Middle income: Where has it reached a year to 2020 target?

Friday June 14 2019

Slow growth. The economy had in the last four

Slow growth. The economy had in the last four years been growing slower than projected. PHOTOS BY EDGAR R BATTE  

By Stephen Kafeero

The 2019/20 budget was supposed to be the last before Uganda is ushered into the lower middle income status.
But all indicators suggest Ugandans will have to wait much longer.
Government set ambitious targets to leapfrog into the lower middle income status next year including $1,039 or 3.8 million income per capita annualy and an average gross domestic product (GDP) growth rate of 6.3 per cent.
Other measures included an average 11 years of schooling, two meals a day, 30 per cent of the population accessing electricity, labour-force participation rate at 79 per cent, a reduction in the national poverty rate to 14.2 per cent by 2020, a mortality rate at 51 for under five-year-olds, infant mortality rate at 44 and safe water coverage at 90 per cent.
The World Bank defines a lower middle-income economy as one with income per capita of between $1,006 (Shs3.7m) and $3,955 (Shs14.8m). Uganda’s per capita income currently stands at $757 dollars - equivalent to about Shs2.8m.

Lower middle income status dream
The lower middle income status dream is contained in the second National Development Plan (NDP II) with goals including strengthening the country‘s competitiveness for sustainable wealth creation, employment and inclusive growth, a private sector-led; export-oriented; quasi-market approach, as well as, industrialisation, fast tracking infrastructure and skills development strategies in order to achieve the objectives and targets for the five-year period.
Different areas including agriculture; tourism; minerals, oil and gas) and two fundamentals (Infrastructure and Human Capital Development were identified as the strategic areas of focus to deliver the country’s middle income status target.
Government officials who sold the dream have since revised their stance to “Uganda is on track to achieving a middle income status even if this does not happen by 2020”.
It is a view echoed by Finance Minister Matia Kasaija, who has since tagged the prospects of not achieving the lower middle income status as scheduled to a failure to implement some of planned government programmes and increase in population.

Why?
Over the first four years of the NDP II period, annual economic growth has averaged at 5.3 per cent, according to the 2019/20 “Background to the Uganda Budget” report published by the Finance Ministry.
The report notes that there has been a population increase of 4 million people between 2014/15 to in 2018/19 financial years from 35 million to 39 million people with the national unemployment rate reduced from 12 per cent in 2013 to 9.2 per cent in 2017 while the labour force increased from 8.8 to 10 million people over the same period, an overwhelming majority of which remains concentrated in the informal sector.
Official government data indicates only a few targets have been achieved and, in some cases, surpassed.
For example, the total national paved road network was 3,795km in the 2014/15 financial year and has since risen to 5,111km in 2018/19 financial year against the 5,000km target for 2019/20 financial year. Life expectancy is currently at 63.3 years above the target of 60 years for 2019/20 financial year.
Infant mortality is already lower than the projected 44 at 43 per 100 live births while the share of births delivered in a health facility is at 73 well above the target of 60.
With the current GDP per capita of $757, it is projected that Uganda will attain the projected 2020 figure of $1,039 by 2025. The economy is expected to grow at 6.1 per cent less than the middle income status target of 6.3 per cent.

