Decoding performance of the 2014/15 budget

Kampala.

In what became her last budget, former Finance minister Maria Kiwanuka, in June 2014, sought to convince Ugandans that they cannot eat their cake and have it at the same time.

Ms Kiwanuka’s “tax-heavy budget” was therefore derived from tough decisions planned to help the government sort out a deepening cash crisis worsened by an aid freeze resulting from corruption at the Office of the Prime Minister and the enactment of Anti-Homosexuality legislation.

To finance 81.8 per cent of Shs15.4 trillion, the country’s biggest budget at the time, Ms Kiwanuka announced a cocktail of taxes she said will help in the modernisation of the country.
The total budget for 2015/16 financial year is Shs24 trillion and the government is expected to finance about 86 per cent.

She increased taxes on petrol, diesel, paraffin, salt, sugar, processed milk, computers, new printing services for educational materials; tools for agriculture, seeds, fertilisers, pesticides and hoes.

She also announced new taxes on sports betting, slapped a 10 per cent Excise duty on Mobile Money withdraw fees and introduce Excise duty of 10 per cent on bank charges and money transfer fees.

Under the income tax, the minister terminated exemption on income derived from educational institutions, proposed to terminate initial allowance on eligible property in order to widen the tax base and increased the presumptive tax threshold from one per cent to three per cent to raise Shs8 billion.

Laying the foundation for development, the minister used the 2014/15 budget to highlight yet another important milestone in the infrastructure sector.

The budget review highlighted improvements in the quality and stock of physical infrastructure with 806km of new roads constructed; 1,657km of high voltage distribution lines and 42,236 new rural users were connected to the national power grid.

The focus of the budget based on the theme: Infrastructure for Growth and Socio-Economic Transformation,” indicated a shift from consumption to investment. Consequently, to achieve the projected growth of 7 per cent of GDP, the 2014/15 budget prioritised Works and transport (Shs2.8 trillion), Education (Shs2 trillion) and Energy (Shs1.8 trillion).

However, as a result of aid cuts, data from Ministry of Finance shows that the external borrowing and domestic borrowing are on the rise. For instance, external financing stands at Shs1.9 trillion and domestic borrowing at Shs1.7 trillion in 2014/15.

This has translated into higher interest payments on the borrowed funds. In this financial year, the government is expected to pay at least Shs1.1 trillion in interest payments. This is expected to rise further in 2015/16.

Daily Monitor reported last week that government departments had failed to absorb more than $2,451.6 billion (Shs7.3 trillion) out of the $4, 038.8 billion (Shs12.1 trillion) Uganda borrowed from international lenders over the last five years.

The money was meant for reforms in the land’s sector, accountability programmes as well as for the construction of roads and power projects, among others.

Supplementary budgets annual ritual
The supplementary budgets did not stop during the financial year. In March 2015, Matia Kasaija who hadn’t been sworn in as the Finance minister tabled a supplementary budget request of Shs847.2 billion to cater for additional expenditure by some government agencies. The bulk of this request, Shs401 billion, arose from shortfalls in domestic financing.

Mr Patrick Ocailap, the deputy secretary to the Treasury, insists the “practice is a bad one,” adding that the current trend will eventually stop.

The Public Finance Management Act 2015 notes that for any other additional spending on supplementary expenditure, it should be catered for in a contingency fund. A contingency fund will be at least 3.5 per cent of the national Budget.

Mr Ocailap said at least 85 per cent of the contingency fund can be used to finance supplementary budgets.

There is a projection from the Ministry of Finance that the roads sector will in this final quarter of the financial year, request for supplementary funding.

“The rate of implementation of ongoing projects is higher than planned. As a result, the budget provisions are likely to be inadequate and a supplementary may be required during quarter four to maintain the same level of performance,” reads Finance ministry statement.

Karuma delays

In her budget speech, Ms Kiwanuka said: “In the forthcoming year, special attention will be placed on accelerating implementation of the construction of the major Hydropower plants at Karuma and Isimba.”

However, the construction of the two dams hit a glitch this financial year. The two projects are 80 per cent funded by Chinese loans. For the better half of the financial year, the government was bickering with Exim Bank of China on who should pay first.

According to Ministry of Finance officials, delays in the conclusion of the financing agreement between China’s Exim bank and Government of Uganda delayed the Karuma Hydropower plant, Karuma Interconnection project and the electrification of industrial parks project.

These projects remain on the government radar in the 2015/16 budget and Parliament has since approved $1.9 billion for the projects.

The Ministry of Finance describes the overall performance of the energy sector as “fair across all projects.”

Poor absorption
The agricultural sector continues to suffer this absorption challenges, according to the Ministry of Finance. The agricultural sector got an allocation of about Shs474 billion in the year.

A review of the agricultural sector by the Finance ministry notes that there was underperformance in the crop pest and disease control project. Of the 50 per cent disbursed for this project, only 38 per cent was utilised. The increasing Mukene/ silver fish project only utilised 50 per cent of all the funds allocated to it.

Poor absorption has been reported in the agricultural sector every financial year and it is largely blamed on understaffing in the local government agricultural departments, the delayed initiation of procurement procedures and low capacity of contractors.

There is also the usual blame game where the ministry of finance is blamed for delayed disbursement of funds. However, Finance disputes this, blaming some agencies of insufficient prioritisation.

But Ms Doris Akol, the Commissioner General URA in her first term in office, is optimistic that collections could be in excess of Shs1 billion above the target of Shs9.5 trillion.

“URA is on the right track and very confident that it will surpass the annual target through the implementation of the various policy and administrative measures,” Ms Akol noted.
However, all was not about gloom. In the current fiscal year, the government maintained the inflation at the single digit and pumped more money into infrastructure projects. This is key to growth.

For instance, a decline in the number of people living below the poverty line was brought down from 56.4 per cent in 1992/3 to 24 per cent in 2009, and further to 19.7 per cent in 2012/13.
(This is in line with the Millennium Development Goals) and the budget review noted improvements in social services, education and water.

Promises in the 2014/2015 budget

In order to facilitate the private sector, Ms Kiwanuka had promised that Mobile Money law, Islamic Banking and insurance laws would be brought to the floor of Parliament. However, to date, the proposed law has not reached Parliament.

Although teachers, doctors and lecturers have been at the forefront of strikes over salary increments, in the 2014/15 budget, the government earmarked Shs450 billion for increase of salaries for public servants, specifically teachers and health workers.
Teachers’ salaries were accordingly increased from 15 per cent to 25 per cent.

Mr Kasaija has since promised to allocate Shs133 billion in the 2016/17 budget to increase teachers’ pay by an additional 15 per cent. Teachers were demanding a 10 per cent pay raise.

The Numbers

Shs7.3 trillion
The amount government departments had failed to absorb out of the Shs12.1 trillion Uganda borrowed from international lenders over the last five years.

Shs1.9 trillion
The amount of external financing in 2014/2015 according to Ministry of Finance.

Shs1.7 trillion
The amount of domestic borrowing as per 2014/2015 according to Finance ministry.

Shs847.2b
The supplementary budget request by Finance minister in March to cater for additional expenditure by some government agencies.

Shs580 billion
The amount Parliament approved for Karuma Hydropower plant, Karuma Interconnection project and the electrification of industrial parks project.

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