USAID’s Approach to Poverty Reduction
The Case of Uganda
EVALUATION BRIEF NUMBER 8
Summary 
S
tarting in the 1980s, many African countries attempted the kinds of economic
policy reforms that had accelerated growth and reduced poverty in many East
Asian developing countries. Similar successes
did not reward their efforts: in sub-Saharan Africa,
per capita income declined 15 percent and poverty
rates increased between 1980 and 2000. Uganda was
one of the few exceptions to this pattern. 
After years of civil conflict and failed economic poli￾cies, Uganda was ready to try something different.
Starting in 1986, it introduced economic policy
reforms that generated rapid economic growth and
reduced poverty rates, though admittedly from a low
base. As economic growth took hold, the govern￾ment decided to make poverty reduction its overar￾ching objective. All economic policies were designed
with an eye on poverty reduction. The effort success￾fully accelerated economic growth and reduced
poverty rates. 
Uganda’s experience demonstrates that improved
policies and regulations can have a major impact on
poverty. Eliminating inefficient government crop
marketing boards resulted in higher crop prices for
small farmers. A massive road building program
opened up new opportunities and lowered costs for
poor farmers. Universal primary education was
introduced to improve the skills—and therefore the
economic prospects—of poor children. 
The government approached its antipoverty objec￾tive systematically. Starting in the early 1990s, it col￾lected field data on poverty issues and worked closely
with domestic groups and donors to build a consen￾sus on who was poor, why they were poor, and what
measures would improve their welfare. All players
agreed that government policies and programs would
have poverty reduction as their main objective. The
Starting in 1986, the Ugandan govern￾ment introduced broad economic
reforms. It eliminated a straightjacket
of government economic regulation
and control as it liberalized both the
domestic economy and international
trade. In the mid-1990s, the govern￾ment adopted poverty eradication as its
overarching objective. From 1993 to
2000, GDP increased at a remarkable
average annual rate of 6.7 percent, and
the proportion of the population living
in absolute poverty declined dramati￾cally, from 56 to 35 percent.
Uganda demonstrated that sound eco￾nomic policies can accelerate economic
growth and reduce poverty. It also
showed that implementing pro-poor
budget and social policies can help
poverty rates decline at an even faster
rate. USAID supported Uganda’s
poverty reduction efforts, but at times
congressional earmarks created difficul￾ties. They reduced USAID’s flexibility
and made it difficult to support pro￾grams to strengthen the economic and
policy environments that are crucial to
helping the poor. 
KEY IDEAS
JANUARY 2003 BUREAU FOR POLICY AND PROGRAM COORDINATION PN-ACR-354
2 Evaluation Brief No. 8
1997 Ugandan Poverty Eradication Action Plan
(PEAP) included four pillars: 1) rapid and sustain￾able economic growth, 2) improved ability of the
poor to increase their income, 3) good governance
and security, and 4) increased quality of life for the
poor. The PEAP guides government strategic plans,
sectoral plans, and all budget decisions. Strategy
and planning for most sectors occurs in joint work￾ing groups where the government, donors, and
NGOs are represented. 
Though Uganda’s poverty-centered approach has
been highly successful at reducing poverty, imple￾mentation issues remain.
■ Policy reform versus direct assistance. Most
NGOs and some donors are skeptical of policy
approaches, preferring to give assistance directly
to the poor. In Uganda, USAID’s emphasis on
direct assistance to poor people is not an opti￾mal use of resources. Greater long-term impact
could be achieved through more emphasis on
indirect policy and institutional reforms. 
■ Program constraints. Directives from USAID
Washington and congressional appropriations
and earmarks designed to solve specific devel￾opment problems sometimes failed to mesh
with USAID’s Uganda Strategic Plan. In order
to meet Washington objectives, the USAID
Uganda program often invested in second-best
options, resulting in reduced poverty impact. 
■ Economic distortions. Antipoverty programs
need local resources (such as rural health and
education workers, roads, and buildings) rather
than large quantities of foreign exchange. Large
foreign exchange inflows provided by donors
have generated price and trade distortions that
could harm Ugandan exports and investment.
Uganda has been extremely successful at spurring
economic growth and reducing poverty. However,
remaining problems include low productivity (per￾vasive throughout the economy), sagging GDP and
export growth, low domestic savings (6 percent of
GDP), and heavy dependence on donor assistance
(equaling almost 16 percent of GDP). Democracy
and governance problems include political repres￾sion, weak commitment to ending armed conflict
in the north and west, military adventures in near￾by countries, and corruption that has been ranked
among the worst in the world. ■
Background
S
tarting in the 1970s, African countries
watched as East Asian developing countries
dramatically increased their exports, helping
increase employment and reducing poverty rates.
Improved education and health also helped to
reduce poverty. These successes encouraged many
African governments to embrace budget discipline,
low inflation rates, liberalization of their domestic
economies, and trade openness, but they did not
reap comparable rewards. Indeed, from 1980 to
2000, per capita income declined and poverty rates
increased in sub-Saharan Africa. 
Towards the end of that period, The World Bank,
UN agencies, most bilateral donors, and many
developing countries adopted poverty reduction as
their overarching development objective. While
concerned about poverty, USAID’s worldwide
approach has been “sustainable development.”
Poverty reduction is not an overarching goal but is,
rather, an important outcome of sustainable devel￾opment. Some question whether USAID can have
Uganda’s experience demonstrates that
improved policies and regulations can have
a major impact on poverty.
Joseph Lieberson, Team Leader 
PPC, Evaluation Studies Division 
Diane Ray
Academy for Educational Development
Dirck Stryker
Associates for International Resources and Development
Lane Vanderslice
Academy for Educational Development
PREPARED BY
USAID’s Approach to Poverty Reduction: The Case of Uganda 3
an effective antipoverty program if poverty reduc￾tion is not its prime objective. However, others
doubt that donors can have effective antipoverty
programs without sustainable development.
What Is a Poverty Reduction
Approach? 
All agree that it is hard to reduce poverty if eco￾nomic growth is stagnant. Thus, the first step is to
create broad-based economic growth that expands
economic opportunities for the poor. Growth tilt￾ed in favor of the poor reduces poverty even faster.
The vast majority of the poor live in rural areas,
and their own labor is their main resource.
