Consumptive expenditure cuts: Which way to take?  

Wednesday June 09 2021
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Small and medium enterprises have been suffering with low cashflow and demand yet they are facing a serious expenditure reduction from one of their biggest clients. Photo | Edgar R Batte

By RICHARD LUYOMBYA

The consumptive expenditure component in the budget is arguably a soft spot for government to cut its extravagant spending.

Indeed, a section of the public, among them, civil society organisations, believe that cutting consumptive expenditure is an excuse that government is using yet it continues to ignore areas that bleed the budget.  

Nevertheless, whichever area government looks at it, there is need to cut expenditure to save money for sectors such as health, agricultural productions, and manufacturing, among others that need investment to lift up the economy.  

Fortunately, this call has been heeded, according to the 2021/22 budget, perhaps to react to the effect of Covid-19 that have ravaged business and depleted revenue mobilisation.  

However, the manner it has been done, threatens the already ailing small and medium enterprise that make the biggest percentage of the economy and the most hit due to Covid-10-related  disruptions.

Peter Mwebembezi, operates a small printing business in downtown Kampala, along Nasser Road. 
He has been here for the last 15 years but it is difficult to predict what the future will bring. 

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Nasser Road has over the years evolved from just a simple printing place to large scale business outlays, including stationery and printing. 
It is difficult to walk to Nasser Road with a printing job and fail to complete it. All printing jobs are done here or sourced from around because the people here have a risk menu of associates and service extensions.  

Therefore, Mwebembezi, who is the managing director at MPK Graphics and Printing, believes that whereas it is important to cut consumptive expenditure, it will worsen an already dire situation for the printing sector. 

Much of the work that comes to Nasser Road, he says, comes from government, which contributes more than 50 per cent. 
“60 per cent our business comes from government specifically ministries. So if they cut expenditure on printed materials, definitely it will affect us,” he says. 

Compounded problem
Many businesses are still struggling to shake off Covid-19-related disruptions. 
Therefore, government’s decision to cut down on consumptive expenditure is likely to weaken a number of businesses as well as escalate business closures.  

“Our machines are very quiet yet we have costs to cover. We must pay rent, and workers. These bills are independent of whether you have a business deal or not.” Mwebembezi says. 

Avoidable 
Studies show small and medium enterprises are the key in engineering economic recovery and rebuilding. 
SMEs are engines of innovation, wealth, and job creation, which in Uganda, currently contributes more than 2.5 million jobs, making it the largest employment source.  SMEs also account for about 90 per cent of the entire private sector, with more than 80 per cent of manufactured output contributing 18 per cent of the gross domestic product. 

Considering all this, John Walugambe, the Federation of Small and Medium Enterprises  executive director, thinks the cuts on consumptive expenditure can be avoided for now because of Covid-19 effects on businesses, especially SMEs has been dire.
“It is a good sign that government is reducing expenditure, especially now that we are in the middle of the pandemic,” he says, but however notes: “Our concern is where the cuts are made”. 

“They should have started by examining the cost of public administration thus reducing the number of constituencies, districts … you name it,” he says, and adds: “That does not mean that consumptive items should not be reduced but we are saying it’s negligible on its own.” 

Public administration
This, he says, is one area where government spends a lot more in paying salaries and rent payments, among others. 
For instance, the 10th Parliament had 457 MPs, and the number has since increased to 514 MPs for the 11th Parliament following the creation of more districts, cities and municipalities. 

In a January 3 report, Daily Monitor reported that an MP is entitled to a monthly salary of Shs25m, a vehicle allowance of Shs150m, a subsistence allowance of Shs4.5m per month and a town running allowance of Shs1m per month. 

However, beyond this are additions for medical allowance of Shs500,000 per a month, a sitting allowance of Shs50,000 for committee meetings, a plenary sitting allowance of Shs150,000 and mileage allowances.

In that case, the report indicated, the 10th Parliament spent Shs783.8b on salaries, purchase of vehicles and payment of running and medical allowances for members, a figure which no doubt will shoot up beyond the Shs1.3 trillion if mileage, sitting allowances, plenary allowances, air tickets and per diem for inland travel and travel abroad are factored in.
These are the areas, perhaps Walugembe, refers to as far as reducing expenditure on public administration in concerned. 
A third of SME businesses, according to Walugembe, have closed or are nearing closure as a result of low cash flow and business orders resulting from low consumption. 

“It may not be the best thing to do at this time. Small businesses need to be resuscitated,” he emphasised. 
Items under consumptive expenditure whose budgets have been reduced include, printing and stationary equipment, computer supplies and IT, hire of venue, and allowances. 

Different script 
Gideon Badagawa, the executive director of Private Sector Foundation Uganda, however, appears to have a one-track mind. 
“Let everyone know that the budget is Shs46 trillion. The budget that was read the previous year was Shs45.5trillion (2019/20), based on 6.1 per cent economic growth. Now that there were no investments the previous year, growth went down to 3.1 per cent. So what we want to read should be based on that,” he says. 

Secondly, he adds, out of the shs44 trillion, Uganda Revenue Authority can only mobilise less than half in domestic taxes, which shows that the tax base is still too narrow. 
Tax to gross domestic product is currently at 14 per cent, which is far too below regional and African standards. 
“We cannot expand our expenditures. We cannot be lavish. This is not acceptable” Badagawa says.   

Ideally, a taxpayer would expect that money is spent on development but not consumptive, especially now that the economy is “bleeding”. 
Badagawa argues that the budget should focus on areas that provide a solution to unemployment by offering capital to empower the private sector. 
As key players debate on which way to go with consumptive expenditure, it appears that government, by all means, should support SMEs because of their contribution to the economy.

Allocation                                
Although no comprehensive survey has been conducted to ascertain the magnitude of loss suffered by SMEs during Covid-19 related lockdowns, many economists point to an ailing sector  that has suffered because they are the majority and operate businesses on a largely shorttem basis. 

According to Godwin Kakama, the commissioner budget policy and evaluation at the Ministry of Finance, consumptive expenditure has been cut down to Shs319.5b, with the view of saving Shs351.6b to ensure efficiency to fund critical budget gaps. 

The items heavily affected by the cuts include subventions (Shs54b), travel Inland (Shs40.2b), workshops, and seminars (Shs39.841b), consultancy services (Shs24.549), and travel abroad Shs20.3b. 
Approximately, government allocates Shs1.5 trillion on an annual basis to consumptive and onward expenditure, much of which goes to SMEs. 

rluyombya@ug.nationmedia.com 

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