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This chapter identifies three phases in Uganda's transformation from a war‐torn economy into one that has sustained rapid growth and low inflation since 1992. There were two major reforms in the early 1990s. First the parallel foreign exchange market was legalized in 1990. Following the merger of the finance and planning ministries in 1992, a sharp fiscal adjustment established fiscal discipline and reduced inflation to single figures. The second phase was one of unconventional macro policy for the rest of the 1990s. With little scope for monetary policy, low inflation was sustained largely by tight, short‐term fiscal control. In the 2000s, financial deepening and budget reforms have provided a foundation for a more orthodox mix of fiscal and monetary policy.

This synthesis chapter draws out the main findings from the individual chapters. After much agonizing over the direction of economic policy, three fundamental reforms between 1990 and 1992 —legalization of the parallel foreign exchange market, liberalization of coffee marketing, and the establishment of fiscal discipline — brought macroeconomic stability. Together with trade liberalization and privatization, Uganda was set on the road to a liberal, capitalist economy. Concern that growth was bypassing the poor led to a focus on poverty reduction between the mid 1990s and early 2000s. Measures such as decentralization, the Poverty Eradication Action Plan, the Medium Term Expenditure Framework, the Poverty Action Fund, and Sector Working Groups succeeded in attracting increased aid and channeling it into poverty reduction. Sound economic management and a clear commitment to poverty reduction together explain why Uganda was the first beneficiary of both HIPC debt relief and the shift from project aid to budget support. The resulting increase in public service delivery contributed to rapid poverty reduction. The pace of reform has eased since 2002. The chapter concludes by emphasizing the crucial importance of political support for successful economic reform.

This chapter examines fiscal numerical rules and fiscal institutions, and is organized as follows. Section 12.2 explains the theoretical foundations for fiscal rules and their empirical relevance, while Section 12.3 presents the theory behind the need to adopt restraints on the budgetary process. Section 12.4 describes the various forms of rules. Section 12.5 considers a number of arrangements and draws policy implications, while Section 12.6 concludes. It is argued that fiscal rules and fiscal institutions are neither necessary nor sufficient to achieve fiscal discipline, yet they help. A commentary is also included at the end of the chapter.

This chapter provides the institutional and political context for the technical reforms discussed in subsequent chapters. It summarizes the abortive attempts at reform of the Obote II government and discusses changes made by the NRM to the economic institutions it inherited in 1986. The long, heated debate over the direction of economic policy was resolved with the merger of the finance and planning ministries and the establishment of fiscal discipline in 1992. The critical role of the President in key economic decisions such as fiscal discipline, the commitment to poverty reduction, and the sale of Uganda Commercial Bank is highlighted. The role of Parliament has increased with the restoration of democracy. The chapter also examines how the finance and planning ministry became one of the strongest in Africa.

This chapter examines recent institutional reforms specifically aimed at fostering fiscal discipline and counter-cyclicality in the aftermath of the 2007 financial crisis. It begins with an overview of fiscal institutions, especially in the European Union, before and during the crisis and their shortcomings in terms of fiscal governance. It then considers key aspects of recent institutional reforms related to numerical fiscal rules, nonpartisan fiscal agencies, and major public financial management features. The chapter argues that the mixed results obtained with fiscal policy rules in the run-up to the 2008 to 2009 crisis have favored the emergence of a new generation of institutions. For instance, fiscal rules are now designed to better respond to cyclical output movements and are equipped with explicit enforcement mechanisms. In addition, the growing number of independent fiscal councils signals countries' interest in other forms of legitimate constraints on fiscal discretion, involving better operation of checks and balances in the political system and greater awareness by the electorate. Finally, these new institutions are backed by public financial management reforms aimed at a stronger medium-term orientation of the budget.

The crisis showed that EMU was not dealing with certain challenges effectively. For EMU to be sustainable as a multilevel system of fiscal and economic governance, it needs to be able to address certain challenges that all federal, multilevel, or fiscally decentralized systems face. This chapter identifies three such challenges: (1) enforcing fiscal discipline; (2) addressing structural asymmetries between different euro area economies; and (3) preventing and countering asymmetric shocks. This chapter analyses the evolution of the EU’s multilevel system of fiscal and economic governance, and the way in which this system has sought to (partially) address these three main obstacles, from the original design of EMU, to the crisis and its aftermath. The chapter shows that there has been a clear evolution in the underlying principles of EMU, or the way in which fiscal and economic integration has been pursued since the creation of EMU to the present day.

