Chapter 5. The Aggregate Contribution of Aid

Introduction

5.1 Aid flows to Uganda increased substantially over the period (Figure 5.1), and Uganda has become increasingly aid-dependent in terms of the ratios of aid to GDP and public expenditure. The aggregate contribution of aid needs to be assessed in terms of its financial effects, but also its influence on public policies and the development of Ugandan institutions.

Figure 5.1: Total grants and loans extended from donors to Uganda

View the picture in full size

Source: OECD DAC International Development Statistics online http://www.oecd.org/dac/stats/idsonline
[Accessed September 2006].

Notes: in 2004 constant USD.
See Appendix D, Table D7 for source data.

What have been the effects of aid?

5.2 Our assessment of how aid has influenced Uganda draws especially on two major studies: the 1999 review of programme aid (Ddumba-Ssentamu et al., 1999) and the recent evaluation of General Budget Support (Lister et al., 2006).

5.3 As regards policy effects: aid has not been able to “buy” policies in Uganda, but it has been able to provide financial support for reforms once government became committed to them. Where there is broad agreement on objectives, there has been an influential dialogue about appropriate policies and public expenditure priorities.

5.4 As regards financial effects: aid (including debt relief) has enabled the economy to expand imports by more than the growth in exports and government to expand public expenditure by more than the growth in domestic revenue. Debt relief and later forms of budget support were especially helpful in enabling GOU to meet necessary recurrent expenditures (offsetting the bias towards capital investments that is typically associated with project finance). In the early 1990s this was helpful in financing civil service reform and demobilisation of the army; after 1997, there was an aid-financed surge in pro-poor public expenditures through the Poverty Action Fund (see Figure 5.2).

5.5 Aid has had a further significant influence on the strengthening of public institutions, including those relating to the public expenditure management and accountability functions of government. An important factor, though one that is inherently difficult to assess precisely (what would have happened without aid?) is the role of aid in helping to consolidate the more benign NRM regime, enabling it to deliver a “peace dividend” after the turmoil of its predecessors.

Figure 5.2: Expanding Poverty Action Fund Expenditure

View the picture in full size

Source: MFPED (see Volume 3, Background Paper 1, Figure 7).

5.6 The aid relationship, and the thrust of the aid contribution, was different in different periods. Immediately after the NRM takeover there was a period of uncertain policy adjustment, with disagreements between GOU and the Bretton Woods Institutions, until the decisive achievement of fiscal discipline already mentioned. From about 1992-1997 was a period of continuing reforms, in which there was clearer policy alignment between GOU and donors, and donor support was mobilised for such reforms as civil service restructuring and retrenchment. Under a more liberal foreign exchange regime, debt relief became a more relevant form of support than earlier commodity import support. After 1997, with HIPC relief, the Poverty Action Fund, and the PEAP as the national Poverty Reduction Strategy, aid was increasingly focused on financing the public expenditure priorities of the PEAP, which most notably included a rapid expansion of basic public services. In all eras, budget support, under different labels (balance of payments support, commodity import support, debt relief, as well as, more recently, explicit sector and general budget support) was especially valuable to the government in enhancing its discretion and complementing the larger flows of project aid and technical assistance.

5.7 There is a radical critique which argues that aid inevitably undermines the domestic accountability of regimes and enables them to side-step the challenge of raising resources domestically. This is a legitimate concern, but it is not plausible that Uganda could have achieved similar levels of investment, growth, expanded public services and poverty reduction without the aid that it received. Our judgement is that aid in aggregate made a clearly positive economic, social and political contribution. This forms the context for efforts to evaluate the contribution of Danish aid in particular.