Private sector say government proposal to increase domestic borrowing from Shs1.3trillion to Shs1.4 trillion will deny them of cheap financing during the year
Uganda has once again released its budget proposal for the next financial year, raising government spending 15% to Shs30.2trillion in the fiscal year from July, with bulk of the increase going to security, works and transport, energy and mineral development.
The bad news, however, is that the government plans to increase domestic borrowing from the current Shs1.3trillion to Shs1.4 trillion, according to the Budget Framework Paper (BFP) 2017/8, signaling tough times ahead for the private sector to access cheap loans from local financial institutions.
Gideon Badagawa, the executive director at the Private Sector Foundation Uganda (PSFU) told The Independent in an interview that they are unhappy with the competition spearheaded by government in raising funds in the local market to finance various projects.
“At the moment, the private sector cannot compete with government and win in raising funds locally for investment,” Badagawa said. “Government is risk free while private sector is risky according to lenders.”
Badagawa says under the current situation, financial institutions will continue lending to the private sector at the high interest rates, which currently stands at an average of 23% per annum, and thus limiting their competitiveness in the region.
But the government through its BFP says that the increase in domestic borrowing in FY2017/18 is due to the need to finance interventions aimed at increasing food production and food security, promotion of value addition and construction of oil roads and bridges to ensure oil production by FY 2020/21.
“We recognize that high levels of domestic borrowing have implications for private sector credit and interest rates,” government says in the BFP, promising to reduce domestic borrowing in the subsequent years.
In the coming financial year under the theme “Enhanced Productivity for Inclusive Growth and Job Creation”, the government is proposing to spend Shs4.8trillion, up from Shs3.8trillion in the current year on works and transport while energy and mineral development will see its expenditure increase from Shs2.3trillion to Shs2.9trillion during the same period under review. The government has proposed to spend Shs 1.9 trillion in enhancing security, up next financial year, up from Shs 1.5 trillion in the FY 2016/2017.
Agriculture, which employs more than 69% of the population, will get a small increase of approximately Shs 23 billion to Shs 846 billion next financial year, up from Shs 823 billion this financial year while interest payment due has been allocated a colossal Shs 2.7 trillion next financial year, up from the current Shs 2 trillion.
Critical social sectors like education and health are expected to suffer budget cuts as the government is proposing to spend on the former Shs 2.3 trillion in the FY2017/18, down from Shs 2.4 trillion in the current financial year, and Shs 1.2 trillion in FY2017/18 down from Shs 1.8 trillion this year on the latter.
Public sector management will have Shs 1.1 trillion in the new financial year down from Shs 1.2 trillion.