1988: Kiyonga presents tough budget

BUDGET         ECONOMY

The following is the full speech of the revised revenue and fiscal expenditure for 1987/88 and the budgetary proposals for 1988/89 presented by the minister of finance Dr. Crispus Kiyonga that Friday.

He explained government intention to reduce inflationary rates from current levels and to sustain levels of growth of the economy through increased support to key sectors like agriculture, transport, roads, manufacturing, water and power supply.

The sectors of agriculture, manufacturing and construction had recorded a marked improvement last year, while the Gross Domestic Product (GDP) also grew at a factor of six percent. The minister widened the tax base further as a means to raise more revenue and indicated serious restrictions on government spending.

"Mr. Chairman and Honorable Members of this August House, the stand of the NRM government on the economy of Uganda is very well known. The objective is to create an economy that is inherently beneficial to the people of Uganda. We believe Mr. Chairman that this is the only independence of this country. Since the NRM government took over power in 1986, our stand on rehabilitation has been governed by the following considerations;

1. Provision of security

2. Repair of social-economic infrastructure,

3. Quick rehabilitation of industries, particularly those that provide essential goods to the population or are high revenue generating;

4. Provision of basic essential services

I am glad to report Mr. Chairman that the movement can proudly point to definite achievements in each one of these areas. Naturally some problems remain and the struggle has to continue. It is only with sustained efforts to combat the problems that we can hope to succeed fully.

This requires Mr. Chairman concerted effort by all members of the Ugandan community. During this period of rehabilitating the economy, we have to be fully aware that we have to primarily depend on our intended efforts and only looking to the outside world for additional support. This will imply some hardships on the people of Uganda but as I will illustrate in the course of this presentation provided we work hard, the hardships will be overcome.

Uganda has demonstrated clearly that we are potentially self-reliant. Up to now despite some problems our population feeds itself. When food is needed in Karamoja, we only need transport and local shillings to move to move it from Kasese or Jinja to Kotido. The fact that we can feed ourselves is no mean achievement. I will now illustrate some of the achievements that the government has made so far.

1. Security
The line of the National Resistance Movement is to unite the country. Through the efforts of the movement with your clear and patriotic leadership Mr. Chairman today the majority of the people of Uganda are living together and in peace.

This country, Mr. Chairman is once again very grateful to you for the steps you recently took to end the insurgency in the North and East of the country. Our brothers and sisters in these areas have now started to return to their home areas.

The budget I am presenting today has taken into account that these citizens will require relief supplies. In fact, Mr. Chairman, you have already in your wisdom directed that graduated tax and school fees in these areas be waived for a period of one year.

Your Excellency, Sir, you have also appealed to the international community to assist with relief supplies to the North and Eastern parts of this country.

In the forefront of the struggle for re-establishing peace have been the gallant soldiers of the National Resistance Army. And the whole country is grateful to them for the job they are doing in different degrees other sectors of the population have also contributed. The Resistance Committees all over the country are to be thanked for their role in this task.

All of us have heard what the RCs in Kamuli and Iganga did in December last year. We have also been told of brave actions taken by RCs in Bushenyi, Kasese and other areas of the country. The police and the intelligence services are doing a commendable work. It is because of these efforts, Mr. Chairman that the achievements so far recorded in the economy have been made possible:

Gross GDP grew in 1987 by a factor of 6 percent. The leading sectors that contributed to this growth were in:

-Agriculture 8 - 10%

-Construction 14%

-Manufacturing 21%

This growth was made possible by definite intervention by government. In the area of agriculture we took the following actions:

a) We imported 7 million hoes from China

b) Chillington company in Jinja was assisted to step up production. In 1986, they produced 482,000 hoes, in 1987, they produced 610,000 hoes and this year they have already produced 460,000 and project a total production of 1 million hoes in the year.

c) 593 tractors were imported and distributed to farmers

d) Foreign exchange was allocated to import animal drugs, fertilizers, pesticides, fungicides and weed-killers.

e) Producer prices were substantially increased.

Mr. Chairman, I would like to report to the House that the government has made commendable progress in the area of road resurfacing and re-opening.

