Document of The World Bank

Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Human Development 1 Country Department 4 Africa Region Document of The World Bank IMPLEMENTATION COMPLETION REPORT (GRTD-H0630) ON A GRANT IN THE AMOUNT OF US$ 150 MILLION TO THE REPUBLIC OF UGANDA FOR A FIRST SERIES OF POVERTY REDUCTION SUPPORT CREDITS (PRSC1-3) MARCH 10, 2005 Report No: 28838 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization

CURRENCY EQUIVALENTS (Exchange Rate Effective April 30, 2004) Currency Unit = Uganda Shillings (Ush) Ush 1174 = US$ 1:00 US$ 1:00 = Ush 1909 FISCAL YEAR July 1 June 30 AfDB AG AGO BFP BoU CAS CCS CDF CFAA CPAR CTB DA DEI DFID DFS DHS DMFI DWD DWO DWST EFA EFMP II EHD EIA EPI ESIP ESR EMIS ESW FID GAAP GDP GoU GNI HIPC HIV HPPG ABBREVIATIONS AND ACRONYMS African Development Bank Auditor General Accountant General's Office Budget Framework Paper Bank of Uganda Country Assistance Strategy Commitment and Control System Comprehensive Development Framework Country Financial Accountability Assessment Country Procurement Assessment Report Central Tender Board Directorate of Accounts Directorate of Ethics and Integrity Department for International Development (UK) District Forestry Services Demographic and Health Survey The Deposit Taking Micro Finance Institutions Directorate of Water Development District Water Offices District Water and Sanitation Team Education for All Second Economic and Financial Management Project Environmental Health Department Environmental Impact Assessment Expanded Program for Immunization Education Sector Investment Plan Education Sector Review Education Management Information Systems Economic Sector Work Forestry Inspection Division Generally Accepted Accounting Practice Gross Domestic Product Government of Uganda Gross National Income Heavily Indebted Poor Countries Human Immunodeficiency Virus Harmonized Participatory Planning Guide

HSSP ICC ICPAU ICRG ICT IDA IFAC IFMS IMF IPPS KfW LLO LGDP LSSP MAAIF MAPS MDG M&E MFI MMR MOD MoES MoFPED MoH MoI MoIA MoJCA MoLG MoPS MSEI MoTTI MoWHC MoWLE MTBF MTCS MTEF NAADS NAPE NARO NBFI NEMA NGO NHP NMS NPV NSDS NSSF NWSC O&M Health Sector Strategic Plan Implementation Coordination Committee Institute of Certified Public Accountants of Uganda International Country Risk Guide Information and Communications Technology International Development Association International Federation of Accountants Integrated Financial Management Systems International Monetary Fund Integrated Pay and Personal System Kredit fur Wiederaufbau Justice, Law and Order Local Government Development Project Land Sector Strategic Plan Ministry of Agriculture, Animal Industry and Fisheries Marketing and Agro Processing Strategy Millennium Development Goals Monitoring and Evaluation Micro Finance Institutions Maternal Mortality Ratio Ministry of Defense Ministry of Education and Sports Ministry of Finance, Planning and Economic Development Ministry of Health Ministry of Information Ministry of Internal Affairs Ministry of Justice and Constitution Affairs Ministry of Local Government Ministry of Public Service Minister of State for Ethics and Integrity Ministry of Tourism, Trade and Industry Ministry of Works, Housing and Communications Ministry of Water, Lands and Environment Medium Term Budget Framework Medium Term Competitiveness Strategy Medium Term Expenditure Framework National Agricultural Advisory Services National Assessment of Progress in Education National Agricultural Research Organization Non-Bank Financial Institutions National Environmental Management Agency Non-Governmental Organization National Health Policy National Medical Stores Net-Present-Value National Service Delivery Survey National Social Security Fund National Water and Sewerage Corporation Operation and Maintenance

OAG OPD OPM OOB PAF PCC PEAP PEMCOM PEAP PER PIU PMA PNFP PPA PPDA PPET PRGF PRSC PRSP PSC PSIA RAFU RCTB ROM SWG TDMS TFR TSU TB UBOS UCDA UN UNDP UPE UPPAP URA USAID VAT WSS Office of Auditor General Out Patient Department Office of the Prime Minister Output Oriented Budgeting Poverty Action Fund Policy Coordination Committee Poverty Eradication Action Plan Public Expenditure Management Committee Poverty Eradication Action Plan Public Expenditure Review Project Implementation Unit Plan for Modernization of Agriculture Private Not-For-Profit Participatory Poverty Assessment Public Procurement and Disposal of Asset Authority Post Primary Education and Training Poverty Reduction and Growth Facility Poverty Reduction Support Credit Poverty Reduction Strategy Paper Procurement units under Circular Standing Poverty and Social Impact Assessment Road Agency Formation Unit Reformed Central Tender Board Results-Oriented Management Sector Working Group Teacher Development and Management System Total Fertility Rate Technical Support Unit Tuberculosis Uganda Bureau of Statistics Uganda Coffee Development Authority United Nations United Nations Development Program Universal Primary Education Uganda Participatory Poverty Assessment Project Uganda Revenue Authority United States Agency for International Development Value Added Tax Water Supply and Sanitation Vice President: Country Director: Sector Manager: Task Team Leader/Task Manager: Gobind Nankani Judy M. O'Connor Dzingai B. Mutumbuka Bruno Boccara

