HE REPUBLIC OF UGANDA
Financial Year 2011/12
Theme: Promoting Economic Growth, Job Creation and Improving Service Delivery
DELIVERED AT THE MEETING OF THE FIRST SESSION OF THE 9TH PARLIAMENT OF UGANDA
WEDNESDAY, 8TH JUNE, 2011
HONOURABLE MARIA KIWANUKA
MINISTER OF FINANCE, PLANNING AND ECONOMIC DEVELOPMENT
Your Excellency the President of the Republic of Uganda,
Your Excellency the Vice President
The Right Honourable Speaker of Parliament,
Your Lordship the Chief Justice,
The Right Hon. Deputy Speaker of Parliament,
The Right Hon. Prime Minister;
Honourable Members of Parliament,
1. Madam Speaker, I beg to move that Parliament resolves itself into a Committee of Supply for consideration of:
i) The Revised Revenue and Expenditure Estimates for the Financial Year 2010/2011; and
ii) Proposals for the Estimates of Revenue and Expenditure for the Financial Year 2011/2012.
2. Madam Speaker, Article 155(1) of the Constitution provides that the President shall cause to be prepared and laid before Parliament estimates of revenue and expenditure for each financial year. I am accordingly performing this duty on behalf of the President.
3. Madam Speaker, with the overwhelming renewal of the mandate of the NRM Government, I wish to congratulate His Excellency the President for the victory achieved at the recent General Elections. I also extend congratulations to you Madam Speaker for your historic election to the high office of Speaker of Parliament, and to Honourable Members who have been elected and re-elected to the 9th Parliament; and to all Ugandans for successfully marking yet another milestone in democratic governance.
4. Madam Speaker, during His Excellency the President’s swearing in ceremony on 12th May 2011 and in the State of the Nation Address, he clearly outlined the key interventions crucial for the transformation agenda of our country. His Excellency the President placed emphasis on interventions in transport and energy infrastructure, skills development and the stimulation of employment, the need to enhance an enabling environment for business and improving the effectiveness of Government.
5. Madam Speaker, peace, security and political stability are an important pre-requisite for socio- economic progress. Stability, both within the country and in the region has been an important factor in increasing economic activity and promoting trade activities within the region from which our traders and the country as a whole have benefitted.
6. The Budget I am presenting today therefore reflects the Government’s continued determination to strategically prioritize those core programmes which form the main foundation for the transformation of our economy on a sound and sustainable basis.
7. Accordingly, Madam Speaker, the theme for the budget for the Financial Year 2011/12 is “Promoting Economic Growth, Job Creation and Improving Service Delivery”
Economic and Sectoral Performance of the FY 2010/11 and the Medium Term Economic Outlook
8. Madam Speaker, the Background to the Budget 2011/12, which has been made available to Honourable Members, contains an extensive review of the performance of the economy and different sectors during Financial Year 2010/11. It also provides an assessment of the medium term economic outlook. I will therefore only highlight key developments and future prospects in my statement.
Economic PerformanceNational Output,
9. Madam Speaker, despite the slow recovery in the global economy and increasing domestic prices, economic activity remained robust during the past year. The total National Output of goods and services, commonly referred to as Gross Domestic Product (GDP) rebounded, growing at 6.3 per cent during the year, compared to 5.5 percent in Financial Year 2009/10. Consequently, National Output is projected to total Shs 38,800 billion, an increase from Shs 34,810 billion in the Financial Year 2009/10. The rebound in economic activity is largely attributed to the recovery in construction and increased trade activities. In addition, there has been a strong performance in the telecommunications, financial services, mining and quarrying sub-sectors.
10. Madam Speaker, the livestock sub sector grew by 3.0 percent, while the food crop sub sector registered 2.7 percent growth. However, poor rainfall and drought have severely affected the agricultural sector, with output of cash crops declining by nearly 16 percent during the current financial year. This reduced the overall growth in agricultural output to 0.9 per annum, compared to 2.4 percent recorded in the previous year.
