Budget Speech 1995/96

Following is the full text of the 1995/96 Budget Proposals presented to the National Resistance Council at the Uganda International Conference Centre by the Minister of Finance and Economic Planning, Mr. Jehoash Mayanja Nkangi:

Mr. Chairman, Honorable members, ladies and gentlemen. I beg to move that the National Resistance Council do resolve itself into a committee of supply for the consideration and approval of; 

a) The revised revenue and expenditure estimates for the year 1994/95

b) The budgetary proposals for the fiscal year 1995/96 estimates of revenue and expenditure.

Economic Performance 1994/95

1. The key objectives for the economy for the fiscal year, 1994/95 were: growth in GDP of at least 5 per cent and inflation of less than 7.5 per cent.  I am pleased to report that we expect growth in GDP during this last year to have been 10 per cent, and inflation to have been about 3 per cent. 

This is an excellent performance.   We expect growth of just over 6 per cent in Agriculture and nearly 8 per cent in manufacturing. The strength of this growth is that it is broadly based across the whole economy. And, of course, growth will not be sustained unless we open up the country by investing in the road network, as I shall explain when discussing public expenditure later ill this speech.

2. The overall balance of payments position continued to improve in 1994/95 with a surplus of US$137 million being recorded.   The overall balance of payment was in surplus equivalent to 2.8% of GDP in 1994/95.

During 1994/95, the overall surplus as a percentage of GDP reduced slightly from 2.8% in GDP in 1993/94 to 2.7% of GDP, although in absolute terms, the overall balance improved from US$106 million in 1993/94 to US$137.5 million in 1994/95.

3. The current account deficit continued to narrow from -2.45 of GDP in 1993/94 to -0.2% in 1994/95. The significant improvement in this ratio was attributed to private transfers, which increased by 27.3% from 1311.9 million in 1993/94 to US$397.0 million in 1994/ 95.

The continued improvement in the current account is one of the benefits of the successful stabilization of the economy, in particular, the return of confidence as evidenced by increased private transfers into the economy.

Capital transfers are expected to remain buoyant and to contribute to a further strengthening of the current account position in the medium-term. Gross reserves increased by US$ 172.8million in 1994/95 compared to an increase of US$ 165.2 million the previous year.

4. Although there has been pressure from high coffee prices and other foreign in-flows, we have seen a broad degree of exchange rate stability, with the dollar exchange rate at about the same level as this time last year.

During the year, the rate moved within a narrow band with no more than 5% maximum variation. The exchange rate stability is a successful outcome of the policies for handling the coffee boom, although the combination of the collected tax and cautious fiscal and monetary policy has been greatly aided by an unexpectedly high level of import demand.

5. As I explained in my budget speech last year, a major objective of our policy response to the coffee boom has been to maintain incentives for the continued growth of non-coffee export is while the coffee sector benefits from high international prices. 

I am pleased to say that non-coffee exports have continued to grow strongly rising by almost 65% to US$135m in 1994/95. On a volume basis, this represents a significant increase in the share of non-existent coffee products in total exports compared to last year.

6. The improvement in our economy and the effectiveness of our reform programme is attracting increasing international recognition. 

The 1995 report of the Economic Commission for Africa recognises Uganda's economic growth as among the most impressive in Africa, while Uganda is noted as also one of very few African countries with a strong performance on inflation. 

Private investors have continued to demonstrate recognition of an improved environment, with a further US$630m of investments registered with the Investment Authority as of May 1995, in addition to US$790m projects approved since 1991.

In February this year, Uganda became the first country to receive the so-called Naples terms in a final settlement with the Paris Club creditors involving a reduction in the stock of debt rather than just flow restructuring of debt service due. 

The terms offered to Uganda were equivalent to a write-off of about US$71m of Government Debts with the Paris Club creditors. Naples terms are available only to develop countries showing exceptional improvements in economic performance and fiscal adjustment. 

Consequent to our access to the Naples terms, Uganda will not be returning to the Paris Club and in future, all our debt service payments will be made as they fall due.

7.   Mr Chairman, while we should be encouraged by our achievement so far and the recognition which it has received, this should not distract us from a sober view how far we have to go and the obstacles ahead. Our ultimate economic objectives are not stability or even growth itself, but rather an increasing standard of living for all Ugandans.

Although economic growth which we have experienced since 1986 has increased real per capita income by 20%, this level is still 23% below the level enjoyed by Ugandans 23 years ago.

Several more years of growth at recent levels will be needed even to restore real incomes to what has been experienced in the past. It is not surprising if many Ugandans have yet to feel that they knew in the past. We need to look for all possible means of ensuring that growth leads as rapidly possible to substantial reductions in poverty.

8. In considering recent economic performance, we must recognize the special factors which have helped in this achievement. Approximately two or three per cent of the recent economic growth can be attributed to the fortuitous impact of high coffee prices. Good rains have also helped both by enhancing agricultural growth and by easing pressure on consumer prices as a result of increased availability of agricultural products.

9. But most importantly, the relatively high growth rates achieved in the economy over the last 8 years have been led by an increase in the rate of investment activity. In 1986/87 the ratio of domestic investment was estimated at only 9% of GDP, less than half the average for the African continent. Since the economic recovery programme, this ratio has improved steadily to 10.7% estimated for 1994/95.

10. Perhaps the most important qualification which must be made regarding the recent economic performance is the extent of our continued reliance on external assistance. 

In 1994/5, donor financing accounted for approximately 33% of our expenditure. More importantly, if we discount revenues attributable to the temporary coffee boom, domestic resources covered only 83 per cent of recurrent expenditure, defined to include expenditures of a recurrent nature which are presently covered through donor-funded projects.

11. This is not to say that there has been no progress towards self-sufficiency in recent years. Three years ago, the proportion of recurrent expenditure covered by domestic resources was only 70%, rising to 73% in 1993/4 and 83% in 1994/5. However, we need to continue this progress, so that we are able to fully cover our own current needs and a significant level of capital expenditure.


This will not displace the use of donor funds: such resources can be concentrated on the enormous needs for social and economic infrastructure, on projects which will help accelerate the pace of private-sector development and the reduction of poverty.    

12. Reducing our dependence on aid is not only a matter of simple prudence in a world where the future volume and direction of aid is uncertain. It is also political assistance. Continued dependence on the outside- assistance for even the core functions of government is fundamentally inconsistent with our commitment, through the institution making process and beyond, to create stable democratic institutions through which will determine our own national policies. 


