DEVELOPMENT SOCIAL WORK
Social work is one of the approaches used for promoting people’s well-being however social work is different from other approaches because it employs professional skills and methods by trained personnel known as social workers. These social workers employ knowledge and skills to deal with human social problems. Social work is therefore defined as the professional activity of helping individuals, groups and communities to enhance and/ or restore their capacity for social functioning and creating societal conditions favourable to this goal. Social work has been known to be primarily concerned with the provision of remedial services directed at a wide range of social problems. The profession is also engaged in programs aimed at preventing social problems and promoting human well-being. The social work profession has historically dealt with the poor people. It is important to note that social work evolved from developed countries where the focus was and still is addressing problems of the poor and the marginalized who are largely a minority in these societies. In these countries social work emerged out of philanthropic activities directed at the poor people living in slums of the rapidly industrializing cities of Europe and North America. Although the social work profession evolved in Europe and North America, it is now well established in Africa, Asia, Central and South America as well.
Although social work has evolved into an international profession, with a distinctive body of knowledge and practice methods, there are differences in the way social workers are trained in different parts of the world. The application of social work practice also differs in many respects. However, social work had its early beginnings in Europe and America and was thus based on local experiences and situations in these countries. This is not to say that there aren’t common features of social work practice globally. Social workers in most countries are involved in established fields of practice such as child welfare, mental health and medical social work. In some countries social workers are engaged in unique and innovative non-traditional fields of practice fields of practice like ‘labour unions’ mainly in the private sector. In Africa social workers have been involved in development activities including building feeder roads, income generating, agricultural promotion, advocacy for human rights, environment, women’s empowerment, skills training etc. However what is important to note here is that social work in its different forms of delivery focuses of promoting and improving the well being of people. In Africa and indeed in Uganda social work practice deals with issues of mass poverty and its strategies are aimed at poverty reduction. In some countries social workers have acquired unique expertise to deal with a variety of problems and issues eg. In India social workers have been engaged in labour welfare and many social workers are employed as welfare workers in industries and address a variety of social and personnel issues associated with industrial employment. In Latin America social workers have been extensively involved in political mobilization and raising the consciousness of poor and oppressed. Conscientisation.
Paulo Frčire was an educationist who never went to school.
Conscientisation facilitated the involvement of social work in community organizing with poor and oppressed people and provided a conceptual basis for enhancing their involvement in political action that would further progressive change.
In South Africa social workers were for a long time involved in the long struggle against apartheid. As the minority government sought to promote its racist ideology and imposed strict limitations on the democratic rights of black and coloured people. Social workers became more involved in activities that challenged the hegemony of the apartheid regime.
While there are many other countries where human rights abuses continue to occur, social work’s involvement in social justice does not always find expression in direct political resistance to oppressive political regimes. There is need for social work to be politically aware even in countries where the democratic processes operate and where individual freedoms are respected. In such situations the involvement of social work in social justice may transcend a concern with ensuring that basic political rights are met and focus instead on wider social rights and social reforms.
Because of the diverse roles, activities and settings in which social workers are engaged, it is not surprising that different social workers have very different conceptions of what social work entails. On the other hand, most people who are not in the field of social work have only a vague idea of what social workers do. While many social workers believe that the profession should strive to adopt a single unique practice method and body of knowledge that has universal relevance, others are in favour of perpetuating social work’s historical diversity and Eclecticism (multi-disciplinary). They point out that social work has traditionally applied different techniques to meet different types of social needs. The flexibility of social work is not, they contend, a weakness but a strength that reveals the profession’s unique ability to respond to a variety of social problems in diverse ways. It is because of this flexibility that social workers are able to meet new challenges and ensure social work’s relevance to changing social needs.
Proponents of a unitary approach disagree and claim that it is precisely because social work is involved in so many diverse activities that confusion about the profession’s proper role and function is perpetuated.
