Rising cost of living: How does 2022/23 Budget fare?

What you need to know:

Economy. The Financial Year 2022/23 budget, which is just about a month away will be hitting the ground at a time when the economy is grappling with the rising cost of living, which is attributed to the increasing prices for essential commodities.

The Financial Year 2022/23 budget, which is just about a month away, will be hitting the ground at a time when the economy is grappling with the rising cost of living, which is attributed to the increasing prices for essential commodities such as cooking oil, laundry bar soap, fuel, food and other services such as transport.

Inflation, as measured by the Consumer Price Index for Uganda for the 12 months to April 2022, increased to 4.9 percent, up from 3.7 percent registered in March 2022. This latest movement is just a percentage point shy of hitting the 5 percent inflationary cap set by the country’s economic managers. 

This was driven by the increase in the price of commodities such as sugar, maize flour, rice, refined oil, tomatoes, passion fruits, watermelon, whole cassava, cooking banana, and carrots.

This is in addition to housing, water, electricity, and gas. The prices of cement, firewood, paint, iron sheets, charcoal, and paraffin were also not spared. There has also been an increase in the prices of laundry bar soap and other cleaning products such as detergent powder.

Expert analysis by the members of the Civil Society Budget Advocacy Group (CSBAG) indicates that rising prices of essential commodities has been persistent since the re-opening of the economy in January 2022.

Many fuel stations have increased petrol and diesel prices, sparking fears that the situation might get worse. PHOTO/COURTESY

“We have since experienced an increment in commodity prices of up to 100 percent for some commodities, for example, laundry bar soap prices increased by 47.8 percent, cooking oil by 77.6 percent, and fuel by 34 percent in the last one year,” reads part of the analysis.

This is partly attributed to the increased demand against the supply/production channels. But much as there is no control over some of these drivers, the government must consider strengthening and enforcing current regulations on essential commodities to guard Ugandans against anti-competitive practices.

This should be in addition to Parliament expediting the enactment of the Competitive and Consumer Protection Bills, according to the CSO experts.

The national budget will also be coming into force at a time when the expectations levels are way beyond the reach of the resource envelope. The total resource envelope for the coming Financial Year 2022/23 is projected to increase by 6 percent (Shs2.4trillion) from Shs44.7trillion in FY 2021/22 to Shs 47.2trillion in FY2022/23.

The increase in revenue target comes from a backdrop of a revenue deficit of nearly Shs3 trillion in the previous revenue collection calendar year. This deficit is equivalent to three times the budget earmarked for Uganda Development Bank in this financial year’s budget. 

Expert take

The Executive Director, Centre for Budget and Tax Policy (CBTP), Mr Patrick Kiconco Katabaazi, says it is obvious that the national budget may not necessarily or even directly address the soaring crisis of rising prices of commodities that the country is grappling with.    

He says the budget can at best identify investment areas that uplift the lives of people and direct resources in that area. However, the government’s long and  medium term objectives are to ensure the stability of the economy.

This can be through controlling inflation which in Uganda’s case shouldn’t exceed 5 percent. If this is achieved then budget priorities are properly implemented then there will be no need for a budget line to address the high cost of rising commodities. 

“We run our economy mainly on the forces of demand and supply. To have an effective legal regime that supports price control would necessitate the government taking charge of production and supply, which is not the case as we speak. Our fuel reserves in Jinja seems empty so it is difficult to have price control in such circumstance,” Mr Katabaazi says.

The solution is to make use of the petroleum mobilisation fund to compensate petroleum dealers and therefore act as a shock absorber as it is the case in Kenya. So that is where budget could come in handy as it will ensure allocations of funds to control prices.

The same will apply to money to support the Ministry of Energy in the coordination of petroleum dealers and supporting the Central Bank in stabilizing the market.

“The only tax policy change I would support at this moment would be revising the threshold of Pay as You Earn (PAYE). This I believe would be a step in a good direction because it would free money for the lower segment of the income earners to cope with the rising prices,” he says.

“It will also enhance the collective demand component because people in the low income earning groups have the highest propensity margin to consume. This in a way will trigger collective demand and in that way spread the income earned,” he adds.

With weak production and regulation, Mr Katabaazi doesn’t buy the idea of removing or reducing taxes on commodities unless as a “very short term prescription” as opposed to medium to long term diagnosis.

Economic manager take

In an interview the Deputy Secretary to the Treasury, Mr Patrick Ocailap wondered how a budget can be a tool for unforeseeable or unpredictable things.

“You can’t plan for inflation. How do you do that?” You can’t inflate your budget because of the rising costs of living. Any attempt to reduce taxes on the account of the increasing costs in the economy then you are essentially shooting yourself in the foot,” he says.

“This is because any reduction of tax means you have to cut the budget somewhere as well. These two go hand in hand. I don’t want to increase the borrowing levels. So if you tell me to reduce or remove taxes you are only leaving me with one option and that is borrowing. And I don’t want to do that. Remember the budget support from donors is low and therefore you cannot rely on it anymore,” Mr Ocailap says.

The problem, according to Mr Ocailap, is not even the taxes pronounced in the budget on some commodities including fuel. This is because the taxes on fuel remain specific over time; whether the prices at the international market go up or not still the same amount of revenue will be collected as it was last year.

“Our threat is the absence of food and not the increase in prices. If we lack food because of either prolonged drought or issues with the weather then we will be in a big mess. As long as we continue to produce food this suffering with high prices of commodities will be a short-term problem,” Mr Ocailap told Prosper Magazine when contacted last week on Wednesday.

 “I’m appealing to Ugandans to learn to adjust. In other words, we should do with a substitute if we don’t have what we want.”

NATIONAL BUDGET

Expectations 

The national budget will also be coming into force at a time when the expectations levels are way beyond the reach of the resource envelope.  The resource envelope for the coming Financial Year 2022/23 is projected to increase by 6 percent (Shs2.4trillion) from Shs44.7trillion in FY 2021/22 to Shs 47.2trillion in FY2022/23.

The increase in revenue target comes from a backdrop of a revenue deficit of nearly Shs3 trillion in the previous revenue collection calendar year. This deficit is equivalent to three times the budget earmarked for Uganda Development Bank in this financial year’s budget.

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