But we must face the implications of this commitment. Further reduction in aid dependence requires that domestic revenues must grow faster than domestic expenditure. This has been a central assumption underlying the Budget which I am announcing today.

13. Sustaining our recent performance will only be possible if the private sector is allowed to develop rapidly. It is vital that government works together in partnership with the private sector. 

I believe that the government's dialogue with the private- sector has continued to improve. Recently, the government has supported a new initiative in promoting private sector development. We have agreed to develop a project addressing key constraints on private-sector growth, including the development of equity financing, incentives for business services and further support for investment promotion. 

A noteworthy feature of this project is that the majority of the members of the Taskforce responsible for designing this project are representatives of the Ugandan business community. An important component of this project is support for the establishment of a Private Sector Foundation, a private sector body which will offer a channel for coordination with Government on key policy issues affecting the- private sector. 

I welcome this innovation and look forward to the deepening of dialogue with the: private sector which I am sure that it will bring.

14. Beyond broad reliance on private sector development, sustainable economic reform must, in particular, entail rapid development of exports. Private investment so far has been predominantly oriented to the domestic market.

A recent survey of a high proportion of entering- this changes, the high rate of prices reporting lack of domestic demand as a constraint on growth, yet only a very small minority of enter-prices were looking beyond growth we are beginning to see will be quickly stifled, constricted by the narrow limits of the domestic market.

15.   Government needs continually to consider whether its policies place any obstacles in the way of rapid export growth. One key area is the structure of taxes. Along with many developing countries with a small formal sector and limited tax administration capacity we are dependent on trade taxes, such as import tariffs, for a high proportion of domestic revenue. 

Such taxes made up 54% of our revenue this year. Although this dependence is in some degree inevitable in our present circumstances, we must recognize that heavy reliance on such taxes depresses incentives for export.

The protection afforded by such taxes provides an incentive for domestic production of imported goods but reduces the relative profitability of production for export. This effect can be much greater, depending on the structure of tariffs. The degree of protection is much greater for domestic producers if their output is covered by a tariff but inputs are allowed duty-free, or at a much lower tariff. These features of our present tax structure give rise to a high degree of anti-export bias, which we must seek to eliminate as far as possible.

16. We cannot sustain high economic growth by relying on production for the domestic market, encouraged by the high levels of effective protection. The transition must be made to a tax structure which at the very best gives equal incentives to production for export and for the domestic market. This transition will not be easy and may take several years. 

1 shall shortly be announcing some preliminary steps in this direction. However, the pace and manner of this transition are subjects which I believe will require a close dialogue with the private sector in the coming year, especially the sectors which currently enjoy high rates of effective protection. 

Privatization and Parastatal Reform

17. Earlier this year, the Government implemented several measures to streamline the process of privatization. A Privatization Unit has now been established, reporting directly to my colleague, the Minister of State responsible for privatization.

In order to facilitate the management of the divestiture process, parastatals being divested have been transferred to the Ministry of Finance and Economic Planning. 

The current privatization programme aims to transfer 85 per cent of existing public enterprises to the private sector within two years.

During 1994/95, 13 public enterprises were divested, realizing total gross proceeds of US$51 .72 billion. However, as a result of many years of mismanagement, substantial liabilities have been accumulated which will have to be settled from these proceeds. 

As of June 1, 1995, an additional 11 public enterprises have been offered to prospective investors, 25 enterprises are under preparation and 18 liquidations are underway. It is in my firm belief that privatization will lead to efficiency gains in the economy, helping us to raise the rate of growth of GDP. 

Investment

18. The Investment Code has been a vital part of the promotion of Uganda for investors. We introduced the Code at a time when we had not made much progress on economic liberalization and reform.

For example, at the time that the Investment Code was introduced, five years ago, we still operated a state-controlled monopoly on coffee exports and expected the proceeds from coffee exports to pass through the Hank of Uganda at the official exchange rate. 


It is clear that much has changed since the design of the Code. Over the last five years, the Government has liberalized export marketing, has secured sustained macroeconomic stability, and was among the first countries in Africa to make a strong commitment to sustaining a liberal trade and payments system.   


These achievements have secured a large increase in investment, both domestic and foreign, and have been well assisted by the Investment Code. It is now clear that the Code needs to be developed to move in partnership with them…

Over the last five years, the government has liberalized export marketing has secured sustained macroeconomic stability and was among the first countries in Africa to make a strong commitment to a liberal trade and payments system.

…. changes in the economy. The proposals I shall shortly announce are modest and uphold the cardinal principles of reform of such sensitive areas of legislation. In particular, I have carefully sought not to impose any adverse effect upon those who have already taken their investment decisions on the basis of the present Investment Code. 

The reforms are also intended to ensure that everyone has clear and equal access to beneficial incentives for investment and that investment incentives more closely match the needs and strengths of our economy.

Financial Sector Policy 

19. Since the enactment of the Bank of Uganda Statute 1993 and the Financial Institutions Statute 1993, the Bank of Uganda's role as the monetary authority and supervisor of Banks has been clarified and strengthened. 

The new legislation entrusts the Central Bank with the authority to allow entry and exit of financial institutions in the sector.

In this connection, existing financial institutions which did not satisfy the statutory minimum capital requirements at the enactment of the new legislation have been given till 31st December 1996 to find additional capital or be allowed to exit.

Starting this year the Bank of Uganda will adopt a new strategy for handling financial institutions in distress in order to improve overall performance in the sector and also maintain confidence in the system. 

Special rehabilitation programmes will be arranged for individual institutions under distress and will reflect short-term targets to be achieved on a quarterly basis in recapitalization and improvement in their credit policies before the end of December 1996. A restructuring programme is ongoing in the Bank of Uganda. 

The top management structure has been streamlined and the numbers in the workforce reduced. Measures are also needed to improve the capital structure of the Bank of Uganda. Recapitalization of the Bank will proceed in two stages. An initial phase will meet the Bank's immediate operational requirements. In a second phase, the Bank will be fully recapitalized following completion of an external audit.

20. Given the dominance of UCB in the banking industry, it's restructuring forms a critical element in the financial sector reform effort.

The transfer of the non-performing assets now estimated at UShs80 billion from UCB to the Non-Performing Assets Recovery Trust is to be effected within the first quarter of the 1995/90, and therefore recoveries will start immediately. 