Poverty reduction programs, therefore, have their
greatest impact when they are directed toward
labor-intensive growth and when they support
farm and nonfarm activities upon which the 
poor depend.
Lynn Salinger and Dirck Stryker found that a
poverty reduction approach must spring from an
analysis of what keeps the poor poor, a determina￾tion of where they live, and assessments of their
economic and social conditions.1 Solutions to
poverty include economic policy reform as well as
investments in basic education, health, and clean
drinking water—all of which help the poor increase
their productivity. Poverty reduction also requires
investment in infrastructure such as roads and 
market centers. Improved personal security and
reduced civil conflict not only improve public wel￾fare but increase economic growth. And finally, a
poverty reduction approach must involve the poor
in program decisions. Uganda closely followed this
poverty reduction model. 
About This Study
Using the poverty assessment methodology devel￾oped by Sleeper and Salinger,2 the evaluation team
analyzed how USAID adapted its program to help
Uganda meet its poverty reduction objectives. The
study addressed the following questions:
■ What is the Ugandan government’s approach to
poverty reduction, and how was it designed?
How is it being implemented, and how success￾ful is it? 
■ To what extent is USAID’s sustainable develop￾ment approach consistent with Uganda’s pover￾ty reduction approach? To what extent has
USAID followed or modified its approach? 
■ What is USAID doing differently in a country
like Uganda, which is following a comprehen￾sive poverty reduction strategy?
■ Have congressional earmarks helped or hin￾dered USAID’s approach to reducing poverty in
Uganda? In what ways? What would be differ￾ent if there were no earmarks?
■ Would USAID’s allocations by development
sector be different if poverty reduction were
USAID’s overarching objective?
■ Would the selection of activities and projects
within each sector be different if poverty reduc￾tion were the overarching objective?
The assessment team included a team leader, an
economist, a health and education specialist, and a
specialist in democracy/governance, environment,
conflict, and gender. Data and documents were
collected from USAID, the Government of
Uganda, and the World Bank. Interviews were
held with program and technical staff of USAID
and other donors, and with representatives of the
Government of Uganda, the private sector, NGOs,
and civil society organizations. The analysis for this
report was completed in February 2002. ■
A poverty reduction approach must spring
from an analysis of what keeps the poor
poor, a determination of where they live,
and assessments of their economic and 
social conditions.
1 Lynn Salinger and Dirck Stryker, Comparing and Evaluating Poverty
Reduction Approaches: USAID and the Evolving Poverty Reduction
Paradigm (Cambridge, MA: AIRD/CDIE, 2001). PN-ACN-169. 2 Jonathan Sleeper and Lynn Salinger, Fieldwork Methodology for a
CDIE Assessment of USAID and Poverty Reduction Approaches
(USAID/PPC/CDIE, 2001). PN-ACR-444. CDIE, the Center for
Development Information and Evaluation, is now the Office of
Development Evaluation and Information (DEI).
4 Evaluation Brief No. 8
The Economic Situation
Economic Disorder and Decline
At independence in 1962, Uganda was a low￾income country. Poverty rates were high,
but people were well fed and per capita
GDP was increasing by 2 to 3 percent a year.
Uganda had one of Africa’s leading universities, and
education and health were both improving. Good
growth rates, low inflation, and balanced external
accounts continued until the late 1960s. The eco￾nomic mismanagement that began in the late 1960s
was compounded by the despotic rule of Idi Amin
between 1971 and 1979. The country suffered
through political instability and repression, severe
economic and governmental mismanagement, and,
finally, civil war. The economy was shattered. By
1986, at the end of the civil conflict, GDP had fall￾en more than 20 percent from its 1970 level.
Inflation was rampant, the currency was grossly
overvalued, and exports had drastically shrunk. 
In 1986, Yoweri Museveni seized power to become
president of Uganda. His administration’s economic
program, based on government control and man￾agement, failed. The government then shifted from
its heavy-handed command approach to a more
market-oriented system. Reforms were encouraging,
but by 1992 the economy was once again in trou￾ble. Coffee export earnings dropped sharply, the
budget deficit ballooned out of control (to 14.4
percent of GDP), and inflation skyrocketed (peak￾ing at an annual rate of 230 percent). More serious
economic reforms were clearly needed. 
The 1992 Reforms
In 1992, the government changed its economic
policy team and introduced a strong macroeconom￾ic stabilization program. Government spending was
sharply reined in, and the overvalued multiple
exchange rate was replaced with a free market rate.
Import and foreign exchange controls were elimi￾nated. Aided by high international coffee prices,
these efforts dramatically reduced inflation rates
and stabilized the economy. 
Government policy reforms continued to liberalize
the economy, encouraging increased agricultural
production and giving a boost to exporters.
Government marketing arrangements for coffee,
tea, and cotton were gradually dismantled. Foreign
exchange allocations became more market-oriented.
Trade liberalization turned the terms of trade in
favor of the rural poor. Smallholder cof￾fee growers received a substantial income
increase from the removal of government
controls on the coffee trade. Within a
few years, stabilization and economic
policy reforms had given a strong boost
to the economy. 
Even strong economic growth did not
quiet arguments from the NGO commu￾nity. Though macroeconomic reform
may have worked, NGOs maintained
that poverty was not being reduced, and
they produced numerous anecdotes on
the suffering of the poor. Indeed, the
NGOs believed that poverty was increas￾ing as a result of economic liberalization.
To counter this argument, the Govern￾ment of Uganda went beyond macroeco￾nomic data to collect and analyze poverty
The Government of Uganda promotes universal primary education and has made
strides in closing the enrollment gender gap. USAID helped design the country’s
educational reforms.
USAID’s Approach to Poverty Reduction: The Case of Uganda 5
data obtained from new sample surveys and village
meetings with the poor. The government also
worked to engage all stakeholders in the policy
process. The approach paid off: at a November
1995 conference of government officials, donors,
and NGOs, discussions based on survey data
helped educate both the government and NGOs,
reducing acrimony and building a consensus on
what was needed to reduce poverty. 
Uganda’s Approach to Poverty
Reduction
Before the 1995 conference, Uganda had a typical
public investment plan with hundreds of discrete
projects. But the approach was piecemeal, rather
than comprehensive or even sectoral, and it lacked
a poverty focus. Inadequate coordination among
stakeholders resulted in duplication and inappropri￾ate sequencing of projects. The end result was little
ownership of the projects by the central govern￾ment, local governments, NGOs, or the supposed
beneficiaries. 