It is unlikely that these different viewpoints will be resolved. However, it is important that social workers refrain from dogmatically insisting that their views on appropriate roles and functions should be universally accepted. It is also important that social workers should be encouraged to experiment with new practice approaches that suit diverse, cultural, demographic, economic and social differences. Social work’s ability to absorb new ideas and assimilate new forms of intervention should be maintained. At the same time the profession should not lose its core identity. Its commitment to a shared body of knowledge, basic skills and key values should be maintained. Although this will probably mean that the issue of social work’s identity may never be completely resolved, it should be possible to promote a standardized approach to social work practice within a broad generalist and eclectic framework. The development of social work practice was extensively influenced by the western model. In many developing countries, the development of remedial social work services was given priority and social workers engaged in practices that were very similar to those in Europe and North America. Initially the transfer of western social work approaches to the third world after World War II was not thought to be a problem. It was only in the 1960’s and the 70’s with the resurgence of the post-colonial nationalism that opposition to western social work was expressed. Critics claimed that the replication of western approaches was culturally inappropriate to third world conditions and unsuited to the needs of the developing countries. They argued that western social work was unable to address the massive problem of poverty and deprivation that characterized the developing countries. They also claimed that it was excessively concerned with urban remedial social services and generally imperialistic in nature.
Social development is an approach to promote the well being of people that differs from other approaches such as philanthropy, social policy and social work. While social development shares a commitment to promoting welfare with this approaches, it has its own distinctive features.
Its characteristic is its emphasis on using development as a means for enhancing people’s welfare.
This requires the harmonization of social intervention with the economic development efforts.
The social development approach requires that economic development results in tangible improvements in social well being for all, it also requires that social programmes contribute to economic development.
Development social welfare seeks to replace consumption based remedial and maintenance oriented social programmes with interventions that promote economic development.
Social development is not widely known in industrial countries, it is however well know in the developing countries where it has been used with varying success for many years. Social development has been defined as a process of plan social change designed to promote the well being of a population as a whole in conjunction with the dynamic process of economic development. [MIDLEY JAMES 1995 SOCIAL DEVELOPMENT DEVELOPMENTAL PERSPECTIVE IN SOCIAL WELFARE]
Social development seeks to enhance human well being in the context of on-going process in development. Social development also seeks to integrate economic and social policies. It builds economic development and social processes as equal components of the process. The approach is based on the belief that social development cannot take place without economic development and that economic development is meaningless if it fails to bring to being about significant improvement in the well being of the population as a whole.
Social development aims at enhancing the well being of people through harnessing the power of economic development for social ends.
It emphasizes social interventions that transcend (rise above) and established remedial and maintenance oriented approaches by implementing programmes that draw previously marginalized people into the mainstream of the economy. Social development not only requires that social service programmes contribute positively to economic development but also insists that economic development must contribute to improvements in people’s welfare.
Social development emphasizes that economic growth is a pre-requisite for raising standards of living. It should be noted that economic growth itself does not automatically enhance standards of living. Economic growth does not necessarily trickle down to the masses, as it is widely believed by economists and other development agents.
Economic growth should be able to create employment opportunities, increase people’s incomes and raise the standards of people. It is the failure to ensure that economic growth reaches all sections of the population that is responsible for the conditions of distorted development and deepening poverty that characterise many countries.
The problem is not usually the absence of economic development but rather a failure to harmonise economic and social objectives and to ensure that benefits of economic progress reach the population as a whole.
Like other approaches for promoting social welfare, social development is interventionist in nature and is based on the belief that organized efforts are needed to bring about improvements in social welfare.
The social development does not believe that social improvements occur naturally as a result of market forces or because of individual effort. Instead social development implements various strategies within the development process to achieve its goals.
Different strategies have been used at different times to promote social development. These include government programmes that operate at the level of centralized national planning as well as community-based programmes that involve local people in social development activities.
Other programmes focus on fostering entrepreneurship and the use of economic markets for social ends. These and many other strategies offer a variety of options to integrate social and economic policies and programmes to within a comprehensive development process.
Social development strategies can be classified in terms of their ideological roots. These can be grouped into 3 major categories:
The enterprise strategies are believed by many as the best method of fostering rapid economic growth. Proponents of the enterprise approach believe in the importance of individual effort, the market and entrepreneurship in promoting people’s welfare. This involves policies that strengthen individual capabilities to function in a competitive market situation.
Government is required to engage in institution building that will strengthen the enterprise culture.
In developing countries, the informal sector activities are believed to offer the best hope for the people to generate the income they need to improve their living standards, similar policies for small business development are also promoted in the industrial countries. Proponents of the enterprise approach also believe that government should lower taxes, privatise services and de-regulate the economy so that commercial enterprises can flourish and expand employment opportunities.