UGANDA First Series of Poverty Reduction Support Credits (PRSC 1-3) CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 16 5. Major Factors Affecting Implementation and Outcome 31 6. Sustainability 32 7. Bank and Borrower Performance 33 8. Lessons Learned 35 9. Partner Comments 37 10. Additional Information 48 Annex 1. Key Performance Indicators/Log Frame Matrix 49 Annex 2. Project Costs and Financing 50 Annex 3. Economic Costs and Benefits 51 Annex 4. Bank Inputs 52 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 55 Annex 6. Ratings of Bank and Borrower Performance 56 Annex 7. List of Supporting Documents 57 Annex 8. Detailed Project Data 59 Annex 9. Poverty Reduction Support Credit in Uganda -Results of a Stocking Paper 61 Table 1. The Consolidated Objectives and Expected Outcomes for PRSC-III 4 Map IBRD 31802

Project ID: P074081 Team Leader: Bruno Boccara Project Name: Third Poverty Reduction Support Credit TL Unit: AFTP3 ICR Type: Core ICR Report Date: March 11, 2005 1. Project Data Name: Third Poverty Reduction Support Credit L/C/TF Number: GRTD-H0630 Country/Department: UGANDA Region: Africa Regional Office Sector/subsector: General public administration sector (40%); General education sector (15%); General water, sanitation and flood protection sector (15%); General agriculture, fishing and forestry sector (15%); Health (15%) Theme: Public expenditure, financial management and procurement (P); Administrative and civil service reform (P); Environmental policies and institutions (S); Health system performance (S); Education for all (S) KEY DATES Original Revised/Actual PCD: 10/03/2002 Effective: 02/11/2004 02/11/2004 Appraisal: 06/12/2003 MTR: Approval: 09/09/2003 Closing: 09/30/2004 Borrower/Implementing Agency: Other Partners: THE REPUBLIC OF UGANDA STAFF Current At Appraisal Vice President: Gobind T. Nankani Callisto E. Madavo Country Director: Judy M. O'Connor Judy M. O'Connor Sector Manager: Dzingai B. Mutumbuka Robert R. Blake Team Leader at ICR: Bruno Boccara Satu Kristiina Kahkonen ICR Primary Author: Peter Miovic 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: Sustainability: Institutional Development Impact: Bank Performance: Borrower Performance: S L M HS S QAG (if available) Quality at Entry: Project at Risk at Any Time: No ICR

3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: 3.1.1. Background. By the year 2000, when the first PRSC was prepared, Uganda had achieved much in reversing massive capital flight, establishing macroeconomic stability, rebuilding key public institutions, and revitalizing local civic participation. However, despite a significant reduction in the percentage of those living in poverty, about a third of the population still fell below the poverty line (headcount of income poverty was 34%), and most of the poor had grossly inadequate access to basic services. Reducing poverty in all its dimensions had become the Governments top priority with the preparation of the first Poverty Eradication Action Plan (PEAP) in 1997. The plan was to utilize an approach which combined economic growth, particularly by stimulating agriculture and enterprise, while significantly increasing social sector spending. While Uganda s performance at the macroeconomic level had been impressive, the transition from a post-conflict bounce-back in growth to a sustained rapid expansion had been elusive, and Uganda s social indicators were in 2000 still mostly below Sub-Saharan African country averages. The Government also had to struggle with high levels of corruption at all levels of the public service. 3.1.2. In 2000, a number of years of analytical work (including a series of household surveys and the Uganda Participatory Poverty Assessment Project (UPPAP), and the experience gained in designing and implementing PEAP I. This culminated in the publication of the second Poverty Eradication Action Plan (PEAP II), a medium term strategy organized around four pillars with the objectives to create an enabling environment for economic growth and structural transformation (Pillar 1); ensure good governance and security (Pillar 2); directly increase the ability of the poor to raise their incomes through rural development and expansion of non-farm activities (Pillar 3); and directly increase the quality of life of the poor through the provision of primary education, health care, and water and sanitation services (Pillar 4). 3.1.3. With the introduction of the Universal Primary Education Program in 1997, primary school enrolments rose dramatically from 3.1 million children in 1996, to 6.6 million, by 2000, with virtual equity between boys and girls. However, educational quality and performance could not keep up with enrolment successes, due to the limits on how quickly new teachers could be trained (still averaging some 63 pupils per teacher in 2000, although down from 100:1 in 1997), inadequate number of classrooms (average of 121 students per classroom in 1999), and insufficient teaching materials (average of 6.7 students per textbook in core subjects). Poor educational quality was evident in low student test scores and high drop-out rates. Enrolments at secondary level were also low, with fewer than 20% of school age children entering high school, and a significant proportion of these (63%) came from the wealthiest 20% households, with girls strongly under-represented. One of the perennial problems plaguing Uganda s education system had been the weakness and corruption in the district educational system responsible for the transfer of funds. By 2000, the Government had made significant improvements, increasing the proportion of funds reaching schools from 20% in 1995, to over 90%. However, there were still long delays in allocated funds arriving, and many problems related to utilization. 3.1.4. Although many efforts had been made over the years to improve its health profile, Uganda s indicators were in 2000 still quite poor. Mostly due to the impact of HIV/AIDS, life expectancy at birth had declined from 48 years in the mid-1980's to 42 years by 1993/2000 (compared to a Sub-Sahara African average of 50 years). Infant mortality rates showed some improvement (88 live births per 1000 babies by 2000, as shown by the DHS which is conducted only every 5 years, compared to 104 in 1970/75). However, the mortality rate for children under five remained at 147 by - 2 -

