The World Bank Group has warned African governments against running large fiscal deficit because it may lead to over borrowing, and in turn lead to high public debt levels.
High fiscal deficit in Uganda and all the other African countries has persisted because governments spend more than they collect in domestic tax to run their ever-increasing public expenditure.
A fiscal deficit occurs when a government’s total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits.
In its new regional economic report ‘Africa Pulse’ released last week in Washington DC on the sideline of the World Bank and the International Monetary Fund spring, the World Bank said countries across the region face the need for fiscal consolidation in order to narrow fiscal deficits and stabilise government debt.
The bank says although commodity prices have gained some ground, exporters (especially, oil exporters such as Angola and Equatorial Guinea) are still running sizable deficits.
The World Bank fiscal balances of non-resource intensive countries worsened significantly in 2016, reflecting elevated investments spending levels, adding that widening fiscal deficits and, in some cases sizable exchange rate depreciation have resulted in rising public debt levels in the region.
Addressing journalists from across 15 African countries from via video conferencing, the World Bank chief economist for the Africa Region, Dr Albert G.
Zeufack, said: “As countries move towards fiscal adjustment, we need to protect the right conditions for investment so that sub-Saharan African countries achieve a more robust recovery.”
Since the new era of economic liberalisation ushered in the 1990s, African governments have been carrying out economic reforms to improve on their economies; however reforms have not fully been realised in most countries including Uganda.
Uganda’s fiscal strategy
According to the Half Year Macroeconomic and Fiscal Performance Report for Financial Year 2016/17 by ministry of Finance released in February 2017, the fiscal strategy for the financial year was focused on maintaining infrastructure investment, while being mindful of a sustainable level of public debt over the medium term and promoting excellence in public service delivery.
Subsequently, the report says government pursued an expansionary fiscal stance with the deficit increasing to 6.6 per cent of GDP in the Financial Year 16/17 compared to 4.8 per cent of GDP in the Financial Year 15/16.
“This was meant to enable government accommodate growing expenditure needs especially the scaling-up of public infrastructure investment. The overall fiscal deficit (including grants) for the first half of Financial Year 2016/17 stood at Shs1.820 trillion,” ministry of finance report reveals.
The ministry explains that this was lower than the projected Shs4.502 trillion as total expenditure and net lending was below the expected Shs3.455 trillion.
It adds that revenue and grants also registered a short fall of Shs773.3 billion from the programme as less than programmed project grants were received for the period.