are organisational structure, limited staff levels, and inadequate always binding. Several MDAs indicate that the decisions competence among the staff that conduct systematic reviews of the appraisal are sometimes by-passed by Cabinet or of the appraisals. Furthermore, staff are bogged down by political leadership. Sometimes projects are allowed to do the day-to-day business and coordination of the PIM reform this because of ‘special’ considerations, including urgency for agenda, and they are not able to cope with independent loss of funding in the case of externally funded projects or reviews of the ever-increasing number of pre-feasibility directives. Moreover, Government does not issue a proper Seal and feasibility studies submitted by MDAs. There is a need of Quality or Approval when projects are accepted by the DC to examine the extent to which the current institutional as bankable Investments. This shortcoming may prevent an structure and supporting systems will support the delivery approved project to access funding due to high competition for of the numerous mandatory functions in the immediate and limited investment resources. MoFPED should institutionalise medium-term. procedures and mechanisms that prevent projects, with a negative independent review, to proceed for funding. This 56. There are disparities in the processes for appraisal and function can be strengthened with a formal “Seal of Quality” selection between PPP projects and traditional investment to clearly separate projects that have been appraised and projects. According to international best practices, it is approved by the DC, alongside clearly stipulated thresholds, important to use a unified system of project identification, and implications for violation of the process. This would appraisal, and implementation – which includes projects also minimize the number of projects exempted because funded by the budget, by donors, or by the PPP – to ensure of political considerations, e.g., on account of Presidential consistency in decision-making and avoid disparities which Directives or misconceptions about projects that may not may create inefficiencies in the life cycle of the investment be necessarily bankable initiatives as is sometimes the case project. However, PPP projects have a unique route, under for PPPs. It is important to enforce the existing clear rules to the auspices of the PPP Act 2015, which does not necessarily avoid both “exceptions becoming the rule” and approval of support this approach. While the coordination between the non-bankable projects that are likely to experience issues PPP Unit and the PAP department has commenced over the during implementation. past two years, and projects cross from one side to another, it would need to be strengthened to align to a more efficient 55. Inadequate capacity within PAP also undermines approach. effectiveness of DC as an independent reviewer. The performance of PAP is currently constrained by its thin UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 18 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Box 3.3: Disparities in PPP Project Appraisal Stakeholders indicated that some investments are a priori categorized PPP projects. These are mainly politically motivated and fall into the category of implementation as a PPP, without the requisite technical assessment. Whereas Whilst the PPP Unit reviews these projects, assesses, advises, and channels them to the DC, they would have jumped the critical stages up to pre-feasibility to determine whether they should even be the priorities for the country or provide the best fit for the problem expected to be solved by the project, leave alone offering the highest return on investment. The NDP -III, too, has indicated some projects ex-ante as PPPs, without the necessary evidence to substantiate the decision. The PPP Unit provides different alternative routes for the proposing private party involvement including, the funding of pre-feasibility study for the unsolicited proposals. However, there seem to be no clear criteria to inform the involvement and selection of the private party in the pre-investment phase. A transparent criterion is needed to prevent tendencies of influence peddling by private party. 2.3.4 Project Selection and Budgeting that maintenance of completed assets has been a challenge because the O&M for capital projects is not systematically 57. Budgeting for projects must work together with included in the budget. The multi-year ceilings on ministry or other PFM systems for efficiency improvement that can investment program capital expenditure are only indicative, support each other. There must be a mechanism for ensuring but not binding. The mismatch between planned expenditure availability of funding for continuing projects, especially and available funds for public investments is also reflected during the first few months of the financial year to allow in the persistent arrears problem. for a smooth execution of projects. To promote the culture of investment maintenance, each project must have at its 59. Project financing has also remained inefficient on appraisal, the ex-ante appraisal forecasts of both the project’s account of other practices, including drip and incremental capital and operational expenditures. Furthermore, while financing. Drip financing of ongoing legacy projects is very the budget system clearly separates budgets for externally inefficient, as is the use of past allocations to guide budgets for funded projects, actual implementation of projects has faced projects. The latter practice introduces a substantial amount of major challenges due to lack of prioritization, especially sluggishness into the budgetary process or fiscal rigidity that during times of tight fiscal and budget cuts. excludes any evaluation of the fit between current spending patterns and stated policy goals. It also results in programs 58. Budgeting for public investment projects is done within receiving funding long after their purpose and goals have the context of a five-year Medium-Term Expenditure become obsolete. This is not helped by the cash rationing Framework (MFTEF), required by the PFM Act 2015. of the cash flow committee at the vote level rather than the Within this law, MoFPED has adopted an MTEF mechanism to project level, which further encourages the practice of project ensure the following: (i) protection of funding for investment drip-financing. This practice also leads into underbudgeting projects; (ii) annual collection of data on total project costs operation and maintenance (O&M) expenses. The move into and multiyear commitments which are included in the PIP; performance-based budgeting, effective FY22/23, is expected (iii) restrictions on the transfer of funds between capital and to improve expenditure control, raise efficiency, and enhance current spending during the fiscal year; and (iv) completion of performance, given its focus on performance targets, which on-going projects prioritized ahead of new ones to ensure that trigger funds allocation once met. In addition, implementation budget allocations sufficiently match contractual commitments of the selection criteria for projects into the budget will and expenditure needs. At the aggregate level, the capital reduce drip-financing as it requires that projects are only and current budget elements are integrated within a medium- recommended for codes if their multi-year requirements fit term budget horizon. However, the outer year estimates are in the available MTEF. re-generated on a yearly basis and the MTEF is thus not operating as a rolling framework – it plays only a minor role 60. Furthermore, whereas some effort has been made in the setting of the annual budget ceilings for subsequent to build capacity in climate budgeting and management years. For many projects, the expenditure forecasts for of climate change and climate disaster risks in projects, the outer years are always unrealistic, or hardly complied climate change is yet to be systematically mainstreamed with, in the subsequent year, and no explanation given for in the entire PIM cycle. According to NPA, challenges specific changes from the previous MTEFs. According to the IMF,21 the to climate budgeting include: (i) inadequate funding given that capital spending budget deviated from MTEF projection at an the allocations to climate change interventions are too little average of 20 percent over the three years prior to COVID-19. to generate the desired results and transformation; (ii) the Furthermore, capital expenditures (capex) and operational mismatch between budget commitments and NDP III targets, expenditures (opex) are separated in the MDA budgets, which leads to under-budgeting of operation and maintenance (O&M), especially in the roads sector. Several MDAs also indicate 21 IMF Technical Mission on PIMA, 2022 19 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment with the implied scale and pace, not adequate to deliver the feasibility and relevance. To enhance efficiency in allocation NDP III in its specified timeframe; (iii) limited appreciation of capital spending, MoFPED needs to formulate and adopt a of what really constitutes a climate change intervention prioritization formular linked to the availability of resources with many programmes conceptualising climate change to manage processing and approval of projects into the PIP. In interventions as growing of trees and awareness creation the short term, a moratorium could be imposed to streamline and ignore other tangible climate change interventions. the approval of new projects until the GoU removes the existing stock of outdated projects. 