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Uganda Can Rein in Debt by Managing its Public Investments Better

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In the wake of a waning COVID-19 (coronavirus) pandemic and upon full re-opening of the economy, optimism—regarding expected acceleration of growth and a clearer outlook for oil production with the signing of the Final Investment Decision in February 2022—has been dampened by new global shocks, including the impacts of the war in Ukraine.

The 19th edition of the Uganda Economic Update (UEU): Fiscal Sustainability through Deeper Reform of Public Investment Management, a biannual analysis of Uganda’s near-term macroeconomic outlook, estimates growth at 3.7 percent in 2022, which is lower than pre-COVID-19 projections of over 6 percent. Uganda’s gross national income per capita stood at about $840 in FY21 and has increased only marginally in the year since.

Real gross domestic product grew by 4.3 percent in the first half of 2022 supported by a strong and speedy recovery of the service sector upon the opening of the leisure and entertainment industry, accommodation, and food services, as well as sustained buoyancy of the information and communications sector. The report projects a 5.1 percent growth rate in FY23, 0.5 percentage point below the December 2021 forecast, increasing to about 6 percent in FY24.

Rising commodity prices and the overall increase in cost of living pose new risks to livelihoods, that had just begun recovering from the effects of COVID-19. These and other shocks are threatening to stall socio-economic transformation, thus increasing the likelihood of the people falling deeper into poverty,” said Mukami Kariuki, World Bank Country Manager for Uganda. “It is therefore crucial for the Government of Uganda to adopt targeted interventions to support the vulnerable while managing debt and rising inflation.”

The UEU proposes four policy actions that will enable Uganda to sustain a resilient and inclusive recovery: i) accelerate vaccination efforts against COVID-19; ii) adopt targeted interventions to support the vulnerable – such as building shock responsive social protection systems; iii) maintain prudent fiscal and debt management to support the fiscal consolidation agenda; and iv) cautious monetary tightening in the face of rising inflationary pressures.

The report also recommends accelerating longer term structural reforms to (i) strengthen revenue mobilization through the implementation of the Domestic Revenue Mobilization Strategy; (ii) improve public investment management; (iii) rationalize public expenditure to support faster, sustainable, and inclusive growth by investing strongly in human capital development; and (iv) improve the trade and business environment and enable green investments.

The UEU notes that fiscal consolidation is needed to rein in debt and to create the necessary space to respond to shocks that could hurt or stall recovery. This can be done through better Public Investment Management (PIM) building on important reforms that have been undertaken by the government.  The benefits of these efforts are starting to show.

Uganda has a great opportunity to harness Public Investment Management by making sure that beyond preparing good projects, effort is also directed at ensuring that they are efficiently funded, implemented, monitored, operated, maintained, and evaluated.  These steps ensure that the country can reap the maximum value of public investments,” said Rachel Sebudde, World Bank Senior Economist and the lead author of the Uganda Economic Update. Strategic capacity building for government officials is crucial as it will improve the Ministries, Departments and Agencies’ effectiveness across the PIM cycle.”

Notwithstanding the progress achieved in the PIM process, key challenges remain. These include low execution rates on donor and own-budget projects; long implementation delays; cost- and time-overruns on projects; and high commitment fees in the case of non-concessional externally funded projects. Overall, the improvements around the administrative processes of the pre-investment phase of PIM are being discounted by challenges in critical areas, including project prioritization and selection, budgeting, and implementation.

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Young workers have been hit hardest by COVID fallout

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migrant workers
photo: UN Women/Pornvit Visitoran

The number of young people globally who can’t find a job this year is set to reach 73 million – that’s a full six million more than before COVID-19 – the UN labour agency said on Thursday.

According to the International Labour Organization (ILO), the pandemic has caused many additional problems for 15 to 24-year-olds who’ve experienced “much higher” unemployment losses than older workers since the global health emergency was declared in early 2020.

Young women have struggled more than their male counterparts to find work, while Arab nations are expected to see the highest levels of youth unemployment by the end of the year, compared to the global average.

“We know that the COVID-19 pandemic has wreaked havoc on youth labour markets around the world,” said Martha Newton, ILO Deputy Director-General for Policy. “It’s exposed a number of shortcomings in the way the needs of young people are addressed, especially the most vulnerable first-time job seekers, school dropouts, fresh graduates with little experience and those who remain inactive not by choice.”

Speaking at the launch of ILO’s report, Global Employment Trends for Youth 2022: Investing in transforming futures for young people,  Ms. Newton said that the share of youth not in employment, education or training in 2020 rose to 23.3 per cent.

