The 2020/2021 trial and error Budget

Tuesday June 30 2020

Business in Kampala picks up after the partial

Business in Kampala picks up after the partial lifting of the lockdown. Government has proposed to defer corporate tax and Pay As You Earn for some SMEs. PHOTO | ALEX ESAGALA 

By ISMAIL MUSA LADU

Mr Everest Kayondo is always at the frontline. Armed with the ability to speak with a pinpoint accuracy, the founder of Ever Based Tours & Travel Ltd, is capable of holding his ground.
Currently, however, his resolve is being tested to the limit by unusual forces in the form and shape of Coronavirus disease (Covid-19).
As a result of the pandemic and its resultant containment measures over the last three months, Mr Kayondo’s tour and travel company has been disrupted so badly that nearly three quarters of his staff have been rendered jobless.

Mr Kayondo who is both the chairman of the Association of Uganda Tour Operators (AUTO) and Kampala City Traders Association (KACITA), is fighting to keep afloat.

But while at it, he believes the National Budget for the financial year, beginning July 01, hasn’t helped him and the sectors he represents in the battle to regain their footing after being rendered helpless by Covid-19 disruptions.

Until the national budget is reviewed to ease the pressure that he is contending with, cancellation of bookings and tickets remains his main preoccupation lately.

“Deferring taxes is not the solution now. I don’t think this budget was designed to respond to the Covid-19 situation and the impact it has occasioned on many of us. Just look at the allocation for the tourism sector and trade sector and you see what I mean,” he said.

Then there is Ms Barbara Ofwono Buyondo, the founder, CEO, Director and Principal of Victorious Education Services Ltd (VES).

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With indefinite closure of schools as one of the containment measures being enforced to suppress the spread of Covid-19, Ms Ofwono, a passionate social entrepreneur, has a decision to make.

The closure of schools happened midway the term after entering into several contracts with suppliers. By the time the directive to close the school was taken, many had not completed school fees yet it is a primary source of the institution’s funding.

Without school fees coming in, it is very difficult for her to fulfill her obligations to suppliers as well as to the teaching and non-teaching staff.

However, during the post budget dialogue on NTV, it became clear that the national budget that was passed by parliament in the wake of Covid-19 responds to very little if any to some of her most pressing challenges.

A leather processor notes the sub sector needs commitment to implement the Buy Uganda, Build Uganda (BUBU) policy.

Necessary review
To address these issues, business people, economists, policy analysts and trade specialists, including civil society, say the National Budget should be reviewed because it falls short of diagnosing the proper dose for the economic crisis, resulting from the Coronavirus pandemic and its subsequent containment measures.

Last week, Civil Society Organisations including SEATINI, CSBAG and Uganda Debt Network noted that unlike the previous financial years, the final stages of FY 2020/21 budget formulation process were marred with an unprecedented economic shock relating to the Covid-19, invasion of locust and the flash floods that was witnessed is some parts of the country.

As a result, Uganda’s projected economic growth was revised downwards to between 2.5 per cent to 3.5 per cent for 2020 by Bank of Uganda from the April 2020 forecast of 3-3.5 per cent.

The restrictions that have been set to contain the spread of the deadly virus, including a number of lockdowns and travel restrictions have created uncertainty for many businesses, cut down on cash flow - the lifeline of any enterprise, disrupted supply chains, altered consumers’ purchases in terms of interests and intervals, more than doubled costs of production and resulted into demand inefficiencies.
According to the Ministry of Finance, more than 2.6 million Ugandans are projected to fall into poverty on the account of Covid-19 which increases the level of vulnerability of the citizens, with economic activities slowing down in the country.

Difficult times
The country’s largest foreign exchange earner-tourism has suffered tremendously in addition to limiting the functionality of taxable economic activities in the country.

In the event that Covid-19 persists for the next six months, the EPRC’s Uganda Business Climate Index May 2020 reveals that about 3.8 million workers would lose their jobs in the business sector temporarily while 0.6 million would lose their employment permanently.

And over 75 per cent of employees projected to lose their jobs permanently are from the service sector and mainly from Kampala.

According to Mr Siragi Magara Luyima, a budget policy analyst, the projected decline in domestic revenue mobilisation, the country’s debt burden is expected to worsen as the country may be left with no option but to borrow to finance fiscal deficit.

This, he says, comes with its associated negative effects like accumulation of the country public debt stock which has been on an upward trend the national debt increased from $12.55 billion (Shs46.36 trillion) at the end of June 2019 to Shs53.697 trillion representing an increase of about 15.8 per cent as at April 2020.

Interest on debt up
Interest payment on debt has equally increased as a proportion of the national budget from Shs3.145 trillion (9.6 per cent) in FY 2019/20 to Shs4 trillion (11.3 per cent) in FY 2020/21.

