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2020 Economic Mkutano

David Bikhado Ofungi

Discussions centres on how to finance local governments

Kampala, Uganda | JULIUS BUSINGE | Optimal funding to local governments is key for the growth of local economies that feed into the national economy, according to David Bikhado Ofungi, the founder and chief executive officer of DERO and curator of the Mkutano, an annual economic forum that gathers leaders to discuss topics related to economic development.

This year’s Economic Mkutano was held in Kampala from Nov.24-25 under the theme; financing local governments’ development plans to achieve the NDPIII and the Sustainable Development Goals.

Ofungi said the ability to collect taxes, levy fees and penalties by local governments would determine their success in providing services to their people.

The challenge, Ofungi said is that most cities including the newly created ones, have ambitious plans amidst having fastest growing populations.

He said these local governments cannot raise money and fully fund their activities. He suggests the need to further embrace public private partnerships and the search for capital within the capital markets.

He also said there is need to amend the local government act to relax the restriction of how much local governments can borrow. Currently, according to the act, they can only borrow 25% of their total annual revenue.

The UN Resident Coordinator for Uganda Rosa Malango said this year’s Mkutano is quite relevant because sub-national/local governments and cities are concerned about the burgeoning infrastructure needs and the need to implement the SDGs at the local level.

Malango said, the theme is in line with the United Nations Sustainable Development Cooperation Framework for Uganda 2020-2025 and with SDG 17 that among others concerns mobilising efforts and creating partnerships for implementation of the SDGs at local level.

With  only  10  of  the  15  years  remaining  for  the  achievement  of  the  SDGs,  Malango said there  is  a  global consensus that  countries  need to  accelerate  the  implementation  of  SDGs.

“While  the  progress towards  SDGs  may  vary  from  one  goal  to  another,  Uganda  has  nonetheless  made  significant progress  towards  the  achievement  of  SDGs  and  has  been  ranked  18th  among  52  African countries,” she said.

She said progress  has been  registered  in  health,  gender  equality,  decent work  and  economic growth,  industry  innovation  and  infrastructure  and  partnerships.

She said the  public  and  private  finance  will  both  be needed –at scale –to meet the SDGs, and that official development assistance can and should  play  a  role  in  catalyzing  and  accelerating  those  flows,  especially  in  risky  and  harder  to reach  local  economies.

In order to improve financing of local governments, Malango said, there is need to improve on efficiency  of  collection  and  management  of  existing  revenues, development of  innovative alternative  financing  options, working  towards  improved  legal  and  policy  regime  for  local governments  to  tap  into  innovative  financing  options and improving on  credit  worthiness.

The other issues that need to be worked on are creating a business-friendly investment environment for the private sector.

The  United  Nations  in  Uganda under  its  current United  Nations  Sustainable  Development Cooperation  Framework  for  Uganda  2020-2025  is financing projects  that are  making  significant  contributions  to improving Urban  governance,  access  to  investment  capital  for  private  sector, infrastructure services and the general required improvements in business environment.

“We will continue to work with Government of Uganda and the Local Governments in not only these areas but bring on board innovative financing instruments,” Malango said.

Pamela Mbabazi, the chairperson board of directors for National Planning Authority, said the major problem confronting local authorities in Uganda is the widening gap between the availability of financial resources and local spending needs.

Mbabazi said the rapid growth of the population is creating an ever-increasing demand for public services, new public infrastructure, and its maintenance as well as other social needs.

She said that during the implementation of NDPI and II, there was dwindling local revenues which are insufficient to finance local economic development and public services in local governments.

Local   governments   in   Uganda   depend   mainly   on   central   government transfers, through conditional and unconditional grants to finance wage, non-wage and development expenses.

The central government grants constitute approximately 90% of the LG revenues and the rest are from locally raised sources and development partners’ contributions.

The vast majority of the fiscal transfers to LGs are conditional in nature and are spent on priorities pre-determined from the centre. The conditional grants mainly finance wage and capital investments of the LGs.

The unconditional grants, while discretionary in nature, are spent in accordance to guidelines also determined at the centre to finance local specific priorities.

The Local Government Act empowers LGs to generate own-source revenues from property taxes, local service taxes, trading licenses, public transport, parking fees, rentals, advertising, ground rent, royalties, and hotel tax.

The current development plan-NDPIII-that is under implementation requires significant  resources  to  the  tune  of Shs411.681  trillion (average  40.9% of  GDP,  annually)  of  which Shs276.878 trillion (average  27.5% of GDP annually) is contribution by the public while Shs134.803 trillion   is   private  sector   contribution   (less   recurrent   private   sector expenditure).

NDPIII  has  indicated  that  the  main  source  of  financing  the  Plan  is  through domestic   revenue   generation   and   consequently   implementation   of   the Domestic Revenue Mobilization Strategy is given priority in order to   improve   tax   administration, policy.

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