The Board of Trustees has now appointed the administrator of the Trust, who will take up the post in July. All the debtors concerned are therefore informed that the Government is committed to ensuring that these assets are recovered.

21. Pursuant to section 15 of the Statute, the Non-Performing Assets Recovery Tribunal has also been appointed. 

The Tribunal shall have all powers of the High Court in the discharge of its functions and to expedite the speedy resolution of all complaints relating to any non-performing asset transferred to the Trust. 

In addition, progress towards privatization of UCB is to be speeded up by the appointment of a merchant bank to identify the most effective means of sale and prepare an action plan. This work should be completed by the end of 1995:

22. The- Capital Markets Authority Bill has been presented to this House. This legislation is intended to provide a legal framework for the operations of a private sector securities industry.  Government is now putting together a blueprint for the market development of private sector securities which will culminate in setting up a stock exchange.

23. My Ministry has recently concluded a Risk Capital line of Credit of US$ 20 million, with the European Investment Bank. These funds, which can be accessed by Ugandan investors, through selected commercial banks, will, for the first time, address the problem of capital needs of medium-sized Ugandan investors. 

These funds will cover tourism, agro-industrial manufacturing, fishing and fish processing, mining/quarrying, and related services in the economy. The investments to be financed may relate to new projects, modernization, restructuring, expansion or the diversification of existing activities

These are called quirk disbursement funds and as soon as these are disbursed and the programme appears to be viable, we have agreed with the European Investment Bank that an equivalent amount will immediately be released to replenish the stock of available risk capital. 

24. Alter a comprehensive review of past experiences with rural finance in Uganda and other countries and extensive consultations with all the- parties concerned including commercial banks, the co-operative movement and farmers, Government has decided that the Cotton Sector Development Project credit funds be channelled to farmers through the financial system i.e. through the commercial banks under the overall supervision of the Bank of Uganda.

Government has, however, recognized that the commercial banks do not have the required branch network for this function and would not operate profitably by dealing directly with individual farmers in rural areas.

The credit programme is, therefore, designed to enable participating commercial banks to finance farmers through rural financial intermediaries which would include primary cooperative societies, registered farmer groups, NGOs, ginneries, stockists of inputs, etc. of the commercial banks' choice.

The Commercial Banks will be given the freedom not only to choose the financial intermediaries with whom to associate but also to charge market interest rates adequate to cover their and those of the intermediaries.

25. In order to provide sufficient incentive for commercial banks to participate in the credit program, Government is considering the establishment of a Credit Guarantee Company to serve as an additional risk management tool for lending in rural sectors. The Guarantee Corn-pans will be a public company owned by shareholders from the public and private sectors.

The company will provide insurance cover to participating commercial banks and shall be run on insurance principles.

It will be capitalized by the Bank of Uganda to meet the initial equity requirements for the establishment of an Insurance company. In addition, capital will be contributed by multi-laterals and Ugandan shareholders. Although the activities of the company will begin by providing cover for lending in rural aims, it is envisaged that eventually, it will be expanded to serve all sectors of the Ugandan economy.

Monetary policies

26. The primary objective of monetary policy will continue to be political stability. The purpose of maintaining price stability is to ensure a stable environment for decisions on investment, production and trade Low inflation and stable prices are also important for maintaining the competitiveness of the economy.

If our prices go up, then we start to price ourselves out of international markets. Low inflation is also important in maintaining the real value of financial assets, (given the volatility of coffee earnings and the implications for monetary and exchange rate policies, the Bank of Uganda will continue a policy of cautions and pragmatic intervention in the foreign exchange market.

The objective of such an intervention will be to maintain the orderly operation of the foreign exchange market and not to defend any specific predetermined level of the exchange rate.

27. During this fiscal year, foreign exchange receives have increased by US$163.00 million as a result of high foreign exchange inflows. It is estimated that the total stock of foreign reserves will be US$382.00 million by the end of this month. This is equivalent to more than four months of imports of goods and services.

28. In 1995/96, we expect the growth in foreign exchange reserves to continue at the pace recorded over the past two years.  The programmed reserve build-up for 1995/96 amounts to US$136.00 million. This translates into a cumulative import cover of 4.8 months of imports. It is the objective of the Government to increase the reserve cover further to at least 6 months of imports and non-factor services.

29. In order to promote a more meaningful structure of interest rates and to enhance the effectiveness of the monetary policy, the Bank of Uganda will further consolidate its policy of relating changes in its Bank and Rediscount rates to developments in the money market.

The shift to market-based Bank of Uganda interest rates will strengthen both the money market, which is in the embryonic stage of its development, and the budding secondary market in treasury bills. The Bank of Uganda will increase its efforts to promote the development of a secondary market in treasury bills.

30. The Bank of Uganda estimates that money supply, M2, which is currency plus demand and savings deposits, will grow by about 19.5percent to UShs481.1 billion by the end of June 1995.

This is actually lower than the revised programme estimate of 30 per cent, mainly because the commercial banks now hold high excess reserves with the Bank of Uganda,   which have increased from UShs3.90 billion by the end of June, 1994 to UShs45.78 billion by the end of May 1995. Despite this credit to the private sector has increased by 20.2 percent compared to the programmed level of 11.4 percent.

31. A promising development in 1994/95 has been the improved rate of loan repayments. This will greatly assist in improving the state of the banking industry and improves the appetite for commercial banks to increase lending. Improved loan recovery rates and the strong growth in domestic credit are signs of improved financial sector performance and lay the foundations for increased investment in the future.

32. All interest rates have declined during 1994/95. The weighted discount rates on 91-Day Treasury Bills, which account for over 75 percent of the Treasury bill market, have gone down from 11 percent in June 1994 to around 9 percent. Likewise, the effective lending rates have declined from an average of 22 percent in June 1994 to the current average levels of 19 per cent. But more significantly, a number of banks have dropped their prime lending rates to about 14 percent. The challenge is now on the private sector to present bankable projects for financing to the banks, as well as continuing to improve on their overall creditworthiness.

An important development in the banking industry is the emergence of interbank bank transactions in domestic financial instruments. Although a is in its early stages, the interbank rates have fallen to as low as 9pecent, depending on the associated risk; and the number of players in the interbank market has widened across the banking industry.

The importance of this development is that it gives banks improved flexibility in the management of their liquidity, which gives the potential for more efficient money management and for more finance for productive investment.

