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Government is `broke’

By Agather Atuhaire

Tough finance law flat-foots Finance Ministry

It is general election time. Politicians need money. But the shilling is fast depreciating. The budget is performing poorly. Although the government has put up Shs 1.4 trillion worth of TBs and bonds, it has attracted interest worth barely Shs 400 billion. Commercial banks, which are the usual customers, are not biting because of a Shilling squeeze imposed on them by Central bank Cash Reserve. Finally, there is little money in circulation as the Central bank, in a bid to prop up the Shilling, continues to mop up excess liquidity.

Add to this mix, a mad crowd of politicians searching for money to finance their election campaigns, and you have a situation where some caution will be thrown out of the window. In the last election in 2011, the government requested and was given a supplementary budget of Shs 600 billion. The move sent the economy into a tailspin as inflation soared to unprecedented levels and the value of the Shilling was eroded.


This time, at the centre of it all is the Secretary to the Treasury, Keith Muhakanizi, who is trying to stabilize the floundering economy. Two years ago, Muhakanizi came into the job promising better budgets and fiscal discipline.

Now, reports indicate that the budget performance is very poor with some sectors utilising almost half of their budget just three months into the Financial Year and others being underfunded.

The budget is released in four quarters where each sector receives 25% of its budget in each quarter. But the ministry of Finance appears to be struggling to release money for the second quarter of the financial year.

In a statement to accounting officers on Oct.05, Muhakanizi announced drastic measures, including a bare-bones expenditure outlay which, he said, has “been adjusted taking into account the prevailing macro-economic conditions”.

“Accordingly, we have not been able to allocate expenditure limits in line with your work plans…” Muhakanizi wrote.

Every budget item has been slashed except salaries and pensions.

Sectors like Agriculture have so far received only Shs 16 billion out of the Shs 479 billion that was allocated to it reflecting only 3.5% of its budget. Even the all-important defence ministry, which has a budget allocation of a whopping Shs 1.6 trillion, has received only Shs 418 billion so far. State House has received Shs 90 billion out of the Shs 253 billion that was allocated to it.

In the past, whenever it faced a financial squeeze, the government would either pass Supplementary budgets, switch money from one vote or department to another, or simply raid the Consolidated Fund account at the Central bank. Now it cannot do any of the above because of a law, the Public Finance Management Act, passed in March. In desperation, the government now wants to amend that law to remove the fiscal disciplinary measures it imposed on itself barely nine months ago.

Tough new law

The current law provides that supplementary expenditure will be financed by money in a newly created Contingencies Fund and does not allow more money being appropriated for supplementary budget or moving money from other sectors.

But a source in the ministry of finance who spoke to The Independent on condition of anonymity because he is not authorized to speak to the media, says there’s no money in the Contingencies Fund account.

The source said Shs 140 billion that was supposed to be put in the Fund was used even before the budget was operationalised.

“The Contingencies Fund was depleted before the Financial Year started,” the source said, “The MPs are the ones who diverted this money to themselves when they appropriated it to their allowances and fuel arrears.”

That is in reference to a July happening when each MP received Shs 100 million purportedly to cater for the arrears in fuel after their fuel allowance was increased from Shs 2,500 to Shs 3,500 per litre. The arrears were backdated to the last four years.

The Minister of State for Finance in charge of Planning, David Bahati, says it is necessary to amend the law “for government to operate smoothly and address the challenges faced in implementing the budget”.

But already, public finance experts are warning that what government is attempting to do would only make a bad situation worse.

Civil Society Budget Advocacy Group Coordinator Julius Mukunda says although the economic conditions are not good, the major force behind the need to amend the law is for the politicians to have cash for elections at their disposal. In other words, a bad short-term objective is pushing a long-term good strategy out.

Lawrence Bategeka, who is an economist and university don, says if the law is amended and more money is poured into the economy, the situation would get worse.

“They will not only be dealing with currency depreciation but inflation as well,” he says.

He also says increased supplementary spending would have adverse effects on the performance of the budget, which it was hoped would improve with the new law.

“Supplementary spending promotes financial indiscipline and budget distortions since it includes cutting the budgets of other sectors,” he says. “This is making a bad situation worse. Unregulated supplementary spending and advances from the Central bank is a recipe for disaster.”

Gov’t wants way out

A source in the ministry of Finance says the government’s hands are tied and that there has to be a way to enable the government to operate.

The source who spoke to The Independent on the condition of anonymity says there are a lot of issues that need to be catered for and therefore require supplementary financing.

The official says that the government has no choice but to create alternative ways of financing supplementary estimates since the government “cannot do without it”. The situation is desperate.

“Right now we already have a request of Shs 70 billion from the Office of the Prime Minister to cater for Karamoja,” he said, adding, “imagine all that even before the el-Nino rains that the experts are warning against start.” With the resistance from Parliament, government might have to devise other means of addressing the situation.

But when MPs were recalled from recess to pass the amendments, they threw them out. Nothing unusual. In the past, the MPs have used similar tactics to raise the stakes and gets inducements from the government.  This is the fifth time the MPs have been recalled since their recess began in August. On most of these occasions, they have been given financial inducements.

In this case, the MPs, like their Civil Society counter parts, pointed at mainly four clauses in the amendment bill before throwing it out.

The MPs are unhappy with a clause that seeks to bypass Parliament in the approval of supplementary expenditure, another on guarantees and advances from Bank of Uganda, and another to remove accounting officers from the preparation of the Budget Framework Paper and replace them with the sector overseer. Finally, there a clause that seeks to repeal the requirement of a certificate of gender equity.

The MPs argue that they cannot remove the words “accounting officer,” which implies there is someone accountable for the resources allocated, and replace it with a vague entity of “sector”.

