Document of

The World Bank

FOR OFFIOCAL USE ONLY

Repwt No. P-4853-UG

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

OF SDR 13.8 MILLION

TO UGANDA

FOR A

THIRD TECHNICAL ASSISTANCE PROJECT

July 26, 1988

Eastern Africa Department

This document has a restricted distribution and may be used by recipients only in the performance oftheir offcial duties. Its contents may not otherwise be disclosed without World BDank authorization.

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CURRENCY EQUIVALENTS

Currency Unit D Uganda Shillings (USh) 150.001USh 1.00 US$ 0.0067SDR 1.00 = US$ 1.31062US$ 1.00 SDR 0.7630

GOVERNMENT FISCAL YEAR

July 1 - June 30

s After the currency reform and exchange rate adjustments of July 1, 1988.

2 At June 30, 1988.

FOR OICAL USE ONLY

UGANDA

THIRD TECHNICAL ASSISTANCE PROJECT

CREDIT AND PROJECT SUMMARY

Borrower: Uganda

Beneficiary: Ministries of Finance, Planningand Economic Development, Bankof Uganda

Amount: SDR 13.8 million (US$18.0 millionequivalent)

Terms: Standard, with 40 years maturity

Onlending Terms: Not Applicable

Financins Plan: Government - US$3.0 millionIDA - US$18.0 millionCIDA - US$2.0 million

Total - US$ 23.0 million

Economic Rate of Return: Not Applicable

Staff Appraisal Report: No. 7221-UG

MaP: IBRD No. 18540R

This document has a restricted distribution and may be use by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorizatic.

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THEINTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS

ON A PROPOSED CREDIT TO THE REPUBLIC OF UGANDAFOR A THIRD TECHNICAL ASSISTANCE PROJECT

1. The following memorandum and recommendation on a proposeddevelopment credit to Uganda for SDR 13.8 million (US$18.0 millionequivalent) is submitted for approval. The proposed credit would be onstandard IDA terms with 40 years maturity and help finance a thirdtechnical sesistance project. Co-financing in the form of a grant for US$2.0 million equivalent is expected from the Government of Canada.

2. Background: The present Government, which came to power inJanuary 1986, inherited an economy and a public service in disarray. Thenew Government had considerable success it, restoring peace and stabilityand, in May 1987, it formally launched a program of economic reform whichis being supported by the Special African Facility of the IME and an IDAEconomic Recovery Credit. Initial measures were taken to establish arealistic exchange rate, reduce the budget deficit, introduce expenditurecontrols and limit monetary expansion. The sustainability of the reformprocess, however, depends, in part, on the Government's capacity toimplement and monitor the agreed program effectively. The development andmaintenance of this capacity will, in turn, depend upon the restoration ofessential administrative and managerial functions within Government whichhave collapsed or been seriously weakened over the years of politicalturmoil and economic decline. In the shert term, immediate assistancewill be needed to strengthen the Government's capacity for sound economicand financial management and to restore financial discipline in the publicsector. At the same time, the Government must begin the process ofrehabilitating the key government institutions which are responsible forcarrying out the fundamental and indispensable functions of Governmentnecessary to complete the task of recovery and embark on the longer-termprocess of economic and social development.

3. In previous technical assistance projects (Credit 1077-UG, US$ 8.0million and Credit 1434-UG, US$ 15.0 million), emphasis was placed onstrengthening the Government's capacity to prepare and monitor developmentprojects and on establishing effective planning mechanisms. In spite ofthe setbacks experienced as a result of political turmoil, progress on therestoration of the Government's planning capacity has continued to be made,a system for the monitoring of development projects has been established,and efforts are currently under way to rehabilitate the country'sstatistical base. In the Ministry of Finance and the Bank of Uganda,however, which had not been the focus of the previous credits and whichmust play central roles In the recovery process, capacity has been erodedby the loss of qualified staff, inadequate material and logistical support,and the collapse of order and discipline. Improvements in the budgetaryprocess, expenditure control, debt monitoring and management, governmentaccounts and government procurement are essential for effective financialmanagement of the recovery process.

