In order to resolve this issue, effective 1st August 2002, Government shall commence release of funds for telephone and water services on a prepayment basis, against the approved budget.
The Minister of Finance, Mr. Gerald Ssendaula yesterday presented his budget proposal for fiscal 2002/3 to Parliament. Following is the full text of his speech.
THEME: INCREASED PRODUCTION FOR INCREASED EXPORTS AND THE ERADICATION OF ABSOLUTE POVERTY,
Mr. Speaker, 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 fiscal year 2001/2002; and
The budgetary proposals for the estimates of revenue and expenditure for the fiscal year 2002/2003
Mr. Speaker, under Article 155 (1) of the Constitution, the President shall cause to be prepared and laid before Parliament estimates of revenue and expenditure for each financial year, I am accordingly performing the duty on behalf of the President.
Let me take this opportunity to congratulate you and all the Honorable Members of Parliament on your election to represent the people in this august House, you will recall that this current budget was presented before the Parliamentary elections were completed. My ministry has had a very fruitful working relationship with Parliament, particularly in the operationalisation of the Budget Act 2001.
The budget I am presenting gives a report on what has been achieved in the first year of the five-year term of the President and what the Government intends to do in the second year to enhance the implementation of the President's manifesto.
The overriding goal is to make Uganda secure for lives and property and a safe base for public and private sector investments and to promote rapid export-led growth with the objective of reducing absolute poverty. Therefore, the theme for this year's budget is "increased production for increased exports and the eradication of absolute poverty".
Performance of the economy
The implementation of sound economic policies and reforms and the maintenance of macro-economic stability have been key to ensuring the success we have achieved over the last decade. This success is demonstrated in the strong growth in our GDP, the low and steady inflation, the increased per capita incomes, marked decline in the incidence of poverty, and the adequate levels of foreign currency reserves.
It is imperative that we continue with the same economic policies, Including a disciplined fiscal policy. This means planning Government spending within predictable and available resources, redoubling efforts to produce and export wore and ensuring that the expenditure that we undertake provides value for money and produces benefits that can be equitably shared, by all Ugandans,
Gross domestic product (GDP) growth
7. Real GDP growth this year is estimated at 5.6 percent. It is worth noting that most parts of the world have suffered recession or slow growth over the last year, yet Uganda has been able to sustain strong growth, despite the continued weakness in the prices of our main export, coffee.
Economic growth has been evenly balanced across agriculture, industry, and services. High rates of increase are recorded in tobacco, cotton, sugar, food crops, communication, and education services.
8. Next year, we are projecting real GDP to grow by 6.6 percent, but our medium-term objective is to restore GDP growth to 7 percent per annum. To achieve this objective, the Government will maintain macroeconomic stability and will deepen and accelerate reforms aimed at removing bottlenecks to production at all levels.
9. Consumer price inflation has remained low for most of the year. The annual headline inflation rate, which include food crop prices, was actually negative for most of the fiscal year, because of a steep fall in food crop prices as a result of good weather conditions. The outturn for underlying inflation, which excludes food crops, is projected at 3.5 percent.
10. This year total exports are projected at US$450m and remittances from abroad at $540m. Unfortunately, while coffee exports have increased by 6.7 percent, the value declined by 23 percent due to a 30 percent drop in the international price of this major export crop, costing Uganda about US$30m in lost export earnings.
Due to the vigorous policy on export diversification initiated by this government, the strong performance on non-coffee exports is gradually making up for the lost coffee earnings. For example, this year, the non-coffee exports have provided US$372m.
Medium-term economic and budget strategy
11. Mr. Speaker, the four pillars of the PEAP are the foundations that support our medium-term economic and budget strategy. I will now turn to the key strategies and issues that underpin the budget for the medium term, moving us closer to achieving the goals of the Poverty Eradication Action Plan (PEAP). You will recall that we have identified the four pillars of this plan to be:
(i) Creating a framework for rapid economic growth and structural transformation; (ii) insuring security and good governance; (iii) Measures to increase the incomes of the poor; and (iv) Measures to increase the quality of life of the poor.
Production for Export
12. One of the highest priorities for the medium term is to increase exports in support of rapid economic growth and structural transformation.
This will require significant expansion of production, diversification, quality control and adding of value to export products and instilling the value of savings in our people, as an important base for domestic investments. The principal Government programs supporting exports are the medium term competitiveness strategy (MTCS), the plan for modernisation of agriculture (PMA) and the strategic exports program.
13. To achieve our export drive objectives, concerted efforts on all fronts and the cooperation of all stakeholders, including our development partners is critical. Our partners have already given signs of support for this objective, through specific trade initiatives, including the European Union's "Everything But Arms" (EBA), the United States Africa Growth and Opportunities Act (AGOA), and the recent trade agreements concluded with Japan. Unfortunately, there are worrying signs of halfhearted commitments for these initiatives on the part of some of our partners, as illustrated by increased subsidies to the very products we are capable of producing and exporting.
14. Government is also exploring how to effectively attract large pioneer investments in strategic areas of great export and import substitution potential and how to survive and take advantage of all the possible opportunities in the international markets. We will continue the dialogue with all stakeholders, including Parliament and development partners, and ensure that the momentum already built for attracting investors is not dampened. Improving
Improving budgetary efficiency and effectiveness
I5. Mr. Speaker, we are committed to improve fiscal discipline at the budget planning and execution stages. These involve following key undertakings: (i) reduction of supplementaries to only emergencies; (ii) reduction of domestic arrears through commitment control; (iii) strengthening financial management (iv) pay and procurement reform; (v) strengthening fiscal decentralization; and (vi) strengthening, monitoring and evaluation. I shall now expand on all these elements,
Strengthening financial management
16. Mr. Speaker, the Public Finance and Accountability Bill 2002 was recently approved by Cabinet and is due to be considered by Parliament. When enacted into law it will replace the 1964 Public Finance Act, taking into account the 1995 Constitution.
