IMF to government: Don’t spend outside approved budget
Ms Ana Lucia Coronel, the IMF mission chief and senior resident representative for Uganda.
What you need to know:
Government also told to put a limit on domestic borrowing.
Kampala- The International Monetary Fund (IMF) has advised the government to avoid spending outside the approved Budget of 2014/15.
The financial body said the Budget that has been approved by Parliament is enough to drive the economy because it caters for both recurrent and capital expenditure.
The organisation has also called on government to match public expenditure with absorption capacity in the economy and put a limit on domestic borrowing. It pointed out that there should be no domestic borrowing beyond the Shs1.4 trillion which government has planned to borrow during this financial year using treasury bills and bonds.
Speaking at a press briefing on Wednesday, Ms Ana Lucia Coronel, the IMF mission chief and senior resident representative for Uganda, said: “Particular attention needs to be paid to the sequence and quality of public investment projects.
Execution and financing have to be consistent with the capacity of the economy to absorb investments without generating inflation or crowding out the private sector, and to repay debt without increasing the risk of debt distress.”
“This can only be possible if projects are phased gradually after verifying their financing terms and commercial viability,” she added.
Ms Lucia said: “Collecting taxes from all economic agents is a key priority. The recent elimination of Value Added Tax (VAT) exemptions is commendable and needs to be accompanied by strict enforcement by the Uganda Revenue Authority and enhanced compliance from taxpayers.” In the next four years, government has set target of increasing Uganda’s tax to Gross Domestic Product (GDP) ratio to 16 per cent from the current low level of 13 per cent which is the lowest in the East African region.
Ms Lucia said Uganda critically needs to improve its tax-to-GDP ratio well before oil revenues come on stream to reduce its dependence on donor assistance or domestic borrowing and finance the country’s significant investment and social needs.
If all goes well as it has been planned, the IMF projects that Uganda will register a growth rate of 0.5 per cent in tax ratio to the GDP for the financial year 2014/15.
Economic outlook
On the state of Uganda’s economic outlook for this financial year, IMF’s Lucia says the start of the construction of the Karuma and Isimba hydroelectric projects and pick-up in private sector activity should help raise growth to 6.1 per cent in fiscal year 2014/15 having grown by 5.2 per cent in the financial year 2013/14.
The other factor which will contribute Uganda’s growth rate is a pickup in private sector credit currently growing at the rate above 14 per cent per annum, which signifies that banks are lending to the private sector.
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