Govt to borrow Shs9.6t for next financial year
What you need to know:
- The Finance ministry said in line with the fiscal target under the Charter for Fiscal Responsibility, public debt is projected to peak at 53.1 percent in June 2023 and decline to below 50 percent by the Financial Year 2025-2026.
Despite a sharp rise in public debt, the government still wants to borrow Shs9.628 trillion, both domestically and externally, to finance the national budget for the Financial Year 2023-2024.
In the Budget Framework Paper currently in Parliament, the Ministry of Finance, Planning and Economic Development said the government borrowing from the domestic market for fiscal purposes in the next financial year is projected at Shs1.585 trillion, compared to Shs5.007 trillion in the current financial year, which is equivalent to 1 percent of Gross Domestic Product (GDP).
“This is in line with the government’s policy decision to maintain domestic borrowing to no more than 1 percent of GDP in order to avoid crowding out of the private sector,’’ the ministry said.
For external borrowing, the Finance ministry has stated that Project Support, which is external financing, the government will borrow Shs8.043 trillion, up from Shs6.716 trillion in the current financial year.
Although the planned borrowing has been carefully thought of on two basis; reduced domestic borrowing and on concessional basis, which attracts very low or no interest, it still implies that Uganda is in a debt trap because of the persistent fiscal deficit.
The Finance ministry said in line with the fiscal target under the Charter for Fiscal Responsibility, public debt is projected to peak at 53.1 percent in June 2023 and decline to below 50 percent by the Financial Year 2025-2026.
The Charter for the Financial Year 2021-2022 to Financial Year 2025-26 presents the government’s strategy for operating a fiscal policy, which is consistent with sustainable fiscal balances to maintain the public debt within sustainable levels.
The ministry explains that the budget for the next financial year is in line with the Charter, which has three fiscal objectives; total public debt is reduced to below 50 percent of GDP by Financial Year 2025-2026, the overall fiscal balance including grants to gradually adjust to a deficit not exceeding 3 percent of non-oil GDP by Financial Year 2025-2026, and finally have a maximum of oil revenue of 0.8 percent of the preceding year’s estimated non-oil GDP outturn to be transferred to the consolidated fund for budget operations.
“The balance shall be transferred to the Petroleum Revenue Investment Reserve (PRIR) for investment in accordance with the PFMA as amended. The FY 2023/24 projected fiscal deficit as percent of GDP and public debt to GDP ratio are all within the set targets in the Charter for Fiscal Responsibility,” said the Finance ministry.
The Budget Framework Paper indicates that the government expects budget support of Shs2.491 billion down from Shs2.609 billion in the current financial year ending on June 30, 2023.
Over the recent years, financing of the national budget has been increasing unlike in the past 10 years when the donor financing of the national budget stood at 80 percent.
The preliminary resource envelope for Financial Year 2023-2024 is projected at Shs49.988 trillion compared to Shs48.130 trillion of which the government expects to raise domestic revenues equivalent to Shs28.831 trillion from the existing tax base.
This translates into nominal growth in revenues of Shs2.580 trillion, which is equivalent to 12.8 percent up from Shs25.550.69 trillion projected revenues for Financial Year 2022-2023. This increase is attributed to gains on account of growth in the economy, and revenue gains from revenue enhancement measures after finalising both tax policy and tax administration.
“Government will step up efforts to implement the Domestic Revenue Mobilisation Strategy (DRMS) including; closing all gaps leading to revenue losses such as under declarations, falsification of documents, review of exemptions to put in place clear criteria for beneficiaries, sunset clauses to define cut off points, and carry out a cost-benefit analysis to ensure that the beneficiaries deliver their promised deliverables through effective monitoring of the exemptions,” the ministry said.
The Finance ministry added that the Uganda Revenue Authority (URA) is also going to step up taxpayer education, door-to-door field visits, identification of unregistered taxpayers and enroll them, effective administration of VAT, income tax, customs, and rental tax.
“All these and other efforts will widen the tax base and improve our tax collection effort without introducing new taxes and tax rates that tend to fall on the same group. Therefore, the Government will pursue enhanced tax policy administration to improve domestic revenue to finance the national policy commitments, considering the rising public debt and its implications,” the Ministry noted in the National Budget Framework Paper.
The overall objective of the Financial Year 2023-2024 budget strategy is to restore the economy back to the medium-term growth path of 6 to 7 percent per annum and improve competitiveness of the economy.
In the medium-term, increasing the wealth of households and eliminating poverty, particularly using the Parish Development Model and small and medium enterprises, and economic recovery programmes is key for socioeconomic transformation.
In addition, diversifying the economy and Uganda’s exports are key to achieving the planned economic growth trajectory.
Due to negative developments in the economy exacerbated by both the external and internal economic conditions, the government instituted the midterm review of the National Development Plan III (NDP III) in place.
In the budget framework paper, the ministry explains that the budget strategy has taken into consideration the key findings of the NDP III mid-term review which include lower than expected economic growth in the first two years of NDP that was 4 percent below the planned target of 5.2 percent.
The need to achieve middle income status; an expansionary monetary policy, resulting from unforeseen additional spending by government to mitigate the effects of the Covid-19 pandemic, which has led to an increase in the fiscal deficit from 7.8 percent to 9.1 percent of GDP; lower allocations to programmes than envisaged in the NDP III, which has impacted on the ability of programmes to meet targets and failure to complete any of the 69 core projects in the NDP III.
The Finance ministry explained in the Budget Framework Paper that in the next financial year economic strategy in the short to medium term has the twin objectives of restoring economic activity to pre-pandemic levels and subsequently accelerating the pace of socioeconomic transformation.
Economic recovery will be achieved by boosting aggregate demand by restoring domestic consumption, renewing private and public investment, and enhancing export promotion.
“Over the remaining period of NDP III, the government shall restore the balance between infrastructure and human capital development to spur economic growth and development. Government shall sustain economic recovery and build economic and enterprise resilience by focusing on six strategic intervention areas which will take priority next financial year,” the ministry said.
The six strategic interventions are; peace and security under the governance and security programme; roads (maintenance of both tarmac and marram roads) under the integrated transport programme; electricity (construction of substations and transmission lines and Ayago Hydro Power Station in the medium term) under the Sustainable Energy Development Programme
The others are; railway (development of SGR and rehabilitation of the Meter Gauge Railway) under the integrated transport programme; irrigation particularly the small scale solar powered irrigation under agro-industrialisation programme; industrial parks through building infrastructure and connecting them to electricity under the manufacturing programme; support to medical schools and science-based research and development under the human capital development programme; full implementation of PDM and scaling up emyooga under the private sector development programme; oil and gas development; and enhancing support to UDB and UDC under private sector development.
However, the Finance ministry said: “The above have been identified as priorities by the President over and above other key investments in fundamentals such as human capital development (health, education and water for human consumption), among others. Therefore, government expenditures will have to be constrained to fit within the existing resources for Financial Year 2023-24 including statutory obligations.”
The ministry stresses that following the NDPIII mid-term review, the budget is fully aligned to the programme-based budgeting approach and respective vote interventions will be implemented in line with the Programme Implementation Action Plans.
“It is against this that all Indicative Planning Figures and expenditure ceilings have been issued,” the Ministry of Finance said.