A major feature is a requirement that all proposed supplementary expenditure must be approved by Parliament, prior to the release of funds.
I am confident that Parliament will fully support this Bill, which provides for greater control over the implementation of the budget by this august House.
17. To support the Implementation of the Public Finance and Accountability Bill, Government has started an extensive training program for accounting and financial management staff in Central and Local Governments, and in the Office of the Auditor General.
In addition, a strong team of professional accountants and auditors has been recruited to support the entire program for strengthening financial management in government.
18. The new Integrated financial management system is to be introduced to enable government to more efficiently plan and execute the budget and account for all financial activities. The design phase was recently completed and he pilot phase of the system is planned to start on 1st July 2003.
Extension to all ministries and local governments will take place over a number of years. This is a very significant step and must have the full cooperation of all the technical and political level stakeholders.
An integral part of the Integrated financial management system is a new budgetary classification system incorporating international best practice in public sector accounting. This will be introduced at the beginning of the next budgetary cycle.
Commitment control and arrears reduction
19. The commitment control system (CCS) has continued to assist in the reduction but not the elimination of the accumulation of domestic arrears, since some accounting officers are not operating' within the financial resources availed to them. As a result, during FY 2002/03, we will focus our attention on the defaulting ministries and their accounting officers, to ensure that they comply fully with the CCS and take full responsibility for all the arrears created.
20. The effective fight against arrears requires reliable data to identify the causes of arrears and those creating them. In this regard, I am very concerned that suppliers are not responding to my calls to cease supplying extended credit outside the commitment control system,
21. Continued accumulation of arrears to utility companies is a shared liability between government departments and utility companies, mainly due to failure to bill accurately and regularly and to collect promptly. In order to resolve this issue, effective 1st August 2002, Government shall commence release of funds for telephone and water services on a prepayment basis, against the approved budget.
Therefore, from 1st July, all accounting officers are requested to reconcile their accounts with the utility companies prior to Introducing the new system.
22. Salary and pension arrears, especially those under Local Government, plus court awards, remain a very serious problem and these will be the subjects of close scrutiny in the next financial year.
23. Mr. Speaker, while It would not be prudent to predict zero new arrears by the end of FY 2002/03, this must nevertheless be our firm target.
It is a target that will only be achieved if all those involved, Including the business community, play their part to stop accounting officers from over committing Government. Arrears are a clear sign of budget indiscipline and are a serious and growing burden on the community.
General arrears of concern in public expenditure
24. H.E. the President, concerned about the cost of public administration vis-à-vis other priorities, a view shared by Parliament, commissioned a study on the cost of public administration. The report of the study identifies possible areas of savings, for possible reallocation to other PEAP priorities, including comprehensive public service reform.
The Government will in the near future announce how and when to implement the recommendations of this study.
Fiscal Decentralisation Strategy
25. Mr. Speaker, in order to increase the efficiency and effectiveness of the fiscal transfer system, Cabinet recently approved the fiscal decentralisation strategy.
This new strategy will provide a framework that will streamline the transfer of resources to local governments, reduce and standardise the reports required, halt the proliferation of bank accounts and the related bank charges, and increase the flexibility with which local governments can spend their resources, while maintaining a focus on national priorities.
In order to stimulate the local government revenue generating effort, which has stagnated in recent years, the new system will include incentives linking local revenue performance and autonomy in decision making with transfers from the centre. The implementation of the fiscal decentralisation strategy is to be piloted in 15 local governments, effective FY 2002/03.
The census and the National Planning Authority
26. "Census enumeration will take place in September this year. This is a very important exercise, the result of which will be a completely updated baseline of socio-economic data.
This will, in turn, provide the basis for our future plans and for updating the PEAP. The census is divided into four modules: household, community, agricultural and micro and small enterprises. I urge all Ugandans to support this exercise. It is intended that the exercise of registration of birth and deaths, which is covered by an Act of Parliament, will be reactivated, to ensure continuous provision of essential data and statistics for national planning.
27. The long-awaited National Planning Authority will commence its operations during the next financial year 2002/03. The data provided by the census will obviously be invaluable for the work of the NPA in guiding the long term development plan and strategies.
Budget achievements for FY 2001/2 and planned outputs for FY 2002/3
28. I now wish to turn to achievements in FY 2001/02 and to highlight the major planned activities and expected outputs for the next financial year. I will do this using the framework of the four pillars of the Poverty Eradication Action Plan.
PEAP Pillar 1: Creating a framework for rapid economic growth and structural transformation
Promoting strategic exports
29. Mr. Speaker, as I intimated in my budget speech last year, the Government has developed a five-year strategy to promote the production, processing and marketing of a number of strategic exports to form a basis for faster and broader economic growth. These areas include; coffee, cotton, textiles, tea, fish, beef, hides and skins, horticulture products and Information and Communications Technology (ICT). These interventions will have multiplier effects in the economy, by removing structural bottlenecks to production, storage and marketing.
30. In developing this strategy government has been careful to ensure that it not only represents an efficient use of resources but also that the interventions compliment the activities of the private sector. Sector specific studies were commissioned in each of the identified areas and a final report was produced and discussed by all the stakeholders, to enhance dialogue on the priority activities, specific interventions and the timing of such activities.
31. The bleak world markets for traditional exports have not only necessitated the need for strengthening the export base through diversification but also to ensure that Uganda's products are competitive in the global market/Under this initiative, the focus is on the following strategic components; institutional capacity; formulating and enforcing policies, standards and regulations; provision of critical equipment; improving infrastructure for trading in commodities such as maize, beans, rice and ground nuts; and producing high quality and competitive products particularly textiles and garments for the export market.
In addition, we are undertaking investments in an information and communications technology (ICT) incubation centre for enhancing ICT related export earnings; and supporting petroleum exploration and mining. These interventions will boost export earnings significantly from the current level.
32. In the current financial year, a total of shs 52.5b was provided to support the above strategic export program (SEP), and we intend to provide the same amount hi the next financial year.
