THE REPUBLIC OF UGANDA: TRACKING POVERTY-REDUCING SPENDING: SECOND ASSESSMENT AND ACTION PLAN (AAP)

Prepared by Fund/Bank staff1 in collaboration with the Ugandan authorities

November 2004

1 The mission comprised Sanjeev Gupta (head), Piyush Desai, Maria Gonzalez (all Fiscal Affairs Department), Duncan Last (AFRITAC-East), and Sudharshan Canagarajah (World Bank).

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Table of Contents

Abbreviations and Acronyms ....................................................................................................3

I. Introduction ............................................................................................................................5

II. Assessment ............................................................................................................................7 A. Budget Formulation ..................................................................................................9 B. Budget Execution ....................................................................................................22 C. Budget Reporting ....................................................................................................32

III. Strengthening PEM Systems in Uganda ............................................................................39 Tables 1. Public Expenditure Management AAP Indicators in Uganda ...............................................8 2. Uganda: Budget Performance ..............................................................................................15 3. Released Supplementary Allocations ..................................................................................16 4. Stock of Non-Wage Recurrent and Development Spending Arrears ..................................23 5. Budget Provision for Clearing Payment of Domestic Arrears and Outturn ........................24 6. Action Plan to Upgrade PEM Capacity in Uganda..............................................................40 7. Overview of Technical and Donor Assistance in Public Expenditure Management in Uganda ..........................................................................................................................43 8. Status of 2001 Action Plan ..................................................................................................44 9. Public Expenditure Management Committee (PEMCOM) Matrix .....................................46 Boxes 1. Poverty-Reducing Expenditure in Uganda ............................................................................6 2. Budget Management at Subnational Levels ........................................................................11

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Abbreviations and Acronyms

AWP Annual Work Plan BFP Budget Framework Paper CCS Commitment Control System CFAA Country Financial Accountability Assessment CFO Chief Finance Officer CIFA Country Integrated Fiduciary Assessment COFOG Classification of Functions of Government CPAR Country Procurement Assessment Report DDP District Development Plan DFID Department for International Development EFMP Economic and Financial Management Project FDS Fiscal Decentralization Strategy GFS Government Financial Statistics GoU Government of Uganda IFMS Integrated Financial Management System IMF International Monetary Fund JLOS Justice, Law and Order Strategy LGDP Local Government Development Project LGFC Local Government Finance Committee LGFS Local Government Financial Statistics LPO Local Purchase Order MDGs Millennium Development Goals MFPED Ministry of Finance, Planning and Economic Development MoES Ministry of Education and Sports MoH Ministry of Health MoLG Ministry of Local Governments MoPS Ministry of Public Service MTEF Medium-Term Expenditure Framework NTR Non-Tax Revenue OAG Office of the Auditor General ODI Overseas Development Institute OECD Organization for Economic Cooperation and Development OOB Output-Oriented Budget PAF Poverty Action Fund PEAP Poverty Eradication Action Plan PEFA Public Expenditure and Fiduciary Assessment PEM Public Expenditure Management PEMCOM Public Expenditure Management Committee PETS Public Expenditure Tracking Survey PER Public Expenditure Review PFAA Public Finance and Accountability Act PPDPA Public Procurement and Disposal of Public Assets Authority PRSC Poverty Reduction Support Credit

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QFAs Quasi-Fiscal Activities ROM Results-Oriented Management SWA Sector Wide Approach SWG Sectoral Working Group TOA Treasury of Accounts TSA Treasury Single Account UBoS Uganda Bureau of Statistics UCF Uganda Consolidated Fund UNCITRAL United Nations Commission on International Trade Law UNDP United Nations Development Program

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I. INTRODUCTION

Bank/Fund staff carried out a comprehensive assessment of public expenditure management (PEM) systems of Uganda in 2001.2 The objective was to appraise how well existing systems tracked poverty-reducing spending in the context of the Enhanced HIPC Initiative. The Executive Boards of the IMF and World Bank have called for tracking all poverty-reducing spending, and not merely that financed from debt relief.3 Only in this way can a country track increases in public spending on poverty reduction. Uganda has defined poverty-reducing spending in its Poverty Eradication Action Plan (PEAP) (Box 1). The 2001 assessment was based on 15 benchmarks covering budget formulation, execution, and reporting. Overall Uganda met 9 benchmarks—5 covering budget formulation, 1 budget execution, and 3 budget reporting. In relation to 23 other countries also assessed at that time, Uganda fulfilled the highest number of benchmarks. It was viewed as requiring some “upgrading” of its PEM systems. Accordingly, the assessment identified a number of actions aimed at achieving this goal in the short and medium term, to be supported by different partners. Following the 2001 assessment, Uganda began implementing agreed PEM reforms embedded in its action plan. The staff review in March 2003 showed that Uganda had implemented or initiated implementation of more than 80 percent of all measures in the action plan.4 These included identifying and tagging poverty-reducing spending through a virtual Poverty Action Fund (PAF), and taking the first steps for improving budget execution and reporting through an integrated financial management system (IFMS), both at central and local government levels. The Executive Boards of the World Bank and the IMF have requested another comprehensive assessment. Such a reassessment should help determine progress made in strengthening PEM systems since 2001. Well-functioning PEM systems should contribute to reducing reporting requirements by donors and provide assurance to both domestic taxpayers and development partners that funds are being used for their intended purposes. They also enhance the efficiency in the use of public resources. Given the need to sustain donor support for achieving the MDGs by 2015, a strengthening of PEM systems in the short to medium term is critical. This assessment shows significant improvements in four areas highlighted as deficient in 2001. First, the internal control system was found acceptable at the center at that time but

2 “Report on the Tracking of Poverty-Reducing Spending in Uganda”, 2001. 3 This is because resources are fungible, and a country can offset HIPC assistance earmarked for poverty reduction by lowering its spending in those areas. See “Actions to Strengthen the Tracking of Poverty-Reducing Public Spending in HIPCs”, SM/02/03, Revision 2, March 2002. 4 “Update on Implementation of Action Plans to Strengthen Capacity of HIPCs to Track Poverty-Reducing Public Spending”, SM/03/90, March 11, 2003. See also “The Republic of Uganda: Public Expenditure Review 2003,” September 2003.

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deficient at subnational level. The present assessment indicates that the control mechanisms at the district government level are also of acceptable quality. Second, a significant number of expenditure tracking surveys have been carried out. Third, the annual account books are closed in a timely manner at year end. Finally, the audit reports are presented to the legislature within an acceptable period of time.

Box 1. Poverty-Reducing Expenditure in Uganda Uganda’s Poverty Eradication Action Plan (PEAP) is structured around four overarching pillars that help define poverty-reducing expenditure:

Pillar 1: Creating a framework for economic growth and structural transformation Three main programs help enhance the environment for private sector growth: (i) the Medium-Term Competitive Strategy (MTCS); (ii) the Program for the Modernization of the Agriculture (PMA); and (iii) the Strategic Exports Program. They are designed to tackle supply-side constraints, including limited access to markets due to poor infrastructure, lack of market information, farm-level processing and marketing skills, and unreliable or nonexistent utility services.

Pillar 2: Strengthening good governance and security

To strengthen the institutional frameworks and mechanisms through which government interventions are undertaken, poverty-reducing expenditure is channeled to improve human rights and democratization, justice, law and order, as well as to developing institutional capacity in the public administration to enhance expenditure management and service delivery.

Pillar 3: Increasing the ability of the poor to raise their incomes

To help the poor become more productive, spending is directed towards promoting access to social services and physical infrastructure, including rural roads, energy, markets, and financial services. Efforts are also geared to increasing asset ownership by the poor (as in the case of land), as well as returns from them, by strengthening the regulatory environment.

Pillar 4: Increasing the Quality of Life of the Poor

The ultimate objective of poverty reduction is to improve quality of life, and the focus is on the provision of basic services particularly health care, education, safe water, and sanitation.

These priorities are translated into concrete spending decisions through the Medium-Term Expenditure Framework (MTEF) and annual budgets. Moreover, some of them (primary education, health care, water and sanitation, and rural roads) are explicitly protected from budgetary cuts through the virtual Poverty Action Fund (PAF).

The latest assessment revealed three areas of concern in budget execution and reporting. First, there is a lack of reliable data on expenditure arrears; further, the authorities have yet to define a plan to diminish their stock.5 Second, the absence of a functional

5 Implementation of a detailed plan for clearing the stock of non-wage, non-pension arrears by December 2003 was a performance criterion (PC) in the current program supported by the PRGF. While the PC was not met, the authorities are expected to submit a detailed note describing their strategy for clearing these arrears. In addition, the authorities will also prepare a plan for clearing the stock of wage and pension arrears (PC, as of June 2004).

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classification in the annual budget vote structure and the chart of accounts makes it difficult to transparently track poverty-reducing spending from government accounts. Third, in-year fiscal reports on budget execution are available with a lag. Finally, there is no timely reporting of donor-funded projects, and a significant variability of budget outturns relative to the original budget appropriations. In the aggregate, Uganda meets eight benchmarks—one less than in the previous assessment. The apparent deterioration in budget reporting relative to the last assessment is attributable to two factors. First, Bank/Fund staff have defined standards for this assessment more precisely than were used in 2001. In particular, the benchmark missed on the variability of budget outturns is due to a tightening of the assessment criterion applying to all countries, rather than to any regression in practice by the authorities. Second, a large proportion of both overall government spending and poverty-reducing outlays in Uganda are now devolved to the local governments. In the present exercise, the mission had more information to assess PEM systems at subnational levels, where the capacity in this area is weaker. This second comprehensive assessment was prepared by the IMF and the World Bank, in collaboration with Ugandan authorities. Prior to the mission, the authorities provided staff with a self-assessment of the progress made since 2001.6 The mission is grateful to the authorities for their excellent cooperation and assistance in preparing this assessment. It would also like to thank the World Bank’s CFAA mission as well as an ODI mission on fiduciary assessment of local governments for sharing their preliminary findings and assessments.

II. ASSESSMENT

The growing devolution of programs to local governments in Uganda poses particular challenges in tracking poverty-reducing spending. Some 40 percent of overall government spending and roughly 70 percent of poverty-reducing outlays are now devolved to the local governments. This assessment, therefore, also covers the PEM systems at subnational levels. The assessment is organized in terms of 16 indicators. Seven indicators are in the area of budget formulation, four each in budget execution and reporting, and one in procurement (Table 1). The last one is new and has been added since the last assessment. The discussion is followed by an action plan, drawn in part from Uganda’s own medium-term plans, to further strengthen the PEM systems. The role of different partners in this regard is also listed. An update of the status of implementation of actions in the 2001 plan is reported in the appendix.

6 To assist the authorities, a copy of guidelines for appraising existing systems in terms of 16 benchmarks, along with the questionnaire, was sent about 8 weeks prior to the mission.

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Standard 2001 2003-04Benchmark Assessment Assessment

FORMULATIONCOMPREHENSIVENESS

1 Fiscal reporting adequately covers the Government Finance Statistics definition of the general government sector A B B2 Government activities are not funded through inadequately reported extrabudgetary sources to a significant degree A B B3 Budget outturn data are quite close to the original budget B B C4 Fiscal reports include grants projected to be provided by donors A A B

CLASSIFICATION5 Budget expenditures are classified on an administrative, economic, and detailed functional or programmatic basis B A B6 Poverty-reducing expenditures are clearly defined A A A

PROJECTION7 Multi-year expenditure projections are integrated into the budget formulation process A A A

EXECUTIONINTERNAL CONTROL

8 There exists a small stock of expenditure arrears, with little accumulation of arrears over the previous year A B C9 Internal control is effective A B A

10 Tracking surveys are in use, or are unnecessary B B B

RECONCILIATION11 Satisfactory reconciliation of fiscal and banking records is undertaken routinely A B A

REPORTINGIN-YEAR REPORTING

12 Internal fiscal reports are received within four weeks of the end of the relevant period B B C13 Fiscal reports present spending on a functional basis A A B

FINAL AUDITED ACCOUNTS14 Routine transactions are entered into the main accounting system(s) within two months of the end of the fiscal year A B A15 An audited record of the financial outturn is presented to the legislature within twelve months of the end of the fiscal year B B B

NEWPROCUREMENT

16 The procurement system supports efficiency and effectiveness in the expenditure of public funds through clear A Band enforceable rules that promote competition, transparency and value for money.

