The purpose of this PEFA assessment is to provide an objective analysis of the present performance of the PFM system in Uganda against the PEFA indicators. This PEFA provides an update of progress in PFM in Uganda since the last PEFA in 2012 and establishes a new PEFA baseline using the 2016 PEFA methodology. As Uganda has been the recipient of significant technical assistance to support enhancement of many elements of its PFM system, it is now an appropriate time to take stock of overall progress.
The assessment covered expenditures by central government, budgetary units and revenues collected by government. Revenue collected by the Uganda Revenue Authority and National Social Security Fund (NSSF) was included in the examination of revenue administration. Extra-budgetary units and local government were included in terms of indicators 6 and 7 relating to central government operations outside financial reports and transfers to local government. The full assessment team was together in Uganda from November 7th to 18th 2016 (time of fieldwork for the assessment). The financial years covered for indicators that required assessing over three years are 2013-14 to 2015-16. 2015-16 is the latest completed financial year.
Overall, the results of the PEFA show that public financial management systems in Uganda are strong and reforms have improved systems as the PFM Reform Action Plan has been operationalized. However, there are notable weaknesses in aspects of risk management and sectors’ strategies linked to multiyear budgeting. The budget process, which has evolved with macro-economic and fiscal forecasting and strategy, and strong budget preparation processes with a fiscal framework, are a positive start. Aggregate revenue forecasting has improved significantly since the previous PEFA in 2012 and the revenue agencies have developed effective processes and procedures, which impact on the execution of the budget, though estimates for each revenue category are not completely accurate. On the expenditure side, Government has made efforts to clear expenditure arrears, such as use of prepayments for utilities, a commitment control system now embedded in the IFMS, as well as additional budget provisions to clear the stock of arrears in government. Nevertheless, arrears continue to grow and are high as a percentage of expenditure, indicating the need for even greater controls.
Good information on budget execution is readily available to decision makers. A key lesson from the recent global financial crisis is that risks in the PE, AGA and SNG sectors require careful management. Monitoring the operations, finances, and thus risks, associated with the statutory bodies and SOEs has improved, and is essential for managing such risks in Uganda. A performance management framework for SOEs is yet to be developed and would be essential in driving internal efficiency and supporting accountability.
External audit is an area of significant strength. The Office of the Auditor General is active in carrying out financial and compliance audits. It adopts auditing standards to govern its work with audit plans and strong staff development programs. External scrutiny of audit reports by the Public Accounts Committee is not up-to-date, implying the accountability cycle remains incomplete with a number of Treasury Memorandums unissued.
Aggregate Fiscal Discipline
Aggregate fiscal discipline is achieved through control over spending during budget execution, as well as realistic revenue forecasts. Strong revenue administration ensures that revenues are efficiently collected. The planned budget on an aggregate basis is not unduly circumvented by the use of virement and supplementary budgets though there are weaknesses revealed by the large number of in-year transfers between sectors and economic categories, revealed by the supplementary budget reallocations. Treasury operations and cash management enables expenditures to be managed within the available resources but there are arrears. However, control of contractual commitments is not sufficiently effective, creating a risk of generating further expenditure arrears. The strong external audit function (monitoring past performance) enhances fiscal discipline, with some follow up by the executive.
Strategic allocation of resources
There is a strong emphasis on the overall fiscal framework. The Chart of Accounts caters for a multidimensional analysis of expenditure. However, the link between the medium term perspective in expenditure budgeting and strategic plans such as the NPA and sector strategies needs to be further developed to improve the strategic allocation of resources.
Efficient use of resources for service delivery
The current weaknesses in competitive bidding in the procurement system could have adverse implications for the efficiency in service delivery. The strengths in the accountability mechanisms – such as the comprehensiveness and issuing of annual financial statements - make external audits effective as counter checks on inefficient use of resources. Publishing performance targets and outcomes also assists with efficient use of resources, though lack of systematic program evaluation and data on resources available at service delivery units can undermine accountability. Such information would help management decision making to support improved service delivery. On the revenue side, operational efficiency is compromised by the accumulation of tax arrears. Lack of effective tax debt collection undermines credibility of tax assessments and the principle of equal treatment of taxpayers. The introduction of arrears write-off legislation would afford the opportunity to clean up tax arrears and make them current.
Performance changes since previous assessment
While the PEFA has been carried out using the 2016 methodology, it has been possible to score against the 2011 PEFA methodology, which was used in the previous PEFA assessment of Uganda. Across the 71 individual indicator dimensions compared, there has been an improvement in 21 dimensions, deterioration in 6, and no change identifiable in 44 dimensions.
The comparison of the assessments indicates that between the two PEFAs credibility has improved as revenues are now well in line with budget estimates. There have also been improvements in the orderliness and participation in the budget process, as well as multi-year fiscal forecasts and functional allocation. Debt recording and reporting has also improved as has payroll functions and elements of procurement. Internal control and internal audit have also advanced somewhat, despite resource constraints. The main area of backsliding is in arrears, tax audits and reconciliation of assets.
Ongoing and Planned PFM Reform Programme
The main current PFM reform programme is the Financial Management and Accountability Programme (FINMAP), which originally commenced in January 2007 and started its 3rd Phase in July 2014. The current phase three is planned to continue to June 2018. The programme covers the entire financial management process from planning and budgeting to oversight by Parliament. It is designed to support the GoU poverty reduction goals, in particular the Economic Management and Good Governance objectives of the National Development Plan, and is established within the Accountability Sector of the Medium Term Expenditure Framework. The current FINMAP design is based on past diagnostic reviews, in particular the PEFA review of 2012. It is more broadly focused than its predecessors, which were expected to deliver on concrete initiatives such as the IFMS rollout. The priority areas of FINMAP III are:
• Improvements in compliance with rules and regulations;
• Increasing domestic revenue;
• Improving fiduciary assurance through strengthening of fiduciary management systems;
• Improving cash management; • Institutional capacity strengthening in project management of public investments.
• Change management, communication and knowledge transfer
• Monitoring and evaluation framework through the identification of performance indicators at both outcome and output level.
As noted above, there have been numerous improvements in scores reflecting successes in the FINMAP strategy, though arrears, tax audits and asset reconciliation have displayed weaknesses. It should be noted that many improvements have been made as a result of the introduction of the PFM Act (2015).