2000, only a little better than the Sub-Saharan African average of 151, and maternal mortality at 505 per 100,000 live births was among the worst in Africa. While a 1995 study identified HIV/AIDS as the cause of 9% of premature deaths, the major killer was peri-natal and maternal trauma (20%), followed by malaria (15%), acute lower respiratory tract infections (11%), and diarrhea (8%). By 2000, Uganda had lost 800,000 victims to HIV/AIDS, resulting in over a million orphans, and social and economic devastation for the worst affected communities. Although a large proportion of the rural population had minimal health care, even in terms of the most essential services, there has been improvement. For example, in 2000, only 46% of children had been immunized before their first birthday and the outpatient utilization rate was 0.43 visits per capita. Public health facilities were plagued by quality problems. A 1999 study showed that public health facilities had high levels of vacancies and heavy reliance on staff that lacked the minimum qualifications. Only 40% of the posts at clinics were filled by qualified personnel. De-motivation among medical staff due to delays in salary payments, backlogs in delivery of medicines and materials, delays in transfer of allocated funds, and sub-standard facilities, further eroded quality. Discontent with public health services has resulted in a greater reliance on private (especially in the urban areas) and NGO health centers. 3.1.5. In 2000, about 52% of Uganda s population was connected to the National Water and Sewerage Corporation s services, with a bias towards urban areas, and unequal access among regions. Capital expenditure for the system depends on donor financing, and Government funds for operation and maintenance were inadequate. The result was that many services were erratic, and up to 30 % in rural areas were non-functional. The administration and financial management of the sector had been marked by inefficiency and waste. The National Water Policy published in 1999, focused on community driven demand in rural areas, along with improved district management, and private sector involvement. In urban areas, the policy emphasized private sector participation to commercialize and improve the efficiency of the sector, professionalize the public management of the sector, and introduce an independent regulatory system. 3.1.6. PEAP II, prepared in 2000, focused on reducing income (headcount) poverty by supporting direct measures to maintain a high rate of growth of the economy. It also focused on improving people s welfare through delivery of services, a number of which would improve people s productivity and incomes in the longer run. The World Bank Group s Country Assistance Strategy (CAS) 2000 supported the goals of the PEAP by providing projects in electric power, roads, and capacity building, giving programmatic support to basic social services, and delivering the first Poverty Reduction Support Credit (PRSC), which was a new Bank instrument at that time. It was designed to provide direct budget support to Uganda to help it implement its reform program. The World Bank support in the case of the PRSCs thus became financial in nature, with attendant doses of expert knowledge but no assistance in direct implementation (as was the case with projects). 3.1.7. Objectives. The three annual PRSCs were designed as an integrated program, with each PRSC broadening and deepening its focus with respect to the various aspects of the PEAP, as well as drawing on the experience as the PRSC process evolved. Goals for PRSC-I were designed to be achieved at the end of the three year process, with specific benchmarks for each operation as prior actions for presentation to the World Bank Executive Board along the way. In addition to introducing its own specific goals, PRSC-II continued the second phase of accomplishment of PRSC-I goals; and this cumulative process was continued in PRSC-III. By that time, however, the nature of the game had changed in the sense that the program supported by the PRSCs was a rolling 3-year program. The program was aligned with the rolling 3-year Medium Term Expenditure Framework. Each year a previous year was dropped and a new one added in the future. As a result there has been some expansion of the goal posts, making it harder to define precise objectives. - 3 -

3.1.8. PRSC-I. The goal of PRSC-I was to support selective areas prioritized in the PEAP rather than the PEAP as a whole. PRSC-I focused on improving the delivery of basic services in health, education, and water supply and sanitation. This was to be achieved by (i) raising the productivity and cost-efficiency of public investment and expenditures; (ii) strengthening public sector performance through revision of the public salary structure and improved human resource management practices; (iii) improving governance through reforms in procurement, financial management, and monitoring and evaluation; (iv) increasing transparency and participation in public administration, and fighting corruption; and (v) initiating processes by which sector constraints could be identified and removed through collaboration across sectoral ministries and agencies. 3.1.9. PRSC-II. PRSC-II incorporated the goals of PRSC-I along with updates and refinements based on the experience of PRSC-I. In addition, PRSC-II, focused on the Third Pillar of the PEAP, i.e. directly increasing the ability of the poor to raise their incomes. As 85 percent of Ugandans (and 96 percent of Uganda s poor) live in rural areas, Uganda s core strategy to directly increase incomes is the Plan for the Modernization of Agriculture (PMA) which aims to transform subsistence agriculture to commercial agriculture. In accordance with the PMA framework, PRSC-II aimed to (i) improve the responsiveness and impact of publicly funded agricultural research; (ii) increase access and effectiveness of agricultural advisory services; (iii) stimulate financially sustainable microfinance institutions with greater access for the poor to financial services; (iv) provide for the more effective use and management of land resources, more secure tenure rights, and access to land for women and orphans; (v) reduce the level and risk of environmental degradation by integrating environmental priorities in sector-wide government programs; and (vi) increase access to markets in rural areas through improvement of the network of district roads. 3.1.10. PRSC-III. PRSC-III updated, refined and consolidated all of the goals of PRSC-I and II, focusing on actions to deepen reforms in most of the sectors covered in the first two PRSCs, and incorporating additional financial sector issues such as pensions. PRSC-III, therefore, has the most comprehensive statement of goals for the three-year PRSC cycle, although it also began to outline what was to be achieved in PRSC IV and beyond. The goals and expected outcomes of the first 3-year PRSC cycle are summarized in Table 1. Details are found in the full policy matrix in the PRSC documentation. Table 1: The Consolidated Objectives and Expected Outcomes for PRSC-III PEAP Pillar Objectives Areas Results Indicators Framework for economic growth and transformation Improve efficiency and equity in use of public resources Allocations and actual expenditure Better alignment of public expenditures with PEAP priorities MTEF includes donor-financed projects and wage bill Timely and predictable resource flows Publication of periodic budget performance reports Inter-governmental transfers Streamlined inter-governmental transfers Results-oriented monitoring and evaluation (M&E) Enhanced results-orientation of sector programs Strengthened responsibilities and methods - 4 -