Bituminised roads Kampala-Masaka road. Malaba-Jinja Kabale-Katuna road Tank-Hill road Kampala-Wobulenzi

 

Work has started on Kampala-Jinja road Mbarara-Ishaka road Mityana-Fort Portal

 

Work will soon start on: Masaka-Mbarara-Kabale road Ishaka-Katunguru Soroti-Lira Kalagi-Gayaza Jinja-Kamuli Mbale-Soroti Hoima-Masindi Kyotera-Masaka Nyendo-Villa Maria

 
Regravelling has been done or is about to be finished or will soon start on the following roads (i) Masindi-Kafu. (ii) Hoima Kyenjojo (iii) Mbarara - Ibanda (iv) Kazo-Kabagole (v) Pakwach - Nebbi-Arua (vi) Kisubi-Nakawuka-Nateete (vii) Tororo-Busia-Majanji (ix)Iganga-Tirnyi-Mbale (x) Sironko-Namulu-Nadunge (xi) Mutukula-Kyotera (xii) Kabale-kisoro-Bunagana (xiii) Karuma-Pakwach (ix) Mbale-Sironko-Moroto.

Other feeder roads on which work should start soon include selected feeder roads in Kabarole, Bundibugyo and Kasese. Work in these areas should have started or will soon start. The Ministry of Local Government has also started re-opening roads in some parts of the country.

In order to enhance the capacity for road construction and rehabilitation, machinery is being acquired from various sources. Equipment worth US $10 million has been bought from Saudi Arabia, 25% of this equipment should already be in the country. Equipment worth $5 million from Yugoslavia bought on a line of credit should already be in the country or about to arrive. Using Japanese grants, Uganda will acquire more equipment worth US $2 million.

Road construction equipment has also been received using the Third Highway facility. An agreement for US $8 million has also been signed with Badea for purchase of rural road maintenance equipment.

It is thus clear Mr. Chairman that the country is going to witness enhanced speed of road rehabilitation this year.

In the area of transport between May 1987 and now the following vehicles have been registered and put on our roads: (i) Buses over 100 (ii) Lorries 594 (iii) Trailers and semi-trailers 200 (vi) Saloon cars 2219.

The railway system will soon benefit also from arrangements already put in place by government: 100 tank wagons have been ordered from Spain; 13 locomotives have been ordered from Germany, 11 Grounded French locomotives will soon be repaired; 600 wagons will be brought from Zimbabwe. Work will start in the near future on rehabilitation of the Kampala - Kasese Permanent way.

In the housing construction sector progress is being recorded. Most of the construction is being carried out by the private sector. The government has not only created conditions which make it easier for this private sector to do this, but it has also participated in construction activities.

The Kampala Sheraton Hotel is now the Commonplace for all Ugandans to go and enjoy themselves. This has been done totally by the state. Nile and Fairway hotels are now fully rehabilitated. Lake Victoria Hotel in Entebbe is also to be rehabilitated soon.

There are plans for Uganda Hotels to rehabilitate the rest of its hotels all over the country. Uganda Clays in Kajansi will be rehabilitated. The private sector have been allocated funds to buy small scale machinery to make bricks and tiles. Funds have also been made available for the importation of cement and other building materials.

The Steel Corporation in Jinja is now fully rehabilitated. A new steel rolling mill has been opened in Jinja. The cement industry is to be rehabilitated using funds borrowed from abroad.

Meanwhile every effort is being made to steady power supply to the Hima Cement Factory in Kasese. I expect Mr. Chairman and Honourable Members of the House that construction will pick up to a higher rate than so far witnessed. In the area of industry impressive performance has been recorded. It will suffice to give a few examples.

Soap Industry
In 1987 increase was 120% over 1986. A further doubling of production is expected this year, resulting from: (1) An additional production line installed by the Mukwano Soap Factory. (2) Continuing rehabilitation of other soap factories. (3) Availability of foreign exchange to import raw materials.

It is the intention of government to assist the soap sector to use locally available materials in the manufacture of soap in order to reduce the foreign exchange allocated to import the raw materials. It will cost us approximately $36 million this year to import raw materials for soap.

Brewery Industry
In 1986 production recorded a total of 6,603,400 litres of beer while in 1987 the figure was 16,483,200 litres a rise of 149.6%

Soft Drinks
In 1986 production was 5,049,300 litres in 1987 the level was 6 million litres. This year production is averaging 1.2 million litres per month which projects to 14.4 million litres by the close of the year.  There are signs that they may perform even better.

Tobacco industry
The country is more or less self-sufficient in cigarettes now. Further efforts are being made to enable the country to export once again raw and manufactured tobacco.

Textile Industry
Nyanza Textiles Industry Limited is doing very well. Almost everywhere in the country one is beginning to see school children in uniform out of materials made at NYTIL! New machines have been installed and others are on order.

Rehabilitation at the African Textile Mill in Mbale should be complete by the end of this financial year. Rehabilitation is going on the Lira Spinning Mill. This year should see greater improvements in the textile industry.