33. Government interventions in these areas have enabled thousands of poor households to access planting and stock materials for coffee, tea, cotton, and cocoa during FY 2001/2002, enhancing their capacity to generate incomes and diversify their livelihoods. Specifically, distribution has been made of 16.5 million coffee seedlings to 85,000 households, 1.1 million cocoa seedlings to 2,933 households, two million tea seedlings to 1,000 households, and five coffee nurseries have been established.
34. Government interventions in the tea sub-sector were intended to increase the volumes and value of tea exports through increased acreage, the importation of unproved tea clones for multiplication and distribution of seedlings to poor households, the revival of tea research and the development of a tea policy framework.
35. In the cotton sub-sector, production increased to 15,000 bales last season. Value addition through the production of textiles and garments for the export market, and indeed for the local market, is a major area being promoted. With the introduction of block farming in the medium term, targeting large-scale commercial production, higher cotton production is expected.
36. The horticultural sector is one of the fastest growing export sectors in Uganda, rising in value from US$ 2.3m in 1995 to US$ 10.9m in 2001, with volumes tripling over the same period.
Exports of vanilla have been boosted by the present high world prices. Maintaining quality is essential if our farmers are to continue to benefit from this buoyant market.
37. Improvements in infrastructure and the provision of fish fry have contributed to the continued good performance of the fish industry, taking advantage of the lifting of the ban on fish exports to the European Union. The interventions aim at increasing production, export volumes and values and restoring confidence in the safety and quality of Uganda's fish and fish products. Fish exports for 2001/02 are projected to earn US$78.5m, a substantial increase over the previous year.
38. In the current financial year, the Uganda Development Bank was capitalised to the tune of shs5.7b. Furthermore, an arrangement has been made with the Development Finance Company of Uganda to enable farmers to access affordable capital for purchasing machinery and equipment for agricultural production and processing.
In addition, in April this year the Sino-Uganda Beijing Chenoa Company (BCC), a joint venture between Uganda Coffee Development Authority (UCDA) and the Beijing North Star Industrial Group opened a coffee shop in China to promote Uganda's "Crane Coffee".
Interventions in the ICT sector will generate earnings for services being provided through call centres and data entry and processing services with North American companies.
39. The Uganda National Council for Science and Technology is developing initiatives aimed at practical application of indigenous knowledge, with the aim of adding value and commercialising it. This is a very worthy endeavor and, I propose to support it next financial year by establishing an innovation fund to be managed by the Uganda Council for Science and Technology.
40. More details on the activities initiated this year under the strategic exports program are provided in the background to the budget.
Strengthening the financial sector
41. For the economy to sustain high rates of investment over the long term, our domestic savings rate must rise. Reducing our fiscal deficit will help to raise the savings rate, but we should also encourage the mobilisation of private savings through pension reform. A consensus has been reached among stakeholders that the pensions industry should be liberalised to allow reputable and well capitalised private sector pension providers to offer their services to the Ugandan public.
This will both stimulate private savings and boost the capital market in Uganda, as the funds mobilised by pension providers will be available for investment in long term securities. To protect the public, liberalization of the pensions industry will proceed gradually and will be accompanied by the development of a regulatory structure for the industry. NSSF will still have an important role to play, but the monopoly of
NSSF must be removed if there is to be genuine competition and reform of the pensions industry.
42. As a further effort to strengthen capital markets in Uganda, effective July, 2002, Government, through Bank of Uganda, will introduce a long term bond of three to five years for monetary policy purposes. Accordingly, I am proposing an amendment to the Treasury Bill Act to provide for this new instrument. The details of this amendment are contained in the Finance Bill.
43. Starting in August, the Bank of Baroda will float 20 percent of its equity on the Uganda Stock Exchange, in line with the privatisation agreement reached with Government. This will give a timely boost activity in the capital market and provide another opportunity for the Uganda public to participate in the future success of private enterprise in this country.
Privatisation and utility reform
44. Mr. Speaker, the program of privatisation has continued and, as of June, 2002, 110 divestitures of public enterprises will have been concluded, leaving a further 40 to be divested. It is worthwhile to note that, through divestiture, Government has reduced overall subsidies to public enterprises, from sh208b in 1994 to sh80b in 2000/01. Reports on divestiture activities will continue to be submitted to this Parliament as provided for by the relevant law.
45. This year, an independent power regulator, the Electricity Regulatory Authority, was fully operationalised. The concessioning of Uganda Electricity Generation Company Limited and Uganda Electricity Distribution Company Limited to private investors, which commenced this year, will be concluded next fiscal year. This is essential to the reform of the power sector, and vital for the modernisation of our economy.
46. Government intends to concession out the rail operations of URC's successor company by the end of 2003.
The preparation for private sector participation in water service delivery in urban towns is in process. It is expected that water systems in 33 large urban towns will be privatised under an operating lease.
47. Remedial works on Owen Falls dam were concluded this financial year, at a cost of sh!7b. Work started on the third unit at the Kiira Power Plant, adding 40 MW to the national grid upon completion. Funding for the fourth and fifth units was secured enabling a further 80 MW capacity to be installed by 2004, bringing total capacity to 400 MW from 280 MW at present.
Rehabilitation of the distribution network in Kampala, Jinja, and Tororo has commenced, and is expected to sharply reduce, transmission losses, upon completion.
48. Mr. Speaker, the Bugajali Falls Project is very much on course. Over $200m of financing from international development banks was obtained in December 2001. Commercial and political risk coverage has been obtained from official multilateral and bilateral agencies. The Purchase Power Agreement was approved by Parliament. The project is expected to start the next financial year.
