Ssendaula presents 2000/2001 budget proposals

 

Yesterday, Minister of Finance and Economic Planning, Mr. Gerald Ssendaula read Government's budget proposals for the financial year 2000/2001. Below is his speech in full in which Ssendaula highlights how the adverse effects of drought limited growth to 5.1%. He also pointed out that external trade shocks, especially depressed coffee prices on the world market also hurt foreign exchange earnings during the last financial year.

 

Your Excellency the President, Mr. Speaker Sir, Honourable Members of Parliament,

 

I beg to move that Parliament do resolve itself into a committee of supply for the consideration and approval of:

 

The Revised Revenue and Expenditure estimates for the year 1999/2000 and;

The Budgetary proposals for the Estimates of Revenue and Expenditure for the fiscal year 2000/2001.

 

1. Mr. Speaker Sir, our economic performance during this financial year has very clearly demonstrated the benefits of the sound fiscal policies that we have consistently implemented and of the robustness of the Ugandan economy, which is the product of a decade of radical economic reforms. Real GDP has expanded by 5.1%, and inflation has been kept firmly under control.

 

 

2. While our rate of growth this year is lower than our medium term target rate of 7%, it still represents a very credible performance, because our economy has faced both an extended drought in many parts of the country and a severe external trade shock, with depressed prices for coffee on world markets and a sharp rise in world oil prices. The fall in world coffee prices alone cost Uganda US$57 million in lost export earnings in the first eleven months of the fiscal year.

 

The Ugandan economy has weathered the shocks it faced much better than most other developing countries, and Uganda's growth rate of 5.1% compares very favourably with that of other developing countries, both in this region and elsewhere in the world. I should point out that the average rate of real GDP growth in Africa in 1999 was only 2.3% while the average rate of growth in all developing countries was only 3.8%.

 

3. Our GDP growth this fiscal year was lower than targeted for two main reasons. First, production of cash crops was seriously affected by drought and coffee wilt disease, and this also had knock-on effects for agro-processing industries. Secondly, the external terms of trade shock reduced real incomes, and cut demand for output across many sectors of the economy.

 

Nevertheless, the economy has remained reasonably buoyant, with the utilities sector, manufacturing, construction and transport and communication all registering real growth of 8% or higher in this fiscal year.

 

4. I expect economic growth to recover in the coming fiscal year, and that over the medium term we will achieve our target average growth in GDP of 7% per annum. Economic growth will be spurred by the reforms which we are implementing in the power and telecommunications sectors, which will ease some of the main bottlenecks to increased production, as well as by the expansion of the roads program which will improve market opportunities in the rural areas.

 

 

5.  Inflationary pressures increased in the first half of the fiscal year, with annual headline inflation rising to a peak of 10.6% in November 1999. Inflation rose, because the drought sharply pushed up food prices and     because exchange rate depreciation led to an increase in the   price   of imported goods.  The subsequent risen petroleum prices also stoked up the inflationary,' pressures. Nevertheless, inflation has been brought firmly under control since November.  By mid-last month, annual headline inflation had fallen back to 2.4% while underlying inflation, which excludes food crop prices, had fallen to 3.8% per annum.

 

6.  We have been able to keep firm control over inflation only because Government implemented fiscal   restraint in response to the revenue shortfalls, and because the Bank of Uganda tightened monetary policy    to moderate the growth of money supply, through increased sales of Treasury Bills. Had we not cut Government expenditures in response to the large revenue shortfalls, Government's domestic bank borrowing would have increased, leading to a rapid expansion of the money supply and fuelling higher inflation.

 

The consequence of higher inflation would have been the erosion of private sector confidence in the economy, which would have severely  damaged prospects for private investment and economic growth. In the coming fiscal year. Government will remain totally committed to its long-standing policy of holding inflation to an average level of no more than 5% per annum.

 

 

7. Our major export industries suffered a series of setbacks in this fiscal year. Total export earnings are projected at only $450 million, compared to $549 million last fiscal year.

 

Earnings from coffee exports tell by more than $100 million because of both the decline in output and a 25% fall in world market coffee prices. Coffee output fell by, about 17% compared to the last fiscal year because of the drought and the coffee wilt disease, which has now spread to all robusta growing districts. In addition, the ban imposed by the European Union on imports of fish from Uganda reduced our earnings from fish exports by more than US$30 million.

 

8. Imports increased only marginally, fromUS$1.38 billion to US$1.39 billion due to the depreciation of the shilling, effects of lower export prices and the sharply increased oil prices on real incomes and expenditures.

 

 

9. The fall in export earnings led to pressure on the exchange rate, and the shilling has depreciated by 9% against the dollar during this fiscal year, although the rate    of depreciation was less against other major currencies such as the Euro, because the dollar itself has appreciated on world currency markets.

 

The depreciation of the shilling was caused primarily by the external terms of trade shock, combined with the strength of the dollar on world markets. The shilling has also been subjected to speculation in the last few weeks. The Bank of Uganda has aggressively fought this speculation by tightening liquidity and intervening in the foreign exchange market to support the shilling.

 

 

10.    Mr.  Speaker   Sir, Government has taken steps to further strengthen the framework for banking supervision and regulation. The statutory unimpaired minimum paid-up capital requirement for banks was raised by statutory instrument to Shs 4 billion.

 

Banks which were already in operation were required to have a minimum paid up capital of Shs 2 billion as of January 1st this year and have until January 1st, 2003 to comply fully with the Shs 4 billion minimum capital requirement. The higher capital requirements are essential to provide banks with a buffer against losses and to give bank owners strong incentives to ensure that their banks are managed prudently so as to safeguard 'their depositors' funds.

 

A new Financial Institutions Bill is being drafted and will soon be submitted to Parliament. I believe that the actions we have taken, to improve bank regulation and supervision and to enforce compliance with the banking laws have yielded positive benefits for bank customers and for the financial soundness of the banking industry,

 

11. This is borne out by the improvement in the financial performance of the banking industry. The ratio of non-performing loans to total private sector loans declined from 22.9% in June 1999 to 12.8% in March 2000. The capital base of the banking industry has increased by more than 50% in the current fiscal year. Commercial banks' deposits expanded by almost 16% in the first nine months of this fiscal year. Commercial Banks' deposits expanded by almost 16% in the first nine months of this fiscal year.

 

12. Last year Government decided to refund the private sector customer deposits in the three banks which were closed in 1998/99. However, in my last budget speech, I announced that, in future, Government would revert to its policy of only reimbursing insured deposits: That is deposits up to a maximum amount of Shs 3 million. It is important for the Government to protect small deposits covered by the Deposit Insurance Fund, but it is equally important that the larger depositors take responsibility themselves for choosing the banks in which they deposit their money.

 

The Bank of Uganda can supervise the banks and enforce the banking regulations, but no banking regulator, anywhere in the world, can guarantee that a bank will never fail. Developed economies provide incentives for prudent management of this sector by combining public regulation and market discipline. Private credit rating agencies, which evaluate the financial condition of banks on a regular basis, as in some Latin American countries, can contribute to enhancing market discipline in the banking industry. I intend to examine how best to encourage the development of private sector bank rating agencies in this country.

