By Patrick Kagenda
Finance Minister Dr Ezra Suruma tells The Independent’s Patrick Kagenda and Joseph Were why, despite the closure of GTV attributed to the global economic crisis, the Uganda economy is still sound.
Has the closure of GTV led you to change your earlier position that the global crisis will not hurt the Uganda economy?
Our initial statements were based on the observations that our export revenues might be affected and that inflation arising from petroleum and food costs had not yet died down. But our banking system, as far as we could tell, was not directly affected by the foreign banking crisis. We also indicated that we expected inflows from our diaspora to fall, for obvious reasons. Since then, we have noticed more effects, particularly in government revenues. Revenues are at least 15% higher than last year, but we had anticipated growth of 18%-20%. So there is moderation in revenue growth.
How are you planning to deal with that?
If you have budgeted for a certain amount of revenue and it does not come, you cut down your expenditure. Now it so happens that the absorption of resources in some sectors has been a little slower than anticipated. This has partly compensated for our revenue shortages, and has helped us postpone the crisis.
Are you planning a stimulus package?
Most governments are attempting to raise production through infrastructure development, and we had in a way anticipated the problems by increasing our expenditure in energy, road works, educational construction, health and so on. We expect that these expenditures will constitute a stimulus. We reduced VAT on hotel and educational construction. These are important measures in stimulating construction.
What about reducing the cost of money?
The cost of money in Uganda is a fundamental problem. We don’t have a solution of high interest rates. Of course, currently inflation is high at 12-14%. You wouldn’t expect interest rates to be lower than that. But this is a recent phenomenon. In the past inflation was averaging 5% but interest rates remained well over 15%, so that difference is where the problem has remained, and that is why we opened up competition in the banking sector. We hope that in time it can pull the interest rates down.
Does that mean you do not have any new prescriptions?
Last year the Ugandan economy grew by almost 10%; this places us among the top growing countries in the world. Naturally our attitude is to maintain the policies that have enabled these high growth rates. There is a tendency for people to think of growth as magic, but growth is not magic. When you say you have achieved 10%, it’s remarkable.
What are your projections for growth?
We had put 8% for this financial year but we are scaling back to 6-7%.
At the recent budget consultative meeting, you said people were not adhering to the budget. What did you mean?
I said the rate of implementation was disappointing, and that whereas people used to say the reason they were not implementing was because they did not have money, now money has been provided. People are not able to absorb it, or are not doing the things they said they would do at the rate at which they said they would do them.
We spoke to people after that meeting who said this is your usual talk ” but you don’t bite.
I am finance minister, and my work is to collect revenue and allocate it to sectors that should implement. But we are being a bit more assertive in terms of monitoring and accountability, and you may have noticed that we were a little bit harder than usual in our consultative framework. We did not gain many friends, but we have to say certain things to wake people up. If we have given you a certain amount of money and you have not accounted for it, we will not give you more.
Why are you moving economic planning and implementation to sub-county level?
We want to meet the needs of the individual citizen. That individual is in the household. We want household income to rise. The household exists in a community, the village, the parish, the sub-county.
Some claim you are using this as a way to tax the informal sector.
Since I became minister in 2005, I have consistently said that people should not be fearful. Taxation is based on income; I am not going to tax people who don’t have income. My primary interest is in increasing the incomes of the Ugandan people. When they have reached the threshold, they will pay taxes. You can’t say don’t develop Uganda because people will have to pay taxes.
GTV collapsed and there was no statement from the ministry of finance. What if a bank closes?
People start businesses every day in every district in Uganda. Some of them fail. If you want me to issue a statement every time a business collapses, it will be my full-time job.
People are concerned about their money in banks. Are you going to reassure them that their money is safe?
They should not be concerned. We have a deposit guarantee scheme. The big depositors are not covered but the majority of people, with Shs 2-3 million, are. The financial sector is special because it takes resources from the public, and with license from government to do so. That is fundamentally different from watching TV. We went through our crisis in the 1990s. Some banks closed and as a result of that lesson we stiffened bank supervision.
NSSF is declaring a loss. Why?
NSSF put some money in shares and their value has gone down. So it’s a book or paper loss, if you like. When you make your report you have follow the values in the market. We hope that the stock market will go back up, and that NSSF will report increased values in future.