World Bank stops supporting Uganda's budget

By David Mugabe

The donor community is completely pulling out of budget support, Business Vision has learnt. Analysts say the development presents new opportunities for the country if well utilised.

Senior sources from the World Bank country office this week confirmed that an official position will be circulated confirming the decision that was reached at the Spring meeting in Washington DC a few days ago. the Government has already got wind of the information.

The World Bank is the largest multilateral lender extending almost half of the entire budget support funding given to Uganda by donors, which is close to 30%.

The Joint Budget Support Framework (JBSF) will now retain funding to projects only according to the source. The last budget support will come in this 2012/2013 round. Some of this funding has been slashed and withheld because of corruption scandals and weak financial discipline. It will only be released after certain conditions have been met.

In a letter to the Minister of Finance dated March 26, donors sounded unconvinced, doubting the extent of reforms on the "High level government financial management reform action plan matrix," requesting Minister Maria Kiwanuka to provide more depth on the detail of reform executed since the numerous scandals, especially in the Office of the Prime Minister.

While the JBSF commended the reform endeavours, they requested a detailed follow up on all the 62 individuals named in the Attorney General's report on the Office of the Prime Minister and the PRDP.

"Unfortunately, our detailed analysis does not yet find satisfactory progress on a sufficient number of the key results," read the letter signed by Moustapha Ndiaye, the World Bank country manager, alongside the charge d' affairs of the European Union, Theo Hoorntje, as members of the JBSF.

The donor community, in their communiqué, are also awaiting the nomination of the second deputy IGG as a step toward the fight against widespread graft.

The deputy secretary to the Treasury, Keith Muhaikanizi, yesterday could not comment on the report about the end of budget support by the donor community, saying he was chairing a meeting and could not speak.

While the decision to end budget support brings an end to years of cooperation on budget support from the donor community, it also presents opportunity to the country, analysts say, to completely wean itself of the dependency syndrome that has for decades had a strong stranglehold on its ability to think for itself.

"It is a good thing for us so we start thinking outside the box," said an analyst.

Some of the flagship projects funded by the World Bank in recent times include the $150m support to municipal infrastructure as well as the $130m water development management programme.

In 2012, the World Bank extended a total of $100m for the ninth poverty reduction support credit programme to improve access to and greater value for money in public services mainly spent on public administration, law and justice and agriculture.

This was broken down into fishing and forestry (10%), health and other social services (10%), education (10%), transportation (10%), other human development (20%), other rural development (20%), accountability/anti-corruption (10%), administrative and civil service reform (10%), public expenditure and financial management and procurement (40%).

Opportunity

A key victory for Uganda in this predicament is the chance to be in charge of its destiny.

"Yes when you give budget support you also have a say in policy, so the World Bank will lose that," said an analyst who now advises that the country can focus on what it considers relevant to its growth and not following the path of outsiders who have little knowledge of the country's priorities.

“It is good news. The donor community have been telling the Government to find other ways of funding but it seems they were relaxed because they were always sure of the 30% funding," said the analyst.

There has been a laxity to expand the tax base especially by making major concessions to the informal sector as well as real estate.

These informal sector which also involves the blossoming SMEs are a latent revenue hotspot that the Uganda Revenue Authority (URA) has failed to tax on the wider scale.

The tax burden is therefore borne by a few.

Widening the tax base and overall reforms started about five years ago by URA have still seen the country's tax to GDP ratio hover around 12.5%-one of the lowest in the region.

This is compounded by the lack of a national identity card which makes tax follow up difficult.

Of the three categories of tax payers, the large tax payers constitute the smallest group of tax payers (1.4%) but contribute 68% to total revenue collection.

This is followed by the medium sized tax payers (4%) who rake in 18% in revenue.

The small tax payers comprise 94.6% of total tax payers but contribute only 14% to revenue.

Plugging the about 27% budget deficit will now call for ingenuity.

Setback

However analysts also warn that little will be achieved if the leaking holes that swallow government resources through corruption are not plugged.

Top of the list is the long debated issue of a huge public administration bill.

To plug the budgetary shortfalls there are already proposals for this coming fiscal year for the introduction of new taxes, including a sh200,000 levy on boda bodas that is expected to rope in sh7.2b according to the projections, while sh72.2b is targeted from a sh50 levy on fuel.

Also, a new tax is expected on international calls that should generate sh40b while taxing the blossoming mobile commerce is expected to bring in some sh48.2b.