Government technocrats have finalised a Shs4.7 trillion stimulus package to revive the economy which has slumped from the effects of the Covid-19 pandemic.
Finance Minister Matia Kasaija is expected to unveil the raft of measures as early as Tuesday if approved by Cabinet on Monday, although the announcement could also be held back to the State of the Nation address on June 4 or Budget Day on June 11, sources told this newspaper.
The plan seeks to help struggling businesses stay afloat, create jobs and provide tax breaks for struggling companies to encourage spending and investment. Although the plan is yet to be made public, interviews with different senior government officials familiar with the planning shared insights of what is contained in the stimulus package.
They include providing cheaper loans to small and medium enterprises, tax cuts for sectors badly affected by the pandemic, and defending the shilling to prevent imported inflation.
Speaking during a public dialogue yesterday, Secretary to the Treasury Keith Muhakanizi revealed that the Executive is waiting for the Parliament to approve a $491.5 million (Shs1.9 trillion) loan from the World Bank and another $300 million (Shs1.1 trillion) financing tranche from the same institution to support the budget and pay for the interventions.
The dialogue was organised by Advocacy Coalition for Development and Environment (Acode), Civil Society Budget Advocacy Group (CSBAG) and Ministry of Finance.
The executive director of Acode, Dr Arthur Bainomugisha, called for strict accountability of the stimulus package funds and transparency in the budget.
“The interventions must be well-targeted to revamp our economy. Covid-19 has impacted both the global economy and national economies of African countries, and economic recovery will depend on the fiscal and monetary policy intervention being undertaken by the government,” Dr Bainomugisha said.
Separately, Investment minister Evelyn Anite, who represented Mr Kasaija at the Uganda Development Bank annual general meeting, said government would make a Shs1.5 trillion capital injection into the bank to provide long-terms loans to the private sector.
“We have a draft partial stimulus package that prioritises vital sectors of the economy such as agriculture, ICT, manufacturing and import substitution through Buy Uganda Build Uganda policy,” Ms Anite said.
“We are going to take the plan to Cabinet and Parliament for approval,” she added.
Mr David Bahati, the State minister for Planning, offered more details of the plan in a separate interview yesterday. “We shall invest Shs1.5 trillion in Uganda Development Bank to help in support manufacturing companies and our Small and Medium Enterprises (SMEs) access cheap capital credit,” Mr Bahati said.
“We are going to put more money in agriculture for food security and agro-industrialisation, more money in microfinance, support Uganda Development Corporation and various fiscal interventions to help small and big companies,” he added.
While government officials have previously publicly praised the resilience of the economy, Mr Muhakanizi yesterday revealed concerns within Finance ministry circles about the impact of the pandemic on long-term growth.
“Covid-19 is having negative impact on Uganda’s economy in terms of slowdown in Gross Domestic Product, decline in revenue being collected by the Uganda Revenue Authority, slowdown in economic activities, especially in the services, trade, tourism, remittances; these areas have been badly affected by this pandemic,” he said.
Mr Muhakanizi warned that as many as 2.6 million people could fall back into poverty because of the economic slowdown.
“We already have a big revenue shortfall, for example in the month of April, Shs650 billion was wiped out of the revenue. Therefore, the treasury in itself is in emergency. The room for fiscal reallocation is almost zero; at the moment, Uganda is faced with three problems; Covid-19, floods and floating on the Lake Victoria,” he said.
The Treasury mandarin warned of spending cuts to the Financial Year 2020/21 budget in light of reduced tax revenues.
During the UDB meeting, Minister Anite said government is increasing its share capital in the state-owned bank from Shs500b to Shs2t to give the institution more cash to lend out to manufacturers and agro processors.
She added that the government has directed UDB to reduce the interest rate from the current 12 per cent to 10 per cent. Speaking at the public dialogue, the International Monetary Fund resident representative in Uganda, Ms Mira Clara, said government plans to use about 70 per cent of the Rapid Credit Facility resources from the Fund as a shock absorber to protect the country’s reserves—essential for maintaining macroeconomic stability, including low inflation.