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BUDGET: A lot has been done, a lot still to do

By Paul Busharizi

Added 13th June 2019 08:44 AM

The Uganda Revenue Authority (URA) is expected to collect about sh16 trillion a far cry from the sh777b that was projected to be collected in the 1986/87 financial year.

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The Uganda Revenue Authority (URA) is expected to collect about sh16 trillion a far cry from the sh777b that was projected to be collected in the 1986/87 financial year.

Today finance minister Matia Kasaijja will tell us mostly what we already know about his sh40 trillion budget.

Converted into dollars Kasaija’s $10.5b budget would have had first NRM finance minister Professor Ponsiano Mulema green with envy. Mulema’s first budget came in at $805m at the official exchange rate of the day of sh1,400 to the dollar.

Looked at from the perspective of 1986 most of the heavy lifting has already been done.

In revenue terms, the Uganda Revenue Authority (URA) is expected to collect about sh16trillion a far cry from the sh777b that was projected to be collected in the 1986/87 financial year.

The shift away from a budget predominantly supported by donor funding happened in the 2004/05 when the budget was 54 percent finance by domestic resources. Domestic revenues sources will account for more than 60 percent of this budget. With increased revenues, the government has been able to expand school enrollments, roll out health facilities and have the leeway to finance an unprecedented rollout of roads and energy infrastructure.

Economic growth has been sustained averaging about six percent over the last two decades, while monetary discipline was maintained except for the bleep in 2011 when inflation hit 30 percent, a rate last witnessed in 1992.

The country finally dug itself out of the hole in the early 2000s when per capita GDP eventually matched and surpassed the $400 level of 1971.

A strong emphasis on poverty alleviation in the 2000s spearheaded by than finance minister Gerald Sendaula in which the Poverty Eradication Action Pan (PEAP) focused on beefing up social services – education and health, was given further impetus by Professor Ezra Sururma.

Identification of infrastructure – energy, and transport as stumbling blocks to the economy’s competitiveness paved the way for Maria Kiwanuka’s increased emphasis on infrastructure development during her tenure at the helm of the treasury.

This decade long emphasis has seen the paved road network double to the current 4,500 km and generation capacity jump to more than 1100Mw from about 400Mw.

In the drive to plug these bottlenecks the government has shifted away from it's preference for concessionary loans and grants and activated the local bond market. These have led to a jump in the country’s indebtedness to about 40 percent of GDP from about half that amount a decade ago. Not as the disastrous 100 percent debt-to-GDP ratio Mayanja Nkangi reported in his 1993/94 but of some concern never he less.

In that year our external debt stock stood at $2.6b.

That being said that a quarter of the budget is going towards to interest repayments, amortization and refinancing of debt, essentially debt payments, is where the real concern about debt sustainability should be measured and not the debt-to-GDP ratio.

Some sections have been incessant in there criticism of this policy argue that it saddles future generations with an onerous debt burden, while at the same time starving much-needed funds to the education, health and other social services which would improve the living standards of many especially the rural poor.

The government on it's part insists that at eight in every ten shillings of debt is concessionary, adding that most of the debt is going towards infrastructure development, which infrastructure will generate new economic activity and essentially they will pay for themselves in due course.

Despite there has been dramatic progress it’s too early to rest on our laurels.

The persistent through the years has been to show an equitable distribution of the benefits of the economy’s consistent growth. While we have shown the project in lifting many out of abject poverty, research shows that many of them are still vulnerable and can fall back into poverty with a change in weather or fall in commodity prices.

Last year minister Kasaija reported that 68.9 percent of the population is still in the subsistence economy. This means they consume what they produce with little or no surplus left over to trade for other goods and services.

This fact has exacerbated income inequalities as the rural poor, who are particularly susceptible to the vagaries of the weather and markets, have seen there numbers rising to 25.8 percent in 2017 up from 22.3 percent in 2013. In comparison, during the same period, urban poverty only went up to 9.4 percent from 9.3 percent.

In the 1998/99 finance minister Sendaula in his inaugural budget speech reported that while people living in abject poverty – on less than a dollar a day, had reduced to 46 percent of the population from 56 percent reported from a 1992 survey.

He explained at the time that the progress had been made as people were lifted along with the economy and not through any distribution of the growth gains.

“Based on these results and findings I want to draw four conclusions. First, poverty levels are still unacceptably high. Therefore reducing poverty must remain the overall and highest objective for public expenditure and action. Second, we are certainly making some progress in reducing poverty, contrary to what our detractors say; they are oblivious to the clear signs of reconstruction in the major towns and the building and rebuilding of semi-permanent homesteads in the rural areas,” Sendaula told the house.

“Third, economic policies which promote rapid growth do benefit the poor, considering that over the same period inflation remained low moving from double to single digits and that infant mortality rates also fell from 122 to 97 per thousand births. Fourth, we can achieve much faster poverty reduction if we formulate and effectively implement a policy mix which promotes rapid growth and provides active assistance to enable the poor to raise there incomes.”

With this statement, he in effect set the tone for how he and subsequent ministers would view the fights against poverty and income inequalities.

That was 20 years ago.

The reason that poverty has remained so intractable may lie in the revelation that the agricultural sector, from which two in three Ugandans derive a livelihood, has grown at an annual average of less than two percent in the last three decades, Kasaija said in his speech last year.

Growth in services, industry and real estate have been at the center of the country’s growth for the last three decades.

While the budget for agriculture is expected to go up by 22 percent to just over a trillion shillings, as a share of the entire budget it slipped to 3.2 percent from 3.6 percent last year.

In the face of the huge infrastructural deficits, we have as a country the emphasis on infrastructural development is hard to fault.

In fact, the government has argued the “low” allocations to the agriculture ministry are deceptive in assessing the support to the sector.

The construction of roads, the generation of power, the provision of security all play into supporting agricultural development.

Minister Kiwanuka recognized it and realized the urgency of plugging the infrastructural deficit.

“Government will increase external borrowing to accelerate essential infrastructure projects, particularly in roads, energy, and water for production,” she said in her 2013/14 speech. “Any future borrowing therefore both from external or domestic sources will only be secured for financing the productive sector, specifically to address our infrastructure needs, where we are sure net costs of the project to the country are outweighed by the net benefits.”

Over the last decade, the works and energy ministries have topped the allocations lists in budgets spending trillions of shillings on road and dam construction to lower the cost of doing business in Uganda.

It has been a long heady road from that afternoon of the first NRM budget reading in August 1986. Revenues have grown exponentially, the economy has grown sevenfold and the economy has diversified away from agriculture--  especially coffee, to the production and trade in a myriad of goods and services.

We have come a long way and it's credit to the NRM that people have taken this progress for granted, discounting it as the natural order of things and even dismissed there contribution to it.

We are still a poor nation even by the deceptive GDP per capita statistics. To touch the middle-income status of $1000 per capita we would need to grow the economy by at least 25 percent. There is still alot of hard work ahead and probably even tougher decisions to make.

 We have proven over the years that growing the economy is not a challenge for us. The challenge is the equitable distribution of the benefits of this growth. As long as the economy continues to grow there is a chance we will crack that code.

So confident is finance minister Kasaija of this that in a January press conference he said, “I want to assure you people and the country the economy is now,” he said whistling as he motioned with his hand a plane taking off.

 

 

 

 

 

 

 

 

 

(billion shs)

1986/87

2017/18

EXPENDITURE

1,127.5

27,000

REVENUES

777.8

14,500

AID

 

 

GDP

$3.923B

$27.9B

GDP GROWTH

 

5.8

INFLATION

+100%

3.6%

 

 

 

 

 

 

 

 

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