 

13. Mr. Speaker Sir, the most urgent outstanding issue in the banking sector is the future of Uganda Commercial Bank Ltd. UCBL has been under the statutory management of the Bank of Uganda for almost 15 months. I believe that, despite the good management temporarily provided by the Bank of Uganda, the Central Bank should not be managing a commercial bank for this long.

 

Government policy is to re-privatise UCBL to a core investor with reputable banking credentials as soon as possible. Re-privatisation is essential before UCBL can resume lending to the private sector, because UCBL needs the capital and strong management which a reputable bank investor can provide, in order to rebuild its loan portfolio without incurring the huge loan losses that have crippled the bank in the past.

 

14. A key element of both our Poverty Eradication Action Plan and the Plan for the Modernisation of Agriculture is the provision of sustainable financial services to the poor. Worldwide experience shows that Micro Finance Institutions (MFs) can supply these services efficiently and effectively, provided that they are free to charge their borrowers interest rates which cover the cost of funds, including the administrative cost of lending 'and the risks involved with lending.

 

Worldwide experience also shows that it is the availability of capital, and not the cost of capital, which is a constraint to microenterprises. MFIs should also be free to mobilise savings, but it is imperative that MFIs, which take deposits or other forms of savings from the public, are properly regulated. A policy framework for the prudential regulation of deposit-taking MFIs has been submitted to Cabinet and draft legislation based on the policy framework is being prepared for tabling in the House in the coming financial year.

 

15. In a liberalised financial system, the effectiveness of monetary policy depends in part on the flexibility of monetary policy instruments and the speed of response that these instruments allow the monetary authorities. The main tool of monetary policy, the weekly Treasury Bill auction, was a major innovation when it was introduced in 1992, but as the financial system has deepened and monetary policy has become more important for managing liquidity in bank, borrowing would the economy, it is becoming apparent that a weekly TB auction no longer provides sufficient prevailing conditions in money markets, the Bank will combine the weekly issue of Treasury Bills with repurchasing arrangements with the commercial 16 banks.

 

16. In order for the financial sector to be able to play its role effectively, and to encourage-longer tend investment, there is also a need for additional financial instruments to allow for the mobilisation of long-term savings.  I believe that establishing the market in long-term savings is a public good. To this end, beginning July 2000, the Government will introduce long-dated bonds with maturities of two, three and five   years. These bonds will be auctioned by the Bank of Uganda in tile same manner as the Treasury Bills of shorter, maturities, and will be tradeable on the secondary market through the Uganda Securities Exchange. The introduction of long-term Government securities is intended to provide savers with an additional financial instrument in which to invest their savings, thereby stimulating more competition for long term assets. The bond will also give investors an additional tool to assess the cost and relative profitability of their long-term investment, and help to deepen capital market activities.

 

 

17. Fiscal management in the current fiscal year was dominated by the impact of the large revenue shortfalls.

 

The government responded appropriately to cut back its expenditures. This was the only option, first to prevent an increase in Govertiffient borrowing from the banking system, in light of the inflationary pressures which were already, intensifying and secondly, to avoid breaching the Government borrowing targets agreed with the International Monetary Fund. However, once inflation was brought firmly back under control, it was possible to accommodate a modest increase in Government borrowing within our monetary framework in the second half of the fiscal year. This enabled Government to restore some of the cuts in expenditures, especially on development projects, which are vital for the economy in the long run. I would like to pay tribute to my staff who were able skillfully to negotiate with the IMF an amendment to our Program, to accommodate this increase in Government expenditure.

 

18. The performance of non-tax revenue has continued to lag behind at under 1% of GDP compared to about 3.5% in other countries in the region. To improve on this performance, I am already critically reviewing other possible sources of nontax revenue and at the beginning of the, next Financial Year, the budgeting and collection accounting systems for non-tax revenue will be streamlined. The measures to be implemented will include a mandatory requirement for monthly returns from receivers of revenue, supported by valid official receipts, or declaring a nil return. In the meantime, all receivers of Revenue have been advised to submit their revised rates before the end of this Financial Year, for implementation. 19. Effective July 1 2000 1 will return to the subject of revenue performance later in my speech, before presenting my revenue measures for the next financial year.

 

 

20. Mr. Speaker Sir, allow me now to turn to the expenditure outturn for this fiscal year. The outturn for Government domestic expenditure under the recurrent and domestic development budgets is projected at Shs 1,351 billion compared with the Approved Budget of Shs 1393 billion. The additional domestic expenditure, of about 24% above the budget outturn for 1998/99 had been targeted, through the Poverty    Action Fund, towards the key, sectors for reducing poverty. Including budget support from donors, the overall funding for Poverty Action Fund program increased by 85%.

 

21. In 1999/2000, Government paid Shs 144 billion to clear domestic arrears. I am glad to report that the Commitment Control System, which I introduced this year, has stemmed the accumulation of domestic arrears. As a result, the stock of verified and known arrears has fallen from Shs 261 billion at end June 1999 to Shs 210 billion.

 

22. The outturn of donor budget support grants is projected to be US$187 million of which HIPC and Enhanced HIPC amounts to US$52 million. Budget support loans are projected at US$95 million. Project loans from donors are expected to amount to   US$145   million   and donor grants for projects are projected at US$218 million.

 

 

23. Over the last year, the budget that Government has funded, together with our donor partners, has been translated into the following physical outputs. In Primary Education, 2,500 classrooms have been constructed and a further 3,300 partly built classrooms have been completed. In addition, over two million textbooks have been purchased, resulting in a pupil to textbook ratio of 5 to 1 in 1999/2000 compared with 12 to 1 in 1997/98.  In the Health Sector, although 48 LC IV Health Centres had been targeted for upgrading, in some cases work is still ongoing. The same applies to the recruitment of qualified staff for these Centres. In addition, development of the Minimum Health Care Package has been finalised. Government expenditure on our main roads' infrastructure in 1999/2000, estimated at Shs 48 billion, has facilitated work on 9,600 kilometres of highway roads through routine manual maintenance, 7,400 kilometres through routine mechanical maintenance and 350 kilometres though periodic maintenance. In addition, work on the roads between Kampala and Entebbe and Mbarara and Ibanda was finalised and commissioned during this financial year. Government has also spent Shs 28 billion on the rehabilitation of 1,200 kilometres of feeder roads and Shs 12 billion in carrying out routine and periodic maintenance on 9,000 and 1,200 kilometres of feeder roads respectively. In the Agriculture sector, 530 graduate extension workers have been recruited and out of the 450 motor cycle purchased for the recruits, 225 have been allocated to districts. The balance is expected within the next two months. For Water and Sanitation, last year I announced the creation of the new Districts' Water Conditional Grant of Shs 4 billion. 1 am glad to inform you that during the current financial year 1,408 boreholes have been drilled and fitted with hand pumps. In addition, 525 bore holes were rehabilitated and 398 shallow wells, 166 rain tanks, and 14 gravity flow schemes were constructed, whilst 304 springs were protected

 

 

24. A comparison between the preliminary findings of the  1999/2000 household survey and the equivalent survey carried out in 1992/93 demonstrates the impact that our policies and budgets are having especially on the incomes of rural households,

 

25. Agriculture extension services were available to 17% of households in 1999 compared to 11 % in 1992. According to community level information, in 1999 extension workers were the main source of information   on agricultural practices for 31 % of communities in the East, 21 % in the west, and 17% in the Central region. While the North   experienced   the largest increase in the coverage of extension, this was from a small base, because for 96% of communities, the radio was the main source of information on agricultural practices.     Extension access increased in 31 % of the communities in the West, and in 27% of the communities in the Centre. For 41 % of the communities in the West, the private sector constitutes the main source of information on farming practices, overtaking both radio and the public servants as the primary source of information.

