27 April 2014

Uganda: Pre-Budget Worries

Dr. Ezra Suruma, the board chairperson Uganda debt network makes his opening remarks during the pre-budget public dialogue at UMA hall on March 15. He recommended public and private sectors sh'd compliment each other for the development of the economy. INDEPENDENT/JIMMY SIYA Civil society wants urgent action on tax incentives, domestic debt.

As the June 12 date for presenting the 2014/15 budget draws close, pre-budget meetings or dialogues have kicked off in earnest.

At their meeting in Kampala on April 15, civil society players under their umbrella organization - Civil Society Budget Advocacy Group (CSBAG) - said that basing on the budget framework paper, the new budget was "more balanced" compared to that of last year. The new budget is projected to increase to Shs 14. 2 trillion up from the current Shs 13 trillion.

The major source of funding (over 80%) will be local revenue, while the balance is expected to come from loans and donations. But with some donors announcing aid cuts in the aftermath of corruption scandals and the recently-passed Anti-Homosexuality Act, Finance Minister Maria Kiwanuka has to find alternative sources of money. Raising taxes and/or introducing completely new taxes could therefore be inevitable. The main focus for the coming budget, which is significant as it is the last FY of the implementation period of the first National Development Plan, continues to be ensuring that government expenditure remains focused on investment in the key productive and social service sectors, according to Moses Sonko, an official from the Budget Department in Finance ministry.

Civil Society involvement in the budget-making process, according to CSBAG Coordinator Julius Mukunda, is based on the background of their commitment to good governance, social justice and national development as they seek to contribute to an environment that is conducive to and promotes dignity, opportunity and equality for all citizens.

"Every Ugandan has the role to participate in the budget [making] process," said Mukunda, before urging the government to provide simplified budget information to aid this participation.

As usual, according to the BFP, the proposed top priorities are works and transport with Shs 2.5 trillion accounting for the highest 18.1% of the entire proposed budget, energy and mineral development with Shs 1.7 trillion accounting for 12% of the entire proposed budget, education with Shs 1.7 trillion accounting for 11.9%, health with Shs 1.1 trillion accounting for 8.4 trillion, public sector management with Shs 1 trillion sharing 7.5% and security with Shs 1 trillion accounting for 7.1% of the entire budget.

Other sectors such as agriculture, water and environment, public administration, tourism, ICT, justice/law and order among others, have proposed budget allocations below a trillion shillings and their share is way below 7% of the entire cake.

However, the agriculture sector, which employs over 70% of the population, has a proposed budget of Shs 440 billion has an increment of Shs 58 billion compared to the allocation in 2013/14. Health has an increase of Shs 70.3 billion, water and environment has Shs 46.9 billion more and works and transport has an additional of Shs 64.8 billion compared to the 2013/14 budget. However, education has a proposed cut of Shs 62.2 billion as well as public sector management (Shs 23.4 billion) and security (Shs 43 billion).

URA concerns:

At the centre of the CSBAG discussion was the tax body; the Uganda Revenue Authority, which is mandated to collect revenue to finance over 80% of the entire budget. Already, the revenue body had a shortfall of Shs 289.72 billion by end of January 2014. Will they hit their target for FY 2013/14 and then the expected record target for 2014/15? The group argued that Uganda's revenue collections stand at a miserable 13% of GDP compared to over 18% of the Sub-Saharan countries, which means that URA has to improve tax efficiency and accountability. It also recommended that URA together with the Ministry of Finance should deliberately display all individuals and companies that have been granted tax holidays and exemptions by government.

The other pertinent issue was the performance of the economy which, the participants described as "stable and promising" in light of key indicators, inflation and the exchange rate. The two have remained relatively stable over the FY. That the monetary policy implementers have managed to maintain single digit inflation since August 2012 after a hike of up to 30% earlier, means that they deserve a vote of thanks, according to CSBAG. The group recommended that the structural bottlenecks affecting agriculture productivity need to be addressed since food prices carry the largest weight of over 27% in the calculation of inflation levels.

They urged government to invest more in irrigation, provision of agro-inputs like fertilizers, seeds through establishing model farms and other appropriate technologies like food storage and post-harvest techniques on top of strengthening extension services to farmers. They added that there is a need to strengthen the cooperative movement to promote collective marketing and stable prices for farmers as well as enabling the farmers to enjoy other benefits that accrue from such associations.

"We hope to see the sector's funding growing to 10% in the coming years," Mukunda said.

Uganda is among the signatories of many African countries to the 2003 Maputo Declaration aimed at increasing investment in the agriculture sector to at least 10% of the entire national budget, a requirement that Uganda is yet to meet. On the high interest rates, the civil society players recommended that the government should provide credit facilities such as the establishment of a cooperative bank and an agriculture bank to specifically help smallholder farmers and entrepreneurs who are more likely to be affected by the high commercial bank lending rates. The group further advised the government to re-consider its consumption and development expenditure.

They said the government needs to cut down on transport, workshops and trips abroad to save money, which it can then direct to productive sectors such as infrastructure and energy, education and health. CSBAG's other worry is the country's increased external debt from $2.45 billion in June 2007 to $6.4 billion by end of 2013. Worse still, the country's domestic debt in FY2014/14 is over Shs 1.6 trillion.

This will make the crowding out effect of the private sector worse, according to CSBAG. Total expenditure on interest payment is over Shs 1.1 trillion on both domestic and external debt in the FY2014/15. CSBAG recommended that the government should desist from domestic borrowing as this would crowd out the private sector. The government should also seek to effectively spend the locally-sourced revenue to reduce the need for borrowing both internally and externally.

For the health sector and local government, CSBAG recommended that the government recruits more workers to counter the low staffing challenge to match with the ever increasing population seeking the service. On the water sector, the group said there is need to significantly increase the funds allocated under the sector budget to the district Water and Sanitation Grant in addition to investing in environmental conservation and restoration programs with respect to oil exploration in Uganda.

They also urged the government to empower corruption-fighting institutions such as the Police and the Auditor General by allocating them sufficient funds and ensuring that they are not interfered with in their daily activities. Also, seizing the property of those implicated in corruption scandals is solution suggested by the civil society group. If this is well done, it could give donors the right signals so as to rethink aid suspension. Maggie Kigozi, a director at Crown Beverages Ltd, and the former Uganda Investment Authority boss, was positive about the budget saying the priorities were well thought out.

She said supporting the private sector to access cheap credit, good quality and affordable agricultural inputs among other avenues would be a step forward towards boosting economic growth. This would see URA collect more taxes to reduce the tax deficit. She said the government's growing domestic debt was a danger to the private sector.

"If the private sector supplies goods and services to government and it fails to pay in time that would kill local businesses instead," she said, adding that this should be appropriately handled by government. Similarly, Michael Oketcho, the head of policy and advocacy at the Uganda Manufactures Association (UMA), said supporting companies by putting in place favorable economic conditions would benefit government.

"Since the government collects 30% corporation tax from these companies it means the government has a stake in them," Oketcho said.

He said developing skills among the workforce in the manufacturing sector would boost the sector's growth. Sonko (from the ministry of finance, Budget Department), said the government's commitment remains to achieve real economic growth of 7% and single digit inflation in FY 2014/15 in addition to having high levels of foreign exchange reserves and a competitive exchange rate.

He added that boosting science and innovation is government's other priority, which will be the key to boosting industrialization.

Former Finance Minister, Ezra Suruma who chaired the meeting, said going forward; government should ensure that money supply does not exceed the amount of goods and services on the market to prevent sky-rocketing inflationary pressures like it was in 2011and some parts of 2012.

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