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Have govt austerity measures saved a coin?

The Permanent Secretary of the Ministry of Finance, Mr Ramathan Ggoobi, addresses Ugandan ambassadors to the East African member states during a retreat in Kampala on June 11, 2024. PHOTO/MICHAEL AGABA

What you need to know:

  • The Permanent Secretary of the ministry, Mr Ramathan Ggoobi, said expenditures on vehicles, furniture, and supplies were reduced by 40 percent.

Before the government introduced austerity measures to curb unnecessary spending, its expenditures primarily focused on luxurious items such as workshops, overseas travel, and the purchase of vehicles.

When spending was successfully controlled by freezing the creation of new administrative units, halting domestic borrowing, and implementing the long-delayed rationalisation of agencies, Shs1.67 trillion, taxpayers’ money was saved, according to available figures from the Ministry of Finance.

The Permanent Secretary of the ministry, Mr Ramathan Ggoobi, said expenditures on vehicles, furniture, and supplies were reduced by 40 percent. The saving from the government’s austerity measures represents approximately 0.21 percent of the total budget for the Financial Year (FY) 2022/2023.

However, these measures, spearheaded by the Ministry of Finance, have been met with mixed reactions from both analysts and government officials, reflecting a complex interplay of economic strategies and public sector necessities.

Analysts believe this reduction was insufficient, as spending on these items continued to increase during the year. Despite the achievements, economists insist that the measures fall short of addressing the broader issue of government spending.

“I think it is not satisfactory because, while the government is trying to reduce spending, there is still a lot of extravagance in administrative expenses,” said Ms Christine Byiringiro, the programmes manager at Uganda Debt Network.

She added: “Despite the rationalisation of agencies, the size of the Parliament, Cabinet, and overall government administration, which involves more than two million people, remains large. This ...contradicts their stated policies.”

In April this year, the Ministry of Finance issued treasury bills and borrowed money to increase the budget for the FY2023/2024 to the tune of Shs4 trillion.

The funds were questioned by Parliament as they lacked approval from the August House. Ms Byiringiro said this perhaps showed the government’s lack of commitment to follow through on its promises.

In a similar move, the Ministry of Public Service procured luxury cars worth Shs7.2 billion for former Cabinet officials, including prime ministers and vice presidents, as part of their emoluments. Although the government explained that this expenditure is legally justified, it has caused public uproar because it was deemed unnecessary at a time when infrastructure, particularly the urban road network, is in dire need of improvement.

A segment of the public contended that the recipients of the vehicles were already affluent and should not have been prioritised.

Ms Byiringiro provided another example: “Upon the expiration of the previous public debt management framework, the Ministry of Finance formulated a new one spanning from January of this year to December 2028. However, in this framework, which will shape debt management strategies going forward, the government pledged to allocate Shs450 billion annually for clearing domestic arrears. Despite this commitment, we observe that in the upcoming financial year, the government is only allocating Shs200 billion to address domestic arrears, indicating a lack of strong commitment from the government’s side.”

In essence, Ms Byiringiro argues that if the government continues to reduce its commitment to addressing domestic arrears, it indicates a greater enthusiasm for spending on luxury items, which makes it difficult for them to fulfil their debt obligations.

Uganda’s public debt has risen to unprecedented levels, reaching Shs96.1 trillion ($25.3 billion or 52 percent of GDP) as of June 2023, according to an Auditor General’s report released recently. Of this, Shs44.6 trillion is domestic while Shs52.8 trillion is from foreign sources.

“The rate at which our debt is growing is alarming, increasing from Shs86 trillion to Shs96 trillion in just one year,” Ms Byiringiro said.

She added: “Meanwhile, the projected savings of Shs1 trillion from rationalisation efforts represent less than two percent of the debt we need to repay and less than two percent of the budget. This is a meager amount considering the numerous areas where expenditure could be curbed.”

Nonetheless, during the financial year, the government took a firm stance and decided not to purchase new vehicles for the Non-Aligned Movement Summit that took place on January 2024, due to a lack of funds. Instead, they mobilised fleet from various ministries, departments, and agencies (MDAs).

In addition, the government is optimistic that the proposed merger of agencies, authorities, and commissions will save the country up to Shs988.1 billion. These 153 agencies have been spending Shs10.8 trillion annually on wages, rent, and other operational costs.

Mr Julius Mukunda, the executive director of Civil Society Budget Advocacy Group (CSBAG), said the need to reduce the size of the government is urgent.

 “Parliament spends Shs2.5 billion per day to operate. We could manage with a smaller Parliament. If these expenses were reduced, we could have significant savings...on items such as overseas travel, donations, workshops, and special meals,” he said.

On the flip side, while austerity measures are beneficial in curbing extravagance, research indicates that they also have certain disadvantages.

Firstly, austerity measures typically involve cutting government spending and/or increasing taxes, which can lead to a reduction in aggregate demand. This contractionary effect can result in slower economic growth or even recession.

Reductions in government spending can lead to job losses, particularly in sectors heavily reliant on public expenditure such as health care, education, and public administration. This can contribute to higher unemployment rates and exacerbate social inequalities.

Austerity measures often disproportionately affect vulnerable groups in society, such as low-income households, the elderly, and the unemployed. Cuts to social welfare programmes and public services can deepen poverty and increase social unrest.