 

26. The number of households owning cows rose from 11 % in 1992 to 20% in 1999, with the increase in the ownership being distributed equally across all regions. Regionally, over the same period, the ownership of cows increased from 8% to 16% in the Central region, from 12% to 21 % in the East, from 9% to 18% in the North and from 14% to 22% in the West. The availability of veterinary services seems to be better than the coverage of the crop extension services. Cattle are held in 82% of the communities in Uganda of which 66% have access to publicly funded veterinary services

 

27.  In 1992, the poorest 20% of the population shared 18.6% of enrolment in primary education. By 1999,   the share of the poorest 20% of the population had risen to 24.2%, an increase that largely benefited girls from rural areas.

 

In 1999, 17% of rural household had access to formal credit compared with 8% in 1992. In 1999 access to formal credit ranged from 24% in the West to 20% in the East, 12% in Central region, and 6% in the North. Most of this credit has been used for productive investment; 45% of the loans were used to establish non-agricultural enterprises; 24% were invested in education and health; 14% went to purchase inputs; 9% was invested in land and livestock; and 7% was used to buy household goods.

 

29.  In the water sector, access to safe water in the rural areas has risen from 11 % in 1986 to 46% in 1998. In the urban areas, access to safe water has increased from 44% in 1986 to 50% in 1998.

 

30.  In Health outcomes, infant mortality rates had declined from 188 per 1,000 live births in 1986, to 88 per 1,000 live births in 1998. Between 1993 and 1996, in the health sector, the number of visits to Government health facilities, by all groups of the population, regardless of sex, age, gender or location, increased.

 

31.  Mr. Speaker Sir, during the 1992-99 period, levels of per capita income have grown significantly without a deterioration in income distribution. That is the evidence from the household surveys conducted between 1992/93 and 1999/2000. So our economic growth has not only been robust, it has also been pro-poor. In fact the evidence from the household surveys shows that households with low levels of income in 1992 but who had  labour  and  capital assets were able to benefit the most from overall economic growth during the period.

 

 

The Link between the Poverty Eradication Action Plan (PEAP), the Medium Term Expenditure Framework (MTEF) and the Budget

 

32.  Mr. Speaker Sir, for our annual budgets to be effective in achieving our long-term aim of poverty eradication, four elements are essential. Firstly, Government as a whole must maintain a clear understanding of the priorities for intervention by the public sector, which will lead to the reduction and eventual eradication of mass poverty. Secondly, we must, over time, identify the cost of our priorities to enable us to mobilise the required level of funds to carry out the necessary actions. In addition, we must identify those activities which are currently implemented with Government funds, but which could be carried out more effectively by the private sector, in order to enable the Government to reallocate savings to higher priorities of Government expenditure. Thirdly, we must embody the costs that will need to be absorbed over the medium term in a format that can show how much is to be spent and what progress is being made in the achievement of our ultimate goal. Finally, we must ensure that the financing of the large poverty eradication programs does not endanger macro-economic stability.

 

33.  The first and second of these elements are contained   in   the   Poverty Eradication Action Plan, which was first produced in 1997 and whose revision is currently in the final stages of completion, In consultation with a wide range of stakeholders. This revised PEAP was the basis for Uganda's Poverty Reduction Strategy Paper   (PRSP) which satisfied the requirement for Uganda's Completion Point, thereby allowing our access to the enhanced HIPC Debt Relief Initiative.

 

34.  The third and fourth essential elements are contained in the Medium Term Expenditure Framework and in the annual budgets. The preparation of the annual budget is increasingly a collective effort, through wide consultation and increased transparency and with participation of all stakeholders in the different levels of this process, although it is not possible for all stakeholders and beneficiaries to be completely satisfied with the budget allocations they get. Through the Local Government, Budget Framework Papers, the planning and budgeting process has been extended to the Local Governments, significantly enhancing the articulation of their budget strategy and prioritisation of expenditure requirements and the efficient allocation of resources. Therefore, before we allocate public funds to the areas that we jointly decide will best address the public needs over the medium and long term, we need to demonstrate that the relevant budget policy issues have been identified and widely debated.

 

35.Mr. Speaker Sir, although I have made every effort to ensure wide participation in the budget process, I recognise that Members of Parliament are still not as involved as they would like to be. To tackle this challenge, early in the next financial year, I will be making proposals to Parliament for a Bill to amend the Public Finance legislation, particularly addressing the time table of Parliament's involvement in the budget process. I have already secured some resources under the 2nd Economic and Financial Management Project to facilitate Parliamentary participation in this activity. In addition, to improve transparency and communication with the public, my Ministry has issued ' The Citizen's Guide to the Budget Process", to be launched today. This initiative will ensure even greater participation by stakeholders in the budget preparation process in future.

 

36. The Government will continue to follow its strategy of fiscal discipline in support of its macro-economic objectives of high rates of broadly based economic growth with low inflation and a sustainable external balance. Therefore, budget discipline will continue to be non-negotiable, although this means that the Treasury will continue to be unpopular. The Medium Term Expenditure Framework, of which this budget is a part, will continue to be the main tool of the Government for allocating public resources based on strategic priorities.

 

 

37. Government is planning to spend Shs 2,232 billion in the coming fiscal year, of which Shs 2,124 billion is accounted for by the recurrent and development expenditures and a further Shs 108 billion is accounted for by the clearance of domestic arrears. We will require Shs 129 billion for repaying external debt. Our expenditures and debt repayments will be financed by a mixture of domestic revenues and donor budget and project support.

 

Domestic revenues will account for Shs 1,141 billion or 47% of the resources we require to finance our expenditures and debt repayments. Donor grants, which include the debt relief received under the HIPC and enhanced HIPC Initiatives, will provide Shs 757 billion or 31% of our total resources, while the remaining Shs 536 billion, or 22%, will be provided by disbursements of donor loans, all of which will carry highly concessional repayment terms, with a grant element of between 60% and 80% of the value of the loan. The difference between our resources and expenditures represents our fiscal savings reflected by a build-up of our deposits in the banking system.

 

38.   The overall fiscal deficit, excluding grants, will rise in the next fiscal year to 10. 1 % of GDP before falling back below 10% in the following two years.  The rise in the deficit in the coming fiscal year is entirely attributable to the substantial increase in donor support for the poverty reduction programs and projects in the budget.

