FROM THE PRESS GALLERY: Why government must deal with inflation

Inflation is increasing. You can blame it on that fuel pump attendant or the grocery store cashier but make no mistake; prices for anything money can buy are skyrocketing too. With the headline inflation rate now standing at 11.1 per cent up from 6.4 per cent in February, the manifest is that it’s no longer business as usual.

While authorities appear optimistic that the economy will continue to grow without a quick-fix intervention to inflation fears, financial managers as wells as the lawmakers are not so sure. In fact, without the government intervention, we don’t know how long this agonizing double-digit inflation is going to last. But as an interim measure, my view is that the government must deal with this inflation – before prices get out of control.

The walk-to-work protests over the soaring prices have of late dominated the news agenda. The ugly scenes from the dramatic protests last week obviously tell us more on how inflation is rearing its ugly head. Certainly, the World Bank is right; inflation is pushing the poor beyond the limit and has made everything Ugandans buy too expensive to afford.

For the record, this column is not about making a mountain out of a molehill. It’s about the real dangers of the skyrocketing prices. It’s about the current inflation crisis and how authorities can lend a hand. However, the government’s failure to put in plain words, the hopelessness of our economy has compounded the situation. It looks as if it’s the economy, stupid-- a phrase which perhaps won Bill Clinton the Presidency in 1992. “It’s the economy, stupid” was a slogan in American politics widely used during Clinton’s presidential campaign against George H.W. Bush.

For a time, Bush (senior) was considered unbeatable. But the phrase made Clinton a better choice because Bush had not adequately addressed the economy, which had undergone a recession. In fact, many poor Americans were suffering and inflation had become painful. But the good news is that in our case, it’s the inflation, stupid. Uganda’s economic tribulations have been simmering for years, but the rising food prices have brought it to a boil.

The unpalatable truth is that food inflation remains the main reason behind much of the turbulence, not just in Uganda but all over the world. Prices have skyrocketed for months, and many countries have already seen protests over higher prices.
The only difference, in Uganda, authorities said inflation is beyond their control.

Inconsistent policies
Inflation is a major modern economic fact. But why is it a problem for many Ugandans? Clearly, the problem is corruption in the system, indifference of the technocrats in the ministry of finance and unauthorized government spending among other things. Such tribulations appear to be growing faster than our economy, faster than inflation, and far beyond our means to sustain the current crisis. In the end, the nation is feeling the pinch.

When a double-digit inflation strikes the economy, the single focus of any government becomes controlling that hazardous price increment. But this is not how mature market economies work. In all mature market economies, the task of controlling prices to manageable levels is placed with the Central Bank. But our Central Bank is too openhanded to pad the economy from such shocks.

This bank of banks hosts our national treasury, but is too profuse to the extent that the government just picks whatever amounts it wants without any parliamentary approval. For instance, MPs who are part of this inflation mess were informed last month that the government had picked $740m (about Shs1.7 trillion) without their knowledge to buy fighter jets and other military hardware.

Hole in Treasury
The Auditor General in his new report for the year ended June 2010 revealed that over Shs500b was picked from BoU without approval. Another Shs500b was misused by Cabinet ministers and other officials who were pardoned by lawmakers, just like that.

Again, the Shs602b in a recent supplementary budget was majorly funded by a draw down from BoU. These are not just figures; the inference is the problem we see today. Sadly, such big amounts left a substantial hole in the Treasury. Surprisingly, our friends in Parliament can’t even realize this fact. These legislators forgot so easily that by letting corrupt officials off the hook and failure to stop illegal spending of taxpayers’ money, they have become part of the problem.

In arguing that inflation is not the government’s fault, junior finance minister, Prof Ephraim Kamuntu on Thursday pointed the finger at the global conditions. Just as with a lot of government policies, his argument may hold in an academic setting, but in reality, Ugandans want short-term measures to solve the problem. Asking them to wait for the crude oil from Bunyoro was a nonsensical argument from the minister.

What govt can do
The truth is that there is something the government can do to help the situation. First, despite being the Common Market for Eastern and Southern Africa’s leading destination market for her goods, Ugandan products continue to be less competitive due to its inability to join the Free Trade Area (FTA).

As a result, Kenya being a member of FTA, imports cheap sugar from Mauritius at 8 per cent tax and Ugandan traders at 100 per cent import duty. The implication is obvious; imported inflation. Again, the import duty for rice stands at 75 per cent in Uganda, 35 per cent in Kenya and Tanzania (Zanzibar) at only 25 per cent. The question here is simple, if we’re in the East African Community, why is Uganda charging such a high tax?

A friend I met in Nairobi last year told me, at a conference in Arusha, that Kenya and Tanzania insisted that many of their poor people depend on rice for survival but for Uganda, he told me, the focus was to protect Kibimba Rice Scheme—leading to higher prices for rice in the country.

But without necessarily fixing prices and market exchange rates, as such a measure could disorganize our macro-economic stability; the government can refurbish the fuel reserves, subsidise motorists and set exchange rates for importers. It’s okay for the tax body to charge taxes in dollars. However, the solution would be to fix the dollar rate for import duty and leave the market rate untouched. This would eventually offer a respite for traders and on balance, prices will eventually go down.

Our economists need to work with politicians, step back and re-evaluate what once worked, and what doesn’t, and adjust our system accordingly. Surely, the government has the tools to fix what is wrong with our economy, but we cannot keep blaming imported inflation at the same time. The choice is ours: reflect and survive or sit back and give up.

Flowers
Uganda Red Cross Society team takes flowers for saving the lives of Ugandans who were injured during the walk-to-work protests on Thursday. URCS volunteers were at Makerere University on Friday-- helping students who were injured during a strike there. Their ambulance whisked the injured including school children to Mulago Hospital and other clinics around Kampala for urgent medical attention. In URSC support, Ugandans saw an empowered, healthy and self-sustaining community that responded to their needs. Hurrah Uganda Red Cross team!

Frowns
At least three people were on Thursday shot dead in Gulu after the inflation protest christened “walk-to-work” campaign in the town turned violent. In Kampala, at least 47 people were injured and admitted to Mulago Hospital. In the scuffle Dr Kizza Besigye was also allegedly shot in the hand. Some sustained gunshot wounds, among them seven-months-pregnant Brenda Nalwendo, whose intestines oozed out, but survived. A 16-year-old student of Bubaare Secondary School in Kabale District was also on Monday shot dead as the police battled to quell a strike by students. For showing brutality, police earn this week’s frowns. Whether walking-to-work without permission is illegal or not, shooting unarmed civilians must stop. There are other ways police can arrest suspects without shooting to kill.