49. In FY 2001/02, 91 percent of the planned routine and periodic maintenance activities were carried out on the 10,000 km. main roads system. In addition, the MoWHC upgraded and improved the national roads between Kyotera Mutukula, where 90% of the civil works were completed; Pakwach - Nebbi, where half the planned civil works were completed; and between Nebbi -Arua, where the targeted program was achieved. In addition, 50 percent of the works on the Ntungamo - Kagamba Road has been completed, while the upgrading and improvement of the Busunju-Kiboga-Hoima road is ongoing and is scheduled for completion in 2004/05. The road to Kapchorwa was upgraded.
50. As agreed with our development partners at the recent Roads Conference, Government, will increase the main roads maintenance budget each year by$2m equivalent until we have reached financial self-sufficiency. The 10-year main roads program was also extended to FY 2010/11 from FY 2005/06. The budget next year will provide for upgrading work on: The Karuma-Olwiyo-Pakwach Road (107 km); the Katunguru-Kasese-Fort Portal Road; the Kasese-Kilembe Road; and Equator Road. In addition, 71 km of the Jinja-Bugiri road will be rehabilitated and improved between September 2002 and September 2004.
Upgrading of Kagamtaa-Rukingiri Road (37 Km) is programmed to commence in March 2003. Upgrading of Gayaza-Kalagi Road (21 Km) will start in July, 2002. One hundred and seven kilometres of roads will be opened up under the Northern Roads Emergency Program. We expect to commence upgrading of the Kabale-Kisoro road and funds have been solicited for upgrading the Fort Portal-Bundibugyo Road.
Valuation studies related to the construction of the Kampala Northern Bypass will be completed next year and funds for resultant compensation will be provided thereafter.
Commercial Justice Reform Program
51. An efficient system of commercial justice is critical to the functioning of the business sector, for whom the reliability of contracts and protection of the law is essential. Accordingly, the Commercial Justice Reform Program began this year under the Justice, Law and Order Sector. Notable achievements this year are: the establishment of the Commercial Court; the equipping of judges with computers and research facilities; and the development of rules for arbitration and dispute resolution by the Centre for Arbitration and Dispute Resolution (CADER).
52. For FY 2002/03 sh400m has been allocated to facilitate the startup activities of the student loan scheme to enable intellectually gifted but financially disadvantaged students to undertake post-primary education. This will be complemented by the planned contribution of 14 community polytechnics, to provide trade and other practical skills to students who are unable to join secondary education.
53. The Open University of Uganda is in an advanced stage of establishment and Gulu University is scheduled to open in October 2002, for studies in agriculture and environmental science. Furthermore, I have allocated funds for the expansion of Mbarara University.
54. In order to address the quality of education, Government will take measures, including the training of new trainers and instructors, the provision of additional equipment, particularly for the teaching of sciences and the establishment of the National Council for Higher Education. Government is also studying the possibility of introducing long distance education.
Petroleum and mineral development
55. Government spent shl.7b this year under the strategic exports program in support of petroleum exploration program in the Lake Albert, Semliki Basin, Lake Albert and Rhino Camp Basin, areas. Sh0.8b was spent on mineral development activities, mainly providing extension services to private sector companies involved in mining wolfram, coltan and gold; issuing licenses, monitoring earthquakes, and constructing a seismological station at Hoima. The number of mineral licenses issued increased to 176 from 147.
PEAP Pillar 2: Ensuring security and good governance
56. Security and good governance are essential not only to the well-being of all Ugandans, but also as a precondition for business investment.
57. Progress has been recorded in achieving total peace this year in the Northern and Western areas of Uganda. Efforts are now geared towards consolidating this peace by maintaining internal security and implementing special programs for the disarmament of the Karamojong and the pursuit of the Kony rebels. These programs are going well and the UPDF and other security organs must be commended.
58. Government is committed to professionalising the UPDF and transforming it into a modern, efficient and accountable army.
Arising from the Uganda Defence Efficiency Study (UDES), Government is reassessing the country's security interests and considering the necessary reforms. From this review, a Defence White Paper will be produced next year, leading to a work plan for the medium and long term. Good Governance
59. Good governance is a prerequisite for economic growth. This year, the Inspectorate of Government (IGG) Bill and the Leadership Code Bill were enacted into law by Parliament. The Leadership Code now caters for a wider group of key leaders, closes the loopholes in the earlier Code and provides avenues for citizens to access leaders' asset declarations. It also provides for sanctions for non-compliance, including disqualification from office. The budget for the IGG will be increased in 2002/03 and in the medium term, to ensure full implementation of this law.
Administration of Justice, Law and Order
60. Achievements have been substantial this financial year under the Criminal Justice Reform Program. Progress has been registered with the backlog of High Court criminal cases falling to two years from seven years. The prison pilot farms are providing increased savings on prisoners' food.
Access to justice in rural areas was improved through the construction and renovation of police stations, prisons, training schools and opening up of rural offices of the Director of Public Prosecutions and the Judiciary.
61. The backlog of criminal cases at the High Court is expected to be fully cleared in FY 2002/03 and the number of people staying on remand will have significantly reduced to less than a year.
An estimated 20,000 cases will be embarked on at the magistrate court level, causing a significant fall in the backlog. The new police vehicle fleet management system is expected to save 30 percent on fuel consumption.
62. The Justice, Law and Order Sector has allocated shl41b for FY 2002/03. This is 11 percent more than the current year, providing an extra sh!4b to start addressing critical needs, including firefighting equipment and Police vehicles. The completion of the Criminal Justice Baseline Survey will enable the sector to finalise its development plan.
Public Service Reform
63. Mr. Speaker, Government is committed to improving the quality of the civil service as a prerequisite to improving service delivery. Accordingly, in this budget, I am providing sh17b to implement the pay reform strategy for the second year, and therefore provide further significant salary increments for critical managers and professionals. The budget also provides sh10b to pay wage increments for the lower cadres. The wage bill next year will, therefore, rise to sh627b. I am also providing sh49b for pension liabilities next financial year.
64. During 2002/03, I look forward to the agreement on staff structures within the districts. In the interim, the Ministry of Public Service has issued a circular restraining the districts from recruiting until after the completion of the ongoing restructuring exercise.
