Legal awards cost govt Shs4.4 trillion

The Ministry of Finance wants government entities to mitigate legal awards that have been mounting in the last five years. Photo / File 

What you need to know:

  • Awards due to legal disputes against government entities rose by 14 percent from Shs3.9 trillion to Shs4.41 trillion in the period ended June 2023

The Ministry of Finance has warned that mounting legal financial awards resulting from disputes involving ministries, departments, and agencies are presenting serious threats to Uganda’s financial stability and budgetary planning. 

In details contained in the Contingent Liabilities Annual Report for the period ended June 2023, which was published early this week, Ms Maris Wanyera, the Ministry of Finance acting director debt and cash policy, noted that the increasing legal cases that have resulted into considerable awards, continue to pose a substantial fiscal risk, thus causing a surge in contingent liabilities, many of which are not planned for. 

Contingent liabilities are financial obligations that result from unsettled legal disputes or outcomes of legal proceedings brought against government ministries, departments, and agencies. 

“The unpredictable nature of legal verdicts and the possibility of incurring substantial financial losses means that these contingent liabilities are a serious threat to the financial stability and budgetary planning,” the report reads in part, noting that such liabilities have also historically been key in the accumulation of domestic arrears, adding to fiscal strain and obstructing effective management of public finances. 

Therefore, the report noted, it was essential that government entities actively reduce such risks through comprehensive legal strategies, adherence to compliance standards, and effective contingency planning to prevent negative financial impacts.

The report further noted that there was a significant increase in contingent liabilities due to legal proceedings, rising to Shs4.41 trillion by June 2023, which was a considerable increase of 14.3 percent compared to Shs3.9 trillion in the period ended June 2022. 

Contingent liabilities arise from disagreement over contract breaches, regulatory standards or negligence, among others. 

Therefore, the report cautioned that there was need for all government entities to put in place mitigation measures, noting that the marked increase highlights the escalating financial risks that legal proceedings are bringing to government, weakening its ability to manage the budget effectively.

Previously, government had historically considered domestic debt such as treasury bills, bonds, operational arrears, and government guarantees as the main source of liabilities.  

However, there has been a shift to widen the spectrum bringing both direct and indirect liabilities such as those arising from public-private partnership agreements, legal disputes, and unguaranteed debts of public and publicly aided corporations and tertiary institutions into the risk profile fold. 

Government has also adapted some modifications in contracts executed by third parties, some of which carry certain liabilities.  

Therefore, the 2023 public debt management framework creates a pivotal shift by encompassing a wider array of liabilities, which are crucial for a comprehensive assessment of government’s total liability exposure.

The framework mandates the annual estimation and publication of contingent liabilities, which is a systematic approach that records, monitors, and analyzes liabilities each year to facilitate a better understanding of current and future budgetary implications and help government create proactive measures to identify and mitigate potential liabilities.