Growth, Inequality, Cash Transfers and Poverty in Uganda

Abstract

Uganda has made progress towards the Millennium Development Goal (MDG) of halving extreme income poverty by 2015, but there have been intermittent setbacks to the advances made. The incidence of poverty increased in the period 1999/00–2002/03, before falling significantly in the period 2002/03–2005/06. The findings of this Country Study suggest that poverty reduction is more responsive to changes in growth than to changes in distribution. More importantly, they indicate that any increase in inequality hurts the “ultra’ poor more than the poor. If the current 3.69 per cent growth rate of consumption is maintained, Uganda will be able to achieve the MDG of reducing the share of its population living in poverty by half (to 28 per cent) by 2015. However, it might not achieve its Poverty Eradication Action Plan (PEAP) target of cutting the share to 10 per cent by 2017. If growth in consumption falls, poverty reduction will slow to such an extent that the trend will be upwards. It should also be noted that growth itself will not adequately improve the incomes of less advantaged individuals and households between now and 2015. This paper proposes a direct cash transfer (CT) scheme to curb the further marginalisation of this group of Ugandans. The proposed scheme seeks to reduce the current level of poverty by providing a targeted CT to people living in extreme poverty—that is, those living below the food poverty line. The impact of the transfer on mean incomes is modest, but there are strong and significant impacts on income distribution. The proposed cash transfer should complement the government’s current pro-poor social spending.