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3.5 Composition ofthe Development Grants

TABLE 3.5 Composition ofthe Development Grants

Budget 2001/02 Budget 2002/03 Budget 2003/04

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Grants U Sh billion Share (%) U Sh billion Share (%) U Sh billion Share (%)

LGDP nonsectoral discretionary grant 32.0 22.1 41.9 27.4 65.0 34.7 Primary health care grant 11.0 7.6 7.6 5.0 9.2 4.9 School facility grant 55.0 37.9 53.8 35.2 59.8 31.9 Road maintenancea 12.5 8.6 10.5 6.9 9.3 4.9 Water and sanitation development grant 23.0 15.8 24.5 16.0 29.6 15.8 Netherlands development grant 11.0 7.6 8.7 5.7 0 0 Other sectoral grants (National Agriculture Advisory Service and research) n.a. n.a. n.a. n.a. 9.6 5.1 Other nonsectoral grants (such as

Programme for Modernisation ofAgriculture) n.a. n.a. 5.7 3.7 5.0 2.7

Total development grants 144.5b 100 152.7 100 187.5 100

Source: Steffensen, Ssewankambo, Tidemand, and others 2002, annex 2; LGFC 2003. Note: n.a. = not applicable. Totals may not equal 100.0 because ofrounding. a. Fifty percent ofthe road maintenance grant is estimated to be for development. b. Based on analyses ofdata received from the MoFPED, FY 2001/02 and FY 2002/03 budget figures. 120

Jesper Steffensen

Local Government Organization and Finance: Uganda 121

characteristics that deserve further comment,illustrated by the experience with LGDP.

One ofthe major achievements ofthe LGDP13 is the successful piloting ofthe central government transfer ofdevelopment funds to local governments based on a link between development grants,capacity-building grants, and a performance incentive system (see Steffensen,Ssewankambo,and van’t Land 2002).Discretionary development funds have been transferred to local governments to the tune ofUS$1 to US$1.50 per capita through unique modalities.Apart from the smaller pilot schemes in agriculture,the LGDP has been the only mechanism through which discretionary development funds have been transferred to lower levels oflocal governments.The major characteristics ofthe grants are summarized in box 3.3.

The experience with the LGDP has been promising,and the benefits have been tested and proved in various studies (Donor Sub-group on Decentralisation 2001;Steffensen,van’t Land,and Ssewankambo 2002).It is,for instance,interesting to observe that the local governments have used the local development grant in areas ofparticular importance for the implementation ofthe national poverty reduction strategy (roads,education, water and sanitation,and health),and the annual assessments oflocal governments have put performance development on the agenda.

Equalization grants Equalization grants were perceived to have a significant role and were even detailed in the constitution.They were introduced in 1999/2000 and initially covered 10 districts (at U Sh 2 billion).Some U Sh 500 million was set aside for areas affected by insurgency.The coverage has gradually expanded to 34districts,6 municipalities,and 34 town councils in FY 2003/04.A complex distribution formula captures the expenditure needs oflocal governments (land area,kilometers ofroads,and so forth) and proxies for their revenue-raising capacity.

Equalization grants are nonsectoral grants to support the weaker local governments.However,their size (only U Sh 4 billion,less than 1 percent of all grants) and the actual use ofthe funds have limited their role and effect.In addition,the grants have been criticized for being scattered across too many local governments,for lacking focus,and for lacking monitoring and followup.Finally,their link to other grants has not been clearly worked out.Some of the sectoral grants have poverty and needs-based criteria as well.According to the original calculation ofthe equalization grant in 1998/99,at least U Sh 12 billion should have been granted to equalize the differences in expenditure needs and revenue potential;however,less than U Sh 4 billion was granted.

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