4. The experience gained from the previous technical assistanceprojects clearly demonstrates that an intensive and focused effort such asthat devoted to planning assistance can yield sustainable improvements.The proposed project will build on the positive results achieved in the

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development of effective planning mechanisms and initiate programs torestore the capacity of the Ministry of Finance and the Bank of Uganda tocarry out the administrative and management functions which areiadispensable for sound financial management and economic recovery.

5. Proiect Objectives: The objectives of the project are tot (a)establish and institutionalize data collection and analysis in the Ministryof Finance and the Bank of Uganda; (b) improve the budgeting process toenable it to function as the Government's primary tool for tranalatingpolicy initiatives into actions and to eliminate wasteful expenditure; (c)strengthen the capacity for financial and economic policy formulation inthe Ministry tf Finance; (d) rationalize the Government's procurementprocess to reduce costs; and (e) provide long and short-term advisoryservices for the implementation and monitoring of the Government's EconomicRecovery Program, with a special emphasis on encouraging qualified Ugandanscurrently outside the country to return in order to undertake these tasks.

6. Proiect Descriptions Under the project, financing would beprovided for the services of national and international consultants,training activities, upgrading of facilities, equipment and special studiesto achieve the objectives outlined above through the following projectcomponents:

1. Financial Information System. Restore the computerizedGovernment accounting system and develop a financial information system toMi) monitor the recovery program, (ii) control expenditures, (iii) meet theinformation needs of the revenue generating departments, and monitorexternal debt. ($4.2 million).

II. Budget Reform. Strengthen and improve the budget process by(i) establishing a system for determining objectives and priorities forrecurrent and development expenditures; (ii) developing an appropriatebudget structure and expenditure classification system; (iii) ensuringbudget allocations on the basis of priorities and performance rather thanhistorical trends; (iv) developing a training system which supports thebudget reform exercise. ($2.8 million).

III. Government Procurement Functions. Rationalize procurement by(i) re-establishment or the authority of the Central Ternder Board, (ii)establishment of appropriate competitive bidding procedures, and (iii)centralization of provis'oning, procurement, storage and distribution ofcommon user items. ($4.3 million).

IV. Manaaement of the Recovery Process. Strengthen the capacityof the core ministries to plan and monitor economic recovery by financing(i) logistical and short-term advisory assistance to the Economic AnalysisUnit in the Ministry of Finance $0.9); and (ii) a resettlement program toencourage the return to government service of highly qualified expatriateUgandans and the provision of special advisory services (to the extentpossible by Ugandan nationals currently working abroad) to assist inimplementation of the recovery program ($6.2 million).

V. Statistics Rehabilitation Program. Continue support to thestatistics rehabilitation program initiated under the Second TechnicalAssistance Credit which is developing the requisite data base for theimplementation and monitoring of the recovery process and subsequentdevelopment programs ($2.1).

VI. Aaricultural Secretariat. Continue support to the AgriculturalSecretariat which is charged with formulating, coordinating, directing andreviewing key policies and programs in the agricultural sector ($2.5).

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7. Rationale for IDA Involvement. Rehabilitation of the GoverrAment'sfundamental administrative and management functions is essential for theimplementation of the economic recovery program and for sustained economicgrowth. Although IDA has had considerable success in bringing togethersubstantial donor resources in support of Uganda's Economic RecoveryProgram, the major concern expressed by the donor community has b^enwhether the Government has the capacity to implement the extensive andcomplex action programs necessary for success. The project specificallyaddresses this concern by providing the resources required to strengtheathe core ministries through technical assistance and a program to attractexpatriate Ugandans back to their country to contribute their skills andexperience to national reconstruction and recovery. The project willprovide the technical and advisory services which are immediately requiredfor the implementation of the recovery program while, at the same time,initiating a longer-term program to rehabilitate essential governmentadministrative and management functions and the development of theappropriate linkages between them.

