How feasible is Uganda’s unprecedented shs72 trillion budget?

by Business Times writer
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Parliament on Thursday approved an unprecedented budget of 72.1 trillion shillings for the 2024/25 financial year, marking a significant 32% increase from the 54 trillion shillings initially proposed in the budget framework presented by the government before the House in March.

This amount also surpasses the originally approved budget of 52.7 trillion shillings for the 2023/24 financial year.

Human capital development, which includes the health, education, and water sectors, will receive the largest portion of the budget, with an allocation of 9.9 trillion shillings, up from 9.5 trillion shillings it received this financial year.

Governance and security is the second-highest priority, allocated 9.1 trillion shillings, an increase from the 7.5 trillion shillings it received in the 2023/24 financial year.

Integrated transport infrastructure services will also see a boost, receiving 5.1 trillion shillings compared to the 4.4 trillion shillings allocated to it in the current financial year.

The private sector has been allocated 2 trillion shillings up from 1.8 trillion for the current financial year while agro-industrialization has been allocated 1.6 trillion shillings down from 1.7 trillion.

This never seen before budget has left many wondering how government will raise funds to finance it.

This is because, funding previous budgets, which have been significantly lower, has been challenging.

Some opposition lawmakers have said that the budget lacks sufficient funds to effectively provide services to Ugandans and have urged the government to cut unnecessary expenses.

Butambala county legislator, Muwanga Kivumbi says it is illogical to pass a 72 trillion resource envelope yet the country has never raised above 45 trillion to fund the budget.

“Our budget has never performed actual revenue expenditure, we have never gone above 45 trillion. Its illogical for anyone to draw a budget of 72 trillion. You have never realized revenue above 45 trillion, for all the budgets Uganda has lived. Therefore, there is no magical bullet this year that you are going to get 72 trillion,” he said.

Taxpayers will need to raise 32 trillion shillings to fund this budget. Worryingly, however, the Uganda Revenue Authority (URA) registered revenue shortfalls in the first six months of the current financial year.

According to the performance of the economy monthly report for December 2023 released by the Ministry of Finance on January 17, 2024, domestic revenue collections in December 2023 amounted to 3.059 trillion shillings, which was against a target of 3.453 trillion implying a shortfall of 11.4% of the target as both tax revenue and non-tax revenue were short of their respective targets for the month.

“Tax revenue collections amounted to Shs2.902 trillion against a target of Shs3.268 trillion translating into a shortfall of Shs365.79 billion. All the major tax categories registered shortfalls during the month,” the report reads in part.

Every financial year, URA is given a target of tax revenue collections it should achieve in relation to the national budget of that fiscal year. Many times, URA has failed to hit the target which leaves many asking if the tax collections body will collect enough revenue to finance the budget.

The country’s debt is expected to increase as more of the budget will be financed through borrowing. The government plans to borrow 28.7 trillion shillings domestically.

Excessive domestic borrowing has been criticized by many analysts and members of the general public who argue that government is competing with the private sector for limited financial resources.

This can drive up interest rates, making it more expensive for businesses to borrow and invest, which hampers economic growth.

High levels of government borrowing can also strain local banks and financial institutions. If a significant portion of their assets is tied up in government debt, their ability to lend to businesses and consumers is reduced, potentially destabilizing the banking sector.

Additionally, the government will raise 11 trillion shillings from external sources, with 9.5 trillion of that amount being borrowed.

The government anticipates that the 72 trillion shillings budget will boost economic growth from an average of 4.7% to 7%, driven by commercial agriculture and industrialization. However, only 37.8 trillion shillings is available for actual spending, as the remaining 34.3 trillion shillings will be used for debt servicing and interest payments on loans.

The shadow minister of finance and Kira municipality lawmaker, Ibrahim Ssemuju Nganda, presented a minority report in which he highlighted that a significant portion of the budget is being allocated for debt repayment.

This substantial financial commitment to debts, he said will impede the operational efficiency of various sectors in providing services to the citizenry.

“The biggest task on our hand as the 11th Parliament is to significantly reduce the country’s 97.499 trillion public debt. This debt has become a burden to our economy and threatens the existence of Uganda as a sovereign state. Public debt now stands at 52.7 of our 184 trillion GDP. Parliament must therefore reject any measure that seeks to grow the public debt,” said Ssemuju while presenting his minority report at the floor of the House.

He expressed concerns that the current size of public administration is unsustainable, suggesting a need for reevaluation. He warned that if left unchecked, it could lead to a wage bill exceeding 8 trillion shillings in the upcoming fiscal year.

“The wage bill is the second item in the budget to take a lot of money after debt servicing. This wage bill should be calculated against a total sum of money that remains after debt servicing,” he said.

The minority report called for cutting of the cost of administration, whose wage bill is at 7.5 trillion shillings.

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