Ensuring good governance and security Increasing ability of the poor to raise incomes Strengthen financial sector Improve public sector management system and practices Enhancing transparency, participation, and anti-corruption Promoting enabling environment for rural development Public service management Public procurement Financial management Transparency Detection, investigation, and prosecution Civil society participation Legal and Judicial Reform Agricultural research and technology Agricultural advisory services Rural finance Agro-processing and marketing Natural resource management of land of M&E Improved functioning of pension and insurance system Reformed public sector pay system Improved payroll and personnel management Controlled expansion of public administration New phase of public service reform launched Reformed public procurement system including legal and regulatory framework, and planning Strengthened enforcement of procurement rules and regulations Updated legal and regulatory framework Improved central and district accounting and reporting Strengthened audit structures and practices Improved access to public information Improved detection, investigation, and prosecution of corruption cases Strengthened NGO legal and regulatory framework Harmonized use of participatory approaches Reformed judicial enforcement of commercial contracts Improved responsiveness and effectiveness of publicly funded agricultural research Increased access to improved agricultural advisory services Improved capacity and outreach for micro-finance institutions Reduced constraints to agro-processing and marketing Prioritized implementation of 1998 Land Act Better access for women and orphans to land - 5 -

Directly increasing the quality of life for the poor Improving access to and quality of education Improving access to and quality of health care Improving access to and equity of water and sanitation services(wss) Environmental Environmental sustainability priorities management integrated into all government programs District Roads Improved network of district roads Primary Education Pupil-teacher ratio reduced to 50:1 Pupil-textbook ratio reduced to 3:1 in P4 Pupil-classroom ratio reduced to 88:1 Post-primary education Health care financing Drug procurement and management Human resources Health infrastructure Rural WSS Small towns WSS Urban WSS Strategy for expansion of post-primary education implemented Rationalized health care financing Strengthened procurement and management of drugs and medical supplies Increased health human resources Improved health infrastructure Strengthened, decentralized planning, implementation, and management of rural WSS Improved central government provision of WSS technical assistance to local governments Increased use of local private sector for WSS construction, spare part distribution, and maintenance Completed strategy for national hygiene promotion, sanitation, and communication New WSS management framework implemented for small towns Commercialized WSS operations introduced Improved financial sustainability of urban WSS delivery 3.2 Revised Objective: 3.2.1. As indicated above, PRSC-III incorporated and consolidated the objectives and outcomes for PRSC-I and PRSC-II, while introducing some additional focus areas, all of them within the original framework laid out by the two previous operations. Where progress had been stalled or new issues had emerged, PRSC-III refined the statement of goals and introduced additional measures. However, as these remain consistent with the original goals, they do not constitute revised objectives. - 6 -