8. Agreed Actions: The project supports the policy actions whichhave been agreed in the context af the IDA Economic Recovery Credit.During negotiations, the Government agreed to submit to IDA by July 31,1989 evridence that it had secured the equivalent of not less than $2.0million for financing the Statistics Rehabilitation Program. Conditions ofDisbursement: a) procurement component: agreement on division ofresponsibilities betwee; Central Tender Board and proposed SuppliesDirectorate and on detailed work program including extent of centralizationand initial budget for the Directorate; b) financial information systemcomponent: completion of the Requirements Definition and Strategy Study forthe Ministry of Finance and Bank of Uganda and preparat,on of a prioritizedwork program.

9. Justification and Risks: The Project would help the UgandanGovernment remove major institutional obstacles to effective implementationof the recovery program and start a process of rehabilitating theadministrative infrastructure and institutional environment essential tosustain economic recovery. The major risks associated with the project arethe difficulty of sustaining institutional reforms in the face ofinadequate civil service remuneration, and resistance to reform on the partof those who benefit from the current lack of fiscal discipline andbudgetary control. To offset these risks, the present Government hasinitiated a number of measures to reduce the size of the civil service, torestore discipline, and to increase wages for remaining employees.Improvement of working conditions through the provision of adequatesupplies and logistical support under the proposed project will alsoincrease morale and productivity in the units affected.

10. Recommendation: I am satisfied that the proposed credit wouldcomply with the Articles of Agreement of the Association and recommend thatthe Executive Directors approve the proposed project and that theAssociation administer the CIDA grant.

Barber B. ConablePresident

Attachments

Washington, D.C.July 26,1988

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SCHEDULE A

UGANDA

THIRD TECHNICAL ASSISTANCE PROJEC?

Estimated Costs (US$ o000Local Forei8n Total

A. Financial Information System: 779.1 2,482.7 3,261.8B. Budget Reform 143.8 2,035.4 2,179.2C. Economic Analysis Unit 264.2 337.9 602.1D. Statistics Rehabilitation 288.1 1,244.7 1,532.8E. Implementation of ERP 73.4 4,406.6 4,880.0F. Supplies Directorate/CTB 188.7 3,254.3 3,443.0G. Agricultural Secretariat 114.8 1,734.6 1,879.4

Baseline Costs 1,882.1 15,496.2 17.378.3Physical Contingencies 70.6 1,196.3 1,266.9Price Contingencies 2,671.9 1,762.3 4,481.5

Total Project Costs 4,671.9 18,454.8 23,126.7

Financing Plan Local Foreign Total

IDA 1.5 16.5 18.0CIDA .0 2.0 2.0Government 3.0 -- 3.0

Total 4.5 18.5 23.0

SCHEDULE BPage 1 of 2

UGANDA

THIRD TECHNICAL ASSISTANCE PRO:ECTI

Procurement Method and Disbursements

(US$ million)

Procurement MethodICB LCB Other N.A. Total

Computers andperipherals 0.S 0.8

(0.8) (0.8)Civil Works 0.05 0.05

(0.0) (0.0)Vehicles and

office equipment 0.3 0.5 0.2 10.0(b.3) (0.2) (0.2) (0.7)

Supplies, packagedsoftware 0.2 0.2

(0.2) (0.2)Technical Assistance 14.5 14.5

(12.0) (12.0)Training 3.7 3.7

(2.8) (2.8)ResettlementCosts 0.35 0.35

(0.35) (0.35)Allowances 1.4 1.4

(0.85) (0.85)Counterpart

salaries 0.4 0.4(0.0) (0.0)

Operations andMaintenance 0.6 0.6

(0.3) (0.3)

TOTAL 1.1 0.55 0.4 20.95 23.0(1.1) (0.2) (0.4) (16.3) (18.0)

1Amounts in parentheses are IDA-financed.

