Bank of Uganda (BoU) has confirmed a cash crisis in government worsened by revenue shortfalls in the first half of the current financial year.
As a result of constrained fiscal operations of government, BoU’s Monetary Policy report points to slow execution of planned infrastructural projects.
Fiscal operations are actions taken by the government to implement budgetary policies, such as revenue and expenditure measures, as well as issuance of public debt instruments and public debt management.
In the highlight of the Monetary Policy Report for February, domestic revenue collections fell below the target. Sources at URA and Ministry of Finance, however, blame the Covid-19 pandemic.
Relative to the URA targets, the BoU report shows that the cumulative total domestic revenue collections for the first half (H1) of 2020/2021 financial year amounted to Shs9.482 trillion, which is Shs1.383 trillion below target.
BoU explains that that the revenue shortfalls were observed in all tax heads except stamp duty tax.
Direct taxes underperformed largely due to shortfalls of Shs168.5 billion and Shs108.5 billion in PAYE and corporate tax, respectively.
According to BoU, International trade taxes underperformed largely on account of shortfalls in collections of import duty and petroleum duty.
“URA revenue collections in January cumulatively amounted to Shs10.914 trillion, which is about 45 per cent of the annual target, leaving Shs13.423 trillion to be collected in the remaining five months,” reads the BoU report.
The Central Bank has expressed concerns that the continued underperformance in tax revenue would require additional financing which, if not met, could result in a financing gap and/or build-up in arrears. BoU further stated that cumulative net domestic financing for H1 amounted to Shs4.264 trillion and the revised target is Shs6.3 trillion for the financial year.
According to the 2020 Debt Sustainability Analysis (DSA), public debt is projected to increase in the medium term on account of the scaled-up rate of borrowing to finance key infrastructure projects.
In nominal terms, public debt is projected to increase to 49.9 per cent of GDP by end of June 2021.
In present value terms, total public debt will rise to 39.3 per cent of GDP in the current financial year, peaking at 42.9 per cent in the next financial year, well below the ceiling of 50 per cent (EAC) and 55 percent (IMF).
But BoU insists that business confidence is more optimistic over the next 12 months. “Economic growth is gradually recovering and is expected to strengthen in the FY2021/2022 with projected growth of 3.0-3.5 per cent in 2020/2021, increasing to 4.0-4.5 per cent in FY2021/2022 and to 6.0-7.0 per cent, in the outer years,” BoU said.
The Deputy Governor, Dr Michael Atingi-Ego, said: “As the vaccine becomes readily available in Uganda and the spread of Covid-19 is contained, tourism is expected to rebound. In addition, exports should benefit from strengthening foreign demand, reduced pandemic related uncertainty and improving global investment.”