What you need to know:
- In the post-election economic and fiscal update, the Ministry of Finance, Planning and Economic Development said the reduction in fiscal deficit is owing to a better than previously expected outlook on domestic revenue mobilisation for the financial year ending June 30 2021.
The government has revised down its total spending which will see the fiscal deficit reduce to 9.7 per cent from an earlier projection of 10.7 per cent following a positive outcome during the course of the year.
In the post-election economic and fiscal update, the Ministry of Finance, Planning and Economic Development said the reduction in fiscal deficit is owing to a better than previously expected outlook on domestic revenue mobilisation for the financial year ending June 30 2021.
The Finance ministry says the overall deficit for the period Quarter One to Quarter Three was Shs10.037 trillion against a planned deficit of Shs11.514 trillion, which was financed through borrowing from both the domestic financial market and external development partners.
In addition, the Finance ministry says the government borrowed Shs5.816 trillion during the period from the domestic market to support activities in the Budget.
It further pointed out that the lower deficit was mainly due to lower than planned spending on externally financed development activities.
However, on the other hand, it said the domestic fiscal deficit (which tracks domestically financed government expenditure vis a vis domestic revenues) amounted to Shs6.470 trillion as compared to the planned deficit of Shs4.436 trillion.
This implies that during this period, government spending was higher than the available funds in the basket of government expenditure.
The Finance ministry said domestically-financed expenditure exceeded the budget for the period, as spending on salaries, clearance of arrears and capital development projects was higher than the respective plans.
It says during this period, a number of ministries, departments and agencies (MDAs) were allowed to undertake additional spending to support government’s response to the health and economic crises posed by the Covid-19 pandemic, which has resulted in revenue shortfall for the financial year.
Overall, government expenditure during the period amounted to Shs25.514 trillion against planned spending of Shs29.006 trillion for the first three quarters of the financial year, resulting in an 88 per cent performance.
This was largely attributed to the lower than planned spending on externally financed development activities, which performed at 54.5 per cent.
The report reveals that a total of Shs4.239 trillion in loan financing was disbursed from external sources, out of which Shs1.344 trillion was for general budget support, while the rest was tagged towards various projects.
During the period, total revenue and grants amounted to Shs15.477 trillion against a target of Shs17.492 trillion for the period up to March.
Of this amount, Shs14.351 trillion was from domestic revenue collections, while Shs1.125 trillion was in the form of grants from development partners.
As per the budget, domestic revenue for Financial Year 2020/2021 was projected to amount to Shs21.810 trillion in the appropriated budget. Of this amount, tax collections would be Shs20.219 trillion, while non-tax revenue would be Shs1.590 trillion.
As at the end of March, cumulative revenue collections amounted to Shs14.351 trillion, which is equivalent to 65.8 per cent of the target for the whole year. This represents a cumulative shortfall of Shs1.780 trillion as at the end of March.
The Ministry of Finance explains that underperformance in domestic revenue for this period is mainly explained by, among others, impact of the Covid-19 and related restrictions on economic activity in the first half of the financial year, delay in the implementation of some important tax administration reforms by the Uganda Revenue Authority, for instance the delay to implement the rental income tax collection solution and the Electronic Fiscal Receipting and Invoicing System (EFRIS).
A fiscal deficit or government fiscal (or budget) deficit is the difference between its spending and income from taxes and other revenues. A “large deficit” implies that state sector spending substantially exceeds tax revenues it collects in a given year.