Shortly after Mario Draghi took office as president of the European Central Bank (ECB), he called for what he named a “fiscal compact”, a further step towards improving fiscal discipline in the euro area. In response, the leaders of 25 European Union countries soon announced their intention to adopt a new fiscal treaty. This was not the first time that European policymakers had put the emphasis on fiscal discipline as a remedy to the crisis. In the aftermath of the global crisis, the United States and the euro area actually adopted two opposite strategies. In the United States, priority was given to private deleveraging, with bold support from the central bank. In contrast, the drive to consolidate was stronger in the euro area and monetary policy less supportive. Although there are several explanations to this, fundamentally, many in Europe genuinely believed that the euro crisis was essentially rooted in fiscal imprudence. Although it is hard to dispute that countries in the euro area must reverse the drift in public-debt ratios, to tighten aggressively when the economy is already in recession is a risky strategy. Too-early and too-aggressive tightening can result in dreary economic performances, disappointing budgetary outcomes, and public resistance to austerity – the opposite of the intended result. The backlash came in 2013, when austerity started being widely blamed for the continent’s woes.

The conclusion takes stock of the EU’s constitutional architectonic in view of the ongoing tribulations of Economic and Monetary Union (EMU), and assesses the extent to which the EU can fulfill the constitutional desiderata that have been ascribed to it. Since the onset of the financial and sovereign debt crisis, the debate concerning the adequacy of the EU’s mechanisms of democratic legitimation has been eclipsed by a crisis of technocratic competence. More broadly, however, the EU’s system of functional constitutionalism flags a general tension between alternate and occasionally conflicting conceptions of political legitimacy. Citizens of contemporary democracies face a fundamental choice between collective self-rule and technocracy. Far from being sui generis, the EU’s legitimation crisis reinvigorates one of the oldest challenges of political theory: whether government of and by the people is also the most effective use of public power for the people.

This chapter describes two scenarios, the two possible ways in which the final act of the European project plays out. In the first scenario, European authorities remain confident that they have essentially been on the right track and they continue to make modest course corrections, which they believe will ensure a brighter European future. However, the elusive and frustrating pursuit of deeper economic and financial integration causes more economic and political damage. Setbacks and crises recur to test the euro and its accompanying political vision. In the second scenario, the pro-European vision, European authorities recognize the important truth that “more Europe” will not solve Europe's most pressing economic and social problems. They dismantle the economically counterproductive and politically corrosive system of fiscal rules and rely more on financial markets to enforce fiscal discipline. Paradoxically, the euro survives, not because it adds value but because it becomes largely irrelevant.

This chapter provides some observations regarding the evolution of central banking. It is noted that the practice of monetary policy and the scope of central banks have changed over time. The chapter reflects on the path to East African Economic and Monetary Union (EA-EMU). First, how does East Africa stand in terms of economic and financial convergence? Second, what are the milestones of central banking that all central banks of the EA-EMU should master? Third, which monetary lessons could the euro area offer? Fourth, what worked, and has not, in the euro area, what is being fixed? It is noted that East African countries have differences in income per capita, exchange rate volatility, domestic prices, and fiscal discipline. To support sustainable convergence, they should align their monetary policy frameworks and have solid fiscal arrangement.

The chapter covers central bank independence broadly and makes use of rich literature to bring out key issues on central bank independence from the inception of central banking in 1668 to the twenty-first century. The chapter identifies four measures of central bank independence mainly focusing on legal characteristics. The findings of the study point to benefits associated with independence of central banks, including management of inflation. Also, it is found that delegating monetary policy to an independent central bank increases debt sustainability and fosters fiscal discipline. It is noted that central bank independence needs to be reconciled with the requirements of institutional and personal accountability of the governors. Further, the financial regulation role should be strengthened in the mandates of central banks as the objective of price stability does not necessarily foster financial stability.