Hoe Production
I had earlier reported that this year Chillington in Jinja will produce 1million hoes. This contrasts with the 1986 production which was 482,000 hoes only.

Sugar Production
Lugazi Sugar Factory is now in production and Kakira Sugar Works should start next calendar year but very likely within this financial year.

Cotton Industry
The country will soon have 3 new ginneries. One is already operative at Tororo under South Bukedi Cooperative Union. The second one is at Kacumbala in Kumi and the third one at Kasese. All old ginneries will be fully rehabilitated by the end of this year. The challenge now is to produce enough cotton to use the increased ginning capacity.

Power Supply
This area remains a constraint. A number of factories ranging from coffee factories to textile mills are losing a lot of working hours because of constant power interruptions. In some cases the interruptions are lasting weeks or even months.

However, there is some improvement in power supply and government will continue making every effort to ensure quicker recovery in this critical sector. Water supply to factories also remains a big constraint to industrial operation.

In the area of social infrastructure some work too has been done. The rehabilitation of Mulago Hospital has started in some modest way. Later in the year this activity will pick-up and early next year full rehabilitation of the hospital will start.

A number of hospitals have either been rehabilitated or rehabilitation is ongoing. These include: 1. Entebbe, 2. Buhinga in Fort Portal, 3. Hoima, 4. Masaka, 5. Mbale, 6. Mbarara, 7. Mityana, 8. Mubende, 9. Moroto, 10. Soroti, 11. Tororo, 12. Yumbe, 13. Kiboga, 14. Moyo, and 15 Nakaseke.

A number of Rural regional hospitals are also to benefit from a World Bank Emergency Health Rehabilitation. These will include Gulu and Jinja among others.

A new hospital is to be built in Rakai, work should start with in this financial year. Quite a big number of Health Centres and dispensaries are being rehabilitated all over the country. The rehabilitation of the Makerere University is on-going. The supply of drugs to all hospitals and dispensaries has markedly improved as a result:

1. Deliberate regular allocation of foreign exchange to purchase drugs through: (i) Ministry of Health; (ii) Mulago Hospital; and (iii) the Uganda Pharmaceuticals Ltd.

2. Assistance from abroad

The situation regarding scholastic materials has also shown improvement. There are now two factories in the country making exercise books. Some pens and pencils are also being produced locally.

As far as water supply is concerned, the following actions have been taken. In Kampala city, the water treatment plant at Gaba is complete. This has a handling capacity of 72,500 cubic metres. New transmission lines to Muyenga and Naguru from Gaba have been completed with a capacity of 77, 200 cubic metres per day.

In other towns, work is advanced or complete on water rehabilitation in Tororo and Masaka. Pumping equipment to replace obsolete pumps in Kisoro is already on site. Plans for water supply rehabilitation is advanced in the towns of Kumi, Kitgum, Arua, Mubende, Masindi and Kabale. Review of restarting water projects in Gulu, Lira, Pallisa, and Kamuli which were abandoned due to insecurity is now underway.

In the rural areas a total of 4,000 boreholes have been completed, 1500 springs and wells have been protected. Gravity water supply systems are being planned or executed in Kitagata, Buhungu, Bunyaruguru and Kasese. Valley tank building and desilting is either going on or about to start in Karamoja and other areas of the country that normally require these facilities.

The banking sector

Rural Farmers Credit Scheme
We have put in place the Rural Farmers Scheme under UCB which I had the privilege to officially launch in July 1987, at Kasese in Western Uganda. The UCB Rural Farmers Scheme, the first of its kind, in the country, was introduced in order to provide agricultural credit to small hold farmers engaged in crop production, animal husbandry, poultry and fishing.

This was in recognition of the rural peasantry who form the backbone of Uganda's development efforts through agricultural production. Until then, banks had been carrying on a discriminative service that harshly contradicted with the realities of our time, by denying the rural poor facilities to borrow due to the many stringent requirements demanded by them.

The NRM, therefore, must be highly commended for reversing this state of affairs. The scheme which is still in its pilot stage is evenly distributed in most all the regions of the country with a total of 32 participating branches with the intention of spreading it nationwide in the not too distant future.

I have the pleasure Mr. Chairman to inform you that the Rural Farmers Scheme has been warmly welcome by the population who are most grateful to the NRM administration for having implemented this initiative.  One thing to note, however, is that a lot of Ugandans are not using the banking system for a number of reasons. Leading among these is the fact that the banking infrastructure is not widely spread in the country.

