Uganda Budget deviate to domestic borrowing

The scandal at the office of the Prime Minister in Uganda may be seen as insignificant but the truth that lies underneath is that the fact that the country that relied on donor funding may be preparing to deviate further to local or domestic borrowing to suppress the fiscal budget of the next year.

As a preparedness measure the Finance Minister Maria Kiwanuka will increase the domestic borrowing by 0.7 per cent of the GDP after 5 crucial donors withdrew their budgetary support for the country that saw the embezzlement of close to $13million meant for reconstruction.

The donors are said to have withheld their $282million in budget support and what does that mean for Uganda? It will be noted that EAC member states deviated to domestic borrowing in the ongoing financial year which began in July 2012 and its ending in June 2013.

The FY2012/13 was meant so because of the ongoing euro zone crisis that according to Mario Draghi who is the president of the European Central Bank, the Euro economy is showing signs of stabilizing and may be in the period of contagion.

With the Uganda Finance minister Maria Kiwanuka projection the GDP growth slowing to 3.2 percent, the withdraw of British budgetary support, things may be hotter for the Pearl of Africa.  According to statistics the GDP dropped from 6.7 per cent to 3.4 per cent in the current financial year and therefore despite the benefits of domestic borrowing the government should devise other mechanisms to suppress the challenges.

In the current fiscal budget Kiwanuka had projected that  donor funds rates  to Uganda will reduce from 2.7% of GDP in 2011/12 to 1.8% of GDP in 2012/13 a move that is seen to affect the Ugandan economy especially in the infrastructural development of the pearl of Africa. Now the fate of the 1.3 per cent donor input is unknown and Uganda may have to withdraw some of the massive infrastructural developments in the current fiscal year to contain the gap.

Combined with the highest inflation rate ever in the history of Uganda of 30% and the shilling trading poorly against the dollar, the finance ministry has an uphill task that it may not contain.

The country faces the challenge of having the prices of basic commodities to an imaginable rates and the norm of the currency being regarded as paper may not be avoided. It’s the high time for the NRM administration not only revisit its administration but also bring to book those involved in the embezzlement of the $13Million meant for the reconstruction placed under Amama Mbabazi’s office.

Uganda government has had high expectations of economy to expand by 4.3 per cent in the ongoing fiscal year though it had projected it to be at 7 per cent.

According to a letter sent to the International Monetary Fund (IMF) published by Ministry of Finance the treasury said that it would cut 0.8 per cent of the gross domestic product in expenditure a move that will affect the development.

“These actions will increase the fiscal burden to government due to higher interest rates which will translate into higher cost of borrowing to the private sector,” the ministry said in a letter to the IMF.

The ministry added that the move would contribute to reduce the pace of economic recovery in the short term and this would be done through issuance of government securities.

Uganda had set forth the fiscal spending of the 2012/13 on infrastructure citing Construction on the Kampala-Entebbe Express Highway and Karuma Hydropower Project are expected to commence in 2012/13 with their budget allocations.  And with the ministry of Finance saying it will be cutting development expenditure by 0.8 per cent the country may be facing a challenge of containing the 33 million people where statistics place it at $17 billion.

With the FY2013/14 only 3 months away the government of Uganda should rethink of other preventive mechanisms and on my view it should adopt the Kenyan strategy of turning to the East and invest heavily on the infrastructural development with an aim of cutting the rate of unemployment which places Uganda among the countries with very low employment records.

Earlier this week Chimpreports reported unemployment has hit Kampala like a time bomb and its high time for the government to express need for the people not only embark on alternative entrepreneurial skills to increase the revenue collection and reduce external borrowing for the country which entirely depends on agriculture.

Going by the statistics by Uganda Bureau of Statistics (UNBS) only 2.9 million jobs were registered in the 2012/13 and compared to the total population of 33 million a lot need to be done and withdrawal of the donors may plug the country in the Zimbabwe way.

Published on February 16