Grim economic outlook forces govt to lower bar

Bank of Uganda offices on Kampala Road. PHOTO | FILE 

What you need to know:

  • An expert says supplementary expenditure continues to be a challenge and yet it is a key target under the NDP III

A top policy wonk in the Finance ministry has warned that the government of Uganda’s failure to bind itself to strict borrowing limits designed to protect the public finances will have grave unintended consequences.

Mr Godfrey Kakala, an advisor at the ministry’s Secretariat for Accountability Sector, revealed that “supplementary expenditure has continued to be a challenge and yet it is a key target under our NDP III (third National Development Plan).”

Statistics from the Financial Year 2021/2022 indicate that supplementary expenditure gobbled up 9.86 percent of the budget, way above the three percent cap.

Speaking at the review of the performance during the FY 2021/2022, Mr Ramathan Ggoobi—the secretary to the Treasury and permanent secretary in the Finance ministry (PSST)—revealed that one of the drawers in his office is jam-packed “with supplementary requests.” Some of the requests, the PSST added, include purchase of cars and travel expenses.

The revelations come barely weeks after Moody’s downgraded Uganda’s debt status from stable to negative. The credit rating agency said the negative outlook reflected its “view that amidst increasing external debt-service payments, a more challenging external environment marked by tightening global financial conditions, and an erosion of the foreign exchange buffer, Uganda’s external vulnerability risks are increasing.”

Credit constraints

The “credit constraints” that Moody’s illuminated in its outlook on Uganda are already starting to crystallise, with state actors warning that NDP III could yet prove to be a towering target. There are two financial years left before NDP III—a five-year development programme—runs its course.

“We have shortfalls here and there, and in view of these we want to revisit some of our targets—lower them a little bit, drop some where necessary and ensure that we remain in sync with our aspirations,” Mr Amos Lugoloobi, the junior Finance minister, said on Friday.

Moody’s, however, warned that with Uganda’s debt burden reaching 48.6 percent of gross domestic product (GDP) in 2021/2022 and a fiscal deficit of 7.4 percent of GDP in the same financial year, Uganda’s credit profile is worrying.

“The debt trajectory is vulnerable to lower-than-expected economic growth and currency depreciation pressure, with external debt accounting for 62 percent of public debt in December 2021 and mainly denominated in either US dollars or euros,” the credit rating agency noted.

Moody’s also added that Uganda’s debt is “shorter-term” and when borrowed domestically “more expensive” than what other heavily indebted poor countries wind up with. It hasn’t helped matters, the credit rating agency further said Uganda’s “share of non-concessional external debt has also increased.”

The Opposition in Parliament has severally warned that a haphazard approach to the public finances displayed in the government’s public spending and borrowing spree will put seismic pressures on the anaemic economy sooner than later. Their warnings as the House recently cleared the government to borrow trillions of shillings to finance the country’s development and infrastructure budget for the current financial year, however, had a muted impact.

Development partners

In September, Ms Izabela Karpowicz—the International Monetary Fund (IMF) resident representative for Uganda—told this newspaper that the government of Uganda has since last June been implementing a programme propped by the Fund’s Extended Credit Facility loan. Some of the objectives of the loan facility are revenue-based fiscal consolidation, growth-friendly budget composition and reforms to strengthen financial sector resilience and public sector accountability.

Mr Nicolas Gonze, the head of governance and social inclusion in the delegation of European Union to Uganda, said they would provide an increased share to local governments that have since added 10 new cities.

“We agree that this is essential to strengthen delivery of health services, education and other services with decision making closer to the communities being served,” he said on Friday.

The performance review of the last financial year indicated that creation of new administrative units has placed a millstone round the neck of local governments.

“There is need to fasttrack finalisation and roll out of tracking tool that is under development and eliminate or prevent further accumulation of arrears by MDAs (ministries, departments and agencies),” Mr Lugoloobi said.

With Uganda’s reserves ($3.7b in September) only able to cover 4.1 months of import cover of goods and services as per the central bank, and Moody’s forecasting a further erosion in 2023, experts have recommended acute economic austerity. Ms Rukia Nakadama, the third Deputy Prime Minister, urged relevant state actors not take the latest performance review as a “ritual.”