The fiscal viability of local governments in Uganda has declined because local governments have increasingly depended on central government for budget support; up from 86% in FY2011/12 to 96% in 2017/18. While own source revenue as a contributor to budgets remains low across the board (average 4%). Own source revenue accounts for 17% and 27% of budget for municipalities and town councils respectively. There is therefore the opportunity for the more fiscally independent local governments to tap into alternative finance to the extent the law allows.

Key services of health, power and education continue to be financed through government agencies and ministries at the centre. The limited resources of local governments in general deter them from pursuing anything of significant scale, and ambition-notwithsatnding the issues that are associated with the supply side of capital. A number of notable local government infrastructure projects are financed by development partners like the World Bank, Japan International Cooperation Agency (JICA), the European Union (EU) among others. External funding provides options to local governments seeking to fund their infrastructure.

The primary and secondary inquiries that inform this study interrogate the framework of local government finance. Provisions around the aspects of legal and fiscal responsibilities and by extension, the services that local governments provide to their constituents are within the framework of devolution. However, complexities arise in practice due to a number of factors. The broad recommendations are:

1. Improve own source revenue for local governments within current framework

2. Address barriers within the existing laws on both the demand and supply side of capital.

3. Assist eligible local governments in tapping into alternative finance using technical assistance and cushioning transaction costs.

4. Develop the enabling legal environment for pooled municipal finance.

5. Create and capitalise a coordinating body to manage the process.