61. As a result, budgeting for projects remains a major problem, and contributes to the time overruns and 63. Selection of projects for funding is executed by DC, failure to maintain investment assets. First, there is a following the endorsement of quality of the project. perpetual underfunding of on-going and new investments. Until the criteria for selection of projects for financing was Ongoing projects compete for limited fiscal space directly developed in FY 21/22, the process was convoluted and ad with proposed new projects resulting into spreading thin hoc. It was, therefore, not clear which project would enter the resource and underfunding the investments. Likewise, the budget once it had gone through all the ‘gates’ and was the new projects are launched with inadequate funding – ready for financing. For purposes of funds allocation, many which constrains access to extra resources required to fund projects that have been going through the PIM process would the prerequisites, such as land procurement, that underpin have already secured or been allocated funding, making this a smooth implementation. Second, the inability to plan and function redundant. However, many aspects of the process – budget for the operation and maintenance costs of completed which would have ordinarily been categorized as part of the investments or infrastructure in various sectors, emanates from implementation stage of a project – are long and delay the the lack of standard methodology for determining the needs implementation of projects. This results into holding funding and costs for asset maintenance. This is further compounded that would have been otherwise utilized more quickly had the by limited sector expenditure ceilings which cannot always issues been addressed ahead of time. Therefore, the criteria for accommodate the indicative cost implications in the annual selection of projects for financing covers strategic readiness, budget. The new selection criteria must be implemented implementation readiness (e.g., access to right of way, land strictly as it promised to ensure that no new projects should acquisition, and procurement plans), and ensure proposals enter the budget unless the readiness criteria are met, and are shovel-ready when entering the budget as a commitment the existing ongoing projects have been budgeted for in to address potential delays in implementation. Moreover, as full, over the MTEF. Sufficient budgeting for O&M requires the PIM process matures, and the pool of bankable projects keeping track of your stock of physical assets, linking them materializes, it will become even more crucial to establish to cost centres/programs in the budget, and ensuring those criteria for funding selection and clarify which of the ‘good’ cost centres/programs have adequate funding for O&M. projects should be prioritized for funding. Allocation of resources for projects must use the project life cycle approach and provide adequate resources for project 64. The on-going effort to formulate an exit strategic preparation and close the gaps in budgeting for operational plan for projects that either stalled or exceeded their and maintenance costs. The medium-term budget framework approved life span, will rationalize the portfolio and must be more efficient in providing resources for project greatly improve budgeting. The IBP/PIP provides a complete implementation over the entire project life cycle, rather than overview of the portfolio of projects across financing sources. from one budget year to another. The operation and maintenance module of the IBP, only completed in FY21/22, already provides information on 62. Cognizant of the boundaries of the fiscal framework many characteristics, and performance of ongoing projects. within which the PIM process has to be operationalized, This is instrumental in providing a central location to build authorities must devise an approach to manage the PIP a complete inventory of public investment projects, which without creating disincentives to preparation of projects could be used to assess the performance of the portfolio over the medium-term. Operating without pre-prepared and the financial obligations to complete projects. It will be projects enshrines a substantial amount of sluggishness important to define and institutionalize the procedures and into the budgeting for public investments. Accordingly, criteria for the review and exit of projects (as is done for the management of the Project Pipeline has proved to be their selection into the budget) to rationalize the portfolio complex. There are many projects in the PIP pipeline waiting and make room for new projects – including by terminating, to be funded but their budgetary implications, plus those curtailing, or speeding up projects. of on-going multi-year projects,22 can hardly be contained within rolling MTEF. This has created a backlog of projects 2.3.5 Project Implementation in the PIP, without funding for four or five years. This also 65. Effective project implementation is a critical phase in PIM undermines the very essence of maintaining a bank of ready- and hinged on several functionalities. These functionalities to-implement projects, as some of these projects can become include: (i) timely and quality procurements for technical outdated and require a re-assessment to determine their 22 IMF Country Report No. 22/77 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 20 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment support or works and supplies; (ii) access to and effective use the public projects. This needs to be supported with a Public of appropriate capabilities, competencies, and instruments; Investment Management Systems (PIMS) framework that (iii) effective financing through multi-year commitments expounds beyond just preparing projects, to establishment of and predictable investment outlays; and (iv) monitoring and competent project management teams and guidance on the adjusting of implementation to ensure the achievement of overall organizational arrangements, institutional capacity, investment objectives. The PFM Act 2015 – and to some extent activities, and implementation schedules needed for the the PPP Act 2015 –provide a legal, policy, institutional, and mobilisation and execution of the project. procedural framework that underpin the implementation of Box 3.4: Highlights of Implementation Phase What is working well? - Uganda has a satisfactory legal, policy, institutional framework, and instruments for project implementation. - There are standardized rules and procedures for public procurement, project implementation, monitoring, and adjustments. - Ministries/agencies systematically identify senior responsible officers for management of major investment projects, and implementation plans are prepared prior to budget approval. - Cash-flow forecasts are prepared, updated, and released on a quarterly basis with a final release made in the 3rd quarter. - Effective project controls, where adopted, provide a meticulous approach to the identification and managing of risks. What is not working? - Enforcement of the framework is weak. - Appropriate project management competencies are scarce in government and the private sector. - Few projects, mainly donor funded, are subject to a rigorous procurement process. - Cash for project outlays is sometimes released with delays subject to performance of the project and cash availability. - Monitoring is fragmented with several responsible institutions with numerous reporting framework or outcomes that hardly influence effective project controls and adjustments. - The instruments and tools for management and monitoring need to be harmonised to support efficiency in PIM. Source: World Bank: Public Investment Management Diagnostic Mission, 2022. 66. Project implementation continues to be a challenge, 67. The well-designed elements of the project with this mainly reflected by the low execution rates, implementation stage of the PIM cycle in Uganda are almost with many aspects of a good project implementation fully offset by weak enforcement. According to World Bank framework undermined by weak enforcement. The central 2022, there is a robust legal and policy framework, standardized government’s capital budget execution rates averaged 65 rules and guidelines for procurement, appointment of high percent over the period FY15/16–FY19/20, compared to 55 percent calibre officials to lead project implementation, requirements over the past five years, which indicates the weaknesses in for cashflow of project funding to be systematic, with releases ability to plan and execute investment projects efficiently. made in the first three quarters of the financial year, and some Most projects which started during FY15/16 and planned form of project controls by various implementing agencies to last four years, extended their planned duration by 1–4 (Box 3.4). However, low capacities within MDAs, irregular years. Externally funded projects particularly face delays in releases of funds for project activities, weak enforcement completion, with some having taken twice as much time as of requirements, and weak monitoring and management of originally planned. An assessment of the World Bank funded risk, all contribute to poor and delayed implementation. In projects revealed that in some cases there were bottlenecks some cases, the various systems have not worked together between approval of the project concept and completion efficiently hence standing in each other’s way, instead of of the feasibility study; in two cases there were time lags supporting each other for overall efficiency. As an example, between finalization of technical documentation and selection while it is good practice to close accounts and return all for financing; and while procurement processes show fewer unutilized balances to the consolidated account through delays than one might expect, the award of the contract took the Treasury Single Account, project specific funding is not almost 10 months in one case. returned in time, hence constraining continuity of project activities during the first few months of the financial year. 21 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment A mechanism that allows for such funding to be available bottlenecks:25 (i) delays in preparation of bidding documents; would go a long way in smoothening project implementation (ii) delays in environmental and social safeguard studies; (iii) activities. contractors’ non-performance through not resourcing programs and poor workmanship; (iv) delays in payment of service 68. While implementation of projects is a responsibility providers constraining cash flow to support construction; of MDAs across government, there is not a single (v) implementation agency staff not being familiar