Budget skips stimulus package for businesses

Tuesday February 09 2021

Traders along a motorised lane in Kampala. The Nartional Budget Framework paper has not offered relief measures to help businesses recover from the effects of the pandemic. PHOTO/ALEX ESAGALA

By Ismail Musa Ladu
By Damali Mukhaye

As we learn to live with the Coronavirus, it is sad to see the National Budget Framework Paper (NBFP) provides what many budget and policy analysts describe as a lukewarm response to an environment that has left businesses tumbling.   

A team of experts in civil society organisations reveal that the government’s strategy document for the budget does not speak to the current economic challenges occasioned by the coronavirus pandemic.

For close to a year now, economic sub-sectors such accommodation and catering, construction, social and business services, mining  and  quarrying, manufacturing, culture, sports and  entertainment and  wholesale and retail  trade have been struggling to stay afloat.

The inactivity in the above economic subsectors has rendered thousands, if not millions unemployed, according to various studies carried out over the last 10 months, including one done by the Economic Policy Research Centre (EPRC) and United Nations Capital Development Fund (UNCDF-Uganda) in Uganda.

One study by EPRC projected that in the event Covid-19 persists for over next six month, which has since passed, about 3.8 million workers would lose their jobs temporarily while 0.6 million would lose their employment permanently. Over 75 percent of employees projected to lose their jobs permanently are from the service sector, which has since outpaced industrial sector.

Since the containment measures were enforced in March last year, layoffs have become some companies’default response to challenges. This is likely to continue as economists project more layoffs as a result of the declining production, resulting from the combined effect of a reduced workforce and slowing demand for goods and services, thanks to the pandemic’s effect on businesses.


Business as usual

As a result of the ‘lukewarm’ response in terms of dealing with effects of the pandemic and appropriate interventions by instituting proper stimulus package to the micro, small and medium businesses, the largest sector of the economy and the most hit by the effects of the pandemic, the government sees no immediate need in treating the pandemic whose effects have either rendered many businesses out of action or forced them to scale down operations. 

Upon registering its first case earlier last year, the government established a litany of containment measures to curb the spread of the virus in the country. Among the measures include closure of schools, restrictions on internal and international travel, wearing of protective gear, use of hand sanitiser and lockdown which has since been relaxed in some sectors.  

Supply chain disrupions

For example, due to border closures until it was relaxed two months ago, the economy suffered from supply chain disruptions and reduction of visitors who contribute to revenue in the tourism industry.

Importers, traders and consumers have not been spared either.

“We are concerned that the NBFP [National Budget Framework Paper] is not responding to the effects of Covid–19 as it does not indicate ways of revamping the economy, promoting digital transformation especially in promoting e-learning, and providing a stimulus package to areas like agriculture and trade,” Civil Society Budget Advocacy  Group (CSBAG) executive director, Mr Julius Mukunda noted in a statement.

In a separate interview, Mr Mukunda describes the NBFP proposals as ‘business as usual’ on the account that they maintain the same priorities irrespective of the pandemic and its subsequent containment measures.   

He says: “Revamping the economy and saving lives should be the priority in the NBFP, but there is not much evidence to suggest that those proposals are part of the document linking the government’s policies and strategies to the budget.”

He continues: “Establishing an SMEs fund, identifying markets and helping SMEs do value addition, putting money aside for buying vaccines rather than pursuing the supplementary route, are some of the things we expect to be highlighted in the NBFP and not what we are seeing which is business as usual.’  

According to CSBAG, the NBFP for the Financial Year 2021/22, which was presented to Parliament for scrutiny in December 2020 by the Minister of Finance comes at a time when the country is still struggling with the Covid-19 pandemic and its effects. But going by the document submitted to the August House, coronavirus and its impact on the economy is the least of government’s worries.  

Worse still, the Financial Year  2021/22 NBFP timeline for thorough scrutiny has been distorted by the general elections. Whereas the Public Finance Management Act (PFMA), 2015 provides for at least a month for Parliament to consult, debate and consider the NBFP, this has been condensed to two days, thanks to the time consumed by elections which has ushered in nearly 76 per cent of new Members of Parliament.

