Is the 2020/2021 Budget suited for post coronavirus recovery?

Monday April 27 2020
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Finance Minister Matia Kasaija with the Budget briefcase. File Photo

With the exception of government, there is almost a unanimous consensus across the divide that the Shs45.5 trillion budget for the next financial year, lacks the necessary prescription needed for the post-Coronavirus (Covid-19) recovery.
Economists, budget experts and public policy analysts have expressed reservations over government’s response to the economic impact of the pandemic despite possessing the budget as a fiscal tool. The Budget, they believe, could easily provide the right treatment to this economic slowdown brought about by a lockdown whose impact is already being felt.

The focus of the 2020/2021 national budget is not really different from the previous ones when the word Covid-19 was unheard of. According to Budget Committee chairperson, Mr Amos Lugoloobi, the budget which the legislators passed in the wake of the pandemic, focuses on infrastructure, security, agriculture and that it is also pro-youth.

Mr Lugoloobi noted that these are in line with the country’s National Development Plan (NDP) III blue print. But the national development blue print didn’t plan for the Covid-19 pandemic.
The development document didn’t anticipate weeks, if not months, of lockdown occasioned by the pandemic.

Therefore, the country’s development document hardly offers any timely prescriptions to a threat prompted by the current pandemic to the economy and livelihoods.

Further examination of the budget document shows that government will pay attention to challenges hindering economic transformation, rural economic development and expansion of industrial base, let alone job growth and deliveries of essential social services, all as highlighted in the national development blue print.

Old wine in a new bottle
Although the government and Members of Parliament had an opportunity to redirect the focus of the budget towards aiding the post-Covid-19 recovery process, they didn’t.

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Makerere University Business School economics lecturer, Dr Ramathan Ggoobi, told this newspaper that the 2020/2021 national budget was planned to respond to usual challenges that were already known such as acceleration of growth which was hovering at about six per cent.

He said: “As we speak, growth has dropped to 4 per cent. The next budget (2020/2021) should be more of a recovery one. More funding should be directed to the private sector to generate revenue again and keep workers on payrolls. There is also need to budget for anti-poverty programmes because many people are likely to fall under the poverty line.”

Dr Ggoobi says it is time to start digitising the economy as research indicates that social distancing could remain a fixture until 2022. For that, policy makers should consider deepening the online financial system.

“The budget planners have to think about the sustenance of the digital economy too. Policy makers have should use the budget to prepare for eventualities, the world might not be the same again in terms of doing business the same way. The next budget shouldn’t be business as usual because that might not serve the purpose,” Dr Ggoobi said.

Government should also avoid borrowing domestically because it will crowd out private sector, impacting local investment.

Despite the harsh realities the pandemic has introduced to the health sector, it has not been given the due attention it deserves going by the Shs2.8 trillion it was allocated. Dr Ggoobi would have liked to see the infrastructure budget reduced and the funds allocated to the health sector.

Reconsider priorities
Uganda Revenue Authority (URA) is expected to domestically collect at least Shs20 trillion of the Shs45.5 trillion budget for the financial year 2020/2021. But already, most sources of revenue are being disrupted by the Covid-19 crisis.

So, there is need to do things differently. According to Mr Julius Mukunda, the executive director of Civil Society Budget Advocacy Group (CSBAG), financial year 2019/20 projections and priority areas should be changed to respond to the current challenges of the pandemic.

“Government’s efforts to give out free food is fine. But we need to plan for post-Covid-19 so that we don’t get trapped in the same dilemma in future. We need to be more prepared.”

“It would be fine to give people money so that they can directly buy it from farmers. This will improve farmers’ capacity to produce more food,” Mr Mukunda said in an interview.

But the budget allocates the agriculture sector only Shs1.3 trillion, not even half way the budget of Works and Transport which is Shs5.8 trillion.

He said: “People will not eat roads; if there is no food, people will be hungry. It is very hard to lead a hungry population. When people are able to do agriculture on a large scale; they can grow food for consumption and commercial purposes.

