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Government plans budget cut over aid freeze

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By MONITOR TEAM

Posted  Wednesday, December 5  2012 at  02:00

In Summary

Minister says the government would have to check wasteful expenditure while BoU says cuts will slow down economic growth to 4.3 per cent.

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KAMPALA

The government will review this financial year’s Budget to make adjustments in light of hundred-million dollar cuts in direct aid by the country’s development partners. Until yesterday, some government functionaries had been maintaining that the government would somehow manage even without the development partners’ financial support.

The State Minister for Economic Monitoring, Mr Henry Banyenzaki, however, told the Daily Monitor that the government would have to check wasteful expenditure. “We need to tighten our belts, seal all loopholes and cut our wasteful expenditure,” Mr Banyenzaki said.

Mr Banyenzaki was also cautiously optimistic that since the cuts have come in the middle of the financial year citizens would not feel the pinch as much because the government has the ability to run its programmes.

The Central Bank, however, insisted yesterday that the suspension of aid, combined with other factors, would slow down Uganda’s economic growth to 4.3 per cent from the projected five per cent.

At a presentation of the monetary policy statement for December, Bank of Uganda Governor Emmanuel Tumusiime Mutebile said: “The aid cut by donors will reduce Uganda’s potential growth by 0.7 per cent.”

This bleak view was shared by the bank’s director of research, Dr Adam Mugume, who said: “The donor aid cut is equivalent to 1.3 per cent of Uganda’s GDP, while the total amount of aid cut by the donors stands around $180m out of $200m that was supposed to be provided by the major development partners.”

Mr Lawrence Bategeka, a senior research fellow at Makerere University’s Economic Policy Research Centre, concurred that the budget support suspension will slow down economic growth. “There is no way economic growth cannot be affected given that aid is primarily to complement domestic revenue,” Mr Bategeka said.

In Parliament, the chairman of the House Budget Committee, Mr Tim Lwanga, was equally downbeat, observing that “most programmes will slow down and government may have to put a halt on some of the programmes.”

Donors fund 25 per cent of Uganda’s 2012/13 bugdet by $4.5b (Shs11.2 trillion). Over the last three weeks, some of Uganda’s development partners had suspended close to $180m (Shs450b) in development aid following revelations by the Auditor General that Shs50b is believed to have been stolen by some officials in the Office of the Prime Minister.

Much of the money was meant for the improvement of livelihoods of people in northern Uganda who suffered economic stagnation and ruin during the 20-year insurgency, and in Karamoja. But deeper cuts were announced two days ago with EU ambassador, Roberto Ridolfi, revealing that the EU, UK, World Bank, Austria and other countries have now decided to suspend up to $300m promised in budget support each year until 2013.

Foundation for Human Rights Initiative executive director Livingstone Sewanyana yesterday feared that lawlessness, brutality and poor services are likely to be the outcome, if the current situation stays for too long.

“Services will get poorer and crime will increase. Government will, of course, try to control the situation and the end result will be chaos. “The ordinary Ugandan may have to pay more for services. Those who cannot afford, they may have to go without. We need to embrace good practices of good governance, human rights and zero tolerance to corruption which this government is clearly not committed to,” Mr Sewanyana said.

Mr Ridolfi, reiterated that: “EU budget support for the Fiscal Year 2012/2013 will not be paid until progress has been confirmed. EU institutions are not yet in a position to determine the future provision of budget support in Uganda.”

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