After the 1995 conference, the government shifted
away from a project-driven budget toward a multi￾year, sectoral approach that involved participation
of all stakeholders except the private sector.
Uganda’s broadest development goals were laid out
in its Vision 2025 Statement, whose goal was eradi￾cating mass poverty. Key elements of the govern￾ment’s approach included the following:
■ Poverty Eradication Action Plan (PEAP). The
government produced the PEAP in 1997, after
much discussion and consultation. It called for
a dramatic reduction in the incidence of pover￾ty, from 56 percent in 1993 to 10 percent by
2017. Poverty reduction would be achieved
through rapid and sustainable economic
growth, improved ability of the poor to increase
their incomes, improved governance and securi￾ty, and increased quality of life for the poor. 
■ Macroeconomic measures. Continued macroeco￾nomic stability, low and stable inflation, and a
sustainable balance of payments were indispen￾sable to the realization of PEAP goals. 
■ Poverty Action Fund. The government created
this fund in 1998 to concentrate resources on
poverty. Fund expenditures were targeted to
education, health, water and sanitation, farm￾to-market roads, agricultural extension, and
microfinance. The fund received debt relief
resources as well as a portion of the aid
resources from some donors. 
■ Sectoral action plans. These plans were based on
the PEAP, and identified objectives, constraints,
priority actions, and monitoring indicators.
Sectoral plans were prepared for education,
agriculture, health, and the private sector. Plans
for other sectors are being developed. 
■ Medium-Term Expenditure Framework. The
PEAP has influenced the government’s budget
through the Medium-Term Expenditure
Framework. This framework ensured that all
government programs were driven by strategic
priorities and disciplined by “hard budget”
constraints. 
■ Results measurements. These have been used by
the Ugandan government to assess changes in
living standards and performance of govern￾ment programs. They have included the results
of the USAID-supported Demographic and
Health Survey, Uganda’s own participatory
poverty assessment, and a national household
sample survey. 
The World Bank and IMF have defined what 
constitutes a good poverty strategy. They require
developing countries to have their own Poverty
Reduction Strategy Papers (PRSPs) to obtain debt
Many developing countries have great
difficulty meeting PRSP standards.
Uganda’s Poverty Eradication Action Plan,
which preceded the PRSP initiative,
enabled it to be the first country to meet
PRSP standards.
6 Evaluation Brief No. 8
relief. Many developing countries have great diffi￾culty meeting PRSP standards. Uganda’s PEAP,
which preceded the PRSP initiative, enabled it to
be the first country to meet PRSP standards. It is to
Uganda’s credit that its own poverty reduction plan
could be used in lieu of the PRSP. 
Uganda’s Performance
The government began in 1986 by concentrating
on economic stabilization, then moved into an eco￾nomic growth strategy. In the mid-1990s, it added
a strong emphasis on poverty reduction. Uganda
achieved strong economic growth and declining
poverty rates.
From 1992/93 to 1999/00, GDP increased at an
average annual rate of 6.7 percent. Average per
capita income rose by 65 percent, from $200 
in 1990 to $330 in 2000. The proportion of
Ugandans living in absolute poverty declined from
56 percent to 35 percent. Over the last 10 years,
HIV/AIDS infection rates declined by as much as
50 percent at key urban sentinel surveillance sites.
Between 1992 and 1999, net primary school
enrollment rates increased from 51 percent to 84
percent for the poorest quintile. The results also
reflected strengthened partnerships with donors,
NGOs, the private sector, and civil society. The
government included these partners in sectoral
working groups to develop programs that all 
stakeholders would support. 
This rosy picture has a gloomier side. High 6–7 
percent GDP growth rates of the 1990s have
declined, due in part to a decline in the terms of
trade. In 2000/01, real GDP growth was estimated
at about 5.4 percent and is projected at 5.6 per￾cent for 2001/02. Prices for coffee, Uganda’s major
export commodity, were down sharply in 2001 and
2002. Nontraditional exports did not grow fast
enough to close the gap. By 2002, large aid flows
were causing the Ugandan currency to appreciate,
putting the country’s exporters at a further disad￾vantage. Investment, at 13 percent of GDP, is too
low to sustain economic growth rates of 7 percent.
Uganda is heavily dependent on donor assistance,
which equals nearly the government’s entire devel￾opment budget, and is almost 16 percent of GDP.
Uganda clearly needs to mobilize more domestic
resources. 
There are other problems. Long-term armed con￾flict in border areas undermines economic growth
and causes poverty. Low productivity is pervasive
throughout the economy. Agricultural technology
lags due to years of civil war: Uganda has one of
the lowest fertilizer use rates in all of Africa.
Production gains in agriculture have been made
primarily through expansion of cultivated areas
rather than through better management of land
already under production.
Over half of adult women are illiterate. School
enrollment has increased dramatically, but low
quality is a growing concern. Low immunization
rates (just 39 percent of children are completely
immunized), poor nutrition (one-third of children
under age 5 are stunted), high-risk births, and poor
management of preventable illness are continuing
problems. Corruption harms economic progress. In
2001, Uganda had the unpleasant distinction of
being ranked by Transparency International as the
third most corrupt country in the world (after
Bangladesh and Nigeria). There are questions about
the accuracy of Uganda’s rating, but the govern￾ment, donors, and private sector acknowledge that
corruption is a growing problem. 
In summary, there has been rapid economic devel￾opment and greatly improved welfare. Uganda has
created a local government structure to deliver 
services, provided access to primary education for
most children, and reduced the occurrence of
HIV/AIDS. Some of the negatives include the
dominant power of the executive branch, the offi￾cial ban on political parties, a weak commitment to
ending conflict, the persistence of corruption, and
the president’s unwillingness to relinquish power. ■
Uganda is heavily dependent on donor
assistance, which equals nearly the
government’s entire development budget, and
is almost 16 percent of GDP. Uganda clearly
needs to mobilize more domestic resources. 
USAID’s Approach to Poverty Reduction: The Case of Uganda 7
USAID’s Strategic
Approach, 1997–2007
I
n USAID’s 1997–2001 Country Strategic Plan,
poverty reduction was neither an overarching
goal nor an explicitly stated objective.