11. Industrial production improved during the year, with growth estimated at 7.5 percent as compared to 6.5 percent the previous year. The robust growth was driven largely by construction, mining and quarrying activities. Construction activities recorded growth of 7.7 percent in real terms, following a 5.9 percent increase the year before. Growth in mining and quarrying activities is estimated at 15.8 percent during the same period.
12. Madam Speaker, the services sector, which is currently estimated to contribute over 50 percent of total annual national output, continues to be a major driver for economic growth. This sector includes trade activity, education, telecommunications and financial services. During the year, the services sector grew by 8.0 percent, an increase from 7.4 percent in the previous year. This buoyancy in the services sector is due to stronger performance of the telecommunications, financial and trade activities.
13. Telecommunication services continued to be the fastest growing sector in the country and are estimated to have increased by 21.2 percent during the past financial year, while the financial services sector recorded strong growth at 10.3 percent in real terms. The growth in telecommunication and financial services has been driven by increased competition among service providers, which has resulted into significant price reductions and increased innovation leading to new products being offered on the market.
14. Madam Speaker, the country has been experiencing price increases, about which Government is concerned, and will address with measures I will detail later. The general price level of all items increased by 16.1 percent per annum in May 2011. Food crop prices have registered the greatest increase recorded at 44.1 percent over the same period while prices for Electricity, Fuel and Utilities (EFU) items increased by 9.1 percent over the same period. Annual non-Food Inflation in May 2011 was 7.4 percent, confirming the fact that the major drivers of the current surge in inflation are constraints to food supply.
15. Madam Speaker, the causes of the increased food prices have been primarily poor rainfall and drought which affected food production during the last two seasons of this financial year. Increased regional demand for food has also contributed to the surge in food prices. At a regional level, countries in the East African Community have all suffered high food inflation as a result of drought and the high global food prices. It is important to note that the monthly inflation rate for food crops decelerated in May 2011 to negative 0.6 percent, compared to a monthly increase of 17.4 percent recorded in March 2011. This means that food inflationary pressures are abating and prices are expected to come down soon following the forthcoming harvesting.
16. Madam Speaker, inflationary pressures have also been driven by both increased global commodity prices and the depreciation of the Uganda Shilling, which has affected domestic prices. Inflation in China, India and Kenya, the main sources of Uganda’s imports, has risen persistently, leading to higher imported inflation. For example the average price of crude oil in April 2011 reached US $ 128 per barrel, an increase from US Dollars 66 in December 2009. This increase in international fuel prices passes through to the domestic market because of a depreciated Uganda Shilling. As a consequence, domestic pump fuel prices are now at an average level of Shs. 3,500/= per litre for petrol and Shs. 3,200/= per litre for diesel.
17. Madam Speaker, it is also important to note that the pump prices of petroleum products in Uganda are comparable to those within neighbouring countries, distance from the sea notwithstanding. In Rwanda, Kenya and Tanzania, fuel prices for petrol are equivalent to Shs 3,860, Shs 3,190, and Shs 3,300, respectively.
18. As I have noted, the primary driver of the current inflation is the shock to food prices. Non food inflation remains at relatively moderate levels. Annual services price inflation was only 2.6 percent in May 2011. Inflation pressures are therefore expected to recede when supplies of food to domestic markets improve during the course of next financial year both headline and core inflation.
19. Madam Speaker, Uganda’s balance of payments continued to be constrained as a result of slower growth of exports, tourism receipts and remittances on one hand, while imports continue to increase. Total exports of goods amounted to US Dollars 2.43 billion in the past year, compared to US Dollars 2.32 billion in the previous year. This translates into an annual growth of 4.7 percent compared to 4.5 percent in the last period. The slow growth in exports is a result of the on-going recovery from the global economic crisis in some of Uganda’s major trading partners. Imports of goods, on the other hand, have continued to rise as they are structurally dependant on domestic needs.
