State-of-the-Nation Address fell short of expectations

The President delivered his State-of- the-Nation Address on June 6, 2019, to a packed audience at the Kampala Serena Hotel. He was in a bullish mood, exuding confidence and giving his attentive audience the impression that things were moving well in our dear country. There was no cause for worry given that the economy had expanded from $25 billion in 2017/2018 to $29 billion in 2018/2019.
If that is the case, most Ugandans have clearly not benefitted from this growth since poverty levels have instead increased and more Ugandans have slipped back into poverty. An expansion of the economy to Shs109 trillion or $29 billion has certainly not trickled down far enough. Also Uganda’s estimated per capita income of $720 is really nothing to write home about since it still leaves Uganda among the 15 poorest countries in the world, at a time we were expected to be moving to $1,007 per capita income, which is the starting level for middle income status promised to us by 2020. The use of per capita income as a measure of growth has been discredited by most economists as deceptive since it does not take into account the distribution of the growth.
According to an Oxfam study, 10 per cent of the richest people in Uganda enjoy 35.7 per cent of the wealth while the poorest 20 per cent share a meagre 5.8 per cent. The report also indicates that the rich are getting richer while the poor continue on the downward spiral of poverty. No amount of increase in GDP will be meaningful until it is translated into a more equitable distribution. Many countries have, of course, wrestled with this issue. In Uganda, however, it has been accentuated by a run away corruption mania, which the government has failed to eradicate. Moreover, it is the rich, not the poor, who fan corruption and the rich have ‘godfathers’ in government or are themselves serving in government.
Uganda’s Budget this financial year stands at an impressive Shs40.5 trillion, an increment of Shs8.5 trillion from the 2018/19 Budget of Shs32 trillion. I would have expected most of this to go to the underfunded sectors like agriculture and social services. Although they received some boost, the hefty increment in the defence budget at a time when there is relative peace across the country was inexplicable.
Uganda’s public debt will rise to 40 per cent of GDP and is expected to exceed 50 per cent, the limit set by the World Bank.
The President in his address defended this rise and said even rich countries like the US borrow much more than 50 per cent of GDP. This is true, but rich countries are not subjected to this limitation simply because they can afford to borrow even far beyond 100 per cent of GDP, given the massive revenue base. The US, for instance, is the wealthiest nation by far in the world accounting for about 26 per cent of the global economy (followed by China at 13 per cent). US treasury bonds are a preferred type of investment by all countries in the world because of their security. There is also the mighty dollar, the unchallenged global currency, which rules the world of commerce.
A country that prints and regulates the supply of this ‘green buck’ is in an unrivalled ability to absorb debt. As was the case last financial year, the government is only financing 50 per cent of the Budget from domestic revenue collection and the rest is expected to come from external and internal borrowing, etc. If you add the fact that export earnings can only cover 50 per cent of the import bill and almost 25 per cent of the Budget will go to the debt servicing and partial repayment, one sees a bleak future.
There are ways of getting out of this ‘vicious circle’ of growth without development only if our political class can cast aside politics and embark on policies that are pro-people, which will lift them from poverty. It is inexcusable that a lot has been invested in power plants, yet only 20 per cent of the population is connected to the power grid.
The government must embark on a total review of its administrative and governance structures with a view to cutting down the hefty administrative costs. Uganda’s Parliament should be reduced to not more than 180 MPs and districts should be reduced from 121 to 60 economically viable districts, with no provision for creating new ones. There should be one Salaries and Emoluments Commission to determine salaries of all public servants, MPs and parastal bodies. Uganda does not need a 80 ministers, when it can well manage with 30.

Mr Naggaga is an economist, administrator and retired ambassador.
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