Focus on transparency of fiscal and monetary policies

By Julius Mishambi

Finally on February 23, President Museveni assented to Public Finance Management Bill and now Act (PFM Act). This sets a new cycle for national budgeting in Uganda.

Civil society input, for example, by Uganda Debt Network (UDN) and Civil Society Budget Advocacy Group (CSBAG) has not been in vain.

The Budget 2001 and Public Finance and Accountability Act 2013 are now repealed. So how more transparent, participatory and forging macro-economic stability in Uganda will be in Financial Year (FY) 2015/16? 

Hon. Matia Kasaija, Minister for finance and economic development; Ugandans expect to see how tax revenue shortfalls in FY 2013/14 were addressed, tax measures introduced in FY 2014/15 have performed to improve Uganda’s tax ratio to Gross Domestic Product (GDP). This ratio has sadly been 12-13% since 1970s to-date, even with rebasing of the economy in 2014 where Uganda obtained additional 4% GDP expansion.
 
Parliament has been weak in studying debt acquisition proposals by Cabinet, leading to instances of questionable budget transparency, debt and implementation. Overall, external debt and domestic debt are rapidly increasing.

Domestic debt has more lethal implication to Uganda’s economic management. As we scrutinise budget proposals for FY 2015/16, even under rush by Cabinet, Parliament should iron out distortions around Bank of Uganda (BOU) issuing treasury bills for monetary purposes (and macro-economic stability) while sections of the Government have for years used the same to finance the national budget. By simply going for other people’s money rather than frugality, the Government has unjustifiably increased public debt in some instances. Total debt for Uganda is already bigger than the national of sh15 trillion for current FY 2014/15, as domestic debt has itself surpassed sh6.7 trillion in current FY. 

The growing domestic public debt arising out of issuance of treasury bills by BOU has not helped to boost Government savings or national reserves. The savings have largely been spent under annual national budgets. This behaviour will increase inflationary pressures and is prone to macro-economic instability; for example with the forthcoming political party primaries in 2015 and general elections in 2016.

Domestic debt rise will could easily hit about sh10 trillion in FY 2014/15, with interest payment of about sh1.2 trillion. This is too high, for Uganda to forge macro-economic stability and economic development.

The Government between FY 2009/10 and FY 2010/11 used savings from BOU of up to 2% of GDP in financing deficit in the two national budgets.

This unleashed adverse effect on majority Ugandans (particularly those outside mainstream civil service and political leadership) in FY 2011/12. With money stuffed under beds, BOU increased lending rates (through CBR that stands at 12%, say, compared to Kenya’s 8.5%) and borrowed more funds from the domestic market, to mop up excess liquidity.

The efforts were largely not successful, in the short-run and majority working class in Uganda suffered high loan servicing. Some businesses lost property and other wealth due to this particular inflation. There was generally lower economic activity and tax revenues and loss of jobs given the macro-economic distortions. 

Give BOU room to technically do its work through issuance of treasury bills and other monetary instruments for purposes of managing liquidity in the economy and stability of other macro-economic variables. BOU should not be paraded into politics of fiscal management and party electioneering budget undertones in FY 2015/16.

 With the PFM Act, Parliament should support BOU in ensuring that accelerated domestic borrowing is contained. Disengage issuance of treasury bills by BOU away from using the same for fiscal purposes.

The writer works with Uganda Debt Network