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4.0 out of 5 stars How to turn your country around - the story behind Uganda economic reforms, 27 Oct 2010
This review is from: Uganda's Economic Reforms: Insider Accounts (Hardcover)
This is a remarkable book. It is the history of an extraordinary period of economic policy-making in Uganda - and Africa. It is also the inside story of how a small group of committed and visionary civil servants turned their country around.
The book's key authors all are - or were - part of the senior management team of the Ugandan Ministry of Finance and Planning, a small group of never more than ten people. Other contributors include expat advisers who worked in the Ministry. The book paints the history of reform across the whole spectrum of policies that the Ministry was responsible for - budget; planning; tax; debt; aid; fiscal decentralisation; public sector and public enterprise reform; statistics and poverty monitoring.
The context of the book is the fifteen years of misrule and conflict under Amin and Obote that turned one of Africa's most prosperous economies into one of the poorest. When Museveni came to power in 1986 he revalued the exchange rate and reimposed price controls and administration of the allocation of consumer goods. Ironically this led to several years of very high inflation. The reform story starts with the great, heated public policy debate that followed in 1989 and the subsequent bold decision in 1990 to unify the official and parallel exchange rates (at a rate much faster than that recommended by the IMF). The next key stage was the fiscal crisis of 1992 when inflation rapidly rose again to 200%. In response, Museveni appointed Tumusiime-Mutebile, a long-standing advocate of fiscal discipline, as Permanent Secretary in the Ministry of Finance, moving him and his staff from the Ministry of Planning and merging both ministries in the process. The new Ministry started a tight monthly cash-flow release system and cut expenditures by 2% of GDP. Inflation rapidly fell to single figures - where it has remained ever since.
The following three years laid the foundation for longer-term fiscal discipline. A semi-autonomous revenue authority was created and the tax/GDP ratio doubled in seven years. A trade-based tax policy with a strong anti-export bias was replaced with a VAT consumption-based one. The coffee market was liberalised and, as the returns to farmers jumped, poverty in rural areas fell sharply. The public-sector payroll was cut from 320,000 to 160,000 and the number of ministries from 38 to 21.
By 1995 the reform programme had broadened out and also focused more intensively on poverty reduction. Uganda became the first country to win debt relief under the Heavily Indebted Poor Countries Initiative, the first to draw up comprehensive medium-term expenditure frameworks and poverty plans, the first to finance these with a virtual poverty fund and sector-wide programmes, and the first to monitor spending down to the school level; also the first to set aside 5% of debt relief to finance stronger monitoring and accountability and the first to set out principles for how donors should act (which became the foundation of the Paris and Accra principles on aid effectiveness). While Uganda is often cited as the pioneer of budget support, it is striking that budget support as a proportion of total aid flows changed little over this period from just 46% in 1991 to 55% in 2007. And the book also starkly brings out the risks - budget-support shortfalls have been 30-50% of the total promised.
The strength of the book is its descriptive breadth covering 15 years, and a wide range of reforms and drawing on a large number of contributors. The frustration of the book is that at times the description is at the expense of deeper analysis and at times the full story does not emerge. Most visitors to the Ministry will remember the AK47 armed guard outside the Permanent Secretary's office, but the book only hints at the reform struggles that lay behind that appointment.
The book clearly highlights the critical role of political leadership in reform. `Line ministers were furious with expenditure cuts [in 1992]. However it soon became clear the Ministry had the full authority of the President. The economic technocrats had taken over. If ministers were unhappy they could complain to the President'. The contributors also note that progress in public-sector reform was made in the first half of the 1990s when the President was closely involved in driving the process and that recent lack of improvement in Uganda's tax/GDP ratio stems in part from the low level of political commitment to tax compliance. Political leadership was in part learnt the hard way, `In his search for new Jerusalem President Museveni went to the precipice; peered over the edge and did not like what he saw; it was scary' . Not all political support was welcomed; there has been continuing yearning for long-term planning, despite the fact that the country has experienced 20 years of rapid economic growth without such plans. And occasionally even the authors admit they get it wrong: the introduction of free primary education was a political innovation that officials were apprehensive about.
The book also makes clear the key role of institutions. The authors argue that the merger of the Ministries of Finance and Planning was a crucial element of the success of the reforms. It enabled Uganda to concentrate its limited human resources. It removed duplication of responsibility for current and capital expenditure; loans and grants; short- and medium-term planning. This in turn was critical for aligning policy and resources and for the efficiency of public spending. But an even more remarkable feature of the institutional set-up was the UN salary incentive programme that started in 1989 and which is arguably the most cost effective donor intervention in Ugandan history. At the time public servants salaries were just $20 a month. The UN scheme was revolutionary at the time since it paid everyone in the Ministry of Planning a supplement - $130 for professionals and $70 for support staff. The total cost was less than that of a single expatriate technical assistant. Yet it laid the foundation for the development of one of the most highly regarded Ministries of Finance in Africa.
The book is a timely reminder that getting the policies right matters. But the real story is that policies do not just emerge. The right leadership and the right technocrats are needed to make it happen. The policies that Uganda pursued were textbook policies. The people involved were anything but ordinary.
This book should be an essential read for staff in international financial institutions and donor agencies who are interested in supporting reform. It would be an illuminating read for any student seeking to understand the political, institutional and technical ingredients of successful policy-making. And if they had time to read it, the book would be an encouraging and informative read for reformers in other countries that are only now just emerging from fragility.

Marcus Manuel
formerly Senior Economic Adviser in the Ministry of Finance and Planning of Uganda between 1996 and 2000
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