Accordingly the Uganda Commercial Bank has embarked on a programme which will lead to the opening of 136 branches in the next year or so. Apart from making it easier to mobilize more resources that can be on-lent to intending investors this will also make it easier for more people to participate in the rural farmers scheme.

This will also make borrowing easier for the RC IIIs and RC Vs when the law is eventually amended to make them legal personalities.

Mr Chairman, in order for the public to be encouraged to bank their money they must be convinced that they stand to benefit by saving their monies with the banking system. And so on top of taking banks nearer to the people we have to give an adequate incentive for those using banks.

One of the ways to give this incentive is to reduce the rate of inflation. The budget measures under proposal are in part aimed at doing this.

I will at a later stage be returning to this subject. In summary then Mr. Chairman, the government has clearly made great leaps forward and the government deserves credit for this. But as I said earlier there are problems that still stand out and against which we have to continue struggling. Leading among these are:

1. Shortage of resources to carry out rehabilitation work

2. A total stock of national external debt of US$ 1.2b most of which was contracted before the NRM took over power.

3. Inflation rate of nearly 120%

4. A projected negative balance of payments of US $622m. This is the money we require over and above our own earnings to pay for our total imports and debt obligations.

5. The marketing arrangements in the country which remain problematic.

Mr. Chairman, these problems could have been ameliorated if it was not for certain developments experienced during the financial year ending. These developments included, on the external front four aspects:

1. There were delays in the receipt of anticipated external support for the programme implementation. This severely constrained our budgetary operations between July and December 1987. Although government launched the recovery programme in May 1987 external assistance in any measurable size became available only in October and the imports so financed did not arrive in the country until early this year.

2. Revenue from coffee sales was significantly lower than expected due to the re-introduced of ICO quotas at relatively low levels for Uganda and the failure of world market prices to react positively to the new quotas.

3. The temporary closure of the border between Uganda and Kenya in December 1987. This interrupted the flow of traffic and thus delayed shipments. The resulting accumulation of export stocks led to a worsening in the crop finance credit situation. The accumulation of imports, especially raw materials, at the ports of entry meant a delay in industrial output and therefore a substantial rise in prices.

4. Debt service obligations continued to weigh heavily on Uganda.

 On the internal front contributory factors included:

1. Provision of relief to those sections of the population that were threatened by starvation in Karamoja and Northern Uganda.

2. Hosting of the Preferential Trade Area summit in December 1987

3. The insurgency in the North and East which forced the government to shift resources to defence and security.

Objectives of the 1988/89 budget
In the coming financial year, government, Mr. Chairman, aims at:

1. Sustaining the current level of growth in the economy. Every support will therefore be given to the sectors of agriculture, transport, road resurfacing and re-opening, industrial manufacturing, power and water supply. Consequently 25% of the development budget has been allocated to the ministry of works and a total of 15.7% allocated to the agricultural sector i.e the ministry of agriculture and the ministry of Animal Industry and fisheries.

2. Holding inflation down from the current level to a level of not more than 5% per month.

3. Government will as much as possible refrain from contracting non-concessional debts.

The implications, Mr. Chairman, are broadly the following:

1. Government will have to severely restrict its expenditure. Expenditure will be strictly related to income.

2. Government intends to retire part of its debt to the central Bank.

3. Taxes will have to be adjusted upwards adequately to raise enough money for government expenditure.

4. Government will suspend or minimize its expenditure in certain areas until such time as funds become available. These areas will include!

1. Further purchase of vehicles;

2. Construction of houses;

3. Travel both internally or abroad; and

4. Subventions to parastatal organizations, etc.

5. The population will have to be mobilized through the different levels of resistance councils to physically participate in:

1. Rehabilitation or building of social infrastructure like schools and health units;

2. Road re-opening and gravelling; and

3. Tax administration. The treasury and the local administrations will use where possible and necessary Resistance Committees to assist in identifying tax defaulters.

The role of the private sector in the economy
Mr. Chairman and Honourable members of the Council, I did in the 1987/88 budget speech make reference to the subject of role of the private sector in our economy. I have found it necessary to return to this subject to clarify certain points.

First to emphasize that the NRM remains committed to a mixed economy, the central consideration as far as we are concerned is creation of National Wealth by both the Public and Private sectors. What the movement is against and will actively discourage is the net outflow of National Resources. The second point touches on the size of the parastatal sector. The government has decided to sell or wind up some of its state corporations. This is intended to achieve two objectives.

1. Give more opportunities to the private sector;

2. Relieve government of some of the obligations that would financially over-burden the state at this state of reconstruction.

