Uganda’s Budget Deficit Worsens, 50% to Be Borrowed

Government is aiming at collecting 16.35 trillion Shillings to support the estimates in the 2018/2019 financial year budget presented this afternoon.

Part of this, totalling 15.9 trillion Shillings will be raised from the new tax measures which will come into effect at the beginning of July. The remaining 420 billion Shillings will be raised from non-tax revenue sources.

The new tax measures include a 200 Shilling daily levy on each person using platforms like WhatsApp, Facebook, Viber and Skype among others, a 1 percent excise duty on each mobile money transaction, a 200 Shillings levy on every litre of cooking oil and 100 Shillings for every litre of diesel and petrol.

The other measures include a duty of 650 Shillings levied on each litre of Opaque beer, 1500 Shillings per litre on ready to drink spirits and 200 Shillings for every litre of non-alcoholic beverages with the exception of fruit or vegetable juices among others.

To generate more revenues, Finance Minister Matia Kasaija says URA will, among other things, pursue tax evaders, heighten business intelligence, expand tax system management, enhance tax arrears management, combat smuggling, establish container scanners, and increase post-clearance audits.

However, although the budget swelled up to 32.7 percent, it worsens the country’s debt burden as 50 per cent of its financing will be from borrowing and grants.

Kasaija says that the government expects to raise 7.73 trillion Shillings through external financing. 6.14 trillion Shilling from loans, 1.5 trillion Shillings from grants and 1.78 trillion Shillings from domestic borrowing. This implies that collections by Uganda Revenue Authority constitute roughly 50 percent, leaving a deficit of 50 percent, which will be filled by borrowing.

Donor budget support will be a miserly 289 billion shillings, while appropriations in aid, which is revenues collected by government departments, will be 1.3 percent.

Although the finance minister said Uganda’s debt to GDP ratio is still at 38.1 percent and still sustainable, because it is still below the 50 percent danger zone, borrowing 50 percent to finance the budget will worsen the public debt.

As of March 2018, Uganda’s debt burden was 10.5 billion dollars, and since there have been more borrowing since March, the debt burden is higher than the 10.5-billion-dollar point. Out of the budget, Kasaija says 5.2 trillion shillings will be for domestic debt refinancing but is silent on external debt refinancing.

According to the 2018/19 budget framework paper, 10.6 trillion shillings, nearly one-third of the budget, will be for debt repayment. If 5.2 trillion shillings is for domestic refinancing, then it means 5.4 trillion shillings will be for external refinancing.

On tax administration, Kasaija says non-tax revenues will be the mandate of URA, warning that accounting officers who will collect NTRs and fail to remit to URA will be treated as defaulters.

According to Finance minister Matia Kasaija, the government has earmarked to invest in tax administration measures so as to improve the capacity of Uganda Revenue Authority (URA) to implement the current tax laws and enforce taxpayer compliance.

The Budget presents several incentives to promote both domestic and foreign investment including incentives for investments in the development of industrial parks or free zones, the establishment of new factories, and development of hotels and tourist facilities.

Sector Allocations

In the budget, the total recurrent expenditure stands at 9.4 trillion Shillings while development expenditure is estimated at 13.1 trillion Shillings. The additional 10.1 trillion Shillings is classified as statutory expenditure. At least 24 trillion Shillings of the total will be mobilized from domestic sources and 7 trillion Shillings from external support.

The Works and Transport sector is taking a lion share of the budget at 4.8 trillion Shillings, One trillion above last year’s allocation.  The education sector funding now stands at 2.4 trillion Shillings on the same footing with the energy ministry. The health sector will get an allocation of 2.2 trillion Shillings while local governments will collectively share three trillion Shillings.

According to the budget, at least 1.5 trillion Shillings will be spent on Public sector management, 1.4 trillion Shillings will be spent on security, and 1.2 trillion Shillings will go the Justice Law and Order Sector. The ministry of agriculture will receive 862 billion Shillings, the Ministry of Water and Environment will take 595 billion Shillings and the Legislature will receive an allocation of 459 billion Shillings.