Poverty
More Ugandans are slipping into poverty, further dwindling the middle income status hopes. To attain the middle income status it was projected that the poverty rate would be reduced to at 14.2 per cent.
But it is currently at 21.4 per cent having increased from 19.7 per cent in 2014/15 financial year, according to government data extracted from reports by Uganda Buruea of Statistics.
Other targets for economic including national labour force employed, infant mortality (per 1,000 live births, under five mortality (per 1,000 live births, maternal mortality (per 100,000 births), fertility rate 6.2 access to grid electricity, access to clean water, average years of schooling and literacy rate are unlikely to be achieved despite optimism in government.
“The country is also well on its way to meeting the other development targets in the medium term. In the case of the energy sector, a further 5 per cent of the population has to be connected to grid electricity by 2020. These gains are within reach as Uganda continues to undertake an aggressive infrastructure development strategy,” the background to the budget report notes.
“In the medium term, economic growth is projected to accelerate at a faster pace boosted by public investments and growth in consumption,” the report add.
Mr Francis Kisirinya, the Private Sector Foundation Uganda deputy executive director, believes the lower middle income status goal is within reach if there is a radical change in approach on a number of issues.
He says Uganda needs to continue executing all those programmes identified in the NDP11 that were supposed to deliver the country in the middle income.
“We should stay the course and improve the execution capability. It is very important for us to do good plans and when we do those plans we actually execute them according to the plans. Let us pay attention to the costs, to the time we actually require to execute and everything will work in tandem. Then we will be able to achieve the middle income,” he says.
Business financing, he says, is key to achieve Uganda’s middle income goals. To this end, there is need to diversify the sources of revenue to finance businesses away from commercial banks.
“For instance, if you are going to do agriculture, the commercial bank arrangement may not be suitable for you. We need to increase various pots of funds that can support each and every aspect of our investment so that every investment has got appropriate funds. If that happens, then we shall be in a position to compete and grow our economy,” he adds.

Saving
The other aspect is saving. “We need to work on improving our saving. We should also diversify our saving into some monetary instrument so that there is money within the finance system that is able to fund business. It is important for all of us that are earning anything to save for retirement,” he says.
Government workers must also save for their retirement instead of waiting for pension allocation.
“The pension fund in government should be funded unlike what we have where they wait for allocation. If we do them, you will be surprised. Middle income is not a very complicated thing. It can happen very quickly if we do the right thing. But it can also fail to happen forever if we don’t do the things right.” Refocusing budget documents: The budget must ensure that it publishes a clear annual fiscal anchor that states how government plans to keep the debt under 50 per cent.

Saving as a key factor to deliver middle income status

Saving aspect. “We need to work on improving our savings. We should also diversify our savings into some monetary instrument so that there is money within the finance system that is able to fund business. It is important for all of us that are earning anything to save for retirement,” Mr Francis Kisirinya, the PSFU deputy executive director, says.
Government workers must also save for their retirement instead of waiting for pension allocation.
Pension. “The pension fund in government should be funded unlike what we have where they wait for allocation. If we do them, you will be surprised. Middle income is not a very complicated thing. It can happen very quickly if we do the right thing. But it can also fail to happen forever if we don’t do the things right.”
Need to refocuse budget documents:
The budget must ensure that it publishes a clear annual fiscal anchor that states how government plans to keep the debt under 50 per cent.

Turning around economy

In an analysis by the Economic Policy Research Centre (EPRC), Rakesh Gupta, suggests what he terms as “quick-wins” for Uganda to turn the economy around and achieve the 2020 and 2040 middle income targets.
Fiscal policies and programmes interventions is required to ensure we enrich those who can absorb the inventories and provide manufacturing sector and the economy at large the much-needed lease of life. Especially, introducing public works programmes as part of large infrastructure projects and investments which is the focus of the government.
Infrastructure and investments in productive sectors were prioritised over further expenditure increases on social sectors (Education, Health, Water and Environment, and Social Development). These projects suffer from poor implementation as demonstrated by the 30 per cent which requires improving. Impact of infrastructure projects can be improved by eliminating corruption in procurement by making audits public and tenders transparent.
Debt servicing of infrastructure investments needs to be better managed which takes up 10 per cent of budget that could be freed up to invest more in social sectors and create universal safety net programmes. Negotiating new loans to pay on outstanding or used-up money component alone may help in the context of low absorption rates.
On a related note, Official Development Assistance (ODA) status will be lost as Uganda attains middle-income status. Hence, access to loans and grants with advantageous terms and conditions will be phased out which needs to be leveraged to frontload on investments and plan future course of action.
Reforms on tariff and non-tariff barriers to trade (within and outside the region) is necessary to make Ugandan economy relevant and competitive again. This applies to agriculture and manufacturing sectors across the board activities.
Improving expenditures on social sectors, social welfare and social security programmes is crucial. Since these policies and practices have managed to generate impressive results in poverty reduction in Uganda compared to its peers (e.g. Mozambique, Rwanda among others) in the region for the last two decades.

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