Thursday, June 20, 2013

UGANDA’S FY 13/14 BUDGET AND ITS FISCAL EMBARRASSMENTS



UGANDA’S FY 13/14 BUDGET; NO TRANSFORMATION ON THE HORIZON.

The dominant narrative in the aftermath of FY 13/14 Budget Speech by the Minister of Finance Hon. Maria Kiwanuka has been the claim that Government (read tax payers) will be funding 80% of the Ugx 13.169 Trillion budget. Resource inflows projected at Ugx 10.509 Trillion (representing 81% of total resource inflows) shall be sourced domestically. These domestic sources are; Tax revenue collected by URA to the tune of Ugx 8.486 Trillion, Non-tax revenue Ugx 275 billion, then Ugx 708 billion shall be drawn from government savings at Bank of Uganda and Ugx 1 Trillion shall be borrowed from domestic financial markets i.e. banks. So in reality, we (tax payers) are funding only 72% of the budget since domestic borrowing contributes close to 8% of domestic sources. The other sources of funding in the budget are Ugx 2.453 Trillion in form of Project Support (Ugx 1.752 in form of Project loans and Ugx 700 billion in form of project grants). Budget Support in form of grants and debt relief amounting to Ugx 52 billion and Ugx 168 billion respectively are the other resource inflows expected this year’s budget. So, it is clear that the fiscal deficit (including grants) of Ugx 3 Trillion shall be covered by borrowing Ugx 1.8 Trillion on the domestic market (the domestic borrowing and drawings from  Bank of Uganda), and Ugx 1.2 trillion from external financing on net basis.  
 Cognizant of the outlay of the projected resource inflows, we may now want to ask ourselves, what are we funding or what shall we be spending the money on this financial year that will keep us on the journey to socio-economic transformation as indicated in the budget theme? The best insight on this is from the monthly “Performance of the Economy Reports” by the Ministry of Finance, Planning and Economic Development. According to the April 2013 Report (at 10 months into the FY 2012/2013), Ugx 6.76 Trillion had been received in Revenue and Grants. Revenue from both URA tax revenue and Non- URA revenue amounted to Ugx 5.73 Trillion and Ugx 160 billion respectively. Grants for both budget and project support totaled Ugx 878 billion for the 10 months in the financial year.  However the government consolidated expenditure for the first 10 months in FY 12/13 was to the tune of Ugx 8.21 Trillion thus a fiscal deficit of Ugx 1.45 Trillion. As has been the wont of government, it addressed the fiscal deficit using both external financing (net) and domestic borrowing to the tune of Ugx 856 billion and Ugx 749 billion respectively. This is not any different from the outlay of the FY 13/14 budget. There are major resource shortfalls in the budget that will require borrowing from both the external market and domestic markets. With the latter approach, we risk “crowding-out” the private sector players since banks always prefer government debt to private loans due to the risks associated with private sector lending. In effect growth of private sector credit shall slow down thus less finance available for production investments and business expansions. 

Secondly and more importantly, Uganda’s political and budget architecture is chronically deficient of any paradigm that drives efficiency in resource utilization. According to the Background to the Budget FY 13/14, for the FY 12/13 the total consolidated expenditure including donor funding totaled to Ugx 10.9 Trillion. Ugx 7.5 Trillion was spent at the Centre (Central Government), while Ugx 1.89 Trillion was spent under Local Government. Ugx 1.1 Trillion of Local Government expenditure was on Wages and Salaries, Ugx 390 on recurrent expenditure e.g. rent, utilities, fuel, office logistics, conferences etc., while a paltry Ugx 400 billion was spent on development activities e.g. production, roads, construction, health and education. It is clear the logic that informed Uganda’s decentralization policy won’t be achieved both in the short and long term. The argument that local government brings services closer to the people is political rhetoric that has no reflection in the national budget. The current budget architecture doesn’t deliver services to the people at the grass roots. 

 The projections in the FY 13/14 budget are not any different from last year’s. Ugx 1.905 Trillion has been allocated to the Local Government with Wages and Recurrent expenditure taking over 80% of the total allocation to the sector. The BTTB 2013/14 further indicates that over 50% of total budget allocations (as indicated in the medium term expenditure framework) shall cover wages and recurrent expenditure at Ugx 2.33 Trillion and Ugx 3.90 Trillion respectively. Only Ugx 4.2 Trillion and Ugx 2.23 have been allocated and allowed for domestic development expenditure and donor funded projects. Considering that a significant amount of funding for development expenditure will be reliant on domestic borrowing and donor funding i.e. loans and grants, it is clear the chest-thumping on funding 80% of the budget is not premised on robust fundamentals. We are spending the bulk of resources to sustain a large government that is low on work ethics, management best practices, key performance indicators and efficiency. In its current architecture, the budget won’t foster any social-economic transformation that is buttressed by accumulation and development of capital goods that drive production and wealth creation for the ordinary people.

Agaba Rugaba
Socio-Political Commentator.