FOREIGN AID, EFFECTIVE EXCHANGE RATE AND POVERTY LEVEL IN UGANDA

The rate at which poverty is still continuously increasing in Uganda is at an alarming magnitude despite the high natural endowment and huge funds coming to the country through developmental aids. This study is therefore set out to investigate the effect of foreign aids on poverty level in Uganda using a time frame of 1980-2022. This study used secondary data collected from Word Bank Development Indicator (2023). The methods of data analysis employed include Augmented Dickey Fuller (ADF), Johansen Co-integration test and Vector Error Correction (VECM). The ADF result showed that poverty head count, foreign aids, foreign direct investment, effective exchange rate and trade openness were stationary at first difference (D = 1). The Johansen co-integration technique for both Traces and Max-Eingen Statistics established the presence of two co-integrating equation. The VECM showed that the lagged error correction ECM(-1) was negative and statistically significant with a value of 60.6%. Implying that the disequilibrium that occurred in the model was corrected at an annual rate of 60.0%. Also, foreign aids, foreign direct investment and trade openness were significant and inversely related to poverty head count. This implies that inflow of foreign aid, foreign direct investment, as well as, high export goods reduce the severity of poverty among the people. In addition, effective exchange rate was negative and non-significant at 5% significant level. Therefore, concluded that inflow of foreign aids into the country reduced the severity of poverty rate amongst the citizens. It was therefore, recommended that government should seek for more aids directed towards poverty alleviation programs. Also, government should put policies in place like tax holiday and others to further encourage investors into the real sector of the economy.