 

The deficit including grants will be kept to a very modest 2.3% of GDP in the next fiscal year. This deficit will be entirely funded by highly concessional external loans, with a grant element of between 60% and 80%, and therefore poses no threat to either fiscal sustainability or macro-economic stability.

 

39.  Because of our very strong record of economic reform, Uganda was the first country, in 1998. to be granted debt relief under the Highly Indebted Poor Countries (HIPC) debt relief initiative. I am pleased, Mr. Speaker to inform you that last month, Uganda became the first country to qualify for additional debt relief under the Enhanced HIPC debt relief initiative.

 

Uganda qualified for debt relief under the Enhanced HIPC initiative on the strength of our poverty eradication policies, as set out in our Poverty Reduction Strategy Paper, and our continued excellent economic performance under the Poverty Reduction and Growth Facility program agreed with the IMF. Under the HIPC and Enhanced HIPC Initiatives, Uganda will receive debt relief amounting to $86 million in the forthcoming fiscal year, $82 million in 2001/02 and $84 million in the following year. As with the first HIPC Initiative, all of the resources freed up by debt relief under the Enhanced HIPC Initiative will be used to fund projects under the Poverty Action Fund.

 

 

40.  Honorable Members, as you will recall, we established the Poverty Action Fund to enable us, to show, in a transparent manner, how the funds from the original HIPC initiative and now the enhanced HIPC are spent on programs that directly reduce poverty.  These programs are identified in the revised Poverty Eradication Action Plan under the two goals of "Improving the Incomes of the Poor" and "Improving the Quality of Life of the Poor".

 

41.  Mr. Speaker Sir, to ensure that the budget spent, under the Poverty Action Fund, achieves our objectives, I have initiated a new process of reporting on the utilisation of the funds and a new release mechanism for transferring the funds. There will be a requirement for annual and quarterly work plans to be agreed between each district and the relevant sector ministry; a uniform quarterly reporting process; and strict adherence to the reporting   and   planning processes to trigger the release of quarterly funds. Where these conditions are not met, it will not be possible to disburse the funds and these will be either    re-allocated    or saved for use in the following year. These measures will increase the impact of PAF programs, promote accountability and ensure that we properly monitor the impact of these funds.

 

 

42.  Government is firmly committed to creating an attractive and enabling environment for supporting the development of the private sector as the engine of growth. For this purpose, Government has formulated a medium-term policy framework, the "Medium-Term Competitive Strategy (MTCS) for the Private Sector" for the period 2000-2005. The framework forms a basis for the medium term Government interventions to promote private sector development, outlining key policy changes and reform strategies. The priority actions identified are in the areas of reform of infrastructure provision, roads and telephone communication, strengthening the financial sector and improving the regulatory framework for access of the poor to financial services, fostering commercial legal sector reforms, undertaking institutional reforms that deal with corruption in areas of public procurement and simplifying tax administration. The framework also addresses improving the business environment for micro and small enterprises, placing emphasis on human capital development.

 

43.  Mr. Speaker Sir, as I have noted above, one of the major constraints to Uganda's potential for investors and entrepreneurs is the ineffectiveness of our commercial justice system.

 

Remedying this shortcoming has been identified by the Justice/Law and Order Sector as one of two priority areas and a program has been submitted to our donor partners for review and funding. The envisaged program is estimated to cost US$7 million over a four-year period and is expected to start during Financial Year 2000/01.

 

 

44. Honorable Members, you will recall that, during the current financial year Uganda Clays Ltd was privatised and became the first company to be floated on Uganda's Stock Exchange. More recently a 51 % share in UTL has been disposed of to an international consortium for US$33,520,600. In addition, the Uganda Electricity Board is in the process of restructuring. In accordance with the 1999 Power Sector Strategic Plan, UEB will be unbundled into separate distribution, generation and transmission businesses, each to be privatised as long term concessions. Privatisation will reduce the contingent liabilities arising from the guarantee by the Government to support the 250 Megawatt Bujagali Independent Power Project, whose power should come on stream by 2004. The target date for completing the distribution privatisation is June 2001. To protect the public interest, the Electricity Regulatory Authority has been created in accordance with the 1999 Electricity Act and the directors appointed.

 

45. Since 1993, 93 public enterprises have been divested (including 31 liquidations) and 46 public enterprises (including utilities) remain for reform and divestiture. In 2000/01, the privatisation process will include, among others, the sale of shares in Apollo Hotel and the National Insurance Corporation to strategic equity partners and the forthcoming floatation of shares in B.A.T. and Kinyara Sugar Works.

 

46.  The Uganda Railway Corporation (URC) is in the early stages of commercialisation. In the coming financial   year, Government will seek to increase the efficiency of URC's operations and to prepare the enterprise for eventual divestiture.

 

47. In consultation with key stakeholders, the Urban Water Sector Reform Strategy is currently being prepared, to guide the sector reform and commercialisation process. This is to be completed in early 2000/01.

 

48.  I am pleased that the policy of reducing the level of utility arrears owed by government is now beginning to have a positive effect. Utility arrears created in 1998/99 alone by Government amounted to Shs 16 billion. The unpaid bills for 1999/2000 are expected to be less than Shs 6 billion. To further improve on this effort, I have advised all.

 

 

49.  Mr. Speaker Sir, up to now, a relatively neglected feature in our approach to budgeting is ensuring the efficiency with which our financial resources are utilised and the effectiveness of our expenditures in terms of meeting set objectives. With regard to the latter, we need to measure our achievements in terms of agreed outputs leading to outcomes consistent with our objectives. This requires identifying   performance indicators, which can be monitored   in   terms   of improved   infrastructure or    in    terms    of    the improved delivery of public services. The money that is spent through our budget comes from taxpayers here and abroad. It is therefore imperative for us to; measure outputs and outcomes, and thus demonstrate our cost effective use of taxpayers' money and show more clearly the benefits of the budget to the people of Uganda and to the citizens of our development partner countries.

 

50. Starting with the Budget Framework Paper this year, a number of sectors have committed themselves to certain levels of outputs/outcomes achievements over the medium term. For example, under Primary education, there are targets, among others, for: enrolment; for the pupil teacher ratio; and for the pupil to classroom ratio. The Health Sector has committed itself to improving immunisation rates from a level of 35% in 1998/99 to 95% by 2002/03 and to increase the level of trained staff at Health Centres from 33% in 1998/99 to 65% in 2002/03. Rural and Main Roads together with Water and Sanitation Sectors have also set highly visible output targets over the medium term. These innovations   are   expected   to expand to the other sectors, such as Agriculture and Justice/Law and Order, which are currently developing their Sector Wide Approaches towards policy reform and investment programming.

 

51. With regard to efficiency in the use of resources, Government is placing greater emphasis on ensuring that taxpayer resources are spent efficiently and according to the budget plan. We need to strengthen the efficiency of our payment mechanism, tighten expenditure controls, and to ensure full accountability for the use of financial resources. The implementation of a second Economic and Financial Management Project next year with support of the World Bank and the Nordic Development Fund, will support these objectives. Furthermore, the Government is earmarking 5% of the resources under the PAF for monitoring and accountability.

