Uganda and the Washington Consensus
In the ten years since President Yoweri K. Museveni came to power, Uganda’s economy has undergone a remarkable transformation from devastation to growth. Following a decade of reforms, Uganda achieved stabilization and managed the ethnic and racial strife that has divided the country in the past. The macroeconomic discipline, driven by the Washington Consensus, steered Uganda toward a more stable economic environment for future growth. In our opinion, the IMF program highlighted the importance of macro-economic tools, relying on market mechanisms rather than excessive government intervention to stimulate growth. Indeed, Uganda presents a successful application of the Washington Consensus.
Our statement is based on the ideology that the market would efficiently allocate and distribute resources, and proper use of fiscal and monetary policies would help to achieve economic stability.
← Fiscal rectitude was the key to macroeconomic stabilization
✓ Government deficit spending was the root cause of macroeconomic instability. Massive military expenditures in the Civil War had inflated the government budget deficit. As a result, Commercial banks were forced to finance the deficit at artificially low interest rates. Loss of monetary control and excessive demand arising from deficit spending was then responsible for inflation, trade deficits and external financing problems.
✓ A restrictive fiscal policy by cutting government spending and raising revenue helped to reduce deficit.
▪ Revenue was increased in part by privatizing public assets. In 1993, total recurrent government revenue had climbed to 9% of GDP. (Exhibit 1)
▪ Tax reform raised tax rates and enlarged the income tax base while the strengthening of the Uganda Revenue Authority (URA) increased the amount of tax collected.
← Structural reform was the route to economic growth
✓ Liberalization of...