COVER STORY: Tough budget

To promote import substitution and the development of local industries, the government has increased import duties on goods that are produced or can be produced locally. The import duty on agricultural products has been increased to 60% and other products to 35%.

There are exemption on VAT on the supply of agricultural equipment and processed milk and customs duty on Covid-19 supplies for diagnosis, prevention, treatment, and management.

On the expenditure side, out of the Shs45.4trillion, the ministry of works and transport will take a lion’s share of Shs5.8trillion (12% of the entire budget), followed by security that was allocated Shs 4.5trillion or 9.9% of the entire budget.

Interest payment on the existing loans has been allocated a whooping Shs4trillion or 8.8% of the entire budget, followed by education and health at Shs3.62trillion and Shs2.77trillion respectively.

Energy and mineral development sector has been allocated Shs2.6trillion, accountability Shs 2.1trilion, justice law and order Shs 2trillion and local government allocated Shs 1.75trillion.

Water and environment has been allocated Shs1.68trillion while agriculture and public administration each have been allocated Shs1.3 trillion.

Tourism and hospitality which has lost billions of revenue as a result of COVID-19 has been allocated a paltry Shs198 billion while the trade ministry has been allocated Shs171bilion.

Public debt concerns

According to the budget speech, total public debt as at December 2019 amounted to $13.3billion, with external debt accounting for $ 8.59 billion or 64.4% while domestic debt amounted to $4.74billion or 35.6% of total debt stock.

Critics have expressed anger about Uganda’s growing debt which they say will compromise economic activity in future. But Kasaija appears to be in control.

He said that public debt remains sustainable and that government will implement the Domestic Revenue Mobilisation Strategy to increase its capacity to finance programs with less reliance on domestic and external borrowing. In response to the COVID-19 crisis, Kasaija said government has commenced negotiations with some creditors for debt relief.

Expert views

Joseph Stiglitz, an American economist, public policy analyst, and a professor at Columbia University says it is clear that the coronavirus pandemic will last much longer in world economies. This means, he says, the governments need to focus on the long term.

He said that during periods of deep uncertainty like it is at the moment, precautionary savings typically rise as households and businesses hold on cash for fear of what lies ahead.

“The key for now, then, is to reduce risk and increase incentives to spend,” he said. “As long as firms are worried that the economy will remain weak six months or a year from now, they will postpone investments, thereby delaying recovery.”

As such, Stiglitz says it is only the state that can break this circle. “Governments must take it upon themselves to insure against todays risks, by offering compensations for firms in the event that the economy does not recover by a certain point in time,” he said.

He said governments should also consider issuing spending vouchers to stimulate household consumption, citing China where local governments across 50 cities are issuing digital coupons that can be used to buy various goods and services within a certain framework.

The expiration date, he says, makes the vouchers potent stimulus of consumption and aggregate demand in the short terms when it is needed most.

Stiglitz says that another approach that has worked in several countries is to provide assistance to firms on condition that they retain their workers, supporting wage bills and other costs in the proportion to an enterprise’s decrease in revenue.

“Poorly designed stimulus programmes are not just ineffective, but potentially dangerous,” he says adding, “ Bad policies can contribute to inequality, sow instability, and undermine political support for government precisely when it needed to prevent the economy from falling into prolonged  recessions.”

Sarah Chelangat Muzungyo, the associate director in charge of tax at the audit firm, Ernst & Young Uganda, says government has put a lot of emphasis on stimulating agricultural production, which is a good thing, as more people are now involved in agriculture.

Ramathan Ggoobi, the senior economics lecturer at Makerere University Business School said at a post budget online conference organised by the Institute of Certified Public Accountants of Uganda on June 12 that the government has been heavy on rhetoric /talking but light on allocation of resources.

“The previous budgets have not been compliant to the National Development Plan II and now NDP III,” he said. He said that as the government moves to implement the new budget amidst COVID-19 threat, it has to deal with the weaknesses regarding, general oversight, and leadership in government MDAs, planning and budget discipline, corruption and human resource capabilities.

He also supports the idea of investing more in agriculture value chain for as long as the government is open to searching for good markets for the products.

“This is a time we should not be preaching to anyone the way we should do things because COVID-19 has already changed us,” Ggoobi said.

****