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Uganda’s budget dilemma

How our government’s attempts to do too many things for all citizens spreads our meager resources too thin

THE LAST WORD | ANDREW M. MWENDA |  Poor countries suffer a fundamental contradiction in both design and aspiration. The state is designed and thus seeks to perform functions exactly like states in rich countries. Citizens expect and politicians promise to provide free and universal healthcare, primary and in many cases secondary education, clean water, electricity, roads, agricultural extension services etc. These public goods and services are far beyond the classical functions of the state i.e. to provide law and order, infrastructure and the administration of justice.

However, a simple look at the financial and human resources available to governments in poor countries shows that they are too poor to perform the aforementioned welfare functions. There is a wide gulf between design and aspiration on the one hand and capacity on the other. The state is overdeveloped in functions but underdeveloped in capacity, so its reach goes far beyond its grasp. That is the source of all the constant frustrations in our nations. In an ideal world, the state would have been more functional if it focused on classical functions and left many welfare functions to the private sector and/or private charities.

Take the example of Uganda’s 2019/20 Budget, which is Shs40.5 trillion. Shs10.6 trillion of this money will go to debt service of which Shs6.5 trillion is domestic rolled-over debt, Shs3.2 trillion is statutory interest payments and Shs900 billion is debt service on external debt. Therefore, the actual money available for spending on public goods and services by the government of Uganda this financial year is about Shs30 trillion.

Uganda’s population can be estimated to be 41 million people today, giving us public spending per person of Shs730,000. That is $190 in nominal dollars, $665 in Purchasing Power Parity (PPP) dollars. I have added the PPP value here because I intend to compare it with other countries and market exchange rates tell us little about the purchasing power of different currencies in their domestic markets.

This amounts to government spending Shs2,000 per person per day. Yet listening to debates on traditional and social media, Ugandan elites argue as if there is no limit to what government can deliver on this shoestring budget. They expect free, universal and high quality healthcare, education, roads, clean water, electricity, security, justice, agricultural extension services etc. And our problem is not just money. The bigger challenge is the human resource to deliver these basic public goods and services. Essentially, a country that is poor financially will also have poor human resource capabilities.

Many people can legitimately say that it is me who always claims Uganda’s economy has been growing rapidly. After 33 years, why hasn’t it produced huge revenues to pay for better public goods and services? The explanation is simple but fundamental: Uganda has grown from a very low base. In 1986, total public revenues were Shs5.0 billion, which, when adjusted to 2017 prices, comes to Shs32 billion. This financial year, public revenues are estimated to reach Shs20.5 trillion, Shs56 billion collections per day, nearly double annual revenues in 1986.

Again, one can legitimately say that 1986 is a wrong base year to use because the country had just come out of civil war. So we can use 1992/93 financial year when Uganda Revenue Authority (URA) became operational. This is six years after the civil war and gives us a reliable base year. URA collected Shs281 billion which, when adjusted to inflation, is Shs1.26 trillion in 2017 prices. Given that in 1992 Uganda’s population was 19 millon, this is Shs66,000 per person. Today, revenue per person is Shs500,000 i.e. an annual rate of real growth in public revenues of 26%; an impressive rate.

In fact to appreciate how impressive this number is, we can compare the annual average rate of growth in Uganda’s public revenues with that of the best private companies in Uganda and the world. Over the last five years this growth in the revenues of the leading companies has been as follows: Uganda Breweries 6%, Nile Breweries 11%, Crown Beverages 14%, Stanbic 6%, Bidco, 10%. Over the last five years, the annual rate of growth in revenues of the three world’s most valuable companies has been Microsoft 7.2%, Apple 9.2% and Amazon 8.6%. So growth in Uganda government’s revenues beats the best local and global companies.

Now we can do comparisons with other economies. The United States government has the best records of its budget history since it’s founding in 1889. This financial year, federal, state and local government spending will be $7.6 trillion for a population of 330 million people. That is $23,000 (Shs87 million) per person. This is 121 times what Uganda spends nominally or 35 times using PPP. I have also looked at the figures from Senegal, Kenya and Tanzania from 1986 to 2015 and Uganda beats them all.

Thus our government cannot provide a large basket of public goods and services to all its citizens in the quality and quantity the US does for its citizens. Secondly, the USA and Uganda cannot have similar governance strategies. To really understand the challenge in governance poor governments face, one has to compare Uganda with the USA when it had similar per capita spending.

The USA federal, state and local government spending in 1860 was $178 million which, when adjusted to inflation, comes to $5.5 billion in 2019 prices. Given a population of 30 million people in that year, America was spending $185 per person, almost the same figure as Uganda today. Yet if you look at the budget of that time, the USA government did not spend a penny on healthcare, education, pensions or welfare. The entire budget went into the classical state functions such as national defense, public works, law and order functions and a very minimal administration of justice.