Individual activities were defined under five
Strategic Objectives and one Special Objective,
each with a separate management team. 
USAID’s Strategic Plan fell out of step with the
Ugandan government’s approach when the latter
adopted its PEAP in 1997. While USAID’s pro￾gram provided benefits to poor people, poverty was
neither an overarching objective nor an organizing
force. In addition, the six Objectives were inde￾pendent development efforts—often referred to
within USAID as “stovepipes.” They were designed
to solve specific problems, and were not linked or
integrated. The six separate Objectives required six
management and implementation teams, a level of
effort hard to maintain in the face of declining
budgets and staffing levels.
USAID responded to the Ugandan government’s
approach with a new Strategic Plan for 2002–2007
that centers on poverty reduction. The new pro￾gram goal is to “assist Uganda to reduce mass
poverty.” Each Strategic Objective is designed to
have an impact on poverty. The new Strategic Plan
also brings an integrated approach to poverty
reduction activities. For instance, it combines
health and education into one program area under
a single Strategic Objective. This recognizes the
need to educate people to build health awareness,
as well as the role of the schools in that effort. After
all, only so much can be done at health clinics once
people have contracted HIV/AIDS or other dis￾eases. Environmental programs are combined with
economic growth programs to encourage sustain￾able land use and to protect the agricultural land
base, vulnerable species, and habitat. Because
armed conflict affects all activities, conflict mitiga￾tion is integrated into all program areas.
Democracy and governance programs are linked to
economic development and to education and
health management. The new Strategic Plan has
three Strategic Objectives rather than six (as in the
1997 plan). This has reduced the management bur￾den and should promote development synergy. ■
Poverty Reduction: Issues
and Findings 
This evaluation confirmed that having sound
economic policies and poverty reduction as
a central organizing principle can have a
significant impact on poverty. 
Making Poverty Reduction an
Overarching Objective
The Ugandan government’s vision, policies, and
budgets are all clearly designed to support poverty
reduction. Working with local NGOs, the private
sector, and donors, the government developed its
poverty reduction plan. The 1997 PEAP estab￾lished the goal of eliminating mass poverty by 2017
and served as the framework for all policy reforms
and public expenditures. The Poverty Action Fund,
Medium-Term Competitiveness Strategy and sec￾toral programs (agriculture, health, education, and
environment) provide the strategic basis for the
three-year budget framework and district and local
government budgets.
USAID’s new integrated Strategic Plan explicitly
supports Uganda’s focus on poverty alleviation. All
USAID strategic objectives are designed to have an
impact on poverty. Data review and interviews with
a broad cross-section of government, the private
sector, NGOs, civil society organizations, and
donors confirm that Uganda is firmly committed to
poverty reduction and that the USAID program
has a sound poverty reduction strategy.
Donors Have an Important Policy
Role
Because the Ugandan government has a poverty
reduction program and is committed to its imple￾mentation, there is a common basis for donor coor￾dination. This is not the case in other countries,
where donors waste time and effort implementing
standalone activities to bypass weak government
leadership. In Uganda, donors sit with the govern￾ment on joint working groups for most sectors;
there are also donor coordination groups. Most
donors design their sectoral assistance around com￾mon sectoral approaches. Several donors provide
budgetary support in lieu of project or sectoral
assistance. Compared to other developing coun￾tries, the Ugandan government plays a much
greater role in setting priorities and managing the
development process.
The evaluation team found that donors clearly
understood and accepted the government’s poverty
program. Each donor also had a good idea of what
other donors were doing, who was chairing which
coordinating group, what types of assistance were
being provided, and what seemed to be working
well. Donors also had strong opinions on the
strengths and weaknesses of other donor programs. 
A further advantage to being part of a donor-gov￾ernment poverty reduction partnership is that it
encourages donors to speak out on policy reforms
that go beyond a project or sector. For instance, at
a September 2001 donor and government work￾shop, they joined in a debate over financial and
personnel management reform, procurement
reform, pay reform, anticorruption measures, and
the need to improve overall fiduciary accountabili￾ty. Donors have also used the partnership frame￾work to press for democracy and governance
reforms and political liberalization. Donors even
speak out on corruption and on political or mili￾tary actions that could harm development. For
instance, Uganda’s participation in civil war in the
Democratic Republic of Congo in May 2000
brought strong rebukes from donors; some halted
funding. Donors were prepared to take action again
when similar fighting appeared imminent in
January 2002. 
Direct and Indirect Approaches to
Poverty Reduction
Examples of aid provided directly to the poor
include immunizing children, providing microen￾terprise loans, or feeding the hungry. By contrast,
indirect approaches benefit the poor by improving
the policies and institutions that have an impact on
poverty. Indirect approaches include broad enabling
actions that promote economic growth, such as
macroeconomic reforms, sectoral policy reforms,
improved governance, and trade policy changes.
Experience in many other countries has shown that
when direct support ends, benefits are often not
sustained. Indirect support that generates policy
and institutional reforms stands a much better
chance of producing sustainable benefits.
In Uganda, indirect measures included eliminating
the government crop marketing controls that had
depressed the income of poor farmers; supporting
universal primary education to give poor children a
chance to gain skills that will improve their produc￾tivity; and decentralizing government programs to
make them more responsive to the needs of the
poor. Such indirect measures clearly had a major
impact on poverty in Uganda. From 1992/93 to
1999/00, the country’s poverty rates declined by
about 40 percent, due primarily to economic policy
reforms that generated rapid economic growth.
Growth was broad-based, rapidly expanding eco￾nomic opportunities for the poor. 
But economic growth cannot do the whole job. It
is hard to keep raising productivity if people are
sick and illiterate. There is a need for direct invest￾ments in human capital (such as education and
health) so that the poor can take advantage of an
improved enabling environment. 
The question remains: How much of the effort
should be through direct measures and how much
through indirect measures? Some donors and most
NGOs are skeptical of the link between economic
growth and poverty reduction. They favor an
approach that delivers services and benefits directly
to the poor. This is in line with the thinking of
many UN agencies. As the UNDP’s 2000 Poverty
8 Evaluation Brief No. 8
A further advantage to being part of a
donor-government poverty reduction
partnership is that it encourages donors to
speak out on policy reforms that go beyond
a project or sector. 
