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Submitted by Dino on
Shanta - interesting review. As part of the work on economic growth and fiscal policy we used the MAMS CGE model with the Government of Uganda (you should consult officials also - they eventually ran the model for themselves) to consider what alternative growth paths would imply for the sustainbility of recent high rates of economic growth, and for fiscal strategy. A key conclusion arising from the general equilibrium perspective on growth was that agrarian Uganda would need even more rapid structural transformation and higher export growth to generate jobs outside of agriculture. Without the "double demand for food" produced in Uganda; from both foreigners (exports) and from workers in food processing export industries and services, the real price of agric products would fall more rapidly than the improvements in agric productivity needed to sustain growth with poverty reduction. In turn this growth path would be yet more urban and more infrastructure-intensive than Uganda's recent high economic growth, implying that growth constraints identified in our growth diagnostic work were likely to emerge if Uganda did not invest more heavily in urban transport and in energy infrastructure. Fiscal policy scenarios for financing the required increase in infrastructure threw up some interesting conclusions because of the MAMS link between budget composition and MDG production functions. These were intuitive but not immediately obvious in policy dialogue. First, since much of Uganda's health spending is private, an increase in taxes to finance a deficit caused by increased infrastructure spending (even though tax collection is low as a share of GDP) could reduce health outcomes relative to the status quo by reducing private health demand. Second, despite the assumed existence of Dutch-disease effects of aid, the benefits of relying on aid to finance infrastructure were preferable in growth and welfare terms to relying on taxes. (Bevan and Adam's CGE work for the CEM in fact concluded that Dutch disease effects of aid were offset by productivity-enhancing infrastructure, so long as gestation lags (between the receipt of funding and completion of projects) was minimized). Third, given that Uganda's budget had a relatively high share of "productive" spending, modest efficiency gains in education and health spending could yield higher welfare benefits than feasible cuts in "unproductive" spending. By extending the MAMS simulation period we considered the welfare returns to investments in family planning. (Uganda has the highest youth dependency ratio in the world and the world's fastest growing workforce, making it an interesting CGE case study of demographic dividend).