It is not until 1890 when it was rapidly transforming into an industrial giant and when it had overtaken Great Britain as the world’s largest economy that the USA began spending on healthcare, education and welfare but not on pensions. The problem with poor countries is that they adopted the spending structure of rich countries at very low levels of income. That is the biggest source of failure to serve their citizens appropriately. They spread their meager human and financial resources too thin. Ugandans need to develop more realistic expectations of their government.

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amwenda@independent.co.ug

12 comments

  1. Really, I believe in your words however we just pretend to be wealthy but when not.
    We as citizens are totally oppressed each and every second, and do not achieve all our efforts and energy used.
    Please let’s fight the name poverty in the right way.

  2. ejakait engoraton

    “Take the example of Uganda’s 2019/20 Budget, which is Shs40.5 trillion. Shs10.6 trillion of this money will go to debt service of which Shs6.5 trillion is domestic rolled-over debt, Shs3.2 trillion is statutory interest payments and Shs900 billion is debt service on external debt. Therefore, the actual money available for spending on public goods and services by the government of Uganda this financial year is about Shs30 trillion.”

    AND yet the same MWENDA has OPINED indeed ASSERTED that our borrowing levels are not alarming.

    THIS he stated in his article of April 29 2019

    IF the debt was not an issue , you would not have brought it out at this stage so as to make it so prominent and having a bearing on your so called “budget dilemma” and being an insignificant matter, would have been just a footnote to the whole presentation.

  3. ejakait engoraton

    “Now we can do comparisons with other economies. The United States government has the best records of its budget history since it’s founding in 1889”

    AND yet …………..

    “The USA federal, state and local government spending in 1860 was $178 million which, when adjusted to inflation, comes to $5.5 billion in 2019 prices”

    IF the USA budget history starts in 1889, where do you then get records for 1860.

    Just asking, either out of curiosity or ignorance.

  4. ejakait engoraton

    “Thus our government cannot provide a large basket of public goods and services to all its citizens in the quality and quantity the US does for its citizens. Secondly, the USA and Uganda cannot have similar governance strategies. To really understand the challenge in governance poor governments face, one has to compare Uganda with the USA when it had similar per capita spending.”

    WHILST arguing CONVENIENTLY about the present African states are not being in a position to provide a given quantity and quality of goods, and arguing that it is too early in their developmental state of affairs, mostly because of the resource purse, the likes of MWENDA cite the failings of the colonial masters on their failure to provide “social services” by way of education, healthcare, and most important for MWENDA if we are to go by an article he wrote a while back, enough kilometers of TARMAC roads, a measure he strangely uses to measure how successful M 7 has been in transforming the country.

  5. Mwenda, as usual, is battling a strawman of his own creation:

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    Wrong, Mr Mwenda. Uganda’s elites know full well what a constrained budget is; most of them do not have access to unlimited funds. And they understand the basic rule of making ends meet on limited means: Every shilling must be spent carefully.

    Uganda’s limited resources are spent with a level of carelessness which boggles the mind. In every possible way:

    -unproductive government functionaries are hired in huge numbers and are paid at absurd levels (what are Presidential advisers for? Isn’t that the job of the cabinet?)
    -The administrative divisions of the country have been expanded beyond all sense.
    -Public assets have been sold at give-away prices; and to incompetent recipients. Will the Ugandan state ever get a return on the most valuable piece of land in the country that was given away to build the Pearl Hotel?
    -Big civil engineering projects are built at prices higher than virtually anywhere else in the world
    -Expensive projects are launched with no coherent planning. An expensive new hospital was funded at over $300m, while Mulago’s renovation has stalled due to a lack of $ 8m.
    -The nation’s leadership spend money on themselves and their families at shameless levels

    this is the real scandal of Uganda’s budget

  6. Just wondering, because this is not the first time, M9 has brought this issue to our notice. where would he spend the UGX 2,000 per person per day? or the UGX 700,000 after providing for the debt etc.

  7. Readers should simply ignore any section in Mwenda’s articles using examples from the US. He knows nothing about the country.

    Todays whopper is “It was not until 1890 ….that the US began spending on education…”.
    Completely untrue. State universities were started in the early 19th century. The Federal government’s major initiative to support education in agriculture and engineering was the Land Grant Colleges scheme, started in 1862. The scheme gave the US dozens of strong research universities, including such well known ones as MIT, Cornell and Texas A&M. These colleges were a key factor in the rise of the US as a major industrial state.