3.3 Original Components: The three PRSCs were conceived and implemented as parts of a three year PRSC Program. Therefore, this ICR will consider all of the components together, as a single package implemented over a three year period. Each component responded to a key Pillar of the PEAP. Again, it should be kept in mind that each PRSC was prepared on a rolling basis, a new one replacing the old, with some refinement of objectives. Separate simplified ICRs have been prepared for PRSC 1 and 2. The ratings are identical. 3.3.1. PEAP Pillar I: Framework for Economic Growth and Transformation. The components under this Pillar were concerned with enhancing the efficient and equitable use of public resources, and strengthening the financial sector. This includes reaching annual agreements between the GOU and key stake-holders (including donors) on the allocations of strategic expenditures in the MTEF to ensure adequate provision of direct poverty-reducing funds. The MTEF would also incorporate all donor-funded projects and the GOU wage bill. Some components focused on improved delivery of financial resources, including measures taken to streamline the timeliness and predictability of intergovernmental transfers through merging the delivery of development and recurrent transfers, and strengthening decentralized fiscal management capacity. Further measures were taken to strengthen financial management performance in terms of soundness, efficiency, and access, focusing especially on pension reform, and enforcing compliance of new insurance regulations. Finally, some components focused on the monitoring, evaluation, and follow-up processes concerned with public expenditure. These included a component to improve the tracking of regular expenditures, especially in the social sectors. This component also included actions to strengthen the Monitoring and Evaluation procedures and accountabilities, based upon an enhancement of results-orientation of sector programs (by refining output and outcome goals and targets). Another component, aimed at reducing the deviations between budgeted and actual expenditures introduced semi-annual budget performance reports (quarterly, if requested). 3.3.2. PEAP Pillar II: Ensuring Good Governance and Security. The components under this Pillar were concerned with ensuring the level of governance needed to support the effective delivery of public services. These components were designed within the framework of strengthening decentralization, reducing Uganda s seemingly chronic corruption problems, and providing the necessary level of law, order and security. Some components focused specifically on the Public Service, and included measures to implement a government pay reform strategy consistent with the MTEF, and supportive of improved service delivery goals. This included upgrading the incentive structure for the groups of civil servants identified as associated with the most important reforms needed to remove constraints on effective service delivery. Alongside, a component focused on improving payroll and personnel management to reduce the delays in incorporating new government recruits into the government payroll (which has been creating morale problems), strengthening internal payroll controls to eliminate fraud, and instituting a computerized Integrated Pay and Personnel System (IPPS). Another companion component was the launching of a new phase of public service reform, based on substantial gains made by Uganda s previous public sector capacity building efforts in the early 1990's. A macro-level component focused on measures to control the significant expansion that has taken place in the public service since 1997. 3.3.3 A second group of components focused on the problem of tackling Uganda s weak public procurement system which has lacked adequate planning, efficiency, transparency, and inspection. One component focused on updating the legal and regulatory framework for public procurement through the establishment of a Public Procurement and Disposal of Public Assets Authority (PPDA) to replace the old Central Tender Board. This was to be supported by the establishment of - 7 -

procurement units to provide technical support to all procurement functions in central government, and eventually local government, along with capacity building to ensure these units would have the required expertise. The PPDA was to issue quarterly reports on all contracting over $200,000, and carry out independent procurement audits of all central government procurements and at least 30% of local government procurement. 3.3.4. A third group of components focused on strengthening governmental financial management to ensure effective transfer of allocated resources, and strengthen financial discipline and fiduciary responsibility, especially at the local government level. These components were to be implemented within the context of an updated legal and institutional framework for financial management under a new Public Finance and Accountability Act, and a Public Expenditure Management Committee (PEMCOM) to oversee public expenditure reforms. Other measures focused on improving accounting and reporting practices both within central and district government, by increasing the percentage of districts and urban authorities that produce their annual accounts within the statutory four month deadline, from 40 percent (in 2002/3) to 90 percent (in 2003/4); reconciling previously un-reconciled public accounts; issuing quarterly interim financial statements; clearing the backlog of Treasury memoranda; strengthening the capacity of the Public Accounts Committee; launching of capacity building programs for financial management and budget staff within central and local government agencies; and the implementation, on a pilot basis, of a new Integrated Financial Management System (IFMS) in six central ministries and four local governments. 3.3.5. These financial management strengthening components were accompanied by a number of measures aimed at strengthening audit structures and practices. These included the appointment of an Auditor General with international accounting qualifications, with measures to ensure that the Office of the Auditor General (OAG) has full independence and unfettered access to public expenditure information, and the appointment of quality assurance managers to work with sharpened guidelines to improve the quality of audits. The audit components set the target of increasing the percentage of district and urban authority annual accounts audited from 46% (in 2002/3) to 90 percent (in 2003/4). 3.3.6. Finally, under Pillar II, the PRSC program included components aimed at improving transparency and participation in governmental operations, and reducing corruption. These components included measures to improve the access of the population to public information through the implementation of a communications strategy relating to fiscal policy and the budget; and open public access to facts relating to the income and assets of senior government officials under a new Leadership Code. Other measures aimed at strengthening the detection, investigation, and prosecution of corruption cases through the consolidation of several tiers of anti-corruption legislation into a comprehensive Anticorruption Act to provide a more effective basis for fighting corruption and misappropriation of public assets, barring individuals and companies found guilty of corrupt practices from access to government contracts, and recovering stolen assets. IGG s enforcement capacity was to be sharpened through improved quantitative indicators to assess progress in the fight against corruption. A companion Whistleblower Bill was to be enacted to provide necessary whistleblower protections. Measures were designed to enhance the enforcement of commercial contracts through a commercial justice reform program which included strengthening the access and case processing of the Commercial Court; the establishment of a center for Alternative Dispute Resolution; the strengthening of land and company registries; and the revision of commercial laws. 3.3.7. The measures aimed at strengthening public participation, focused on the implementation of a harmonized framework for community participation in service delivery, supported by a computerized data-base of NGOs and faith-based organizations. Surveys were carried out on the functions and - 8 -