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SCHEDULE BPage 2 of 2

Disbursements

CategorZ USS mlhlior.S

1. Equipment 1.15 1002 of foreignexpenditures and 80?of local expenditures

2. Training 1.80 1002 of foreignexpenditures and 80Sof local expenditures

3. ConsultantServices 9.75 100S of total expenditures

4. Operation andMaintenance 0.26 90? of total expenditures

5. ResettlementCosts 0.17 1002 of total expenditures

6. Staff allowancesfor:

la) EconomicAnalysisUnit 0.13 100? of total expenditures

(b) Others 0.24 85? of total expenditures

7. Refunding ofProjectPreparation 0.60Advance

8. Unallocated 3.90

Estimated Disbursemontst (US$ million (IDA FY)

1989 1990 1991 1992 1993 1994 1995

Annual 0.6 3.6 4.8 4.5 2.6 1.5 0.4Cumulative 0.6 4.2 9.0 13.5 16.1 17.6 18.0

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SCHEDULE CPage 1 of 1

UGANDA

THIRD TECHNICAL ASSISTANCE PROJECT

Timetable of Key Project Processing Events

(a) Time taken to prepare: 10 months

(b) Prepared by: Government with IDA Assistance

(c) First IDA mission: May 1987

(d) Appraisal mission departure: February 1988

(e) Planned date of effectiveness: October 1988

(f) List of relevgnt.PCRs ai PPARs: Nonel

IA PCR covering the first and second Technical Assistance projects will beprepared following completion of the second TA project.

Schedule D

THE STATUS OF BANK GROUP OPERATIONS IN UGA

A. STATEMENT OF SANK LOANS AND IgA CREDITS(ar of 4rcha 19088

-US9 Mi lM I onAmount (Les. Cancellations)

Loan or Undle-Credit No Year Borrower PurDose Bank IDA buroed

One (1) loan and fourten (14) crodite fully disbursed 8.40 288.48

1248-UA 1082 Uganda Industrial Rehabilitation 85.69 12.211928-40 19o8 Uganda Agricultural Rehabilitatlon 79.19 21.191829-U 1983 Uganda Third Education 82.19 .191484-40 1984 Uganda Second Technical Assist. 15.l1 8.821445-U0 1984 Ugrnda Third Highway 58.a9 42.12151-ua 195 Uganda Water Supply and

Sanitation Program 28.19 8.651589-uo 1985 Uganda Agricultural Devolopment 16.19 S.811560-UO 195 Uganda Second Power 28.80 28.68156-UG 1985 Uganda Petroleum Exploration

Promotion S.10 4.74

16s-u3 1987 Ugonda Fourth Highway 18.18 18.181i24-uo 1998 Ugrnda Forestry Rehabilltation 12.67 12.869840--u 1968 Uganda Non-Sector Specific

(Econ. Recow. Cr/SAF) 24.01 11.281844-U 1988 Uganda Non-Sector Speclfic

(Econ. Recov. Cr./SAF) 66.00 48.891806-US 1968 Uganda South West Ag. Rehab. 10.48 10.481898- 1998 Uganda Sugar Rehab. 25.98 25.9#

Totl 6.40 721.78 262.84of which hao been repaid 6.98 4.45

Total now outstanding I 717.2e

IDA amount sold: 17.50of whtch has ben repeid 7.35

TOTAL NOW HELD BY BAN AND IDA 1.52 71.28

TOTAL UNDISSURSED 0.00 262.84

UGANDASchedule 0&

B. STATEMENT OF IFC INVESTUENTSMarch 30. 1988

Amount In US$ millionFTsc Obiloor Typo of Business Loan Equity TSTl

1905 Mulco Textiles, Ltd. Textiles 2.79 .71 3.60

1972 Tourism Promotions Services Tourism 1.11 - 1.11

1988 Toro and Mityans Tea Food andCo., Ltd. (TAWrECO) Food Processing 1.62 - 1.62

1988 Sugar Corp. of Uganda Food andFood Processing 8.00 - 8.00

1984 Uganda Too Corp. Ltd. Food andFood Prooessing 2.81 - 2.81

1984 Development Finance Development Finance - 0.38 0.38company of Uga --

Total gross comitmenta 16.34 1.09 17.42nuw held by IFC -==

Total undisbursed (including 3.92 0.27 4.19participants portion) = =

Source: IFC Disburements Section

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