Last week, the ministry of Finance, Planning and Economic Development decried the growing decline of external financing in Uganda, warning that this could constrain government's ability to meet its expenditures on time.
The government revealed this during the presentation of the Budget Strategy for Financial Year 2025/2026. According to Amos Lugoloobi, the state minister for planning, the decline in external financing is linked to the ongoing wars in Ukraine and Palestine, which have shifted their attention - and wallets - from supporting developing countries such as Uganda, to financing those affected by the wars.
"They are sponsoring the wars in Ukraine, Israel and Palestine. Their priorities have since shifted. Remember that for any country, as you grow beyond a middle-income level, they look at you as an adult who should be able to sustain your own growth. So, they shift attention from you to the least developed countries because they need concessional support. Then they start believing that you can borrow commercially to finance your activities," he said.
He added: "We have been relying on external sources of financing for our budgets for a long time. But these sources are dwindling. Now we have to run to innovative ways of financing the budget through domestic financing, and one of such measures is to leverage our available assets to issue long-term bonds like infrastructure bonds, where we can mobilise investment from private individuals, the diaspora, to be able to invest their resources."
Lugoloobi said if you invest in a bond, you earn income.
"Previously, if you issued a bond externally, that income goes to someone who is out there. This is now to give an opportunity to all Ugandans to participate and earn from this type of financing. We have institutions such as the NSSF; they can take full advantage of this investment. So, the only challenge is to mobilise as much savings as possible through these innovative means of finance," he said.
Matia Kasaija, the minister of Finance, Planning and Economic Development, noted that external financing has been on the decline and this calls for strengthening the implementation mechanisms of the Domestic Revenue Mobilisation Strategy. He said the government will finance the budget for the financial year 2025/2026 using its domestic resources as well as external resources.
We shall repurpose the resources in the current budget and improve allocative efficiency to focus on the prioritised sectors of the economy and effective implementation of the Domestic Revenue Mobilisation Strategy (DRMS) with a major focus on combating tax evasion and smuggling.
According to the strategy, the government will diversify public finance options by implementing the Public Investment Financing Strategy (PIFS), including concessional and commercial loans, Islamic finance and climate finance, among others.
Despite plans, the minister said they are cognisant of some risks that could undermine the implementation of the budget for the next financial year. The mitigating factors include global factors resulting in high interest rates, high costs of debt and external trade, tourism and disruptions in Foreign Direct Investment (FDI), as well as lower- than-projected performance by Uganda Revenue Authority.
To overcome this challenge, the government will continue strengthening efforts to increase domestic revenue mobilisation and implement economic and commercial diplomacy for sustaining trade, tourism and FDI flows.
"Effectiveness of public institutions, especially dealing with weak implementation and corruption. We shall continue implementing the public sector efficiency reforms, including rationalisation of government departments and agencies as well as intensifying the fight against corruption," Kasaija said.
It is more than three years since government announced its decision to merge certain government agencies in order to arrest duplication of effort and lower the costs of administration. However, government's decision has met stiff resistance among some agencies so much so that certain agencies have been accused of bribing parliament not to rubberstamp government's decision.
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Although government has set up a number of anti-corruption agencies to fight the vice, experts say there just isn't political will to fight corruption, and that the problem is here to stay for the foreseeable future.
The strategy indicates that the government will operationalise new cities in the coming financial year. Cabinet and parliament approved the creation of 15 cities to be operationalised in a phased manner. In FY 2020/21, 10 cities were operationalised, including Soroti, Lira, Gulu,
Arua, Hoima, Fort Portal, Mbarara, Masaka, Jinja and Mbale.
"I have the honour to announce that we have secured resources to operationalise the remaining cities. Effective July 1, 2025, Moroto, Kabale, Entebbe and Nakasongola will attain city status. Wakiso district will also obtain city status," Kasaija said.