65. With regard to the provision for the payment of wage arrears during 2002/03, in the absence of verified information from the Ministry of Public Service, the budget for arrears will be based on the performance of the wage arrears during 2001/02.
66. A recent study on civil service pension reform has recommended a higher annual budget provision for future pension liabilities and a downward adjustment of the formulae for computing these obligations. Under the present system, the Government's future pension liabilities are completely unaffordable, and thus we must commit ourselves to implementing the necessary reforms to make them affordable.
67. An important aspect of administrative reform has been the area of government procurement. Responsibility for public procurement was decentralized to line ministries in FY 2000/01, with the Reformed Central Tender Board undertaking a supervisory and regulatory role. Following the formulation of Procurement regulations in FY 2000/01, a Public Procurement and Disposal of Public Assets Bill was prepared this year, and is now before Parliament.
Major issues that are being addressed are the training of procurement staff and the staffing of procurement units in line ministries. Given the wide activities under this reform, including capacity building, I have provided a budget of sh5.3b to fund procurement reform next financial year.
PEAP Pillar 3: Measures to increase the incomes of our people
68. Increases in the incomes of our people will, in the long term, only come through the creation of jobs as a result of enhanced productivity and economic growth. Agricultural and rural development are vital and closely related, and in this regard, the Plan for the Modernisation of Agriculture is a multi-sectoral plan for increasing rural incomes. I will now outline Government interventions under the PMA.
District, urban and community access roads and waterways
69. An efficient transport system is critical for rural and agricultural development. Routine and periodic maintenance costing about sh50b has been carried out this year on the 30,000 km of district, urban and community access roads in Uganda, and the same output is planned next year.
A strategy discussed at the recent roads conference is being prepared to address long term development needs. In the water transport sub-sector, work on the building of the Kalangala vessel will soon start, navigable routes and landing sites will be surveyed, and lighthouses will be installed on Lake Victoria.
70. Government interventions in support of agricultural development fall under the multi sectoral Plan for the Modernisation of Agriculture and the strategic exports Program. During the current financial year, sh4,4b was disbursed as non-sectoral conditional grants to sub-counties in 24 districts.
National Agricultural Advisory Services (NAADS) implementation started this financial year n six districts, Support to the NAAPS Program operations this year amounted to sh5b and will expand to sh12b as activities are initiated in a further eight districts, Uganda's research system and the strategic plan for NARQ have been revised, with greater emphasis to be placed on a demand-driven and decentralised approach to research.
Water for agricultural production
71, During 2002/03, the budget will provide for; the completion of 16 strategic dams/valley tanks in Kotido, Moroto and Nakapiripiriti completion of 15 dams/valley tanks in Sembabule, Mbarara, Nakasongola, Eiboga, Mubende and Ntungamo; construction of 50 valley tanks countrywide; and the rehabilitation of two old dams in Kumi and Mbarara districts respectively.
72. In addition, Government will complete the designs of at least five dam sites countrywide, report on test pumping of 20 high yielding boreholes in Karamoja for windmill installation. Finally, a feasibility study on livestock water supply systems in the North and North Eastern Uganda will be carried out.
73. Expansion of energy in rural areas will provide income opportunities and improve the quality of life. Accordingly, government has initiated the Energy for Rural Transformation Program. As part of this, Government is finalising the financing for the Rural Electrification Fund, which is expected to leverage US$375m of investment in electrification schemes over the next 10 years. Government has signed contracts this year with development partners for rural electrification which will induce investment in rural growth centres and in the development of renewable energy.
Land, natural resources and the environment
74. Increased security of land tenure is an integral component of PMA. The recently completed 10-year Land Sector Strategic Plan (LSSP) provides a framework for land resources management.
Implementation will continue next financial year through; the 18 land tribunals that have been operational since January; the operations of district land boards that started this year; finalisation of the national land and land use policies and guidelines for undertaking systematic demarcation; modernisation of the land registry; and finalisation of the design of the land Information system.
The Land Fund will be piloted in the Kibaale area, before finalising the rules and regulations. To fund these programs and activities, I am providing a budget of sh9b next financial year.
75. Under forestry, a total of sh1.4b has been budgeted for the National Forest Authority (NFA), once it is established. The role of the NFA will be to manage central government forest reserves on an ecologically sustainable basis. Establishment of NFA and e Forestry Fund will follow the completion of the National Forest Plan and the enactment of the Forest Bill next financial year. Guidelines to prepare forest management plans will be developed and district government forest extension staff trained.
76. The key success of NEMA's program has been the support to nine districts to develop their district environment action plans. Fifteen districts will be supported next year.
The work on the development of rules, regulations and guidelines, to ensure that environmental laws are effectively implemented will continue and the plans of 12 key government institutions be reviewed for their environmental impacts.
77. Implementation of the Wetland Sector Strategic Vim started this year at the local government level and local governments developed several Wetland Action plans. I am allocating sh700m next year under PAF. This represents a 32 percent increase over this year and will support enhanced activities, including community awareness campaigns and the finalisation of the national wetlands Inventory.
PEAP Pillar 4; Measures to improve the quality of life of our people
Primary and post-primary education
78. The provision of primary education is a key element in the improvement in the quality of life of the poor. Considerable success has been achieved in enhancing access to primary education, with the pupil/teacher ratio falling to 54:1 this year from 57:1 last year, and the pupil/classroom ratio falling to 92:1 from 98:1 last year, notwithstanding an increase in enrolment to 7.2m pupils, including enrolment in private primary schools of 1.1m pupils. During 2001/02, 114,835 teachers were on the payroll compared with 103,404 the previous year.
79. Development partners expressed considerable satisfaction at the progress in implementing UPE during the April, 2002 Joint Sector Review. An important performance indicator in this sector is the pupil teacher ratio, which is targeted to fall further to 50:1 in 2002/03. The Education Standards Agency was recently established to oversee the overall quality of primary and post primary education.
