14 February 2013

Uganda: Govt to Raise Borrowing After Corruption Cuts Aid

Kampala — Uganda said it plans to increase domestic borrowing this fiscal year by 0.7 percent of GDP after donors withheld $282 million in budgetary support over a corruption scandal.

At least five western countries, including Uganda's biggest bilateral donor Britain, suspended their aid to the country late last year after officials in the prime minister's office were accused of embezzling $13 million meant for reconstruction.

The withdrawal of the aid, which amounts to 1.3 percent of GDP, threatens the economy's recovery from a sharp slowdown in the 2011/12 fiscal year that was caused by soaring inflation and a currency slump.

Growth fell to 3.4 percent that fiscal year from 6.7 percent in the previous period as inflation peaked at 30 percent and the shilling hit record lows against the dollar, driving up prices of basic commodities and sparking widespread protests.

The government expects the economy to expand by 4.3 percent this fiscal year, well below its medium-term potential of around seven percent.

The finance ministry told the International Monetary Fund in a letter of intent it would also cut 0.8 percent of the gross domestic product in expenditure, mainly in development spending.

"These actions (higher borrowing) will increase the fiscal burden to Government due to higher interest rates which will translate into higher cost of borrowing to the private sector," the ministry said in the letter published on Wednesday.

"This will contribute to reduce the pace of economic recovery in the short term."

The increased borrowing would be through issuance of government securities, the ministry said. The absolute level of planned borrowing was not available immediately but the nation of 33 million people has a GDP of about $17 billion.

Finance Minister Maria Kiwanuka had set the spending for the 2012/13 fiscal year, which runs from July to June, at 8.1 trillion shillings in her budget speech last June.

The finance ministry said recurrent spending would only be cut moderately because it had dropped to 10.3 percent of GDP this fiscal year from 11.2 percent in 2011/12.

Copyright © 2013 New Vision. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.