This paper discusses possible approaches for improving the mobilization of domestic resources for development in Uganda focusing on the interrelationship between domestic saving, government revenue, capital accumulation and economic growth. In particular, it highlights the possibility of creating a virtuous cycle of higher domestic saving and investment rates and higher trend growth. Key policy areas for achieving this are related to the development of the domestic financial sector. Improving financial intermediation can be a key factor for raising the level of domestic savings and for their efficient channeling into growth-enhancing investment. However, financial deepening has to reach a certain level before the financial system can intermediate efficiently in channeling savings into productive investment. Hence, assigning high priority to financial reforms in the economy, especially in a country that has not made sufficient progress in this area, may have a mutually reinforcing effect on domestic savings, investment and growth. Another key policy reform area is the strengthening and widening of the revenue base which is still very small compared to other countries in the region. This would also entail enforcing new tax systems and widening the tax net to the largely untaxed informal sector.
North-South Institute, Ottawa, Canada, 50 pp.