Advocates of the communitarian approach believe that communities are best placed to organize themselves and ensure that their well being is enhanced through social and economic development efforts. Communities are not only able to engage in productive activities but they can also exert great control over local resources and affairs. Local people are best able to judge what their needs are and to engage in collaborative effort to meet these needs. By working together, they are also able to secure external resources to promote economic and social development at the local level. This approach has been particularly viable with poor and oppressed communities. It has for example inspired gender activism and women focused approaches.
Women’s groups have for example become very active in social development in recent years both in Africa and elsewhere. Women have formulated gender-backed strategies that address women’s concerns and have emphasized the fact that social progress can only occur if women are fully involved in social development endeavours.
They are based on the belief that social development can best be promoted by governments and their specialised agencies. Drawing on the socialist idea, the state embodies the interests of society as a whole and that it has a responsibility to promote the well being of all citizens. Advocates of Statist strategies believe that governments are best able to promote social development. They also believe that governments are best able to mobilize resources to achieve social development goals. Governments have the authority to ensure that social development policies are implemented because they have the most comprehensive perspective, governments are able to harmonise social and economic policies.
Although the proponents of the above 3 strategies defend them separately and vehemently, no single strategy is able to address all the challenges of social development. There is need to examine the usefulness of each of them and integrate elements of each into social development. Migley points out that different social institutions including the state, the markets and community can be mobilized to promote the attainment of social development goals. He argues that different strategic approaches to social development such as basic needs and community participation emphasise only one of these institutions and that they do not therefore use the full range of possible interventions conducive to human well being. He argues that one strategy should be favoured over the others but different social development strategies be synthesized within coherent strategic approach that views different strategies as complimentary rather than antagonistic.
Midley’s synthesis is called the institutional perspective. It articulates a comprehensive and pragmatic approach to social development that not only harmonises economic and social interventions but also gives appropriate emphasis to different normative differences. Because the institutional perspective is comprehensive and pragmatic, it is conducive to mobilizing a variety of programmes and policies that can enhance people’s welfare within the context of a dynamic process of economic development.
In order to foster the harmonization of different social development strategies, governments are required to play an active role in managing and co-ordinating their implementation. Governments need to direct the process of social development in ways that can maximize the participation of communities, the market and individuals in the development process.
In addition to facilitating and directing social development, government should also contribute directly to social development through a variety of public sector policies and programmes. The institutional perspective is also characterized by an emphasis on materialism. While much of the literature on social development tends to emphasise non-material activities, the institutional approach emphasizes the promotion of people’s material well being.
Non-material strategies in social development are concerned with individual growth and actualisation, quasentisation, participation and promotion of community solidarity.
While these are implemented, the institutional model focuses primarily on the ways people’s incomes can be raised, standards of living enhanced and material well being improved.
Monday 18th October 2004
In addition to its comprehensiveness, fragmentation, pluralistic nature and emphasis on material welfare, the institutional perspective has 3 key programmatic features:
1. It seeks to get original frameworks by which an integrated economic and social development process can be implemented.
2. It seeks to ensure that economic development has a positive impact on the well being of the people.
3. It promotes the formulation and implementation of social policies and programmes that contribute positively to the economic development. All these 3 features are intended to foster the integration of the economic and social dimensions of a balanced development process that enhances human welfare.
The institutional perspective requires an organisational framework that can promote the attainment of social development goals. This involves the creation of organisations/agencies that can assume responsibility for social development programs. While social development strategies were previously formulated and implemented exclusively by government agencies, there is now greater recognition today that the Statist approach was excessively centralised and it did little to acknowledge community and other non-governmental efforts. The limitations of the Statist approach have been acknowledged and greater emphasis is placed on community based interventions as well as policies and programs that promote opportunities for people to use the market more effectively.
Organisations are still needed to facilitate, coordinate and harmonise the activities of diverse groups involved in social development. In the absence of an appropriate organisational framework it is likely that social development efforts will be fragmented, disorganised and inefficient. The institutional approach requires that overall responsibility of managing and integrated economic and social development system be entrusted to a government agency that is responsive to the interests of the diverse groups involved in social development. It is important that organisational frameworks be created to enhance collaboration between economic development agencies and organisations that are responsible for social service policies and programs. Unfortunately in many countries economic development agencies have no on-going projects let alone, a close working relationship with social welfare agencies. If social development is to be successful, economic development and social agencies must work closely together. It is also important that any national agency that is established to direct, facilitate and coordinate social development must recognise, respect and seek to harmonise the efforts of different organisations responsible for implementing the various strategic approaches described earlier. Such an agency should acknowledge the validity of different approaches and seek to foster their implementation.