As for those enterprises that will remain in government hands, government has taken a decision to form an audit corporation that will audit the state corporations and leave the Auditor General to concentrate on direct government accounting.

This arrangement will lead to improved operations both in government and the parastatal sector. I would like to invite the cooperative movement to form a similar structure.  The third point is on the small scale industrialists. These have contributed quite significantly to the sustenance of our economy and they must be given every encouragement.

Mr. Chairman you recently gave these people a big morale boost when you visited some of them at Katwe in Kampala. We have followed up this initiative by forming a special desk in the Ugandan Development Bank that will attend to the needs of small scale industrialists.

Already $6million has been borrowed from abroad to be on-lent to both this group of industrialists and small holders in agriculture. Further funding will be organized from both internal and external sources.

The ministry of industry and technology will assist to get the small scale industrialists better organized so that they can maximally benefit from facilities to be organized for them by government.

The Final point I would like to make on this matter is in regard to foreign investment.

Mr. Chairman, I would like to report that following the coming to power of the National Resistance Movement and the consequent establishment of serious and clear leadership in the country, the international community is showing increasing interest in Uganda.

One of these areas that our friends abroad are interested in is investing in our economy. While we continue to use it, active work is going on to write out a more appropriate investment code.

I do expect Mr. Chairman that by December, this calendar year, the legislature will have deliberated on this matter and made appropriate amendments.

Producer prices and salary levels
In order to reward the producers of wealth and to give them further incentive for increased production, government is committed to regular review of producer prices and salaries of workers.

This, however, has to be done in the context of the difficulties of the economy and benefits to be accrued from improvements in other sectors of the economy. In case of agricultural production consideration is also given to the fact that there are non-price factors that encourage production. These include:

1. A functioning and healthy transport system i.e. good roads and availability of trucks.

2. Prompt payment for the crops;

3. Availability of goods to buy from the markets and shops.

In the case of the salaried sector, the major consideration is the ability of the economy to pay an adequate salary. With these consideration in mind Mr. Chairman and Honorable Members of the House I have decided to take the following measures;

 

Crop	Current Price	New Price
ROBUSTA COFFEE
Kiboko	29	60
Clean	50	111
ARABICA COFFEE
Kiboko	29	58
Parchment	50	100
Clean	62	125
COTTON
AR	32	80
BR	18	42
TEA
TEA	10	20
COCOA	30	75
MAIZE	6	15
GROUNDNUTS
Unshelled	50	70
SIM SIM	35	65
SOYA BEANS	15	20
BEANS
Single colour	20	35
Mixed	10	30

 
A combination of:

1. Political mobilization;

2. Improvement in the transport sector;

3. Improvement in marketing system and the new prices should lead to higher production levels in these crops.

ii) As for the salary earners in public service the government has decided to increase the wage bill by 120 percent. The detail of the civil servants will be issued by the Ministry of Public Service and Cabinet affairs. This takes effect from July 1, 1988.

In the past, parastatal organizations have been awarding themselves salary hikes without reference to the Treasury which supports them. They will from now onwards have to justify to the treasury salary changes before they can be affected.

And for those in the private sector, employing other people they are advised to pay due regard to other members of society when they consider salary hikes. What has been happening is that private entrepreneurs hike private salaries as they like and pass on these to the public.

Price hikes have also been attributable to the epidemic of middlemen in the country. Some of the measures in the budget proposals will assist to limit this disease. The government will in due course review the current distribution system with the view of reducing middle men. Any person or organization playing a middleman's role will be affected by this, be it a government parastatal or private enterprise. Import Policy will also be reviewed to ensure that middlemen do not continue to exploit our people.

FOREIGN EXCHANGE MANAGEMENT POLICY
Mr. Chairman, I am pleased to report that the plan which you announced on May 15, 1987 to gradually replace the current administrative system of foreign allocation with an Open General Licensing (OGL) system under which importers in selected industries would receive foreign exchange on a continuing basis has been successfully implemented during 1987/88.

The industries which were selected for Open General License are beverages, textile, soap, mattresses, blankets, tobacco and cement. These industries imported raw materials and spares valued at approximately. UsUS$30 million in 1987/88. The coverage of the Open General License System will expand in 1988/89 as more foreign exchange becomes available.

MONETARY POLICY

Mr. Chairman because of certain factors which include:

1. The current high inflation rate

2. The huge budget deficit we incurred the year ending and

3. The need to cover increased producer prices, Government has decided to change the relationship between the Uganda shilling and the US dollar. The US dollar. The US dollar will now cost Uganda shillings 150 instead of 60. This measure takes immediate effect.

