This year’s budget enslaves Ugandans

Jun 20, 2007

THERE are two types of budgeting — micro-level and macro-level. At micro-level one budgets according to what he or she has (his or her savings) or based on what he or she has borrowed or hopes to borrow or what he or she hopes to be given as grants or donations. For instance the way wedding budget

By Teddy Sseezi-cheeye

THERE are two types of budgeting — micro-level and macro-level. At micro-level one budgets according to what he or she has (his or her savings) or based on what he or she has borrowed or hopes to borrow or what he or she hopes to be given as grants or donations. For instance the way wedding budgets are done.

At macro-level, governments budget according to priority demands of the populations. The budgeting is based on three grounds — tax, borrow mainly domestically and print the bank notes to bridge the gap that may not be financed by the first two methods.

The underlying objective is to serve the people, who are the real fulcrum of economic development. Kenya for example, with a population of 36 million has a budget of $8.99b compared with Uganda with a population of about 30 million, but with a budget of only sh2.9b. In addition Kenya, which has more patriotic economists than Uganda, domestically borrowed $9.07b in the last financial year, which means that it paid astronomical interests to its people, thereby making them wealthier. South Africa, Tanzania and Kenya have developed a positive culture of internal borrowing that local people grab any government offer of bonds because they know it is a lucrative deal.

In Uganda local creditors are rubbished in preference to paying foreign creditors. For example, while payment of about $150m of foreign loans has been an annual ritual, domestic creditors have been licking their wounds for many donkey years.

Further more, Kenya has given a $51.2m contract to De La Rue to print 1.7 billion notes of money, which should come to about Ksh5,219b (about $77.8b or Ush132,454.5b). Even if half of that is going to replace old and worn-out bank notes, still the other half (about $38.9b) is substantial injection into the Kenyan economy in the next, say, three years. What this clearly means is that Kenya economists are using three conventional methods to obtain money, while our economists are only using one misguided method, which has led and continues to lead to sheer and unnecessary economic hardship.

I want to address the three areas, which the 2007/2008 budget claims to focus on:

l Maintain annual consumer price inflation at 5%. How does the Government hope to keep consumer inflation below 5% without addressing the issue of high interest rate? The Government also seems to be oblivious of the fact that actual consumer prices have been shooting up.

l Maintain foreign exchange reserve: There is an unfounded emphasis on maintaining foreign reserves to cover six months of imports even when the Government is no longer involved in doing business and the bulk of imports are done by the private sector. In other serious countries foreign reserves are accumulated to earn interest. China earns more than $40b annually on its reserves. Pegging reserves to imports was applied during the period when governments used to be involved in businesses of imports such as food or fuel.

l Maintain a competitive real exchange rate that supports export growth. This is a big joke. What the IMF and World Bank have been doing over the years is to encourage their enslaved countries to export similar cash crops without taking into consideration that if many countries export the same cash crop like coffee or tea, it leads to glut and consequently a fall in global commodity price. For example while in 1977/1978, Uganda exported less coffee (1,742,737 bags) compared to 1,969,000 bags last financial year (2006/2007) Uganda earned more ($312m) in 1977/78 compared to $173m in 2006/2007. This was because while the price of coffee in 1977/78 was $2.99 per kilo, last financial year, the price was only $1.46 per kilo.

l Competitive exchange rates: I get amazed when our learned economists say they want to maintain competitive exchange rate in order to stimulate exports. First of all, competitive devaluation led to the collapse of economies of the present highly developed countries, during the gold exchange period (after 1911) because as each country competed to devalue its currency so that it could purchase more gold needed for its trade and finance wars, they found themselves raising trade barriers.

One of the IMF original mandates was to abolish competitive exchange rates because it undermined international trade. Then there was the issue of the Francophone countries, whose colonial master, France, refused the IMF condition of devaluing the Franc currencies used in its former colonies (Ngaire Woods, 2006). Although IMF accepted France’s order not to devalue the Franc, we are not told whether the economies of the Francophone countries are not competitive in exports because of their overvalued currencies.

The writer is the Director of Economic Affairs & Monitoring, Office of the President (ISO)

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