National Planning Authority is new. It is supposed to take over the planning arm of the Ministry of Finance.
In addition to facilitating and coordinating the activities of different organisations involved in social development, a national development agency should ensure that appropriate emphasis is given to development efforts at local, regional and national levels. The integration of economic and social development at different levels is another feature of the institutional approach. In the past, in Uganda, social development efforts were focused mainly at national level. Today more emphasis is based on strategies that operate at district and local levels through the decentralisation policy. While social development should not neglect the national level, the institutional perspective requires that social development policies and programmes be formulated and implemented at local levels as well and that these efforts be harmonised within the wider framework of national social development policy.
A second programmatic feature of the institutional approach to social development is its attempt to ensure that economic development directly improves people’s welfare. While many countries have experienced satisfactory levels of economic growth over a considerable period of time the development process has often been distorted benefiting only a section of the population and leaving large numbers of people in poverty. Unfortunately distorted development is widespread and exists not only in the developing countries but in the industrial nations as well. One major reason for this situation is the exclusion of sizeable sections of the population from participating in economic development. It is now widely recognised that conventional development models that rely on investments in industry to create economic growth do not absorb labour sufficiently to ensure that the population as a whole participate in the economy. In the developing countries, the majority of people continue to live in poverty in the rural areas where they depend on subsistence agriculture for their livelihood. Contrary to the predictions of the economic growth theory, they have not been brought into the modern economy. Economic development in many developing countries, including Uganda, has only benefited those who have secured employment in government, industry, commercial and service sectors. A similar situation exists in some industrial nations where increasing numbers of people are excluded from the economy because they cannot participate in a technologically sophisticated post-industrial society.
In order to remedy the problem of distorted development, economic growth must ensure that the incomes and standards of living of the whole population are raised. Although proponents of social development are critical of conventional economic growth models, they accept that economic growth is a pre-requisite to enhancing people’s welfare. They not only stress the need for growth but also recognise that economic development is the engine of social progress. They believe therefore that governments should adopt measures that enhance economic growth. This involves creating a climate for enterprise by encouraging investment, liberalising trade and removing restrictive regulations that inhibit entrepreneurship.
As already emphasised, economic growth must result in the increased participation of people in economic development and in tangible improvements in incomes and standards of living for all. Most economists believe that wage employment is the single means by which this goal can be achieved. It has been demonstrated that social progress in developed countries is largely attributed to the creation of mass employment in industrial occupations since the end of the 19th Century although it is also true that government social programmes have also contributed significantly to the improvements in the standards of living in these countries, large scale employment creation through economic development has undoubtedly been a major reason for their success.
However, it is now recognised that industrialisation does not magically solve the problems facing developing countries. Studies have shown that industry in some of the newly industrialised countries has only absorbed a relatively small proportion of the labour force in these countries. In many of these countries investments in modern industry has not created jobs on a large scale. Similarly, the capacity of industry to ensure continued mass employment in Europe and North America is now doubtful. For this reason increasing emphasis is being placed on alternative forms of productive labour use. Self employment or employment in small firms or family owned enterprises, is recognised to be an effective means for income generation in both the industrial and developing countries. In developing countries like Uganda, development policies place more emphasis on enhancing self-employment and supporting producers who work in agriculture and in the informal sector of the economy.
In addition to creating productive employment and self-employment, economic can improve human well being by increasing people’s opportunities to participate in the modern economy. One single most important means for achieving this goal is education. Studies have shown that educated people have higher incomes and standards of living. In 1991, the World Bank noted through various studies that an increase in 1 year of formal schooling can raise incomes by as much as 25% eg. In Thailand an increase in one year of schooling among girls raised their incomes by 25%. In addition to benefiting those individuals who have increased education standards, education expenditures contribute significantly to a country’s economic success. As will be shown later in this discussion this is equally true of other forms of human capital investment such as health care and nutrition.
Low educational levels, limited skills and inadequate preparation for employment are major reasons for the persistence of poverty within some sections of societies in industrial nations where the demand for unskilled labour has declined significantly. Because there are few opportunities for inner-city dwellers with low skill levels to find productive work, many turn to crime, drug dealing and other illegitimate economic activities to ensure their livelihood. It is for this reason that social development advocates place great emphasis on education, skills development and job training.
