Uganda: Maintaining Growth - Moving Towards Structural Transformation

Overview

Thanks to a sustained record of prudent economic management and reform, Uganda has maintained high economic growth and reduction in poverty for more than a decade. However, the fast-growing and youthful population poses serious challenges for sustained poverty reduction and improvement of living standards, through quality and equitable services, productive employment and efficient urbanization. The International Development Association's support for the government work on these issues has helped across a range of fronts, from connecting Ugandans to clean water and sanitation to increasing the speed of the registration of a new business or property.

Challenge

Uganda has a record of prudent macroeconomic management and structural reform. Despite various exogenous shocks, annual growth in gross domestic product (GDP) averaged 6 percent in the 1990s, and accelerated to over 7 percent in the 2000s. Due to high population growth, real GDP growth per capita averaged only 3.4 percent over the 1990s, and just over 4 percent over the 2000s. While exogenous shocks slowed down economic activity in recent years, GDP growth is expected to remain robust, averaging about 7 percent in the medium term. Oil production will change Uganda's economic outlook, but full-scale production is unlikely to begin before 2016. Continued economic prosperity in Uganda will require moving the economy to a higher productivity level and integrating all regions into the development process. Uganda must also invest in alleviating bottlenecks to growth, particularly in energy and transport infrastructure, and in delivering better quality social services through more efficient public sector management.

Uganda's overriding development challenge is to manage its resources, in particular the fast-growing and youthful population and the recently discovered oil fields. To reap the demographic dividend, Uganda must invest in fertility reduction, quality education and human capital formation, and productive employment creation. To reap the oil dividend, Uganda must maximize the social benefits through adequate investment and prudent macroeconomic management of the oil sector, as well as transparency and management of expectations.

Perceived deterioration of governance and an increase in corruption threatens to tarnish Uganda's image as a development model and challenge its future development efforts. Uganda needs to address decisively increasing petty corruption, the perceived growing culture of impunity for grand corruption and pervasive "quiet corruption," such as unchecked teacher and health worker absenteeism.