COVER STORY: Tough budget

What experts say about Shs45.4tn, debt, taxes

Kampala, Uganda | JULIUS BUSINGE AND ISAAC KHISA | The 2020/21 national budget read on June 11 has been criticised by experts as weak on all fronts; from its stimulus and bailout programmes to the manner in which its figures were arrived at and communicated.

Most observers are concerned at how the government intends to raise revenue through increased taxes on businesses in crisis and how it intends to spend it; mainly on non-productive government departments.

The main fight over the budgeting process revolves around the clear signs of government lack of budgeting clarity and preparedness; especially its plan to extensively review the proposed departmental budgets; apparently to align them to the nine strategic priorities of the country and the challenges caused by COVID-19.  Why was the alignment not done before the figures were presented, many ask.

“The proposals in the budget are contradictory to the economic reality on the ground,” says Mohammed Ssempijja, the team leader at Ernst and Young Uganda (EY).

“Focus on production is good but it has not put in place measures that would increase people’s disposable income to boost aggregate demand for goods and services,” says Fred Muhumuza, a senior economist and former advisor to the Minister of Finance.

“At the end these producers will not be able to produce,” concludes Muhumuza, who is a senior lecturer at Makerere University.

“Money consuming government agencies and departments/arms (like Parliament and others) have continued to receive lots of money than production facilitating MDAs – which are critical in creating jobs and related opportunities,” says Ramathan Ggoobi, the senior economics lecturer at Makerere University Business School.

The pessimism, doubt, and criticism appear indirect contrast to the confidence shown by President Yoweri Museveni and Finance Minister Matia Kasaija as they spoke at the budget reading on June 11.

That MPs gathered for the budget reading in tents erected in the parking lot of parliament to allow for social distancing endured interruption from a mid-afternoon rain-storm added to the turbulent times caused by COVID-19.

Even as the MPs dashed for cover, Museveni and Kasaija confidently spoke about how the budget is great for jumpstarting the economy.

FULL Uganda Budget-speech 2020-2021 by The Independent Magazine on Scribd

They admitted the economy had been negatively impacted by the measures put in place to stop the spread of the coronavirus pandemic since March this year but said the economy would survive.

“The coronavirus pandemic has helped us to once again demonstrate the economic capacity and the vast opportunities that our country has,” Kasaija said, “The budget for Financial Year 2020/21 will support the economy to fully recover, harness the potential that we have, and get back to our progressive journey of double digit GDP growth rate.”

He swept aside the 50% decline in growth of the economy in just three months, starting March when the first COVID-19 case was registered in the country. It is now estimated that the economy will grow by just 3.1% in the financial year ending June 30, about 40% slower than the average growth rate of 5.4% in the previous four years.

Kasaija said that if it was not for the emergencies that the country faced in the last six months, the rate of economic growth would have been at least 6%.

In terms of sector growth, agriculture which has been the perpetual laggard of all sectors has emerged as the savior as COVID-19 crushed industry and services.

Agriculture grew by 4.2% up from 3.8 percent in the previous four years. Industry also grew, but by only 2.3% compared to an annual average of 7% in the previous four years; while services grew by 3.6% compared to the annual average of 5.6% in the previous four years.

Kasaija called the huge declines “temporary shocks”.

“The medium term outlook for economic growth is positive and will be stronger given the measures the government will implement,” he said. That was overly optimistic because nobody can be certain about the future, given the COVID-19 pandemic is far from over and the numbers of infections in Uganda are rising dramatically.

Even the new measures in the budget which Kasaija said would stimulate the economy to safeguard livelihoods, create jobs, support businesses, and ensure industrial recovery, are not universally convincing; not least his claim that “the budget would focus on production and not consumption”. This idea has sparked mixed reactions among budget analysts.