Government plots measures to save the economy

The Ministry of Finance and the wider government have spent weeks gathering views and considering options on how to respond to the economic crisis that has been brought about by the Covid-19 outbreak, Sunday Monitor has learnt.

The Private Sector Foundation, Uganda Manufacturers’ Association, bankers, exporters and real estate owners are some of the groups that have tendered in their proposals for consideration, sources say.

President Museveni has sought to downplay the potential bad effects the outbreak might have on the economy, saying whereas sectors like tourism and hospitality have been hard hit, others like agriculture and manufacturing could flourish.

The President hardly talks about the economy during his addresses on the pandemic.

Working underground
But to show that the government is working in the background to ensure that the economy does not ground to halt, especially if the lockdown persists, Finance minister Matia Kasaija announced two days ago that a major announcement is imminent.

Mr Kasaija tweeted on Thursday: “I will present to Parliament a comprehensive statement on government economic policy responses to cope with the effects of Covid-19 next week. I am giving stakeholders an opportunity to give me their input.”

The government has already carried out some interventions in the background, particularly through Bank of Uganda, looking to shore up commercial banks to ensure that they remain sound and able to dispense money so that the economy moves on.

The government finds itself in a hard financial situation, and Mr Kasaija has no problem admitting it. He tweeted: “The economy is now strained because of Covid-19. We are not getting the taxes we expected, but we have to keep the economy afloat. The World Bank and the International Monetary Fund (IMF) have opened a credit facility which we are taking up to go through this difficult period.”

Because of revenue shortfalls, which started before the outbreak, and the fact that the government has for many years mainly pursued a contractionary monetary policy – keeping close watch on money in circulation – some experts have expressed fears that government could stick to its strict monetary policy and refuse to pursue other options.

Mr Ramathan Ggoobi, an economics scholar interested in the Ugandan economy, thinks it is time for government to pursue other options.
Mr Ggoobi writes: “We need to quickly craft and implement targeted fiscal support for households and firms. The measures include income subsidies for affected workers, tax deferrals, social security (NSSF) deferrals or subsidies, suspend loan repayment, and state loans or credit guarantees for companies.”

He adds: “… big government spending means big increases in public debt. Should we be worried? I don’t think so. Why? Wars, disasters, epidemics and recessions are textbook examples for running large fiscal deficits and accumulating debt. Covid-19 is a symmetric shock and a fully exogenous one; and thus requires higher fiscal deficits.”

Closer to home, Kenya has adopted a policy like Mr Ggoobi proposes for Uganda, reducing tax rates and adopting other measures meant to ensure that Kenyans have more money in their hands. The thinking is that this will stimulate demand and encourage production, stemming economic slowdown.

Ugandans will not wait for much longer to see what the government has in plan.

Some of the economic measures East African countries have taken in the wake of the coronovirus outbreak

KENYA
Monetary policy.
• Lowering the Central Bank Rate from 8.25 percent to 7.25 per cent.
• Reducing the Cash Reserve Ration from 5.25 percent to 4.25 per cent.
• Releasing KShs35.2b as additional liquidity availed to banks to directly support borrowers that are distressed as a result of Covid-19.

• Provision for loans that were performing as at March 2, and whose repayment period was extended or were restructured due to the pandemic.
Commercial banks transactions.
• Commercial banks to provide relief to borrowers on their loans.

• Commercial banks to provide a one-year relief period on personal loans (including mobile money borrowers).
• Banks to make it possible for Micro and Small Media Enterprise and corporate borrowers to contact their banks so that they can assess and restructure their loans based on special circumstances.

• Commercial banks to bear the cost required to extend and restructure loans during the time of Covid-19 pandemic.
• Banks to waive all charges for balance inquiries.
Use of mobile money transfers.

• Zero charges for the mobile transactions of up to KShs1,000 (Shs35,000).
• Increasing the transaction limit to KShs150,000 (Shs5.2m).

• The mobile money wallet limit and daily transactions limit is placed at Kshs300,000 (Shs10.5m).
• Removing monthly transactions limit, and eliminating the transfers between mobile money.
Tax relief.
• 100 per cent tax relief for persons earning a gross monthly income of up to KShs24,000 (Shs850,000).
PAYE.
• Reduction of Income Tax Rate (PAYE) from 30 per cent to 25 per cent.

