How government intends to finance Shs39.64 trillion election year budget

According to Mr Kasaija, the domestic revenue will grow at an average of 0.6 percentage point of the Gross Domestic Product (GDP) over the medium term and will be supported by implementation of the Domestic Revenue Mobilization Strategy (DRMS) and oil revenue receipts. He says the revenue performance will be driven by development and implementation of a comprehensive compliance plan targeting tax evasion and aggressive tax avoidance.
The Budget framework paper tabled before Parliament last week indicates that over the next financial year and medium-term, government will implement reforms covering several aspects of tax policy and administration.

Some of the identified tax policy initiatives include the establishment and publications of a comprehensive Tax Expenditure Governance Framework, development of an appropriate, evidence-based Tax Expenditure Governance Framework to limit leakages and improve transparency and address the informal economy that is outside the scope of the tax system as well as the regulatory frameworks while preserving Uganda’s entrepreneurial spirit and others.

The others are streamlining tax policy and the tax laws and where necessary propose adjustments to tax rates with a view of widening the tax base, complete the review of the Common External Tariff (CET) which aims at enhancing the protection of East African Community (EAC) manufacturers by using relevant trade defense measures, and facilitate businesses to take advantage of various incentives in the EAC that favor exporters.
Uganda Revenue Authority (URA), according to the government proposals will also be charged with strengthening the revenue-raising capacity of local governments to boost their revenue base and broaden the range of revenue instruments available to them. This is intended to help them become more independent of transfers from the central government.

External Borrowing
A total of Shs6.93 trillion is projected as external financing in the 2020/2021 financial year. Of this, Shs6.16 trillion will be in form of concessional and non-concessional project loans, while Shs771 billion is budget support loan.

Domestic Borrowing

Government borrowing from the domestic market is also projected at Shs 2.57 trillion in the 2020/2021 financial year, equivalent to 1.6 percent of GDP. However, Mr Kasaija says that this is projected to decline to an average of 0.8 percent in the medium-term in line with Government’s policy of maintaining domestic borrowing below one percent of GDP to avoid crowding out the private sector.

Debt Repayments
In regard to debt repayment, government says that amortization of external debt is projected to increase from Shs723 billion in the current financial year to Shs1.22 trillion (equivalent to 0.8 percent of GDP) in the 2020/2021 financial year and will average at 1.1 percent of GDP over the medium term.
Mr Kasaija says that this is as a result of the recourse to non- concessional loans that are typically characterized by shorter grace periods.
Interest payments by government are projected to amount to Shs3.6 trillion in the 2020/2021 financial year of which Shs2.878 trillion will cover domestic interest payments. Shs722 billion will cater for foreign interest payments.
This according to the Finance Ministry will translate into a 2.3 percent of GDP in financial year 2020/2021 and will broadly remain at the same level over the medium term.

According to the breakdown of the budget, government seeks to spend Shs5.96 trillion on Works and Transport, Shs3.28 trillion on Education, Security Shs2.86 trillion, Health Shs1.55 trillion, Agriculture Shs950.6 billion, Accountability Shs1.85 trillion, Energy and Mineral Development Shs2.46 trillion Justice, Law and Order Shs1.76 trillion, Legislature Shs667.8 billion and others.
The reduction in the national budget from the current Shs40.48 trillion to the new proposed Shs39.64 trillion means that there is limited fiscal space to fund the expenditure pressures, according to the finance minister.

“In order to meet the critical expenditures for next financial year, we have managed to raise Shs1 trillion from this year’s base to finance Security (Shs800 billion) and the Election Road Map (Shs200 billion). In order to meet the critical shortfalls on the Budget for financial year 2020/20, Ministry of Finance will mobilise additional resources to bridge up the funding gap under Security, Specialized Funds, Electoral Road Map, New Cities and Salary enhancement for University Professors and Scientific cadres in Research Institutions before the budget for financial 2020/2021 is finalized,” he said.

Government’s sectoral priorities for the coming financial year are increasing production and productivity in the productive sectors of the economy, enhancing private sector competitiveness, consolidation and increasing of the infrastructure stock, improving social service provision and regional equity, improving the effectiveness of governance and maintaining peace and security.
The different sectoral committees of Parliament are set to begin scrutinizing proposals in the budget framework paper as directed by Speaker Rebecca Kadaga.