The reality of FY 2014/15 National Budget

trueBy Juliet Akello

On Thursday, June 12, 2014 the Minister of Finance, Planning and Economic Development, Maria Kiwanuka, delivered her National Budget speech for FY 2014/15 as citizens eagerly listened and waited to identify benefits from it.

The sh14.3trillion budget up from the sh13.1trillion of FY 2013/14 is expected to increase economic and social transformation through infrastructure investment.

The Government made achievements in the last FY for national gain such as the completion of 830km construction of new roads, 1,630km of transmission lines laid, the fair security, pay rise for teachers and over 42,000 new rural users connected to the national grid (rural electrification). However, some concerns are yet to be addressed.
 

The education sector mandated to train and improve quality human resources was allocated 11.9% of the national budget registering a reduction of 1.6% from the previous year (13.5%).

For years, the quality of primary education in public schools has been compromised due to the inadequacy of inputs (infrastructure, teachers, and scholastic material). The reduction in resource allocation may not be good for the future.

The health sector shares the same pain. It was allocated 8.4% share of the national budget down from 8.6% in FY 2013/14.

Currently, the sector faces challenges including staff and medicine shortages; weak supervision (monitoring and evaluation systems); congestion within health facilities; and lack of/or equipment malfunction.

To this extent, the Government’s strategic intervention of improving the productivity of human resource is challenged given the above constraints.

National economic social transformation requires a quality and health human resource. The agriculture sector is worst hit. Allocated 3.1 % up from 2.9% last financial year yet the minister intends to tax farm inputs – a give and take scenario at play here.

About 70% of the population is employed in the sector; majority of who are women, moreover guidelines on handling issues on land ownership has remained a challenge to commercial agriculture and productivity.

Considering that poverty also has a feminine face, the poor will suffer with regressive tax burdens to be incurred through the introduction of Excise Duty; on bank charges and money transfer fees of 10%, increase on sugar by sh25 and of sh50s on fuel; and reinstatement of sh200 on kerosene.
 

External debt is projected to rise to $7b by the end of FY 2013/14, from $6.4b in FY 2012/13. This is close to sh16trillion, more than the national budget (14.3trillion) yet the Government will continue borrowing to facilitate the implementation of the NDP.

The Auditor General’s reports of 2009/2010, 2011/2012 and 2012/13 cite constraints which have contributed to increased external debt levels. Commitment fees on these loans continue to accumulate for instance they increased by 64.84% from sh5.474b in 2010 to sh9.023b in 2012 and further increased by 40% to 12.7b in 2012/13.

This is not cheap on the tax payers’ pocket. Although the minister said Uganda is not under debt distress, the above shortfalls need to be addressed.
 

Domestic debt increased from sh4.54trillion in June 2011 to sh6.995trillion by Feb 2014, an increment of 54.2%. In the FY 2014/15, the Government expects to borrow domestically an amount of sh1.6trillion according to the NBFP.

In this case, the Government will be competing for private sector credit with the public which is likely to stay interest rates up.

The huge domestic Government borrowing from the economy is likely to lead to low investments, output and productivity. If the Government borrows to invest in real productive sectors (producing goods and services, agriculture, industry, building and construction and services), then further productivity gain will be achieved to improve on capital project expenditure.
 

On the other hand, total value of domestic arrears (part of domestic debt) payable have continued to increase that is, in FY 2010/2011 (sh4.73b), FY 2011/2012 (sh7.63b) and in FY 2012/2013 it increased further to sh1.1trillion according to the Auditor General’s Report (2013).

Arrears (overdue liabilities of enterprises that is, the unpaid credits to trading partners, unpaid wages to workers etc) restrict the cash flow to suppliers as well as the Government; hence affecting production, investment and Government services; hence a significant effect of domestic debt on economic growth.
 

In conclusion, a projection of 6.2% economic growth rate is an ambitious target. The National Budget is a good policy tool for resource mobilisation and guiding spending but it is incumbent upon citizens to consider it their responsibility to participate in the budgeting process.

However, this is yet another opportunity for MPs to make impact as they discuss the budget before passing it.
 

The writer works with Uganda Debt Network