As a further move towards economic stabilization limit on government borrowing from the public has been raised from 200 million to 2 billion shillings during 1987/88. This will make it possible to reduce government direct borrowing from the Central Bank and will have positive direct impact on inflationary pressure.

Additionally, government will continue the measures introduced in 1987/88 to ensure expenditure discipline by line ministries thereby minimizing deficit financing. Such discipline Mr. Chairman is absolutely indispensable to economic stabilization and is a corner stone of this economic programme.

Mr. Chairman, the achievement of a stable monetary environment will make it possible to protect the real value of incomes of the population and will ensure as well that savings put aside by our population for purposes of investment are not rendered worthless by inflation.

The accumulation of savings and investment is a critical factor in growth and development. While the control of inflation will go a long way in encouraging savings, it is also possible to encourage savings through an appropriate interest rate policy.

While it is not currently feasible Mr. Chairman to raise interest rates to a level about the current inflation rate in order to make them positive, nevertheless some movement in that direction could stimulate extra saving, attract more money into the banking system, while also helping to direct credit into more productive investments. For these reasons, I have decided to revise the structure of interest rates effective at midnight tonight.

The structure of interest rates is being revised as follows:

Medium and long-term loans with maturities exceeding one year will carry interest rates between 32 and 40 percent. The exact level will be determined by the risk considerations attached to the specific project.

Interest on the short-term lending of a commercial nature will be fixed at 35 percent. The interest rate on shorter commercial borrowing will be reviewed in line with future changes in inflation.

The rate of interest on savings has been set at a range of 28 to 32 percent depending on the deposit maturities.

1987/88 budget out-turn
Government had estimated expenditure for the fiscal year 1987/88 to be Shs.61.3 billion. Of this, the recurrent expenditure was estimated to be Shs. 29.7 billion and development expenditure was estimated to be Shs 31.6 billion.

The management of the budget for the year 1987/88 has not been easy. The government has had to continue large expenditure on maintaining security in certain areas of the country, it was during this financial year that the insurgency in the north-eastern part of the country reached a climax before it was finally brought down by the army. Apart from this, this insurgency created a large number of displaced people who had to be looked after and temporarily resettled.

The budget had also to accommodate a very large expenditure which was not envisaged at the time of preparing the 1987/88 budget. Large expenditure related to hosting of PTA Summit in Kampala is a case in point. These large commitments had the effect of widening the budgetary deficit planned at the beginning of the year. The financing of that deficit, coupled with increase in domestic credit as a result of crop finance by the banking system, put more pressure on prices and inflation continued to accelerate.

As members know, government had to take action to forestall further large increases in prices. In order to contain the deficit within the limits originally planned, the government issued a supplementary budget of Sh35.7b, which reduced planned expenditure in such a way that the cuts would compensate for the unplanned expenditure. The supplementary budget therefore reduced the recurrent expenditure from the original Shs 29.7 billion to Shs 19.5 billion and development expenditure from 31.6 billion to Shs 9.7 billion.

The out-turn in revenue now indicates that we have realized total revenue amounting to Shs 26.08 billion and of this, tax revenue was Shs 17.21 billion. The fiscal year 1987/88 therefore has indicated a deficit of Shs 9.6 billion.

It is clear that we continue to run large budgetary deficits and, in most cases, exceed planned deficits. In order therefore to have effective control on inflation, steps need to be taken to reduce this budgetary deficit by exercising more economy in the way government spends money and also reduce government commitments can be left to the private sector.

On tax effort, I would like to report that despite problems, the tax collectors have shown improvement in their work during the year. Two points illustrate this point;

1. Although government budget has been growing, between 1985/86 and 1987/88, the contribution of coffee to tax revenue has fallen from 66.5% in 1985/86 to 32% in the year ending.

2. Total tax revenue has risen from 2.844 billion in 1985/86 and Shs 5.0 billion in 1986/87 to Shs. 17.2 billion in 1987/88.

3. Rehabilitation demands;

4. The need to provide further relief supplies to the section of the population in the North and East of the country.

5. Provision of basic social services mainly in health and education.

6. The heavy debt burden which accounts for more than 30% of the total budget.

The allocation of Ministry of Education has been somewhat increased by the need to start on the nucleus of a second university, which is to start in a small way at Mbarara and will utilize some educational facilities which already exist in the town.

The government proposes, to reduce its budgetary commitments by entrusting some of the supply functions in the agricultural industry to the private sector. It is proposed that responsibility for supplying farmers with agricultural chemicals as well as veterinary drugs be entrusted to commercial organizations the government may select, taking into account their competence in those fields, the government will work out plans with these commercial organizations so that these supplies are sold to farmers under the supervision of Resistance Councils in the rural areas.