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Table 1: Public Expenditure Management AAP Indicators in Uganda

ASSESSMENT

TOTAL NUMBER OF BENCHMARKS MET

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A. Budget Formulation

Indicator 1: Coverage of the budget or fiscal reporting entity. Question: How well does the coverage of fiscal information match the GFS definition of the general government sector? Benchmark: (A) Very close fit: Fiscal reporting covers the GFS definition of the general government sector, i.e., including central, regional, and local governments, and all government operations, whether funded through the budget or not. Assessment: (B) Quite close fit: This benchmark is not met.

In Uganda, the budgets and fiscal reports cover the bulk of the central and local government operations. In particular, all line ministries (18), agencies (19), embassies and missions (23) and all local governments (districts, municipalities, and town councils) (129) are included in the budget cycle and produce regular fiscal reports, which are compiled by the central government.7 There are 19 central government agencies with their own budgets which are not fully included in the central government budget. These agencies are exempt from remitting their non-tax revenue collections to the Uganda Consolidated Fund (UCF). While they report to the Accountant General on their collections, they do not provide a detailed breakdown of their own revenue, or of expenditures supported by these receipts on a regular basis, as they are self-accounting as per the current legal framework.8 The size of operations carried out by these agencies is small; for instance, the total non-tax revenue (NTR) exempt from transfer to UCF in 2002/03 amounted to only 2¼ percent of total budgeted expenditure of the central government. Uganda also has 82 extrabudgetary institutions or “autonomous agencies”, which are not fully incorporated into the budgeting and reporting cycle. Several of these receive transfers from the central government, while others are mainly financed from their own revenues, including a number of extrabudgetary funds. Some of these bodies, like public utility companies, fall outside the definition of general government according to GFS, as they are primarily commercial in nature. They might be undertaking quasi-fiscal activities (QFAs) for which estimates are not available. The authorities are in the process of establishing a legal basis for obtaining information on these activities and, more generally, under the Public

7 However, spending on donor projects by line ministries (estimated to be around 25 percent of total budgeted central government expenditure) is not covered in a timely manner; see Indicator 4 for an evaluation of inclusion of donor projects in fiscal reports. 8 Detailed reports are submitted to the Treasury of Accounts Office of the Accountant General, only on a semi-annual basis.

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Finance and Accountability Act (PFAA), all autonomous institutions will submit their annual accounts to the Treasury, starting July 2005.

All local government levels are integrated in to the budget cycle. The highest levels (districts, municipalities, and town councils) participate directly in the preparation of Budget Framework Papers (BFPs), based on input from lower tiers. There are, however, coverage gaps in the reporting cycle, since only districts, municipalities, town councils and subcounties are required to submit detailed reports on their revenue and expenditure to the Auditor General and/or the MFPED. The two lowest levels (parishes and villages) are considered administrative units under the Local Government Financial and Accountability Regulations, and hence report to the subcounties on the spending they execute.9 Consolidated statistical reports for subnational authorities are available annually but with a lag from the Ministry of Local Governments (Box 2). It is estimated that less than 95 percent of general government operations are budgeted and/or reported in a timely manner. Uganda does not meet this benchmark. Action Plan The strategy should focus on incorporating fiscal activities of all units that carry out public activities into the budget cycle and reporting processes. Actions should include: Short-term measures • Requiring full fiscal reporting by those central government units currently exempt

from submitting NTR to the UCF, and incorporating them into the central government budget.

Medium-term measures • Completing census of and requiring reporting by all autonomous government

agencies and extrabudgetary funds, irrespective of source of funds.

• Progressively including lower subnational governments, starting with subcounties, in general government fiscal reporting, both for budget and accounts consolidation.

• Developing capacity to report on extrabudgetary institutions, as well as QFAs, and incorporate reporting on these activities in government budgets and execution reports.

9 Therefore, the accounts submitted by the subcounties to the Auditor General incorporate the available information on parishes and villages.

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Box 2. Budget Management at Subnational Levels1 Public spending began to be devolved in Uganda in 1993. The legal framework was defined in the Local Government Act of 1997. In 2002, the Cabinet approved the Fiscal Decentralization Strategy (FDS). There are four principal levels of local governments. The highest level comprises relatively well-staffed 129 districts, municipalities, and town and city councils (Levels V and IV). The second level is composed of approximately 1000 modestly staffed subcounties (Level III). The lowest level is made up of several thousand parishes (Level II) and villages (Level I), which are regarded as administrative units under the subcounty level. They have a solitary paid employee—the parish chief. Revenues collected at parish and village levels are reported and remitted to the higher-level subcounty, which consolidates the information into its own accounts. Overall, the share of these revenues is very small in relation to conditional and budget support extended by the central government. Budget Planning. All levels are required to have three-year rolling development plans, which are finalized at the district and subcounty levels, drawing on inputs from the lowest levels. The documents prepared are: the three-year District Development Plan (DDP); three-year Investment Plan at subcounties; the Budget Framework Paper (BFP); and the Annual Work Plan (AWP)—or Annual Budget—organized as votes or appropriations approved by the corresponding legislative council. Linkages between DDPs, BFPs, and AWPs are tenuous, resulting in less-than-planned outturns. While BFPs are discussed at the Budget Conference, the focus of discussions tends to be on AWPs, rather than on the outer years. Budget Execution. Overall expenditure outturns and AWPs are relatively close—several districts displayed deviations of more than 10 percent from their original budgets in the last three years, although the size of such deviations appears to be falling over time. There are significant in-year reallocations between sectors. Expenditure management at the highest level is facilitated by reasonable ex-ante controls and ex-post internal audit. Payroll systems are in place, and salaries are directly transferred into bank accounts of employees. However, there is a backlog in updating the registries as employees are moved in the system, which contributes to generation of wage arrears. The local governments operate many bank accounts—ranging between 30 and 100 (33 accounts in Jinja district)—each of them earmarked for specific use. These are expected to be rationalized under the FDS. There is no cash planning or Commitment Control System (CCS). Accounting and Reporting. Monthly fiscal reports of most local governments are supported by regular reconciliation of accounting records with bank statements. Unpaid checks are listed and tracked till cleared. Functional/COFOG dimension of expenditures is, however, not recorded. While information is generated for sectoral expenditures defined in DDP, the vote (appropriation) structure does not permit one-to-one correspondence between spending and sectors. The account statements do not transparently track poverty-reducing spending, which is derived principally from releases by the central government for each conditional grant for PAF. Partial monthly expenditure reports on central transfers are sent from districts to the Accountant General. The subcounties report directly to the Auditor General once a year. Annual accounts of the districts are available with a lag. Independent Audit. The Auditor General is responsible for independent audit of local government accounts. He presents certified annual accounts of districts to its council, by and large within a year of the end of the financial year. Independent audit has not been extended to subcounties and lower-level local governments. No consolidated general government account is generated by the Auditor General, but consolidated unaudited statistical reports on local governments are available from the Ministry of Local Government. ___________ 1 This box is based on the World Bank’s Public Expenditure Review (2003), the (draft) Inception Report on Local Government Integrated Fiduciary Assessment by ODI, and on information and documents provided by the authorities at the central government and of the Jinja and Kayunga districts.

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Indicator 2: Degree of spending being funded by inadequately reported extrabudgetary sources. Question: To what degree are general government activities funded through inadequately reported extrabudgetary sources? Benchmark: (A) Not significant: Government activities are not funded through inadequately reported extrabudgetary sources to a significant degree (3 percent or less of total spending). Assessment: (B) Significant: This benchmark is not met.

A significant share of public expenditure is financed by income that is not fully captured in fiscal accounts. As noted above (see Indicator 1), several activities are supported by revenues which are not adequately reported, including in-cash and in-kind spending by line ministries from donor projects, and NTR retained by those central government units that are exempt from transferring collections to UCF.

Sources of inadequately reported revenue that supports public expenditure are:

• NTR that is not fully reported by central government units obliged to remit their income to the UCF. Specifically, the amount of NTR submitted to the UCF by some line ministries is considerably lower than that projected in the budget (in 2002/03, collections were about 80 percent of total projections). Evaluations by the Accountant General suggest that such underperformance may be due to unreported retention of NTR by the ministries. NTR submitted to the UCF in 2002/03 was about 1.2 percent of total expenditure.

• There are autonomous agencies and extrabudgetary funds, which are neither reported in the budget (other than for the transfers made to them to cover part of their operational needs), nor in the fiscal accounts.

In addition, the Constitution of the Republic of Uganda and the Local Governments Act empowers local governments to levy specific fees and taxes, which do not have to be remitted to the UCF. The local governments report monthly to MFPED on expenditure financed by grants received from the center; they also submit comprehensive and reconciled accounts to the Auditor General once a year, which include their own revenues and associated spending. However, anecdotal evidence suggests that the lowest government tiers—which are mandated to remit all their tax collections to districts and subcounties—might not be complying with this regulation.

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Overall, public spending funded through inadequately reported revenue sources is significant.10 It remains at about 3–10 percent of the total budgeted expenditure. Thus, this benchmark is not met. Action Plan Actions should focus on increasing the frequency and transparency of reporting of revenues and expenditures by all central government agencies, including autonomous agencies and extrabudgetary funds, and by all levels of the general government. Short-term measures • Strengthen management of NTR submitted to the UCF in addition to transferring

NTR collection responsibilities to the URA. The authorities are currently receiving technical assistance to review the NTR Reform program.

• Strengthen fiscal reporting requirements of NTR by exempt bodies and of operations carried by autonomous bodies (see Action Plan for Indicator 1).

Medium-term measures

• Reporting requirements for the subnational governments should be enhanced. Capacity should be strengthened to improve the accuracy of the submitted reports. The current arrangements for distribution of local tax collections across local governments need to be revised to create incentives for full and transparent remittances.

Indicator 3: Reliability of budget as a guide to the future. Question: How would you describe the level and composition of the budget outturn at an administrative or functional level relative to the original budget’s appropriations? Benchmark: (B) Budget data are quite close to the original budget. Assessment: (C) This benchmark is not met.

The aggregate budget execution in Uganda differs significantly from the original budget appropriations. In particular, central government spending per administrative sector deviated from the budget originally approved by Parliament by about 22 percent on average

10 Accumulation of domestic arrears is tantamount to credit to government from the suppliers of goods and services. The discussion on Indicator 8 provides further details on arrears.

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between 2000/01 and 2002/03. The weighted average of the deviations -accounting for the budgetary shares of each sector— is also high, at nearly 27 percent, during the same period (Table 2). While the strong deviation of budget outturns from their appropriations is mostly explained by the poor reporting on the execution of donor projects, the persistent pressures at the central government level to approve supplementary allocations also remain a concern. For example, during the last three years, the authorities released supplementary expenditures of about 5 percent of the total budgeted expenditure (excluding donor projects).11 This was in addition to technical supplementaries used to reassign spending across votes and sub-votes (Table 3). The supplementaries reflected budget overruns in some votes, especially public administration; and underbudgeting of certain outlays, such as interest payments, subsidies for state enterprises, and pensions. This significant use of supplementaries undermines the reliability of the budget as a guide to future spending. The approval of supplementaries has resulted in differences in the composition of the executed budget relative to its appropriation. When calculated at the vote level for aggregate primary expenditure, the discrepancy between budget outturns and appropriation (excluding donor projects) reached an average of 13 percent between 2000/01 and 2002/03. Similarly, the variability of vote shares to total expenditure relative to the approved budget shares was about 14 percent, on average, during the same period. At the aggregate local government level, budget performance can only be assessed for the year 2001/02, and this suggests a somewhat larger degree of budget unpredictability. Data from the LGFS suggests that total expenditure for districts, municipalities and town councils fell short by nearly 13 percent from the original budget, while the average deviation of spending by departments12 from budgeted figures was above 30 percent. Moreover, data on five districts13 for the 2002/03 budget performance indicates that only in one case the average deviation between actual and budgeted expenditure (by sector) was below 10 percent.14 Uganda’s budget outturns are considered to differ significantly from the original budget at both central and subnational government levels. The aggregate variation in the last three years was above 20 percent in both cases. The benchmark is not met.

