Uganda

Socioeconomic impact of Covid-19 in Uganda: How has the government allocated public expenditure for FY2020/21?

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Executive summary

With just five Covid-19 related deaths reported so far, relatively lower numbers of confirmed cases and a high rate of recoveries, Uganda’s tightly-controlled response to the Covid-19 pandemic seems to have had a more positive outcome than its neighbours.

However, while the measures have succeeded in containing the outbreak so far, they have also caused significant damage to the economy. This is likely to impact most on the poorest and most vulnerable sections of society. As a result, the socioeconomic consequences of Covid-19 are likely to heavily outweigh the positive health impacts in Uganda.

Key findings and conclusions

A likely increase in poverty as the economy slows down: The economy is projected to have slowed down by nearly half for the financial year 2019–2020 (referred to throughout as FY2019/20), with further uncertainties for FY2020/21. This increases the likelihood of a rise in poverty during and after the Covid-19 pandemic. Many people face a reduction in their income due to job and livelihood losses, reduced flow of remittances, loss of market and demand for domestic products.

Growing public expenditures not linked to Covid-19: The budget expenditures for FY2020/21 have grown compared to that for FY2019/20. However, the increase does not seem to be driven by the anticipated cost of Covid-19 response measures in FY2020/21. The structure of the current budget remains largely similar to the previous financial year despite the overwhelming impact of the pandemic on Uganda’s economy and resource basket for FY2020/21. Works and transport remain the most funded sectors, and security, interest payments and education received increased investment. This reflects the same patterns as previous years, with these sectors as the top financed sectors of the economy.

Major shortfalls in domestic revenues: While total revenue is expected to grow, Uganda’s revenue collection will be affected by the pandemic. Major shortfalls have already been registered in FY2019/20. There are also projections for declines in FY2020/21 targets. These projections are based on a situation where the virus is quickly contained, but these shortfalls could significantly exceed projections if the current restrictive control measures continue.

Increasing public debt: Major shortfalls in revenue collection pushed the government into high levels of borrowing to cover its fiscal deficit for both FY2019/20 and FY2020/21. If this continues, it will contribute to a further increase in the total public debt, which has grown from 22.4% in 2010 to a projected 41% of GDP by the end of FY2019/20. As a result, Uganda’s debt servicing commitments will continue increasing, as rising external public loan financing requires high commitment fees, and non-concessional domestic borrowing attracts huge interests. Interest payments alone will take up 9 per cent of total resource envelop for financial year 2020/2021, thus more money is being allocated to interest payment and away from service delivery or development spending that could benefit people living in poverty.

Unequal targeting of Covid-19 response measures: Over 8 million Ugandans (19.7%) live below the national poverty line. However, the government’s Covid-19 relief programmes, like food and other relief aid, have been directed primarily at the 1.5 million people living in urban areas in the Kampala and Wakiso districts, rather than those in rural areas. Similarly, the government’s response measures are focused on the formal sector, meaning that they will not reach the poorest and most vulnerable citizens. These people tend to work in the informal sector and are unable to access government measures like loans and tax benefits. This is likely to cause further inequality between rural and urban populations, and exacerbate poverty and vulnerability.

Disruption of service delivery in health and other sectors: Due to Covid-19, Ugandans living in poverty who rely on the government’s free healthcare programmes have experienced a reduced access to primary healthcare. As a result, Uganda has registered an increase in number of preventable deaths during childbirth and in other health emergencies, and an increased occurrence of deaths due to preventable disease like malaria. Access to family planning and other healthcare programmes has also been compromised.

Recommendations

This paper therefore provides the following recommendations:

  • Urban and formal sector learning measures need to be applied in a way that is clear and inclusive with a short-, medium- and long-term plan for mitigation, recovery and resilience building. This is the only way to ensure that the damaging impacts of the severe lockdown and other Covid-19 response measures on the economy, people’s livelihoods and welfare are properly documented and addressed equitably.

  • A clear government response strategy is needed, to ensure adequate attention and protection for the poorest and most vulnerable sections of the population. This will protect against the negative impact of the pandemic on the health and livelihoods of the most vulnerable.

  • The FY2020/21 funding allocation to pro-poor sectors, such as health and social protection, needs to be revised to reflect sector needs and accommodate additional constraints imposed by Covid-19. This will enable the government to, for example, fast-track the expansion of its social protection programmes and serve as a more direct, sustainable and inclusive mechanism for protecting people living in poverty.

  • The drawbacks of the restrictive Covid-19 response measures should be documented across sectors and used as lessons for designing responses in future crises. This will prevent inadvertent loss of many lives from existing and manageable conditions due to poor responses to crises in future.

  • The government needs to pay close attention its rising fiscal deficit and the increase in public debt towards unsustainable levels. The increase in loans to deal with the implications of the Covid-19 pandemic should be checked. This calls for clear mechanisms for good public debt management as well as the efficient use of available resources to avoid slipping deeper into debt stress.