On March 27, 2020, Uganda registered the first case of COVID-19 (Coronavirus) and recorded 39,600 cases and 320 deaths as of January 31, 2021. The government took swift action to minimize the spread of the virus, imposing travel and closing restrictions on Entebbe International Airport and all limits on passenger travel. President Joweni Museveni also promoted better hygiene through hand washing and health safety habits, introduced social distancing measures, banned public gatherings and closed schools. Staff were asked to work from home, with the exception of those providing basic services.
While the number of COVID-19 cases has increased relatively slowly, the spread of the global recession and national containment measures have had a serious impact on livelihoods and the economy. The pandemic has slowed economic activity. Real gross domestic product (GDP) growth declined to 2.9% in FY20, down from 6.8% in FY19 as major trading partners faced a recession, travel restrictions stifled the tourism industry and the sharp drop in world oil prices stifled inflows of foreign direct investment . In addition, the overseas recession and job losses reduced remittance inflows. Meanwhile, the partial shutdown of companies and industries in the country disproportionately affected low and middle earners and increased the vulnerability of the poor. The pandemic has pushed 1.1-3.2 million people into poverty, on top of the latest official estimate of 8.7 million. The presence of 1.4 million refugees in Uganda – Africa’s largest host country and third largest in the world – also added to the enormous pressure to provide basic services during this time of crisis.
The World Bank provided $ 300 million in budget support to help mitigate the economic impact of the pandemic and protect the poor and vulnerable. The budget support is part of a larger package of support for Uganda’s national response to the COVID-19 pandemic and has been coordinated with other interventions in the country, including in the areas of health, water and sanitation, agriculture, the environment, private sector development and job creation. The project complemented and supported support from other development partners, including a $ 490 million rapid loan facility from the International Monetary Fund (IMF) that was made available in May 2020 to strengthen foreign exchange reserves and finance the national budget.
Coordinating national development priorities and aid effectiveness
The Development Policy Operation (DPO) is in line with the Ugandan Government’s Vision 2040 to transform Uganda into a competitive upper-middle-income country. The DSB is also in line with the Third National Development Plan, which aims at sustainable industrialization for inclusive growth, employment and sustainable wealth creation. Findings from the implementation of previous World Bank operations in Uganda and from emergency DPOs in other countries were incorporated into the planning of the operation. The preparation of the DSB also benefited from dialogues from the Local Development Partners Group, which is made up of heads of missions from multilateral and bilateral agencies. The operation also benefited from guidance from other stakeholders, including civil society institutions focused on advocacy for the budget and others focused on trade, tax and development issues.
The Uganda Development Policy Operation (budget support) consists of two pillars:
Pillar 1: strengthening the crisis response and protecting the most vulnerable
This pillar aimed to support health efforts by reducing the cost of the necessary medical materials and equipment to prevent, manage and treat COVID-19; Maintaining critical utility services; Protecting the vulnerable and reducing the poverty impact of the crisis by helping the most vulnerable and those hardest hit by the many crises in Uganda.
Reforms under this pillar have aimed to strengthen social safety nets to prevent the poor and the weak from falling further into poverty. It therefore supported the introduction of several social protection measures under this response package, including cash transfers to the elderly and temporary cash payments for informal sector workers in key urban areas of the country and in flood-affected areas. By strengthening safeguards for the well-being of children, including protection from violence, the operation aimed to ensure safety and continuous access to education.
Second pillar: rapid economic recovery and debt sustainability
The aim of this pillar was to ensure that the financial sector is supplied with liquidity through the Bank of Uganda; temporary relief for financially troubled companies by deferring tax payments and restructuring their loans with commercial banks; At the same time, the markets for agricultural inputs are being improved in order to increase productivity through the use of the electronic voucher system; and increasing debt transparency to cope with future public debt build-up.
Reforms under this pillar offered financially troubled companies temporary relief to discourage them from breaking up or firing workers. The reforms also helped farmers weather the economic impact of the pandemic and recover quickly. Companies severely affected by the coronavirus outbreak have been exempted from paying import and excise taxes, as well as VAT. Companies also have access to affordable credit to keep their operations going and pay their employees.
These pillars were supplemented by measures to protect children from violence and to ensure safe access to education.
Implementation of the measures and obligations under the DPO
As of February 15, 2021, progress on the follow-up activities related to the achievement of the results of the previous actions and the fulfillment of the commitments under the development policy letter of this DPO is inconsistent. Restrictions imposed due to COVID-19 may have affected some activities. However, given the importance of the DPF-supported activities in dealing with the pandemic and its impact, overall progress in implementing the program measures and meeting commitments should have been faster. Key actions that will be followed up include funding critical activities to save the livelihoods of the most vulnerable; Quantify the impact of the tax breaks supported by the DPO; Reorienting spending to levels committed to supporting social development (education and health), accelerating efforts to benefit from the debt-service suspension initiative, and an independent review of COVID-19 spending giving access to Will facilitate information and promote social accountability.
Expected outcomes and results by the completion of the program
A. Social safety net to protect the poor and the weak
- A temporary cash for work program, when fully implemented, is estimated to have assisted an estimated 500,000 people nationwide. This support is aimed at workers in the informal sector in the main urban areas as well as in the flood-affected districts of the country.
- The current Senior Scholarship will be expanded to 71 districts to support 200,000 additional income-earning elderly people when fully implemented.
- A national unified register of beneficiaries of safety net programs has been set up to improve the focus on social protection.
- Existing customers continued to receive water from the National Water and Sewerage Corporation and Umbrella Authorities, as well as from Umeme, during the blackout period between April and June 2020.
B. Stimulating rapid economic recovery, improving debt transparency and debt management
- Tourism, manufacturing, horticulture, and floriculture companies with sales less than 500 million UGX ($ 136,300) will be exempt from corporation tax and VAT at least 6.5 billion UGX.
- The financial sector will have additional liquidity to counter the slump in growth and the rise in non-performing loans.
- An additional 20,000 farmers in 10 additional districts to those in which the bank operates Agriculture cluster development project currently operational, would have accessed e-voucher technology to access higher quality farm inputs and improve productivity and resilience
- Debt transparency has been improved through improved public access to data on total public debt, government guarantees, individual public-private partnerships, implied contingent liabilities, including from legal proceedings, and domestic arrears of no more than one year.