80. The curriculum for primary education has been revised with the focus on agriculture and on life skills to enable students to better integrate into the work force; In addition, improved procurement has resulted in the reduction of the unit cost of school textbooks by half, on average, down to sh5000 per book. This saving should ensure that our long-term target of providing each pupil with a textbook will be achieved sooner than later.
81, A development program is currently being finalised for the post-primary education sector. The main program this year was the construction of schools in 16 districts costing sh2.3b. A budget of sh1.16b has been allocated for the construction of eight seed schools next year. To cater for the projected increase in the number of secondary teachers, mainly in grant-aided schools, the wage bill for secondary education has been raised by 29.4 percent to sh55b next year.
82. The Health Strategic Plan (HSSP) has continued to guide interventions for reducing morbidity and mortality from the largest causes of ill health in the population and to increase access to health services nation-wide.
83. A few key health indicators demonstrate considerable progress, most notably, the HIV/AIDS prevalence rate, which has fallen to 6.1 percent down from 6.9 percent in financial year 1999/00. Immunisation rates continue to rise; with DPT 3 coverage reaching 46% and plans are in place to introduce two additional vaccines. More than 2,300 nursing assistants have been trained this year, well above the target of 1,800 for the year. Ninety Health centre IIs out of a planned target of 100 have been constructed this year, bringing the total number constructed so far to 210.
84. However, there is an urgent need to address the status of the critical health indicators of infant and maternal mortality, which have remained stagnant for a number of years. While it is recognised that full responsibility for this status does not lie entirely within the mandate of the Health Sector, as other factors, particularly education, water, sanitation and culture have a strong influence on health outcomes, it is very clear that expenditure in the health sector must be prioritised for primary health care, particularly for drugs for the poor.
I have therefore allocated a 30 percent increase to Primary Health Care next year, amounting to sh22b, the largest single increase in the entire budget, in recognition of this priority. Next year, funding for service delivery at Health sub-district level will rise by 35 percent to sh14.5b of which 50 percent will be allocated to essential drugs. We need to increase efficiency and accountability in drug distribution and use and reduce unauthorised diversion of drugs to private clinics.
85. To strengthen access to adequate reproductive will be placed on improving the referral system at the Health sub-district level and increasing the proportion of deliveries attended to by skilled health professionals to a targeted level of 40 percent. To this end, provision has been made for upgrading health centre IIIs, transport to improve emergency maternal referral systems, and theatre equipment in HC IVs. In addition, more resources, specifically for reproductive health activities, have been included in the national service delivery programs.
86. The completion of the primary health care payroll cleaning exercise is expected to identify efficiency savings, which will enable further recruitment of essential cadres at PHC level. Training of nursing assistants will continue with the provision of sh2b next year. Sensitisation on the role of the proposed village health teams will begin at the national level and in selected districts. Mbarara University intake will significantly increase, thus expanding the number of health workers more quickly for this initiative.
Water and sanitation
87. Mr. Speaker, as I indicated earlier, access to safe water and sanitation is critical for the health of our population, the medium-term objective of Government is to raise access to safe water in rural areas to 65 percent; and rural household sanitation to 75 percent by 2005.
88. During this year, rural safe water coverage has risen to 88 percent from 88,8 percent last year and over 10 million people can now access safe water. In the area of rural sanitation, the budget this year provided for the construction of 4,139 school latrines, among other activities. During 2002/03 the budget will provide for the protection of 200 springs, the construction of 900 shallow wells and the drilling and rehabilitating of 2,400 boreholes.
89. Nineteen schemes for the supply of clean water in small towns were planned and completed this year. The budget next year will provide for the construction of 50 piped water systems in selected rural growth centres and for 92 boreholes and 33 gravity flow schemes, with 400 taps in other centres. In addition, 200 public latrines will be constructed. Nine more water schemes are at the tender stage,
90. The NWSC has improved its service coverage in the urban centres from 56 percent in June 2001 to about 59 percent at present. This year, NWSC rehabilitated the water and sewerage systems in Jinja and Kabale, and the activities next year include: completion of the plan for increasing water supply in Kampala and Entebbe; the extension of water supplies to Malaba town; the refurbishment of Gabal Water Works, to increase water production by 10,000 cubic metres per day, and the improving of service delivery to the peri-urban areas, through the increased stand posts program.
91. A social development sector strategic investment Plan (SDSSIP) is being developed to build capacity at community level to promote socio-economic development. The functional Adult literacy program has expanded into 11 new districts.
An extensive program was conducted for teachers and supervisors and 149,000 adult learners were enrolled. During 2002/03, funds are prevised for purchase of specialised equipment for the disabled at learning centres. There will be activities for upgrading of sub-county community development assistants, to enable them to more effectively mobilise the population, for socio-economic development.
Revenue and expenditure
Projected Revenue and Expenditure Outturns for FY 2001/02
92. The expected outturn or URA revenue collection this year is sh1207b, an increase of 19,1 percent over last year, but sh52b short of the approved budget estimate of sh1259b.
Collections rose in terms of GDP to 11.3 percent from 10.7 percent. Some items of taxation performed much better than expected, income tax in particular, but other items, particularly taxes on international trade, performed below expectations.
93. Total non-URA domestic revenue collection is estimated at sh39b. this year, compared to the approved budget estimate of sh41.6b reforms to non-tax revenue collection by ministries that I introduced this year are beginning to bear fruit. However, much remains to be done to realise the full potential of this source of revenue, as I shall elaborate later. Loan repayments due by public enterprises to Government have fallen below expectations by sh33b partly due to the rollback of the electricity tariff increases last July.
94. The outturn for government expenditure, excluding donor financed projects, is projected at sh1,888b this financial year, equivalent to a 98.4 percent performance against the approved budget of sh1,918.7b. This under performance was due to domestic resource shortfalls.
95. The wage component of the budget is expected to perform at 100 percent of the approved budget, with over-expenditures in the PAF wage bill compensating for savings in non-PAF wage expenditures.
