Parliament questions govt Shs4trillion spending

Uganda’s finance managers are relentlessly seeking funds to support the Shs58.3 trillion budget for the 2024/2025 Fiscal Year (FY) despite grappling to finance the running deficit national budget.  This struggle has necessitated the implementation of two supplementary budgets thus far.

Recent revelations from the August House that the national treasury tapped cash from the Consolidated Fund without parliamentary approval have raised serious fiscal concerns. The manner the treasury got through a statutory revision to push the approved Shs52.737 trillion national budget for the running FY to Shs60.27 trillion was deemed “irregular” as it, among others, surpassed the planned threshold.

Despite the House approving a Shs3.49 trillion supplementary budget for the current FY, the Treasury came to the realisation that it was not enough to cover required government spending. This prompted it to seek another Shs4 trillion albeit without approval from Parliament. This brought to Shs7.49 trillion the money that the government has spent in excess funds during the current FY.

Mr Henry Musasizi, the junior Finance minister, told the House Budget Committee last week, that “there are those things you must pay for.”

He said: “For instance, payments, you have budgeted to pay [at an interest rate of] say five percent and now the market reveals eight percent. Those things have strict timelines, so in order for us to pay at, for instance, eight percent, we do that through a statutory revision.”

Careful not to provide granular details, the junior Finance minister said while “there is some anomaly”, his ministry has “decided [that], going forward, what we are going to do is bring [financing requirements] to Parliament for approval.” 

Mr Patrick Isiagi, the Budget Committee chairperson, asked the Finance ministry “to do an investigation on where the money went and we also do our independent investigation, then we shall have a joint meeting.” And that if there is no meeting of minds, “then it will amount to gross indiscipline and mismanagement of the Treasury.”

Implications
Raquel Ferreira, a senior technical advisor at the Global Initiative for Fiscal Transparency, recently wrote on the International Monetary Fund’s website that fiscal transparency increases the government’s likelihood that it will carry out and implement its programmes in accordance with its openly shared plans and projections.

“For example, studies have found that fiscal transparency is associated with higher budget execution rates in the health and the education sectors, and better projections of GDP growth and inflation,” he wrote.

“The fact that much improved fiscal transparency has been achieved by many countries across the globe at different levels of development, also means that it is attainable when there is a political will,” he added.

Revelations of the  Finance ministry’s ‘irregular’ tapping of cash from the Consolidated Fund coincide with its release of funds to government parastatals, suppliers and creditors for the current FY’s fourth quarter. Data released by the Treasury on Friday shows that the government will disburse Shs7.678 trillion to various ministries, departments, and agencies (MDAs) for the final quarter of the 2023/2024 FY. This allocation brings the total government release for the FY to Shs28.564t, representing a surplus of 13.1 percent. 

The entire budget of the state required Shs52.74t, indicating a substantial deficit. Under the tax revenue financing, the government could only realise the Shs30 trillion target that it gave its taxman.

Experts hold that the disparity between budgetary requirements and available funds underscores the nation’s struggle to meet its financial obligations. This is because Friday’s disbursement of Shs7.687 trillion to MDAs was insufficient, covering only 30.4 percent of the required Shs25.25 trillion. This shortfall has significant implications for critical expenditures such as wages, non-wage allocations, development projects, as well as payments to suppliers that are on the Finance ministry’s to-do list.

Q4 allocations
The disbursement of funds prioritised the settlement of existing government liabilities, highlighting the government’s desperation to fulfil its financial obligations to creditors, employees, and suppliers. The entities that supply the government, however, received a mere fraction of the expected amount of only Shs10.45 billion out of the anticipated Shs215.79 billion for the current fiscal year.

A significant portion of the funds disbursed during the period, about Shs2.46 trillion, was allocated to the rehabilitation of the country’s transportation infrastructure. The Treasury sees this as key in enhancing economic growth and building competitiveness. Through this, the government wants to maintain the existing road networks, rehabilitate and upgrade aerodromes.

This has even compelled the state to renew its efforts on the construction of the standard gauge railway (SGR). Efforts to collaborate with Kenya on the SGR construction aim to expedite the project’s completion, with construction scheduled to commence in August. 

However, despite significant allocations to infrastructure projects, other sectors received comparatively minimal funding. The health sector, for instance, received only Shs25 billion out of the Shs2.46 trillion budget for development, with the majority of the allocation directed towards regional referral hospitals and the cancer institute.

In addition to budgetary funds released for several operations, the Treasury also addressed ongoing liabilities, allocating Shs3.35 trillion to settle outstanding obligations in non-wages. While this amount falls short of the required Shs11.64 trillion, the government prioritised addressing non-wage needs.

The government also advanced the implementation of the Parish Development Model (PDM), extending Shs529.7 billion to it in the fourth quarter. This brings the total allocation in the running FY to Shs1.059 trillion. The PDM is a service delivery strategy used by the Ugandan government to raise household income and welfare for its populace by converting 39 percent of households from subsistence to a money economy. 

