Government has released Shs661.9b to clear all domestic arrears budgeted for the 2022/23 financial year.
The move seeks to save suppliers from cash constraints and to support business continuity, amid growing challenges.
Over the years, government suppliers have decried delayed payment for supplied goods and services, some of which take more than three years without being cleared.
According to the government consolidated domestic arrears report by the Ministry of Finance, as of February 2022, there were more than 500 unpaid suppliers with outstanding payments due to ministries, departments and agencies and local governments.
Speaking during the first release of the 2022/23 financial year in Kampala yesterday, Mr Ramathan Ggoobi, the Ministry of Finance permanent secretary and secretary to the Treasury, said: “All accounting officers must prioritizes payment of service providers on time and clearance of domestic arrears to avoid further accumulation of arrears and penalties.”
This was part of the Shs4.6 trillion released to facilitate service provision in the first quarter of the 2022/23 financial year.
In its regional Economic Outlook for Sub Saharan Africa for 2022, the International Monetary Fund (IMF) said domestic arrears had become pervasive in sub-Saharan Africa, increasing substantially mainly in commodity exporting countries and largely owed to private sector firms.
The IMF also noted that monitoring of the accumulation of arrears was generally weak with many countries having unrecorded arrears.
This, IMF indicated, damages the private sector and has the potential to stress banking services given that a number of private sector players are unable to sufficiently service statutory and other business obligations.
Therefore, the IMF noted, addressing the domestic arrears problem required specifics based on a clearance strategy that is consistent, anchored on inclusive growth, and implemented transparently.
“If repayments must be rescheduled, priority should be given to payments that maximize the impact on growth and have a positive distributional effect,” the IMF said but noted that measures such as.
Businesses have been struggling to sustain operations in the face of mounting inflationary pressures, increase in commodity prices, worsened by a disruption in the global supply chain.
However, Mr Ggoobi said that even with the existing disruptions, prospects for the economy remain positive with expected growth of 6.5 percent on account of full reopening of the economy, increased production and exports, import substitution, commercialisation of oil and gas and support to private sector, among others.