with governmental body to guide, supervise and regulate procurement regulations and high turnover of procurement project implementation. The World Bank diagnostic noted staff which result in loss of knowledge built under previous that no entity establishes standards for project management projects; (vi) design changes during implementation stage nor supervises MDAS and LGs to ensure set standards are resulting in time and cost overruns. The significant challenges met. There is neither an entity that promotes compliance have been the submission of forged documentation in the with the standards, nor actively engages in the improvement bids and misrepresentation of qualification requirements by of project management standards. Therefore, there is no contractors; bid tampering resulting in other wise unqualified standardization in project execution. Civil engineers know bidders being awarded contracts and subsequent time overruns; PMI®23 and PMBOK®,24 but PMBOK standards are not formally and skill gaps in preparation of technical requirements and used nor demanded by the GoU. Public officials with a PMP contract management. certification are very scarce. Consequently, the projects have not been subject to rigorous assessment of implementation 71. In addition, the procurement frameworks are explicit realism, nor have they been re-appraised during execution on environmental, social, health and safety (ESHS), to guide on the required adjustments. Therefore, project but not climate change. The standard guidelines, notices, implementation has remained problematic as demonstrated templates, tender requirements, and award criteria are not in the dysfunctionalities in subsequent sections. climate responsive. The existing framework does not establish clear criteria to determine what products or services count Procurement of Public Investments as climate responsive. For example, there are no specific procedures and rules for transfer and disposal of climate 69. The policy and regulatory framework for public sensitive non-financial assets in the country. The procurement procurement has been kept up to date alongside a strong frameworks are limited by the inadequate integration of institutional arrangement. A procurement policy approved climate change in the public investment management (PIM) in 2019, has a supporting law – the Public Procurement and cycle, which precede the procurement frameworks. To enhance Disposal of Assets Act, last amended in 2021. A department the quality and functionality of the procurement in PIM, the responsible for policy formulation and oversight sits in MoFPED, World Bank underscores the importance of adopting climate while Procurement and Disposal of Public Assets Authority responsive PEFA and PIM by: provides regulatory oversight on public procurements. Open competition is the default method for public procurement, and a) Expediting the development of a sustainable procurement the Law on Public Procurement requires project procurements framework to mainstream climate change and other to be based on annual procurement plans. Pilots for a new cross-cutting issues in the procurement system. This e-procurement system are ongoing before the final system is will facilitate early identification of potential bottlenecks rolled out across government. For externally funded projects, and timely corrective measures to mitigate adversary procurement procedures are defined by the related agreements implications on project execution. and contracts. With the recently introduced e-procurement system on 1 July 2021, most stakeholders have registered b) Building capacity across government to support the improvement in procurement practice and share complaints procurement function to manage not only the process plus recommendations which are reviewed, published, and to the point of award of contract, but also contract rigorously enforced by PPDA. management and supervisions. 70. Nonetheless, procurement challenges abound. c) Exploiting technology to improve project implementation. Enforcement of the existing procurement laws and procedures The Building Information Modelling (BIM) – which is the remains weak – which leads to higher-than-expected costs, foundation of digital transformation in the architecture, lower than expected quality of construction, and longer than engineering, and construction (AEC) industry – is one expected construction time, all of which result in less efficient such venture to explore for managing investments in public investments. Implementation of World Bank funded infrastructure programs. projects, for instance has been heavily affected by several 23 PMI® is Project Management Institute Certification. The Project Management Professional (PMP)® Certification from PMI is an acclaimed industry-recognized certification for project managers. 24 PMBOK® is a guide to the project management body of knowledge. 25 World Bank 2022, April UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 22 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment d) The new e-governmental procurement system will and emerging issues that likely undermine efficiency in need to be harmonized and integrated with the IBP, and project implementation. other relevant data and information systems. This will provide an opportunity to link procurement contracts c) Project management capacities are lowest in local (currently only identified as contract numbers) to IBP government, especially for the construction works. Given project codes – track all the procurement issues to their that there are very few Project Management Professional corresponding projects. (PMP®) certifications in Uganda, public officials with a PMP certification are very scarce. Moreover, the PMP e) Enforcement of sanctions on public officials for incompetence certification is not a requirement to engage in project or outright corruption in project execution – to curb a management activities. For example, Ugandan civil phenomenon that continues to inculcate (directly or engineers know the PMI® and the PMBOK® standard, but indirectly) the inefficient tendencies such as flagrant PMI standards are not formally used nor demanded by negligence, corruption, insider trading, and collusion the GoU, hence there is no incentive for public officials with contractors. to acquire such skills. The private sector, too, does not certify professionals because this factor does not give Project Management them additional scores in government biddings. To create a demand for these professionals and ensure 72. Poor project management has resulted in various that these project implementation standards are upheld, investment inefficiencies. These include: (i) delayed progress contractors must be incentivized to employ PMP certified of work; (ii) abandoned projects; (iii) cost overruns; (iv) (or equivalent) staff. schedule slips, most common in road projects which are sometimes 30 months behind schedule; and (v) changes of 2.3.6 Project Monitoring and Adjustment scope but without quantifiable evidence on deliverables.26 These are largely attributed to the following bottlenecks: 73. Project monitoring supports proper project control that can significantly enhance efficiency of investment a) Gaps in existing project cycle to scrutinize project funding. Key functionalities it contributes to include: (i) timely implementation realism. This is because many selected identification and management of risks, ii) development of projects are not really “shovel ready” when they receive contingency plans to mitigate risks and adversary impact the funding. In most cases, the projects are launched when of project implementation, and (iii) facilitation of evidence several issues, like acquisition of land, land compensation informed project adjustment. Effective project control is and acquisition of environmental permits have not been dependent on an effective monitoring mechanism that resolved. In such cases, where the disbursements are provide timely and reliable information for evidence-based made, the tendency is to have idle funds on accounts adjustments. Uganda’s Monitoring and Evaluation Policy lays for several months. out the monitoring mechanism, institutional responsibilities, and reporting frameworks for tracking performance of b) Access to standards for project management are varied public projects – focusing on tracking of project outlays, and their enforcement is weak. This is further complicated implementation schedules, deliverable and outputs against by the lack of a single government entity to enforce annual and medium-term targets. their compliance and ensure improvement in project management, including timely resolution of existing Table 1: Scope of Monitoring Practices and Institutions Type of Annual Monitoring Reports Responsible Agency 1. Annual Budget Performance Report MoFPED 2. Government Annual Performance Report OPM 3. Budget and Expenditure Monitoring Reports MoFPED – BMAU 4. Annual National Development Report NPA 5. Sector Budget Performance Reports MDAs 6. Local Government Performance Assessment OPM 7. Annual Report on the State of Equal Opportunities in Uganda Equal Opportunities Commission 8. Compliance of Budget Framework Papers with Gender and Equity Equal Opportunities Commission 26 World Bank: Uganda TA Mission on PIM 2022. 