Uganda budget to tackle high price increases

Uganda, budget, tackle, high, price, increases, PAC, Syda Bbumba, Nandala Mafabi

Uganda's Finance minister Syda Bbumba is expected in the next few weeks to present the 2011/2012 national budget amidst the spiralling cost of fuel, food and other basic commodities prices that have affected most of the people struggling to earn a living leading to protests in various parts of the country

The country has just gone through national elections and government officials admit the elections have left the government broke having spent additional budget allocations to government State House, the police and the army and are warning of tough economic times ahead.

"The money has gone into the campaigns and not productive sectors. If it were for capital development, it would be known. It is being consumed and to recoup it, it will take us about three years and this means the cost of living is going to go up while the standard of living down, " said Mr Nandala Mafabi, the chairman of the Public Accounts Committee (PAC).

Development spending

Economists warn that various projects in the country will be affected as there will be a squeeze in development spending, adding that the money will be spent on administrative costs. These are areas that do not produce goods and services and in the long run will affect the growth of the economy.

"The government must prioritise budget expenditure by putting money in agriculture, industry, infrastructure and power generation, " Mr Lawrence Bategeka, a senior research fellow at the Economic Policy Research Centre at Makerere university says in an interview with AR adding that the country is faced with high food and fuel prices which are driving prices increases of other basic items used by the ordinary person.

"The high food prices the country is experiencing are a seasonal factor. The supply of food is low but the prices are expected to go down when the harvests begin in July since we have had rains. Food prices however account for 27 per cent of the entire consumption basket and once food prices rises, the risk of high prices is very high," he noted during the interview.

"Panic mode"

"I do not think the economy is in a panic mode. It's only people who can force a crush through adverse expectations. The economy is facing high fuel prices and food prices and we need to ensure we avoid panic by using our money very well," he said, adding that the government must invest in industry, agriculture, water, roads, train and power as these are necessary to enable the private sector move foward.

Mr Bategeka adds that during the election period, people did not know which way the country would go and others out of fear hoarded commodities including foreign exchange which brings scarcity thus contributing to the higher prices Ugandans are now going through.

The government is expected to raise 9.3tn shillings in the next financial year of which only 24.5 per cent would be from donors and the rest would be domestic resources including savings from the energy fund and oil tax proceeds.

Tax reviews

President Yoweri Museveni, while explaining the recent increase in fuel and food prices, notes that his government resuscitated the economy, the revenue base has widened, investors returned and dependency on donor aid reduced. He adds that the government may review the taxes downwards if he is convinced that this would not destabilise funding for infrustructural projects and development.

He lists the main priorities the government is going to work on in the next five years as energy (power), roads, railway, air transport, education, health and water.

Mr Museveni says as a consquence of persistently sound economic policy and mangement reform since 1986, the Ugandan economy has been stable over the period registering an average annual real GDP growth rate of 7.5 per cent over the last twenty five years.

"In 1986, when the current government came to power, agriculture contributed to 56 per cent of the total output in the economy. Industrial output was only 10.2 per cent of GDP and services contributed only 33.4 per cent of GDP. By 2010, this situation had been reversed to 16.1 per cent for agriculture, 28 per cent for industry and 56 percent for services," he explains.

He says once the problem of elecricity is solved, the economy will roar foward and the households living below the poverty line have also declined from 56 per cent to 24.5 per cent by 2010.

The Ugandan leader adds the total export of goods and services in 1986 only amounted to $406mn while between 1986 and 2010, total export of goods and services grew by 714 per cent to $2.3bn for goods and $991mn for services giving a total of $3.3bn.

Good performance

The president also lists three reasons for the good economic perfomance and these include government insistence on macro-economic stability, the government's unwavering promotion of private sector-led growth and the stability in the country.

According to the current Background to the Budget publication of the ministry of Finance, the economy grew by 5. 8 percent in financila year 2009/10 which is 1. 4 percentage points less than the growth rate of 7. 2 percent attained last financial year.

It notes that "although there was a slowdown in the growth rate of GDP, it was nevertheless robust given that the country faced adverse external shocks as well as disasters during the year. "

The document states that over the past two decades, the Uganda economy has established a strong record of prudent macro-economic mangement and continues to undertake private-sector oriented structural reforms.

"Implementation of sound macro economic and structural economic policies have resulted in robust economic growth and increased resilience of the economy to external shocks like the recent global financial and economic crises, volatility in oil prices and the escalation of food prices in the region.

Challenges ahead

The publication however notes that the economy still faces challenges that will have to be addressed in the short, medium and long term and these include persistentily high unemployment especially among the youth, inadequate skills development and inadequate infrastructural networks like roads, railway, energy, waterways and internet usage and a low manufacturing base.

It says resources available for allocation consists of domestically raised revenues, foreign donor aid in forms of grants and loans and financing from the domestic banking system.

Domestic revenues are projected to grow by about 17 per cent against a projected 15.2 per cent for financial year 2009/10 and this growth is forecasted to average about 17 per cent over the medium term. As a source of financing, domestic revenues will fund approximately 69 per cent of the budget during financial year 2010 and the balance through the support of partners.

Donor funding

Donor aid during 2010/2011 is forecasted to decline by 1. 4 per cent to $887.9mn. Uganda's prime minister, Professor Apollo Nsibambi was recently reported as cautioning that goverment would reject donor funding that does not conform to the national development framework since such budget off-budget expenditure distorts the economy.

According to the regional East African newspaper, the treasury is expected to cut back on allowances, travel and workshops and is also going to carry out cuts in development expenditure due to its high import content and the unforeseen exchange rate depreciation.

"It means that development budget plans as of June 2010 cannot be met. The ministry of Finance is therefore reviewing all the development expenditure to see which ones can easily be staggered, " the paper quotes a central Bank official Dr Adam Mugume as saying.


Dr Mugume however says that Uganda will achieve the projected level of GDP growth by the end of the fiscal period. "The economy is quite strong and the first qurter GDP figures indicate a very high growth and if it were to be maintained, we would achieve growth rates of above 10 per cent, " he is further reported as saying.

As Ugandans continue protesting over the escalating prices of essential goods, president Museveni tries to re-assure the people that the government may review taxes if he is convinced that this would not destabilize funding for infrastructural projects.

He says Uganda's taxes are comparatively low in the region and account for only 12.8 per cent of GDP compared to 18 per cent of GDP of Kenya and 16 per cent of GDP in Tanzania.


Geoffrey Muleme

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
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