capacities of Ugandan NGOs to form the basis of the NGO Act aimed at strengthening the participative role of NGOs in Uganda s development program. 3.3.8. PEAP Pillar III: Directly Increasing the Ability of the Poor to Raise their Incomes. Under this pillar, the PRSC program (which was a new component added in PRSC II) focused on measures to help increase the rate of agricultural growth, diversify agricultural production, and expand non-farm employment. A number of components addressed improvements in the responsiveness of agricultural research (through the implementation of a new strategy for agricultural research); and increasing farmers access to and the effectiveness of agricultural advisory services (through the implementation of the National Agricultural Advisory services (NAADS) Program, a demand-driven program giving farmers, and especially women s groups, access to needed agricultural services. Components aimed at improving agro-processing and marketing, included the production and implementation of an integrated Marketing and Agro-processing Strategy to remove existing constraints, and a redefinition the role of the Uganda Coffee Development Authority (UCDA) to support niche-market development and market-oriented quality standards. A Warehouse Receipt System Act was aimed at providing the legal framework for the system of warehouse bonding and the issuance of warehouse receipts. Support to especially poor and marginal farmers was addressed in a component to implement the 1998 Land Act in a manner that promotes the access to land of women and orphans, through implementation of an action plan to increase awareness of land rights among women and other marginal groups, and implementation of pilot schemes to strengthen common property management systems through registration of communal land associations, and provision of model constitutions for their operation. 3.3.9. Companion components addressed the need to upgrade the network of district roads, including the endorsement of an improved national policy for the planning, construction, and maintenance of district roads, to form the basis of a ten-year district roads investment program ready for implementation by April 2004, supported by the establishment of technical offices to assist district government implementation. Other components addressed the need to integrate environmental sustainability priorities in government programs, supported by the implementation of improved National Environmental Management Agency (NEMA) guidelines (including environmental monitoring indicators). These were to be accompanied by manuals and guidelines for use of local governments in preparing district environmental action plans, and an increase of government funding to NEMA to cover 50 percent of their recurrent budget. To ensure effective attention to forestry assets, the environmental components included the launching of a National Forestry Plan supported by the National Forestry and Tree Planting Act, and the launching of the National Forestry Authority and district forestry services. 3.3.10. Strengthening of non-farm employment was to be supported by measures aimed at improving the operating capacity of micro-finance institutions, within the implementation of the Microfinance Deposit-taking Institutions Act, that would license micro-finance institutions to operate as financial intermediaries. This was to be supported by a government outreach program to strengthen the capacity of these institutions. 3.3.11. PEAP Pillar IV: Directly Increasing the Quality of Life of the Poor. To contribute to the achievement of the goals of this Pillar, the PRSC program focused on improvements in primary education, health care, and access to safe water and sanitation. The primary education components were designed within the framework of semi-annual government-led education sector reviews involving all major stakeholders (government, donors, NGOs) to monitor progress, set quantitative targets, and track quality through key indicators. The components aimed at increasing the net rate of - 9 -

enrolment in the final (P7) primary grade; increasing the primary completion rate; and maintaining gender balance in primary enrollments. One set of measures focused on reducing the pupil-teacher ratio from 63:1 in 2000, to 50:1 in 2003/4, by launching a national recruitment drive for primary school teachers, improve incentives for teachers to go to remote areas, improve payroll management for teachers, and provide in-service training for unqualified teachers through the Teacher Development and Management System (TDMS). A second set focused on reducing the pupil-textbook ratio from 6.7:1 in 2000, to 3:1 in 2003/4, by new procurement arrangements to improve quality and reduce unit costs of text books. These were to be supported by a base-line assessment to facilitate the measurement of progress, the procurement of a wide-range of non-textbook materials, and the training of teachers to use new instructional materials. A third set of measures focused on reducing the pupil-classroom ration from 121:1 in 1999, to 88:1 in 2003/4, through implementation of a classroom construction program under a national plan for expansion of school facilities. To improve monitoring of progress under these primary education components, measures were to include the implementation of a framework for monitoring educational quality outcomes, which includes indicators to monitor student progress in literacy and numeracy. Finally, the education components included a focus on improving post-primary educational expansion through launching the implementation of a strategic framework for post-primary education. 3.3.12. The PRSC health care components focused on improving the quality and effectiveness of health care service delivery, based on goals of the Health Sector Strategic Plan (HSSP). The HSSP, which emphasizes the delivery of a minimum health care package of cost effective interventions, and is implemented under a sector-wide approach involving semi-annual joint sector reviews that monitor progress, identify and address constraints, and establish targets. The implementation of HSSP is monitored against 20 key health indicators. The PRSC components focused on rationalizing the financing of health care by channeling donor financing through the government budget in order to improve the effectiveness and efficiency of health care spending. Specific components addressed the actions needed to strengthen logistics and management of drugs and medical supplies through the implementation of a National Drug Policy and Pharmaceutical Strategic Plan (based on tracking studies that identified key ways of improving drug management and supply). Other supportive measures included the establishment of a fund to provide credit to districts to procure drugs, consolidation of the health sector payroll into one under the PHC conditional grant and formation of an inter-ministerial committee to coordinate actions relevant for the training of health care staff by both public and privately run health schools, within a new human resource development policy for the health sector. Finally, PRSC health components focused on the need to improve Uganda s rundown health infrastructure through the implementation of a National Health Infrastructure Development and Maintenance Plan, which aims to rationalize the distribution of health facilities, rehabilitate existing structures, and to speed the construction of facilities to under-served areas through the use of minimum new construction standards and improved flow of funds for construction and maintenance. These components were included to help raise to 47% the proportion of health facilities staffed by qualified health workers, increase the DPT3 vaccination coverage for infants from 63% (2000) to 75% (2003/4); increase the utilization of out-patient facilities from 0.40 per capita (2000) to 0.65 per capita (2003/4); reduce the adult HIV prevalence from 6.5% (2000) to 5% (2003/4); ensure that 28 percent of deliveries take place assisted by trained health workers (from 21% in year 2000); and reduce the rates of infant and maternal mortality. 3.3.13. The WSS components of the PRSC program were aimed at achieving a sector wide approach that would increase the supply of WSS services, reduce the rural-urban and regional inequalities, increase utilization of facilities, and improve the sustainability of services. The goals of these components were governed by the Government s National Water Policy of 1999, and the subsequent - 10 -