 

 

52. Allow me, Mr. Speaker Sir, to turn now to next years' expenditure proposals, which are based on this      financial years' achievements and the requirements to address the major goals of the Poverty Eradication Action Program, prioritised for the Fiscal Year 2000/01.

 

Ensuring Security and Good Governance

 

53. Mr. Speaker Sir, as Honourable Members will know from their interactions with His Excellency, the       President, the Security Sector is an integral part of our good governance agenda.  The development rationale for security sector reform is clear and most compelling. It sets the wider context for the specific focus on military expenditure in recent years. The poor have already prioritised security of person and property as the major concern for their well-being, as established by the extensive consultations carried out under the Uganda Participatory Poverty Assessment Project. We need resources to improve conflict prevention, conflict resolution and for peace building, to avoid frustrating our poverty reduction efforts by perpetually entrapping our people in growing poverty. In addition, conflict and insecurity, within Uganda and in the Great Lakes Region, impact very negatively on private sector investment, particularly   the   inward investments, necessary to achieve the high levels of economic growth rates required to accelerate development.

 

54. Effective security sector reform and conflict prevention depends on integrated policy making and coherent approaches to these issues at the regional and international levels. We need accurate assessments of the threat to our security and genuine security needs in order to determine the appropriate country specific   levels of military expenditure. The effectiveness of military expenditure is just as important as the legitimacy of security needs. Therefore, contributions to our efforts in common strategies for resolution by our neighbours and by our development partners are most welcome. Taking the above into consideration, level of Government expenditure on Defence is expected to be a maximum of 2% of GDP in the medium term.

 

55. The Justice/Law and Order Sector has made considerable progress during the current financial year in the process of identifying sector wide goals and priorities. The two identified priorities are the reform of the Commercial Justice System and Criminal Justice Reform. A part of this process has included a review of potential cost savings from within the sector. The main areas, which have been reviewed are, Prisons' Farms, Police Vehicles. Court Awards and the Backlog of Cases in the High Court and in the Lower Courts. Implementation plans are being drawn up in each area.

 

56. The most advanced plan, relating to Prisons' Farms, has identified that the current prison population can be fed with the produce from only four farms out of over twenty currently run by the Prisons' Department. This would eliminate the need to purchase food for prisoners in the medium term. However, budget releases will have to reflect the needs of the crop planting and growing seasons.  I am, therefore, reviewing I treasury    cash    release arrangements to ensure that this saying potential is fully realised and that the savings are channeled towards   improving   the conditions of prisoners. In addition, the Prisons Department will be assisted to develop a business plan for commercial operation of the remaining farms conflict prevention and

 

57. Mr. Speaker, Sir if we are to reduce successfully both the actual level of corruption and the perceived level of corruption in public life in Uganda, it is important to ensure that adequately qualified and experienced personnel are in place in the audit and accountancy cadres. With the funding available under the Second   Economic and Financial Management Project, Government will be recruiting suitable staff during the next financial year.

 

 

 

58.The success of Universal Primary Education (UPE) is well documented and I do not intend to dwell on this remarkable progress here. However, in order to ensure that we continue to improve the quality of the primary education, we must recruit, motivate and train adequate numbers of teachers. Although the Primary School Teachers' establishment was raised from the 1998/99 level of 94,000 to about 125,000 in March this year, only 87,000 had by that time accessed the payroll. This is partly due to difficulties in funding the District Service Commissions and I am pleased to report that these Commissions are to be fully funded in 2000/01, thus removing this bottleneck. Moreover, it has now been agreed that properly qualified teachers will be recruited on probation and put on the payroll immediately, pending their confirmation in service later when they have gone through the interview process. This will raise the budget for Primary School Teachers salaries from Shs 114 billion this year to Shs 144 billion in 2000/01 and Shs 178 billion by 2002/03.

 

59. In the Medium Term, it is forecast that 17,000 new classrooms will be constructed with a further 2,900 of the partially built classroom completed. This decentralised pro-

 

60. In order to improve accountability in primary schools, it has been decided, to institute at the sub county level, School Performance Awards to primary schools making the greatest improvement in accounting and record keeping. In addition, two further awards will be given for schools excelling in the promotion of girl's education and those of special needs children. Shs 0.8 billion have been provided for these purposes under UPE during next fiscal year.

 

Secondary Education for the Gifted Poor Students

 

61. Government recognises that access to Secondary Education for right students from poor families is curtailed by lack of financial resources to meet the Secondary school requirements. It is therefore the intention of Government target resources towards able, but financially constrained students. To this end, a scheme to award bursaries/scholarships to deserving students in every sub-county is being proposed. The details regarding the operationalisation of this scheme will be finalised in the FY 2000/01.

 

62. Government is also considering including Secondary and Vocational education under the Poverty Action Fund within the constraints of the Medium Term Expenditure Framework so as to address adequately the needs of these two sub-sectors. By 2002/03, we expect to have established 850 community polytechnics as a strategy for promoting Technical and Vocational Education and Training. In 2000/01, I have provided Shs 1.4 billion for the establishment of the first 40 centres.

 

 

63. I am glad to report, Mr. Speaker, that the national prevalence rate -for HIV/AIDS decreased from 18.5% in 1995 to 9.5% in 1998. It is essential that an intense program to combat HIV/AIDS is maintained in order to reduce the prevalence rate further. Due to the multi-sectoral approach to tackling HIV/AIDS, a National            Strategic

 

Framework for HIV/AIDS activities has been developed, with three major goals: to reduce the rate of Infection by 35% to about 6.2% by 2005; to mitigate the health and socio-economic effects at all levels and to strengthen the national response capacity to the epidemic. Apart from the Shs 2 billion for the AIDS Control program under the next financial year, the funding for the Uganda AIDS Commission has also been put under the PAF with a provision of Shs 1 billion. In addition, the new Non-Sectoral PMA Conditional Grant under the PAF will include Shs1billion to Local Councils III for multi sectoral AIDS activities.

 

64. An important determinant of the utilisation of health care is the access of the poor to health centres. In the next financial year 65 health centre IVs are planned for completion and the remaining 44 will begin to be upgraded. As a start to improve the access to health care, 10 health centre IIs will be built in those sub-counties with the least health centres.

 

65.  In 1998/99, childhood immunisation rates   for Diptheria, Pertussis and Tetanus fell to 44% from 79% in 1994. In response, Government plans to ensure that outreach visits, provision of transport, payment of allowances, community sensitisation and provision of cold chain fridges are planned for in the District work plans financed through the Primary Health Care Conditional Grant, grants to the Ministry of Health for    procurement and donor contributions. The target coverage rates for the end of the financial year, 2000/01, is 55 %.

 

66. The separate payment of salary and lunch allowance to medical workers has often caused a delay in the disbursements of funds. Salary and lunch allowances for medical workers will be consolidated from 1st July 2000 and an equivalent amount for lunch allowance added to the Unconditional Grant for districts.