23 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 74. However, the monitoring framework has not been stamps; and GPS coordinates that allow for automated geo- adopted as an effective instrument needed to facilitate mapping of the information. Using these tools systematically evidence-based project controls and project adjustments. allows the project to enhance the transparency and accuracy The reporting frameworks for any single project are many, of project planning as well as M&E and third-party monitoring duplicative, but hardly provide reliable, comprehensive, and throughout the project cycle. This digital platform allows for consistent data and information. Each framework adopts varied remote supervision, real-time safeguards monitoring, and baseline data and performance indicators; and generates portfolio mapping for coordination across project components performance data which may not always provide useful and can be linked to the IBP. and reliable information for project controls. The World Bank Assessment indicated that monitoring outcomes have always 77. The requirements for public investment project delivered unsatisfactory quality of performance information monitoring and reporting are not centrally defined, which which has had limited influence on decisions needed to keep results in a lack of updated information and overview implementation on track. The duplication in monitoring tasks of the full public investment project portfolio. Various creates fatigue among the MDAs. Sometimes there are too bodies within government collect project information for many M&E reports, but little with action and influence on their own needs, but these are not unified as they rely on project controls. Therefore, the many reports produced standalone applications coupled with manual updates using serve many aspects of monitoring but not management of ad hoc reporting formats. Under its mission of enhancing the the public investment portfolio. The level of monitoring and implementation and performance of projects, the Budget reporting also differs by source of funding. Project monitoring Monitoring and Accountability Unit (BMAU), which is a of donor funded projects is more streamlined, as dictated by spin-off from the Budget Department of MoFPED, monitors the requirements stipulated under the project agreements. the budgetary outlays and physical progress of selected The monitoring outcomes are adopted to inform and probe projects, both in quantity and quality. BMAU has specialists implementation status and foster evidence-based project in roads, energy, water, agriculture, human resources, ICT, adjustments as deemed appropriate. On the contrary, full education, health planners and certified accountants. However, government projects are hardly subject to regular monitoring recommendations from these reports are partially implemented. or project reviews. In most cases, the monitoring reports tend to Furthermore, given its staff size and budget, BMAU cannot highlight the positive development and marginalise emerging monitor all public investment projects. Therefore, it must be challenges that are required to take appropriate and timely selective, and mainly target big and problem projects. Even decisions like re-designing, scaling down, or cancellation. then, this financial information – and the indicators on physical progress of investment projects – are not accompanied with 75. The existing systems for M&E in GoU focus mainly performance information to enable tracking of whether the on monitoring and, to a lesser extent, evaluation and projects achieve their stated objectives. Without this overview, analysis. The Office of the Auditor General (OAG) carries out government cannot review and revisit on-going projects across value-for-money audits and ex-post audits for significant the portfolio and make timely adjustments to the course for capital projects, and Parliament scrutinizes these. However, projects which are off-track. these project audits differ in scope and emphasis from ex-post evaluations. There is no clear policy or practice of subjecting 78. Starting in FY21/22, MoFPED has started reviewing multi-year projects to review the original business case during existing projects that are no longer relevant in the PIP, project implementation when costs, delays, design changes, as part of the activities on the DC calendar which is or demand changes exceed some specified level. There is no shared with all MDAs. The respective stakeholders are also evidence of large projects being significantly re-designed, invited to the DC when their projects are being reviewed. scaled down, or cancelled. Nevertheless, some MDAs indicated that the mechanism that triggers such a review is not clear. With the IBP M&E function 76. Actual monitoring and supervision of projects can fully developed, regular reports on financial and physical also be enhanced through technological innovations. For progress of public investment projects will provide the basis instance, several World Bank funded projects are adopting for actively monitoring the project portfolio from the central real-time data collection and analysis through the Geo- level. MoFPED will be able to regularly collect the necessary Enabling method for Monitoring and Supervision (GEMS). information to monitor projects. However, the procedure for The GEMS method, previously developed for hard-to-reach the reassessment of project implementation is not specified. areas, enables project teams to use open-source ICT tools for Also, there is no systematic review by MoFPED of whether a in-field collection of structured digital data from the field that project has undergone major adjustments, or of the criteria for automatically feeds into a centralized M&E system and MIS. allowing a project to continue if there are material changes The integrated data can include any kind of indicators, based to project costs, schedule, or expected benefits. on tailor-made forms; photos, audio, videos; time and date UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 24 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 79. The existing information management systems for 2.3.7 Facility Operation and Assets Maintenance project monitoring are varied, not harmonised, and barely facilitate evidence-based project controls and adjustment. 81. The PFM Act 2015 provides a strong framework for The IBP system, when fully developed, would provide a central asset management which could be enforced by a recently tool for MoFPED to manage government capital investments. launched Asset Management Framework and Guidelines The first phase of the IBP so far operated four interlinked (AMFG). The provisions include accounting policies, treasury subsystems, which ideally operates as the four gates through instructions and guidelines that guide updating asset register, which a project must pass before it is approved - a project and preparation of a balance sheet with all assets and liabilities concept, project profile, prefeasibility study, and feasibility of the government. Specifically, the AMFG and other sector study, interfaced with other public finance management specific legal frameworks also guide the consideration of (PFM). The second phase of this system, which aimed to climate change and environmental risks in non-financial asset cover implementation and operation aspects of the project management. However, since there are no specific requirements would provide a monitoring system to enable tracking of the to guide completion review and ex-post evaluation of public projects throughout the entire project cycle. This would greatly investment projects, there are weaknesses in the process enhance oversight and monitoring of project implementation. of handover and management of government non-financial However, other stakeholders – including NPA, OPM, and OP assets and establishing accountability for their ongoing – have other systems which generate data aligned to their management and use to deliver services. Governmental specific mandate but can hardly be consolidated to provide a assets are registered but not necessarily managed. A list comprehensive and relevant picture of implementation status of non-financial assets is in place and regularly updated. of the public investment portfolio. There is need to rationalise Some assets are handed over to the operating entity but or harmonise the monitoring function to leverage synergy stay idle, under-utilized, or poorly maintained due to a lack and promote compatibility, and complementarity with all of operations or maintenance funding. There are also several existing information management software’s. Reporting cases where assets are not fit for purpose when handed should be done together. MoFPED, the National Planning over for service delivery. OPM, through the service delivery Authority (NPA), OPM, and OP should collaborate to create unit, and the Accountant General’s Office institutes a board synergy and ensure information management systems are of survey to monitor public assets. Some MDAs also monitor compatible and rationalised. public assets under their responsibility, and other external agencies do surveys on public assets. 80. In summary, government should commit to enhance the functionality and quality of outcomes from monitoring 82. The Asset Management Framework and Guidelines practices needed to foster efficiency in PIM in a coordinated (AMFG) has triggered reforms aimed at pursuing prudent manner. This will require that MoFPED prioritises the following: asset management that underpins an efficient public (i) streamline the institutional roles and reporting framework investment. The reforms include: (i) identification of all assets for monitoring public investments; (ii) ensure monitoring and in MDAs and LGs; (ii) upgrading the IFMS assets module to help reporting frameworks for any single project are complementary capture government non-financial assets in its consolidated and provide reliable, comprehensive, and consistent data financial statements and books; (iii) enhanced assessment and information; iii) each framework adopts agreed baseline of the exposure and sensitivity of certain assets such as data and performance indicators and generates performance road infrastructure to climate variability, transitional risks, information which provide useful and reliable information and extreme weather events. However, the implementation for project controls; and (v) ensure all projects are subject of the AMFG is still in its infancy and has not had significant to effective project monitoring, including climate responsive improvement in asset management and maintenance. reporting on public investment portfolio performances as has been adopted in some sectors including water and environment27 and agriculture28 (Uganda PEFA, 2023). 