19 June 2017

Uganda: Reflections On Financial Year 2017/18 Budget

opinion

This year's Budget, like the one before it and many others in the last decade, has not been 'pro-people'. All these Budgets have laid emphasis on infrastructure. If it is not roads, then it is electricity and then more roads and now the standard gauge railway. The country is 'choking' on infrastructure, which crops up all the time, as a panacea for development, forgetting that people are the real engine for growth.

A few months ago, the country woke up to the shocking news that over the last seven years, Shs4 trillion had gone 'missing' in Uganda National Road Authority (Unra). Those in the know say that this was just the tip of the iceberg. Uganda probably lost nearly Shs20 trillion in that period in thefts of public funds in various departments of government. This includes money lost in poor workmanship as contractors cut corners to 'save' money for bribing officials to certify work which these corrupt officials know will not stand the test of time. Sometime back a contract was signed with a non-existent company to build a road and Shs24 billion was advanced to it.

This fictitious company sub-contracted the work to a Chinese company and left with most of money. There is no guarantee that the trillions allocated to roads will not suffer a similar fate this financial year.

On electricity, there are several power plants being built which on completion will boost electricity power generation capacity from 800 Megawatts to more than 2,000 Megawatts.

Currently, Uganda consumes just over 600 Megawatts daily from an installed capacity of 800 Megawatts. In other words the current power plants could produce more but there will be no consumers and so the government ends up compensating these companies for the idle capacity. So when the President said in his Budget speech that "we are producing excess electricity" in Uganda, he was right, but he should have added that only 10 per cent - 15 per cent of the population has access to electricity, most of them are in the urban areas.

Most of rural areas are suffering from total darkness and the so called rural electrification programme has not been successful. With 85 per cent - 90 per cent of the population not connected to the grid and with 'snail-pace' industrialisation, one wonders where all this extra power to be generated will go. Kenya which was supposed to import some of it has switched to Ethiopia, whose production of 6,000 Megawatts from a single dam made history, not just by the sheer size of the project, but the country's ability to deliver it on time, using Chinese money and technology but utilising Ethiopian engineers as the main drivers of the project.

Ethiopia is also offering attractively low prices for its power, something Uganda can never match. When Ethiopia embarked on this gigantic project, it already had a plan for the utilization of the power. Ethiopia is the fastest growing economy in Africa and is set to be a middle income country by the year 2040 at the latest. This will be a monumental achievement for a country of 100 million people with no significant mineral wealth. It has many political problems, but its economic achievements since 1991 when dictator Mengistu Haile Mariam was deposed, are remarkable. I worked in Addis Ababa for four years from 1979 - 1983 and by then it was a shambolic city, extremely dirty and full of beggars.

The pictures I have seen of Addis Ababa today, with an electric commuter train running in the middle of the city have literally blown my mind away with great joy. Addis Ababa is now a modern city soon to rival Nairobi and may be overtake it.

Turning to Uganda's budget of Shs29 trillion, a mind boggling shs 10 trillion or 34 per cent will go towards servicing Uganda's unsustainable debt of shs 37 trillion which is growing exponentially. I have heard some economists say that we are still below our debt ceiling of 50 per cent of GDP! They must be living in 'cloud cuckoo land'!

With only Shs15 trillion of budget expected from internal revenue/taxation and the balance of Shs14 trillion from external borrowing, Uganda has already surpassed the level of debt sustainability. (All the Shs10 trillion earmarked for debt servicing will be replaced with new borrowing of Shs14 trillion).

With economic growth at a paltry 3.9 per cent, (compared to Kenya's 6 per cent and Tanzania's 7 per cent), inflation of 6.8 per cent, population growth of 3.5 per cent, and youth unemployment of 80 per cent, Uganda is definitely a poor debt -ridden country. Our children, grandchildren great grandchildren will be crying, "World Bank etuyambe" (World Bank help us) as they seek debt write-offs, like we did in the late 1990s and early 2000s and our multilateral debt was wiped out, only to see it rise up to $8.8 billion by 2016.

The problem though is that we have entered into the commercial loans zone, especially with China as the leading lender, which will not listen to those pleas. Our grandchildren and great grandchildren will surely curse us until Jesus returns!

Mr Naggaga is an economist, administrator and retired ambassador.

Uganda

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