In addition to enhancing opportunities through education, governments can foster the participation of ordinary people in the economy through increasing access to credit for small producers in the informal sector and in traditional agriculture. Subsidised credit programmes and the creation of financial institutions that are specifically designed to meet the needs of the low-income producers are particularly important. Governments and non-governmental organisations can also assist low-income producers by enhancing access to appropriate small-scale technologies that increase productivity. Simple technologies can have a dramatic impact on productivity and often reach many more people than large-scale investments in modern industry.
The development of infrastructure particularly in rural areas is another important means of enhancing participation in the economy. By building feeder roads that improve access to markets, or by providing irrigation that raises crop yields, the incomes of many rural producers are enhanced. These are just some of the policy instruments that can be used to ensure that economic development includes the whole population and enhances the well being of all. While conventional economic models fail to ensure that ordinary people participate in development, these strategies attempt to maximise their involvement. However it must be recognised that the extension of opportunities to participate in the economy is not an easy task. It requires clearly formulated policies substantial resources and political commitment. This is particularly important if the poorest and most deprived groups are to be reached.
Wednesday 20th October 2004
The 3rd feature of the institutional perspective is its preference to social development.
This requires that social expenditures directly enhance economic development. This is know as Developmental or productivist approach. The proponents of this approach believe that social development should go beyond the conventional, remedial and consumption-based approaches and promote economic growth. There are three types of productivist social programmes that positively contribute to economic growth and development. These are:
a. Social programmes that mobilise human capital
b. Social programmes that foster creation of social capital
c. Social programmes that the help the poor and semi-skilled to engage in productive employment or self employment
Studies in human in different countries both in developed and developing countries have demonstrated that investment in education; health care and nutrition promote economic development. Education investments have contributed significantly to the economic successes of the industrial countries and more recent research has revealed that social expenditures have played a major role in promoting both in the newly industrialising nations as well. It is a well-known fact that education increases innovation, entrepreneurship and productivity. Increases in the number of years children attend school add incrementally to both national and personal incomes.
Human capital investments in health care have a similar effect. Although expenditures in human development such as education, health and nutrition can be viewed as a form of consumption, they should also be seen as an investment that produces complete rates of return not only to individuals but also to society as a whole. Human development is a process of enlarging people’s choices. It is essential for people to lead a long and healthy life to acquire knowledge and to have access to the resources needed for a decent standard of living. If these essential choices are not available many other opportunities remain inaccessible.
Social programmes that foster the formation of social capital also contribute to economic development. It is believed that social integration promotes economic development. Studies by Robert Putman and his co-workers quoted in his book of 1993 found that regions in Italy with well-developed civic traditions have higher rates of economic development than those regions where social integration was low. This finding suggests that social programs that foster social integration have a positive impact on economic development. When people form solidarity relationships, they not only interact more frequently but are more trusting and reciprocal. People are more likely to engage in economic exchanges in situations where they trust those with whom they interact. They are also more likely to participate in joint ventures and their ability to find productive employment is increased. If social integration promotes economic development, it follows that social welfare programs that foster social harmony have positive consequences for the economy. Conflict disrupts employment, destroys physical infrastructure and deters investment. Economic difficulties in many countries such as Uganda and many other African countries have been exacerbated by civil wars. Building social capital also includes the creation of social and economic infrastructure such as roads, bridges, irrigation and water systems, health centres, schools and other facilities. These community-held assets are important because they provide the economic and social base on which development efforts depend. Community based developmental programmes can be used to assist persons with special needs such as elderly people, persons with disabilities or unemployed youth by organising them and fostering their involvement in productive activities. Within community settings their needs are more effectively addressed. Building social capital also includes creating opportunities for political, economic and social freedom, which enables people to be more creative and productive and to enjoy personal self-respect and guaranteed human rights.
Social programmes can also contribute to economic development by assisting low income and poorer people to engage in productive employment or self-employment. These programs assist poor people to find employment or engage in activities that are likely to raise their incomes at household level such programmes include functional literacy, vocational education which build skills of the poor and needy people to find jobs or create self employment activities. These developmental interventions make a positive contribution not only to the material welfare of needy people but to economic development as well. While there will always be a need for remedial social welfare to cater for those who cannot engage in productive activities, developmental programmes are important in promoting sustainable social welfare.