11 The Budget Act requires supplementary spending to be below 3 percent of total expenditure inclusive of budgeted donor projects. In practice, the issuance of supplementary expenditures for some votes requires generating savings in other votes in order to meet the overall fiscal targets. 12 Under the available administrative classification published in the LGFS. 13 Districts assessed were Jinja, Masaka, Kabale, Tororo, and Apac. 14 See “Uganda: Local Government Integrated Fiduciary Assessment,” Inception Report 2004, by ODI/Centre for Aid and Public Expenditure.

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Action Plan The Ugandan government is seeking to strengthen the legal framework to protect the integrity of the budget through the Public Finance and Accountability Act (PFAA) approved in May 2003. The authorities’ ability to protect the original budget appropriations can be enhanced through the following actions:

2000/01 2001/02 2002/03

Resource SupplementariesAmount (U Sh bn) 90.2 88.5 91.2In percent of budgeted expenditure 6% 5% 4%

Technical Supplementaries Amount (U Sh bn) 25.1 55.3 51.0In percent of budgeted expenditure 2% 3% 3%

Source: Ugandan authorities and staff estimates.

Table 3. Released Supplementary Allocations

Budget Outturn Deviation Budget Outturn Deviation Budget Outturn Deviation Simple Weighted

Total Expenditure 1/ 2,298 1,496 -35% 2,686 1,895 -29% 2,768 2,736 -1% 21.8% 26.6%Security 210 208 -1% 229 238 4% 262 298 14% 6.0% 0.5%Roads 315 128 -59% 347 157 -55% 317 223 -30% 47.9% 6.1%Agriculture 102 22 -79% 135 42 -69% 133 115 -14% 53.7% 2.6%Education 446 373 -16% 514 456 -11% 551 561 2% 9.8% 1.9%Health 249 110 -56% 314 163 -48% 338 307 -9% 37.7% 4.4%Water 134 36 -73% 107 49 -54% 126 90 -28% 51.8% 2.5%Law and Order 99 98 -2% 134 127 -5% 148 156 5% 4.1% 0.2%Accountability 18 16 -10% 24 21 -9% 27 31 12% 10.6% 0.1%Economic Functions 2/ 318 75 -76% 362 122 -66% 337 382 13% 52.0% 6.8%Public Administration 276 302 9% 348 366 5% 380 393 3% 5.9% 0.8%Interest Payments 107 128 19% 155 153 -1% 145 181 25% 15.1% 0.8%Contingency 23 0 ... 16 ... ... 5 ... ... ... ...

Source: Ugandan authorities and staff estimates.1/ Total including contingency. The approved budget includes a contingency/unallocated line, which is allocated during the financial year.2/ Economic Functions and Social Services includes Energy and Minerals, Tourism, Trade and Industry, Gender, Labor and Social Development, development budgets of MFPED, Office of the Prime Minister and Local Governments, and District Grants.3/ Average of the absolute value of the percent deviation of outturn from budget at vote level for each vote aggregate.4/ Weights calculated as the average share of the budgeted expenditure per vote over total in 2000/01-2002/03

Average 3/ 4/

Table 2. Uganda: Budget Performance, Including Donor Projects

(In U Sh billion, unless otherwise indicated)

2000/01 2001/02 2002/03

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Short-term measure • Strengthen budget formulation to reduce incidence of underbudgeting.

Medium-term measure

• Strengthen macrofiscal forecasting, including the capacity of local governments to forecast their own revenues.

Indicator 4: Inclusion of donor funds. Question: Are donor funds included in central, state, and local governments’ budget(s) and/or fiscal reports? Benchmark: (A) All: Budgets and/or fiscal reports at all levels of government include, without exception, grants projected to be provided by donors, and the capital and current expenditure of all multilaterals and bilateral government activities. Assessment: (B) Incomplete: This benchmark is not met

Foreign aid in grants and loans received as budget support is fully accounted for ex-ante. Ex-ante integration of donor flows into the budget is facilitated by the requirements under the PFAA. Under the latter, no person, public organization or local government council can raise loans or accept grants without prior approval of the MFPED.15 The expected disbursements allow integration of all donor inflows into expenditure ceilings of the Annual Budget and the Medium-Term Expenditure Framework (MTEF).16 17 The quality and timeliness of ex-post accounting of these resources is, however, mixed, and dependent on the form in which aid is provided: • Donor inflows disbursed as budget support, whether in the form of grants or

loans, are generally tracked and reported frequently. These flows are routed through the UCF, which allows the Treasury to track them as they are disbursed by the donors.

15 PFAA (2003), Part III, Article 20. See also the PFAA Regulations (2003), Part XI, Art. 55. 16 In order to avoid disruptions in budget execution owing to shortfalls of external assistance, 50 percent of the projected grants and loans not channeled via the Poverty Action Fund (PAF) are discounted while resources directed via PAF are discounted by 15 percent. 17 On occasion, the conditions for accepting project aid require that external resources be additional to the budget ceilings, as is the case with the Global Fund for AIDS, TB, and Malaria. In such cases, projects are not integrated into the ceilings, but are reported to Parliament in the Budget Speech.

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• Ex-post information on project aid is generally not available in a systematic and timely basis. Project aid is often disbursed into commercial bank accounts of line ministries and of districts. This information is not systematically reported to the central government. Some aid is also provided in kind or in the form of technical assistance, making it difficult to estimate its monetary value. As a result, only partial outturn data on donor flows are provided by the Auditor General to Parliament, but with a lag of nine months.

In 2004, the authorities have begun to integrate project aid more fully into the expenditure ceilings for the Annual Budget and the MTEF. This new system of budget formulation presents several challenges, as it requires line ministries and local government to forecast expected donor project disbursements and report on these to the center during the fiscal year. However, the authorities have not yet established mechanisms to integrate donor projects into in-year expenditure reports. The government is seeking to amend the regulations of the PFAA to invest the Accountant General with powers to require frequent reporting on projects executed by line ministries.18 There are no plans at present to seek reports on project implementation from local governments. In addition, the authorities are only starting to adapt their operational and accounting procedures to ensure that donor projects are properly classified within the new chart of accounts.19 Finally, incorporation of in-kind project aid into the budget would require donors to report its monetary value as it is disbursed, which is not readily available. While the authorities have already integrated a significant share of donor aid into the budget cycle on an ex-ante basis, work remains to be done on proper reporting and ex-post accounting of all donor aid. Hence, this benchmark is not met. Action Plan The plan should focus on increasing the ex-post integration of donor projects into budgetary reporting. Short-term measures • Enforce reporting by project managers in line with central government budget

reporting regulations and strengthen reporting of disbursements by donors.

• Introduce standardized reporting in project financing agreements with donors.

18 Technical assistance in this area is being provided by DFID. 19 The authorities are also developing an IFMS module for reporting of donor projects within the system.

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Indicator 5: Classification Question: What types of classification apply to the budget and budget expenditures? Benchmark: (B) Administrative, economic, and functional/programmatic: Budget expenditures are classified on an administrative, economic, and functional or programmatic basis. Assessment: (B): This benchmark is met.

Uganda introduced improved budgetary and accounting classifications for the preparation and execution of the 2003/04 budget. The new classifications have been developed as part of the steps needed for the implementation of the IFMS20, which is being piloted, as of July 2004, in six ministries and four districts. It is envisaged that the IFMS will be fully operational in all central government ministries, as well as 10 out of 56 districts, by June 2005. Extension to other central government agencies, as well as the remaining districts and the municipalities, will be undertaken subsequently. The new classifications include fund and funding source, administrative (vote and cost centers) projects, MTEF codes, and object/economic/input items. However, delays have been experienced in implementing the use of MTEF codes in the new chart of accounts through the IFMS. Further, specific functional coding, which had been originally included, is now missing from the vote structure being implemented in the IFMS. A recent mission from the IMF Statistics Department provided a translation of the budget to the COFOG functional classification21 down to group level (second level) using a bridging mechanism. Use of functional classification should go beyond reporting through a mapping arrangement, which is not considered best practice: it should be fully integrated into the budget formulation and execution process. This will, inter alia, enhance the transparency of the coding structure in the chart of accounts. In the absence of functional classification, the authorities have used an MTEF classification for some time, which provides reasonable information on the functional dimension. In addition, Uganda also uses the concept of a Poverty Action Fund (PAF)—a virtual fund—to help track priority areas of poverty-reducing spending. The authorities have taken initial steps towards implementation of program/performance budgeting. If correctly linked to functional classification, this process will significantly enhance the quality and transparency of functional reporting. Two 20 The IFMS is being introduced under the second Economic & Financial Management Project (EFMP II), supported by a credit from the International Development Association (IDA Credit No. 3297 UG). 21 Classification of Functions of Government, 1999, developed by OECD and UNDP, which is fully incorporated into the GFS 2001 framework. The new COFOG classification consists of 10 divisions subdivided into groups, which are further subdivided into categories.

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ongoing public service reform initiatives are focused on output, the Output-Oriented Budgeting (OOB) and Results-Oriented Management (ROM), which will provide the necessary analytical inputs for program/performance budgeting. The new object/economic/input classification is generally consistent with the GFS 2001 framework. A number of outstanding items, however, remain misclassified or ambiguous, including: • The inclusion of transfers to nongovernment organizations as grants—these should be

classified under other transfers;

• The inclusion of transfers to ministries under grants and transfers received by ministries under revenue—these are transitional accounts pending full returns from ministries;

• The inclusion of accounts for transfers to local governments under assets (in central government accounts), and transfers from central government under liabilities (in local government accounts) are not appropriate, as these are non-repayable grants.22

The issues highlighted above should be reviewed in order to ensure greater compatibility with the GFS 2001 framework. This benchmark is assessed to have been met. This is in part because MTEF and PAF provide a satisfactory interim arrangement for functional analysis pending adoption of functional classification. Action plan Short-term measures • Fully incorporate the MTEF classification into the new chart of accounts.

• Review and correct misclassified and ambiguous items in economic classification.

Medium-term measures

• Incorporate COFOG functional classification into the budget vote structure and the new chart of accounts.

• Strengthen program/performance budgeting initiatives, within the COFOG functional classification framework, to ensure a greater accuracy and transparency.

22 This accounting rule is a transitional arrangement under the Fiscal Decentralization Strategy. The PFAA requires that all unspent balances or unaccounted funds at the end of each fiscal year be returned to the UCF.

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• Prepare a comprehensive medium-term plan to move to accrual accounting.

Indicator 6: Identification of poverty-reducing spending Question: What is the principle means for tracking poverty-reducing spending? Benchmark: (A) Use of the existing budgetary classification system through a so-called Virtual Poverty Fund: Poverty-reducing expenditures are clearly identified in the budget. Assessment: (A): This benchmark is met.

Uganda was one of the first countries to employ the concept of a virtual fund for tracking poverty-reducing expenditures—the Poverty Action Fund (PAF). Poverty-reducing expenditures are identified within the existing classification structure during budget preparation and are ring-fenced for tracking purposes. The PAF activities are routinely reported to Parliament and are included in the documentation submitted for the adoption of the annual budget. Use of the PAF provides the authorities means to isolate priority poverty-reducing spending from potential cuts during the budget execution stage, as these expenditures are guaranteed up to 95 percent of budgeted values (see Indicator 3). The PAF, by providing a clear assurance that funds will reach targeted poverty-reducing areas, has been successful in attracting donor support to the budget. The PAF, however, has two operational weaknesses. First, neither the budget vote structure nor the new chart of accounts can transparently identify the expenditure items covered by the PAF.23 Second, the PAF does not comprehensively cover all poverty-reducing expenditures envisaged under the PEAP, as it includes only priority spending out of internal or budget support sources. The benchmark is met.

23 The authorities plan to map the PAF under the IFMS; in the medium term, the authorities hope to improve the preparation and execution of the budget to ensure that poverty-reducing expenditure are articulated in the chart of accounts and are protected during budget implementation.

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Action plan Short-term measure • Incorporate the PAF coding into the budget vote structure and the chart of accounts,

to ensure consistent and transparent tracking of poverty-reducing expenditures using the information in the government accounts.

Medium-term measure

• Progressively enhance the coverage of PAF in line with PEAP.

Indicator 7: Integration of medium-term forecasts. Question: How would you describe the application of out-year estimates (medium term) for spending? Benchmark: (A) Integrated: Multi-year expenditure projections are integrated into the budget formulation process. Assessment: (A) Integrated: This benchmark is met.