Lack of proper time for scrutiny limits effective scrutiny of the budget as well citizens’ rights to input into the NBFP as Parliament has not provided a platform for stakeholders’ consultation. CSOs would want this reconsidered before Parliament approves the budget for the financial year 2021/22.

Consumptive expenditure

Expenditure projections for FY 2021/22 is largely consumptive, implying that the biggest chunk may not have a direct return on investment as it will be spent on salaries and allowances rather than being injected in sectors of the economy such as value addition and marketing agricultural products, considering that it is one of the sectors that remains resilient in the midst of the pandemic.  

According to NBFP, the FY 2021/22 recurrent expenditure will account for Shs18.5 trillion (55per cent) while development expenditure will account for Shs15.4 trillion (45.5 per cent). This is despite the fact that domestic revenue is expected to reduce by Shs116.5 billion which is an equivalent of close to twice the budget allocated to Uganda National Bureau of Standards—the country’s standard body.

Least allocations

Agro industrialisation will receive Shs1.5 trillion (3.31 per cent) despite being a key sector as exemplified in its ability to minimise the negative impact of Covid-19 on the economy. Other programmes with the least allocations as contained in the NBFP yet crucial in current situation of Covid-19 include; digital transformation with Shs101.77 billion (0.22 per cent), mineral development with Shs80.57b (0.18 per cent) and manufacturing at Shs52.76 billion (0.12 per cent).

But the agriculture sector still lags behind.

The executive director of Foods Right Alliance, Ms Agnes Kirabo, explains her reservations about this saying the framework paper has undermined the agriculture sector which provided for the country during the pandemic when most sectors were closed.

Agriculture - the backbone of Uganda’s economy, sustains the livelihoods of the majority of the population. But the agro industrialisation programme is projected to receive a mere 3.3 per cent of the total national budget even with inadequacies in financing areas such as National Food and Agricultural Statistics Systems that has a funding gap of Shs6 billion. 

No Contigencies Fund

With the increasing calamities the country is facing, the government has to date not fully complied with operationalising the contingencies fund. Section 26 of the PFMA 2015 (as amended) requires that an amount equivalent to 0.5 per cent of the appropriated budget of the previous Financial Year be allocated to the Contingencies Fund.

The government has not made any financial commitment to fulfil this requirement. The outbreak of the Covid-19 pandemic is a reminder to government to improve the country’s health system. But going by the NBFP, the government hasn’t learnt enough lessons.

This is because the pandemic affected household incomes as economic activities declined. As part of increasing resource mobilisation for the health sub programme as well as cushioning households from unnecessary out of pocket expenditures, passing and implementation of the National Health Insurance Scheme Bill has never been timely and critically important.

It is also about time government assents to the the Local Content Bill 2019 assented to. According to CSBAG, unlocking  investments and Private sector growth requires implementing the Local Content Policy, and other legal and institutional frameworks such as a Local Content Monitoring Committee. But the President is yet to assent to the Local Content Bill 2019, affecting implementation of the Buy Uganda Build Uganda (BUBU) policy.

“Government is the biggest spender in this economy and the only sure way SMEs can tap into some of those budget resources is by having the Local Content Bill implemented effective immediately. That is what we expect policy makers to be concerned about especially in a time like this when the pandemic has taken a heavy toll on businesses and the economy,”  Mr John Kakungulu Walugembe, executive director of the Federation of Small and Medium Entreprises-Uganda (FSME) says.

Mr Patrick Ocailap, the Deputy Secretary to the Treasury dismissed the claims of government’s missed opportunity in the budget framework paper to offer tangible relief measures to business saying “it is not true.”

“Tell them [CSOs and all critics of NBFP] to write to me, detailing areas where they are unhappy with or don’t understand and I will respond to them or even meet them and we have a discussion. But for now, there is nothing wrong with our NBFP,” Mr Ocailap said last week.