 

 

67. It has been decided to increase the coverage of water supply and sanitation facilities in rural areas and growth centres with populations of 50UO and below. To achieve this goal, the amount of Water and Sanitation     Conditional Grant is being increased substantially to Shs 21 billion for the next financial year, aiming at a safe rural water coverage for 82% of the population by June 2003. In the same period, Government also intends to extend safe water coverage and sanitation facilities to 75% of the population in small towns.

 

68. The shortage of water for livestock in the Karamoja region is a cause for concern. Funds have been specifically earmarked from PAF for the construction of water reservoirs. Two reservoirs have already been constructed at Kilong and Kulodwong and two more are under construction at Loodon and Locagar in Moroto district. Designing of more dams in Mbarara, Hoima and Kumi districts is also underway to ameliorate the water shortages in these areas.

 

 

69. Mr. Speaker Sir, in the coming year, Government intends to begin developing a strategy for the protection arid regulation of the environment under the leadership of the National Environmental Management Agency. In order to focus on priority areas in the Wetlands sub-sector, I am providing Shs 300 million in 2000/01, to be administered under the Poverty Action Fund, to ensure the responsible use of our wetlands, mountainous areas, river banks and lakeshores. Similarly, we must ensure the enhancement of our waste management systems.

 

 

70. To resolve the conflicts over land, prevalent in many of our rural communities, we need to implement the Land Act quickly and cost effectively. This will also reduce the threat to social stability and enable rural communities to focus on increasing their rate of development. For 2000/01, Shs 3.0 billion is provided, rising to Shs 6.5 billion in 2001/02 and Shs 10.5 billion in 2002/03.

 

 

71. Government recognises that for farmers to be able to effectively receive, use and further disseminate extension messages, a minimum level of literacy is required. In addition, adult literacy will enhance the quality of life and build self-sufficiency and confidence. Therefore, I have provided Shs 1 billion from the Poverty Action Fund to support the Adult Literacy Program in 200/0 1.

 

Measures to Increase the Incomes of our People

 

72. Mr. Speaker Sir, development of our Main Roads infrastructure is vital to the structural transformation of our economy. Our Main Roads strategy is set out in our 10 Year Road Sector Development Plan. For the Financial Year 2000/01, Government will provide a budget of Shs 56.7 billion, supplemented by a further provision of Shs 23.5 billion from our donor partners, for expected outputs of 9,800 kilometres of main road routine manual maintenance, 8,150 kilometres of main road routine mechanical maintenance and 1,800 kilometres of main road periodic maintenance. In addition, Government will continue with ongoing work to strengthen, upgrade and rehabilitate 460 kilometres of our main road infrastructure.

 

 

73. I am providing Shs 27 billion for the rehabilitation of 800 kilometres of feeder roads and for the routine and periodic maintenance of 15,000 and 1,000 kilometres of feeder road, respectively.

 

74. Mr. Speaker Sir, our waterways have not been considered among our priorities in recent years. I am, therefore proposing to provide the sum of Shs 5.4 billion in 2000/01 for the development of Uganda's inland water transport system.

 

75. The recently completed Plan for the Modernisation of Agriculture (PMA) is a holistic strategic framework     for eradicating poverty through multi-sectoral interventions, enabling the majority of our subsistence farmers to improve their natural resource-based livelihoods in a sustainable manner. The challenge for Government in this framework is first to create an "enabling environment" that allows these small enterprises to thrive and secondly to invest in the "public goods" that improve the productivity of farming and other rural, natural-resource-based income generating activities.

 

 

76.  During the last financial year, Government started on a major restocking program, which will continue throughout the medium term as part of the PMA. In addition, for next year, I am happy to announce a number of new related interventions. Firstly, next fiscal year Government will allocate Shs 2.5 billion for the production and distribution of cotton seeds through the Cotton Development Organisation and Shs 1.5 billion for coffee seedlings through the Uganda Coffee Development Authority. This is an interim measure, in support of the dissemination and adoption of productivity enhancing technologies and pending the private sector   taking over to organise and manage the provision of these inputs, particularly with the privatisation of the Uganda Seeds Project in 2000/01.

 

The funds to be accessed by UCDA are hi addition to the 1% per annum received through cess funding and should be channeled into replacing coffee plants lost due to coffee wilt disease and into expanded coffee production. I also appeal to coffee farmers and traders to maintain the quality of the produce, to ensure Uganda's continued competitiveness in the international market.7. Secondly, a start will be made in the phased implementation of the National Agricultural Advisory Service (NAADS) with an initial budget provision of Shs 2.0 billion.

 

Our agricultural extension services have clearly lacked effectiveness, with 64% of households reporting in 1999 that they lacked access to effective extension services. The NAADS will, as part of the PMA, initiate a new demand-driven approach. The Agricultural Extension Program will be revised to bring on board existing extension workers in addition to the newly recruited graduates.

 

Furthermore, I am introducing a new Non-Sectoral PNM Grant starting with an initial allocation of Shs 6.7 billion in the next year, which is designed to empower Local Council III governments to undertake grassroots, level poverty reduction interventions, including Shs 2.2 billion for the recruitment of Community Development Officers to mobilise the population.

 

In principle, this money can be spent on any antipoverty program decided upon by the LC III; the grant is conditional only because it has access conditions, but I must emphasise that its end use is not sector specific. I envisage that this non-sector conditional grant to LC III governments will in future be the main channel for funds to implement the PMA.

 

 

Public Service Reform, Pay and Pensions Pay Revision

 

78.  The total wage bill is projected to rise from Shs 407.4 billion to Shs 468.8 billion. This will provide for a minimum increase of 5% across the board in line with inflation. I am proposing a 10% salary increase for lower ranks among primary school teachers, Police and Prisons staff. A modest start will also be made in implementing the recommendations of the   Pay Strategy Report prepared by the Ministry of Public Service, particularly to address the plight of the middle rank professionals.

 

 

79.   There is an ongoing enhanced recruitment exercise, particularly for primary teachers, health workers and agricultural extension graduates. As a result, many of these employees now have appointment letters and can access the payroll. This current fiscal year a total of Shs 7.6 billion was paid for residual salary arrears between 1992 and 1998. In this budget 1 am providing Shs 3 billion to cater for the arrears expected to accrue through the ongoing recruitment and revalidation of appointments exercise.

 

The District Service Commissions will, from now on, benefit from a special PAF District Conditional Grant for Monitoring and Accountability, starting with Shs 2.7 billion next financial year. 80. My Honourable Colleagues will recall that the restructuring of Government Ministries was completed in May 1998.

 

The implementation is ongoing. All officers who retired due to the abolition of offices following this restructuring have been paid their severance packages. Restructuring of Constitutional Commissions and Bodies has been completed and will be implemented by 31 st December 2000. The review of the structure and staffing of 14 Districts will be completed and implemented by 30 November 2000.

 

 

81. One of Government's policy objectives is to liberalise the pension sub-sector to allow Ugandans to freely choose their own pension provider.

 

Government's role should be to provide the regulatory framework to ensure that all pension providers meet minimum standards of managerial and financial professional competence and probity. Within this framework, the NSSF will operate and compete with other service providers but Government believes that the financial management of NSSF must improve to enable it to fully provide the level of benefits in the future, to which its members are entitled.