Uganda has a multi-year MTEF, covering both the central and local governments. The MTEF preparation is fully integrated into the annual budget cycle, and has helped the authorities increase budget predictability, both relative to overall level and composition. To ensure consistency between the MTEF and PEAP, the authorities have adopted the Sector Wide Approach (SWA). This mechanism involves establishing sectoral working groups (SWGs) that bring together institutions with complementary activities. During the first phase of preparation of the MTEF, the MFPED sets up the indicative budget ceilings that are used by the SWGs to prepare Budget Framework Papers (BFPs). The BFPs are expected to have clear outputs to allow monitoring and accountability of the budget, and are reflected in the ceilings set for each vote and sub-vote by the end of the MTEF process. While the preparation of MTEF has strengthened since it was first implemented, certain weaknesses remain. In particular: • Integration of project aid into the MTEF is proving challenging, due to volatility

of donor disbursements and the need to project and monitor donor project aid adequately.

• Integration of certain sectors or types of spending is weak, especially in areas such as defense and public administration, which tend to lead to overruns, and of the wage bill of core PAF areas.

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• The output-orientation of BFPs and MTEF is still weak, making it difficult to monitor outputs and outcomes.

At the local government level, SWGs are not able to prepare fully output-oriented BFPs, partly because of limited capacity. While the BFPs can be quite comprehensive in those districts with relatively strong capacity, they are not used as a tool for intersectoral coordination and overall expenditure planning, and have only a tenuous link with the final budget estimates.

The benchmark is met. Action Plan Short-term measures • Ensure proper integration of external resources into the MTEF ceilings.

• Systematically use outputs and recommendations from PETSs to define priorities and desired outputs during the preparation of the MTEF and PAF.

Medium-term measures • Improve reporting, monitoring, and evaluation at the stage of BFP preparation to

ensure an output and results orientation.

• Strengthen the use of SWGs and BFPs at the local government level, in particular their links to the budget estimates.

B. Budget Execution

Indicator 8: Evidence of budget execution problems—Arrears Question: What do you estimate as the level of the stock of expenditure arrears at the end of last financial year? Benchmark: (A) Very few or none: Small stock of expenditure arrears, with little accumulation of arrears over the previous year. Assessment: (C) Significant: Stock is more than five percent of total expenditure, and comprehensive information on arrears is not available. This benchmark is not met.

The mechanisms for monitoring and control of arrears existing in Uganda are insufficient. A Commitment Control System (CCS) has been in operation since 1998, as one of the measures to help reduce the incidence of payment arrears in non-wage recurrent and

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development spending. The CCS does not cover outlays on wages, pensions, court awards, and utilities, where a significant stock of arrears is present. More importantly, it does not deal with stocks of arrears. Reports on expenditures passing through the CCS are generated by the line ministries from their internal records; however, commitments made as such are not recognized in the cash-based formal government accounts. Thus, fiscal reports compiled by the Accountant General do not report stocks and flows of expenditure arrears, although partial reports on arrears are now being compiled by the Internal Audit Department of the Accountant General. However, as part of the arrears, information is separately compiled on a nonsystematic basis from line ministries by the Ministry of Public Service (for wage and pension arrears) and the Privatization Management Unit (for utility arrears); these reports remain incomplete. There is no reliable information on the movement of stock of arrears and the age profile of cleared arrears from year to year. Table 4 presents information from the Accountant General on the stock of nonwage recurrent and development spending arrears, which amount to nearly U Sh 150 billion. The Accountant General maintains a record of individual items of arrears cleared, but does not record when each item is cleared. This makes monitoring of progressive clearance of arrears difficult.

Table 4. Stock of Non-Wage Recurrent and Development Spending Arrears as of June 30, 2003

(In billons of Ugandan Shillings)

Incurred in 1997/98 or

before Incurred in

1998/99 Incurred in 1999/2000

Incurred in 2000/01

Incurred in 2001/02

Incurred in 2002/03

Total

19.74 41.07 24.56 22.73 21.26 20.21 149.56

Source: Accountant General of Uganda. Reliable and consistent data on the magnitude and age profile of wage, pension, and utility arrears are not available.24 Tentative estimates indicate that these arrears amounted to U Sh 8.9 billion (wages), U Sh 276 billion (pensions) and U Sh 20 billion (utilities) by end-June 2003. Once available estimates of arrears on wages, pensions, and utilities are added to arrears compiled by the Accountant General, the total stock of identified expenditure arrears exceeds 5 percent of budgeted outlays. The implementation of the CCS suffers from weaknesses that undermine the reliability of data on payment arrears. Reports by the Treasury Inspectorate Department of the Accountant General25 indicate that not all arrears are captured in the reports prepared by the

24 The Auditor General of Uganda does not audit or report expenditure arrears. 25 Annual Consolidated Report on Performance of Commitment Control System prepared by the Treasury Inspectorate Department of the Accountant General’s Office (August 2003).

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accounting officers.26 Other reports of the Internal Audit department of the Accountant General identify types of noncompliance with the CCS by the accounting officers, including purchases without local purchase orders (LPOs), post-dated LPOs, absence of invoice register, duplicate vouchers, and nonrecording of commitments until they are paid. In recent years, annual budgets have allocated resources for reducing the stock of expenditure arrears. The available information does not permit an assessment of either the type or age profile of arrears settled (Table 5). Anecdotal evidence suggests that Accounting Officers exercise discretion in selecting arrears to be cleared and do not systematically clear old arrears first.

Table 5. Budget Provision for Clearing Payment of Domestic Arrears and Outturn (In billons of Ugandan Shillings)

Financial Year Budget Provision

Outturn

2000–2001 108.3 130.2 2001–2002 131.7 115.2 2002–2003 55.3 54.4 2003–2004 45.0 45.0*

Source: Ugandan authorities. * Projected outturn.

Consolidated information on stocks and flows of arrears generated at subnational levels is not available.27 However, evidence from selected districts suggests that expenditure arrears are widespread, and recent World Bank reports indicate that some districts may be holding stocks of arrears of up to 20 percent of their budgeted expenditures.28 29 The AAP 2001 had assessed the central government as B and local governments as C. This was based on the encouraging clearance of arrears during 1999–2000 after the CCS was introduced. However, an assessment of the stock of arrears was not available at the time. Based on the information now made available, the stock of arrears at the central and local government levels has been assessed as significant. The authorities do not have a time-bound program to settle old stocks of arrears. The fact that different agencies have been entrusted 26 The government continues to provide guidance to the accounting officers to include all expenditures in CCS reports, and has made them accountable for improper recording of over-commitments under the PFAA. 27 Under the Constitution, the central government is not obliged to capture arrears at the subnational level, but is only empowered to supervise and offer technical guidance to local governments on financial management matters. This, however, places some risks on the central government, as certain types of arrears, even if generated at the subnational government level, might become contingent liabilities for the central government, for example in the case of pensions and wages. 28 See the Public Expenditure Review, November 2003. 29 For instance, the Jinja district authorities estimated payment arrears (mostly pensions and gratuity) in excess of U Sh 400 million. In the newly created Kayunga district, the stock of non-wage arrears was reported to be U Sh 60 million; the district did not inherit old stocks of wage and pension arrears at the time of its formation in 2001.

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with the administration of different types of arrears makes it difficult to exercise a meaningful control over the stocks and flows of arrears. The benchmark is not met. Action plan Integrity of data for tracking stocks and controlling flows of arrears depends critically on (i) comprehensive, centralized data on general government payment arrears; (ii) a medium-term action plan to aggressively address and clear old stocks of arrears at all levels of general government; (ii) registration of all types of expenditure commitments by the spending units as soon as these are due for entry; and (iii) rigorous internal control and audit verification of supporting records, such as invoice register and original vouchers. Rapid roll-out of the IFMS should help in strengthening the CCS operation. Special measures will, however, be needed to poll, track, and monitor the clearance of old stocks of arrears. The following actions would help in the short and medium term: Short-term measures A. Stocks of arrears • Undertake urgent polling and verification of the stocks of all arrears as at the end of

June 2003, and prepare a detailed report showing age profile and type.

• Strengthen the Accountant General’s role in tracking and reporting of arrears, and develop strategy for prioritized settlement of arrears.

• Once reliable data on the stocks of arrears are available, determine the strategy for prioritizing arrears for clearance according to their age profiles and types, and develop appropriate formats for the in-year and annual reports on clearance of arrears together with an analysis of the age profile and type of arrears cleared.

• Include auditing of stocks of arrears and their clearance as part of the normal audit responsibilities of the Auditor General, and include the findings in the annual audit reports for both the central and subnational governments.

B. Flows of new arrears

• Develop regulations and technical procedures for extending the CCS to cover salaries, pensions, utilities, and court awards, and formally extend the CCS starting from the coming fiscal year.

• Issue clear, enforceable directives to make the Accounting Officers fully accountable for proper implementation of the CCS on ground with a view to eliminate the irregularities brought out in the internal audit reports.

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• Ensure that the new IFMS is fully geared to meet the extended CCS requirements.

Medium-term measure • Extend the CCS to all levels of local government, starting with districts and

municipalities, followed by subcounties.

Indicator 9: Effectiveness of the internal control system Question: How would you describe the internal control system? Benchmark: (A) Effective: Internal control is effective. Assessment: (A) This benchmark is met.

The internal control regime at the central government level is sound and has improved steadily. The PFAA provides a strong legal accountability framework at both central and subnational levels, since it invests the Minister of Finance with authority over the control and management of public finances. It also spells out the authority and obligations of the Accountant General in management of treasury and accounting functions, as well as that of the Accounting Officer of a ministry (typically Permanent Secretary to the Government) in the running of the ministry budget. Finally, the Act lays down the role of the Auditor General—the supreme audit institution in Uganda—in the oversight of the general government fiscal operations and in the certification of government accounts; in this connection, if further decentralizes the internal audit functions to enhance controls at the subnational level. The internal control is overseen by the Accountant General, the Accounting Officers in line ministries, and the Chief Finance Officers (CFO) in the districts. The core expenditure control procedures at the higher level of subnational government (districts) are clearly specified and are also sound.30 In addition to the CFO, the districts have internal audit units that are responsible for auditing accounts of the district and subcounties. However, as noted previously (see Indicators 1–2), the lowest two subnational levels—parish and village—do not have structured arrangements for account keeping and reporting. The internal control regime is likely to improve further with the advent of new systems. Installation of the CCS has strengthened the internal control in the areas covered by it. The

30 A recent study of five local governments by the ODI Center for Aid & Public Expenditure on Uganda Local Government Integrated Fiduciary Assessment has assessed their average performance on Accounting and Record Keeping at 76 percent and Internal Audit at 75 percent.

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recommended extension of the CCS to all expenditure items, and the roll-out of the IFMS will, over time, lead to further strengthening of the internal control regime.31 Notwithstanding the above, there is scope for improving the effectiveness of the internal control regime. The internal audit reports routinely reveal instances of departures from the financial and procedural regulations. The presence of significant stock of payment arrears and the absence of an effective monitoring arrangement to control the flows of arrears (see Indicator 8) also indicate a weakness in the internal control regime. The authorities are taking steps to enhance the internal control and audit regime. In particular, they have recently decided to establish senior level audit committees in each line ministry to review and report on, inter alia, operation of the internal control regime and the audit process in expenditures of the ministry. 32 The audit committees are expected to become operational beginning FY2004/05. While internal control and audit procedures and reports have been significantly strengthened at both central and local government levels, weaknesses remain. Specifically, there is inadequate follow-up to ensure that action is taken on audit recommendations. Further, there is no systematic monitoring that can inform on corrective actions taken. The 2001 assessment for this indicator had assessed central government as A and local governments as C, resulting in overall assessment as B. The present assessment notes that: • There has been no deterioration in the central government internal control regime

since the last assessment. The stabilization of the CCS, enactment of the PFAA, and the decision to establish the Audit Committees have further strengthened the internal control regime.

• The internal control system at subnational levels reflects a similar level of accountability.

Taking into account these considerations, the benchmark is assessed as having been met. However, there remains scope for improvement. Action plan Short-term measures 31 The Fiscal Decentralization Strategy envisages a simple commitment control system for subnational governments. While a set of budget implementation guidelines has been prepared for this, it has not yet been put in operation. 32 The letter of January 16, 2004 from the Accountant General to the World Bank provides draft Charter of the Audit Committees being constituted under the Public Finance and Accountability Act 2003.