While the state wants to quantify the results of this strategy at the end of the National Development Plan III in 2024/2025 fiscal year, there are already gaps in its coverage. The Treasury budgeted for 10,594 parishes instead of the 10,717 parishes gazetted by the Local Government ministry as of June 2022, according to the Auditor General John Muwanga’s government audit for the FY 2022/2023. As a result, 123 parishes were left out of the programme.

This was further observed in FY 2023/2024 where 118 parishes were not considered.
“I [also] noted ineligible and non-existent PDM enterprises. In 68 local governments, 604 beneficiaries in 242 PDM Saccos had implemented ineligible projects while, in 20 local governments, 53 beneficiaries in 44 PDM Saccos had non-existent projects,” Mr Muwanga added.

Challenges abound
Despite government efforts to address the several financial obligations, challenges persist in meeting wage requirements for government employees. While Shs1.87t was disbursed towards wages, the original plan was Shs7.3t. This effectively leaves a significant wage gap unpaid. To address this, the treasury initiated a special audit of the payroll to identify discrepancies and ensure accurate payments to employees. The audit revealed instances of unauthorised recruitment and excess hiring, leading to an increase in wage requirements. 

Consequently, the treasury implemented measures to prevent further irregularities. These included closing the payroll system’s window for new hires and mandating approval from the Public Service ministry for any additional recruitments.

In order to close this uncertain financing gap, the treasury has proposed a number of taxes on essential goods like building materials and gasoline in Parliament for the upcoming FY. This, however, has people worried that the already high cost of living will rise further.

In its efforts to reduce borrowing, the government wants to safeguard its fiscal operations in the midst of anticipated shortfall in revenue. This is especially so after a halt of World Bank financing stringed to the country’s anti-gay law that the Constitutional Court rejected to overturn early this month.

The Anti-Homosexuality Act includes provisions that make “aggravated homosexuality” an offence punishable by death and imposes sentences of up to life in prison for same-sex relationships. Due to the law, which “fundamentally contradicts” the values upheld by the US-based lender, the World Bank declared in August that it would no longer be making new loans to Uganda.

This has happened before. International aid to Uganda was drastically reduced in 2014 after President Museveni signed a Bill that attempted to imprison homosexuals for life but was later revoked. But legislators have defended the latest anti-gay law, viewing it as an essential safeguard against Western immorality.

Fresh set of taxes
Now, the country’s Treasury is seeking refuge in a raft of five sets of tax Bills—the Excise Duty Amendment Bill 2024, the Stamp Duty Amendment Bill 2024, the Income Tax Bill 2024, the Value Added Tax Bill 2024, and the Tax Procedures Amendments Bill 2024—that Minister Musasizi brought before Parliament a fortnight ago. According to the proposals, each 50kg bag of cement, adhesive, grout, white cement, or lime would be slapped with a Shs500 levy. They also seek to impose a levy of Shs1, 550 on gasoline, Shs1, 230 on gas oil, and Shs500 on paraffin per litre.

The government is also proposing additional taxes on bottled mineral water (10 percent, or Shs75 per litre, whichever is higher), opaque beer (12 percent, or Shs150 per litre, whichever is higher), and gains from the sale of land in cities and municipalities, rental property, and private company shares (10 percent, or Shs75 per litre, whichever is higher).

Its sole purpose is to avoid external borrowing that’s pegged to high interest rates which would be about Shs1.6 trillion on the international credit market.

The government now hopes to raise Shs1.9 trillion from the new tax proposals so that it avoids the budget deficits it has encountered in the current FY. But many economists and tax experts are not pleased with the proposals, arguing that they unfairly target the majority of the poor and expose them to negative consequences such as higher living standards. They contend that expanding the tax base is more of a solution than adding new taxes.

“The government is between a rock and a hard place. It does not have a wide tax base, and yet it needs to increase its tax revenues,” said Prof Augustus Nuwagaba, a macroeconomist.

Devt budget for FY 2023/2024 final quarter

Institution, billions of shillings

Ministry of Defence and Veteran Affairs    Shs629 
UNRA     Shs364.807
Ministry of Works &Transport, includes SGR     Shs146.141 
Outstanding obligation under Ministry of Water and Environment     Shs133.46 
Capital expenditure MEMD     Shs152.78 
Ministry of Agriculture, Animal Industry and Fisheries     Shs42.7 
Health Institution      
Cancer Institute     Shs12.5 
Heart Institute     Shs2.075
Regional Referral Hospitals     Shs10.487 
Kampala Capital City Authority under GOU development expenditure including funds for road maintenance and drainage.    Shs29.374 
Local Government Development Fund for roads maintenance     Shs88b

Reporting by Deogratius Wamala, Martin Luther Oketch & Arthur Arnold Wadero