27 The water and environment sector, reports on the the number of casement-based water resource management activities accomplished and the number of restored degraded watersheds, which is also included with its Strategic Plan 2015/16-2019/20 and consistent with Objective 5 of the National Development Plan. 28 The agriculture sector budget monitoring reports also contain a performance report with information on the number of climate-smart agriculture priority catchments, the percentage increase in forest cover, and number of degraded wetlands restored. Similarly, the Semi-Annual Budget Monitoring Report of the Natural Resources, Environment, Climate change, Land and Water Resources Management Program and the National Environment Management Authority (NEMA) annual performance reports contain information on the performance targets and performance achieved during the period. 29 GoU and World Bank. 2023. Uganda Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report, 2023 10 February 2023 25 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 83. According to the PEFA (2023), asset management money audits, ex-post audits, environment, and gender is undermined by several underlying factors including: audits for significant capital projects, and submits reports for Parliamentary scrutiny. OPM is being strengthened to • Inadequate information on the assets: Governmental better coordinate the evaluation of government programs in assets are recorded by the accountant’s general office but a systematic and coordinated manner. However, the current exclusively for accounting purposes. Central and Sector ex-post evaluations are done in an ad hoc manner. Only a asset registries have not been updated in a systematic few projects, predominantly externally funded, are subject to manner – which denies the ability to conduct verification essential ex-post project evaluation. The weakness is largely of the quality and quantity of the assets created as well attributed to a lack of clear ex-post evaluation guidelines and as the service delivery expected from those assets. methodology for public or capital investments. • Lack of assessment of the performance of GoU assets. The 85. There are no specific requirements to guide completion regular inspection of GoU provides for the determination review and ex-post evaluation of public investment of the condition of assets, but not necessarily assessment projects. Only a few projects, predominantly externally of their performance. Hence, government cannot publish funded, carry out essential ex-post project reviews. The information about the performance of non-financial assets. service delivery unit under the OPM and the Accountant General’s Office institutes a board of survey to monitor public • Inadequate framework to guide the handover and assets. Some MDAs also monitor public assets under their operationalisation of facility or assets: Government responsibility, and other external agencies do surveys on needs to streamline the handover of the facility or public assets. Ex-post evaluations are done very infrequently assets after project construction is completed and ensure in the GoU, even though such analyses could be instrumental in institutionalization of accountability for effective facility informing future actions on other projects. Ex-post evaluation operation. can check whether projects delivered the benefits expected • Maintenance and repairs of assets is ad-hoc and inefficient. from them at the time, as well as inform on which projects did Budgeting for maintenance of assets is largely constrained better and which performed worse than expected, and why. by lack of a clear fiscal policy on balancing new investment Therefore, an ex-post evaluation policy and methodology and maintenance of existing stock. Assets maintenance should be formulated, espousing a gradual adoption, primarily and repairs are subject to availability of funds. Within focusing on the more critical projects in the first stage and the transport sector, new roads have priority over graduating to more products as the system matures. The maintenance of existing ones, mainly because cutting idea is to have a conceptual framework demonstrating the ribbons for new routes is politically attractive. This has impacts of infrastructure projects on society and a typology created a chronic under maintenance, leading to loss of effects for investment projects in the infrastructure sectors in asset value. Moreover, rural roads are mostly gravel and the timeframe of the impacts. surfaced, which need regular maintenance. This situation 86. The current ex-post evaluations and outcome is exacerbated by fast-growing traffic volumes and heavy assessments are not systematically undertaken. Some truck usage on some roads leading to fast deterioration. projects produce a close-out report at the end of the project With the option of upgrading all these gravel roads to construction, but this is random, with the road projects being asphalt surfaces not being affordable immediately, the only ones consistently producing these close-out reports. maintenance ought to be prioritized, to lift the country’s Medium-term evaluations or impact evaluations are done as efficiency in public investment management. requested by stakeholders like donors. Value for Money audits • The vandalization of assets is a significant problem. For are also undertaken by OAG as requested. The key challenges example, in electricity projects, the distribution lines, under this stage of public investment management relate to transformers, road signals, lighting, and solar panels the lack of clear guidelines on processes and responsibilities are stolen or destroyed – the issue of protecting and for ex-post evaluation. The PIM Manual would need to be maintaining those assets has not been solved. adjusted to incorporate this critical element, including fully harmonizing and streamlining complementarities of the 2.3.8 Ex-post Evaluation and Impact Assessments reporting frameworks across MDAs. Ex-post evaluation would also need to become a mandatory requirement 84. While ex-post evaluation and impact assessment is across all public investments, so that it is not a preserve of integral to a long-standing monitoring and evaluation externally-funded projects. To ensure consistency and quality system in Uganda, its actualization is still weak and of the evaluations, a single entity would have to take the fails to meet the basic tenets of an efficient PIM System. responsibility of reviewing and consolidating all evaluation Various institutions undertake some aspects of this important reports to provide authentic evidence on outputs, sustainable function. For instance, NPA is responsible for impact evaluations use of the assets, and the impact on enhanced service delivery of governmental programs and investment projects. The or intended development objectives. Office of the Auditor General (OAG) carries out value-for- UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 26 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 87. The World Bank Assessment (2022) underscored appropriate PIMS frameworks, tools, and methodologies. It the critical processes of an efficient ex-post evaluation needs to be approved urgently by Cabinet for adoption and framework. First, a standard project completion report implementation. (close-out) should be done for all investment projects by their respective MDAs. Then, after three or four years into 88. Over and above the need to close gaps across the the project’s execution, a mid-term ex-post evaluation eight stages of the PIM cycle, is the need to have a strong should be undertaken. This consists of performing another institution with authority to provide policy guidance Cost-Benefit Analysis (CBA) based on actual data rather than oversight of the public investment portfolio. Under the projections. Then, this ex-post CBA is compared to the ex-ante current set up, the PAP Department, MDAs and oversight CBA done at the feasibility study (the ex-ante CBA made agencies lack the required institutional authority and forecasts). This should provide lessons on how to design a professional competence to spearhead the reform agenda better project in future. Finally, an impact assessment must and undertake effective management and oversight of be done in the long-term, just for a few selected projects entire PIM cycle, over and above the mandate to manage to measure the actual project impacts (this is an in-depth the pre-investment phase. There are also specific oversight assessment to provide broad-ranging lessons). The draft responsibilities where capacity strengthening is required National Public Investment Policy is a step in the right including: project execution management, procurement and direction demonstrating government’s commitment to promote contact management, and verification of technical elements prudent ex-post evaluation and impact assessment. The draft of projects and asset registers. policy lays out the distinct processes and procedures, roles and responsibilities of the key stakeholders, as well as the 27 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 3. SUMMARY CONCLUSION AND RECOMMENDATIONS 89. Cognizant of the benefits that would accrue to closing Auditor General’s Report for FY20/21, out of a sample of 371 the efficiency gap, the Government of Uganda embarked projects in the public investment program, 245 projects (66 on reforms that have administratively improved the pre- percent) with total project values of UGX 643.4 trillion, did investment stages of its public investment management not have feasibility studies undertaken before they were (PIM) system. These included setting up a dedicated allocated financing. It is also noted that capacities would department in MoFPED to spearhead the PIM reforms. This need to be enhanced in some MDAs to even understand department has developed and promoted the use of standard the studies that have been done by external agents. Some guidelines and user manuals for project preparation and externally funded projects have not followed national appraisal, national parameters to aid in project and program guidelines and aspirations when undertaking feasibility appraisal, as well as criteria for selecting projects into studies. On top of this, other challenges crop up during the public investment program (PIP) – all of which aim to the project cycle, such as securing the right of way after streamline the process for preparation of public projects. To projects have started implementation; inadequate