This 2003 Public Expenditure Review (PER) report addresses budget process challenges, at both the central and local government (LG) levels, highlighting the progress made, and identifying challenges for the future. The first chapter reviews country economic performance over the previous year and its implications for fiscal performance. In addition to tracking the various macroeconomic indicator trends, the chapter highlights areas of challenge in the economy, and includes an expanded section on the challenges of managing the recent fiscal deficit trends. Chapter 2 discusses the budget process, including issues concerning the preparation of the budget, the roles of the sector working groups, and progress made in the preparation of sector budget framework papers. The chapter also comments on the quality and depth of participation of various stakeholders in the budget process. Chapter 3 addresses budget execution challenges in Uganda during the last budget cycle. Problems encountered in budget execution - non-programmed allocation of resources during the course of the year, budget overruns and cuts, irregular flow of resources, arrears, under- and over-programming elements of the budget - are discussed. Chapter 4 deals with budget efficiency issues, while Chapter 5 addresses deals with LG issues in improving budget processes: budget allocation, execution, and financial management. The results show the heterogeneity of the LG budget and financial management performance, challenges, and the need to benchmark and assist LGs accordingly to make progress in these areas, in the context of supporting decentralization. Chapter 6 concludes with a summary of the main findings of this year's PER and the challenges for the future.