Dr Kihura Nkuba is a fascinating scholar.
Dressed in African wear as way of supporting the local textile industry, the director for Pan African Centre for Strategic and International Studies, believes it is not too late for Uganda and the entire African continent to redefine its economic destiny.
His thought-provoking ideas, he believes, if taken onboard by the managers of the economy, could provide the much-needed prescription to the budget deficit the country suffers from year in, year out.
In his presentation, titled, “The fire this time: The Engine of Financial Ignorance,” which he has also presented to among others, President Yoweri Museveni, the Uganda Manufacturers Association and the National Planning Authority, he argues that it is possible for Uganda to fund her budget without seeking donors help, let alone borrowing heavily.
But this, he says, can only be possible in the absence of monetary confusion and financial distress that is currently widespread in the economy, thanks to commercial banks and telecom companies’ role in engineering this situation.
In the presentation he recently made in Kampala to the Uganda Debt Network (UDN) senior managers, Dr Nkuba, also a lecturer of classical African history, observes that the money banks and telecom companies create every single day should be the role of the government-owned commercial banks and telecom companies.
The two major industry actors according to Dr Nkuba’s research, create trillions of shillings for themselves on daily basis.
As a result of this, the government loses out on a convenient source of revenue.
If this source of revenue is handled or controlled by the government, then funding of the budget and other government programmes shouldn’t be as problematic as is the case currently.
This situation has been worsened by the emergence of electronic payment transactions, which have offered banks and telecommunications companies unfettered opportunities to create their own money as and when they wish.
“One common misconception is that banks act as intermediaries, lending out the deposits that savers place with them. In this view, deposits are typically ‘created’ by the saving decisions of households, and banks then ‘lend out’ those existing deposits to borrowers, for example, companies looking to finance investment or individuals who want to purchase housing, reads part of the presentation he delivered.
He continued: “And in the modern economy, those bank deposits are mostly created by commercial banks themselves. Commercial banks create money, in the form of bank deposits, by making new loans.”
According to Dr Nkuba this happens when a bank makes a loan, for example, to someone taking out a mortgage to buy a house, it (the bank) does not typically do so by giving them hard cash. Instead, it credits their account with a deposit of the size of the mortgage.
At that moment, new money is created. That is why some economists refer to bank deposits as “fountain pen money,” meaning it was created at the stroke of a bankers’ pen when they approve loans.
For a while now, the media has been awash with allegations of some companies or individuals’ efforts towards creating “miracle money” such as the non-existent cash through mobile money platform in Uganda, akin to “shadow banking” that contributed to the 2007/2008 global financial crisis.
Given that this, otherwise, poses a risk for macro-economic distortions including contributing to inflation and other challenges, the UDN recommends that government stands firm and cleans up this kind of situation, for continued financial stability.
On budget Revenues and domestic revenue mobilisation strategy; a cross-section of policy analysts, researchers and Civil Society Organisations (CSOs) note that revenue mobilisation in Uganda remains dominated by taxes, Non-Tax Revenues (NTRs), Appropriations in Aid and debt. This according to the UDN executive director, Mr Patrick Tumwebaze, has to stop.
As the government explores alternative sources of revenue, including pondering over the proposals being articulated by Dr Nkuba, the director Programmes at UDN, Mr Julius Kapwepwe, argues that revenue measures should not be introduced without due analysis, knowledge of the base being targeted, its interaction with the rest of the economy and its implication on the population.
On widening the tax base, he suggests in a paper he presented to IMF that it should be based on the principles of progressive taxation, something Dr Nkuba concurs with, saying the current system of taxation is far from perfect, let alone ideal.
This is because the burden of tax contribution often falls on the poorest segments of the population, something Mr Tumwebaze and Mr Kapwepwe would want reviewed.
Uganda is currently spending more than half of its domestic resources on debt refinancing and interest payments.
The sustainability, therefore, of the debt, is a cause for concern. Most CSOs now call for a policy-shift.
There is now a call for the government to co-invest in direct revenue generation entities that are strategic to improving the country’s competitiveness.
The government can also learn something from Kenya’s government. It owns 30 per cent of Safaricom - one of the best performing businesses, enables it to enjoy dividends that become a key input into the national budget.
For that, government should grow her stake from the 5 per cent, rather than sell-out her level of business investment in MTN telecommunication firm, whose net profit portfolio has been growing each financial year over the last 20 years of operation in the country.
Floating shares on Uganda Securities Exchange (USE) is another way to go. This will build the investment portfolio and functional capacity of the USE faster.