formulation of rural and urban sub-sector strategies. At the center, PRSC components supported efforts to strengthen the effectiveness of the Directorate of Water Department (DWD) through the implementation of a reorganization plan for DWD. Accompanying PRSC components included measures to strengthen decentralized local government planning, implementation, and management of WSS, through the establishment of District Water and Sanitation Teams (DWSTs) to cover all districts, the implementation of a revised structure and staffing for the District Water Offices (DWOs), and the implementation of a WSS operational manual and implementation guidelines for districts assisted by eight Technical Support Units. Another component supported the goal of developing and utilizing local private contractors for engineering, construction, spare-part distribution, and maintenance of local WSS facilities under the implementation of a National Maintenance Strategy. PRSC also supported the development and implementation of a national hygiene promotion, sanitation, and communications strategy for implementation through trained community extension workers, and the distribution of a Community Resource Handbook to strengthen community management and utilization of WSS services. These rural WSS PRSC components were aimed at increasing rural access to safe water and sanitation from 55 percent (2000) to 65 percent by April 2005, at an average investment of US$50 per capita. Functionality of WSS facilities was to be maintained at a minimum of 80 percent; and the average time spent fetching water, reduced to below 30 minutes (2000). 3.3.14. The PRSC urban WSS components included measures to introduce local or international private operators under a clear contractual relationship with government, to include a management contract for the operations of the National Water and Sewerage Corporation (NWSC), and the implementation of an Urban WSS Policy and Investment Program, which would result in WSS systems being transferred to an asset holding authority, and privatized operations management. To strengthen the financial sustainability of NWSC and attract private investment, PRSC included measures by which the government would settle NWSC s outstanding arrears of Ush 7.58 billion; and the adoption of a simplified tariff structure which includes a pro-poor focus. For small urban areas, PRSC supported the development of small towns WSS management strategy, and privatised operations management. These urban WSS PRSC components were aimed at increasing urban access to safe water and sanitation from 55 percent (2000) to 70 percent by April 2005, at an average investment of US$150 per capita. 3.4 Revised Components: Because the three PRSCs were conceived and implemented as part of a three-year PRSC Program, the intention was to ensure continuity while learning from experience and refining and adding to the various components as needed. This approach was an integral part of the PRSC implementation strategy, and therefore the various refinements and improvements do not constitute revisions to PRSC components. 3.5 Quality at Entry: 3.5.1. Rating. The overall quality at entry for PRSC I was not carried out. However, there was an assessment by QAG (the Quality Assurance Group of the World Bank) of PRSC II.(Quality at Entry Assessment (QEA6) by of PRSC-II (dated 7/23/2002). This assessment was taken into account in designing PRSC III. The assessment rated the overall quality at entry of the PRSC II as Satisfactory, and Highly Satisfactory in Strategic Relevance and Approach, Fiduciary Aspects, and in Bank Inputs and Processes. The operation was well focused on the priority PEAP reform areas, and a high level of Government involvement and ownership which increased the prospects for successful implementation. PRSC-II was described as a major step forward in helping the Ugandan government escape the institutional fragmentation that has usually accompanied project financing. It was found that PRSC II systematically built on reforms initiated under PRSC-I, providing a clear road map for the reform - 11 -