That represents an increase of 1.5 percentage points from 2019 and represents a level not seen in at least 15 years, the ILO report found.

“This group of young people are at particular risk of seeing their labour market opportunities and outcomes deteriorate also over the longer-term as ‘scarring’ effects take hold,” it noted.

Gender inequality

The report’s takeaways include the worrying finding that young women are worse off than young men when it comes to finding a job. This year, fewer than three in 10 young women globally are expected to be in work, compared to well over four in 10 young men.

“The gender gap, which has shown little sign of closing over the past two decades, is largest in lower-middle-income countries, at 17.3 percentage points, and smallest in high-income countries, at 2.3 percentage points,” the ILO report stated.

Only high-income countries on course to recover

Latest labour data scrutinised by ILO also indicated that only high-income counties are likely to see a recovery in youth unemployment levels “close to those of 2019” by the end of this year.

In lower-income countries, youth unemployment rates are projected to remain more than one percentage point above pre-crisis values.

In Africa, the continent’s youth unemployment rate of 12.7 per cent masks the fact that many youths have chosen to withdraw from the labour market altogether, ILO said. It noted that “over one in five young people in Africa was not in employment, education, or training in 2020, and the trend has been deteriorating”.

The Arab States have the highest and the fastest growing unemployment rate of young people worldwide, projected at 24.8 per cent in 2022. “The situation is worse for young women in the region, with 42.5 per cent unemployment in 2022, which is almost three times as high as the global average for young women (14.5 per cent),” ILO said.

In Europe and Central Asia, unemployment among 15 to 24-year-olds is expected to be 1.5 per cent higher than the rest of the world this year (16.4 per cent compared with 14.9 per cent). Although there has been “substantial progress” in reducing youth unemployment for both women and men, ILO said that the fallout of Russia’s invasion of Ukraine was “highly likely to affect the results”.

While the Asia Pacific region is set to see 14.9 per cent of young workers still looking for a job by the end of the year, in line with the global average, the picture will likely remain worrying in Latin America, where the rate is expected to be 20.5 per cent.

“Historically, young women’s unemployment rates have been higher than young men’s (in Latin American countries), but the crisis exacerbated this trend,” ILO’s report stated.

The picture is radically different in North America, however, where the youth and young adult unemployment rate is expected to be well world average levels, at 8.3 per cent.

Solutions are green and blue

To address the problem, the UN labour agency urged governments to implement of sustainable green and blue (ocean) policy measures. According to the report, this could generate an additional 8.4 million jobs for young people by 2030.

Targeted investments in digital technologies could also absorb high numbers of young workers, ILO maintained. By achieving universal broadband coverage by 2030, some 24 million new jobs could be created worldwide it said, with young workers taking 6.4 million of them.

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Maldives Can Seize Opportunities to Boost Public Revenue, Make Public Spending More Efficient

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Maldives’ economy is on the road to recovery following the unprecedented shocks of COVID-19. Key reforms can enhance the quality of public spending, strengthen debt management and debt transparency and collect more revenues to finance the country’s development needs, according to the World Bank’s Maldives Public Expenditure Review (PER) launched today.

Much of the increase in public spending and debt over the past five years has financed investments in basic services and infrastructure, especially housing. While these investments can boost long-term growth, making public spending more efficient, transparent, and targeted towards the neediest groups, it is essential to contain the rapid rise in spending and debt. Such reforms are particularly important because Maldives’ economy is highly vulnerable to external shocks such as a global recession and climate change-induced natural disasters.

“This report supports the government’s efforts to reduce the risks to public finances and ensure that public money is well spent in order to secure a more resilient and prosperous future for all Maldivians,” said Hon. Ibrahim Ameer, Minister of Finance. “It will help us identify where and how public money can be better allocated to achieve the Jazeera Raajje vision, while supporting our ongoing and planned reforms to collect additional revenues.”

The PER identifies key reforms to help Maldives strengthen fiscal sustainability, including raising more revenues – especially from domestic sources – by, for example, reducing the Personal Income Tax threshold and gradually raising both the General and Tourism GST rates. The PER also identifies reforms needed to better manage public debt and guarantees. These include revamping the Fiscal Responsibility Act to include guarantees and more stringent monitoring of fiscal risks from state-owned enterprises.

