Uganda Focuses Spending on Defence, Energy and Transport Sectors

Defence, energy and transport sectors ate big while allocations to fiscal stimulus programmes and settlement of domestic arrears received "humble pie" in Uganda's budget blue print for financial year 2021/22 in an attempt to steer economic recovery through additional investments in ongoing infrastructure projects.

The works and transport sector was allocated Ush5.1 trillion ($1.4 billion) for integrated transport infrastructure investments with a provision of Ush400 billion ($113 million) meant for road maintenance works in an arrangement intended to benefit current road construction projects in the Albertine region as the country ramps up preparations for commercial oil production anticipated to commence in 2023.

"The huge allocations made to the transport sector are meant to speed up construction of the road network in the Albertine region and facilitate initial production of first oil by international oil companies. A combination of increased expenditure on these projects and early investments done by the oil companies will indirectly expand economic activity and boost the economy in the short term," said Dr Albert Musisi, Commissioner for Macroeconomic Policy at Uganda's Ministry of Finance, Planning and Economic Development.

The defence and security docket received Ush6.9 trillion ($1.95 billion), an amount that secured a lion's share of the country resource envelope meant to bankroll planned military operations in South Sudan and in the Eastern Democratic Republic of Congo (DRC), a mineral rich trade hub that borders parts of Western and Northern Uganda and also accommodates the Allied Democratic Forces rebels, a terror group hostile to the Ugandan government.

So far, Ugandan troops are reported to have entered parts of Eastern DRC in preparation for a military offensive but the duration of this military campaign remains unclear. A portion of the defence budget allocation will be spent on construction of 30,000 housing units for military personnel.

The energy sector was allocated Ush1.1 trillion ($310.9 million) for infrastructure development, with Ush622 billion ($175.8 million) provided for expansion of rural electrification programmes. This budget allocation seemingly promises sweet opportunities for energy industry contractors and modest financial relief for Umeme Ltd, which is owed more than Ush200 billion ($56.5 million) in unpaid bills incurred on subsidised power connections done in rural areas since 2018.

New judges

In comparison, budget allocations made to the judiciary rose from Ush199 billion ($56.2 million) in 2020/21 to Ush377 billion ($106.5 million) in 2021/22 in a drastic move intended to support recruitment of new judges, enhancement of judicial officers' salaries and allowances, construction of new courts and purchase of new courtroom equipment among others. The High Court judicial circuit is served by roughly 80 judges compared to a targeted requirement of 150 judges.

In contrast, a sum of Ush103 billion ($29 million) was allocated to the Uganda Development Bank (UDB) in additional capital meant for lending to distressed small businesses affected by the Corona virus pandemic following widespread business closures that have affected thousands of Small to Medium Enterprises(SMEs) since last year.

Around Ush400 billion ($113 million) was allocated towards payment of domestic arrears during financial year 2021/22 compared to Ush773 billion ($218.4 million) spent on clearing domestic arrears in the current financial year. The total value of accumulated domestic arrears is estimated at Ush3 trillion ($847.9 million) to date, according to government records.

"The new budget is mainly guided by historical thinking and not a Covid-19 pandemic planning mindset. This explains the increased budget allocations made to the transport and energy sectors which are supposed to cater for ongoing infrastructure projects inspite of changing economic realities," argued Dr Fred Muhumuza, a local economist.

The overall resource envelope for financial year 2021/22 is estimated at Ush44, 778.7 billion ($12.7 billion) while the tax collection target was raised from Ush19 trillion ($5.4 billion) in 2020/21 to Ush22.445 trillion ($6.3 billion) for 2021/22, according to Ministry of Finance data. Total domestic borrowing is projected at Ush2 trillion ($565.2 million) during 2021/22 while total public debt stood at $17.69 billion by end of May 2021. The economy is projected to expand by three percent in 2020/21 and is forecast to grow by 3.3 percent in 2021/22.

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