 

It has become increasingly clear that the present pension arrangements for Government employees are not fiscally sustainable. If we are to avoid imposing an unsustainable burden on future Government budgets, we must act promptly to replace the current Pay-As-You-Go system with a unified contributory system.

 

In the first half of the financial year 2000/01, Government will undertake a comprehensive study on the pensions' sector covering all existing schemes, with a view to achieving the above policy objectives. To save the pensioners from travelling long distances to collect their payments, the pensions payroll management will be decentralised as part of this process.

 

82. Mr. Speaker Sir, Government has computerised the Pensions Management System and the results of a Public Service Pensioners' census will be used in July 2000 to set up a comprehensive pensions' database. This will enable payment of pensions to be made by the 28th of each month. The majority of pensioners have had their pensions validated and the remaining validations will be completed during Financial Year 2000/01.

 

83.  Mr. Speaker Sir, I am finally able to announce that the committee reviewing the liabilities to former employees of the East African Community has completed its task and has agreed the total liability in the sum of Shs 60 billion, of which Shs 15 billion has been paid so far. Payment of the remaining Shs 45 billion will start, subject to resolution of the pending High Court case by the former employees against Government.

 

 

 

84. Honorable Colleagues, while I have been pleased to announce that the Commitment Control System has sharply curtained the accumulation of new payments arrears in the majority of Votes, I regret to say, that   potential recurrent expenditure arrears still persist for a small number of Votes, although at Shs 6 billion, the quantum of the fresh arrears is significantly down in comparison to the Shs 80 billion, which was accumulated in the previous financial year.

 

Here I note that any Accounting Officer who carries into 2000/01, recurrent expenditure arrears created in 1999/2000, will be responsible for paying those arrears, as a first call on cash released, out of normal budget allocations. Moreover, during the course of this year, if new arrears continue to arise, strong disciplinary action will be instituted against the Accounting Officers concerned.

 

85. By the end of this fiscal year, a sum of Shs 144 billion will have been paid out of the outstanding stock of domestic arrears of Shs 261 billion at June 1999, leaving a balance of Shs 117 billion. In 2000/01, Shs 108 billion will be provided for arrears related to the supply of go and services by the private sector, parastatal organisations, pension court awards, payment to former EAC employ and gratuities for abled soldiers. The balance out of this stock of arrears of Shs 26 billion will be paid in 2001/02.

 

86.Mr. Speaker Sir, 2000/01, following success so far achieved in controlling recurrent expenditure, the Commitment Control System will be extended to the Development Budget. I recognise that this will be a more complex exercise because many development projects involve contracts that extend across many months   and in cases, across financial years. However, I am confident that, with the experience of containing recurrent     expenditure arrears, we can quickly move towards the elimination of new development expenditure arrears.

 

Transparency

 

87.  1 will now turn to the issue of Budget and accounting transparency which I also raised last year. During 1999/2000 a number of important steps were taken in developing the Budget preparation process. These steps included the much greater involvement of the districts, which, among other things, entailed continuation of the initiative to develop performance indicators suitable for each economic sector. This facilitated a more focused process of monitoring and evaluation, by producing the Local Government Budget Framework Papers.

 

This enabled most Local Governments to better prepare, review and articulate their inputs to the National Budget, Framework Paper at a much earlier stage. I am pleased to note that, in addition to participation by the Public Servants, there was also enthusiastic involvement on the part of Local Councillors.  This was a joint approach from the Centre and enabled broad-based consultation in the course of agreeing guidelines for the use of PAF Conditional Grants.

 

88. In 2000/01 we must continue to pursue improved transparency together with improved accountability across all aspects of government's financial and physical activity. I have to emphasise this point, because a central feature of PAF is that, in the event of a breakdown of adequate accountability, it will not be possible to release any more funds. This will demand a level of accountability much greater than we have previously experienced. Therefore, it has been decided that, effective from the next financial year, Local Governments will submit their monthly accounts by the 20th day of the following month to both the Treasury and the Ministry of Local Government. This will plug a major gap in our information system enabling the Central Government to track the utilisation of funds on a monthly basis.

 

 

89. Mr. Speaker Sir, the budgetary proposals of the accounting bodies have been submitted in compliance with Article 155 (2) of the Constitution. In compliance with Article 1,55 (3) of the Constitution, the Government has made recommendations on them. I hereby, lay both the budgetary proposals and the recommendations of the Government before the House, as required by the Constitution.

 

90.  In order to enable me to submit a complete National Budget for your consideration in accordance with Article 151 (1) of the Constitution, the budget provisions of these self-accounting bodies incorporated into the Medium Term Expenditure Framework are in accordance with the resource envelope conveyed to the Self Accounting bodies during the course of our discussions.

 

 

91. Mr.  Speaker Sir, to increase the level of decentralisation, it has been decided that from the next financial year, Unconditional Grants for 13 Municipalities will be sent directly to them, through separate Votes. Thus, a sum of almost Shs 2 billion has been earmarked for this purpose put of the total outlay of just under Shs 72 billion for unconditional grants in 2000/01.

 

This is a significant change and will address the demands of Urban Authorities who have been under pressure to improve the basic infrastructure in towns. Except for the Capitation Grant under Universal Primary Education, Conditional Grants to Urban Authorities will continue to go through the districts until the sector Ministries finalise the arrangements for their direct allocation to these authorities.

 

92.  In my Budget Speech last   year, I announced modest funding of Shs 2 billion towards implementing    Governments' Constitutional obligation to provide Equalisation Grants to Local Governments, based on the degree to which they are lagging behind the national average for a particular service. This provision has been doubled to Shs 4 billion for the next financial year. In consultation with the Local Government Finance Commission, it has been decided that the grant will now be made available to 40 Urban Authorities in addition to 24 Districts, compared with 13 Districts for this Financial Year.

 

93. I am pleased to announce that from next financial year, Kampala District will also start accessing funds for rural Feeder roads maintenance.

 

 

94. Government is committed to enhance the program for decentralisation of the Development Budget. Beyond the ongoing program for classroom construction, I am happy to report that under the Local Government Development Program, Shs 29 billion will be disbursed to Local Governments in the next financial year as budgetary support to finance locally prioritised development needs.

 

In addition, more funds will be available for classroom construction; Primary Health Care facilities; water and sanitation; and the Dutch District Development Grant for 7 districts. All this amounts to Shs 113 billion. However, with increasing resources being made available to Government through complementary programs such as the Local     Government Development Program and the Second Economic and Financial Management Project, there is an urgent need for all implementing Ministries to mark out a clear "Road Map", showing the capacity gaps and time frame for addressing these capacity issues. This process needs to be concluded early in Financial Year 2000/01.

 

95. Government has put in place a process that increasingly capture all financing to local governments in both the national and local budgets. Government will work with donors to improve planning, budgeting and financial systems, particularly through the Second Economic and Financial Management Project, to ensure that all resources to local governments are fully captured.

