A whole week has gone by since the budget was read and all the necessary analyses have been broken down. But allow me to get my commentary in as well.
Building on his first budget reading last year, the re-instated Minister of Finance Hon. Matia Kasaija explained it clearly that in an election year, because of the expected issues, the outgoing Honorable Members of Parliament of the 9th House went ahead and approved the current budget!
The newly read budget for the year 2016/17 whose theme is ‘Enhanced Productivity for Job Creation’ seeks to build on the main issue that our President His Excellency Yoweri K Museveni seems to be advocating for and that is more of self-reliance. With a 9.71% increase from 23.972 trillion UGX in 2015/16 to a planned 26.3 Trillion for the 2016/17 year leads me to ask two key questions.
- Is this achievable with the current operating model?
- Will this model allow us to become a “middle-income” nation by 2020?
Building on these two questions, I will again mention that a government is built to run similarly to a business venture in that it must be able to earn some income both in terms or foreign exchange as well as tax revenue; it must able to be worthy of borrowing to cover any shortfalls and above all, it must be able to attract investment mainly due to the fact that it should be a going concern and not break up easily. All these musts lead to the government building up its cash-flows and eventually its cash reserves to manage its import bill. Thus the model that our current economy is working with entails some deep self-sufficiency plans based on increased tax revenues and also increased domestic borrowing.
Truth be told, just like in my commentary on the previous ambitious budget reading for 2015/16, the tax amendments are still geared towards the following;
- Increasing tax to GDP ratio,
- Capturing the informal sector which forms 49% of GDP,
- Improve accountability among Government ministries and Agencies, and
- Promoting value for money approach in representative line ministries
- Enhance tax compliance and revenue collection,
The out-gone parliament has approved a budget of 26.3 trillion shillings.
It is to be spent across the various sectors as follows…
|Specific area/ Year||2015/16||2016/17 (projected)|
|GDP||US$ 25 Billion||US$ 27.3 Billion|
|Rate of growth of economy||5.0%||4.6%|
|Exports||US$ 2.702 Billion (approx.)||US$ 2.699 Billion ()|
|Imports||US$ 5.4 Billion||US$ 5.647 Billion|
|Reserves||US$ 2.974 Billion||US$ 2.925 Billion|
|Government Expenditure||UGX 13.988 Trillion||UGX 18.666 Trillion|
|Tax Revenues collected||UGX 9.577 Trillion||UGX 11.598 Trillion|
|Domestic revenue/ GDP ratio||13%||13.23%|
|Public Debt||UGX 24.485 Trillion||UGX 29.984 Trillion|
|Education Sectors||UGX 2.636 Trillion||UGX 2.745 Trillion|
|Health Sectors||UGX 1.270 Trillion||UGX 1.853 Trillion|
|Defence & Security Sectors||UGX 1.633 Trillion||UGX 1.588 Trillion|
|Tourism||UGX 158.5 Billion||UGX 188.8 Billion|
|Works/ Infrastructure/ Transport||UGX 3.328 Trillion||UGX 3.827 Trillion|
|Agriculture||UGX 343.5 Billion||UGX 823.4 Billion|
Source: Budget Speech 2016/17: Republic of Uganda and Bank of Uganda website
Across the board, there has been a general increase in spending for almost all sectors line-by-line.
The key increases are the more than two-fold increase in spending in the area of agriculture. With Uganda being seen as an agricultural based economy, there has been a conscious effort from the Government through its former programme National Agricultural Advisory Services (NAADS) aptly named Operation Wealth Creation (OWC) and being managed by the Uganda People’s Defense Forces (UPDF) to find a way to promote agriculture as a business. They provided various farm inputs ranging from coffee, tea, cocoa, rice and cotton across numerous districts in the country to promote high value crops that will lead to commercialization of the current farming practices.
Whether or not this will yield remains to be seen, but you must admit that responding to the nation’s largest employer by providing farm inputs coupled with training on land usage, input delivery, post-harvest handling, irrigation and marketing will surely improve our farmers’ yields and thus steadily get them us of our current poor situations.
With Tourism being the number one income earner for the country (approximately UGX 6 Trillion Shillings) in foreign exchange earning annually, it is imperative that we as a country focus here. By raising the spending from 158.5Bn to UGX 188.8Bn (approximately 0.715% of the budget), we can remain positive that this will spur certain developments in the sector hopefully leading to promotion of the country as a leading tourism destination amidst the health scares.