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• Drawing on the provisions of the PFAA, take effective steps to further enhance the

internal control systems at all levels of general government, in particular, by establishing a systematic monitoring mechanism to follow up on internal audit report recommendations.

• Establish interim arrangements for district CFOs to oversee maintenance of proper accounts at lower local government levels.

Medium- and long-term measures

• As recommended in Indicator 8, extend CCS to all levels of local government, starting with districts and municipalities, followed by subcounties.

• Extend roll-out of the IFMS to all central government agencies and districts, as capacity is created at these levels.

• Extend full accountability to lowest levels of local government (parishes and villages), by possible use of subcounties’ accounting capacity on an agency basis. Review the regulations to introduce a system of progressive consolidation, from each level of local government to the next level above.

Indicator 10: Tracking surveys are in use Question: Is internal control supplemented by public expenditure tracking surveys (PETSs) that follow funds to the ultimate service provider or beneficiary? Benchmark: (B) Yes, PETSs have been tried, and are in the process of becoming a regular feature of the PEM system, or an alternative PEM system that can reliably track resource transfers is being put in place. Assessment: (B) PETSs have become a regular feature in the core sectors. This benchmark is met.

Uganda undertakes regular PETSs in several core priority areas. In particular, monitoring of sectoral performance is being carried out by line ministries of priority PAF areas, and there is a widespread use of PETSs for this purpose.

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The education sector has had four PETSs since 1999. 33 Every year, an area of concern identified during the semi-annual sector review is evaluated through PETSs. Assessments have covered: (i) two studies on the status of Universal Primary Education system; (ii) the Teachers’ Recruitment, Deployment, and Payroll Management; (iii) the Value-for-Money of the School Facilities Grant; and (iv) the Cost-Effectiveness and Efficiency of Education Spending, for which the terms of reference are currently being prepared. An Action Plan is formulated at the conclusion of each PETS and its implementation ensured by integrating it into the sector policy agenda.

The health sector has also had several surveys to track performance in specific areas. Specifically, PETSs have been implemented for: (i) funds under the primary health care conditional grant (2001); (ii) drugs (2002); and (iii) conditional grant for shared services (2003). In addition, a health sector public expenditure review analyzed the efficiency of public spending at district levels in 2002/03. The studies’ recommendations are regularly submitted to the Ministry of Health and the MFPED to ensure their implementation.

The water and sanitation sector has also implemented PETSs. In 2002, at the request of the MFPED, a technical audit/value-for-money study was initiated for the rural water and sanitation conditional grant. While some questions arose about the methodology and overall quality of both studies, their completion allowed the Ministry to focus its efforts on a deeper analysis of areas of concern. Other studies are planned with a strengthened focus on efficiency issues, especially on performance measurement in the water and sanitation sector.

Uganda has progressed significantly in regularizing the use of PETSs, which to date have been mostly prepared by donor-supported contractors, under the lead of line ministries.

This benchmark is met. Action Plan

Short-term measures

• Continue with PETSs in core poverty-reducing areas.

• Integrate outputs and recommendations from PETSs into the preparation of the MTEF and PAF.

33 The first PETS in the Ugandan education sector, undertaken in 1996, disputed official records which seemed to understate the increase in primary enrollment during 1991–1995, following an increase in funding. Despite the increases in primary enrollment, the study also showed a significant amount of leakage of resources before they reached schools, and serious accountability problems on nonwage education spending. (See “Uganda Public Expenditure Review 2003,” World Bank, November 2003).

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Medium-term measure

• Develop capacity to undertake PETSs with local resources, to be supplemented by donor-financed studies, as required.

Indicator 11: Quality of fiscal information Question: Is there a regular reconciliation of all government bank accounts (those held in the central bank and the commercial banks) with the government’s accounting records? Benchmark: (A) It occurs satisfactorily in a timely and routine way. Assessment: (A) There are processes in place requiring reconciliation of the government’s accounts at the central and subnational levels with corresponding bank accounts. This benchmark is met.

The accounting regulations require that budget agencies submit their summary monthly accounts within 20 days of the end of the month. Most agencies provide reports within about a month and in some cases, in particular those of subnational governments, such reports are supported by a bank reconciliation statement. More detailed financial statements are received half-yearly. The half-yearly statements provide comprehensive reports on expenditures against appropriations, revenues collected, cash flow and bank reconciliation, outstanding commitments, contingent liabilities, and other accounts-specific information. From the next financial year, the authorities intend to receive detailed financial statements quarterly instead of half-yearly as at present. 34 The Bank of Uganda remits a monthly statement of accounts on inflows into and outflows out of the bank account holding the UCF. This information is used to cross-check changes in bank accounts maintained by line ministries and other reporting entities. However, as noted in Indicators 1, 2 and 4, line ministries and districts are not required to (and do not) report on funding and expenditure linked to project aid (which is not remitted to the UCF, but usually kept in commercial bank accounts); furthermore, reconciliation statements on these resources are not submitted. The PFAA stipulates that no government agency can open/operate a bank account holding public resources without prior authority of the Accountant General. With a view to streamlining the reconciliation process, the Accountant General has recently embarked on rationalization of bank accounts maintained by reporting agencies. Beginning in

34 At the central government level, budget support monitoring is done through quarterly budget performance reports, typically available within 30 days of the end of the quarter.

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July 2003, each line ministry has been maintaining two accounts with the Bank of Uganda—one each for revenues and expenditures—for budget operations other than donor-project accounts, which are maintained in commercial banks. A similar rationalization is intended for agencies operating bank accounts at commercial banks as and when they are covered by IFMS. Preliminary steps to reduce the number of bank accounts at subnational levels suggest that this rationalization process will eventually cover local governments as well, in tandem with extension of IFMS,35 and the implementation of the FDS. The government payment system and banking arrangements rest on multiple bank accounts operated by various budget entities. Such an arrangement is not conducive to an effective centralized cash management at the treasury and can result in a sub-optimal use of government cash. As a medium-term reform initiative, the authorities should consider installing a Treasury Single Account (TSA). The 2001 assessment had assessed central government as A and local government as C, with an overall assessment of B. This assessment finds that the bank reconciliation is undertaken with reasonable effectiveness at the central, district, and subcounty levels of the government. The benchmark is assessed as having been met on the following grounds: • While reports on comprehensive bank reconciliation are only required to be submitted

to the MFPED half-yearly instead of monthly, submission of clean half-year reports suggests that accounts maintained by agencies at central and subnational governments are supported by certificates of balances from banks, which are reconciled on a timely and routine basis.

• During audit of these accounts, their integrity is routinely tested against bank statements.

• The discipline of testing government accounts against bank statements is well established at all levels of the government.

Action plan Short-term measures • Implement, from July 1, 2004, the quarterly submission of fully reconciled financial

statements by all central government line ministries and agencies.

35 Under the Fiscal Decentralization Strategy (FDS), there is a plan to reduce the number of bank accounts operated at the district level to two per spending department.

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• Accelerate streamlining of the number of bank accounts in use by line ministries and agencies, particularly those held in commercial banks. Progressively reduce the large number of bank accounts required for local government management of central government tied grants, in line with the recommendations of the FDS. A significant reduction of bank accounts will, inter alia, facilitate submission of fully reconciled monthly accounts to the MFPED.

Medium-term measures • Study and implement a TSA approach for central government banking arrangements.

• As recommended in Indicator 9, extend full accountability to the lowest levels of local governments (parishes and villages), by possible use of subcounties’ accounting capacity on an agency basis. Review regulations to introduce a system of progressive consolidation, from each level of local government to the next level above.

C. Budget Reporting

Indicator 12: Regularity of timely internal fiscal reporting Question: When are the budget-tracking reports from line ministries, other spending units, and the treasury received by the central financial authority? Benchmark: (B) They are received between two weeks and four weeks of the relevant period. Assessment: (C) By and large, line ministries and other central agencies submit monthly fiscal reports to the MFPED within four weeks. Reporting on fiscal operations of donor-financed projects is, however, irregular and unsatisfactory. Self-financing agencies submit only partial monthly reports to MOF. At subnational levels, delays in submission of reports to appropriate authorities are not uncommon. This benchmark is not met.

All central ministries, self-financing agencies, and district-level subnational governments are required to provide monthly fiscal reports to MFPED within 20 days of the end of the month. In actual practice, the current status of reporting is: • Line ministries submit monthly reports within four weeks of the end of the month.

While these reports are not accompanied by bank reconciliation statements, the fiscal information is complete, with the exception of donor-financed projects.

• Self-financing budget agencies, such as hospitals and universities submit a detailed monthly return of revenues collected and retained by them. This report, however, does not provide information on spending from these receipts. Comprehensive fiscal

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reports for these agencies, covering all revenues and spending, are available only annually, with a lag.

• District-level subnational governments render monthly reports on expenditures out of conditional and other central government transfers, and a separate monthly report on local revenues collected by them. Expenditures from local revenues are, however, not included in this report. The Ministry of Local Governments prepares a statistical consolidation of local government reports, but with a significant lag. Full accounts are only available at the end of the year from the Auditor General, with a considerable lag.

• Subcounty-level subnational governments render annual accounts directly to the Auditor General, who provides one copy to the district administration. Fiscal operations of the subcounty-level governments are not made available to the MFPED.

The 2001 assessment had rated this indicator at B, while expressing concern about the quality of data received. The present assessment has identified significant gaps in fiscal reports at both central and subnational levels of the government, which has resulted in a lower rating than in 2001.

The benchmark is not met. Action plan For the central government to generate comprehensive, timely in-year reports on its fiscal operations, the following measures should be considered:

Short-term measure

• Enforce monthly submission of complete revenue and expenditure reports,

irrespective of source of revenue, by all central government line ministries and agencies, including autonomous agencies, and local governments, within 20 days of the end of the month in line with current regulations.

Medium-term measures • In close consultation with donors, workable arrangements should be evolved for

timely reporting on all donor-financed projects.

• Monthly fiscal reports of all lower-level subnational governments (subcounties, parishes, and villages) should be consolidated at the district level and made available to the Accountant General for monitoring general government fiscal operations.

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Indicator 13: Fiscal reports present spending on a functional basis Question: What in-year reports are published for tracking budget performance? Benchmark: (A) Good quality functional classification is presented: Good quality functional classification is reflected in the in-year budget reports. Assessment: (B): This benchmark is not met. The central and local government budgets do not reflect COFOG functional classification in the appropriation structures and the chart of accounts, as discussed in Indicator 5. In-year fiscal reports with functional classification, anchored on the government accounts are, therefore, not available. A detailed MTEF coding has been in use for several years, which provides the authorities with an interim functional reporting system. However, the MTEF coding is not yet reflected in the transaction level records of budget implementation. As a result, the Accountant General has no means to produce accounting reports on MTEF formats. Instead, the Accountant General submits account statements to the Budget Directorate, which then develops in-year MTEF reports based on parallel information received from the line agencies. The absence of linkage between the MTEF and the government accounts raises concerns over the accuracy and reliability of in-year MTEF reports, and the awareness of these formats at the line ministry and local government levels, since mapping is not a substitute for incorporating COFOG into the chart of accounts. Increased expenditure devolution requires that the functional classification structure and MTEF codes are fully integrated into reporting by the local governments. For this to happen, the functional classifications and MTEF codes need to be integrated into the vote structures and the chart of accounts. The authorities plan to include the MTEF codes into the chart of accounts through the implementation of the IFMS.36 In the medium term, the MTEF will be reviewed and redefined to ensure consistency with the COFOG classifications. This benchmark is not met.

36 The MTEF codes to be included in the chart of accounts under the IFMS were conveyed by the Commissioner of Budget, Planning and Economic Development (C/BPED) to the IFMS project management in May 2003.

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Action plan Short-term measures • Fully incorporate MTEF codes into the new chart of accounts (already noted under

Indicator 5).

• Once the above action is completed, prepare accounting reports disclosing functional and MTEF dimensions of expenditure aggregates.

Medium-term measure

• Incorporate COFOG functional classification into the budget (MTEF) vote structure and new chart of accounts (already noted under Indicator 5).

• Extend reporting requirements by local governments to include functional and MTEF reports, particularly those that will not be immediately covered by IFMS.