While some people in different parts of the world enjoy high standards of living, others live in poverty. This is because of the different historical trends of these nations. The industrial nations of Western Europe, Japan, North America and Australia have the highest standards of living in the world. The improvements that have taken place in these countries are the result of several centuries of change driven by economic development and positive government intervention in social welfare. The industrial countries were able to transform their impoverished agrelian subsistence societies into modern industrial economies characterised by high levels of production and the creation of wage employment on a large scale. As more people found work in the modern sector of the economy, their incomes increased and their standards of living improved. However, these achievements are not only due to economic expansion but to appropriate government intervention. Governments not only intervened to promote economic growth but they created extensive social programs that directly enhanced the well being of their citizens. Both factors transformed these societies and are now responsible for the high standards of living their people enjoy.
Generally, people in industrial nations enjoy good social conditions. They are able to meet their basic needs such as shelter, health, etc. The social conditions are characterised by high Gross National Product (GNP), high life expectancy, high literacy rates, low infant mortality rates, access to facilities such as clean water, health facilities and high nutritional standards. They enjoy social opportunities including quality education, high school enrolment, well-developed tertiary education and high employment levels. It is because of the experience of the industrial nations that the role of economic growth in social progress is widely recognised. It is sustained economic growth that is widely regarded to be the driving force for social improvements. However, as already noted it is also recognised that economic development of itself is not a sufficient condition for social welfare. Some industrial countries have been more successful than others in harmonising economic and social development.
The historical origins of economic and social transformation of the industrial nations are to be found in the expansion of manufacturing and trade in Europe about 500 years ago. The wool trade, growth of urban centres and the mercantile voyages of the 15th and 16th Centuries all laid the foundation for the industrial revolution of the 18th and 19th Centuries. European imperial expansion and colonisation of other societies also promoted economic development. As economic surpluses were invested in new technologies, industrialisation accelerated. Industrialisation created demand for labour and fostered the re-deployment of the labour force from agriculture to industry. With this transformation, wage employment rather than subsistence farming became the primary source of income for most people and the mainstay for their social well being.
Although economic development enhanced people’s welfare, it did not magically transform social conditions. Working conditions in factories were appalling, exploitation was rife, many workers were poorly paid and there were periods of recession when unemployment was high. It was in this situation that industrial workers began to campaign for improved employment conditions and that many governments introduced reforms. Through the agitation of workers and their trade unions, working conditions improved and limited social programmes were introduced.
Pressure for improved social conditions increased significantly in the industrial nations during the 20th Century. The suffering caused by the two World Wars and the great depression fostered the view that governments should take responsibility for enhancing the welfare of citizens. It was during the era of rapid welfare expansion in the years following World War II that major social gains were recorded in the industrial countries. Access to education, healthcare, improved housing, social security and other social services increased significantly and had a major impact on people’s standards of living.
Monday 25th October 2004
The demand side of reform
From the early 1970’s to the mid 1980’s, Uganda suffered severe micro-economic imbalances leading to high rates of inflation and balance of payments deficits as the growth of nominal aggregate demand consistently out-strict the growth of real supply in the economy. Eg. The first half of the 1980’s as inflation averaged 88% per annum, real GDP grew at an average of only 1.3% per annum and there was no growth in investment in real terms. This was mainly caused by poor fiscal discipline on the part of government which printed money to finance public sector deficits which in turn led to large increases in money supply thus fuelling inflation as the growth in output did not keep pace with the growth in money supply.
Over this period too, Uganda’s economy was subjected to too many controls, which severely distorted resource allocation and destroyed incentives for productive activity. Eg. Controls on coffee marketing together with the over-valued exchange rate meant that the firm gate prices which coffee farmers received in terms of shillings fell to levels, which made coffee production unprofitable. As a result, coffee production, Uganda’s main export earner contracted in response to these policy induced price decentives. This was also true for all the other commodity exports, cotton, tea and tobacco. Hence as money supply increased, and as government printed money to finance its expenditures, money demand was shrinking due to reduction in output arising from government controls in other parts of the economy. The end result was a worsening of the macro-economic imbalance. In 1986, when the NRM government came to power, Uganda embarked on radical economic reforms to reverse this trend and to put the country back on a path of macro-economic stability, growth and poverty reduction. The economic reforms implemented in Uganda can be grouped into 3 main categories:
Liberalisation of markets and
Public expenditure reform.