33. However, the large spreads between deposit and lending rates remain a cause for concern. Although the spreads have declined, they remain well above desired intermediation margins.

The large spreads reflect the con-tinned profitability problems in the banking industry. 11 ere 1 would like to note that large pay increases will only sieve to hinder further progress towards an efficient financial sector; will sustain very high interest rates for longer than desired; and will therefore keep the costs of finance high for the rest of the private sector, which undermines our drive towards greater competitiveness and efficiency in the economy as a whole.

Decentralization

34. Implementation of the decentralization reform is well underway. During 1995/ 96 the final group of 12 districts will receive their own votes for recurrent expenditure, while the other 27 districts will receive block grants, meaning that District Resistance Councils are responsible, subject to national guidelines, for deciding on the relative priorities among the various services being delivered by the local government. 

I would like to emphasize the grave responsibility that decentralization places on their local authorities to manage their financial affairs.

Local authorities should not expect that they can resort to the Central Government to cover any over expenditure in their budgets relative to resource available to them in many years.

35. Local governments have responded well to the reform process by trying out new methods of service delivery and improving both revenue collection and administration. Work on personnel, administrative and financial management system remains one of the government's highest priorities.

A major new initiative to improve districts' planning capacity will commence during 1995/96. This includes a study of decentralization at the development budget.

The implementation of such a reform must be carefully considered. Districts should avoid building up their expectations that they are now free to approach external donors for funding of priority projects. 

Project ideas must continue to be developed together with the relevant sector ministry for submission to the Ministry of Finance and Economic Planning, which has the sole responsibility for the allocation of foreign aid in order to ensure that sector and regional balance is maintained within the development programme.

The 1994/95 Budget Out-turn

37. I next turn to the out-turn of the budget for the fiscal year ending June 1095. Total revenue and grants are estimated to be -USh752.5 billion, representing a 9 per cent increase over the levels originally budgeted.

This was partly due to the generosity of donors' grants for debt relief, which amounted to US$ 752.5billion representing a 9 per cent increase over the levels originally budgeted. 

This was partly due to the generosity of donors' grants for debt relief which amounted to US$29million.

However, there was also a good performance on revenue, which is expected to be 5.4percent higher than originally projected for 1994/95. Less encouraging was the fact that imports increased by 36% above the level, but the revenue which such an increase should have brought us did not materialize. 

This is partly a consequence of a consequence in the composition of imports, and partly due to some of the administrative arrangements surrounding import taxation. On the expenditure side of the budget, the total outlay of USh867billion was close to the target. Development expenditure was 9.3 per cent of target; recurrent expenditure was 110 per cent of the target.

38. There was an improvement in the overall budget deficit compared to what had been planned and compared to the performance for the 1993/94 to 2.4 per cent of GDP on a commission basis. This is the latest step in improving our fiscal performance. We are moving steadily towards long-term sustainability in the budget. Domestic revenue now covers more of our expenditure than at any time during the NRM administration. 

The 1995/96 Budget.

The budget for 1995/96 is based on further improvements in the revenue effort to a target of 11 per cent of GDP. This represents a collection of US$615.7billion in tax revenue and USh10.1billion in non-tax revenue. 

We continue to expect a declining share of the total budget being accounted for by grants, which are expected to amount to USh163 billion in I995/96, compared the Ush192 billion we had budgeted for last year.

This budget has continued to pursue a cautious and prudent fiscal policy, especially with the threat for macro-economic stability from the coffee boom remaining significant. Yet we have also continued to secure increased resources for spending in the budget.

Total expenditures are expected to increase to Ush994.2 billion, of which Ush553billion is recurrent expenditure and Ush438.8billion is development expenditure. The domestic tunnelling for development expenditure amounts to Ush64.5billion.

 The combination of these revenues and expenditures gives an overall deficit which is expected to be Ush95.3 billion, equivalent to about 2.3 per cent of GDP, and represents a further clear step towards a sustainable budget. Net external financing is estimated to be Ush194.2 billion, and domestic financing is estimated to be negative Ush81.6billion.

Public Expenditure

42. Resources available for expenditure- in 1995/96 are constrained from two directions. First, we need to maintain an appropriate balance between revenue and expenditure which both preserves economic stability and makes further progress in reducing our dependence on aid. 

Second, the requirements for defence expenditure in 1995/96 have put some pressure on other areas of the budget. It is the top priority of the Government to ensure that people in all regions of this country can live in peace and security. 

While the share of defence in total expenditure has fallen since 1990/91 and will continue to do so beyond next year, an increase is needed next year to address the recent deterioration in the security situation. Inevitably, within the available resources, a shift towards one area of expenditure necessitates a temporary shift away from other areas.

Within these constraints, higher increases in resources have been given to priority areas of the budget, especially categories of expenditure which are of particular importance for poverty reduction. The 'Priority Programme Areas' in education, health, road maintenance, rural water, law and order and other key areas have all seen increase of at least 10 per cent in their budgets. Primary health and primary education have been allocated increases by 20 per cent.

The provision for road maintenance has seen an increase of 18.5 per cent. These priorities have also been reflected in the three year expenditure plans which have been prepared for the first time this year.

Details of these plans are given in the Budget Framework projection reported in this year's "Background to the Budget" published today. We have published, for the- first time, input-output tables for Uganda in the Background to the Budget.

44. Within the provision for recurrent expenditure, the overall wage bill has increased from USh125 billion in 1994/95 to USh160billion in 1995/96. In calculating tile impact on the salaries of public servants, we need to bear in mind that more of pay will be in cash, rather than through the direct provision of transport or housing, and salaries will be correspondingly increased as allowances are merged into salary payments.

45. We have been reviewing the effectiveness of budget implementation during the past few years. A key problem has been a high level of supplementary expenditures and budget reallocations within the year, which have sometimes detailed significant departure from the approved budget.

We have therefore taken action to control budget re-allocations much more tightly next year. In future supplementary will be limited to a maximum of 3 per cent over budget.

46. Let me give a few more details about our planned expenditure on roads. The total expenditure on roads in 1995/96, combining both capital and recurrent, and both donor and Government funds, amounts to approximately USh110bn, which is about 11.1 per cent of total expenditure. A donor conference is scheduled for December 1995, which is expected to establish financing for a comprehensive programme for all strategic roads.  The development programme for 1995/96 includes further work on the Mubende-Fort Portal road. Work is currently underway to re-seal the Fort Portal to Kagorogoro section, which should be finished towards the end of 1995. All the required studies have been completed on the Mubende to Kagorogoro section and discussions regarding donor financing of the project are at an advanced stage. Feasibility studies and engineering design work are already underway for the roads from karuma to Pakwach and Arua; Busunju to Hoima and between Sironko, Kapchorwa and Saum; these studies should be completed during the first 1995/96. 