Report notes, “much of the success of national
poverty programs rides on ‘targeting’ benefits to the
poor…. The human poverty approach…shifts the
emphasis…to specific interventions to address spe￾cific deprivations…”2 The demand for direct action
stems from strong disillusionment with trickle￾down as a mechanism for channeling the benefits
of growth to the poor. 
The USAID Uganda program includes large direct
assistance programs, including P.L. 480 food, health,
HIV/AIDS, and microenterprise credits that provide
immediate benefits to the poor. The USAID pro￾gram also provides indirect assistance, including
training and institutional capacity development.
The mission also aims to raise Uganda’s overall
capacity to provide services to the poor through sec￾toral policies in health, education, and other areas. 
The rural sector provides a good example of the
difference between USAID’s indirect approach and
some donors’ direct approaches. Many donors want
to deliver services and benefits directly to low-pro￾ductivity subsistence farmers, who constitute about
80 percent of the Ugandan population. However,
even massive assistance would be unlikely to reach
more than a small fraction of the poor—all the
more so because many of Uganda’s poor farmers
live in relatively inaccessible areas. At best, several
hundred thousand farmers could be helped, but the
national impact would be minimal. It is hard to
increase productivity with subsistence crops. 
By contrast, USAID’s approach seeks to transform
agriculture by the development of policies, technol￾ogy, markets, and incentives that will allow those
who can adopt modern technology and high-value
crops to move out of low-productivity subsistence
agriculture. USAID stresses the importance of pri￾vate sector, off-farm employment generation, the
role of the private sector in agricultural develop￾ment, and the need to improve the competitiveness
of agricultural production, marketing, and exports.
The evaluation notes that Uganda is a big country
with too many poor people to reach all of them
with direct approaches. Even the UNDP, a leader
of the direct assistance approach, seems to agree:
the preface to the 2000 Poverty Report states “con￾fining poverty programs to a set of small-scale—
often disjointed—projects ‘targeted’ at the poor is
not an effective use of resources.” The report con￾cluded that the UNDP needs to be “…more
focused on helping to improve national policy￾making and institutions and less dispersed among
a myriad of small-scale projects.”3 The evaluation
team suggests that the USAID Uganda program,
with its large project component, is leaning too 
far toward a direct, project approach. For example,
previously USAID helped Uganda design its edu￾cation reforms. Now USAID concentrates on edu￾cation projects. It is the same in other sectors.
USAID could have greater long-term impact if it
placed more emphasis on indirect policy and insti￾tutional reforms.
Project Assistance, Sectoral
Approaches, and Budgetary
Support
The choice of assistance type should depend upon
the needs of the developing country and the
donor’s comparative advantage. However, USAID’s
choices are constrained by its budget and program￾ming system.
Project assistance is a standard donor approach. A
development problem is identified, and the donor
provides technical assistance, training, and com￾modities to solve the problem. But if a develop￾ment problem is larger than a project, addressing
the problem may require a sectoral approach. In
this approach, a donor provides money, technical
assistance, or projects to help implement sector￾wide policy and institutional reforms. Budgetary
support is a third option. It makes sense for donors
to provide funds directly to the government if they
believe the recipient country has appropriate poli￾cies and budgetary priorities, as well as satisfactory
management and financial systems. The donor and
host government agree on what needs to be done,
and the host government does it. 
USAID’s Approach to Poverty Reduction: The Case of Uganda 9
2 United Nations Development Programme, Poverty Report 2000—
Overcoming Human Poverty (New York: UNDP, 2001), 82, 83.
<http://www.undp.org/povertyreport> 3 Ibid., 5, 8.
Some donors view the passage from project to sec￾toral assistance to budgetary support as a progres￾sion showing that the recipient has achieved greater
capability to deal with development problems.
Though the country has the capacity to implement
solutions itself, it may still need donor policy
advice, some technical assistance, and, above all,
donor financial resources. 
USAID, the World Bank, and other donors give
Uganda high marks for its poverty policies and
budget framework. Some donors and the World
Bank have switched from projects to financing sec￾tors or the budget. These donors will continue to
work closely with the government on policy and
budget issues, but they will not implement devel￾opment projects. This approach offers management
and financial savings for the donor and even greater
benefits for the Government of Uganda. A cash
transfer means that the government can concentrate
on managing one program—its own—rather than
dealing with the often conflicting demands of
many donors. Previously, the government had to
deal with 50 to100 donor projects, each with its
own donor policies, procurement, reporting, and
financial requirements. 
Donors providing budgetary support acknowledge
Ugandan government management problems and
weak financial controls. They maintain, however,
that policy conditionality associated with budgetary
support and their participation throughout the year
in the budget planning process helps improve gov￾ernment performance. These donors maintain that
they can make a long-term difference by working
with the government as it develops its policies and
budgets—not by implementing projects. As one
said, “Budget support is more efficient than indi￾vidual projects [for both the donor and
Government of Uganda], but most important, it
gets you a seat at the policy reform table. If you are
not part of the budget support process, you don’t
have a chance to influence policy. It’s not the
money; it’s donor coordination and good ideas that
make a development difference.”
However, USAID and most other donors prefer a
mix of project and sectoral support. They have dif￾ficulty linking budgetary support to measurable
results and beneficiary impact. Further, donors have
strong concerns about the management problems
and financial accountability in Uganda, noting that
government financial controls are only fair to good
and are very weak at the local level. Corruption is a
problem, and government political decisions some￾times override development concerns. As one donor
said, “The Ugandan government lacks implementa￾tion capacity, and there are problems with corrup￾tion and financial accountability. With project, and
particularly sectoral support, we can keep a close
eye on implementation and link disbursements to
development and political performance.” 
Almost unique among donors, USAID rarely pro￾vides sectoral or budgetary support—only project
assistance. One observer had harsh words about
USAID’s project approach: “USAID in Uganda
works on symptoms of problems rather than the
underlying problems. USAID has project managers.
They do not deal with all of the development poli￾cy and political issues. USAID does not sit in on all
of the major public sector reform meetings with the
government. That is where the important decisions
are made.”
This criticism is somewhat off the mark. USAID is
the second largest bilateral donor, and the Ugandan
government wants the Agency at the policy table.
