FINANCING THE MILLENNIUM DEVELOPMENT GOALS: IS MORE PUBLIC SPENDING THEBEST WAY TO MEET POVERTY REDUCTION TARGETS?

The strategy for expanding public services through donor funding isflawed and is doomed to fail. Donor funding necessitates increasedinternal public expenditure. This shifts resources away from theexport-oriented private sector, which would bring about economic growthand provide a basis for a more comprehensive poverty reduction. Thereare also absorptive limitations in the use of large donor aid. Donorfunds distort Government's budget allocation pattern, cohesion andstability. The funding gap envisaged under MDGs by donor aid advocatesranges between 6.4% to13.6% of Uganda's GDP, which are enormous. Largedonor aid will lead to contraction of the private sector, appreciationof the shilling and falling prices of agricultural produce. It wouldmean that the Government would have to depend on donors for over 60% ofits budget. And yet donor funding is volatile and unpredictable. Thestrategy of achieving MDGs through large donor aid should be abandoned.Instead, as projected in the long-term expenditure framework, Ugandashould concentrate on the current budget policy to increase economicgrowth. In 10 years, revenue will have increased by 150% and healthexpenditure will be about 15% of the Government expenditure.