These roads will be given highest priority for donor financing. In the unlikely event that donor financing is not immediately available for this project, the government will use its own resources, if necessary, drawing on funds generated from the coffee stabilization tax.

Public debt

47. At the end of December 1994, Uganda's total stock of external debt was US$3.15 billion, which represents about 60 per cent of GDI'. In 1994/95, external debt service from the budget amounted to about US$120million and the 1995/96 budget has a similar provision.

48. In light of the heavy debt burden and the limited scope for rescheduling many of these loans and the need to contract new borrowing from abroad, the government is considering new initiatives on debt which will concentrate on ways to reduce the multilateral debt in particular.

49. Assistance to Uganda for multilateral debt payment is already generously provided by bilateral for in the form of debt relief. The Government intends to build on this present arrangement by establishing a Multilateral Debt Fund which will be used to service the major multilateral creditors. 

This fund will be financed by contributions from donors, which will help to ensure that Uganda maintains its good track record by meeting on time and in full its obligations to the multilateral institutions.

50. The stock of external debt is expected to keep growing in the coming years due to the continuing need for net financing from abroad. The Government recognises that this means both a rising debt stock and debt service payments which place an undue strain on Government's resources. 

A crucial part of the debt strategy is a set of strict guidelines covering new loans in which the terms must be highly concessional. We also intend to avoid contracting loans altogether. In future, the Government should not incur any further debts unless every effort has been made to secure grant financing. The acceptability of a project will rest both on the project itself and the quality of the proposed funding.

51. The Government has made great efforts to clear its domestic arrears with the private sector. To this end. Government has paid over USh50 billion for domestic arrears over the last three years and an additional Shs10.5 billion in the financial year ending this month.

In addition, substantial amounts of money have been saved on the budget, and in some cases, net balances have been earned by Government, through debt-swap arrangements with the parastatals/ companies. 

A total sum of USh11 billion is payable to Government as a net balance from these organizations. A further provision of USh15 billion has been made in the 1995/96 budget towards these items. This is to ensure that the private sector is not stifled by lack of payment by the Government. 

I would like to appeal to the Accounting Officers to exercise discipline and ensure that they live within their budgets. The financial discipline on the part of the Accounting Officers cannot be overemphasized in trying to stop the build-up of domestic arrears. In future Accounting, Officers will be held personally answerable for overruns on their budgets.

The private sector should insist on the opening of local letters of credit whenever they do business with the Government as only this will ensure that they receive payment. 

Taxation Introduction

52. We have continued to see substantial improvement in revenue performance. Bu matched against our aims for the years ahead, for example, the aim to finance all domestic recurrent expenditure from domestic revenue by 1997/98, or the need to provide a living wage in 1996/97, it is clear that further improvements in revenue performance are still needed. The central aims of the tax policy therefore remain:

• to increase the ratio of revenue to GDP, to a level at which Government can fund its own essential expenditures;

• to ensure a simple tax system with low rates to facilitate understanding and compliance, while stimulating private sector growth;

• and to ensure that everyone is treated equitably and fairly by the tax code, with a minimum of variation or exemption across industries or sectors.

1995/96 Revenue Proposals for Expected 1995/96 Revenues

53. For 1995/96, the projected revenue target is USh614 billion (excluding Treasury Credit Notes), which will be about 11 per cent of GDP. This indicates the determination of the Government to maintain the considerable progress of recent years in improving our ratio of revenue to GDP. The revenue estimate for 1995/96 takes into account all the revenue measures I will be announcing today, which on their own are expected to yield USh44 billion. Taxes which I do not refer to specifically will, of course, remain unchanged at existing rates. Income Tax

54. The current income tax legislation dates from 1956 and now requires considerable updating and simplification. During the coming year, the income tax code will be reviewed and a new draft Income Tax Bill prepared with a view to implementation in July 1996. 

Apart from dealing with issues important to the business sector, this review will address personal tax issues such as non-taxable allowances, pension contributions and the tax treatment of fringe benefits. However, some adjustments to the existing tax are required immediately, which are as follows:-

(a) For personal income tax I propose to increase the threshold from USh840, 000 to USh1, 2000,000.  This means an increase of USh30, 000    in    the    monthly threshold. At the same time. I am abolishing the USh30, 000 per month allowances for lunch and transport.

This change will especially bring benefits to those employees who are not actually being paid explicit lunch and transport allowances, by increasing their threshold for tax by 43 per cent.

(b) In order to increase the availability of investable funds, I have decided to abolish tax on interest income on fixed accounts in commercial banks deposits held for a period exceeding two years.

(c) I have studied the depreciation provisions and noted the discrepancies in the treatment of some capital assets. I have therefore decided to amend the Income-tax decree, 1974, to cater for office furniture, fixtures and equipment in the same way as any other machinery.

I have also decided to extend depreciation deductions hitherto enjoyed by industrial buildings to commercial buildings. To encourage investors to locate industries in less developed areas in the country, accelerated depreciation, as announced in the Budget Speech 1994/95 will continue to be applied.

(d) Income Tax Deposits.

Income Tax Deposits were introduced in 1976 as the only effective means of dealing with a poor tax culture and weak administrative capacity. 

However, since we established the Uganda Revenue Authority in 1991, capacity has improved greatly with the introduction of Tax Identification Numbers has become a particularly effective means for URA to identify the taxpayers and follow up on the taxes due.

I am also concerned that the income tax deposits have become widely regarded as a final tax assessment, even for successful, small and medium enterprises. I am therefore abolishing Income Tax Deposits with effect from 1 July 1995.

Double Taxation Agreements.

55. To date, Uganda has entered into one double taxation agreement with the United Kingdom of Great Britain and Northern Ireland. A .double taxation agreement is an important tool for attracting foreign' private investment as it guarantees the investor against being taxed in two countries on the same income.

We have prepared a working document which we have circulated to 17 countries that we have identified as the most likely sources of investment and our major trading partners. A number of these countries have shown interest and we hope to open negotiations with them in the coming year.

