Uganda’s jig-saw debt and service delivery

Friday April 27 2018

 

By Priscilla Naisanga

Uganda has continued to register increased borrowing (domestic and external) as part of financing her development needs, especially the infrastructural projects. Such projects relying mainly on loans are in energy, oil and gas, roads, education, and water sectors, in view of the National Development Plan targets under the Sustainable Development Goals and the Constitutional obligations – Social Contract.

How then should developing economies such as Uganda best balance the domestic revenue mobilisation strategies with borrowing? What key areas should taxation focus on without widening respective inequalities, to meet the ever-increasing government expenditure, amid moderated government appetite for loans?

Uganda will miss the 2017/18 financial year’s tax revenue collection target by more than Shs600b ($161.6m) since GDP growth has been facing a down trend to 3.9 per cent in FY 2016/17 and 4.8 per cent in FY 2015/16. Domestic revenue projection stands at slightly more than Shs15.5 trillion in FY 2018/19, of which Shs15 trillion will be domestic revenues and Shs418b as non-tax revenues. This amounts to about 53 per cent of the total resource envelope, which has been estimated at Shs29.2 trillion for FY 2018/19.

However, given the past trend’s there has been a variance between the revenue projected and actual collection. In 2016/17 financial year, revenue collections amounted to Shs 12.7 trillion, registering a shortfall of Shs457.5b. Therefore, in order to cover-up the shortfalls, the government has had to greatly rely on external and domestic debt increasing its indebtedness.

According to Uganda Debt Network’s research, every person in Uganda owes Shs1, 254,072 on debt, according to the Uganda Bureau of Statistics, poverty levels in Uganda have risen from 19 per cent to 27 per cent in the last five years.

This implies that the biggest percentage of Ugandans are living below the poverty line of $1 a day and only nine million Ugandans are estimated to be working while the rest are still young and are at home or school. The question is, how has this accumulated debt benefited ordinary Ugandans when most of them are trapped under the poverty line?

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Conferring to the National Budget Framework Paper (NBFP) for Financial Year 2018/19, the government intends to source its financial resources from both private and external borrowing. In terms of external funding, the government intends to borrow money on both concessional and non-concessional terms.

It remains debatable whether Uganda is at or soon getting to the 50 per cent GDP: Debt threshold internationally acceptable as “danger zone”. Either way, just like in 1990s (which attracted HIPC) and 2000s (leading to MDRI), debt poses new threats to emerging and developing economies such as Uganda, towards unsustainable economic development precepts.

In the FY 2018/19, debt repayment will account for Shs8.8 trillion, from projected domestic revenues slightly more than Shs15.5 trillion and total national Budget of Shs29.2 trillion.

As such, unless drastic economic reforms, reducing recurrent budgets, ironing out nugatory (wasteful) expenditure across ministries, departments, agencies and local governments and defeating the run-way stealing of public resources, Uganda is headed for more serious fiscal risks over the medium-term. The risk signs are already on the wall- revenue shortfalls, expenditure shortfalls, supplementary budgets and a slump in growth.

What can government do? On account of quick-gain wealth creation, government must roll out a stimulus (investment) package – not just increased budgets- in key sectors like agriculture, minerals, etc, and also clear domestic arrears to allow breathing space for private sector over the short-term and medium-term.

Implement drastic economic reforms coupled with reducing recurrent budgets, ironing out nugatory (wasteful) expenditure across ministries, departments, agencies and local governments. Defeating the run-way stealing of public resources, including recovery of those already stolen from public coffers. Consider capping of interest rates to enable private sector growth, including small and medium enterprises.

Coordinated job creation interventions through industrial policy implementation and value chain management, enabling functional capacity of the 22 industrial parks around Uganda. Adherence to public sector borrowing and debt management. Ugandans must improve domestic revenue mobilisation.

Ms Naisanga works at Uganda Debt
Network. pnaisanga@udn.or.ug

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