COVID-19 and its containment measures in Uganda, especially lockdowns, have resulted into new inequalities and exacerbated the existing gaps between the rich and the poor, including the vulnerable[1]. However, a more credible and supportive fiscal policy could reduce the intensity and magnitude of the expected increase in socio-economic inequality.
The government undertook fiscal measures in response to the pandemic including increasing the health ministry’s expenditures, providing food relief and cash transfers, implementing livelihood programmes like Emyooga[2] and deferring the payment of taxes such as Corporate Income Tax, among others. The International Monetary Fund (2021) estimates that Uganda’s fiscal response to the pandemic was US$ 0.9 billion (2.1% of Gross Domestic Product [GDP]) between January 2020 and July 2021. Of this, additional spending or foregone revenue is US$ 0.7 billion (1.6% of GDP) and liquidity support is US$ 0.2 billion (0.5% of GDP).
Despite these efforts, COVID-19 could create new and exacerbate the existing inequalities. While the overall distributional effects of COVID-19 on inequality cannot be estimated accurately at the moment because no one knows when the pandemic will end, some of the pathways including access to education, health care, employment, internet, social protection and food, have already been activated. The poor and vulnerable have been hit hardest by the pandemic and COVID-19 containment measures.
These measures have constrained access to services (education, health care and the internet) and food due to low and declining household incomes, while the limited access to land for food production has exacerbated food insecurity.
The poor and vulnerable are mainly employed in the informal sector, thus are more likely to lose their jobs, yet they have limited access to social protection such as health insurance and social security. Whereas the rich can work remotely, most poor and vulnerable people are in jobs that cannot be done at home. The rich are more likely to benefit from the relaxation of lockdowns because they are mainly in formal employment and highly skilled, hence can easily find or return to work.
Nevertheless, a more credible and supportive fiscal policy can play a key role in alleviating the effect of COVID-19 on inequality.
First, there is an urgent need to continue prioritising and investing in the social services sectors, especially the health and education sector amidst competing fiscal priorities– and speed is of the essence. The government’s efforts to prevent and provide treatment for COVID-19 and other diseases should be intensified– private sector intervention alone is brittle. Strengthening the education system and increasing government support to (and/or scaling up) the Universal Primary and Secondary Education programmes might increase access to education during and after the pandemic.
Second, the government needs to work closely with the non-state actors to invest in and strengthen the existing employment initiatives–more integrated and job intensive interventions are critical. For instance, linking training and skilling interventions to programmes offering apprenticeships, internships, affordable credit and/or grants could boost employment of youth and women, who have been disproportionally affected by the pandemic.
Third, supporting increased access to and usage of the internet and rethinking the tax policy requiring a levy of 12 percent on data is crucial. This will enhance Uganda’s efforts to realise some of the digitalization aspirations (such as increasing internet penetration from 25 percent to 50 percent) enshrined in the Digital Transformation Programme of the third National Development Plan.
Fourth, investing in climate-smart and sustainable agriculture is a no brainer given the increasing food inequality and insecurity. The Economic Policy Research Centre (2018) highlights specific measures to ensure climate-smart and sustainable agriculture, including innovative and affordable irrigation, among others.
Lastly, the government needs to fast track the implementation of the National Social Protection Policy (2015) interventions such as the development of appropriate social security products for the informal sector. This is critical because the pandemic could lead to more work that is informal–largely untaxed, unregulated or not monitored by the government– and vulnerable to health and socio-economic shocks.
The government can implement those proposals without compromising fiscal and debt sustainability through different measures. First, by reallocating expenditure from activities that are not essential in supporting lives, livelihoods and economic recovery. Second, by leveraging partnerships (grants and technical assistance) with the development partners and the private sector, especially in the health and education sectors. Third, by anchoring the fiscal response in the Charter for Fiscal Responsibility (2021/22 – 2025/26) – the government’s strategy is to guarantee sustainable fiscal balances and public debt levels. Fourth, proper fiscal planning and sequencing of interventions are critical to obviate an undue reliance on public debt amidst pandemic-induced uncertainty. Notably, the government does not have to undertake all interventions at once.
Moreover, lessons from the recent fiscal response to the pandemic reveal that its effectiveness was constrained by the poor targeting of beneficiaries (households and firms), corruption, political interference, poor planning and sequencing of some interventions, inadequate transparency and accountability and limited fiscal space. The government needs to address these drawbacks pragmatically and boost domestic resource mobilisation efforts.
In conclusion, a renewed, credible and supportive fiscal policy is critical in curtailing further increases in inequality. Countries rarely achieve greater equality in the absence of strong and well-targeted fiscal interventions. Therefore, government indecisiveness might fuel pandemic-induced uncertainty and socio-economic inequality.
Footnotes
[1] Vulnerable groups mainly include youth, women, children, the elderly and persons with disabilities.
[2] The Presidential Initiative on Wealth and Job Creation with two major components: a funding component to provide seed capital for special interest enterprising groups (implemented by the Ministry of Finance) and a component focusing on the establishment of zonal artisan parks (implemented by the Office of the President).