Tax to GDP ratio falls amid growth in financing needs
Tax collections in comparison to the size of the economy has been falling over time. PHOTO | FILE
The ratio of tax to gross domestic product (GDP) has fallen to 11.4 percent, which according to Ministry of Finance Permanent Secretary Ramathan Ggoobi, calls for a multifaceted approach to help Uganda realise its development agenda.
Tax to GDP ratio is a measure of a country’s tax revenue in comparison to the size of the economy.
The ratio has been falling overtime, declining to 12.2 percent during the 2019/20 financial year from 14.6 percent during the 2018/19 financial year.
Speaking during a high-level conference titled: “Building stronger partnerships for sustainable financing in Uganda, Mr Ggoobi said government was undertaking a five point pronged approach with the aim of helping Uganda realise its development agenda.
Among these, he said, will see government increase the tax to GDP ratio by 0.5 percent per annum in the next five years as a way of mobilising more resources to pursue set development programmes.
Other approaches, Mr Ggoobi said, will include inclusive economic growth, which seeks to achieve better education and financial inclusion, debt management by only borrowing for critical projects and on concessional terms, sustainable public management strategy in the medium term and project review to identify projects that can add value to national development as well bringing tangible change in people’s life.
Government continues to struggle in a number of areas, which has curtailed growth amid dwindling tax revenue.
For instance, debt management has been a major challenge, which Finance Minister Matia Kasaija has previously said had reached worrying levels.
Speaking at the same event, Finance State Minister in charge of General Duties Henry Musasizi, said while public debt remains sustainable, interest repayment on public debt has been rising, which limits government’s capacity to spend on priority programmes.
“Interest payments on public debt has increased from 17 percent to 21 percent as of May 2022,” he said, noting that this in a way constrains allocations of priority programmes, which have capacity to drive economic growth.
The World Bank yesterday asked government to guard against the rapidly increasing public debt levels through diversifying its source of financing development programmes, increasing national savings and focusing more on concessional borrowing.
Mr Samuel Munzele Maimbo, the World Bank director for development finance, said Uganda should adopt the Sustainable Development Finance Policy, which emphasises transparent and sustainable financing.
“It is designed to incentivise reforms that ensure debt sustainability,” he said, noting that Uganda today is at crossroad due to external economic shocks, amid the need to finance set development programmes that require sustainable financing.
Mr Maimbo also cautioned government on the challenge of increasing interest payments on debt, which continues to shock operations.
High interest on government debt
According to Mr Jibran Quresihi, the Standard Bank Group head of Africa regional economic research, Uganda’s spending on capital development has been low yet interest rates on long term government debt is one of the highest in the region, which drains the country’s capacity to save to finance critical projects.
Therefore, he said government needs to boost national savings, assess the quality of investment, raise public investment efficiency, fiscal consolidation and improve regulatory reforms.
Debt management
One of the things that continues to present challenges to government is debt repayment, whose interest continues to ballon. For instance, according to Finance State Minister in charge of General Duties Henry Musasizi, interest payments on public debt has increased from 17 percent to 21 percent as of May 2022
High interest on government debt
According to Mr Jibran Quresihi, the Standard Bank Group head of Africa regional economic research, Uganda’s spending on capital development has been low yet interest rates on long term government debt is one of the highest in the region, which drains the country’s capacity to save to finance critical projects.
Therefore, he said government needs to boost national savings, assess the quality of investment, raise public investment efficiency, fiscal consolidation and improve regulatory reforms.
