Challenges for new leaders
The good news is that if any changes occurred now, they would be occurring at a good time.
The economy has an upswing or as Finance Minister Matia Kasaija put it recently; “the economy is on wheeeuuuuu!”
In case you missed it, the Minister was on Jan.09 speaking to journalists at the Uganda Media Centre in Kampala.
“I want to assure you now and assure the country now,” he said “the economy is on wheeeuuuuu!”
He matched the whistling sound with a swing of his right hand upward as if imitating an airplane taking-off mode. Once again it was clear that had not made it into politics, Kasaija might have made a successful comedian. But even in politics, he finds a way to display the talent. In any case, no one could miss the message.
Within days Twitter had exploded with memes of Kasaija’s comedy which trended for weeks on social media and in conversations on the economy and even other things. He awakened many who appeared to have given up on Uganda’s economy after a stretch of poor performance.
But while it is the way that Kasaija made his point that mostly made the news, the Finance minister set the stage about what many agree is improved economic performance.
Weeks before Kasaija made the statement, Bank of Uganda had released figures showing that the best balance of trade position in years. The central bank indicated, for example, Uganda was enjoying trade surpluses—exporting more than it imports—with all her neighbours; including Kenya, the region’s economic giant.
For the first time in years, Uganda had over the last 12 months to October 2018, exported goods worth $780 million to Kenya and imported about $400 million from Kenya.
Adam Mugume, BoU’s executive director for research and policy who presented the figures attributed this performance to improved agricultural productivity, economic stability, low inflation, and a stable the exchange rate.
Then a month later, a team from the International Monetary Fund (IMF) gave Uganda a further thumps up. It noted that the economy grew by 6.1% in FY2017/18 and was projected to grow at 6.3% in FY2018/19, and investor surveys indicate that business conditions and sentiment are strong. Credit to the private sector has improved, revenue collection was up by 0.3% of GDP, and exports grew by 9%.
The IMF confirmed BoU has successfully balanced its inflation objective with supporting economic activity and financial inclusion is improving with around 85 percent of the population now having access to financial services.
“Over the next 5 years, growth could reach 7 percent,” the IMF added, “if infrastructure and oil sector investments proceed as planned, and private sector credit remains supportive.”
This appears a major departure from the circumstances of the same period last year.
Back then, the team at Finance was looking for money to fund a Shs29 trillion budget. Yet Uganda Revenue Authority (URA) had already recorded a huge tax revenue shortfall twice the size of the one the previous year. Kasaija under attach for borrowing Shs750 billion from the domestic market; a move many said could hurt the economy. And the IMF was breathing fire under the bellies of Finance officials.
“The key guiding principle behind fiscal policy is that government debt should be kept within manageable levels,” the IMF Country representative Clara Mira told The Independent at the time.
The Uganda budget, she added, should effectively and realistically prioritize expenditures, including all unavoidable expenditure, contractual etc.
“Supplementary budgets should not become the norm,” Mira said. In her view, the area of taxation needed a ratcheting since, despite progress, Uganda still has a low tax to GDP ratio compared to other countries in the region.
Then officials at Finance failed to convince the IMF they had observed certain conditions that inform the review of the country’s economic performance under the Policy Support Instrument (PSI) arrangement.
The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial support.
The PSI helps countries design effective economic programs that, once approved by the IMF’s Executive Board, signal to donors, multilateral development banks, and markets the Fund’s endorsement of a member’s policies.
Uganda’s PSI program expired in July 2017. According to Mira, the IMF and government started negotiations following the authorities’ expression of interest in October/November 2017. Again, diplomatically, Mira noted that if the authorities so wish, they stand ready to continue the process on the basis of the approved 2018/19 budget.
While the IMF does not lend Uganda money, many people have been lending to Uganda on the strength of the IMF’s PSI. If there is no PSI, those people will not be lending to us. Already many agencies have already decided they will not be lending to government.
Uganda’s PSI was last approved by the IMF on June 28, 2013. A new one was supposed to be established in 2016 but Uganda did not meet the conditions and instead, a one-year extension was approved on June 6, 2016.
After the one year, the conditions were still not met and a further extension through July 28, 2017 was approved on June 19, 2017. That extension expired too.
The pessimism persists despite the February praises for the performance of the economy and its managers from the IMF.
“I read IMF’s statements with a lot of caution because they tend to be short term,” Muhumuza told The Independent, “They can issue a statement now and change it a few months down the road citing some changes in the fundamentals.”
Muhumuza insisted that for as long as electricity tariffs and fuel prices are as high as they are, one cannot claim that the economy is performing well. He said the touted growth is not inclusive.
The IMF has also noted that poverty is increasing from 19% in 2012/13 to 21% in 2016/17 and per capita income is declining.
As the old team bows out, those are the challenges that Museveni and any new team will have to deal with.