With regard to revenue, the government hopes to raise a total Shs. 81.7 billion of which Shs 55.7 billion from tax as well as other non-tax sources and Shs 26.0 billion in grants from abroad.

With an expected expenditure level of Shs. 120.6 billion, the government therefore expects to still end up with an overall deficit of Shs 38.9 billion which it hopes to finance by borrowing from within Uganda and from abroad, seeking debt write off and/or debt rescheduling with its creditors.

In order to widen the tax base and reduce tax evasion the government has decided:-

1. To require oil companies which have an open import license for petroleum products to pay a commission on their imports.

2. To require income tax clearance before the Administrator General transfers administration of estates of any deceased person.

3. To require all government officers to clear any contract they may sign with any contractors or consultants in Uganda, with the Ministry of Finance to ensure that taxation provisions in that contract are consistent with the law. Unless this requirement is observed, such contracts would be invalid.

The measure taken with regard to the adjustment in the exchange rate of the shilling will increase the price of imports and force the price levels in the country upwards.

In order to ameliorate the negative impact of devaluation, government will set up a fund to assist priority enterprises that may find it difficult to purchase foreign currency. In a few selected areas in the agriculture and animal industry sectors moderate levels of temporary subsidies may be introduced after due consideration of the impact of this measure on the budget.

Tax proposals
As pointed out, one of the objectives this budget is to contain inflation but sustain present levels of growth. This implies less reliance on borrowing from the banking system. The government has therefore to look to its citizens for resources.

Income tax
Changes are being proposed in the current deposits rates. As members will remember, this system of deposits as opposed to direct assessment was introduced more than 10 years ago.

This was introduced as a temporary measure, but has now remained a more or less permanent feature on income tax in the country. The reasons for continuation of deposit system are:

1. Most of the business community do not write accounts

2. The deposit rates have been very low compared to the actual incomes and so the business people find it easier not to return to file their profits as this would imply more taxation.

3. The tax system in the country is yet to develop a capacity to assess all tax payers expeditiously.

I therefore propose to increase various deposit rates as will be found in the Finance Bill 1988/89. In addition, it has been decided that deposits be widened to cover several areas of commercial activity which were not previously covered. Deposits therefore are to be extended to the following categories of tax payers and these will pay deposits as follows:

1. Carpentry workshop in the city and the municipalities Shs. 50,000 a year.

2. Tour operator Shs. 500,000 a year.

3. Manufacturers' representatives Shs 1,000,000 a year.

4. Hair dressing, beauty and bridal saloons Shs. 20,000 a year

I also propose to increase penalties and fines as well as the rate of interest on any outstanding tax in order to discourage default on tax payment. It is therefore proposed to revise the penalties, fines and interest rates in manner that will be outlined in the Finance Bill. The government hopes to raise additional revenue amounting to Shs 3 billion from these income tax measures.

Customs Duty
The 1987/88 Budget gave relief in the field of Customs duty to some consumer goods which included soap, sugar and salt. It also gave relief to customs duty on industrial raw materials, new plant machinery and equipment as well as road construction equipment.

It also reduced customs duty rates applicable to buses, mini-buses, pickups, lorries, motor vehicles tyres and spare parts.

As economic activity was just beginning after many years of stagnation, the government had to forgo revenue and reduce customs duty, rates in order to motivate quick economic recovery. Considering the revenue demands in 1988/89 financial year, it has been found necessary to review these decisions.

It has therefore been decided that with immediate effect, the following tax measures be taken:-

1. Imported sugar will now attract duty at the rate of 255 percent in order to maintain a uniform price of sugar to the consumer whether it is imported or locally manufactured.

2. Imported soap will be charged at the rate of 60 percent for exactly the same reason.

Mr. Chairman, government recognizes the instrumental role of transport in the reconstruction of the economy and for this reason, I have decided to abolish the rate of duty on buses.

But Mr. Chairman, I note an increase in the importation of reconditioned vehicles. Although these, too, have greatly assisted in improving the transport situation, I find them costly to maintain in the economy. I have therefore decided that vehicles older than four years will not be allowed into the country after December 1988.

This measure will however not apply to returning residents with documentary evidence that they have owned them for over a year.

