Fiscal deficit programme to fall short of target
May 25, 2006
THE fiscal deficit reduction programme will fall short of target because of measures to mitigate the energy crisis, a finance ministry report has said.
By Kelvin Kizito
THE fiscal deficit reduction programme will fall short of target because of measures to mitigate the energy crisis, a finance ministry report has said.
A fiscal deficit is the difference between government expenditure and government-owned resources from domestic taxes and non-tax revenues.
Aid money, domestic borrowing or printing money, all of which can cause price increases, can finance a big deficit. This can destabilise the economy.
Uganda’s fiscal deficit, currently financed by donor aid in the form of concessional loans and grants, is projected at 8.6% of gross domestic product (GDP) this fiscal year and will be reduced to 8.4% next year.
However, this is below the percentage point reduction agreed to in the International Monetary Fund’s (IMF) Policy Support Instrument (PSI), according to the national budget framework.
The IMF’s resident representative, Peter Allum, said the IMF board’s figures were approved in January to reduce Uganda’s fiscal deficit from 8.8% of GDP in 2005/06 to 7.7% of GDP in 2006/07, but the country had an option of making an easier choice.
“The budget PSI is the government’s programme and it (government) had an option of choosing a less ambitious programme. That may make sense in view of the energy crisis facing the country,†Allum said.
“The IMF and the Government are continuing to discuss the most appropriate fiscal deficit and budget programmes for 2006/07,†he said.
The energy crisis has compelled the Government to resort to thermal generation, but analysts say this option is expensive due to escalating fuel prices. The Government will need to spend at least $155m (sh283.6) per annum on thermal generation.
“This will increase the deficit because it is very expensive,†an economist said. “This is equivalent to the cost of constructing a new dam in four years.â€
For renewable energy generation projects being developed as public-private partnerships to generate at least 50MW for the grid, the Government will need at least $108m (sh197.6b). US$65m will be from the the private sector and $43m from public resources, a statement from the energy ministry said.
Despite failure to hit the PSI target, the Government plans to pay its domestic debt in three phases.
THE fiscal deficit reduction programme will fall short of target because of measures to mitigate the energy crisis, a finance ministry report has said.
A fiscal deficit is the difference between government expenditure and government-owned resources from domestic taxes and non-tax revenues.
Aid money, domestic borrowing or printing money, all of which can cause price increases, can finance a big deficit. This can destabilise the economy.
Uganda’s fiscal deficit, currently financed by donor aid in the form of concessional loans and grants, is projected at 8.6% of gross domestic product (GDP) this fiscal year and will be reduced to 8.4% next year.
However, this is below the percentage point reduction agreed to in the International Monetary Fund’s (IMF) Policy Support Instrument (PSI), according to the national budget framework.
The IMF’s resident representative, Peter Allum, said the IMF board’s figures were approved in January to reduce Uganda’s fiscal deficit from 8.8% of GDP in 2005/06 to 7.7% of GDP in 2006/07, but the country had an option of making an easier choice.
“The budget PSI is the government’s programme and it (government) had an option of choosing a less ambitious programme. That may make sense in view of the energy crisis facing the country,†Allum said.
“The IMF and the Government are continuing to discuss the most appropriate fiscal deficit and budget programmes for 2006/07,†he said.
The energy crisis has compelled the Government to resort to thermal generation, but analysts say this option is expensive due to escalating fuel prices. The Government will need to spend at least $155m (sh283.6) per annum on thermal generation.
“This will increase the deficit because it is very expensive,†an economist said. “This is equivalent to the cost of constructing a new dam in four years.â€
For renewable energy generation projects being developed as public-private partnerships to generate at least 50MW for the grid, the Government will need at least $108m (sh197.6b). US$65m will be from the the private sector and $43m from public resources, a statement from the energy ministry said.
Despite failure to hit the PSI target, the Government plans to pay its domestic debt in three phases.