USAID participates in sectoral working groups on
agriculture, education, health, and the private sec￾tor. As one of the largest health donors, it is a key
player in health policy formation. USAID also
chaired the last joint education sector review.
Further, the Agency is active on macroeconomic
policy reform and in the formulation of policy
measures that deal with corruption and efforts to
improve governance. In addition to these policy
projects, USAID has developed projects promoting
a strong private sector and open trade policy.
Because a good policy environment is necessary but
not sufficient, many USAID activities help
strengthen local institutions—including civil socie￾ty—so that development can take place.
USAID’s preference for projects is partly the conse￾quence of its budget and management practices. In
10 Evaluation Brief No. 8
USAID’s strategic objective system, results must be
measurable within a limited time period and linked
to USAID’s input. The linkage is difficult to
demonstrate with nonproject support, and there￾fore many prefer projects. The reporting system
determines the type of program approaches—even
if they are not the most appropriate.
Budget Earmarks Limit USAID’s
Assistance Approaches 
The way the U.S. Congress provides funding has
unintended negative consequences. Appropriations
are provided by sector (e.g., child survival, basic
education), along with earmarks for specific sub￾problems (e.g., microenterprise, tuberculosis, vic￾tims of war). For the health sector, Congress specif￾ically directed that assistance be used to provide
services to those in need. USAID is thus not per￾mitted to provide direct support to the govern￾ment’s health budget. USAID might obtain a
greater health impact without that restriction. 
With congressional emphasis heavily on health and
education, other sectors suffer. Though Uganda
needs a strong private sector and democratic
reforms, USAID funding for such purposes is
severely limited. 
USAID budgetary realities also constrain the pro￾gram. USAID Uganda based the development of its
Strategic Plan on extremely thorough analysis that
identified key problem areas as economic growth,
agriculture, democracy and governance, and cor￾ruption. However, earmarked health sector activi￾ties currently consume over half of the mission’s
budget—a much greater proportion than the
Strategic Plan recommended. While all acknowl￾edge that HIV/AIDS is a serious problem in
Uganda, high USAID funding levels may be creat￾ing institutional capacity problems in absorbing
that much money. Based on need and U.S. com￾parative advantage, the evaluation team believes
that non-health programs should be larger than
they now are. 
In theory, program goals should determine how a
budget is designed. In practice, the available budg￾et often drives the program. This problem applies
to Uganda and, apparently, to many USAID coun￾try programs. Congressional budget allocations
and USAID Washington’s own directives trump
field-based needs assessments. Development suffers
as a result.
Donor Funding Affects the
Economy and Export Development 
Uganda is far ahead of most other countries in for￾mulating and implementing major economic policy
reforms and a poverty reduction strategy. As a result,
Uganda has become a favorite of the donors, who
now fund nearly all of Uganda’s development budg￾et. One consequence is that foreign assistance
increasingly drives the economy, even more so in the
past few years because of the collapse of coffee export
earnings. This situation generates several concerns
about the impact of donor funding on Uganda’s
economy, including the important export sector.
Large foreign aid flows affect Uganda’s economy
and, in particular, exchange rates, inflation, and
interest rates. Three factors influence the impact of
such flows.
■ Foreign exchange from foreign aid is converted
into domestic currency. Because most donor
assistance goes to budgetary and sectoral sup￾port, a large portion of foreign aid has been
USAID’s Approach to Poverty Reduction: The Case of Uganda 11
A health worker trains mothers at a clinic in Kampala. In Uganda,
family planning is a lower priority than the struggle against
HIV/AIDS.
converted into local currency to pay for local
development projects. Increased demand for
local currency has caused it to appreciate, mak￾ing Uganda’s exports less competitive.
■ The local currency equivalent of foreign assistance
is used to purchase nontradables (local goods)
rather than tradables (imported goods or goods
that could be exported). In Uganda, there has
been relatively little increase in imports linked
to aid. Most aid has been used for budgetary or
sectoral support, and government expenditures
are heavily oriented toward health, education,
and other nontradables. There is evidence that
increased demand is forcing up the prices of
nontradables relative to those of tradables.
■ The Bank of Uganda affects the appreciation of
local currency through its foreign exchange opera￾tions. Over the years, the Bank of Uganda used
local currency to purchase dollars to avoid
excessive appreciation. More local currency was
thereby put in the market. To mop up excess
local currency liquidity, the bank had to push
interest rates up sharply, wreaking havoc with
financial markets. As a result, the bank decided
in 2001 to allow the currency to appreciate,
boosting the prices of nontradables relative to
tradables. 
Some argue that the appreciation of the real
exchange rate is likely to be offset by productivity
increases in the tradables sector. However, the key
to increasing productivity is building capacity—
some of which will result from public investments
in roads, education, health, and other areas. Such
investments have a long gestation period (five or
more years) before they have any significant effect
on productivity. 
In addition to programs designed to reduce pover￾ty, the private sector needs to expand its ability to
increase Uganda’s exports. Implementation of the
government’s Medium-Term Competitiveness
Strategy for the Private Sector has lagged. Some are
concerned that Uganda’s emphasis on poverty
reduction may divert attention away from creating
an enabling environment that will encourage the
private sector to make the investments necessary to
increase exports. 
The real exchange rate should be depreciating—not
appreciating—in order to move toward equilibri￾um. Uganda depends heavily on coffee export earn￾ings, which are down substantially and are expected
to remain low over the next few years. In view of
the 35 percent decline in world coffee prices from
1999 to 2001, the real exchange rate should have
depreciated by 25 percent. Instead, it has begun to
appreciate. The consequences of exchange rate
appreciation will be felt immediately on nontradi￾tional exports, which generally have more cost-sen￾sitive profit margins than coffee. 
As USAID does not provide budgetary support, the
Agency is not contributing as much as other donors
to the problem of exchange rate appreciation.
Indeed, as part of its decentralization program,
USAID supports training and capacity building.
These activities yield a more immediate economic
payoff for rural investments. However, USAID
needs to monitor the exchange rate situation closely
because currency appreciation can harm private-sec￾tor, export-oriented activities that USAID supports.
When exchange rate appreciation threatens exports,
USAID needs to encourage the government, private
sector, and other donors to address the issue.