Corporation Tax.
• Reduction of Resident Income Tax (Corporation Tax) from 30 per cent to 25 per cent.

Turnover tax.
• Reduction on the turnover tax rate from current 3 percent to 1 percent for all Micro, Small and Medium Enterprises.
Value Added Tax.
• Reduction of VAT from 16 percent to14 percent, effect April 1, 2020.

Value Added Tax Refund claims.
• Kenya Revenue Authority shall expedite the payment of all verified VAT refund claims amounting to KSh10b (Shs352b) within three weeks; or in the alternative, allow for offsetting of withholding VAT, in order to improve the cash flows for businesses.
Listing with Credit Reference Bureaus.

• Temporary suspension of the listing with Credit Reference Bureaus of any person, Micro, Small and Medium Enterprises and corporate entities whose loan account fall overdue or is in arrears, effective April 1.
Verified Pending Bills.

• All Ministries and Departments shall cause the payment of at least Ksh13b (Shs458b) of the verified pending bills, within three weeks from the date hereof.
Voluntary reduction of salaries for the Executive arm of government.

• In trying to look for funds to combat Covid-19 pandemic, the president has announced a voluntary reduction in the salaries of the senior ranks of the National Executive with immediate effect.

UGANDA
Exceptional liquidity assistance.
• Bank of Uganda to provide exceptional liquidity assistance for one year to financial institutions and waive limitations on restructuring credit facilities of financial institutions that may be going into distress.

Foreign Exchange Market.
• Intervention in the forex market to smoothen out excess volatility arising from the global financial markets.

Insolvency.
• Mechanism to minimise the likelihood of sound business going into insolvency due to lack of credit.
Filing of returns.

• Taxpayers whose accounting date is in September and are unable to file Corporation tax returns by March 31, have been granted an extension to file returns for a period of two months up to May.

• Taxpayers whose returns for March are due by April 15 and are unable to file, are granted an extension to file for a period up to April 30, and these relate to VAT, PAYE, Local Excise Duty and Withholding Tax.

Payment of taxes under instalment arrangement.
• Tax Payers who have Memoranda of Understandings and who have payments due in months of March and April will have the option to defer and reschedule these payments to May.

RWANDA
Extension of Lending Facility.
• The National Bank of Rwanda (NBR) has put in place a liquidity window to allow the banks to continue serving their customers.

• To facilitate the private sector borrowers, a fund close to $52m (Shs196b) has been earmarked to bridge liquidity challenges and commercial banks can access this facility at the central bank rate.
Lowering Reserve Ratio.
• Lowering the requirement ratio from five per cent to four per cent to allow banks more liquidity to support affected businesses.

• Effective April 1, BNR is expected to lower the reserve requirement ratio from five per cent to four per cent to allow banks more liquidity to support affected businesses.

Review of Treasury Bonds.
• For the next six months, BNR has offered to buy back bonds at the prevailing market rate. The regulator also reduced the waiting period if one fails to sell the bond at the secondary market from the current 30 days to 15 days.

Restructuring loans.
• Central Bank anticipates that customers with huge loans would face challenges in servicing those loans thus creating liquidity problems to the banks. This is why banks are allowed to engage their customers and re-negotiate terms especially to those with outstanding loans facing temporary cash flow challenges arising from the pandemic.

Extension of Tax Declaration Deadline.
• Taxpayers were supposed to declare corporate income tax for 2019 by March 31. Businesses are also obliged to declare their VAT, PAYE, Excise Tax, as well as pension contribution on the 15th of every month. However, following the Covid-19 lockdown, business operators expressed that this is likely to be impossible due to the lack of business activity.

• To take care of the concerns, the Rwanda Revenue Authority has extended the deadline for filing and paying income tax for large taxpayers to April 15 and April 30 for small and medium enterprises. Rwanda Revenue Authority also announced the suspension of the 25 per cent down payment for outstanding tax admissible for amicable settlements.

Source: East African Business Council
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