Indicator 14: Transactions are recorded in the accounts in a timely fashion. Question: What is the longest period between the end of the fiscal year and the routine booking of transactions? Benchmark: (A) Routine transactions are entered into the main accounting system(s) within two months after the end of the fiscal year. Assessment: (A) Routine transactions are not entered into government accounts after the close of the fiscal year, even though the account books of the central government are kept open for four months, to take on to the books checks issued during the fiscal years but cleared subsequently. This benchmark is met.

Following the end of a financial year, annual accounts of the central government are kept open for a period of four months and those of subnational governments for a period of six weeks. During this complementary period, the accounts, while open, do not book new transactions. They, however, admit checks issued during the fiscal year but presented for disbursement during the first four months of the new fiscal year. The period of four months allowed for checks to be cleared is reasonable, given the six-month validity of checks in Uganda. The benchmark is met. Action Plan: No action is required.

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Indicator 15: Timeliness of audited financial information Question: How soon after the end of the relevant year is the audit report on the annual accounts (either short-form audit report accompanying the final accounts or as part of loi de règlement) presented to the public and/or the legislature? Benchmark: (B) An audited record of the financial outturn should be presented to the legislature within twelve months of the end of the fiscal year. Assessment: (B) Central government accounts together with audit certificate are presented to the legislature within nine months of the end of the fiscal year. This benchmark is met.

The Auditor General of Uganda generates four types of annual audit reports for submission to the legislature. • Audit Report on Central Government Appropriation Accounts. This report is

required to be submitted to the parliament within nine months following the end of the fiscal year. Over the past five years, this deadline has been met.

• Audit reports on individual donor-financed projects: The timing and periodicity of these reports are determined by donors’ requirements, to whom copies are endorsed. Specifically, the World Bank and African Development Bank projects are required to be audited within six months of the end of the fiscal year. This deadline is being met in about 80 percent of projects. Other donors prescribe different timetables and methodologies (e.g., some DFID projects require audits to be undertaken by international firms). Difficulties are experienced in the audits of project accounts when there is unsatisfactory compliance by some project managers.

• Audit reports on statutory bodies: The timing and methodology for audits of statutory bodies (e.g. Tea Development Authority) are laid down in the respective statutes governing their operation. There are delays in completion of audit in some of these cases on account of unsatisfactory bookkeeping and financial management.

• Audit reports on subnational governments: Currently the Auditor General undertakes regular annual audits of accounts of higher levels of subnational governments—district, city, town, and municipality levels. There are plans to progressively extend the scope of audit to about 1,000 subcounties which constitute the next level of subnational government. The accounts of the last two levels—parishes and villages—are consolidated into the accounts of the subcounties, which are submitted to the Auditor General.

Audit reports on subnational government accounts are presented to the respective local councils, the legislative branch at that level. Currently, the Auditor General does not

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consolidate general government accounts, though consideration is being given to the feasibility of such an exercise. As a general rule, the annual audit of district level subnational governments is completed within one year of the end of the fiscal year. 37

This benchmark is met. Action Plan: No specific action required. Indicator 16. Efficiency and effectiveness of the public procurement system Question: To what extent does the public procurement system provide for efficient and effective use of public funds? Benchmark: (A) An efficient and effective public procurement system exists: The procurement system promotes efficiency and effectiveness in the expenditure of public funds through clear and enforceable rules that promote competition, transparency, and value for money. Assessment: (B): The procurement system operates in a weak governance environment and lacks controls. The benchmark is not met. The Country Procurement Assessment Report (CPAR), prepared by the World Bank, has identified problems that exist in the procurement process at both central and local government. The CPAR constitutes a thorough analysis of the entire public procurement sector and has identified the following specific problems: • Weak legal and regulatory framework;

• Inadequate procedures and practices;

• Weak organization and institutional framework;

• Lack of capacity at central and local government levels; and

• Inadequate monitoring and evaluation mechanisms.

To address these problems, the 2001 CPAR recommended the enactment of a procurement law. Uganda enacted the new procurement law based on the UNCITRAL

37 As of January 31, 2004, the Auditor General had received 107 of the 129 annual accounts for FY2002/03, from the District and Urban Councils. For the previous FY2001/02, audits were completed for 124 of the 129 annual accounts. Three town councils—Njeru, Kaberamaido, and Nakapiripirit—still had to submit accounts for FY2001/02 and 2002/03. (Source: Auditor General of Uganda).

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model at the end of 2002. The law (the Public Procurement and Disposal of Public Assets Act) became effective in February 2003, and led to the creation of the Public Procurement and Disposal of Public Assets Authority (PPDPA). The PPDPA replaced the Central Tender Board that was responsible for procurement in government departments (with the exception of public parastatals and self-accounting bodies which had their own tender boards). The Public Procurement Act of 2003 applies to all public procurement and disposal activities undertaken by public institutions, including government departments, parastatal organizations and defense procurement. The Act identifies and specifies the roles of procuring entities, Accounting Officers, contract committees, or tender boards (in the case of Local Governments), procurement units, evaluation committees, and user departments of the procuring entities. Currently, all central government departments have contract committees and procurement units to undertake procurements and the Accounting Officers provide the first line of appeal in case of complaints. The creation of the PPDPA as a procurement regulatory body is in effect a result of decentralization of public procurement to the procuring entities. The PPDPA’s main functions include developing regulations, guidelines, standardizing bidding documents, and carrying out compliance checks and audits, publishing contract awards, and pre-qualifying and approving the use of third-party procurement agents by procuring and disposal entities. While the Authority provides a second line of appeal against complaints, there is no formal appeals body beyond PPDPA. While the ongoing reforms towards developing an efficient, economic, transparent, and accountable procurement system have taken root at the central government level, much remains to be done at the local government level. This benchmark is not met. Action Plan Regulation of public procurement procedures has just started and while substantial input has been provided at the central government level, more effort is required at the local government level. The PRSC, CPAR, and LGDP-II have helped identify problems in procurement but there is a need for further monitoring and implementation of these efforts. The overarching action to improve procurement performance is to enforce the Procurement Act. Short-term measures • Harmonize local government regulations with those at the central government

• Undertake regular procurement audits in all procuring entities, and develop and implement performance indicators to measure compliance and level of corruption in procurement.

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Medium-term measure

• Finalize and implement a capacity-building strategy in accordance with the CPAR/CIFA exercise.

III. STRENGTHENING PEM SYSTEMS IN UGANDA

The elements of the Action Plan proposed above have been compiled in Table 6. In addition, Table 7 presents an overview of the ongoing technical assistance on PEM in Uganda, while Table 8 summarizes progress made to date on the Action Plan prepared in the 2001 AAP exercise. Finally, Table 9 contains the matrix of reform strategies implemented by the authorities, which has been prepared by the Public Expenditure Management Committee (PEMCOM) at the MFPED, and linked to the Action Plan prepared in this assessment (Table 6).

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No. ActionRelates to indicator

PEMCOM reference TA Provider No. Action

Relates to indicator

M reference

TA Provider

1 Improve the management of non tax revenue, by strengthening forecasting capacity, enforcing reporting of retained revenues by semiautonomous bodies, including extra-budgetary funds, and including statements on their full operations in the annual budget documents submitted to Parliament.

1, 2 & 3 1.1.1 WB 21 Progressively include lower sub-national governments, starting with sub-counties, in general government fiscal reporting, both for budget and accounts consolidation. Also, progressively enforce reporting for those semi-autonomous institutions for which strengthening of legal background might be required.

1 3.1.3 DFID, WB

2 Strengthen budget formulation to reduce incidence of under-budgeting by enforcing budgetary choices during the budget preparation process.

3 Not required 22 Develop monitoring capacity to report on quasi-fiscal operations, and incorporate reporting on these activities in government budgets and execution reports.

1 3.1.1 Not required

3 Introduce standardized reporting requirements in project financing agreements with donors.

4 3.1.1 Not required

4 Review and correct misclassified and ambiguous items in economic classification

5 3.2.3 IMF (East AFRITAC)

23 Prepare a comprehensive medium term plan to move to accrual accounting.

5 3.1.2 TA Required

5 Incorporate MTEF classification into the new chart of accounts and implement through IFMS

5 & 13 3.2.3 IMF (East AFRITAC)

24 Incorporate COFOG classification into the chart of accounts. Progressively extend the coverage of PAF in line with PEAP.

6 2.1.1 IMF (East AFRITAC)

6 Include PAF coding into the chart of accounts, to ensure consistent and transparent tracking of poverty-reducing expenditures.

6 3.2.3 IMF (East AFRITAC)

7 Ensure proper integration of external resources into the MTEF ceilings.

4, 7 2.1.1, 2.1.2 Not required 25 Improve reporting, monitoring and evaluation at the stage of BFPs preparation to ensure an output and results orientation.

7 2.1.2 TA Required

8 Integrate outputs and recommendations from PETs into the preparation of the MTEF and PAF.

6 & 7 2.1.1, 2.1.2 Not required 26 Strengthen macro-fiscal forecasting, including the capacity of LGs to forecast their own revenues.

3 1.1.2 WB Projection

Table 6. Action Plan to Upgrade PEM Capacity in Uganda

Comprehensiveness

Classification

SHORT-TERM MEASURES (Within next 12 months) MEDIUM-TERM MEASURES (12 months to 3 years)

FORMULATION

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9 Extend commitment control system to cover ALL expenditures, including salaries, pensions, grants, and utilities, and ensure that the new IFMIS is fully able to meet the extended CCS requirements.

8 & 9 3.2.5, 3.2.6, 4.3.2

IMF (East AFRITAC)

27 Extend commitment control system to all levels of local government, starting with districts and municipalities, followed by subcounties.

8 & 9 3.1.3, 3.2.5, 3.2.6

WB

10 Undertake urgent polling and verification of the stock of all arrears as of the end of June 2003, and prepare a detailed report showing age profile and type of arrears. Once reliable data on the stock of arrears is available, regulations should be formulated for prioritizing arrears for clearance according to their age profile. In-year and annual reports on clearance of arrears should reflect the age profile and type of payment arrears cleared against budget provisions.

8 Not required 28 Extend rollout of IFMS to all CG agencies and districts, and ensure that the new IFMS is fully geared to meet the extended CCS requirements.

9 3.2.4, 3.2.5 WB

11 Strengthen the Accountant General's role in the tracking and reporting of arrears, and develop a strategy for prioritized settlement of arrears. Include auditing of stocks of arrears and their clearance as part of the normal audit responsibilities of the Auditor General, and include the findings in the annual audit reports for both the central and subnational governments.

8 Not required 29 Extend full accountability to lowest levels of LGs (parishes and villages), by the possible use of subcounties' accounting capacity on an agency basis. Review the regulations to introduce a system of progressive consolidation, from each level of LG to the next level above.

9, 11 3.1.3, 3.2.5 WB

12 Establish interim arrangements for district CFOs to oversee maintenance of proper accounts at lower LG levels.

9 3.2.5 Not required 30 Study and implement a Treasury Single Account approach for CG banking arrangements.

11 TA Required

13 Enforce reporting by project managers in line with CG budget reporting regulations and strengthen reporting of disbursements by donors.

4 3.1.1 Not required 31 Develop capacity to undertake PETSs with local resources, which might be supplemented with donor-financed studies.

10 TA Required

14 Accelerate the reduction of the number of bank accounts in use by line ministries and agencies, particularly those held in commercial banks. Progressively reduce the large number of bank accounts required for LG management of CG-tied grants, in line with the recommendations of the FDS.

11 3.2.5 Not required

Table 6. Action Plan to Upgrade PEM Capacity in Uganda (continued)

EXECUTION

Internal Controls and Reconciliation

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15 Prepare accounting reports summarized by functional and MTEF codes.

13 IMF (East AFRITAC)

32 Extend reporting requirements for local governments to include functional and MTEF reports, and generally strengthen the quality and reliability of LG reports.

2, 13 1.2.1, 3.1.3, 3.2.2, 3.2.5,

3.2.6

WB

16 Implement, from 1st July 2004, the quarterly submission of fully reconciled financial statements by all CG line ministries and agencies.

11 3.1.1 Not required 33 In close consultation with the donors, workable arrangements should be evolved for timely reporting on all donor-financed projects.

12 Not required

17 Enforce monthly submission of complete revenue and expenditure reports, irrespective of source of revenue, by all CG line ministries and agencies, including semiautonomous agencies, and LGs, within 20 days of the end of the month in line with current regulations.

12 3.1.1 Not required 34 Monthly fiscal reports of all lower level sub-national governments (subcounties, parishes, and villages) should be consolidated at the district and made available to the Accountant General for monitoring general government fiscal operations.

