Government raids oil fund to finance budget

Kampala- The Ministry of Finance yesterday described as a “trade-off”, government’s withdrawal of Shs200b from the Petroleum Fund to finance the Budget for the Financial Year ending

The Accountant General, Mr Lawrence Semakula, said: “It does not make sense at all to keep money in the Fund lying idle yet we have a deficit.”

“We have all these priorities such as financing infrastructure, so what do we do when we have a deficit? Rather than going out to borrow, we would rather use some money from the Fund,” Mr Semakula said in response to our queries.

According to the January 2019 performance of the economy report by Ministry of Finance, the government operations in February 2019 resulted in a deficit of Shs187.2 billion.

This was, however, lower than the programmed deficit of Shs723.6 billion at budget time as total expenditure during the month was less than anticipated thus out-matching the shortfall in revenues and grants. The underperformance in government expenditure was on account of lower externally financed development spending.

The Petroleum Fund, where revenue from all petroleum-related activities is deposited, had grown to Shs422.9b as at December 31, 2017, mainly from payment of Capital Gains Taxes (CGT) by Anglo-Irish Tullow Oil.

However, it emerged yesterday that government had transferred Shs200b to the Consolidated Fund to finance the budget for the financial year which ends in June.

Ministry of Finance audit report of the Fund published yesterday showed that the Fund had a balance of Shs288b as at end of December 2018.

The Fund, which was established in March 2015 by the Public Finance Management Act (PFMA), 2015, is overseen by the Bank of Uganda.
The Fund operates on three accounts; a dollar and shillings accounts, respectively, managed at Bank of Uganda, and a third account in New York to facilitate investment of revenue.

According to the semi-annual report for the period ended December 31, 2018, presented to Parliament, the Shs288b is constituted by $74m on the dollar account, and Shs11b on the shillings

The Fund has two objectives: financing the Budget and saving/investment for the future generations.
The PFMA 2015 further indicates that withdrawal of funds to cater for development expenditure and not recurrent expenditure will be through Parliamentary approval on a year-by-year basis. During the previous Financial Year 2017/2018, the government withdrew Shs125.6b from the Fund in November 2017.

The Auditor General, Mr John Muwanga, in his audit report submitted to Parliament early in January, highlighted that there was no “explicit mention” of the Fund as the source of funds but rather it was disguised as medium-term expenditure framework for the financial years 2015/16-2021/22 submitted to Parliament, which includes the different sources of revenues financing the Budget.

Yesterday, Mr Semakula defended that the last withdrawal still went to the financing budgetary deficit and described the red flag raised by the Auditor General as was a result of “mix-up in words”.

Mr Semakula further said when Uganda eventually starts commercial oil production, the current withdrawals will be “offset” and the “Fund better managed”.

High hopes

The start of commercial oil production in Uganda, according to World Bank in its economic memorandum issued on June 23 last year, offers long-term prospects to diversify the economy and catapult it to upper middle income status by 2040.

With commercial oil production at peak, the Bank estimates show that Uganda could earn up to $3b (about Shs7 trillion) in revenues from exports of up to 60,000 barrels of oil per day.

These revenues have the potential to propel the economy by between 7 and 10 per cent forecast up from the current stagnation of 5 per cent. However, like countless other actors have chorused before, the World Bank says this is only possible if revenues do not just end up in people’s bank accounts but rather if channelled to development of human capital — education, institution building, good governance and transparency, properly managed through an efficient and transparent strategy, and if an effective sharing formula is ensured for revenues to trickle down to local government entities.

Previously, before the Fund was established, the Bank of Uganda Governor, Mr Emmaniuel Mutebile, while appearing before Parliament on November 12, 2011, revealed that the President asked him to release $740m (Shs2.6 trillion) from the national forex reserves to buy fighter jets on the promise that would be replenished when the Capital gains taxes were eventually paid.
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