counterpart strengthen the gatekeeping function for public projects, the funding to facilitate elements of projects that would ideally Development Committee (DC) – an inter-ministerial/inter- be funded by government under externally funded projects; agency arrangement chaired by the Permanent Secretary and project operation and maintenance of assets that have and Secretary to Treasury of MoFPED – was constituted as been created. Section 23 of the Public Finance Management an independent reviewer of project proposals before they Act (Amended 2015) imposes a legal requirement for multi- enter the national budget. The guidelines that underpin year commitments to support lifetime project financing that, the DC processes and project section criteria are publicized, in most cases, requires more than one year to be executed. and an integrated bank of projects was set up to digitalize Yet not all projects are funded systematically. As a result, cost information across the entire project cycle and aid the appraisal and time overruns on projects persist, as do high commitment function of the DC. Capacity enhancement efforts in project fees in the case of externally funded projects, and shortened preparation and appraisal, as well as selected strategic life span of projects due to poor operation and maintenance areas of procurement have preceded a sustainable capacity of created physical assets. The Auditor General’s Report for development drive started through the Makerere University FY20/21 again noted that out of a sample of 371 projects in the PIM Centre of Excellence. PIP, 342 projects (92 percent) with budgets totalling UGX39 trillion had gone past their planned exit periods, with some 90. These reforms have brought some good practices to extended by more than 12 years and only 40 percent of the Uganda’s PIM system. The usefulness of a standard process projects in the PIP were still within their expected time. for entering projects into the national budget, supported by guidelines for government officials to prepare projects, 92. It is evident that the improvements around the and a systematic process for reviewing and appraising the administrative processes of the pre-investment phase of projects before they are included in the budget, cannot be PIM are being discounted by challenges in critical areas, underestimated. The effects of these reforms are already including project prioritization and selection, budgeting, visible in the improved quality of projects submitted by MDAs and implementation. These must be addressed urgently to the Development Committee for approval and admission to raise value for money in delivery of projects and support into the PIP. Moreover, the percentage of projects that are the envisaged fiscal consolidation agenda. On the one hand, underpinned by a cost-benefit analysis (CBA) out of the total challenges with project prioritization and alignment to the entering the PIP, while still low, has improved from 10 percent achievement of program (previously sectoral) objectives, by 2015, to 38 percent for FY22, as reported by MoFPED. While remain. And since the programs poorly define and do not the gatekeeping function is yet to ensure that all new projects appropriately cost their priorities, they also fail to drive entering the budget are properly studied and appraised in line the investments that are financed externally. On the other with the standardized process, it has also stopped some ‘bad’ hand, actual implementation is constrained because budget from entering the system. Out of the 222 project proposals allocations do not fully cover the costs of implementing ongoing that were considered by DC during FY20, 19 were rejected at projects through genuine multi-year commitments, while the concept stage and only 122 made it into the PIP for that year. budget takes on new projects. This is further exacerbated by budget cuts during budget execution and the fact that 91. Notwithstanding the progress achieved in the PIM projects are often not ready for implementation, as well as process, several challenges remain, undermining the weaknesses in procurement and contract management, all country’s ability to raise efficiency gains if the PIM system of which contributes to poor value for money in the delivery functioned properly. There are instances in which measures of public investments. and guidelines have not been adhered to. According to the UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 28 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 93. The reforms over the past five years focused on and professional competence to spearhead the reform improving quality of projects at entry, and had envisioned agenda and undertake prudent pre-investment planning, critical success factors identified in 2015 that still need to effective management, and oversight of entire PIM. be completed. First, government has started working on a Project implementation lacks oversight and guidance, PIM policy to formalize the administrative reforms that have and is also constrained by weak contract management, already been put in place, and a basis for strengthening the while monitoring is highly fragmented and wasteful as legal framework, including the gatekeeping function. Before the numerous reporting frameworks hardly influence it reaches finality of strengthening the legal framework, the the management of public investments. Furthermore, reforms that have been undertaken remain administrative there is no single entity responsible for oversight of the actions that could be reversed or ignored without any entire PIM or accountable for the performance of public consequence. Second, although the capacity building effort investment. has commenced, further work will still be required to create the pool of resources needed to manage projects across b) Budgeting for projects remains a problem as the allocation the entire PIM cycle. For instance, project preparation and of resources for projects does not use the project life appraisal skills need to be entrenched in all programs, MDAs, cycle approach, leaving gaps especially in budgeting and different levels of government, and the project managers for operational and maintenance costs. The ex-ante that are critical players in project implementation need to appraisal forecasts of project costs are limited to the acquire modern project management skills. The PIM Centre of capital budget and hence do not consider the operational Excellence at Makerere University will need to be nurtured to expenditures, which further undermines the culture of ensure a sustainable and affordable mode of building these project maintenance. In addition, due to underbudgeting, capacities. Third, the project preparation fund – to ensure the appropriations for some projects persistently use that priority projects undergo feasibility and/or pre-appraisal supplementary funding, which must be approved by studies while awaiting inclusion to the PIP – has recently Parliament and distorts the operations of projects. In been set up in NPA, which is a major step. Such a fund will addition, the existences of significant arrears suggest need to put in place a proper implementation and governance a critical mismatch between planned expenditure and structure to sustainably address the funding challenges in available funds for public investments. The mismatch has project preparation. Lastly, beyond the pre-investment stage, exacerbated project delays or long-standing unfinished the rest of the PIM cycle (especially project implementation projects, and increased costs due to interest, penalty and asset management) must be improved if projects are to costs, and court judgements. yield the expected dividend. c) Limited appreciation of the relevance and functionality of 94. Beyond the critical factors of success identified in 2015, a streamlined PIM, among the government, civil society, there is work to be done across the various stages of the and private sector, that frustrate adoption of the reforms PIM process to further strengthen the gatekeeping function, and realization of the desired objectives and practices. improve budgeting, and close gaps in implementation In addition, there is low level of understanding that of projects. These areas of attention can be summarized investment projects should be tested for compliance as follows: with climate related objectives and requirements. a) The institutional capacities and coordination framework d) Whereas an increasing number of projects entering the PIP for PIM are being strengthened but their functionality have been subjected to a CBA (i.e., 38 percent by FY22), remains weak. For instance, the gatekeeping function not all funded projects are subject to rigorous climate remains weak as it is just an administration function responsive preliminary assessment and feasibility studies. that can be ignored without any consequences. The This is largely attributed to in inadequate competencies decisions taken during the processes such as the DC, to undertake the pre-investment analysis and lack of which works as the independent reviewer, do not have funding for external soliciting of the studies. In addition, any legal binding aspect, such as a “Seal of Quality” political influence seems to take an upper hand in some used in other jurisdictions to signify the completion of the projects during selection and funding, rather than of the appraisal stage and hence readiness of project project viability and ability to deliver economic value to proposals for financing. In addition, the formal authority society. As a result, a significant number of implementation of the PAP Department remains weak compared to problems are on account of gaps within the pre-investment the significance of its function, while other MDAs and stage. oversight agencies lack the required institutional set up 29 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment e) The information management systems for project selection, budgeting, and implementation and monitoring to management and monitoring are varied, not harmonised, raise value for money in delivery of projects and support the and hardly facilitate evidence-based project controls and envisaged adjustment to a more sustainable fiscal agenda. In adjustment. Uganda has developed a series of information addition, a sustained pursuit of the PFM reform agenda will systems to support different aspects of PIM, from project be based on a good understanding of the value of an efficient inception to monitoring and evaluation. Specifically, M&E PIM system across the public service and adoption of the is done by the PBS, the IBP, the NDP M&E system and the relevant reform areas towards realization of the efficiency in by the OPM, burdening MDAs and LGs with separate data public investments. The required actions or recommendations requests. The resultant reporting framework can hardly across the key stages of the PIM cycle are summarized in be consolidated to provide a comprehensive and relevant Table 2 below with a sense of categorization of what should picture of implementation status of PIM. There is a need be done immediately (within the next 18 months) and over for compatibility, data exchange and integration between the medium term (2 to 3 years). PIM related IT systems. 