Non-wage recurrent expenditures are projected to exceed the approved budget by about 2.5 percent due to over-expenditures in some votes, mainly in the public administration sector. Over the past year, these over-expenditures, coupled with the shortfall in domestic resources, have necessitated cuts, in the releases to the non-wage recurrent and development budgets of several ministries.
Overall development spending is projected to be below the approved budget by more than 10 percent with non-PAF projects performing at 83 percent of their approved budget.
PAF expenditures have performed at 98 percent of the approved budget.
Proposed Revenue and Expenditure for FY 2002/03
96. Mr. Speaker, the MTEF ceiling next year will grow at a much-reduced rate, relative to this year. Our fiscal deficit has widened too fast over the last few years in relation to GDP, financed by large inflows of budget support.
The rapid rate of increase, far in excess of the natural growth of the economy, has put upward pressures on the exchange rate, as the donor funds have to a large extent been spent in the domestic economy. These upward pressures are likely to undermine the success of our export efforts.
Moreover, the rapid rise in the fiscal deficit, financed by donor support, has increased our reliance on donor support, which have little predictability from year to year. It is only prudent that we reduce our reliance on them in the medium and long term.
97. Mr. Speaker, starting with this budget, I will gradually reduce the fiscal deficit as a ratio of GDP, with a target of about 10.8 percent of GDP next year from the expected outturn of 11.4 percent of GDP for the current year. I wish to indicate that I am including donor-financed projects in the calculation of the fiscal deficit, as they have a macroeconomic impact, just as much as the spending by Government. Insufficient data has, until now, made it impossible for us to meaningfully include donor-financed projects within the MTEF spending ceilings. Starting in FY 2003/04, all donor-financed projects will be integrated into these ceilings.
98. Total revenue for FY 2002/03 is estimated to increase by 14.9 percent over this year's expected outturn to sh1,433b, or 12.3 percent of GDP. This includes revenue expected to be raised from new tax measures and efficiency gains.
I shall describe these measures shortly.
Revenues collected by URA are projected to increase by 15.3 percent to sh1,392b. Non URA non tax revenues are projected at sh40.5b.
99. The transfer of responsibility in FY 2001/02 for collection of passport fees to URA has dramatically illustrated the substantial gains to be made in nontax revenue collections. Passport fee collections are expected to be 300 percent above the budget estimate for the year.
I therefore intend to transfer the cash collection function to the URA for more items currently collected by ministries. Another important measure will be the tightening up of the receipting, accounting and reporting arrangements and the reduction of leakages through embezzlement. I expect these measures to yield an efficiency premium of about 20 percent.
100. Our external resources consist of budget support loans and grants, including HIPCs debt relief, and project loans and grants that finance development projects outside the Consolidated Fund. Budget support loans and grants are projected to increase to sh 813b next year, from an estimated outturn of sh783b this financial year. Project loans and grants are projected at sh632b next financial year.
101. Total Government expenditure next year, excluding donor projects, will amount to sh2,038b. (17.4 percent of GDP) consisting of sh628b for wage expenditures, shs908b for other recurrent expenditures, and sh502b for development expenditures. This represents an increase of sh150b, or 8 percent over the expected outturn for this current year.
102. The expenditure on PAF programs next financial year is budgeted at sh682b., equivalent to 35.5 percent of the budget, compared to sh611n projected this current year, or 35.1 percent of expenditure.
103. With domestic revenue of sh1,433b, and total expenditure, including donor projects, of sh2,696b, the fiscal deficit next year is projected at Sh1,263b (10.8 percent of GDP).
This will be financed by sh861b in external grants, and sh402b in net external and domestic financing. This comprises external financing of sh462b and negative sh60b of domestic financing, which includes arrears payments, savings in the banking system, and non-bank financing.
Constitutional autonomous bodies
104. Mr. Speaker, the budgetary proposals of the accounting bodies have been submitted in compliance with Article 155 (2) of the Constitution. In compliance with Article 155 (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.
105. In order for me to submit a complete National Budget for your consideration in accordance with Article 155 (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 in the course of our discussions and presented to Parliament as per the Budget Act, 2001.
Schedule of indebtedness
106. Mr. Speaker, in accordance with the provisions of Section 13 (1) and (2) of the Budget Act, I hereby lay before the House the statement on: (i) Government's total indebtedness as at 31st March, 2002; and (ii) the grants that the Government of the Republic of Uganda received during the financial year 2001/02. With respect to section 13 (3) of the same Act, I am pleased to announce that during the financial year 2001/2002, Government did not guarantee any loans and provide grants to any individual or statutory body.
Details of the utilisation and the performance of each loan and grant, including the extent of the achievements of the objective targets, will be provided in the policy statements of the responsible ministers.
Taxation tax measures
107. Mr. Speaker, the focus for tax policy in 2002/03 will be on objectives of (i) stimulating the economy; (ii) strengthening tax administration; and (iii) raising tax revenue to meet our rising expenditure needs and reduce the fiscal deficit.
108. As I earlier indicated, strengthening tax administration is the main avenue open to us for mobilizing extra revenues. URA, as the body responsible for collecting tax, requires re-organisation and strengthening. In an effort to strengthen the Authority, funds have been allocated for next financial year for the purchase and installation of an integrated modern computer system and for other such equipment including scanners.
109. Nevertheless, Mr. Speaker, we face a resource gap of sh20b for next financial year. As the efficiency measures for URA will have their main impact only in the medium term, I have no alternative but to make modest adjustments in tax rates in order to bridge the gap.
110. I shall now proceed to outline taxation and tax measures for next financial year.
Value Added Tax
111. Mr. Speaker, information and communications technology have become so important world over for processing and accessing data. It is important that Uganda should not be left out of development of information technology. I am therefore removing VAT on computers and accessories to promote development of information technology.