In terms of stabilisation, the instability arising from inflationary financing of public deficits by borrowing from the central bank was only contained in 1993, when government imposed strict control over its expenditures and introduced fiscal discipline. The low rate of inflation achieved since then averaging to 5% per year compared to 110% per annum in the 1980’s, is evidence of the direct link between fiscal discipline and macro-economic stability.
In terms of public expenditure reform, budgetary control has been achieved in two ways:
1. By ensuring that aggregate expenditures in the annual budgets do not exceed the projected budgetary resource envelop ie. By containing government expenditure to a level that is consistent with the money available to it through tax revenue and donor aid so avoiding excessive borrowing from the banking system which is inflationary.
2. By implementing a system of cash management to control expenditures within a fiscal year so that spending cuts are made are made in response to shocks to the resource envelope when this is necessary for macro-economic stability eg. Government responds to a shortfall in expected tax revenue by cutting expenditure rather than covering the shortfall by printing more money, which could generate inflation depending on the size of the shortfall.
In terms of liberalisation, in the 1990’s Uganda implemented reforms to liberalise markets in all sectors of the economy, including the foreign exchange marketing, export and produce marketing and the financial sector. The external trade regime was liberalised with the removal of all non-tariff barriers to imports and the rationalisation of all tariff rates. Government also implemented privatisation by divesting itself from commercial enterprises, which it was running inefficiently. The objective all these reforms was to improve efficiency in resource allocation and to free up opportunities for private sector investment.
As a result of these reforms, Uganda has been able to experience high economic growth at an average of 6.2% per annum since 1987 when it began implementing reforms. However, this impressive record is not a reason for complacency. The country still faces significant challenges in maintaining macro-economic stability. From the late 1980’s through the 1990’s government implemented a series of stabilisation, market liberalisation and public expenditure reforms. To date inflation has fallen from triple to single digit levels; coffee production has recovered in spite of declining international prices; non-traditional exports like fish, horticulture, skins and hides are on the rise. Moreover monetary efficiency and cash flow budgeting has ensured that government not only has clearly set expenditure priorities but also that it lives within the available resource envelope. According to the minister of finance, government is committed to maintaining these policies as a way of ensuring continued macro-economic stability.
The good track record of reforms and government’s commitment to poverty reduction also saw Uganda become the first country in 1998 to benefit from the highly indebted poor country debt relief initiative (HIPC initiative). The creation of the Poverty Action Fund (PAF) to channel savings from the debt service to poverty reducing expenditures has further attracted additional donor funding for spending in poverty reducing programmes over and above the regular programmes funded by donors. Increased availability of donor funds in the last five years has enabled government to expand its expenditures at a fast rate than the growth in domestic revenue. The result was a widening of the overall deficit, excluding grants, from 6.7% of GDP in 1997/98 to 13% in 2001/2002 although it fell to 11.4% at the end of the financial year 2002/2003 as a result of a deliberate fiscal deficit reduction policy stance on the part of government.
The rapid expansion of the fiscal deficit has brought new challenges for macro-economic management in Uganda.
To contain inflation at the single digit levels, the bank of Uganda has to issue treasury bills and sell foreign exchange to mop up excess liquidity generated by government expenditure in the economy thereby keeping the growth in money supply at levels consistent with its demand. As government donor-funded expenditures in the economy have increased, so have its injections of liquidity because every dollar channelled by a donor to the government of Uganda as budget support leads to the creation of the equivalent amount in shillings by the central bank for the government to spend. Bank of Uganda has therefore had to issue more treasury bills and to increase its sales for foreign exchange to mop up the additional liquidity generated by increased donor funding. This has had two effects:
1. Higher interest rates on treasury bills.
2. Increased appreciation pressures on the shilling to the dollar exchange rate.
So what are the implications of the higher fiscal deficit for the economy?
First if the increase in the fiscal deficit leads to an increase to the issuance of treasury bills it crowds out the private sector as the private sector will have to compete for loanable funds with the government. Because government’s securities are generally viewed to be generally less risky by the banking sector, more resources will be made available by commercial banks for their purchase consequently leaving little money for lending to the private sector. As at the end of June 2003, government securities comprised 29% of total commercial banks assets while loans to the private sector comprised 26%. Where as at the end of June 1999, the figures were 14% and 39% respectively.