As expected from last year’s ambitious budget rising from 18Trillion to 23 Trillion, our public debt has grown from 24 Trillion UGX to 29 Trillion UGX within its expected gain. A huge majority of this debt has been generated from local borrowing through Treasury Bills and Government Bonds so as to manage the liquidity position of the economy ably handled by the Bank of Uganda. With a steady management of the Central Bank Rate (CBR) for the past 18 months from 2014 December with a potential expectation of rising inflation in an election year, this has managed to effectively curb the runaway inflationary tendencies that happened in the election period of 2011 by keeping the Central Bank Rate higher on average before any chances of liquidity rising occurred leading to inflation of 30% in October 2011.
As expected, when raising your spend, you must have a source of that new increase which the Minister has done so by trying to save spending and this includes;
- Having all Accounting Officers migrating all energy and telephone utilities from the post-paid to the prepaid systems by 30th June 2016;
- Having all Accounting Officers who do not account in full and in time for funds provided under their respective Ministries, Agencies and Local Governments will be recommended for removal in public interest.
With a domestic debt of UGX 4,977.7 billion from 2015, and maturing domestic debt of UGX 169.18 billion for external debt repayments coupled with UGX 2,022.9 billion for interest payments, it can be seen that the Government is keen on maintaining a good reputation as an institution that pays its debts. Due to this, the newly read budget of 2016/17 has had a subsequent reduction in the moneys borrowed locally due to issuing of government paper (Treasury Bills) worth UGX 1,384 Billion. This will cause the domestic borrowing to fall to UGX 612 Billion to reduce any occurrence of crowding out the private sector and allow for commercial financing institutions to invigorate their lending again. The country still attracts external financing in the form of loans and grants totaling UGX 6,524 Billion amounting to just 25% of the entire UGX 26,300 Billion Budget. A significant portion of these funds will be used to finance the planned heavy infrastructure projects including the Standard Gauge Railway (SGR), Roads and the on-going Karuma and Isimba Hydro Power stations. It should be noted that the implementing agencies should ensure that the country gets value for money for every shilling spent.
In order to raise the tax base, let it be communicated that the Minister has also increased funding to implement the Taxpayer Registration Expansion Project (TREP) that will enhance coordination between institutions such as the Uganda Revenue Authority (URA), the Uganda Registration Service Bureau (URSB), Kampala Capital City Authority (KCCA) and other local authorities. The program will help businesses to formalize their operations through business licensing and registration.
It would not be worthwhile without mentioning that there has been an increase in Excise duties on:-
- Diesel and Petrol by UGX.100/=;
- Soft cup cigarettes to UGX 50,000/= per 1000 sticks and Hinge Lid cigarettes to UGX 80,000/= per 1000 sticks;
- Sweets and confectioneries to 20%; and
- An increase from 1% to 1.5% in Stamp duty on transfer of property.
There has also been an increase from UGX 5,000,000/= to UGX 20,000,000/= Registration Fees for personalized number plates.
I still think it is going to be a tough journey for Ugandans to raise this money, but it is a very good decision to aim at becoming self-sufficient.
In terms of reactions from the previous budget, it remains to be seen whether the capitalization of Uganda Development Bank will occur. Reports have it that it is being re-funded in phases, but with no further mention of it in the current budget, it remains a pipe dream. The regular promise of increasing teacher’s salaries has finally occurred with an increase of salaries of Primary teachers by 15% which will be the last installment in Government’s commitment to increase teachers’ salaries by 50% in a phased manner amounting to UGX 122 Bn. This has also been followed through with an increase in salaries of teaching staff in Public Universities with a UGX 50 Bn allocation during the financial year now ending, in line with His Excellency’s pledge to increase wages in a phased manner. In order to enhance tertiary level education, a further UGX 78 Bn has been planned for in next year’s budget for this purpose.
Prior to any oil money being earned, it would be imperative for Uganda as a nation to promote accountability from the people in-charge as well. But as I wrap up my own commentary on the budget reading, I return to my two questions;
- Is this achievable with the current operating model?
Perhaps with much improved efficiency, there is a good sign of possible targets being reached. With more prudent money management in respective line agencies’ Accounting Officers, the model might reduce many gaps and promote self-sufficiency albeit with the need for more time
- Will this model allow us to become a “middle-income” nation?
I think this model will force us out of our current situation and seek to encourage domestic revenue mobilization and with it increase domestic borrowing from ourselves and reduce massive debts payments we are used to incurring. This will eventually allow us as a country to realise our own economic potential even before a drop of oil has earned any money for us.
All in all, growth in government expenditure is a bold way to allow the economy to grow.
By Edmund Kamugisha
Edmund is the Engagement Director at BLEGSCOPE®, and has 10+ years of management consultancy experience notably in MSMEs, FMCG companies and in the service industry. You can follow him on twitter: @edmokmg