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Ugandan Finance
Ministry to GFATM: "No Thanks!"
In 2002, Uganda was awarded a $52 million grant from the Global Fund to Fight AIDS, TB and Malaria (GFATM), but the Ugandan finance ministry began to state that it could only accept the money if Uganda cut out $52 million from the existing health budget. The GFATM executive objected to this, since any grant that it awards must be in addition to current government spending. Thus set in motion a controversy which flared until December, 2003, when under public pressure, the finance ministry relented and finally agreed to let the first $18 million installment of the GFATM grant enter Uganda as additional monies to the existing health sector budget. However, senior officials in the Ugandan finance ministry have suggested that the following installments will not be additional. Why would the Ugandan finance ministry take this position? Several important issues have arisen in this case, which stand to have wider implications for many other countries. The first argument offered by the Ugandan finance ministry was that an excessive inflow of foreign aid into Uganda's domestic economy at one time could lead to an increase in the value of the local currency, the Ugandan Shilling, which could increase the spending power and consuming demand of Ugandans. In turn, more spending could lead to higher levels of inflation. This is known as "Dutch Disease," after profits from new oil sales flooded Holland's economy in the 1970s and was correlated with an over-valued currency that made their exports less competitive on world markets. However, the former IMF advisor and Columbia University economist, Jeffrey Sachs, wrote an open letter to the Ugandan Government in 2002 debunking concern over an appreciation of the Ugandan Shilling as the main reasoning of the finance ministry's decision. Sachs pointed out, "the risks of currency overvaluation from donor-financed health spending are way overblown I don't know of a single country case where increased donor-financed health spending to respond to epidemics such as HIV/AIDS has been a trigger for macroeconomic instability. On the contrary, there is real and shocking macroeconomic instability caused by the failure to respond to such epidemics, since these epidemics result in a cascading destruction of families, communities, and businesses." The second reason offered by the Ugandan finance ministry for attempting to turn down the money awarded by GFATM was that the health sector budget ceiling for the current three-year period was already set as a sub-sector within the national budget ceilings that have been agreed upon with the IMF, and they were committed to strictly adhering to the current budget expenditure plans as laid out in their 3-year Medium-Term Expenditure Framework (MTEF). The MTEFs are three-year budget windows used by many governments to ensure strict adherence to spending plans for all sectors in the economy, including the social sectors such as health and education. The MTEFs can be effective at "ring-fencing" or protecting health budgets from over-spending by other ministries. At issue in the Uganda case may well be the rigidity of the fixed budget ceilings for the various sectors in the MTEFs. Because the ceilings for the first of the three years in the MTEFs are not flexible, the Ugandan finance ministry had no way of raising the health sector budget ceiling (thus the overall national budget expenditure ceilings) in order to make room for accepting the GFATM money. To accept the money would have meant violating the strict agreements on the overall national fiscal deficit level, the overall public expenditure level, and possibly the level of inflation that Uganda had committed to with the IMF. So Uganda was faced with a choice of either accepting desperately-needed money to fight HIV/AIDS or violating its loan conditions on the fiscal and monetary policies it had agreed to with the IMF. The IMF's original low -inflation target, to which everything else was subordinated, was not up for debate. Another way of looking at the choice is: Which was Uganda more afraid of an outraged GFATM, HIV/AIDS advocates, and its own citizens or the IMF? Obviously, Uganda was very hesitant to violate its commitments made to the IMF, since the IMF has the power to signal to all of the other bilateral and multilateral creditors and aid donors if it thinks Uganda's economy is appropriately stable. When the IMF gives a green light signal, this opens the doors to millions of dollars from other donors and creditors around the world; but when the IMF gives the red light, aid form all of these other donors and creditors can be suspended. It is the tremendous power of this signaling affect that gives the IMF so much power over the world's poorest countries. One thing that can be done in order to prevent the same problem from occurring in other countries whose finance ministries also use MTEFs is to critically scrutinize the METFs as planning devices, and find ways to make them more flexible so they can positively respond to newly-available and unanticipated funds that may become available during budget planning cycles. But ultimately, it will be the IMF's insistence on very low inflation targets that must be scrutinized and be brought into the center of public debates if countries are ever to be allowed to scale-up public health spending effectively to fight HIV/AIDS. ... What Do the IMF's Low-Inflation Targets Have to Do With Fighting HIV/AIDS? If budget planning begins with the IMF's low inflation targets, then everything else becomes subordinated to those low inflation targets, including how much money will ultimately be available to spend on AIDS. ... ... national and sector ceilings become the basis for planning 3-year budget planning in the MTEFs [Medium-Term Economic Frameworks does not make loans conditional on how borrowing governments decide to allocate funds among their various sub-sectors of the national economy. However the IMF does make loans conditional on not overspending on agreed national budget ceilings, budget deficit limits, and the subsequent impact these may have on the level of inflation. In turn, the health sector spending limits include ceilings on the "wage bill," or the money available for the salaries of public staff, such as doctors or health workers. AfricaFocus Bulletin can be reached at [EMAIL PROTECTED]. Please write to this address to subscribe or unsubscribe to the bulletin, or to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org The Mulindwas Communication Group
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