‘Govt fails to pay Shs11t BoU debt’

Bank of Uganda offices on Kampala Road. PHOTO | FILE 

What you need to know:

  • One of the telltale signs that LoP Mathias Mpuga has highlighted is the government borrowing from the central bank over and above the set limit.

The government is struggling to find cash to meet many of its statutory obligations, the Leader of the Opposition in Parliament (LoP) has revealed in a statement.
One of the telltale signs that LoP Mathias Mpuga has highlighted is the government borrowing from the central bank over and above the set limit.

“It has also been established that due to revenue constraints, [the] government borrowed Shs8 trillion from the Bank of Uganda. Unfortunately, this exceeded the statutory limit provided for under Section 36 of the Public Finance Management Act (as amended),” shadow Finance minister Muhammad Muwanga Kivumbi (Butambala County) read the LoP’s statement on the floor of the House on Wednesday, adding, “The provision permits [the] government to raise a loan from Bank of Uganda provided it does not exceed 10 percent of the domestic revenue.”
In the Budget of F
iscal Year 2022/2023, the LoP writes, Shs25.78 trillion was approved as domestic revenue. This, he adds, implies that the government is only permitted to borrow Shs2.57 trillion from the Bank of Uganda (BoU). Funds borrowed from the central bank by the government should be repaid from Uganda Revenue Authority (URA) collections within the financial year in which they have been borrowed.
“However, [the] government has failed to repay money that was borrowed in past financial years. Additionally, Section 33 of the Bank of Uganda Act restricts temporary advances to [the] government in event of deficiencies of recurrent revenue not to exceed 18 percent,” the LoP said in the statement, adding, “This would amount to Shs4.6 trillion of the annual revenue target of Shs25.78 trillion. It is, however, of concern that [the] government has failed to repay the advances.”

The Finance ministry Permanent Secretary and Secretary to the Treasury (PSST), Mr Ramathan Ggoobi, has dismissed the damning statement that details excessive borrowing from the central bank outside the permissible limit as an “unfortunate falsehood” by the House. In his response Mr Ggoobi does not respond to any of the issues raised by the LoP. He says his ministry will officially write to the House.
However, while releasing the 2022/2023 Fiscal Year first quarter budget funds, Mr Ggoobi revealed that the government was “experiencing cash flow limitations.”
Besides claims of excessive borrowing, the LoP’s statement illuminated “salary shortfalls” and the “failure to remit local revenues” as indications of the poor financial health of the government.

‘IMF closes tap’
In less than seven months, the government debt to BoU has jumped from Shs3.03 trillion in February during the Fiscal Year 2021/2022 to Shs11 trillion.
“Despite the inability to repay back advances from Bank of Uganda, it should be noted that [the] government on February 18, 2022, signed an addendum to the Service Level Agreement (SLA) with Bank of Uganda to include debt provision,” the LoP statement revealed, adding, “This conflicts with the mandate of the Bank of Uganda as provided for in the Bank of Uganda Act.”

The LoP further said creditors—particularly the International Monetary Fund (IMF)—have conditioned that there should be no further external financing releases to Uganda before the government repays advances from the BoU. This, the LOP said, has compromised the availability of discretional resources for running of affairs of the government. The situation is compounded by the uncertainty as to how much revenue the taxman has collected thus far.

Ms Izabela Karpowicz, the IMF resident representative,  told Saturday Monitor   that the Government of Uganda is implementing a programme supported by an IMF Extended Credit Facility loan since June 2021. She said the objectives of the programme are revenue-based fiscal consolidation, growth-friendly budget composition and reforms to strengthen financial sector resilience and public sector accountability. 
   “As part of the government’s programme, it has committed to repaying debt owed to the BoU gradually over three years.  The first review was concluded in March 2022. The second review discussions are ongoing,” she said. 
The IMF, on March 2022, reported that there were “some risks related to the legal framework, internal controls in areas of credit to the government and currency operations. This, the IMF says, the central bank is addressing. 

Failure to pay salaries
The allegations that the government is struggling are, however, supported by reports of failure to pay salaries of government employees on time and the harsh economic realities in the country. 
In July, it was announced that civil servants in the country would receive their salaries late and not by 28th as per the Public Service Standing Orders.
The situation is reportedly worse in Local Government where a number are reporting shortages in funding for salary expenses for September. The statement quotes accounting officers from the districts of Sironko and Wakiso, who have urged their officers to utilise their resources sparingly due to lack of releases for September salaries.

The cash-strapped central government has also encroached on local government revenue, which is affecting the latter’s operations. On September 8, the House resolved that the government reverses a directive requiring Local Governments to remit all local revenues to the Consolidated Fund.
“However, it has been established that local revenues are yet to be remitted back to Local Governments,” the LoP noted, adding, “Apart from being in contempt of Parliament, [the] government’s action has adversely affected delivery of public services such as waste management, construction and maintenance of water sources, education and health facilities, among others.”

During the budget process, Parliament reallocated Shs193 billion from other priorities set by the government, which caused friction between the House and the Finance Ministry. Legislators on Parliament’s budget committee also tilted budgetary allocations in favour of their respective constituencies prompting allegations of corruption and influence peddling.
Uganda, on September 1, made a major expenditure by paying $65m (Shs248b) in the first instalment of the $325m it was ordered to pay the Democratic Republic of Congo as compensation for losses caused by wars in the 1990s when UPDF occupied Congolese territory.
The law
The 1995 Constitution confers independence on the Bank of Uganda. Specifically, the Constitution states: “In performing its functions, BoU shall conform to this Constitution but shall not be subject to the direction or control of any person or authority.”

What they say...

Ramathan Ggoobi (PSST)
We shall send a formal response to Parliament to correct that unfortunate falsehood. We are getting concerned with the dangerous trend where sections of politicians have turned the economy into their launchpad for cheap politicking. At a time when every country and their leaders are focused on reinvigorating growth and recovery from the [Covid-19] pandemic and other shocks, it’s disheartening to see some of our leaders focused on fabricating disinformation intended to alarm citizens, potential investors, and our development partners. And they expect us to divert our attention from pursuing our national economic goals—lowering inflation, raising economic growth, supporting job creation and investment, facilitating wealth creation and structural change—to setting the record straight.

Mathias Mpuuga (LoP)
Government can run broke, especially in times of recessions/depressions or after a prolonged civil war or famine. The Ugandan case is different, what is potentially true is that particular revenue sources are constrained by the mini global recession occasioned by oil prices. The recession has not affected the availability of basic resources to inhibit government meeting key obligations. Our classified budget remains bloated, our foreign misadventures are still active, political appointments continue to eat away the budget, and none of the known nugatory expenditure centres has been revised. It’s a question of the regime in the survival range spending for survival by way of patronage and open political corruption! You followed the regime expenditure in the by-elections and increasing facilities for RDCs.

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