20. Total imports of goods and services amounted to US Dollars 4.54 billion, compared to US Dollars 4.0 billion in the previous year. This translates into an annual growth of 13.2 percent, compared to a decline of 1.1 percent in the previous year. The growth in imports has been much faster than that of exports, meaning that the gap between exports and imports, commonly referred to as the trade deficit, has widened. Most of the imports have been for production related activities to support a fast growing economy, including increased activity in the oil sector.
21. Madam Speaker, an increase in the world price for coffee has generated higher incomes for Ugandan farmers. Coffee export earnings this year increased by 13.1 percent as a result of higher global prices. Cotton export earnings have also registered a marked increase of 296 percent over the past year, from just US Dollars 17 million last year to US Dollars 67 million this year. At a regional level, the high demand for Uganda’s farm produce has been and continues to be an opportunity for farmers to increase their incomes by producing more for the market. Other formal non-Coffee export receipts amounted to US Dollars 1.34 billion. Exports that performed most strongly in this category include sim-sim which registered 83 percent growth, maize, recording a 17 percent growth and fish recording a 16 percent growth.
22. Madam Speaker, Foreign Exchange Reserves are projected at US Dollars 2.2 billion by end June 2011, equivalent to 4 months of import cover, compared to US Dollars 2.498 Billion in June 2010. The Inter-Bank Foreign Exchange mid- Rate in May 2011 was Shs. 2,388 per US Dollar compared to Shs. 2,259 per US Dollar in June 2010. The continued depreciation of the Uganda shilling reflects increased import demand in the face of weak export performance that has not fully recovered.
23. Madam Speaker, the monetary sector in Uganda has been resilient, reflecting good management. Interest rates have remained stable over the past year. The lending rates in April 2011 were at 19.2 percent compared to about the same level in June 2010. The deposit savings rate remains low, at only 2.4 percent during April.
24. Treasury Bill rates increased during 2010/11 as the Bank of Uganda tightened monetary policy to prevent the shocks to food and fuel prices from spilling over into higher inflation throughout the economy. The interest rate on the 364 day Treasury Bill rose from 6.2 percent in June 2010 to 11.3 percent at the most recent auction in May 2011.
25. Private sector credit demand was buoyant during the fiscal year, in part because of borrowing by the private sector to finance capital investment. Private sector credit grew by 34 percent in the 12 months to May 2011.
26. Madam Speaker, fiscal performance was in line with the fiscal targets on overall resources and expenditures.
27. Madam Speaker, total resources available for the budget amounted to Shs 8,374.3 billion during the financial year 2010/11. Oil revenue amounting to Shs. 1,008 billion was earned during the year, and Shs. 828 billion of this has been allocated to the Karuma Hydropower Project in the next financial year.
28. Domestic revenue collections by the Uganda Revenue Authority (URA) during the year are projected to amount to Shs 5,024 Billion, representing performance of 99. 8 percent against the target of Shs 5,034 Billion. Domestic income tax collections are expected to be above target by Shs 38.1 billion.. Taxes on international trade are estimated to have grown by 22.5 percent, reflecting a surplus of Shs 163.4 billion, driven by strong growth in import volumes, coupled with the depreciation of the exchange rate.
29. External financing, comprising loans and grants from development partners, are projected to total Shs 2,681.2 billion during the year compared to a target of Shs. 2056.1 billion. This represents a performance of 30 percent above target.
30. Non-tax revenue collections contributed Shs 86.3 billion, which is equivalent to about 1.7 percent of the total domestic revenue. This represents a 94 percent performance against the target of Shs. 91.5 billion. There is scope to increase non-tax revenue collections through reforms to improve transparency and accountability in non-tax revenue collection within Government institutions.