Stimulus not enough
Government has proposed to avail stimulus packages including deferment of corporate tax and Pay As You Earn (PAYE), Capitalisation of UDB and UDC. Government has already announced Shs1 trillion capitalisation of UDB and Shs100 billion to UDC.

“We propose that more money is given to UDC targeting agriculture value addition to set up common user facilities across the country. This will reduce losses made by farmers who sell unprocessed/primary products.

“We are also concerned about government’s borrowing trend amidst a shrunk or slow-pace Economic outlook in the short and medium term, given Covid-19. Uganda was already facing heightened debt vulnerabilities and rising debt costs even before the Covid-19 pandemic,” read the joint CSO statement.

Trial and error
Unless it is a trial and error budget, analysts and sector players believe the government should have the Financial Year 2020/2021 national budget reviewed to reflect Covid-19 reality. Among those having no problem with reviewing the budget to suit the current challenges is Mr Francis Kamulegeya, a renowned tax expert.

Although he believes that the budget as a tool should be used prudently, he understands the cry to have it utilized in dealing with the current disruptions occasioned by the pandemic and its subsequent containment measures.

As to where the government should focus during the realignment, a process that is secretly already being undertaken, shouldn’t be a problem, considering numerous options available.

“Prioritise clearance of domestic arrears. This will cushion private sector businesses (suppliers) that are already struggling to overcome Covid-19 effects,” Mr Magara told journalists in a news conference last week in Kampala.

This will boost private sector activities and reduce risks associated with expensive credit arising from high interest rates businesses will resort to.

According to the Auditor General’s Report (2019), Uganda has accumulated domestic arrears amounting Shs3.3trillion. At least 50 per cent of arrears could be paid up to resurrect liquidity among the public and resuscitate the ailing businesses.

The bad news, however, is the budget allocation for the arrears is not even a quarter of the total amount owed by the suppliers.

Civil society such as SEATINI-Uganda, CSBAG and Uganda Debt Network want micro credit facilities designed with Uganda Micro Finance Centre to support the informal sector and tailor support for market women and men. For that purpose, they propose Shs500 billion to be given to Microfinance Support Centre.

This should be in addition to investing in provision of subsidised high-quality agricultural inputs including fertilizers and pesticides to farmers.

For a sector like tourism there is need for affordable credit facilities, which Mr Kayondo says the economy needs.

In 2018/19, the total contribution of the tourism sector to GDP including wider effects from investment, the supply chain and induced income impacts, was Shs8.3trillion in 2018 (7.7% of GDP), up from Shs6.8 trillion in 2017.

The sector generated 667,600 jobs in 2018 (6.7 per cent of total employment) in the areas of employment by hotels, travel agents, airlines and other passenger transportation services (excluding commuter services).

Tourism continued to be the leading foreign exchange earner to the Ugandan economy by generating $1,600 million (about Shs5.9 trillion) compared to $1,450 million (about Shs5.3trillion) in 2017/18.

Reduce expenditure
Although the chairperson of the Budget Committee in Parliament of Uganda, Mr Amos Lugoolobi and a renowned economist, Dr Fred Muhumuza are of the view that expenditure on huge infrastructure projects and other supportive investment should be relaxed in favour of boosting import substitution and agro-processing, the realigned budget should provide emergency fund to Uganda Road Fund (URF) to facilitate rehabilitation of all destroyed roads.

There is also consensus that a special package to retool and stimulate youth and women employment remain high on the agenda. This is because the already high youth unemployment levels have been exacerbated by Covid 19 pandemic due to the shutdown.

Many youth especially women in the informal sector who have been working and earning from hand to mouth such as hawkers, roadside sellers, market vendors of nonfood items, Boda Boda riders, salon among others, have been rendered unemployed. As a result, they have consumed all their capital and may not be able to resume work after the lockdown.

Fund export promotion
According to Mr Africa Kiiza, a trade policy and negotiations expert, the realigned budget should increase funding for exports promotion. He said: “Government should increase investments in exports promotion to attract premium prices for improved incomes and favourable Balance of Payments.”

He continued: “Funds needs to be made available to adequately finance Uganda National Bureau of Standards (UNBS) to ensure compliance with standards across the value chain and certifications.”

“Offer financial incentives to exporters and farmers to increase production quality and quantity of produce as well as financing SMEs to improve value addition and shelf life for their products which must meet the required standards while being competitive.”

This, he said, should go hand in hand with more resources for financing the Buy Uganda Build Uganda Initiative (BUBU). This initiative must be supported to boost domestic manufacturing capacity and import substitution.

Government’s word
The Deputy Secretary to the Treasury, Patrick Ocailap, said: “The Minister of Finance, right from approval of the Budget by Parliament and during the Budget Speech presentation clearly said, because of new information and Stimulus package to deal with the pandemic, he will review areas of possible adjustments in the Budget and go back to Parliament in line with the laws.

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