The Civil Society Budget Advocacy Group (CSBAG) has raised serious concerns about the National Budget Framework Paper (NBFP) for the Financial Year 2025/26, citing issues related to low revenue mobilization, rising public debt, inadequate domestic arrears clearance, fiscal irregularities, and misalignment with the National Development Plan IV (NDP IV).
In a position paper submitted last month to the Parliamentary Finance Committee chaired by Amos Kankunda, Julius Mukunda, the Executive Director of CSBAG, provided a critical analysis of Uganda’s budget performance and made recommendations to enhance fiscal discipline and economic stability.
Revenue mobilization challenges and tax exemptions
While the Uganda Revenue Authority (URA) has shown improvement in revenue collection surpassing its half-year target of sh14.93 trillion by sh322 billion, Uganda still lags behind its revenue potential. The current financial year’s tax and non-tax revenue accounts for only 44.4% of the total budget, projected to rise to 59% in the next financial year. However, these figures remain below the revenue collection capacity, primarily due to tax exemptions and a high level of informality in the economy.
Tax exemptions, intended to stimulate investment, have led to significant revenue losses. The Uganda Tax Expenditure Report (August 2024) estimates that tax exemptions cost the government sh2.97 trillion in the 2022/23 financial year, an amount greater than the combined proposed allocation for Agriculture, Tourism, Manufacturing, and Services (ATMS) sectors, which stands at sh2.6 trillion.
Additionally, the informal economy, contributing 51% of GDP, remains a major challenge. Informal businesses operate outside formal tax frameworks, limiting revenue collection and reducing government capacity to fund essential services.
CSBAG recommends finalizing the tax governance expenditure framework to periodically review tax incentives and exemptions. It also suggests allowing districts to collect rental tax on behalf of URA and easing business registration requirements to encourage informal sector formalization.
Rising Public Debt and Fiscal Risks
The public debt continues to rise, reaching sh94.7 trillion as of June 2024 an 11.6% increase from sh84.8 trillion in June 2023. The International Monetary Fund (IMF) projects that by the end of FY2024/25, debt will climb to sh110.6 trillion, raising concerns over sustainability.
The government’s increasing reliance on external borrowing (sh5.747 trillion) rather than domestic financing (sh4.011 trillion) has helped reduce domestic debt refinancing by over 50%, easing pressure on private sector credit. However, the continued rise in total debt poses repayment challenges.
CSBAG also highlighted inefficiencies in debt utilization. Over the past 11 years, the government has borrowed sh43.25 trillion, but sh16.4 trillion remains unspent, indicating poor preparedness and inefficient loan absorption. Meanwhile, interest payments are projected to consume sh9.244 trillion in FY2025/26, representing 27.4% of the government’s revenue far above the 12.5% benchmark set in the Charter of Fiscal Responsibility.
To address these concerns, CSBAG calls for the enactment of a Public Investment Management System (PIMS) Law to enforce discipline in project execution. It also urges the government to prioritize borrowing for high-return projects in energy, agriculture, and industrialization while strengthening assessment frameworks to ensure prudent debt management.
Mounting domestic arrears and liquidity constraints
The government’s failure to clear domestic arrears remains a major issue, with outstanding arrears reaching sh10.818 trillion in 2023 an increase of 324% over five years. The proposed allocation of sh200 billion for arrears clearance is grossly inadequate, meaning it would take 54 years to clear the backlog, assuming no additional arrears are accumulated. The lack of timely payments to contractors and suppliers deprives the private sector of liquidity, hampers job growth, and reduces tax revenue.
CSBAG recommends operationalizing the 2021 strategy for clearing domestic arrears and imposing penalties on accounting officers who commit the government to unapproved expenditures. It also calls for an increased allocation of sh1 trillion to clear arrears within a reasonable 10-year period.
Corruption and budgeting irregularities
Uganda continues to grapple with corruption in public finance management. The 2022 Corruption Perceptions Index ranked Uganda 142 out of 180 countries, with 46% of public service users admitting to paying bribes. The Inspector General of Government (IGG) estimates that Uganda loses over sh10 trillion to corruption annually, particularly in public procurement. In 2019 alone, procurement-related corruption cost taxpayers sh614 billion, representing 2% of the national budget.
CSBAG warns against ‘budgeting for corruption,’ where funds are allocated for non-existent employees, pensioners, and health centers or inflated procurement costs. To curb these losses, the group recommends updating the national government price list, enforcing costed national service delivery standards, and implementing stringent anti-corruption measures. It also calls for stricter penalties, including removing the presidential pardon for corruption offenders.
Misalignment between the budget framework and NDP IV
CSBAG is also concerned about the misalignment between the NBFP FY2025/26 and the NDP IV, the long-term development plan. The proposed budget for FY2025/26 stands at sh57.4 trillion—sh10.4 trillion short of the sh67.8 trillion targeted by NDP IV. Additionally, funding for critical growth pillars such as Agriculture, Tourism, Manufacturing, and Services falls short by sh2 trillion.
A mid-term review of NDP III revealed poor implementation, with only 14% of performance indicators achieved. More than half of the indicators lacked data for assessment, and only 29% of core projects were under implementation. Without proper alignment, NDP IV risks suffering the same fate.
CSBAG proposes creating a centralized body within the National Planning Authority (NPA) to monitor compliance across all sectors. It also urges the Ministry of Finance to ensure budget allocations align with NDP IV targets and recommends annual reviews of development plans to accommodate emerging priorities.