95. To realize genuine improvements in the PIM cycle in Uganda, beyond the administrative processes of the pre-investment phase of PIM, more work will have to be done in critical areas. This includes project prioritization and Table 2: Public Investment Management Reform Action Plan Reform Area Recommended Actions Lead Institutions Immediate or Medium Term 1. Appreciation #1.1 Design and undertake a sensitization program MoFPED(PAP) Immediate and Ownership to enhance appreciation of the importance of an of PIM Reform efficient PIM, including the reform agenda, targeting Objectives stakeholders at all levels. #2.1 Streamline and simplify processes in the pre- MoFPED(PAP) Immediate investment planning stage to reduce the overlap and and NPA redundant stages and rationalize the efficiency in decision-making. #2.2 Update the project preparation guidelines for MoFPED(PAP) Immediate preliminary screening (pre-feasibility studies) with elements of the project that have become critical including gender, circular economy, climate change, and intersectoral projects, that require a joint action taken by multiple government entities #2.3 Establish a capex threshold to support a MoFPED(PAP) Immediate 2. Strategic fast-track process for projects that meet certain Guidance and characteristics (less challenging projects in terms of Preliminary demand analysis, technical design, and low budget). Screening #2.4 Develop internal capacities for project MoFPED Medium term preparation, especially at a subnational level if they are to engage in project preparation and screening at the local government levels #2.5 Strengthen the pre-screening of proposed NPA Medium term investment ideas during the formulation of NDP IV. This would involve incorporating at the planning stage, a system for conducting a pre-appraisal analysis of investment initiates (pre-screening phase) before entering them into the NDP-03. Such a system would also generate a project code that can be traced to the rest of the project system within the IBP. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 30 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Reform Area Recommended Actions Lead Institutions Immediate or Medium Term #2.6 Update the project preparation guidelines for MoFPED-PAP, PPP Immediate formal appraisal (feasibility studies) with elements Unit and PPDA of the project that have become critical, including gender, circular economy, climate change, and intersectoral projects, that require a joint action taken by multiple government entities. #2.7 Make budgetary provision to support rigorous MoFPED – BD Immediate feasibility studies, including out-sourcing and preparation of complex designs of PI and formulate criteria for accessing the funding. # 3.1 Support Makerere PIM Centre of Excellence to sustainably build capacity of MDAs and public officials in financial modelling, economic analysis and risk analysis, critical in project preparation and appraisal to strengthen the in-house capacity in line ministries and agencies. #3.2 Develop sector-specific appraisal MoFPED(PAP) Immediate methodologies, including updates of national parameters, and incorporate tools for impact assessments of cross-cutting issues, e.g., environment and climate change. 3. Formal Project #3.3 Plan and budget dedicated resources for Appraisal project preparation. This could include strengthening the design and operationalization of the project preparation fund. #3.4 Update the PIM manual with new critical issues MoFPED(PAP) Immediate including climate change, gender, green growth, resilient infrastructure, and social inclusion #3.5 Promote public access to IBP and an effective MoFPED Immediate feedback mechanism to allow effective engagement with stakeholders, including CSOs and the public during the pre-investment planning to seek views on the pros and cons of planned investment. #4.1 Define and adopt the concept and procedural MoFPED(PAP) Immediate arrangements for issuing a “Seal of Quality” ahead of any project being negotiated for financing. #4.2 Design and undertake a capacity building program tailored to address the competency needs 4. Independent for the members of the DC and ensure an effective Reviews independent reviewer. of Project #4.3 Strengthen the formal authority to the PAP MoFPED - PS Medium term Proposals Department to match it with the importance of its function. Organizationally, this could be possible if PAP Department and the PPP Unit are unified under the same umbrella. Alongside this, enhance the functionality of the PAP Department by instituting a PIM Technical Unit to continuously provide strategic 31 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment thinking for the Unit including developing new MoFPED - PS Medium term technical tools and methodologies, and shadow prices for project appraisal. 5. Project #5.1 Improve the credibility of the medium-term MDAs and NFPED Immediate Selection and expenditure framework (MTEF) by formulating Budgeting realistic and affordable expenditure estimates for the budget year and two outer years of the MTEF. This would entail improving the process of allocating resources for operational and maintenance costs. Projects should not be separated into capital budgeting independent from their current budgeting. The ex-ante appraisal forecasts for each project should encompass both the project’s CAPEX and its OPEX. This also promotes the culture of project maintenance. #5.2 Undertake an effective budget challenge MoFPED(BD) Immediate function or verification of the proposed estimates by MDAs to enhance efficiency during the annual budgeting process. #5.3 Ensure the IBP and TSA work together efficiently – solutions worked on how various systems for efficiency improvement can support each other. Allocation of resources for projects must use the project life cycle approach and provide adequate resources for project preparation and close the gaps in budgeting for operational and maintenance costs. The medium-term budget framework must be more efficient in providing resources for project implementation over the entire project life cycle, rather than from one budget year to another. Relatedly, at the operational level, while Treasury Single Account calls for unused balances to be returned to the Consolidated Account, which is a good accounting practice, there must be a mechanism for ensuring availability of funding for continuing projects especially during the first few months of the financial year to allow for a smooth execution of projects. #5.4 Institute a system for continuous re- MoFPED and Immediate assessment of the GoU project portfolio (PIP Sector MDAs Immediate pipeline) to ensure they remain up to date and ready for financing #6.1 Formulation of harmonised and sector specific MoFPED-BD Immediate standards for project management with a project +PAP+BMAU 6. Project management body of knowledge (e.g. the PMI®’s Implementation PMBoK® Project Management Body of Knowledge Standard for Project Implementation). UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 32 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment #6.2 Design and implement a training program to MoFPED and Immediate to medium term equip relevant officials in MoFPED, sector MDAs, MDAs and LGs with knowledge, practices, and skills for adoption of a harmonised or sector specific standard for project management (e.g. PMP certification). #6.3 Adopt and enforce standardization for project MoFPED and MPS Medium term execution. If for instance PMI® and PMBOK® are selected, these standards to be formalized and required by the GoU in project implementation, with increased effort to train to increase the pool of public officials with a PMP certification to support project implementation; and requirement for PMP certification included in biddings to incentivize contractors with PMP certified personnel and build demand for those professionals. #6.4 Introduce and enforce sanctions to public MoFPED Immediate officials’ incompetence or outright corruption in project preparation and execution #6.5 Expedite the development of a sustainable MoFPED/ Immediate procurement framework to mainstream climate Procurement change and other cross-cutting issues in the Policy procurement system, so as to identify potential bottlenecks and timely corrective measures to mitigate adversary implications on project execution. #6.6 Build capacity across government to support MoFPED Immediate the procurement function to manage not only the process to the point of award of contract, but also contract management and supervisions #6.7 Explore technology to improve project MoFPED/ Medium term implementation (e.g. the Building Information President’s Office Modelling (BIM) – leading the digital transformation of the architecture, engineering, and construction (AEC) industry). #6.8 Integrate the e-governmental procurement MoFPED/PPDA/ Immediate system with the IBP, and other relevant data and Procurement information system, to link procurement contracts Policy (currently only identified as contract numbers) to IBP project codes – track all the procurement issues to their corresponding projects. #7.1 Review existing data and