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Kiwanuka’s Shs 15 trillion budget

By Julius Businge

Budget priorities expected to enhance socio-economic transformation

What should a Shs 15 trillion budget focus on in a country like ours?  A mini survey conducted by The Independent in Kampala on peoples’ perception about the budget found out that they were interested in seeing medicines in public health centres, good roads, reliable power in their homes or factories, safe water, good salaries for teachers and health workers.

Whenever, the minister reads the budget I am always waiting to listen to the provisions for those sectors,” said Robert Kusiima, one of the interviewees.


He explained that when there are good roads, he can easily transport his goods to the market. When there are medicine and health workers, his health condition will remain okay and then be productive. When there is electricity, he will be able to own machinery for value addition. If he drinks safe water, he won’t fall sick to put pressure on health facilities. When health workers, teachers are motivated by a pay rise they will offer the best service.

Kusiima said the agriculture sector needs special attention in the budget making process. “Almost all of us are farmers,” he said, adding we need government to help on the procurement of good quality seeds, support irrigationand help in marketing of our output.

“Middle men are a problem to farmers,” he said, they offer us very little money and go ahead and make abnormal profits. We are tax payers in this country and government has an obligation to provide us with services.

The responses from interviewees appear to be in line with Uganda’s key budget priorities which have dominated the process over the last couple of years.

Government has focused on allocating big shares of the budget on a year-on-year basis in infrastructure and energy (especially roads, rail), security, education and health.

These sectors share over 50% of the entire budget year-on-year. It is widely believed that investments in these sectors, if well managed, will spur inclusive growth and positively contribute to the socio-economic transformation, which is well presented in Vision 2040.

When presenting The State of the Nation Address on June 5, just a week to the reading of the 2014/2015 budget, President Yoweri Museveni insisted he was delivering a speech with a broader picture concentrating on the basic priority sectors which are: agriculture, industry and services. He added ICTs on the list, which has been getting less than 1% share of the entire budget.

He said these sectors are critical for wealth creation and access to employment. Anybody wishing to generate wealth, create self-employment, employ others or access employment has no alternative but choose one of these four, the president said.

The task for the finance ministry and the Uganda Revenue Authority now is to ensure the money is available to meet peoples’ expectations in line with the budget priorities.

Sources of funding

Over the years, government has been depending on the 30% budget support from the donors and mobilizing the largest funding locally through local revenue (from taxes) and from traditional grants and borrowing both internally and externally among other forms of financing including public private partnerships options.

The trend is changing. Donors are starting to withdraw budget support and shifting to project support and off-budget support because of the recent hefty corruption cases and misuse of public funds by some government officials.

During FY 2014/15, a total of US$973 million is projected to be disbursed in form of project support and US$12.6 million as budget support.

The US$12.6 million budget support is lower than US$19.6 million in 2013/14 because of the shift to project support.

Government says external resources have remained an important source of financing the budget and that aid modalities give a picture whether donors trust public financial management systems of recipient countries to deliver their aid.

Domestic revenues are projected to rise to Shs 10. 127 trillion in FY2014/15 from the earlier projected out turn of Shs 8. 57 trillion in FY 2013/14 and rise further to Shs 19. 4 trillion by 2018/19. This would signify an increase in domestic revenue to GDP ratio from 13.5% of GDP in FY2013/14 to 13.9% of GDP in FY2014/15, and to 16.5% of GDP by 2018/19, which is still lower than the average 20% for Sub-Saharan Africa. This trend will enable the proportion of the budget financed by domestic resources to remain at roughly the same levels, 82%.

Government resources will first cater among other things arrears repayments and interest payments over the medium term expenditure framework (MTEF).

It [government] projects to clear Shs 50 billion of arrears repayments in FY 2014/15. Interest obligations on domestic and external debt are projected to increase over the MTEF period, from Shs 975 billion in 2013/14 to Shs 1, 105 billion in 2014/15, and to Shs 1, 322 billion by 2018/19. The increase in interest repayment is largely a reflection of increase in government borrowing to finance the infrastructure gap.

Government plans to spend Shs14, 317 billion during FY 2014/15.

Domestic resources will account for about 82% of the total budget. Of this, URA revenue collections will account for 69% or Shs 9.83 trillion. This means that the government is expecting tax revenue collections to increase by nearly 20% in FY 2014/15. This money will have to be raised from either widening the tax net and a more strict taxman or increasing taxes. Analysts are calling for tax reforms in the country to widen the tax base so that Uganda can drive easily towards funding its budget.

Rolling out the Tax Identification Number (TIN), the National Identity Cards and formalizing payments for workers across all sectors of the economy could easily help the tax man to identify potential tax payers.

The URA and government have embarked on the implementation of some of these policies, and hopefully Uganda’s tax base will widen to help URA battle the ever tax shortfalls.

This effort will require support from both fiscal and monetary policy sides.

The Ugandan economy continues to be vibrant amidst economic challenges and reforms on the local, regional and International scene, according to Bank of Uganda.

The government says the fiscal policy would continue to support monetary policy to maintain macro-economic stability, while at the same time providing resources to address the binding constraints to growth.

The focus here remains on sustaining efforts towards infrastructure development (especially roads and energy) and boosting agricultural production and productivity, which are vital to unlock the growth potential of the economy.

Monetary policy implementers have to ensure inflationary pressures; commercial bank interest rates and the exchange rate among other factors remain controlled within limits that can spur economic activity.

At the end of 2011, year-on-year inflation had jumped to 30%, the highest since 1993 compared to 5.4% recorded in May this year. Bank of Uganda projects inflation will remain low, in line with the medium-term target of 5%.

The Bank’s reports indicates that the average commercial bank lending rates [which are critical in boosting private sector growth] went up to around 27% at the end of 2011 and some parts of 2012 compared to an average of  21.9 %  recorded in March, 2014.

The jump in interest rates was largely attributed to Bank of Uganda’s new policy regime-Inflation targeting lite implemented through the Central Bank Rate (CBR).

The rate works to influence interest rates movements in the market to tame inflation. The CBR went up to 23% in the November 2011, but has since been reduced to 11% [as of June], thanks to lower inflationary pressures.

The exchange rate hit a Shs 2, 900 highest mark against the ‘popular’ US dollar at the end of 2011 compared to the current average of Shs 2, 500 mark.

This ideally translates into reduced prices for imports.  Despite the improvements in these indicators, a bad year-2011 and some months of 2012 reduced profitability of the major sectors including banking, telecoms, manufacturing and the trade and retail sectors which threwURA into deficits for most of the months in FY 2013/14.

But Adam Mugume, the director for research at Bank of Uganda, says in the medium term these indicators would continue to be favorable and would boost economic growth. GDP growth marginally went down to 5.7% in 2013/14 from 5.8% a year before. However, the 5.7% is higher than the 3.2% recorded in 2011/12.

Once these indicators are controlled, other factors constant, the country will have a vibrant private sector, which is the major contributor of taxes that fund the budget.

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