Sales Tax
Mr. Chairman, I am with immediate effect, reducing sales tax on the following:-

1. Buses and lorries from 10 percent; to 5 percent

2. Beer from 110 percent to 90 percent

3. Cigarettes:

1. Rex and sportsman from 60 percent to 50 percent, (ii) Kali from 45 percent to 35 percent

4. Locally manufactured textiles from 25 percent to 10 percent

5. Soap: (i) imported 30 percent; (ii) locally produced 10 percent.

I have abolished sales tax on sugar.

Excise duty
Mr. Chairman, devaluation will inevitably result into high prices, even of locally manufactured products because of imported raw material. In order to minimise the effect of devaluation on the prices of local products, I have, with immediate effect reduces the Excise Duty rates as follows;

Beer from 100 percent to 75 percent

Cigarettes: (i) Rex and sportsman from 75 percent to 55 percent, (ii) Kali from 45 percent to 35 percent

Soap 5 percent

In effect the retail prices for soda will be 115/- per bottle: beer will now cost 260/- per bottle: sugar 230/- per kilogramme and soap 200/- per bar. Cigarettes; Rex not more than 240/- per packet, Sportsman not more than 180/- per packet and C&S medium, not more than 60/- per packet.

With respect to petroleum products, Mr. Chairman, I have found it necessary to raise prices in order to raise revenue and to encourage careful use of these products. With immediate effect the new prices of petroleum products will be as follows:-

BRAND                         Pump Price per litre

Super                                          Shs 70

Kerosene                                     Shs 45

Diesel                                         Shs 50

I have also adjusted the rate of sales tax on textiles to 10 percent. The government hopes to realise from these new measures additional revenue of Shs, 1, 304 billion and Shs. 2.943 billion as excise and sales tax respectively. I have also extended the scope of commercial transactions levy which will now apply to all restaurants and eating places in Kampala city area, or Municipalities, town councils, town boards and rate will be 10 percent.

As a result of inflation, fees and licence chargeable under the Traffic and Road Safety Act 1970 are no longer enough to cover administrative costs as well as price of materials necessary to provide these services. It has therefore been decided that with effect from midnight tonight, fees for licences under this Act be increased. The details will be contained in the Finance Bill. The government hopes to raise about Shs. 190 million from this measure.

The cost of drivers permits is also going up substantially and the details will be in the Finance Bill.

OTHER REVENUE SOURCES

Temporary Road Licence
Uganda has been collecting revenue from freight charged at border posts on commercial vehicles. This measure is universal and it is justified by the fact that vehicles do damage roads which need a lot of money for repair from time to time, especially in a country like Uganda which is a transit country.

They have been however, within the context of PTA and the Northern Corridor organisations, complaints about the level of freight charges imposed by Uganda on commercial traffic. I am therefore abolishing freight charges but at the same time, introducing a temporary road licence on all foreign registered vehicles as they enter the country.

On entry into Uganda a foreign registered vehicle will be required to obtain a temporary road licence and the licence fees will be as follows:-

Vehicle weight up to 2000 kgs … $20 per vehicle;

Vehicle weight from 2001 kgs to 6,000 kgs … $30 per vehicle;

Vehicle weight from 6001 kgs to 8,000 kgs … $40 per vehicle;

Vehicle weight from 8001 kgs to 9,000 kgs … $50 per vehicle;

Vehicle weight from 9001 kgs to 10,000 kgs … $80 per vehicle;

Vehicle over 10,000 kgs … $100 per vehicle

This temporary road licence will of course be paid for in foreign currency and will be valid for a period of 30 days. It will be issued by the Licensing Officer of the Inland Revenue Department. This measure is expected to bring in about Shs. 140 million

(b) Airport service charge
Airport facilities are expensive to rum and contain expensive installations. Those who use the airport, therefore, need to contribute to the cost of maintaining airport services.

It has therefore been decided to impose a service charge of two different categories:

1. A service charge of $20 on each passenger departing to destinations outside Uganda to be paid in foreign currency if the passenger is a non-resident or in Uganda Shillings of the passenger is a resident.

2. A service charge of Shs. 500/= on each passenger departing for a destination within Uganda. These measures take effect from midnight tonight.

(c) Import Commission
The administrative cost of processing import licences is, from experience, very high. The documents are many and voluminous and processing takes a lot of time. It is therefore necessary to raise more revenue to finance increased costs involved in import licensing.

It has there been decided to increase, with immediate effect, import commission from 0.5 of one percent which will also be extended to imports of petroleum products which have an open General Licence.

CONCLUSION
In conclusion, Mr. Chairman, and Honourable members he budget proposals are intended to assist in achieving two objectives.

1. Bringing down inflation and;

2. Sustaining the tempo of growth so far recorded. These measures therefore need the support of all of us.