process over the remaining PRSC Program time horizon. The assessment also regarded the PRSC as a useful means to improve donor partnership and coordination. 3.5.3. The assessment also found that many of the PRSC II actions were either procedural steps to be taken by various government bodies (e.g., preparation of strategies, proposals or Cabinet submissions) or inputs (hiring of consultants and staff, creation of new organizational units), and were not necessarily closely linked with the end results desired in terms of improvements on the ground in the performance of government agencies and the delivery of public services. The assessment found the descriptions of some of the actions in Schedule 1 vague, which would make it difficult to monitor the quality of achievements and their real impact. The operation was judged not to have reflected consistently good judgments about the likely time required to complete some required actions. 3.5.4. The assessment of PRSC II found that the PAD did not provide adequate analysis of key macroeconomic issues such as the desired characteristics of the medium term fiscal framework or the risks that large aid inflows will cause excessive exchange rate appreciation. Neither did the PAD provide indication of the fiscal costs of the proposed reforms. In its view, it would therefore be difficult to judge whether the MTEF would allow the Government to actually incur expenditures at the level necessary to ensure achievement of established target outcomes. In the event, this continued to be the case in PRSCs III and IV and it is only in PEAP III, currently under preparation, that a costing exercise is supposed to be carried out. 3.5.5. The assessment of PRSC II stated that there is little evidence in the PAD that consultations or other analysis have been carried out as part of the PRSC process to determine the views of stakeholders about some of these politically sensitive reform measures supported by the PRSC, and to gauge the likelihood of policy reversals due to adverse reactions of vested interests. The report also observed that given the complexity and difficulty of the many institution-building reforms in the PRSC, along with the fact that the Ugandan Government lacked strong human resource capability, substantial technical assistance would be needed, over an extended period of time, for successful implementation. The PAD did not provide a systematic assessment of technical assistance needs and how these would be met, and that the absence of needed technical assistance could pose a risk for the quality and timely completion of the reform process. 3.5.6. Consistency with the CAS. The PRSC Program has been consistent with the Bank Group s Country Assistance Strategy for Uganda, November 16, 2000 (Report 20886-UG). The CAS priorities were to maintain macroeconomic stability, but to shift the focus increasingly to sector-level and cross-cutting public sector management issues. The goal was to replicate within sector management the excellent policy and implementation record established at the macroeconomic level. The PRSC program was regarded as the Bank s key instrument in supporting this effort. In terms of the Bank strategy, the PRSC program was also a response to the fact that Bank-supported sector investment projects were not always well integrated with other sector activities, and suffered from low sustainability. Because other donors focused on their own aid delivery mechanisms, the development of government systems for managing sector development had received only limited support. The initiation of the PRSC process was also a response to requests by GOU for a change in donor lending modalities, on these grounds: that macroeconomic progress had reduced the need for traditional structural adjustment lending; Uganda s improved planning and budget management provided confidence that public resources, augmented by those provided by the PRSCs and associated donor funding, would be allocated to PEAP priorities; there was a need to enact comprehensive reforms both across sectors and across the system as a whole, for which investment projects were sometimes too narrow; and there was a need to improve coordination of donor support for a country-owned program. - 12 -

The shift to the PRSC was consistent with the principles of the Comprehensive Development Framework (CDF) and acted as a bridge between the CAS and the PEAP. The Bank strategy therefore envisaged, with the inception of the PRSC mechanism, a decline in the relative weight of investment projects in the Bank portfolio for Uganda, with investment projects thereafter concentrating mainly on infrastructure and capacity building. 3.5.7. Coordination with African Development Bank (AfDB). The World Bank and AfDB cooperate under a joint memorandum of understanding. The preparation of each phase of the PRSC program ensured consistency between Bank and AfDB, the support programs of both organizations focusing on key PEAP goals of strengthening agriculture and rural development, and equitable access to basic services in education, health, and WSS. AfDB provided a Poverty Reduction Support Loan (PRSL) which was consistent with the PRSC, and with the reduction of World Bank support through investment projects, AfDB projects filled some of that gap. 3.5.8. Coordination with IMF. With the adoption of the PRSC modality, the IMF was to continue its focus on macroeconomic and financial sector issues, especially short-term macroeconomic stability, financial sector regulation and supervision, and factors influencing long-term financial sustainability. It was agreed that World Bank and IMF staff would continue to work together in areas of fiscal decentralization and financial sector and governance priorities, on the updating of the Uganda s Debt Sustainability Analysis, and in joint assessments of PRSPs. In September 2002, the IMF approved a new three year Poverty Reduction and Growth Facility (PRGF) which was closely coordinated with the PRSC Program, the PRSC focusing on social, structural, and governance priorities, and the PRGF concentrating on monetary and exchange rate policy, expenditure management, local government accountability, financial sector supervision, and tax administration. 3.5.9. Coordination with Other Donors. The World Bank worked closely with the donor group in Uganda on the development of the PRSC priorities and prior actions. Several donors (Germany, Ireland, the Netherlands, Norway, SIDA and the UK), agreed to support the PEAP with programmatic grants utilizing progress against the PRSC policy matrix and prior actions as an important, but not necessarily the only, trigger for their disbursements. Other donors (EU, AfDB)) agreed to align their own support programs with the PRSC and participate in l appraisals and reviews. The cooperation of the donor group was established in accordance with the agreed Partnership Principles governing government-donor relations. 3.5.10. Bank Safeguard Policies. Because of the strong sectoral orientation of the program, the PRSCs were subject to the safeguard requirements for SECACs (OP 4.01). As a Category B operation, PRSC-III incorporated the environmental assessments conducted for PRSC-I and PRSC-II for health, water and sanitation, and rural development. The detailed analysis was included as Annex 6 in the PRSC-III Program Document (Report No. 26078-UG). The analysis identified potential environmental risks linked to medical waste, construction of school facilities, design and sustainability of WSS facilities, and agricultural pesticide usage. Social concerns included access to safe water among those who cannot afford such services, community role in selecting, operating and maintaining water services, and potential conflict over land use and common property resources. The government and implementing agencies, with the help of the World Bank and other donors, worked to create a viable framework to improve environmental sustainability in the sectors covered by PRSC, and to identify and monitor key safeguard issues. It might be noted that in a typical World Bank project safeguard issues such as management of fiduciary risks or environmental aspects, there are typically a set of actions that are implemented under the guidance of a Project Implementation Unit. Since PRSCs are just a funding instrument, safeguards are supposedly implemented within the overall reform - 13 -