Mitigating Conflict Addresses
Poverty Issues 
In Uganda, armed conflict is an important cause of
poverty. Conflict currently occurs in isolated areas
of the north and west, and includes cross-border
disputes. The north has experienced a sharp rise in
poverty, while poverty has decreased nationwide.
Security concerns affect the delivery of government
services, particularly in the north.
Conflict kills or disables individuals and affects
communities on every level. People are displaced,
often settling in camps where overcrowding increas￾es disease and mortality rates. The educational sys￾tem crumbles as schools are burned and teachers
are killed, abducted, or displaced. Poverty is further
increased as homes and communities are destroyed,
along with families’ savings (often in the form of
12 Evaluation Brief No. 8
livestock). Grain stocks are looted, and farming is
adversely affected by loss of draught animals and
increased insecurity. As a result, malnutrition and
food insecurity become widespread.
The psychological effects of conflict are complex:
many victims suffer from posttraumatic stress,
depression, and acute anxiety. Community support
structures are often lost, along with traditional cus￾toms and values. Social breakdown leads to behav￾iors once considered culturally unacceptable—such
as extramarital sex, which increases the spread of
sexually transmitted diseases and HIV/AIDS.
USAID recognizes the crosscutting nature of con￾flict. It is implementing conflict-mitigating activi￾ties as part of its existing programs in democracy
and governance, health and education, and eco￾nomic growth and agriculture.
Decentralization Empowers the
Poor
Decentralization means devolution of power from
the central government to local levels. Uganda’s
Local Government Act of 1997 transferred author￾ity to 56 districts and over 900 subcounties.
Decentralization affects every sector. It has a signif￾icant impact on USAID’s objectives in democracy
and governance and in human capacity building.
In the democracy and governance area, decentral￾ization may empower the poor by increasing com￾munity involvement in local government decisions
and making local governments more accountable
to the needs of the people.
Uganda’s decentralization process created an exten￾sive local government structure. However, a lack of
trained personnel at the local level has created
severe problems with procurement and financial
controls. USAID’s Strengthening Decentralization
in Uganda project is helping build the capacity of
local officials, civil society organizations, and pri￾vate sector institutions that interact with local gov￾ernments. Activities include training, mentoring,
and technical assistance. At USAID, there is cross￾sectoral coordination on decentralization because it
affects programs in the economic growth, health,
and education sectors. 
Decentralization promotes the separation of powers
at the national level. Although the executive branch
dominates Uganda’s political system, constitutional￾ly Parliament represents the people and should pro￾vide oversight. USAID’s Parliamentary Technical
Assistance project assists Parliament in strengthen￾ing its oversight role and connects members of par￾liament with civil society organizations and their
local councils. 
Expanding the Role of Women
Improves Development
Women’s roles in Uganda have increased through
affirmative action programs. Local governments
must fill one-third of their seats with women, and
each district must send at least one woman to
Parliament. Uganda’s vice president is a woman,
and women hold ministerial positions. 
Progress is notable in education, where the enroll￾ment gender gap has been closed as a result of poli￾cies promoting universal primary education.
However, girls’ attendance and performance are
often compromised. Due to their roles in agricul￾ture and in the home, girls are the first to be pulled
out of school. The older a girl becomes, the harder
it is for her to stay in school.
Property rights and health are important issues for
women. Women can buy land, but they cannot co￾own land with men. If a man dies, the land goes to
his sons or brothers, not to his wife. Parliament has
consistently blocked attempts to give women co￾ownership land rights. Uganda’s live birth rate of
seven children per woman is one of the highest in
the world. This large number compromises women’s
health, and maternal mortality remains high. The
Ugandan government is not giving this health and
population issue the attention it deserves.
U.S. Trade Policy Strengthens
Development Policy
In addition to development aid, a donor country’s
trade and other policies can help or hurt a develop￾ing country. A balanced analysis must take into
account their combined effects on development.
Policy coherence refers to the overall consistency of
USAID’s Approach to Poverty Reduction: The Case of Uganda 13
a donor country’s policy objectives and instru￾ments. In Uganda’s case, U.S. trade policy supports
Uganda’s development interests. 
The United States’ African Growth and Opportunity
Act (AGOA) provides an opportunity for African
firms to increase their exports to the U.S. Although
there are source and origin restrictions, AGOA pro￾vides duty- and quota-free access to the U.S. market
for sub-Saharan African apparel—an average 17.5
percent duty advantage relative to non-African sup￾pliers. To qualify, African countries must promote
open markets and political systems, implement poli￾cies to reduce poverty, make efforts to fight corrup￾tion, protect human and workers’ rights, and elimi￾nate child labor abuses. Though Uganda’s strong
reform effort has already qualified it for access to the
U.S. market, an export market is not guaranteed.
Uganda still needs to overcome a number of quality
and management obstacles.
Monitoring Poverty Indicators
Improves Performance
The Government of Uganda has been tracking
poverty indicators for some time. In 2002, it com￾pleted a new poverty monitoring and evaluation
strategy. Monitoring and evaluation will build
accountability by revealing the degree to which
objectives and agreed performance standards have
been met. For beneficiaries, service providers, and
policymakers, the process will also create a flow of
information about what works and what does not.
This will require measuring impacts and evaluating
what caused them to occur.
An important aspect of poverty monitoring and
evaluation is identifying potential users of the
information and the uses to which the information
will be put. These uses include the budgetary
process, in which sectoral working groups and the
Ministry of Finance prepare the Government of
Uganda Budget Framework Papers. Another use is
the poverty reduction evaluation tracked by the
Poverty Status Report, the main document that
outlines progress in reducing poverty. 
The kinds of data collected have an important
bearing on evaluation. For instance, administrative
data are often the easiest to acquire but can be mis￾leading. Administrative data are facility-based (for
instance, a health center), and thus provide infor￾mation only on those who use the facility, not on
those who do not—who often include the poor.
The Government of Uganda recognizes the need to
complement routine administrative data with
national service-delivery surveys and with participa￾tory exercises that focus on beneficiary groups as a
whole. Uganda’s two key sample surveys are the
National Household Survey and the Uganda
Demographic and Health Survey. The former pro￾vides information on household expenditure, which
is used as a proxy for household income. The latter
yields data on key demographic and health indica￾tors. Another source of qualitative information
comes from the Uganda Participatory Poverty
Assessment Project. None of these data sources is
large enough to provide accurate statistics at the
district level, a major problem in view of Uganda’s
emphasis on decentralization. 