Value Added Tax

56. In the last Budget Speech, I announced the Government decision to introduce Value Added Tax on July 1, 1996. The VAT will replace both Sales Tax and Commercial Transactions Levy.

57. Experience elsewhere has shown the cardinal importance of careful preparation and close consultation with taxpayers for the successful introduction of the VAT. As I promised last year, a VAT Consultative Committee has been in operation, providing a channel for valuable input from the business community on design and implementation of the tax.

During the year, URA has conducted seminars to fully sensitize taxpayers, professionals and the general public on VAT and these will continue in order to ensure proper and adequate preparation for the successful implementation of the VAT. During the coming year we will set up effective administrative machinery which will involve the recruitment and training of staff, forms the writing of manuals and registration of taxpayers. 

58. My Ministry and the Uganda Revenue Authority have worked together to prepare the VAT Bill, which will be published shortly. Mr Chairman, it is imperative that colleagues in House debate and pass the bill during this session in order for us to meet the implementation date of July 1996. 

Customs Duty

59. because of the very large number of changes in tax rates this year, especially in the duty and sales tax rates which I am about to announce, I have decided to publish a new Tariff Code. This will appear as a separate document but is, in fact, the main schedule to the Finance Bill I am presenting today. 

Honourable members will realise that once the VAT system comes into operation next year, the Sales Tax law will be repealed and this will cancel the sales tax rates in the final column of the Tariff Code.

I must also point out that the Tariff Code is not being published today. Because it is a very substantial document, there is some delay with the printing. However, it will be published within the next few days.

60. Work on the Draft legislation consolidating the existing Customs and Excise laws is now completed and a text is ready for presentation. While no substantive changes to the law are envisaged, the new legislation will provide a comprehensive text of the current Customs and Excise laws.

61. To minimize fraud associated with transit goods passing- through Kenya to Uganda, I am in consultation with my colleague the Honourable Kenyan Minister of Finance to work out modalities of exchanging information and documentation on transit imports.

Raw Materials

62. I have referred earlier in an earlier statement to the adverse impact which our tariff structure can have on incentives for export production.  

In 1995/95, all raw material imports for the industry were harmonized at a duty rate of 10 per cent.

However, I also took cognizance of the fact that certain imports in key industries were not locally available and I accordingly remitted the duty payable on them. I have, however, critically reviewed this policy and I have concluded that it is not in the long-term interest of the economy to continue with the policy of duty remission for several reasons.

First it creates a bias against export production with the remission, the mechanism of the duty drawback, which is an important tool for promoting manufacturing exports, was rendered useless. In oilier words, the policy undermines a basic incentive for export production.

Secondly, the policy discourages investment ill the development of local raw materials as well as the exploitation of locally available resources. Because it favours those who use' imported inputs lather than Ugandan produced inputs, the remission has worked against the development of an integrated economy.

Thirdly, the relatively small size of the local market points to the need for an aggressive export promotion drive if we are to build a viable and strong industrial base. 

Finally, with the current world trend for trade liberalisation, and our commitment to PTA/COMKSA and the World Trade Organisation, there is need for all of us, both private and public sectors, to develop business strategy to prepare for increased competition in the regional and international markets, to prepare to meet international standards of efficiency and to begin to do so now: in my view, this Budget should provide the- starting point. 


1 have therefore decided that with immediate effect all raw materials will be harmonized at a modest duty rate of 5 per cent.

64. Following the remission of duty on raw materials last year, the duty draw-back scheme was suspended. Now, with re-introduction of a 5 per cent duly for these materials, the duty draw back scheme will resume operation.

However, I feel that the existing scheme is rather in-adequate and needs to be replaced as soon as possible with a more actively pro-export scheme.

I am, therefore, undertaking an urgent stuck to develop a new scheme, to allow refund/credit of duty paid on all inputs, and also to allow for the cost increasing the effect of all duties on the inputs into export products.

I hope- we can finalise the details of a workable scheme to replace the present arrangements during the course of 1995/96.

Investment Code

65. During the past year, I have given a lot of thought to investment incentives and the kind of tax regime best suited to promote business development in Uganda. Government is firm of the view that tax privileges for investment should be made yet more transparent and their administration must be simplified. We also need to specify more clearly what business expenses are deductible for tax purposes.

'I am now announcing some important changes to move away from administered exemptions, especially to deal with capital expenditures and other start-up costs.

66. Section 22(1) of the Investment Code, 1991 provides for the exemption from payment of duty and sales tax on plant and machinery. A lack of definition of these items in the Code has in practice been a clear disadvantage, leaving the system vulnerable to an arbitrary decision and possible revenue loss.

67. We have therefore carefully studied the imports by licensed investors since 1991 and found that most of these are covered in Chapters 84 and 85 of the Tariff Code. In substance, a more precise definition of plant and machinery in section 22(1) has been adopted. The tax on these goods will be zero. All this definition will be taxed at the rales specified in the new Tariff Code.

68. The effect of zero-rating these investment goods will be that the intended benefit will be available automatically to all investors. This will be true even for small investors who are not licensed by the Uganda Investment Authority.

69. I am proposing two important amendments to the Investment Code, 1991. Section 11 requires the Uganda Investment Authority to license any foreigner who wants to operate a business enterprise in Uganda. Past experience has shown that the Authority has expended a lot of man-hours on processing application forms and licensing foreign traders.

Besides, it is my wish that the Board should move away from regulatory activities to productive investment promotion. I, therefore, propose to amend the Code so that the Board can now concentrate on promotional activities.

70. Secondly, section 25 of the Investment Code provides that a holder of a certificate of incentives will be exempted from payment of corporation tax, withholding tax and tax on dividends.

On a strict legal interpretation, it is the holder of a certificate of incentives who is exempted from payment of tax on dividends, and, where the holder is a limited liability company, its shareholders —the real investors — are required to pay tax on the dividends which the company declares. This would tend to encourage investment outside Uganda so that the holder of the certificate of investment can benefit.

However, the intention was that the tax benefit should go to the shareholders, that is, the holder of the certificate of incentives, by paying tax-free dividends. I, there-fore, propose an amendment to the Code to reflect this.

Vehicles and Construction Materials

71. I have also reviewed the policy in respect of vehicles and construction materials imported by licensed investors under the Investment Code and construction materials imported by licensed investors under the Investment Code.

For some special purpose commercial vehicles, the duty and sales tax rates have become zero. For the larger goods vehicles, no sales tax is payable and mere will be a low import duty rate of 10 per cent.