12 Not required

Final Audited Accounts

18 Include auditing of stock of arrears and its clearance as part of its normal audit responsibilities, and report on findings in the annual audit reports of both CG and LG entities.

8 Not required

19 Harmonize LG procurement regulations with those of CG.

16 3.1.4 WB 35 Finalize and implement a capacity-building strategy in accordance with the CPAR/CIFA exercise.

16 WB

20 Undertake regular procurement audits in all procuring entities, and develop and implement performance indicators to measure compliance and level of corruption in procurement.

16 WB

Note: PEMCOM is the Government of Uganda's PEM reforms matrix, attached as Table 9.

REPORTING

Table 6. Action Plan to Upgrade PEM Capacity in Uganda (concluded)

SHORT-TERM MEASURES (Within next 12 months) MEDIUM-TERM MEASURES (12 months to 3 years)

Procurement

In-Year Reporting

NEW

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Dates DatesWORLD BANK 2001-05

2002-07

IMF/ 2001-02 2004East AFRITAC Mar-04

DFID NA

* Within the last 12 months

Financial Assistance Project

Strengthening Local Government PEM Assistance to MoFPED in the implementation of FDSReview of classifications

Economic and Financial Management Project IILocal Government Development Project

Table 7: Overview of Technical and Donor Assistance in Public Expenditure Management in Uganda

Donor/ ProviderRECENT*/ONGOING Assistance by Major Project PLANNED Assistance by Major Project

Description Description

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Timing Status Date (S/M)[1] (FI/II/NS)[2] achieve

1 Improve reporting on donor activities through SWGs. S II Implementation started. SWGs are required to formally endorse donors’ project funds presented to the MFPED. SWGs' analyses of reporting is not detailed. Need to improve the depth of the analyses. Prioritization is a big issue and SWGs are not well equipped. Development Committee needs to be more proactive.

2 Include donor project funds in the MTEF programming for the education, health, and water and sanitation sectors.

S II The process of integrating donors’ project funds in the MTEF programming has started. The MFPED has begun developing a database of existing donors’ projects and plans to integrate donor projects into the 2004–05 MTEF. It is not confined to only 3 sectors, but it is being done for all the sectors. Macro unit has initiated that with all the donors. This is still a work in progress.

3 Develop a proposal for the IFMS within the Economic and Financial Management Project (EFMP) II.

S FI Apr-02 The fiscal management study was completed, and the procurement process for the supplier of the IFMS is in progress. Pilot site of the IFMS site is in the process of going live (Feb 2004). Data has been loaded into the system and checks are being loaded as well.

4 Identify poverty-reducing expenditures. S FI Dec-99 Poverty-reducing expenditures are clearly identified and tracked under the PAF. The poverty component of non-PAF expenditures remains difficult to monitor. For PAF, joint govt-donor review committee reviews every six months. Need to develop a plan for Non-PAF. JLO sectors have already prepared a plan. However, two major sector (Public Administration and Defense) reviews are still not clear.

5 Improve budget classification, introduce activities-based budgeting, and strengthen the MFPED and MOPS.

S II GFS reporting and compliance with the International Public Sector Accounting Standards were introduced in 2002. A new chart of accounts has been introduced in FY 2003/04. In addition, ROM and OOB have been introduced in some sectors. ROM and OOB need to improve quality of service and need to develop indicators to measure and monitor them and make sure outcome feeds into the policy. The challenge is to make the IFMS consistent with it.

6 Strengthen MTEF preparation through the EFMPII and PRSC.

S II With the support of the EFMP II and PRSC, the MTEF process has been improved by strengthening the work of SWGs and integrating donor projects and staffing and wage bill issues in the MTEF formulation process. Staffing and wage bill still has a problem and there is no proper discussion on payroll and no link.

7 Improve inclusion and reporting on donor activities through strengthening SWGs’ participation in the budget process.

M II Some sectors (such as health, education, water and sanitation, roads and works, and justice, law, and order) have started to include donors’ activities in their sector plans. New chart of accounts, implemented in FY 2003–04, will standardize accounting formats, thereby facilitating sector reporting of donors’ activities. It will remain to be done manually until the IFMS is running properly.

8 Include donor project funds in the MTEF programming for all sectors.

M NS Implementation planned for FY 2004/05. See #2.

9 Implement the IFMS through the EFMP II. M II The procurement of the IFMS is currently under way, with the implementation ofthe pilot site for 6 central ministries and 4 local authorities starting in Feb 2004.Further rollout to 12 ministries and 6 local authorities is planned for FY 2004/05.

10 Track and monitor poverty-reducing expenditures throughout the budget.

M II Poverty-reducing expenditures under the PAF are systematically monitored. However, the monitoring of non-PAF expenditures will be possible only after the introduction of the OOB. Same as # 4. JLO sector is in the process of doing a tracking study.

11 Implement improved budget classification through the EFMP II.

M II Has been implemented. A new chart of account has been introduced in fiscal year 2003/04. (See also point 5 in this annex.)

12 Strengthen the MTEF implementation through the EFMP II.

M II With the support of the EFMP II, the MTEF implementation process has been enhanced by strengthening the work of SWGs through increasing their number. In addition, the IFMS starting Feb 2004 and FDS pilots are at a very early stage.

Table 8: Status of 2001 Action Plan

Actions to strengthen budget formulation

# Actions Comments c

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Timing Status Date (S/M)[1] (FI/II/NS)[2] achieve

13 Reduce arrears through the extension of the CCS and improve internal controls through the enactment of the new Public Finance Bill and new treasury regulations.

S II The CCS covers the nonwage recurrent and development expenditures, and no further extension is envisaged. Govt is looking into the possibility of extending the CCS through local govt. But this is still in brainstorming stage. The new Public Finance and Accountability Act 2003 (PFAA) has been approved in May 2003. The related regulations, as well as treasury financial instructions, have been drafted and are expected to be approved and implemented immediately .

14 Implement tracking surveys in the health and education sectors.

S FI Jul-00 Periodic surveys are conducted in the health and education sectors. In addition, tracking surveys of specific subcomponents of some are carried out. This is an ongoing process.

15 Strengthen internal audit through redirection of resources to system audits, random checks, and training under the EFMP II.

S-M II Training in the Internal Audit Office on modern auditing techniques was completed. A core team responsible for improving and strengthening internal audit was set up. An action plan for developing and increasing the capacity of internal auditors was developed and agreed upon. The charter for the Internal Audit Office and the Audit Committees and the Government Internal Auditing Guidelines were drafted in October 2002. The program of strengthening internal audit function under the EFMP II will continue until end-2004.

16 Review and improve the structure of government bank accounts.

S II Review and consolidation of all government bank accounts are carried out as activities under the EFMP II and the PRSC. This is in progress. The PFAA has been approved. The act ensures that public or official bank accounts are not opened without prior authorization of the Accountant General.

17 Strengthen the CCS by improving internal controls after the enactment of the new PFAB and new treasury regulations and the introduction of the IFMS.

M II The new PFAA has been approved. The new treasury financial instructions have been drafted and are expected to be approved and implemented immediately after the enactment of the bill.

18 Extend tracking surveys to all sectors. M II Tracking studies have been launched in the water and sanitation sector.

19 Review and improve the structure of government bank accounts and reconciliation under the EFMP II.

M II Backlog clearance of treasury bank accounts was completed, and irreconcilablebalances were written off. The review and the improvement of the government’sbank accounts will be achieved only after the full implementation of the EFMP II.EFMP II has been extended till Dec 05.

20 Each line ministry presents internal budget reports with greater detail.

S II Detailed internal budget reports are presented for expenditures under the PAF. Quarterly internal budget performance reports are beginning to provide greater detail in non-PAF sectors. This is an ongoing process trying to get greater detail for the non-PAF and output. Formerly they are supposed to produce semi-annual and informal quarterly report. Less information available for non-PAF areas.

21 Strengthen Auditor General department by improving resources and training.

S-M II Capacity-building and training activities are being carried out under the EFMP II, for enhancing audit and documentation procedures and professional skills.

22 Improve quality and timeliness of releasing audited accounts to legislature.

S-M II Audited accounts of the central government are presented within 12 months of the end of the year. Auditing of local governments’ accounts is deficient. Under the EFMP II, capacity-building activities are being carried out for enhancing audit and documentation procedures and professional skills. It is a continuing process.

23 Enforce compliance with monthly reporting requirements, especially at the local government level.

M NS Progress is limited. Only a limited number of local authorities submit monthly accounts to the MFPED and the Ministry of Local Governments. Remains the same.

[1] S, short-term action; M, medium-term action.[2] FI, fully implemented; II implementation initiated; NS not started.

Table 8: Status of 2001 Action Plan (concluded)

Actions to strengthen budget execution

Actions to strengthen budget reporting

# Actions Comments c

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Table 9. Public Expenditure Management Committee (PEMCOM) Matrix Government of Uganda—Public Expenditure Management Reform Strategies

PEMCOM Objective: • to provide a mechanism to coordinate, harmonize, and monitor government activities

pertaining to Public Expenditure Management within the context of the Poverty Eradication Action Plan (PEAP)

Outcomes/Outputs:- • official mechanism for coordinating, clearing, and reporting on Public Expenditure Reform activities in the GoU

• increased efficiency in the management of PEM initiatives with reduced overlap and duplication of effort

• greater awareness, control, and management of PEM initiatives

• improved resourcing and resource utilizations for PEM activities

PRSC Linkage • PRSC Objective A: Efficient and Equitable Use of Public Resources

• PRSC Objective B: Improve Management Systems and Practices in the Public Sector

PEMCOM Matrix Purpose: • to provide the mechanisms to plan and monitor public expenditure reform activities in

pursuit of the PEMCOM objectives above.

Outcome/Output:- • completeness in coordination and monitoring of PEM activities

• timely identification of gaps/overlaps in implementation public expenditure reforms

Issue Activity Lead Agency (Program/Project)

Total Value

Outputs Milestones/ Key Dates

Status/Expectations /Recommended Activities

PEMCOM Objective 1: Enhance Fiscal Stability

Weak Tax Management Tax Policies and Administration MoFPED (EFMP II) US$0.55m

NDF 100%

Increase Domestic Revenue Increase stability in Revenue collections Improved framework for NTR management

Complete Capacity building program in TPD by Jun 04 Complete Review of NTR rates and framework by Mar 04

Consultant’s reports on tax policy reviews under discussion by GoU; intensive course in tax policy formulation and analysis completed in Dec 2003. Completion of entire exercise expected by April 2004. Interim report on Nontax Revenue study submitted and discussed in December 2003; Revised interim report to be submitted mid February 2004. Final report expected end March 2004. Consultant is M/s PKB Consulting Ltd.

Poor Revenue Collection in LGs

Enhance LG Revenues MoLG (LGDP II)) US$8.57m

IDA

Improved Revenue Management framework for LGs. Increased Revenue Collections. Strengthen local revenue policies and legislation. Train politicians and officials Strengthen local revenue systems Extend the property tax system

Regional workshops on LRE (Jan/Feb 2003) Inventory of best practices Follow-up workshops on best practices (Feb 2004) Disseminate BP guidelines (Jan-Jun 2004)

Regional workshops held Local Revenue Enhancement (LRE) Committee active

Fiscal Discipline Prudent Debt Management MoFPED Improve debt sustainability ratios

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Issue Activity Lead Agency (Program/Project)

Total Value

Outputs Milestones/ Key Dates

Status/Expectations /Recommended Activities

PEMCOM Objective 2: Efficiency in Allocation and Utilization of Resources

Inefficiency in Resource Allocations

Strengthen MTEF as a framework for resource allocations

MoFPED Preferred funding is budget support Donor/Project funds integrated into MTEF. Recurrent and development budgets integrated. Allocations consistent with PEAP and Long-Term Expenditure framework.