These figures show the extent to which commercial bank Treasury bill holdings have risen as a percentage of their assets as the government of Uganda fiscal deficit has widened crowding out private sector lending from commercial banks asset portfolio.
As an alternative to selling treasury bills Bank of Uganda can sell more foreign exchange to sterilise excess liquidity created by government’s fiscal operations but this has one major draw back in that it runs the risk of exacerbating real appreciation of the exchange rate to the detriment of the competitiveness of the country’s exports.
To avoid undue appreciation of the real exchange rate, bank of Uganda relies on treasury bills to maintain a balance in liquidity in the banking system after selling the amount of foreign exchange it considers to be compatible with ensuring an exchange rate path that can enable growth in exports. Beyond crowding out the private sector, reliance on treasury bills raises a further problem of budgetary management and high government’s interest posts on its domestic debt. In 1999/2000 domestic interest costs amounted to only 2% of the government’s budget but they had risen to 5.7% in the year 2002/2003 as the treasury bill stock rose from 333 billion shillings to 1062 billion over the same period. This means that government’s resources for spending elsewhere in the economy are reduced by the cost of maintaining macro-stability in the face of a large donor-funded fiscal deficit.
BACK GROUND TO THE BUDGET 2002/2003 and 2003/2004.
Monday 1st November 2004
Given that the current challenges to macro economic management stem from the rapid expansion of the fiscal mismanagement of fiscal deficit in recent years, government has adopted fiscal deficit reduction in the medium term as a key policy. The reduction in the fiscal deficit will enhance macro-economic stability in the following ways:
First a reduction in the fiscal deficit will requires Treasury Bills (TB’s) to be issued to sterilise liquidity created by fiscal operations, therefore decelerating the growth in the stock of TB’s. This will reduce interest rates and free up more funds for lending to the private sector by the commercial banks who are currently the major holders of TB’s.
Secondly, a reduction in the stock of TB’s relative to the growth of assets of the domestic financial system will allow TB interest rates to fall further curtailing growth in government expenditure as interests costs.
Government recognises that a major constraint to economic growth in Uganda is the supply side rigidities and lack of access to markets and as a result is actively pursuing policies to boost the productive capacity of the economy. To this end, government is currently implementing three broad strategies: The Medium Term Competitive Strategy (MTCS) for the private sector; The Plan for Modernisation of Agriculture (PMA) and the Strategic Export Programme (SEP). The vision is for a strong private sector-led, export driven economy where transaction costs are low to enable the country exploit its comparative advantage in key areas such as Value Added Agriculture.
The aim of the MTCS is to promote private sector investments by reducing the barriers that exist to private sector activity. It is a cross-cutting programme with key output areas: Infrastructure development, efficient management of the financial sector, commercial justice, institutional reforms, micro and small enterprises development and trade in a globalised context. The MTCS has been designed to address specific barriers to investment which include:
- Cost of financing macro-economic instability
- Insufficient electricity.
- Access to financing.
- Anti-competitive practices.
- Skills/Education of available workers.
- Economic and regulatory uncertainty.
- Customs and trade regulations.
- Access to land.
- Labour regulations.
- Business licensing.
- Operating permits.
In addition to reducing barriers to private sector investment, government is implementing a Plan for Modernisation of Agriculture (PMA) with the objective of transforming the productivity of the agricultural sector particularly by commercialising smallholder agriculture there by boosting economic growth and increasing incomes of the poor. This strategy is based on government’s belief that modernising agriculture is the fastest way of propelling economic transformation and poverty reduction. The PMA is multi-sectoral with 7 priority areas namely:
1. Agricultural research
2. Agricultural Advisory Services (NAADS)
3. Rural Financing
4. Agro-Processing and Marketing
5. Natural Resource Management
6. District Roads
7. Agricultural Education
To enable government to monitor the PMA’s outputs effectively, given its multi-sectoral nature, an M&E (monitoring and evaluation) framework with specific indicators and benchmarks has been designed. This will strengthen the implementation process of PMA and ensure that it is targeted to achieving the desired outcomes.
The third policy which government is implementing to boost economic growth is the SEP. The SEP focuses on catalysing export production, extracting higher value from traditional exports like coffee, tea and cotton and boosting production in non-traditional exports like horticulture, livestock and fish. Over the last 2 years, total earnings from exports under SEP alone have risen by 22% and are projected to increase by 63% over the next three years.