“Accounting officer is the person legally accountable for a vote so it is not logical to change it to sector,” said Bugweri MP Abdu Katuntu during debate.

Igara West MP Raphael Magyezi also said it would be unwise to remove the accounting officer, the person that is known to be in charge of the sector saying it would make accountability difficult.

“In clause nine of the Act, an accounting officer is the legally accountable for a vote so it is not logical to change it to sector,”he said.

The bill also seeks to amend section 36 of the Principle Act to enable the government to solicit loans without prior approval of parliament.

The Act currently, in section 36 subsection 5 says that the terms and conditions of a loan raised by the Minister shall be laid before Parliament and the loan shall not be enforceable except where it is approved by Parliament, by a resolution.

But the Bill seeks to add a subsection after this saying that a loan raised by the government as a temporary advance by the Bank of Uganda, which does not extend beyond a financial year, shall not require Parliamentary approval.

The Bill also seeks to amend Section 82 to allow the government to get advances from the Central bank. The next proposed amendment even allows the government to get this advance without Parliamentary approval.  Legislators argued that this is unconstitutional because the constitution vests in Parliament the powers to approve all loans and advances sought by the government.

“Clause 8 of this Bill is clearly unconstitutional,” said Katuntu, “Parliament will need to approve guarantees and advances from BoU.”  Makindye East MP John Simbwa also said Parliament cannot surrender its powers to approve monies from the Central bank. “The issue of loans from BoU whether in the short term or long term, I disapprove,” he said.

CSBAG also says it is detrimental to allow the government to get guarantees and advances from the Central bank as and when it wants.

“This will not only undermine the role of Parliament in approving loans but also gives BoU the discretion to print money for fiscal use, which results in increasing inflation and a poor macroeconomic environment as is already being witnessed today,” the group said in its press statement, adding, “This is like giving the government of Uganda a blank cheque without any checks and balances.”

The MPs have vowed not to approve the Bill unless the government allows some amendments. The legislators said that the Bill is unconstitutional and seeks to perpetuate the extravagance of the Executive.

Civil society reacts

The same concerns were shared by Civil Society Organisations under the umbrella body – CSBG. They said, while addressing a press conference to renounce the proposed Bill that an accounting officer substituting the words “Accounting officer” and “Vote” with “Sector” in the preparation of the Budget Framework Paper would absolve accounting officers of personal responsibility in case of financial mismanagement.

The other concern was on the abolition of the certificate of gender equality. The Committee on Equal Opportunities, while appearing before the Finance Committee – the committee that reviewed the Bill, said that abolishing the certificate of gender equity would have an adverse on gender equality and retard the efforts that have been made by the government in that endeavor.

MPs, notably female legislators, also shot down the proposal saying they cannot let the government “spoil what has so far been achieved in fighting for the rights of women”.

Youth MP Monica Amoding, Jovah Kamateeka, the Woman MP for Ruhinda and Oyam South MP Betty Amongi were among the female MPs who opposed the amendment.

CSBAG also outrightly rejected that amendment. The group said that amending Article 13 of the Act to repeal the certificate of gender and equity would affect the struggle and the achievements already made in promoting gender equality.

On Clause Six of the Bill that seeks to amend Clause 25 of the principle Act, the MPs still said they cannot give the government a “blank cheque,” which would encourage the budget indiscipline that was raising a lot of concern before the current law took effect early this year.

Clause 25 of the Act provides for supplementary expenditure and government wants it amended. The section in sub-clause 1 provides that a supplementary estimate be laid before parliament by the minister through a Supplementary Appropriation Bill. But the government wants to replace it with an expression that means that the government will spend the money that wasn’t provided for in the budget without seeking parliamentary approval as long as it can formalise it “within four months after the money is spent”.

The Bill also seeks to repeal sub clause 2 of Section 25, which limits supplementary expenditure to the money appropriated to the Contingencies Fund, which was established to cater for the unforeseen and unavoidable expenses in order not to distabilise the operationalisation of the budget.

The amendment proposes a new sub-clause to clause 25(4a) to provide that if funds in the contingencies fund are not sufficient to finance the supplementary budget, it shall be by a reallocation of the funds of the annual budget.

The amendment would mean that the government is at liberty to divert money from other votes to finance supplementary expenditures if not satisfied by the 3.5 percent of the budget appropriated to the Contingencies Fund.

The issue of supplementary budget had become a contentious one of late in Parliament with MPs saying that the government was becoming “extravagant.”

Previously, the government has been drawing even up to 7% of the budget in supplementary expenditure although section 12 of the Budget Act that was incorporated in the PFMA requires that the supplementary budget does not exceed more than 3% of the entire budget.

In the last financial year, government used over Shs 1 trillion in supplementary expenditures. That translates into 7.9% of the budget.

The officials from the ministry of finance also seemed to have been happy about this clause when the law took effect.

Mukunda says  the government must instill in itself the financial discipline required to stick to the provision of the Act as far as supplementary budget is concerned.

He argues that amending section 25 would  destabilise the economy by re-allocating funds already planned for in other departments to cater for supplementary budget, which is in most cases not urgent and unnecessary.

The group further says the amendment of this Act is unacceptable adding that allowing the government to spend money through supplementary expenditure without Parliament’s approval would perpetuate unnecessary fiscal expenditure especially during election periods where “the appetite to spend is high”.

Some members, including Ndorwa East MP Wilfred Niwagaba, argued that the Bill be thrown out because it contravenes several provisions of the Constitution. Magyezi advised the minister to seek the leave of Parliament to withdraw the entire Bill.

Faced with that impasse, Speaker Rebecca Kadaga ruled that the MPs should go back to recess and would be notified of the day they will be required to come back and resume the debate.

With Parliament putting a strong resistance, the country now awaits the next move from President Museveni.

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