2022/2023 Budget: Will it monetise cash-strapped economy?

In the next 2022/2023 National Budget, barely four and half months away, government will focus on monetising Uganda’s economy to drive growth and development, beyond the pre-Covid-19 times. 

According to President Museveni, one of government’s challenges is getting the economy to work efficiently and equitably for all Ugandans.

The latest National Labour Force Survey (2016/17) found that most Ugandan youth aged 18-30 years are either unemployed or employed in the informal sector. Less than 15 per cent had formal jobs. Seven in every 10 Ugandans are engaged in agriculture, doing subsistence farming with hardly any surplus for the market.

The 31 per cent Ugandans already in the monetised economy face the high cost of doing business, which limits their effort to create wealth and more jobs — for the youth and nearly 70 per cent in the subsistence sector.  

In response to these troubling statistics, the Ministry of Finance in its National Budget Framework Paper (NBFP) emphasizes monetisation of the economy as the magic bullet to turn around an economy that is trying to find its footing in the wake of the ongoing pandemic shocks.

To begin with, payment of domestic arrears amounting to nearly Shs2 trillion will be progressively cleared within the next three years. Already, some payments have been done to allow domestic suppliers of goods and services to remain in business.    

“In accordance with Domestic Arrears Strategy, government is committed to payment of all verified arrears within a period of three years,” says Mr Ishamail Magoona, a commissioner at the Ministry of Finance.

 He continued: “In FY 2020/2021, a total of Shs677 billion in arrears was paid to private sector firms that supplied government to ease their liquidity. Another Shs400 billion was also provided FY 2021/2022.”

Presenting on behalf of the Acting Director Budget, Laban  Mbulamuko during a pre-budget dialogue recently, Mr Magoona, further disclosed that more than Shs7.9 trillion private sector bank loans have since been restructured, noting that Bank of Uganda granted exceptional permission to banking institutions to provide credit relief to borrowers for up to 12 months effective 1st April 2020.  

According to the presentation of Mr Mbulamuko, low-interest long-term financing to businesses especially in the sectors of manufacturing, agribusiness and other private sector firms will remain a fixture for government through its agencies such as Uganda Development Corporation (UDC), Microfinance Support Centre (MFSC) and programmes, including Wealth Creation Funds such as Emyooga.

These provide financial support to the economically active groups involved in the informal sector. These funds support groups by providing them with seed working capital and encourage the groups to develop a savings culture.

Business Development Services and professional management of umbrella association for informal sector businesses have been introduced under this initiative. This will enable vocational and technical practitioners under these umbrella associations to take advantage of economic opportunities that are formal and require them to be coordinated.

By facilitating increased access to financing for the micro and small enterprises, the country’s economic mangers believe it is a step towards, reducing informality. 

In the Parish Development Model (PDM), government believes the majority will be part of the efforts to monetise the economy. The PDM is aimed at alleviating poverty by improving household incomes and welfare through employment and wealth creation.

About 39 per cent of households which are still outside the money economy are targeted.

Financing mechanism

Noting the dismal funding for PDM, President Museveni directed that the revolving Funds per Parish/Town Ward should be increased by a minimum of Shs100 million per parish starting FY2022/23. This would bring the total funding need to slightly more than Shs1 trillion.

According to the BFP for FY2022/23, only Shs465.4 billion had been provided out of the required slightly more than Shs1 trillion. This leaves a shortfall of Shs593.9 billion which will be considered at the end of the ongoing budget review exercise which the Ministry is undertaking.

In line with President’s directive on the 14 production commodities followed by the Cabinet’s approval of the Agricultural Value Chain Development Strategy 2021-2026 more emphasis will be placed on production, storage, processing and marketing.

“Next financial year, the focus will be on sustaining the resilience of agriculture along the value chain, agro-processing, and support to light manufacturing. Government is fully committed to “full monetisation of the Ugandan economy through commercial agriculture, industrialisation, market access and digital transformation,” reads the presentation by senior Ministry of Finance technocrats.

Debt outlook

In his presentation titled ‘FY2022/23 and Economic Recovery agenda: What’s at stake, the CSBAG executive director,  Mr Julius Mukunda, noted that there is more that needs to be done, if government is serious about its intention to monetise the economy. 

First, the total debt repayment (domestic financing, interest payment and amortisation) which by then would have amounted to Shs15.2 trillion, something Mr Mukunda said needs to be addressed with urgency.

 By the time the new financial year starts, domestic revenues are projected to amount to Shs25.5 trillion and further projected to increase to 13.6 percent of Gross Domestic Product (GDP) in the same FY 2022/23.

Mr Mukunda also noted that the rise in poverty levels (that is the proportion of Ugandans who are poor increased) by 3.2 million during Covid-19, quoting UNHS 2021 report.

This state of affairs according to Mr Mukunda is a real threat to the government’s budget priorities unless dealt with. 

Mr Mukunda is not only impressed with the move to clear the accumulated debts owed to local suppliers and producers, but wants accounting officers held responsible for delayed or non-payment of local businesses that supplied government.

His prayer has not fallen on deaf ears as the Secretary to the Treasury and Permanent Secretary (PSST) at the Ministry of Finance, Dr Ramathan Ggoobi, issued a warning to accounting officers regarding the same, saying they will “pay the price with their jobs”.

The CSBAG executive director recommended focus on financing for improved market access for Small and Medium Enterprise (SMEs), expediting the passing of the Local Content Bill and doubling of funding for SMEs to at least Shs500 billion.

Radically perhaps, Mr Mukunda is not a fun of Emyooga and other related funds, urging the government to scrap it and integrate it into the Parish Development Model—PDM.

Experts take….

When interviewed for this article, Dr Maggie Kagozi, a business consultant at the United Nations Industrial Development Organisation (UNIDO) and the senior research fellow at the Economic Policy Research Centre (EPRC), Dr Madina Guloba, both were of the view that no matter what - economic sectors such as health, education and agriculture must be part of the top budget priorities in the next financial year 2022/23.

 The former executive director of Uganda Investment Authority (UIA) further added into the mix the oil and gas sector expected to begin commercial production of oil by 2025. Dr Guloba added infrastructure, but noted that they should go about it in a pragmatic way.

According to Dr Kigozi, this is not the time to be careless but improve the aforementioned sectors, beginning with improving the welfare of health personnel. Then ensure that health centres I and II are given the necessary attention since they handle most people.

 In addition, the drive to deepen vaccination should continue in high gear.  As all that is happening, she says, “Our farmers must have access to information and our extension workers should be given transport such as motorcycles to help them sensitise farmers about better farming practices.”  

Economic Recovery

The theme of the National Budget Framework Paper for the FY2022/2023 is “Full monetisation of the Ugandan Economy through commercial agriculture, industrialisation, market access and digital transformation”.

Economic recovery will be achieved by boosting aggregate demand through restoring domestic consumption, renewing private and public investment, and enhancing export promotion.

Enhancing the quality and stock of productive infrastructure through maintaining a good road network system, rehabilitation of the railway, electricity transmission to industrial parks, undertaking studies and acquiring infrastructure corridors for future investments; and,

Achieving macro-economic targets including Middle income status, increasing Domestic revenue taxes and reducing the proportion of households in the subsistence sector through the implementation of the Parish Development Model.