 

96.  Mr. Speaker Sir. My Ministry has worked together with the Ministry of Local Government and the Local Governments during the last two years to improve the planning and forecasting mechanisms within the Local Governments. One of the main target areas has been and continues to be the estimation and collection of local revenues. Whilst the forecasts are now produced on a much more realistic basis, the tax base remains narrow and is heavily dependent on Graduated Tax.

 

I, therefore, urge all Local Governments to review systematically the tax base and put forward suggestions for the widening of their tax base and for streamlining their collection methods, including consideration of the potential for private sector involvement.

 

97.  Local Governments are now implementing most of the Government's programs aimed at eradicating poverty. Funds for this purpose are transferred in the form of Conditional Grants to Local Governments for which a sum of Shs 330 billion has been earmarked for the next financial year. This represents an increase of 46% over the outlay for Conditional Grants last year. Funds that have been saved as a result of the Highly Indebted Poor Country (HIPC) debt relief initiative are channeled to Local Governments in the form of the    Poverty Action Fund together with additional funds from our donor partners, through 11 Conditional Grants. PAF transfers to Local Governments will amount to Shs 316 billion. In order to help Local Governments utilise funds better, all Poverty Action Funds will be released to them on a quarterly basis.

 

98. We have recognised that there is need to have uniform standards for Local Governments, regarding the creation of posts and for their general administrative structures. We cannot allow the indiscriminate expansion of staff strength in Local Governments as in time we would find that more funds are being used for pay. allowances, pensions and other administrative expenditures rather than spent on developmental activities aimed at poverty reduction.  With this aim in mind the Ministry of Public Services will assist Districts to rationalise their administrative structures.

 

 

99.  For 1999/00, we budgeted for revenues of Shs 1,132 billion, of which Shs 1.100 billion was to come from   URA   Collections. Now, I am expecting an outturn of Shs 1,008 billion for this year, of which URA collections will be about Shs 980 billion. As is clear from these figures, there will be a major shortfall of Shs 120 billion in   URA Collections in 1999/00.

 

100. Some unexpected developments in 1999/00 had an adverse impact on our plans. At the time of preparing revenues estimates last year, we had expected that the economy's rate of growth would be higher than was actually achieved. With lower economic growth, imports were lower than expected and as imports account for a high proportion of total revenues, this had a big adverse impact on collections. The drought and the deterioration in our external of trade also had a significant dampening effect of the pattern of consumption and investment, which led to lower revenues from domestic transactions. To compound these problems, the gains, which we expected, from improved tax administration did not materialise.

 

101.   It may be useful to reflect a little on the pattern of our revenue performance in recent years. In 1996/97, our Revenue to GDP ratio was just over 12% but this declined to just over 11% in 1997/98. The ratio   improved to 11.9% in 1998/99 but this year it has declined again, to 11.2%, the same as we achieved in      1997/98. Unfortunately, this revenue to GDP ratio compares very unfavourably with the average of about 16%      for sub-Saharan Africa.

 

102.   Even with our low Revenue/GDP ratio, we are still faced with strong pressures for tax reductions. Maybe, as Edmund Burke said way back in 1775, "To tax and to please, no more than to love and be wise, is not given to man". Or maybe the track record we have established over many years of continuously lowering tax rates has created unrealistic expectations. The big tax reductions we have made over the past 5 years      have certainly improved incentives and made compliance a -little easier. We now have a very fair tax regime and also one, which is very competitive regionally and internationally.    Even    more important   perhaps, we now have a lot of credibility about our tax policy. It has become stable and predictable. Our business community no longer worry about sudden U-turns or "from midnight-tonight" effects.

 

 

103. Now I wish to deal with my taxation proposals for 2000/01.   The full details are contained in the Finance Bill published today.

 

 

104.  The Treaty establishing the East    African Community (EAC) was signed in November 1999 and has already been ratified by Uganda. This Treaty is very wide-ranging and provides for greater co-operation in many economic, social and political areas. One of its more important provisions is Article 75, which deals with establishment of a Customs   Union.   I want to take this opportunity to stress again that Uganda remains fully committed to this regional integration process.

 

 

105. The Customs Law has been consolidated to take into   account   numerous changes in our law since 1970 following the breakup of the old East African Community. This will also facilitate access by the general public, especially taxpayers, professionals and educators, to the text of the Customs law.

 

 

106. Amendments are being proposed to the Customs law in accordance with our World Trade  Organisation (WTO) commitments, in particular on Customs Valuation. At present, Customs uses a valuation system based on the Brussels Definition of Value (BDV), as adopted by the World Customs Cooperation Council.

 

However, under the WTO Agreement, we (like other developing countries) were allowed a transitional period of 5 years to changeover from the BDV system. URA has now made necessary preparations for implementing this new WTO (GATT) Valuation method with effect from 1st July 2000.

 

 

107. A new more user-friendly Duty Drawback scheme to facilitate exporters has been designed, following consultations with URA, manufacturers and exporters. I expect the new scheme to become fully effective on 1st July 2000. URA will very soon publish the details of the new scheme, including the refund rates for the different export products. This scheme will give a much-needed boost to our exporters.

 

 

108. To stimulate use of Entebbe Airport for airfreight purposes, I am revising the arrangements for calculating the taxes on airfreight imports. The airfreight cost element will now be excluded from the customs value for tax purposes, so the taxes will apply only on the cost of the imports plus the Insurance costs. This means that C& I will substitute for the CIF formula for Customs purposes on goods coming in through Entebbe, which will further reduce the tax burden on air freighted imports.

 

 

109. I have reviewed the excise duty regime for motor vehicles. With effect from 1st July the excise duty rate is being harmonised at 10% for vehicles above 2250 cc.

 

 

110. The excise duty on bicycles and bicycle spares is being eliminated and the import duty rate for both categories is also being harmonised at 15%.

 

 

111. As an important measure to support primary health care, I am abolishing import duty and VAT on mosquito nets. Consistent with this measure, and to encourage local production of these nets, I am also eliminating the tax burden on imports of the netting material needed to make mosquito nets. These measures should encourage people to invest in this important aid to better health.

 

 

112. Our tax arrangements already take due account of the overwhelming importance of agriculture in our economy. However, it is also important to support local industries which have strong linkages with the agricultural sector, especially those producing inputs and processing outputs for this sector such as ox and tractor ploughs, hoes, and other related agricultural equipment.

 

To this end, I am extending the VAT exemption to help those producing all kinds of agricultural inputs and there will be a remission of duty on the imported raw material needed by the producers of these inputs. This should lead to lower-cost inputs for farmers and more employment in the industries producing these inputs.

 

 

113. To encourage local producers of textbooks, import duty on raw materials will be refunded or credited when proof is shown that the materials were used in the production of textbooks.

 

 

114. The Excise Duty on soft drinks will be reduced from 20% to 15% with effect from 1st July 2000. In doing this, however, I must express the Government's disappointment that past reductions in this excise duty have not benefited consumers.

 

I must emphasise that without some concession to consumers, demand for soft drinks cannot respond.

 

 

115.  To reduce the cost of manufacturing in Uganda, I am waiving the 4% withholding tax and the 2% import commission on all imported raw materials. Given the importance of imported raw materials at this early stage of our industrial development.