112. Mr. Speaker, some contracting companies have been undertaking Government contracts, when they are not registered for VAT. As a result, they have been under-cutting tax-paying firms. In order to create an even playing, field, future Government contracts with businesses, both at the Centre and Local Government, will only be awarded to VAT registered persons.
Excise duty on local goods:
113. Mr. Speaker, in order to stimulate consumption of beer, the excise duty is being reduced from 70 percent to 60 percent.
Motor vehicles and license fees
114. Mr. Speaker, I am raising the excise duty by five percentage points on all vehicles imported, except commercial vehicles. The details are contained in the Finance Bill. This measure will generate additional revenue of sh3b.
115. Mr. Speaker, to ameliorate the problems faced by dealers holding franchises in new cars, because of the limitation in the warehousing period, I am proposing that the warehousing period be extended to 24 months from the current maximum of 12 months.
The details are contained in the Customs Management (Amendment) Bill.
116. Mr. Speaker, many second hand vehicles imported into Uganda are environmentally hazardous, not road worthy and it is difficult to determine their value. Accordingly, with effect from September 2002 all second hand vehicles imported into the country will first have to be inspected and certified by a competent authority in the country of origin. This is to keep in line with the other East African countries. Details are contained in the Finance Bill and will also be published in the newspapers.
117. Mr. Speaker, I have adjusted various fees and licenses under the Traffic Act, with regard to the fees and charges applicable to motor vehicles. The details are contained in the Finance Bill. This measure will generate revenues of about sh6b.
118. Fuel excise duty rates have been held constant for the last four years at sh580 per litre for petrol, sh370 per litre for diesel, and sh200 per litre for paraffin, despite the fact that consumer prices have risen by 16 percent since then.
Mr. Speaker, the current specific rate on petrol of sh580 per litre is being adjusted by sh30 to sh610 per litre. This modest adjustment will partly make up for loss in the real value of the rate since 1998. This measure will take effect from 15th June, 2002 and is expected to raise sh7b.
Polythene bags and plastic containers
119. Mr. Speaker, the difficulties in disposal of polythene bags and plastic containers has given rise to serious environmental concerns, including the blockage of drainage and soil degradation. Material action is required in order to encourage producers and consumers to economise on the use of these bags and bottles and to develop more environmentally friendly alternatives. I am accordingly imposing an excise duty of 20 percent on polythene bags and plastic containers. The details are contained in the Finance Bill. Customs Duties
120. Mr. Speaker, no changes are proposed in the tariff structure. However, adjustments to the HS Code duty rates are proposed to take into account developments under the EAC and also to accommodate changes decided by the World Customs Cooperation Council. The details are contained in the Finance Bill.
Second hand goods
121. Mr. Speaker, you may recall that Uganda was a leading producer of cotton with a vibrant textile industry. Many Ugandans were employed in cotton production, and a textile industry and expert tailors had also emerged. This was a source of livelihood to many families. Due to our past turmoil, all this fell in ruins.
Attempts have been made to revive the textile sector but this is being undermined by the importation of used clothing. Mr. Speaker, for the textile sector to develop, there must be sufficient demand locally. It is in this regard, Mr. Speaker, that I am increasing the current excise duty by a modest five-percentage points. The details are contained in the Finance Bill.
122. Mr. Speaker, it has come to our attention that sugar-producing countries are providing heavy subsidies to their producers. As a result, importers are landing sugar into the country at very low prices, thereby unfairly undermining local industries. To counter this uncompetitive practice, I am increasing the excise duty on imported sugar from 10 per cent to 20 per cent.
Bank Of Uganda be exempt from income tax
123. It is the worldwide practice, Mr. Speaker, for Central Banks to be exempt from income tax, provided it annually transfers its profits to Government after appropriate contributions to reserves. Exempting the Central Bank makes no difference, in principle, to the amount of Government receipts. While exemption reduces tax revenue, there is a corresponding increase in the transfer of dividends to government. For the above reasons, Mr. Speaker, an amendment is proposed to list Bank of Uganda as an exempt institution under the Income Tax Act. Details are contained in the Income Tax (Amendment) Bill.
Livestock Development Levy
124. Mr. Speaker, a 15 percent levy is to be charged on FOB/FOR on all raw hides and skins of bovine animals leaving Uganda. Details are contained in the Finance BilI.
East African Community
125. We have fully participated in the development of the East African Community and we remain committed to the integration process. In the spirit of the EAC, student visa fees for nationals from Kenya and Tanzania studying in Uganda are abolished.
126. All these measures will take effect from 1 July, except fuel, which takes immediate effect from 15th of June 2002.
127. Mr. Speaker, financial year 2002/03 presents a major challenge in enhancing the implementation of the President's manifesto. Over the next year and for the medium term, efforts to develop and reposition Uganda's increasing exports for higher quality production and greater competitiveness in the regional and international markets will be much more enhanced. This is critical to the achievement of Uganda's long-term goal of eradicating absolute poverty by the year 2017. Our development partners are commended for their initiatives in promoting these efforts, but these have to be sustained and deepened.
128. Mr. Speaker, I wish to reiterate the Government's commitment to reduce the cost of public administration, promote reforms for greater accountability and efficiency in all public sector operations and aim for maximum effectiveness of our programs. These are matters on which both the Executive and the Legislature are fully agreed.
This is the only way to achieve our goals of reducing our dependence, achieving higher growth, ensuring better standards of living for our people and coping with the ever-increasing challenges in the globalized environment of the 21st Century.
129. Mr. Speaker, I want once again to express my satisfaction with the cooperation of Parliament in the process of preparing this budget, as provided for in the Budget Act 2001.
In order to achieve our mutual objectives, I call upon Members to be in the forefront, working with the Executive and the local Governments, to ensure the successful implementation of this budget once they have approved it.
In this connection, urgent consideration and approval of the Public Finance and Accountability Bill will be critical in ensuring the desired budget discipline.
130. I highly commend this budget to you. Mr. Speaker, and Honorable Members, I beg to move. For God and my Country