“The Government of Maldives is already planning many reforms to improve the country’s fiscal health. These include raising GST rates, making public sector wages and pensions more equitable, enacting a Debt Law and revamping the Fiscal Responsibility Act,” said Faris. H. Hadad-Zervos, the World Bank Country Director for Maldives, Nepal and Sri Lanka. “The World Bank welcomes the recent proposed GST reforms and stands ready to support the Government to implement these and further reforms to achieve a more resilient and prosperous future for all Maldivians.”

Many of the reforms proposed in the PER intend to make the distribution of public spending more equitable. In the housing sector, for example, implementing income-based targeting would help improve the financial viability of the Rent-to-Own program while also promoting home ownership. As for public sector wages, the National Pay Commission could consider consolidating or eliminating most of the allowances that drive inequity and cap the overtime allowance. The new Public Service Pay Framework is a key first step in the right direction but strengthening wage bill controls and other related reforms is also needed to ensure that the reform is successful. Finally, reforms to eliminate ‘double pensions’ in the civil sector and improve the coverage of the pension system are needed to ensure that both current and future retirees can benefit from the generous scheme.

The Public Expenditure Review is a core analytical product of the World Bank which assesses the quality of government spending and identifies key fiscal reforms that countries need to undertake to achieve better growth and development outcomes. This is the first PER for Maldives since 2002.

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Major fall in global food prices for July, but future supply worries remain

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Food prices dropped significantly in July, marking the fifth consecutive monthly decline since hitting record highs earlier in the year in the wake of the war in Ukraine, the Food and Agricultural Organization (FAO) reported on Friday. 

The UN agency has published its latest eagerly awaited Food Price Index, the barometer that tracks monthly changes in the international prices of five food commodities: cereals, vegetable oils, dairy products, meat, and sugar. 

The index averaged 140.9 points in July, or 8.6 points down from June. The decline was led by double-digit percentage drops in the cost of vegetable oils but also cereals, with the recent UN-brokered deal on Ukrainian grain exports a contributing factor. 

Welcome but wary 

“The decline in food commodity prices from very high levels is welcome, especially when seen from a food access viewpoint,” said Maximo Torero, FAO Chief Economist. 

“However, many uncertainties remain, including high fertilizer prices that can impact future production prospects and farmers’ livelihoods, a bleak global economic outlook, and currency movements, all of which pose serious strains for global food security.”  

In July, FAO’s Vegetable Price Index decreased by 19.2 per cent compared to June, marking a 10-month low. International quotations for all oil types fell, the agency said, with palm oil prices declining due to prospects of ample export availability out of Indonesia, for example.   

Additionally, sunflower oil prices also dropped markedly amid subdued global import demand, despite continued logistical uncertainties in the Black Sea region. Vegetable oil values were also pushed down by lower crude oil prices. 

Black Sea export deal 

The Cereal Price Index also reflected an 11.5 per cent decline last month, though remaining 16.6 per cent above July 2021.  Prices of all cereals in the index declined, led by wheat.   

World wheat prices dropped by as much as 14.5 per cent, FAO said, partly in reaction to the Russia-Ukraine deal on grain exports from key Black Sea ports, and also because of seasonal availability from ongoing harvests in the northern hemisphere. 

July also saw an 11.2 per cent decline in coarse grain prices.  Maize was down 10.7 per cent, again due in part to the Black Sea Grain Initiative and increased seasonal availabilities in Argentina and Brazil. Additionally, international rice prices also declined for the first time this year. 

Sweet news 

The Sugar Price Index fell by nearly four per cent, amid concerns over demand prospects due to expectations of a further global economic slowdown, a weakening in Brazil’s currency, the real, and lower ethanol prices resulting in greater sugar production there than previously expected.  

The downward trend was also influenced by indications of greater exports and favourable production prospects in India. Meanwhile, the hot and dry weather in European Union countries also sparked concerns over sugar beet yields and prevented sharper declines. 

FAO further reported that the Dairy Price Index decreased 2.5 per cent “amid lacklustre trading activity”, yet still averaged 25.4 per cent above last July. 

While the prices of milk powders and butter declined, cheese prices remained stable, boosted by demand in European tourism destinations. 

Mixed picture for meat 

Meat prices also continued the downward trend, dropping by half a per cent from June due to weakening import demands. However, poultry prices reached an all-time high, boosted by firm import demand and tight supplies due to Avian influenza outbreaks in the northern hemisphere. 

The FAO Meat Price Index was also down in July, by 0.5 percent from June, due to weakening import demand for bovine, ovine and pig meats. By contrast, international poultry meat prices reached an all-time high, underpinned by firm global import demand and tight supplies due to Avian influenza outbreaks in the northern hemisphere.  

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