How to revive economy from Covid effects

Mr Henry Musasizi, the State Minister for Finance (in-charge General Duties), addresses dialogue participants in Kampala on February 17, 2022. PHOTO/Isaac Kasamani 

What you need to know:

  • Experts call for review of tax exemption timelines, cutting interest rates on loans, and transparency in project implementation.

As coronavirus loosens its grip, experts have warned that the economy remains mired in a pandemic mode and urged government to use the 2022/2023 Financial Year budget to prioritise the keys to recovery. 
 The experts, who gathered in Kampala yesterday, prescribed the antidote for economic recovery, calling for review of tax exemption timeline, cutting interest rates on loans, swiftness and transparency in project implementation.
 The country’s economy before the Covid-19 outbreak gathered momentum, registering a GDP growth rate of 6.4 percent in the financial year (FY) 2018/2019.
 The pandemic triggered an economic slowdown and Uganda recorded a decline in GDP growth of 3.0 percent in FY2019/2020, and just a slight improvement to 3.3 percent in FY2020/2021 as the country learned to live with coronavirus.
 Experts during a high level policy dialogue on the National Budget for FY 2022/2023 asked government to embrace new approaches to relieve families from Covid-19 induced poverty.
 The dialogue, which was aimed at situating the FY2022/2023 budget in Uganda’s economic recovery, was jointly organised by the Ministry of Finance, Planning and Economic Development, and two NGOs, Advocates Coalition for Development and Environment (ACODE) and Civil Society Budget Advocacy Group (CSBAG). 
What is at stake?

Mr Arthur Bainomugisha, the executive director of ACODE, said the pace of expansion only picked up marginally to 3.3 percent in FY2020/2021, which was the slowest rate in almost three decades.
Mr Bainomugisha said the country has given many tax exemptions to investors, which shrinks the tax base.
 “We need to balance tax exemption with domestic revenue collection. Domestic resource mobilisation should be enhanced. Looking at donors is not going to be helpful. We need to look for money from within,” he said.

 “Uganda has already accumulated debts, almost 13 percent of our budget goes towards serving the debt and that’s not good for the economy,” he added. 
 Mr Julius Mukunda, the CSBAG director, said there is need for transparency in tax collection and limiting unnecessary spending.
 “Prudent public finance management is very critical. Covid-19 taught us that we can rationalise our expenses… 
“When we started budget rationalisation, we said we should spend money where we will get returns. I am glad that the Permanent Secretary and Secretary to the Treasury was able to realise about 1 trillion out of rationalisation. We need to rationalise before we go ahead to borrow money.” 

 The CSBAG director said government should involve the private sector in planning to reignite the economy. 
 “But private sector cannot function in an environment government takes all the domestic loans from. Where the appetite to borrow domestically is very high. It means little money is remaining for private sector and, therefore, the interest rate will go high,” Mr Mukunda said. 
 Businesses have been greatly affected by the Covid-19 pandemic which saw the country suffer two lockdowns.  Various sectors, including education, construction, hospitality, tourism, transport, food services, arts, entertainment, and recreation were affected. 

 Mr Bainomugisha said research by the Economic Policy Research Centre indicates that business activity was reduced by more than 50 percent points, and more than 70 percent of the businesses reduced the size of the workforce.
 According to Mr Enock Twinoburyo, a senior economist at the Sustainable Development Goals Centre for Africa (SDGC/A), quoting the government statistics, said the disruption of businesses led to a rise in poverty from 18.9 percent before the pandemic to 21.9 percent during the pandemic. 
 But Mr Ramathan Ggoobi, the Permanent Secretary and Secretary to the Treasury, said they have a clear strategy to restore economic growth. 

“We embrace the opportunity to increase transparency in budget preparation, execution and evidence-based policy making drawing on the extensive research and budget advocacy work that your [CSBAG and ACODE] institutions have championed in Uganda over the several years,” he said.  
 Mr Ggoobi said despite the negative impact of Covid-19, the economy realised a positive growth of 3.4 percent in Financial Year 2020/2021 compared to an increase of three percent in 2019/2020. 

 “In terms of income, GDP per capita in FY2021, increased to $954 (Shs3.5m) from $916 (Shs3.2m) in FY2019/2020, despite the high population growth rate of our country,” Dr Ggoobi said.
 He added: “This growth means that the progress to transition to medium income status is within reach. Economic recovery was reinforced by measures put in place by government and supported by some of our development partners.”

 The Finance Ministry in December last year presented to Parliament a budget estimate of Shs43 trillion for FY2022/2023. This is lower than the Shs44.7 trillion budget for the previous FY2021/2022. 
 Mr Ggoobi said accelerating the pace of socio-economic transformation will be done through boosting aggregate demand, restoring domestic consumption, renewing private and public sector investment and enhancing export promotion.
 “The key to economic recovery is the mitigation of the Covid-19 pandemic by vaccinating the remaining target population of Uganda and strengthening health system to fully control the spread of Covid-19 pandemic. Increasing the wealth of households and eliminating poverty using parish development model is the key for social economic transformation. Diversifying the economy and Uganda’s export basket are key,” he said. 

 Mr Henry Musasizi, the State minister for finance-in-charge of general duties, said they have put more than Shs1 trillion in UDB for businesses to access. 
 Mr Mukunda asked government to suspend projects that are not progressing.   “We need to solve the issue of low absorption and non-performing projects. Five-year projects that were supposed to have ended 10 years ago but they are still in our books and we are paying commitment fees should get out to create more fiscal space so that we will be able to get better projects,” he said. 

The dialogue
 Annually ACODE and its partners mobilise and organise stakeholders to discuss the context of the incoming national budget with a view to contribute to strengthening the planning and budgeting and ensure it responds to and addresses the challenges prevalent in the country. 
The presenters and panelists were drawn from the entire spectrum of stakeholders and across East Africa, including Government Ministries, Departments and Agencies, Parliament, development partners, academia, private sector, Civil Society and the General public.

Economic statistics
lGDP growth rate of 6.3 percent in FY2017/2018
lGDP growth rate of 6.4 percent in FY2018/2019. 
lGDP growth rate of 3.0 percent in FY2019/2020. 
lGDP growth rate of 3.4 percent in FY2020/2021.
lEstimated GDP growth rate of 4.2 percent in FY 2021/2022
lProjected GDP growth rate of 6 percent in FY2022/2023
l Business activity was reduced by more than 50 percentage points during Covid-19.
lOver 70 percent of the businesses reduced their size during Covid-19.
l Poverty rate before Covid -18.7 percent
lPoverty rate after Covid-19 -21.9 percent
l Budget for 2021/2022 –Shs44.7trillion 
lBudget estimate for 2022/2023 –Shs43 trillion