The budget for Fiscal Year 2018/19 was recently read by  Uganda’s  Minister  of  Finance  Matia Kasaija retaining the theme “Industrialization for Job Creation and Shared Prosperity” on 14th June 2018.

Kasaija  said: “The  bold  steps  taken  to invest in security and infrastructure development have  set  the  stage  for  faster  and  sustained economic growth in Uganda.”

He  added  that  the  Financial  Year  2018/19 Budget goes further to support areas that will deliver inclusive growth especially in Agriculture and its value chain, as this is the anchor for our quest for Industrialization.

 

Sector allocations

In the budget, the total recurrent expenditure stands  at  Shs  9.4  trillion  while  development expenditure is estimated at Shs 13.1 trillion.  The additional Shs 10.1 trillion is classified as statutory expenditure.

  • – Works and Transport sector is taking a lion’s share of the budget at Shs 4.8 trillion, Shs 1

trillion above last year’s allocation.

  •  The education sector funding now stands at Shs 2.4 trillion on the same footing with the

Energy ministry.

  •  The health sector will get an allocation of Shs2.2 trillion  while  local  governments  will

collectively share Shs 3 trillion.

  •  According to  the  budget,  at  least  Shs  5 trillion  will  be  spent  on  public  sector management. Shs 1.4 trillion will be spent on security, and Shs 1.2 trillion will go the Justice Law and Order sector.
  •  The ministry of Agriculture will receive Shs 862 billion,  the  Ministry  of  Water  and Environment will take Shs 595 billion and the Legislature will receive an allocation of Shs 459 billion.

How will the 2018/19 Uganda budget be financed?

The size of Uganda’s economy currently stands at Shs101.8 trillion, which is equivalent to $27.9b. In the 2017/18 financial year, export earnings rose by 9.6 per cent to $3.93billion in the period July 2017 to

March 2018 from $3.59b. Government expects to mobilize financing from external sources. About Shs7.734 trillion, out of which Shs6.148 trillion will be loans and Shs1.585 trillion grants, is expected from donors. Government, will also finance the budget using domestic borrowing with Shs1.783 trillion expected from Treasury Bills and Bonds.

Domestic Revenue Mobilization

Government’s current revenue target is to achieve revenue to GDP ratio of 16 percent by the FY 019/20 as envisaged in the National Development Plan II (NDPII). The overall net revenue target for FY 2018/19 is Ushs 16.358 trillion, which translates into a growth of 14.6 percent as a share of GDP compared to the target of Ushs. 14.4 trillion for FY 2017/18 and this translates to 14.2 percent as a share of GDP. The main drivers for revenue in F/Y 2018/19 are based on the following assumptions; a) GDP growth of 6 percent, b) Stable inflation at 4.3, c) A stable exchange rate and d) Enhanced tax compliance

According to the budget speech, domestic revenue is projected to grow by Shs1.9 trillion to a total mobilization of Shs16.358 trillion, in his 2018/19 budget speech, Mr Matia Kasaija, the Finance minister, said out of the total domestic revenue projection, Shs15.938 trillion will be collected as tax revenue from the new tax measures which will come into effect at the beginning of July while Shs420b will be non tax revenue resources.

In order to generate more revenues, Finance minister Matia Kasaija says Uganda Revenue Authority (URA) will, among other things, pursue tax evaders, heighten  business  intelligence,  expand  tax  system management, enhance tax arrears management, combat smuggling, establish container scanners, and increase post clearance audits.

 

FY2018/19 Budget Deficit

However, although the budget swelled up to 32.7%, it worsens the country’s  debt  burden  as  50%  of  its  financing  will  be  from borrowing and grants.

The government expects to raise Shs 7.73 trillion through external financing Shs 6.14 trillion from loans, Shs 1.5 trillion from grants and Shs 1.78  trillion  from  domestic  borrowing.  This implies that collections by URA constitute roughly 50 per cent, leaving a deficit of 50 per cent, which will be filled by borrowing.

Although the Finance minister said Uganda’s debt to GDP ratio is still at 38.1 per cent and still sustainable, because it is still below the 50 per cent danger zone, borrowing 50 per cent to finance the budget will worsen the public debt. As of March 2018, Uganda’s debt  burden  was  $10.5bn,  and  since  there  have  been  more borrowing since March, and Shs 5.2 trillion will be for domestic debt refinancing but is silent on external debt refinancing.

Conclusion

The debt sustainability analyses indicate a low risk of debt distress for Uganda, the rate at which public debt stock is accumulating, points to increasing vulnerabilities to the country.

Government should embark on Spending in health, education and social protection sectors are essential to improve the quality of life of the population and boost growth, interest payment, which makes up almost 20 per cent of revenue.

 

Source: Uganda Debt Network

Vol: 173

18th -22nd June 2018

 

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