31. Several reforms in tax administration have been undertaken during the year to enhance the efficiency of tax administration and reduce costs of compliance. These reforms include rolling out online tax services in the Jinja. Gulu, Kampala, Mbale, and Mbarara stations. These developments allow taxpayers to register, file returns and pay taxes on-line, once they access the internet. Other improvements include quicker customs processes and improvements in the management of bonded warehouses. All these measures have contributed towards improved tax revenue performance. I call upon the business community and individuals to embrace the changes in revenue administration for the development of the country. An important reform that will be undertaken in the medium term is the introduction of the electronic Tax Register to enhance service delivery to the tax payers. I am directing URA to start sensitizing and preparing the tax payers for this reform.
32. Madam Speaker, total approved Government expenditure for the financial year 2010/11 is projected at Shs. 9,325.7 billion. Development expenditure increased by 40 percent this year over the previous year, amounting to Shs 3,470.1 Billion. The increase in development expenditure is attributed to the depreciation of the Uganda shilling against major donor currencies which increased the donor disbursements in shilling terms, and the increased absorption on donor projects. This expenditure has financed projects in road works, energy, agriculture and water.
33. Salaries and Wages are projected to amount to Shs.1,620 billion this year, compared to Shs.1,300 billion spent in FY 2009/10. This represents less than 20 percent of the total budget.
34. Total interest payments are projected at Shs 419 billion, largely due to increased issuance of Government securities. This is meant to reduce money in circulation in the economy in order to dampen inflationary pressures which emerged in the second half of the financial year.
35. Madam Speaker, pension payments are projected at Shs 244 billion for this year, representing Shs 56 billion above the approved budget estimate of Shs 188 billion. This was because during budget preparation, there was insufficient information on benefits to be paid to ex-service men and local government retirees that were due to be transferred to the central government payroll.
Central Government transfers to Local Government
36. Transfers to Local Governments for purposes of meeting the local government wage bill and recurrent and development expenditures have continued to increase over the years. During the year, total local government transfers are projected to amount Shs 1,525 billion compared to Shs 1,461 billion in the previous year. Of the total local government transfers this year, Shs 360 billion is for development expenditure, Shs 248 billion for non-wage recurrent expenditures and Shs 960 billion for salaries and wages.
37. Implementation of the current budget has experienced extra budgetary pressures arising from the needs to finance the recent general elections and security related expenditures. In order to accommodate expenditure in these areas, cuts were effected on the Non-Wage Recurrent budget during the year, while protecting the priority areas of the budget. Although some areas did not receive full funding, the strategic priority objectives of the budget were not compromised.
38. Madam Speaker, in the budget speech for the FY 2010/11, Government pronounced several programmes to be undertaken. I am glad to report that despite the challenges facing the economy, significant progress has been registered for most of the programmes.
39. I will therefore just summarise some of the key achievements in the key priority areas outlined in last year’s Budget Speech. These achievement are in the following areas:-
i. Infrastructure Development in Roads and Energy,
ii. Promotion of Science, Technology and Innovation for Value Addition, Private Sector Development and Employment Creation,
iii. Enhancing Agricultural Production and Productivity, and
iv. Human Development.
Infrastructure Development in Roads and Energy
40. Madam Speaker, I am happy to report that during the year, Government continued to consolidate the work undertaken in previous financial years to improve and further develop Uganda’s road network and to reduce the backlog of outstanding works. A number of key projects have been completed this financial year and strides have been taken to improve the condition of the national road network. Some of the projects which are close to completion include:
i. Kampala -Gayaza-Zirobwe road;
ii. Soroti-Dokolo-Lira road; and
iii. Matugga-Semuto-Kapeeka road;
41. Substantial progress has been made towards the completion of Kabale-Kisoro-Bunagana Road, where 30km was completed in line with the target. A total of 44 km were completed against a plan of 34km in the reconstruction of Busega – Mityana Road. In addition, 30km of work was completed out of 47km planned on the Masaka-Mbarara Road.
