Public Financial Management and Local Economic Development in Uganda: The Moderating Role of Institutional Capacity

Effective public financial management is essential for translating public resources into local economic development, yet inefficient expenditure and weak fiscal decentralization may limit the benefits of government funding. Institutional capacity may influence how effectively local governments convert financial resources and fiscal responsibilities into development outcomes. This study examined the relationships between government expenditure efficiency, fiscal decentralization, and local economic development, while assessing the moderating role of institutional capacity in selected local governments in Mid Western Uganda. A quantitative, crosssectional correlational survey design was employed, using structured questionnaire data from 385 respondents across Buliisa, Hoima, Kibaale, Kyenjojo, and Masindi districts. Data were analysed in IBM SPSS Statistics version 26 using descriptive statistics and multiple regression with interaction terms to test the moderation effects. The overall model was statistically significant, F(5, 379) = 24.633, p < .001, explaining 24.5% of the variation in local economic development (R² = .245). Government expenditure efficiency was positively associated with local economic development (B = 0.302, p < .001), as was fiscal decentralization (B = 0.170, p < .001). Institutional capacity significantly strengthened both relationships, with positive interaction effects for expenditure efficiency (B = 0.116, p = .007) and fiscal decentralization (B = 0.093, p = .018). These findings highlight the importance of strengthening expenditure management and institutional capacity while ensuring that decentralised fiscal arrangements support local priorities. Together, these measures may help local governments translate public resources into improved economic outcomes.