Uganda: Govt to Borrow Shs 2 Trillion to Cover Budget Deficit

6 December 2019

Government plans to borrow Shs 2.43 trillion to finance a budget shortfall realized a few months into the current financial year.

According to a domestic loan request presented to parliament on Wednesday, government says that out of the Shs 2.43 trillion, €300 million is to be borrowed from Stanbic bank Uganda and another €300 million from the Trade Development bank.

The money will be repaid in 7 years at an interest of 4.4 per cent. The grace period provided by the banks is 2 years. The minister of state for Planning, David Bahati presented the proposal during the parliament session chaired by deputy speaker Jacob Oulanyah. The Constitution requires government to seek parliament's approval before it can take on or guarantee a loan.

In June this year, Finance minister Matia Kasaija presented a Shs 40.5 trillion budget approved by parliament for the financial year 2019/2020.

However, five months into the financial year, government has realized a low revenue performance, which is attributed to delays in the implementation of some administrative measures which had been projected to generate revenues. These included the Digital Tax Stamps (Shs 150 billion), electronic fiscal devices (Shs 170 billion), rental income tax (Shs 174.63 billion) and the MTN Uganda national operator license fees of $100 million.

"In order to implement the budget for financial year 2019/2020 and meet the additional expenditure pressures, government must borrow either domestically or externally to cover the budget deficit," Bahati says in his proposal.

He said that the ministry received four offers from the market which included Trade Development Bank (TDB), Stanbic bank (U) Ltd, Absa and Citi bank, two of which offered the best terms.

Bahati says that the shortfall has also been caused by additional expenditure pressures including non-receipt of World Bank budget support funds and non-receipt of capital gains tax totalling to Shs 2.43 billion.

The minister said that the financial year 2019/2020 has additional expenditure pressures amounting to Shs 1.432 trillion intended for security or classified expenditure, wage shortfalls, counterpart funding obligations for projects and emergencies.

Further, the minister said that certain decisions of parliament including the refusal of the proposal for accounting for rental tax, imposition of a minimum tax of 0.5 per cent on losses carried forward beyond seven years and the repeal of 1 per cent of withholding tax on agricultural supplies led to a Shs 48 billion revenue shortfall.

He said that even after submitting a supplementary request of Shs 437.6 billion to parliament, the national budget has additional expenditure pressures amounting to Shs 1.432 trillion intended to cover security and classified expenditure; wage shortfalls; counterpart funding obligations for projects; and emergencies.

Oulanyah referred the proposals to parliament's national economy committee to consider and report back to parliament.

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