“There is need to invest in food production especially for small and medium enterprises where they add value to their produce, have it packaged and sold.”

Mr Mukunda is also opposed to increasing taxes on key commodities, saying that could cripple businesses that are already taking a hit from COVID-19.

"We are on course”
Speaking in an interview, the Budget Committee chairperson, Mr Amos Lugoloobi describes the 2020/2021 budget as the “best response to Covid-19,” stressing that he disagrees with people who believe otherwise.

He said: “Who knows how post-COVID-19 will be like?”

He continued: “The 2020/2021 budget will help us recover if the pandemic goes away. It will not operate if the pandemic is still prevalent and intensifying. We assumed that by July, the pandemic would have subsided and if that is the case, then we shall have room to implement the budget properly.
“It is wrong to worry or think that the 2020/2021 budget will not support our recovery from the impacts of Covid-19. You need a budget which you can adjust depending on the need like we did recently when we needed resources to fight COVID-19 where a supplementary appropriation was issued.”

According to Mr Lugoloobi, the fact that the national budget allows for supplementary appropriation and adjustment to respond to emerging demands is good enough. The 2020/2021 budget is flexible to changes, according to Mr Lugoloobi, making it unique in terms of reacting to situations as and when needed.

“We have taken care of health issues as well other aspects of the economy. This is the best document in form of a budget for 2020/2021. This document can be adjusted. You need a document with instruments such as supplementary appropriation to help you achieve what you want,” Mr Lugoloobi said.

Mr David Bahati, the Minister of State for Planning, told parliament recently that government has earmarked Shs2.8 trillion to finance interventions in improvement of yields and productivity through use of modern inputs, supporting area-based commodity value chains where they exist, speeding up titling processes and strengthening physical planning for production land.

This he said is in addition to expanding agricultural insurance, improving post-harvest handling and primary processing through provision of rural infrastructure including storage infrastructure and increasing access to long-term finance.

Voice of reason
Asked about the ability of the 2020/2021 budget to support post-Covid-19 recovery, Mr Corti Paul Lakuma, a research fellow with Economic Policy Research Centre (EPRC), notes that success of the budget will rely on “stability of the budget.”

“The budget must have some stability. I expect that principle to be maintained in this budget. I would discourage the sudden shift of sectoral spending without building capacity at sectoral level to spend,” said the EPRC research fellow.

He continued: “The health sector will still receive 8 per cent of total allocation. However, over the medium term, we will, witness a gradual increase in expenditure in the social sectors, especially health. We have learnt a lesson, from COVID-19 about the preparedness of our system to handle a major catastrophe. I expect the fiscal stimulus for reinvigorating businesses and keeping the business environment vibrant to be handled through supplementary instruments.”

Mr Lakuma further believes that it will be difficult to reallocate conditional funding to the road and energy sector to social spending. This is besides road and energy sector, he says provide a bulk of jobs that support thousands of households directly and indirectly.

Dr Fred Muhumuza, Economics Lecturer, Makerere School of Economics, says the 2020/2021 budget is at variance with the current situation.

He said: “The 2020/2021 budget does not address the Pandemic and aftermath in any way since it still follows views that were there before the coronavirus outbreak. We should have reduced it by a minimum of Shs3 trillion to avoid excessive borrowing and disruption of private sector.”

Breakdown of 2020/2021 budget
Financial year 2020/2021 total budget is:Shs45.5 trillion
The Ministry of Works and Transport: Shs5.8trillion
Security: Shs4.5trillion
Interest payment: Shs4.0 trillion

Others
Education: Shs3.5 trillion
Health:Shs2.8 trillion
Energy:Shs2.6 trillion
Accountability Sector: Shs2.1 trilion
Justice Law and Order sector: Shs2.0 trillion
Local Government: Shs1.7 trillion
Water and Environment: Shs1.6 trillion
Agriculture: Shs1.3 trillion
Public Administration: Shs1.3 trillion
Parliament: Shs667.8b

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