Expenditure ceilings for donor projects integrated into 2003/04-2005/06 MTEF 48% of donor financing provided as budget support Recurrent and development budget integrated in FY2005/06

Integrating ROM and OOB MPS/ MFPED Sector plans and expenditure programs are output- and outcome-oriented

Annual Government ministries and departments implement ROM and OOB in their processes

3 sectors (education, health, judiciary) implemented some aspects of OOB

Implementing Value-for-Money Audits

OAG Value for money realized during service delivery

Expenditure efficiency improvements in the public administration sector, and social services sector as well as agriculture

MoFPED, MOPS Staffing norms are in place to facilitate achievement of effectiveness and efficiency in these sectors Growth of public administration is contained

Program for regulating and controlling the size of the Public Administration Sectors agreed by April 2003. Streamlined expenditure by 2005/06. Study of cost efficiency and effectiveness in human resource deployment in social sector conducted by Dec 2003

Sector Tracking Studies MoH, MoES, DWD & JLO Tracking studies for MoH, MoES, DWD and JLO Program to implement follow-up actions

Tracking Studies by April 2003 Completed

Local Governments Grant Allocation Formula

LGFC Grants allocated and released in accordance with the FDS strategy

The Grant Allocation formula study was completed; discussion are ongoing with the relevant sectors and LG associations on the adoption of the new formula

PEMCOM Objective 3: Efficiency and Effectiveness of Financial Management Processes

Review/update financial legislation at national level

MoFPED (EFMP II/FAP) DFID New Public Finance and Accountability Act Updated Financial Regulations and Treasury Instructions

New Public Finance and Accountability Act enacted by July 2003 Updated Financial Regulations and Accounting Instructions ready and disseminated by Oct 2003

PFAA was enacted in May 2003; implementation started July 1, 2003 Regulations and accounting instructions already submitted to stakeholders

Outdated Legal and Regulatory Framework relative to the Constitution, international practices, and current developments

Introduce Standards: - Accounting Standards - Audit Standards

MoFPED (EFMP II/FAP) DFID Standards for PEM processes updated GoU Public sector Accounting Standards promulgated by Dec 2003 GoU Financial Statements presented according to International Public Sector Standards within 4 months of FY end.

The accounting standards are provided for in the financial regulations Done, in October 2003

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Issue Activity Lead Agency (Program/Project)

Total Value

Outputs Milestones/ Key Dates

Status/Expectations /Recommended Activities

Review/updated financial legislation for local government

MoLG (DSP) DFID Local Government Financial and Accounting regulations streamlined in line with PFAA Publish LG Financial and Accounting Regulations

By Dec 03 MoLG now submits accounting information as required by Treasury, using the new format

Harmonize LG Procurement Legislation with the Procurement Act

$0.64m Publish LG Tender Regulations and Training Staff

Completed by June 2004.

Implement the FDS Strategy to streamline and improve transfer mechanisms to LGs

MoFPED/MoLG (LGBC/LGBOC)

Mechanisms for LG fiscal transfer aligned with the FDS

By June 2005 Consultations between MFPED and MoLG and KCC ongoing

Clear accounting backlog MoFPED(FAP) /MoLG No accounting backlog Accounting backlog for CG cleared by 01 Jul 03 Accounting backlog for LGs cleared

Accounts are now reconciled regularly

Implement a New Economic Classification/Chart of Accounts for improved financial tracking

MoFPED New Chart of Account used throughout Government (CG/LG)

New Classification/Chart of Account disseminated to the entire government in Budget Call Circular (2003/04) by Dec 2002 New Chart of Accounts utilized for planning/budgeting and accounting by Jul 03

Chart of Accounts disseminated with Budget Call Circular. New chart of accounts in use; All budgets for all MALGs prepared under new CoA Dissemination of CoA continues

Implement Integrated Financial Management Systems (IFMS) for improved financial recording, tracking, and reporting

MoFPED (EFMP II) US$16.22m (excl. taxes)

IDA 95%

GoU 5%

IFMS implemented in all central govt ministries and local governments; Undertake IFMS associated capacity (training) implementation.

Pilot Implementation completed by 31/06/04 Roll-out to all 12 additional ministries and 6 additional districts completed by 31/12/04 IFMS post implementation completed by 31/12/05

IFMS went live with effect from February 2, 2004 covering all pilot sites Roll out continues as per plan

Implement strategy for transitional improvements in LGs prior to implementation of IFMS

MoLG (LGDP II) incremental improvements in financial management process and readiness for IFMS Implementation

Study for financial improvements completed by March 2004 Implementation completed by June 04

Implement Local Government Financial Information and Analysis System

MoLG (Canadian Support,LGDP II)

IDA Develop systematic methods of collecting, analyzing, and sharing information on local governments revenues and expenditures

Following the development, pre-testing and acceptance of the LOGICS software system, rollout to local governments is due.

Systems inadequate for financial recording and reporting

Implement Information Communication System (ICS).

MoLG/LGDP I) IDA Receive and analyze data from performance monitoring, evaluation and compliance inspection activities

Rolled out to 8 FDS districts; coverage of all the 15 FDS districts anticipated by June 2004

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Issue Activity Lead Agency (Program/Project)

Total Value

Outputs Milestones/ Key Dates

Status/Expectations /Recommended Activities

Implement integrated personnel and payroll systems for improved public wage management

MPS IPPS implemented in all central govts and districts

Pilot implementation completed by 31/12/04 Roll-out to all ministries and districts completed by 31/12/05

Requirements definition study in final stages

Monitoring and evaluation of performance of PEM reform implementation

MoFPED BPD116.000

DFID 100%

Performance indicators Performance tracked against PIs

PIs established by June 2003 Program to report annually on indicators in place by July 2004 (earlier target date was October 2003)

Draft Study on Performance Indicators submitted to GoU is now under discussion by SWG.

Weak Audit Follow mechanisms

Strengthen parliament and local government PAC) capacity to conduct oversight functions

MoFPED DFID Improved capacity to follow up audit issues

Capacity assessment study completed by June 03 Implementation completed by Dec 2004

Capacity assessment study report submitted by consultant

PEMCOM Objective 4: Improving Capacity Building for Public Expenditure Management

Review and reorganisation of the Directorate of Accounts

MoFPED (FAP) DFID Directorate of Accounts institutionally prepared for implementation of new Act and IFMS. Clarity on the role of internal audit and treasury inspection functions. Position in accounting units filled with qualified staff.

Reorganization study completed by June 03 Study implementation commenced on August 03

Study on reorganization of DoA (Directorate of Accounts) near completion

Inadequate Institutional framework to support Public Expenditure Management

Reform of Uganda Computer Services

MoFPED (EFMP II) US$0.81m

IDA 89%

GoU 11%

New UCS established as semi-autonomous body providing sustainable IT guidance to the IFMS implementation processes

Act for new UCS enacted by Oct 2004 (originally Jan 2004) Appointment of Board of Directors and recruitment of new staff completed by Dec 2004 (originally Jun 2004)

UCS bill already drafted; to be presented to Parliament in June 2004 together with Budget 2004/5

Pay systems and practices not consistent with capacity building and performance

Implement pay reform strategy MoPS/ MoFPED Pay consistent with the MTEF and performance

Annual salary adjustments consistent with pay reform strategy

Pay reform strategy in place Since 99/2000, the pay reform strategy has been under implementation

Pursue independence of external audit (Office of the Auditor General) and institutional capacity building

OAG Legislation to grant OAG more independence

Constitutional reform proposal to enhance OAG independence completed by April 2003

Weak Audit Structures

Internal OAG capacity for quality assurance

OAG OAG carries out capacity-building programs for its staff

2 experts recruited to OAG by April 2003

Audit Experts on board since July 2002

Weak Institutional Capacity for PEM

Recruitment of external assistance to support capacity building in financial mgt process

MoFPED (EFMP II) US$3.49m IDA 95% GoU 5%

Improved capacity to implement financial management reforms

10 Accountant Specialists recruited by July 2002 20 graduate interns recruited by July 02

External support recruited and in place. 20 additional IFMS accountants to be recruited by Jan 2005

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Issue Activity Lead Agency (Program/Project)

Total Value

Outputs Milestones/ Key Dates

Status/Expectations /Recommended Activities

Provide support to MOLG and LGFC within the context of decentralization

MOLG(LGDP) LGFC(DSD) , ULDD

Roles of MOLG and LGFC operationalized under decentralization

Ongoing

Guidelines for PEM processes MoFPED (EFMP II) US$0.18m (P&B Manuals) US0.09m (Audit Manuals)

IDA 95%

GoU 5%

Manuals/guidelines for planning & budgeting developed and disseminated. Guidelines for external audits developed and disseminated

Manuals for P&B completed and disseminated by Jul 2003 Guidelines for external audit completed and disseminated by Dec 2003

Manuals and guidelines for planning and budgeting under development; draft manuals were submitted to GoU in Sep 2003; currently under review by GoU; to incorporate gender issues in manuals

PEM (Accounting/Accounting) Manual for LGs

MoLG/DSP GBP 77,800 Published bookkeeping manuals, Published audit manuals

Audit enactment of PFAA

Develop distance-learning services to support training

UMI (EFMP II) US$4.22m

IDA 74%

GoU 26%

Increase in availability of learning programs for PEM processes

DLC was built and ready for use by June 2000 DLC operational and self sustaining by Dec 2005

Construction of DLC completed. DLC under operation; Business Strategy study predicts GDLC to break even in 2007

Training for PEM processes MoFPED (EFMP II/FAP) MoLG (LGDP/DSP)

7.30124 Improved skills for financial management

Complete implementation of training program by June 2005

Ongoing

Extend capacity-building grant to LG for PEM improvement

MoLG (LGDP) IDA All local governments meet basic requirements for accountability

26 generic modules were developed and qualified firms identified to provide the training in accountability

Support to OAG to improve timeliness of LG audits

MoLG, LGDP, MoFPED Resource provided to OAG by LGDP II for LG audit Review statutory dates for LG audits

Audits were completed for 318 lower LGs that benefited from 1st batch of LGDP; OAG to identify firms to audit 618 other lower LGs that benefited from 2nd batch of LGDP; the audits are expected to be completed by June 2005

PEMCOM Objective 5: Improving Transparency and Accountability in Public Expenditure Management

Undertake consultations in the budget process

MoFPED Budget consultative workshops Local government budget workshops

Interministerial consultation for 2004/5 budget in progress

Inadequate Stakeholder Involvement

Undertake public expenditure review process

Regular (annual) PER Implementation of PER outcomes

PER undertaken annually Last review was done in October 2003

Information Dissemination weak

Explain the budget process to the citizenry

MoFPED Various publications on the budget process

Simplified budget literature and pamphlets translated in 8 local dialects

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Issue Activity Lead Agency (Program/Project)

Total Value

Outputs Milestones/ Key Dates

Status/Expectations /Recommended Activities

Produce regular budget performance reports

MoFPED Budget performance reports Regular budget performance reports are produced

Produce financial report and final accounts timely in accordance with financial legislation

MoFPED

PEMCOM Objective 6: Improving capacity to monitoring development performance, service delivery and the impact of Public Expenditure on Poverty Trends

Deficiency in Statistics Capacity

Implement a human resource development for statistics at UBoS

UBoS (EFMP II) US$0.497m

NDF 100%

Better skills at UBoS Implementation of Training Program completed by June 2005

Final draft report for UBOS TNA delivered; implementation of TNA planned to commence March 2004

Implement IT strategy to support statistical processes

UBoS (EFMP II) US$1.287m

NDF 100%

Automation of statistical processes at UboS

IT strategy completed by Jun 2002; Implementation of IT Strategy completed by June 2005

Implementation started January 2004; so far cabling is done; completion of LAN installation expected end March 2004

Irregularity of Statistics Surveys

Undertake national service delivery surveys regularly

UBoS (IDA Statistics fund) US$0.92m IDA 65% GoU 35%

Service delivery monitored through national services delivery surveys

Complete 2 NSDS by Dec 2005 Questionnaire design was completed in Nov 2003, for 1st NSDS; pilot survey ongoing; NSDS planned between Mar/Apr 2004; results to be disseminated in Sep 2004

Develop long-term national household survey program

UBoS (EFMP II, etc.) IDA Long-term national statistical survey program

Long-term national statistical survey program completed by 01 Jul 2003

Done

Undertake national household surveys regularly

UBoS US$1.81m IDA 55% GoU 45%

Household welfare monitored through household surveys

Complete 2 household surveys by Dec 2005

Results from Survey 1 were released in November 2003

Weak Dissemination Capacity

Implement dissemination strategy at UBoS

Statistical data and information communicated as guided by the new dissemination strategy

Revision of dissemination strategy completed by July 2003; Commence implementation of dissemination strategy by July 03

Implementation of dissemination strategy commenced in November 2003