Oil money needs strict oversight

Jan 10, 2014

IN preparation for the expected oil cash flows, a special petroleum fund is being set up in the Central Bank with objectives of financing the budget and saving for the future

By Ibrahim Kasita

IN preparation for the expected oil cash flows, a special petroleum fund is being set up in the Central Bank with objectives of financing the budget and saving for the future.

However, experts observed that the rules that will govern the fund are still not clear and it is not yet known who at the Bank of Uganda will directly control the fund.

This oversight role will raise demand for responsibility in managing oil revenues. Uganda expects to earn up to $3b every year when commercial oil production starts in the next five years.

“In practice, there should be a law that caps the amount of money, either in percentage terms or otherwise, that can be integrated into the annual fiscal framework,” Lawrence Bategeka, a senior research fellow at the Economic Policy Research Centre (EPRC), said.

He pointed out that there should also be a law that guides the kind of investment ventures that are permissible with such funds.

The demand for transparent management of the petroleum fund is because oil is an exhaustive resource. Oil production volumes and prices keep changing. 

Similarly, the exchange rates are volatile and the oil business is susceptible to fraud and money laundering.

The Ministry of Finance, Planning and Economic Development is in the process of consolidating all public financial management legislation into the new Public Finance Bill 2012.

The proposed law will consolidate the Budget Act 2001 and the Public Finance and Accountability Act 2000 and establish a comprehensive framework for the management of oil and gas revenues.

Joseph Mawejje and Lawrence Bategeka in a paper they co-authored titled Accelerating Growth and Maintaining Intergenerational Equity Using Oil Resources in Uganda say: “Unless there are significant improvements, the country’s oil revenues could be in danger of being allocated corruptly and for purposes that are not likely to benefit the bulk of citizens.”

Uganda’s memorandum of economic and financial policies to IMF indicates that the Government started implementing the treasury single account (TSA) in October last year.

The first phase of implementation involved introducing a structure of subaccounts to be swept daily into the consolidated fund, and closing most of the inactive accounts.

“The Government will further extend the coverage of the TSA by including salary accounts, holding accounts, non-donor funded project accounts and deposit accounts,” the finance minister, Maria Kiwanuka, stated.

“Improvements to cash management planning will also require setting up a cash management planning unit to coordinate the timing of payments.”

The minister said the petroleum fund will avoid a situation whereby petroleum revenues bypass the budget framework.

“A petroleum fund will be created upon passing of the revised Public Finance Management Bill (PFMB),” Kiwanuka said.

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