14 Evaluation Brief No. 8
Uganda hopes to increase foreign exchange earnings by increas￾ing nontraditional exports such as pineapples. 
Thus far, data gathering and analysis in Uganda
have contributed little to impact assessment. It is
obviously much easier to gather data on inputs, out￾puts, processes, and outcomes than it is to deter￾mine cause and effect. But knowing who benefited,
by how much, and why and how the benefit
occurred is important to improving program man￾agement and development. Without impact data,
the government and donors may bias interventions
toward those that are direct—and therefore easier to
measure— rather than those that are indirect, but
perhaps more important. This is especially true of
some USAID activities. For example, in the area of
economic growth, agriculture, and the environment,
many interventions have an indirect influence on
employment and output, and an even more indirect
impact on poverty. They require analysis to assess
their effectiveness in reducing poverty. ■
Lessons Learned
Economic policy reform that leads to strong
economic growth is essential to increasing
income and reducing poverty. 
Over a six-year period, Uganda steadily removed
government controls as it liberalized its domestic
economy and trade policies. Even poor rural areas
did very well under liberalization. Investment, pro￾duction, and trade increased, due to the decontrol
of trade and exports, the removal of government
corporations from crop and input marketing, and
the lifting of distribution and price regulations.
Uganda’s per capita income rose dramatically: from
$200 in 1990 to $330 in 2000. From 1993 to
2000, the number of Ugandans living in absolute
poverty declined dramatically, from 56 percent of
the population to 35 percent. 
Impressive results are possible when a gov￾ernment is committed to poverty reduction. 
Many developing countries talk about poverty, but
few are as serious about it as Uganda. For political
and developmental reasons, Uganda concentrated
its efforts on poverty reduction. All government
strategies, policies, and budget decisions were
designed to have a poverty impact. The government
worked jointly with NGOs, USAID, and other
donors to develop those strategies and policies.
Uganda demonstrates that a true government com￾mitment to implement a poverty-centered develop￾ment program will result in more efficient use of
donor resources and a reduction in poverty.
USAID’s adoption of one overarching goal in
Uganda—reducing mass poverty—is an excellent
way to support Uganda’s efforts.
Government, NGO, and donor coordination
improves the poverty reduction process and
makes it easier for donors to encourage a
broad range of policy reforms.
Uganda’s commitment to poverty reduction pro￾vides an excellent basis for donor coordination.
Donors sit with the government on joint working
groups for each sector, and most donors design
their assistance around common sectoral approach￾es. These partnerships not only allow donors to
help shape sectoral policy reforms, but to go
beyond a project or sector. The joint working
groups have seen spirited policy debates on finan￾cial and personnel management reform, procure￾ment reform, pay reform, anticorruption measures,
financial accountability, and democracy and gover￾nance. Donors can—and do—speak out concern￾ing corruption and on political or military actions
that could harm development. This is very impor￾tant in a country where civil society is not well
developed. 
A better balance needs to be found between
direct and indirect assistance approaches. 
Aid is provided directly to the poor by immuniz￾ing children, feeding people, or making microen￾terprise loans. Indirect aid changes institutions and
policies that have an impact on poverty. Some
donors and most NGOs favor the former approach
because it targets those most in need. While it may
be satisfying to help those who are suffering by
providing immediate help, direct approaches can
never reach more than a small fraction of the poor.
It may be more cost effective and sustainable for
the government and civil society, rather than out￾side donors and NGOs, to deliver direct assistance.
Moreover, direct approaches may deflect attention
and resources away from the need for indirect
measures that promote an enabling environment
USAID’s Approach to Poverty Reduction: The Case of Uganda 15
2
3
4
1
for private-sector investment, exports, and eco￾nomic growth. In Uganda, USAID should consid￾er putting more resources into indirect assistance
approaches that expand opportunities for the poor
to move out of poverty. 
Congressional earmarks and directives
strongly influence USAID country strategic
choices. 
In Uganda, one result of congressional earmarks is
to skew USAID’s assistance toward direct assistance
rather than to indirect approaches that can have a
much broader impact on poverty. Earmarks also
direct funds to activities that do not have a major
impact on poverty. These problems are not limited
to Uganda; this is a worldwide issue that needs to
be addressed in Washington, DC. USAID could do
a better job on poverty reduction if there were
fewer congressional restrictions and directives.
High levels of donor aid can help as well as
hinder development progress. 
Large donor funding has allowed Uganda to
implement structural economic reforms and a
major decentralized poverty strategy. The strategy
has had an important impact on poverty, but the
effort is in danger of being undercut by inadequate
implementation capacity, including weak institu￾tions, insufficient manpower, and lack of accounta￾bility. Large foreign exchange aid inflows to cover
mainly local costs have forced interest rates up and
caused the currency to appreciate. This has the
potential to frustrate USAID’s emphasis on
strengthening private-sector development and
export competitiveness. ■
16 Evaluation Brief No. 8
5
6
About this publication: IBI–International Business Initiatives furnished editorial and production assistance for this publication. More 
detailed data and analysis are available in the companion piece to this publication, which is listed in the box above. 
To order copies or download: These documents can be ordered from USAID’s Development Experience Clearinghouse (DEC). To order or
download, go to www.dec.org and enter PN-ACR-354 as the document identification number in the search box. The DEC may also be 
contacted at 1611 N. Kent St., Ste. 200, Arlington, VA 22209; tel 703-351-4006; fax 703-351-4039; email docorder@dec.cdie.org.
Photo credits: Page 4, Julie Owen-Rea, USAID; Page 11, Hugh Rigby, M/MC Photoshare <www.jhuccp.org/mmc>; Page 14, Joseph
Lieberson, USAID. 
Evaluation Briefs on USAID’s Approach to 
Poverty Reduction 
Honduras (PN-ACR-351)
Mali (PN-ACR-352)
Romania (PN-ACR-353)
Uganda (PN-ACR-354)
PPC Evaluation Working Papers on USAID’s
Approach to Poverty Reduction 
Honduras (PN-ACR-481)
Mali (PN-ACR-482)
Uganda (PN-ACR-483)
Evaluation Briefs provide summaries of key findings. Evaluation Working
Papers provide additional background information and data.
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