  8. I at times wonder why Mwenda opts to give examples of the US or any other developed country when alluding to social welfare administration those so called well-to-do countries provide to their citizens. I am forced to ask him why, (if it isn’t the colonial mentality that has imbedded in his DNA) he cannot give examples of Mulago,Buhinga or Entebbe hospitals of the 60s to 70s…..or the Tooro District Administration of those days. Isn’t this selective of him? Trying to shield his present benefactor from the irresponsibility that has run down those institutions or failure to rehabilitate them.
    We have told him time and again in this forum that long before he was born, Uganda provided welfare services to its citizens (and resident foreigners)
    * in FREE healthcare (include major surgery),
    *AFFORDABLE education and free in University (undergraduates were paid a boom) and districts (all) gave school bursaries to needy.
    *Police was readily available on call of toll-free 999.
    *Uganda Cranes were the pride of the continent (yet the players were part-time footballers)
    *The military were real gentlemen who bought/gave beer and other delicacies for civilians
    *Hospitals fed patients as per doctors recommendation
    * Embezzlement of public funds were at minimal (How much was Obote, Amin or Babiiha worth? you think they did not know that there was ready money in BOU?)
    *All civil servants were highly trained,knowledgeable and competent in word and deed.
    *Public utilities and services were fully functional 24/7; railway transport, road transport, air transport, maritime transport.
    * The 3 Cs (copper,cotton and coffee) were so well processed that everything went so smoothly that Uganda gave aid to other countries. Can you believe cobalt was trash in Uganda at the time.
    * Kibaki, Nyerere,Mkapa, all passed through Makerere (it was better then than is now)
    * Old man of the clan, style up.
    * If you were to try this present regime in a public court for the crime DEFORESTATION alone, wouldn’t it be fair to lynch all of them and their families? Will these guys go to live in Mars?
    * It is a fact known to everybody that if Uganda got a windfall of say 100 trillion dollars, the common man/woman would still wallow in poverty or might even be evicted from where they were already to make room for the vanity, greed and stupid-accumulation of the very few beneficiaries who would monopolise the windfall.
    * If Ugandan religious leaders and followers are as beloved of God a they claim, let them pray that greed be eliminated. How? God should ensure that everybody has only enough for that hour’s meal and no more. HE did it in the desert when those Israelis were exiting Egypt towards their homeland. HE can do it even now.

  9. From the general view of the article, looks like Mr.Mwenda is suggesting that we should do what the USA did if we are to be better off. Let me just highlight this… what worked for USA will not work for us especially after looking at the policies US and EU have dictated upon us through the World Bank, IMF and US Treasury from 1989 regarding “neo-liberalism” (Read about the Washington Consesus)

    So Mr.Mwenda, we know from experience after all these years of privatisation and promotion of foreign direct investment that the USA way has created more poverty rather than alleviate it.

    We need a new way. A way designed by African or Ugandan scholars. People who know us and our societies. Ugandan scholars are very smart and given the opportunity they will deliver. We do not seek to have skyscrapers, we seek to live happy and fulfilling lives (socio-economic transformation). If the skyscrapers come as a result of this, thent thats fine.

  10. “Thus our government cannot provide a large basket of public goods and services to all its citizens in the quality and quantity the US does for its citizens. Secondly, the USA and Uganda cannot have similar governance strategies. To really understand the challenge in governance poor governments face, one has to compare Uganda with the USA when it had similar per capita spending.”

    Does this suggest that we need to revisit our governance model? Are you saying this model is failing? Formerly federal run regional govts are suggesting a federal system. What do you suggest?

    @previous_posts… wonderful comments/opinions guys.

  11. “The Bretton Woods institutions (BWIs) have held two not alwaysmutually compatible positions on the initial conditions of African econo￾mies. At times, they have pointed to how initial conditions in a number of African countries were the same as or even better than those in the subsequently more successful Asian cases. At other times, they have argued, in a “back-to-the-future” mode of thinking, that because the conditions in Africa today are comparable to those of the Asian economies more than 30 years ago, Africa is now ready for an Asian-type takeoff. Although cross-regional or cross-country comparisons are inevitable in economic analysis, choosing the “right” countries, periods, and appro￾priate statistics to compare is often problematic. A comparison between two countries or regions based on a snapshot of conditions at a particular time can be grossly misleading. For example, although the Russian Federation can be compared in terms of per capita income to many developing countries, its stock of scientific and technological capability can hardly be
    compared with that of any developing country. Such differences in the quality of labour force and stock of knowledge can make monumental differences in the acceleration of the growth process. An alternative
    (sometimes complementary) comparison is between countries’ current and past performance or initial conditions. We emphasize more the latter and also employ cross-regional comparisons where relevant.” Adopted from: Our continent, our future.

  12. Thank you my Darling Andrew for always telling the truth.

    The yard stick for measuring the economic status of a nation is GDP what this entail? The value of goods and services produced within a certain period and the monenteray vaule of a country’s currency. When this is accessed it will definitely portray the economic status of a nation.

    What bothers me is that even the most developed nations have the same social,economic and political challenges like the ones n the 3rd world although theirs are resolved in a civilized manner .for example there is unemployment in USA and Europe,the recent French riots was about increase in gas tax,EU and Britain is gambling with Brexit,The number of political contenders in Britain who have lined up to replace May is unprecedented.

    Provided the 3rd world nations are never invited to discuss Trade matters with the 1st world we will surely take time to make it. In Uganda,with M7 ‘s clear economic policies we are getting there.

    Uganda Cranes tried their best during the AFCON thanks to Onyango the goal keeper he was like M7 during some games he was the goal keeper, defender,midfielder and striker. and secondly our neighbors who are always hypocrites like Rwanda,TZ and Kenya did not support us.its only Congo and S.Sudan who were with us.

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