42. Uganda Road Fund continues to finance road maintenance and has disbursed Shs. 468.2 billion since January 2010 to maintain 20,800 kilometers of national roads and 22,500 kilometers of districts roads. The funds were also for the maintenance of 4,800 km of urban roads, 30,000 kilometers of community access roads and 4,500 kilometers of municipal council roads. 4,850 kilometers out of the targeted 10,500 kilometers of unpaved national roads underwent mechanized routine maintenance. 850 kilometers out of the planned target of 1,610 kilometers of national roads were re-graveled.
43. Madam Speaker, at the commencement of this year’s budget, some units of the 250 MW Bujagali Hydropower Project were expected to be available. While substantial progress was made, unforeseen geological complications have delayed the Project. Consequently, the first 50 MW should be available by October 2011.
44. In addition, generation capacity has been installed with the commissioning of renewable power projects at the 18 MW Mpanga Power Project, while the 6.5 MW Ishasha Power Project is expected to be commissioned later this month. The 3.3 MW Nyagak Hydropower project is expected to be commissioned in the course of the next year. Other mini-hydro projects under development include 10 MW at Buseruka and 1 MW at Maziba.
45. The feasibility study for the 600 MW Karuma Hydro power project was completed during the year, and the Government is ready to commence its construction. The feasibility study for the 140 MW Isimba Hydropower Project will be completed in the next financial year.
46. Madam Speaker, the Rural Electrification Programme made substantial progress with the completion of the following Low Voltage Network lines:-
i. Nabitende – Itanda and Bugeso – Iwemba power lines;
ii. Mutolere – Matinza – Nyakabaya;
iii. Kyanika – Mulora;
iv. Kitgum – Padibe – Lokung;
v. Budusu – Bunawale; Japdong village; and
Science, Technology and Innovation for Value Addition
47. Madam Speaker, in order to improve Uganda’s competitiveness and business climate, as well as promote economic growth and create employment, Government prioritized a number of interventions during the financial year. The following achievements have been realized:
Information and Communications Technology
48. A total of 1430 km of optical fibre cable was completed under the second phase of the National Backbone and e-Government Infrastructure project. This compliments private sector efforts to develop high speed interconnectivity between the country and global internet and telecommunication networks.
49. In support of value addition, the Uganda Industrial Research Institute (UIRI) has commissioned several commercial production plants. These include:
i. Potato processing facility in Kabale;
ii. Peanut processing in Lira District;
iii. Fruit juice processing in Mpigi District;
iv. Meat processing facility in Busia District; and
v. Mushroom processing center in Kabale District.
50. Other developments at the Uganda Industrial Research Institute (UIRI) include the completion of a facility for the production of a vaccine against the Newcastle disease in poultry and a foundry for the fabrication of a variety of implements, equipment and machinery for use by Small and Medium Enterprises. This will facilitate the fabrication, by the private sector, of machinery for producing feeds, silk processing, soap production, paper production and a variety of looms for weaving.
51. Under the Presidential Initiative on Innovations in Food Science Engineering, Technology and Skills for production, Employment and Development in Animal Industry (SPEDA), over 500 jobs have been created in production marketing; research and development; and in food technology.
Agricultural Production and Productivity
52. Madam Speaker, last year’s budget prioritized increased agro-industrial production and productivity, improvement in employment opportunities and increasing access to markets.
53. The National Agricultural Advisory Services (NAADS) supported approximately 487,500 farmers with inputs and advice to enhance food security. A further 22,000 out of a targeted 26,000 farmers received inputs and advice to enable them to become commercially oriented. These farmers were in the following enterprises: local and exotic poultry, improved cattle and goats; banana suckers & tissue culture; citrus, mango, coffee and tea seedlings.
54. The National Agricultural Research Organisation (NARO) developed 10 planned new crop varieties, and another 11 were submitted for approval before being released for multiplication.