For passenger transport vehicles I have standardized the duty and sales tax rates at 10 per cent and 15 per cent respectively. For important construction materials, like cement, structural steel and timber, the duty and sales tax rates are also reduced. The important point I want to make here is that tire tax rates for these important items are now very low and in some cases zero. From now onwards, the tax rates will be decided by the Tariff Code.

Excise Duty

72. I am proposing a change in the method of calculating the excise tax on local goods to put all firms producing excisable goods on a common system. This is necessary because the present arrangements are producing some competitive distortions.

I am, therefore, making the excise duty payable on the full ex-factory price for all excisable goods, as defined in the Finance Bill. This will mean no change in the tax rate for sodas and cigarettes.

However, for the beer industry, the present duty rate of 70 per cent is being reduced to 55 per cent. This re-arrangement will not change the total tax per case for soda and beer so it will not cause an increase in prices for consumers.

73. At present, the excise duty rates on some imported goods are so high that evasion and abuse of exemptions are a serious problem. I am, therefore, reducing some of the duty rates in an effort to improve compliance. The main change is to standardize the excise duty rates for larger vehicles and for TV sets from a range of 30-50 per cent to 20 per cent. 

I am treating tins as a revenue neutral* operation; the loss from reducing the rates should he more than offset by improved compliance, fewer exemptions and some volume increase in imports. Here, I should emphasise that I am not reducing excise rates for locally produced goods, except for the technical change I have just explained for beer ' and .sodas.

Sales Tax

74.   I earlier emphasized the need for thorough preparation for the implementation of VAT.  In parallel with these measures, it is also necessary to harmonize the existing sales structure to ensure a smooth transition to the VAT. In line with this strategy, I propose to harmonise the lower sales tax rates with the CTL rate of 15 per cent. 

This means that tin-existing sales tax rates of 12per cent and 15 per cent will be raised to 15 per cent. However, I am also reducing some existing sales tax rates to zero, the most important examples being milk and posho.

75. Here, I must emphasize that we have very few 10 per cent rates at present, the vast majority of items in the 10 per cent category are traded entirely in the informal sector and are completely outside the sales tax system. For salt, I am retaining a lower rate of 10 per cent. 

The sales tax rates for wood and timber are being reduced from 30 per cent to 15 per cent - these are important materials for our construction industry. I have also decided to leave cement on a low sales tax rate of 10 per cent for 1995/96. Exemptions other than those in the Investment Code

76. In the 1993/94 Bud-get, I announced plans to reduce exemptions, followed by concrete steps in 1994/95 such as tax inclusive tendering and termination of tax-tree privileges for parastatal organisations.


We have since then carried out extensive studies of exemptions and have found that they constitute an unacceptably large source of revenue loss. I have therefore had to take further concrete steps to minimize exemptions as follows: Duty-Free shops unicorn

77. There is no doubt that Duty-Free Shops provided an invaluable service in the eighties, a period of extreme shortages. I have however reviewed this policy and decided, for purposes of revenue accountability and control, to stop duty-free imports with effect from July 1, 1995. I am however prepared to allow existing inland duty-free shops up to September 30, 1995, to wind up their duty-free operations.

Therefore, duty-free shops will only exist at Entebbe International Air-port, with the exception that arrangements will be made for-duly free facilities at international conferences held at the International Conference Centre.


The diplomatic community will be able to use the duty-free facilities at Entebbe International Air-port. Uganda Revenue Authority will shortly announce the detailed arrangements for this facility General Exemptions

78. Exemptions for imports by Non-Governmental Organisations require urgent attention. Government fully recognizes the contribution made by many NGOs with relief work in Uganda and in important areas of our economic and social development. 

However, the political and economic conditions of the past, which necessitated a rather liberal attitude to exemptions, have now been totally trans-formed. I have dealt with these at some length in previous Budget Speeches, so for today, my main concern is to outline some measures to limit these exemptions and to control abuses.

79. I am instituting an extended list of items for which NGOs will not be granted exemptions. This will include passenger cars (including 4-wheel drive station wagons), food, household goods and domestic appliances. 


I have also decided that it is time to adopt a more restrictive stance for exempting imports of building materials by NGOs, especially those materials (like iron sheets, timber, and paint) which are now being made and are readily available in Uganda.

80. Over the next   6 months, I will be reviewing all agreements with NGOs and other donor agencies which contain tax exemption provisions. Where it is appropriate for the government to continue to support the operations of a donor or NGO, the best way to do this is for the government itself to pay the taxes for the project inputs. 

This review exercise will, of course, carefully consider the kind of projects involved and the nature of the exemptions currently being granted.

My objective is to limit concessions to those projects which have an important development objective or which provide essential relief work. After December 31, 1995 exemptions will only be allowed for those agreements which have been re-confirmed or renegotiated. 

But for the longer term, my objective is to move towards a system where the Government itself, through the relevant Ministry budget, will pay taxes due for all projects being implemented by donors and NGOs.

81. For public sector procurement, 1 have decided on a significant change of policy in two important areas: firstly for civil works/construction projects and secondly, for all Recurrent Budget procurement. From 1995/96, all construction work in the public sector will be tendered and contracted for assuming the full payment of taxes.

This means that contractors doing public sector contracts will not have any right to tax-free inputs for new projects. All procurement under the Recurrent Budget from 1995/96 onwards will be on similar terms.

This will mean that for supplies such as fuel, repairs and maintenance work, office equipment and supplies, the suppliers must charge normal taxes and Government, in turn, must pay. 

The expenditure provisions in the 1995/ 96 Budget have taken full ac < to omit of this new system. 82. The new arrangement for public sector procurement will apply, regardless of whether or not the work is funded by a donor agency. 

I hasten to add that, in making this important change, it is not our objective to re-choir donors to finance tin-cost of Uganda taxes. Rather, the intention is to relied Untrue cost of public sector procurement, hence to improve resource allocation in the public sector and, above all, to reduce the many opportunities for abuse provided by the tax-exclusive system. 


The policy of tax-inclusive procurement will also reduce the strong preference for imports which exemptions have encouraged.

83. This means that the use of Treasury     Credit     Notes (TCNs) will be sharply curtailed in 1995/96. I want to especially mention that, from 1995/96, TCNs for petroleum fuels will cease and so Government itself is setting a good example by paying cash for its fuel needs.