information systems MoFPED, OPM & Medium term to guide the streamlining of their functionality, NITAU relevance, interface within Government, and leverage 7. Project synergies for evidence-based decision making. Monitoring and #7.3 Systematically assess the annual performance MoFPED-BD Immediate Adjustments of the PI portfolio to identify emerging policy or +PAP+BMAU efficiency issues and submit recommendations to address them. #7.4 Publish public investments portfolio MoFPED-BD Immediate performance report at mid-year and end of fiscal +PAP+BMAU year. 33 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment #7.5 Review and streamline the current MoFPED Immediate annual monitoring frameworks to improve coordination(interface), a avoid overlap, and redundancies and ensure usefulness in decision making. #7.6 Preparation and submission of a memorandum MoFPED Immediate for creation of a formal authority with proposed legal and regulatory framework for consideration and approval by Cabinet. #7.7 Support a gradual set-up and operationalization MoFPED Immediate of a formal authority using the approved road map Medium term in a well prioritized and sequenced manner. #8.2 Strengthen Assets Register – currently MoFPED & coordinated by Accountant General’s Office – to Accountant 8. Facility support the facility management, maximising the General Office. Operation return from the assets and preservation of value. and Asset #8.3 Improvement of the annual budgeting for Maintenance maintenance and repairs of assets to allow building realistic baseline expenditures which can form the basis for the outer year of the MTEF. #9.2 Provide financial support to facilitate MoFPED Medium term enforcement of mandatory requirement for an 9. Project immediate ex-post evaluation, and a standard Evaluation project completion report (close-out) and Impact #9.3 Formulate guidelines to support enforcement of MoFPED Medium term Assessments mandatory requirement for ideally mid-term ex-post evaluation and (ii) the long-term evaluation, focused on project impacts #10.1: Review the functionality of existing oversight MoFPED and OPM Immediate entities and make recommendations to promote harmonized or coherent and relevant oversight functions. #10.2 Review of existing data and information MoFPED and OPM Immediate systems to guide the streamlining of their functionality, relevance, interface within Government, and leverage synergies for evidence- based decision making. 10. Systems and #10.3 Design and deliver the training program MoFPED and OPM Immediate Coordination tailor-made to address the competency gaps in the Framework oversight function in a most cost-effective manner at all levels of government. #10.4 Preparation and submission of a MoFPED-BD Medium term memorandum for creation of a formal authority with proposed legal and regulatory framework for consideration and approval by Cabinet. #10.5 Support a gradual set-up and MoFPED Medium term operationalization of a formal authority using the approved road map in a well prioritized and sequenced manner. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 34 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment REFERENCES BMAU (Budget Monitoring and Accountability Unit). 2019. “The road maintenance backlog: A cause for concern.” BMAU Briefing Paper (11/19) Byaruhanga, A. and Basheka, B.C. 2017. “Contractor Monitoring and Performance of Road Infrastructure Projects in Uganda: A Management Model.” Journal of Building Construction and Planning Research, 5, 30-44. IMF (International Monetary Fund). 2015. June. Staff Report. “Making Public Investments More Efficient.” IMF (International Monetary Fund). 2022. Public Investment Management Assessment. IMF Country Report No. 22/350 MoFPED (Ministry of Finance, Planning and Economic Development). 2016. “Strengthening Public Investment Management in Uganda: A Diagnostic Report.” MoFPED (Ministry of Finance, Planning and Economic Development). 2021. Available at: https://www.finance.go.ug/sites/ default/files/Publications/PROJECT.SELECTION.CRITERIA.pdf MoFPED (Ministry of Finance, Planning and Economic Development). 2021, June. Background to the Budget Fiscal Year 2021/22. MoFPED (Ministry of Finance, Planning and Economic Development). 2022, February. Half Year Macroeconomic & Fiscal Performance Report Financial Year 2021/22. MoFPED (Ministry of Finance, Planning and Economic Development). 2022, February. https://parliamentwatch.ug/wpcontent/ uploads/2022/02/Consolidated-Auditor-Generals-Report-FY-2021_signed_compressed-1.pdf MoFPED (Ministry of Finance, Planning and Economic Development). 2022, December. Budget Framework Paper FY 2023/24- FY 2027/28. Chapter on Macro-fiscal Framework page 14-17. Rajaram, A.; Le, T. M.; Kaiser, K.; Kim, J. & Frank, J. 2014. “The Power of Public Investment Management: Transforming Resources into Assets for Growth.” Chapter 2. World Bank, 2007. Uganda - Fiscal Policy for Growth: Public Expenditure Review 2007 World Bank and Rajaram, A.; Le, T. M.; Biletska, N.; & Brumby, J. 2010. “A Diagnostic Framework for Assessing Public Investment Management.” Policy Research Working Paper 5397, World Bank, Washington, DC. World Bank. 2022. Uganda Public Expenditure Review FY22-23 Background Paper 2 “Public Investment Management Diagnostic Update 2022.” Washington DC. World Bank. 2022b. April. Uganda Systematic Country Diagnostic Washington DC. 35 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment ANNEXES Annex 1: Capacity Building Program The need for capacity building has come up in every meeting in the mission. It will become an essential aspect of the Action Plan. What is needed is a three-tier training program – as was indicated in the initial PIM Action Plan – with a basic, intermediate, and advanced level. These training programs need to be implemented as a roadshow, repeating the different levels several times in a year with a predetermined and known schedule. It could be designed as modular, blended learning (face to face courses combined with either online synchronous or asynchronous courses). The current master’s program lacks the strategic planning system of the GOU, i.e. the NPA and the NDP III processes. What was needed was a Professional Master’s Degree in PIM for practitioners. A professional postgraduate degree means partial dedication compatible with full-time jobs. Instead, the master’s in Economics and Investment Modelling is a Science Program of two-year, full-time dedication, focused on the academic track and oriented to a PhD program. Some missing parts on the training program. The master’s in Economics does not consider project preparation with the different modules or building blocks, i.e. It does not consider the investment phase of a project, i.e., project management (the PMI-PMBOK, Project controls) and the GoU procurement process; it does not consider the PPPs, nor the existing legal framework, processes, etc.; it does not consider the O&M system OPM and OP, the APEX system, etc.; it does not consider the operational phase of projects, i.e., asset and facility management and service delivery. Ex-post evaluations, impact assessments. PIM legal framework, manuals, guidelines, templates, and systems are in place. Then, planners and analysts at the national and local level should learn how to use them in the courses, i.e., the IBP, the electronic government procurement EGP system, the M&E software, the APEX platform, etc. A critical output of the professional master’s degree must be the thesis. The thesis must be a complete pre-feasibility or feasibility study for real public investment projects or PPPs with its corresponding sponsors. These theses could become a fundamental input for new project preparation and appraisal methodologies. The PIM System would gain by getting several pre-investment studies annually for free. The need for an early Environmental Impact Assessment In many cases, an Environmental Impact Assessment (EIA) of projects should be carried out at the project inception. In the case of on-going projects, EIA could determine “building in” mitigation measures or, in extreme cases, that the project be significantly reformulated or even dropped out of stage of project selection. The objective of an EIA is to identify the impacts of a project on the environment with recommending consideration altogether. EIA of investment proposals is mandatory in most countries, even if weakly implemented, and may therefore provide a frame for establishing routine climate change considerations at the project level. One critical limitation of EIAs when it comes to building in climate change adaptation concerns is the fact that they are designed to identify the impact of projects on the environment, but not the impact of environmental change on the projects. The first step of an EIA is to identify activities likely to have significant environmental impacts in order to examine them further. “Environmentally benign” activities are therefore not considered even though they may be vulnerable to the impacts of climate change. Coupling climate risk analysis and climate change adaptation with EIA procedures would require that the project screening process be extended to include climate change sensitivity and for the project’s potential to increase climate change vulnerability (maladaptation). Another limitation concerns the fact that an EIA is mostly conducted once a project has been selected for implementation, and most parameters have been set. Further, in many cases EIA procedures are codified in legal obligations, thus making them difficult to modify to take into account climate risks. Nevertheless, many of the underlying practices and tools for EIA may be relevant and useful in the context of climate change adaptation. UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 36 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment Annex 2: Data and Information Management Systems 37 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment NOTES UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 38 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment 52 UGANDA PUBLIC EXPENDITURE REVIEW 2022–23 Improving Public Investment Management to Raise Efficiency to Support Fiscal Adjustment