Uganda’s fiscal deficit high, says World Bank

Thursday July 9 2020

 

By MARTIN LUTHER OKETCH

The World Bank has expressed concerns over Uganda’s rising fiscal deficits now standing at 9 per cent of the gross domestic product (GDP) for the fiscal year 2020/2021.

This, the World Bank says, is putting pressure on the government to borrow more.

Fiscal deficit is the difference between total government expenditure and its current revenue.

Presenting the 15 Economic update report yesterday on NTV, the World Bank country senior economist, Mr Richard Walker, said Uganda’s fiscal deficit has risen from 5 per cent in the fiscal year 2018/2019 and 7 per cent of the GDP in 2019/2020.

“In the current fiscal year Uganda’s fiscal deficit is estimated at 9 per cent of the GDP, this is high compared to the 3 per cent level where it should be,” he said.

Uganda’s GDP is Shs126.4 trillion.

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Mr Walker said the revenue ratio to GDP is in the range of 12 and 13 per cent, below the revenue mobilisation target of 16 to 18 per cent, adding that Uganda’s development expenditure remains low.

Mr Walker also said the country’s public debt is at 45 per cent of the GDP but still sustainable, explaining that 70 per cent of the public debt is in concessional terms. He added that Uganda’s public debt is expected to raise to 50 to 60 per cent in 2021/2023.

“There is also risk to debt sustainability with 55 per cent of the revenue being collected going into debt servicing thus creating the problem of the lack of liquidity,” he said.

According to Bank of Uganda, following increased government borrowing, the total public debt grew by 13.7 per cent from Shs47.244 trillion as at end of June 2019 to Shs53.697 trillion as at end of April 2020.

Ministry of Finance says externally financed projects in financial year 2020/2021 are expected to cost Shs9.515.3 trillion, and reduce to Shs8.562 trillion in 2024/2025.

This is on the assumption that some big infrastructure projects will be complete and domestic resources will increase.
Mr Walker said Uganda’s real GDP growth in 2020 is projected to be between 0.4 and 1.7 per cent compared to 5.6 per cent in 2019.

“There are areas of the economy that have shown resilience in the current crisis and by leveraging digital technologies,” he said.

The 15 economic update report titled “Digital Solutions in A Time of Crisis” shows the economy has suffered from the triple shocks of the Covid-19 related economic and social disruption, locust invasion and floods.
Up to three million Ugandans could fall into poverty due to economic hardship.

The World Bank explains that global and local restrictions in the movement of people, goods and provision of services in order to contain the pandemic have resulted in lower consumption, loss of jobs and a 43 per cent reduction in remittances. It adds that Uganda remains at low risk of debt distress based on the April joint World Bank-IMF debt sustainability analysis.

The Word Bank states that weak economic growth in the post Covid-19 period will continue to reduce overall consumption and commodity demand.

It further explains that the increased use of digital technologies during the Covid-19 lockdown show the great potential to support faster economic recovery and strengthen resilience against similar shocks.

“The digital space in Uganda is very innovative – and has quickly adapted during the pandemic. Fintechs have offered payment options, and digital solutions have reinforced and enabled the health sector’s calls to social distance and limit movement and contact. These solutions, if up scaled and developed to their potential would boost the digital economy and maximize its benefits to Ugandans,” Mr Tony Thompson, World Bank Country Manager for Uganda, said.

Experts say
The managing director dfcu Bank who is also the chairman Uganda Bankers Association, Mr Matias Katamba, said the Covid-19 crisis has revealed targeted intervention by the government. “I think beyond health and agriculture, we have to invest in the digital infrastructures, you can see government workers are working from home. Digitalisation is needed in education to increase productivity,” he said.
The Acting Deputy Governor Bank, Dr Adam Mugume, said security is very important for Uganda’s economic growth and development.
He said the Bank of Uganda currently spends $48 million in currency printing which is costly.

moketch@ug.nationmedia.com

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