In May 1987, the National Resistance Movement (NRM) government under the leadership of President Museveni signed an agreement with the International Monetary Fund (IMF) for assistance. The government opted for the ‘shock therapy’ or extreme version of structural adjustment or Washington Consensus. The agreement called for the abandonment of employment policy in favor of disciplining inflation, promotion of economic growth and export-orientation, privatization of state corporations, retrenchment of public servants, and significant state withdrawal from the economy and virtual abandonment of social policy especially in education and health sectors.
Investments in infrastructure and the economy generally declined considerably. For example in 2008 budget allocation to agriculture, Uganda’s economic mainstay, declined from 4.2 percent in 2007 to 3.8 percent against African Union’s 1993 decision to allocate at least ten percent of national budget to the sector.
The government handed over responsibility for economic management to the invisible hand of market forces and laissez faire (let alone) capitalism as required under the neo-liberal economic ideology. A trickle down mechanism was expected to distribute the benefits of economic growth through employment creation in the private sector. As expected under the Washington Consensus the government focused on law and order by investing heavily in the armed forces, police and intelligence sectors to contain any resistance against the harmful effects of structural adjustment. To mobilize resources for this effort, the government had earlier imposed a 30 percent charge for converting old currency into the new notes against the advice of the IMF.
By mid-1990s economic growth had reached the unprecedented level of 10 percent. Poverty, however, did not decline commensurately. In his statement at a conference in Japan in 1998, the Administrator of the United Nations Development Program (UNDP) observed that “Uganda is a leading example of an African country that is doing many of the right economic things to lift its people out of poverty [NRM government’s policy was to eradicate and not reduce poverty]. It has posted growth rates averaging over 6% a year for a decade. Yet two-thirds of the population remains in absolute poverty and per capita income is only now approaching the level it had attained in 1970” (Proceedings of the Development Cooperation Seminar 1998 Tokyo, Japan 1999).
Studies have shown that to reduce poverty economic growth must be combined with social policy, education and health in particular. In Latin America, it has been demonstrated that the number of years of schooling as well as quality and relevance of that training strongly influence a persons capacity to earn income. Those who have attained up to grade eight of schooling get low productivity jobs associated with low incomes and a high risk of poverty. Those with grade twelve and above earn higher incomes as technicians, professionals and managers.
The level of education also impacts positively on health through better health habits including hygiene. The children of better – educated mothers tend to be healthier and fertility rate tends to decrease with education. According to the World Bank improvements in health contributes to economic growth in four ways: “by reducing worker’s sickness, it reduces production losses; it allows natural resources to be used that, due to sickness, were totally or practically inaccessible; it increases school enrolment and improves learning; and it frees resources from combating sickness to alternative uses” (Journal of Human Development Volume 4 Number 1 March 2003 & M. Spence and M. Lewis Health and Growth World Bank 2009).
At country level like Chile, Costa Rica and Uruguay, it was found that there is a positive association between social policy, economic growth and poverty reduction. Governments in these countries have intervened in formulation and implementation of social policy in education and health sectors. This association was not found in Bolivia and Paraguay whose governments did not have a social policy (Journal of Human Development Volume 4 Number 1 March 2003)
.
As Uganda embarks on the implementation of the Five –Year Development Plan, the government should draw a lesson from Chile’s, Costa Rica’s and Uruguay’s experience with the implementation of social policy to speed up the reduction of poverty in Uganda which is still unacceptably high. This would require state’s strategic intervention in the economy and social sectors.