 84. I am also taking some specific actions about some current exemptions granted by means of Statutory Instruments. Between now and August 1, 1995 I am carefully reviewing all the outstanding exemptions granted by these Instruments. After August 1, 1995, the Uganda Revenue Authority will cease to clear goods tax-free under such Instruments unless they have been continued or revalidated by the Ministry of Finance.

Commercial Transactions Levy (CTL)

85. Government Ministries/Departments have been withholding CTL on payment to their contractors and suppliers, but have not been remitting it. To ameliorate this situation I have decided that they will no longer be required to deduct at the source. Fees and Licenses

86. The fees for driving permits have not been reviewed for some time so that they have long fallen below the cost of printing them. The fees are therefore being increased as shown in the Finance Bill. It is many years since these were last revised. The more important permit fees are being increased as follows:

Existing Proposed

New Driving

Permit-1 Year   USh 5.500   USh 14.000 Driving Permit Renewal-lYear   USh 4.125  USh   8.000

The provisions of TV licensing Act 1963, which were administratively suspended by Government in 1988, will be reactivated during this financial year now that TV services have greatly improved.

The details will be announced by the Minister of Information in due course. 87. I am introducing flat-rate charges for changing the ownership of vehicles. 

The existing charge is 2 per cent of the value of the vehicle and is apparently so high that people are discouraged from completing the change of ownership formalities.   The new fixed charges are USh10,000 for motorcycles, USh30,000 for motor cars and USh50,000 for commercial vehicles. 

Road Toll

88. With effect from midnight tonight, the road tolls on the Masaka and Jinja roads are being abolished. This is in line with COMESA, the Cross Border Initiative and Northern Corridor arrangements. I would, therefore, like to take this opportunity to stress that all road tolls all now illegal. 

Road tolls reduce the positive impact of our investment in new roads and road maintenance by putting up the costs of trade within the economy: from today no-one has to pay any kind of load toll. I wish to reiterate that road tolls mounted by local authorities also unduly interfere with free trade. Accordingly, they must also be abolished Casino Taxes

89. I am transferring responsibility for collecting casino taxes from Treasury to URA.   This should result in a much more effective collection from a sector which has benefited greatly in recent years from tax exemptions but, so far, has contributed very little to Government revenue.

Airport Customs Procedures

90. I have asked the Uganda Revenue Authority to establish a Green and Red Channel system as soon as possible at Entebbe International Airport. The present arrangements are a cause of inconvenience to in-coming passengers and present a bad first impression to our many visitors.

Imports valuation procedures for taxation purposes 

91. Currently, imports valuation by URA has been based on SGS and URA valuations. In order to streamline these procedures, I am directing URA to base the assessment of imported goods for taxation purposes only on the valuation made by Pre-inspection Firms. However, URA will continue to use their valuation for goods which have not been subjected to valuation by Pre-inspection Firms. 

Coffee Stabilisation Tax 

92. Last year, in response to the imminent boom in coffee, I announced the introduction of a coffee stabilisation tax. This tax was clearly and exclusively an instrument of macroeconomic policy.

A review was conducted in March by my Ministry with the full consultation of all interested parties, and the review concluded that there was no change in macroeconomic circumstances which therefore war-ranted no change in the tax. 

However, it was clear from discussions with the coffee exporters that their problems with the tax arose because some of their members were not paying their taxes, in full, or on time. Those exporters who have paid their taxes in full and on time have, in practice, been put at a disadvantage compared to those who have defaulted, or paid late. This is quite simply unacceptable.

93. The coffee boom is a temporary phenomenon. The large increase in export earnings which we have enjoyed this year is unlikely to be sustained beyond the next two years. Such a temporary windfall presents an excellent opportunity for increased investment, and consequently increased incomes. 

But it also presents a threat to macroeconomic stability, which could undermine, or even reverse, the benefits of the boom. Our policy in the face of such threats was to intervene in the foreign exchange market to help prevent the additional dollars from forcing a further appreciation of the exchange rate.

At the -same time, we had to take some of the additional increases in the money supply out of circulation so as to ensure that there was a minimal impact on inflation. 

With prices having increased by only 3 per cent, and the exchange rate ending up marginally lower than at the beginning of the fiscal year, it is clear that this strategy has been remarkably successful, and will, therefore, remain in place.

94. While great caution is still required this coming year in handling the macroeconomic impact of the coffee boom, I believe that we do have some scope for adjusting the coffee tax. As a result of the caution already built into our fiscal policy for next year, we estimate that the required sterilisation of coffee inflows, to be achieved by the coffee stabilisation tax, is now lower than last year. 

In addition, further work by the Agricultural Secretariat in consultation with the coffee industry has established the magnitude of changes in the production costs of coffee compared to a year ago, mainly due to eminently desirable improvements in farming practice.

95. However, I am told that there remains the problem that some exporters are continuing to cause distortions in the market by attempting to dodge the tax. In particular, we have monitored export sales very carefully over recent months and find that certain exporters are underselling Ugandan coffee to the tune of over US$6.5 million per month.  

I would like to assure this House that we will take all steps necessary to enforce the law regarding this tax. Therefore, the assessment for the tax will use the UCDA indicative price instead of the declared sale price, whenever UCDA price is higher.

96. I am changing the threshold of the coffee stabilisation tax to USh 1,500 per kilo, with the tax to be levied at a rate of 25 per cent for earnings above that threshold. This change will take immediate effect. I expect this change to lead to a large and immediate increase in the prices paid to farmers for their coffee.

97. Revenue Summary: as a result of the various changes I have made today, Revenues in 1995/96 are expected to perform as shown in the following table.

The table also shows the expected 1994/95 outturn for the purposes of comparison:

Revenue Item.      Expected      Outturn

Tax on Income                          85.5 77.5

Coffee Stabilisation tax               141 149

Petroleum Duty                          1540 109.5

Customs Duty                                S40 641

Sales Tax on Import                   91.6 66.7

Sales Tax on local goods           797 61.9

Excise taxes                                  592 514

Commercial Transaction Levy 229 20.5

Non-tax revenues                         42.8 58.2

Treasury Credit Note.                  118 21.9

Grand Total (excluding TCN) 6140 5058

Grand Total (including TCN) 625.8 525.5

98. Copies of all the Budget documents will soon be on sale. Members of the public will be able to get them from the Government Printer, or from booksellers in Kampala. Members will find copies of the   Background to the Budget in their pigeon holes.

I beg to move.

For God and My Country