Govt programs hit with Sh3 trillion funding gap

Kampala, Uganda | THE INDEPENDENT |  The government spending plans have fallen short by sh3.337 trillion in the first seven months of this financial year, as revenue mobilization continues to be a thorn in government operations.

This failure to meet its spending targets, made it worse for project implementation, as even the little revenues collected, saw a big chunk of it go to interest payments which overshot the planned amount by 46.9 billion Shillings.

The higher-than-planned interest payment levels resulted from the high interest rates amid tight financial conditions.

“The combination of interest payments and external debt principal repayments places heightened strain on tax revenues,” says BoU in its Economic Performance Report for March 2024.

Overall, by the end of January 2024, government expenditure was 20.68 trillion Shillings, out of the 24 trillion Shillings that the Ministry of Finance, Planning and Economic Development had planned to spend in the period.

The main contributor to this was underperformance in development expenditure of 1.941 trillion Shillings, according to data at the Bank of Uganda.

The shortfall in spending was mainly a result of the government failure to meet the targeted revenues, despite Uganda Revenue Authority having collected 12.4 percent more than what it collected in the same period of the previous.

Over the period, the government realized 2.6 trillion lower than budgeted, despite an increase of 12.4 percent in domestic revenue, with grants registering the highest “disappointment” By the end of January, the government expected grants worth 1.9 trillion Shillings, but just 350 billion was realized.

And the realized domestic revenue was 15.5 trillion Shillings, including non-tax revenues, of which net URA tax revenue amounted to 14.45 trillion Shillings, short of the budgeted by 1 trillion.

On the other hand, non-tax revenues, which comes from revenue collecting agencies like Uganda Registration Services Bureau, the Courts and Police, amounted to 1.07 trillion Shillings, recording a shortfall on 130.8 billion Shillings.

Overall, these have, for the first seven months of Financial Year 2023/2024 resulted in a deficit of 4.82 trillion Shillings, which has to be mainly financed by borrowing from domestic sources.

An analyses of the URA performance shows that the less-than-expected revenues resulted from the lower collections in taxes on international trade, which underperformed by 722.5 billion Shillings and indirect domestic taxes, which returned a shortfall of 366.6 billion Shillings.

For indirect taxes, the underperformance was largely due to a shortfall 225.2 billion Shillings in Value Added Tax (VAT), while the underperformance in international trade taxes was largely because of lower collections of VAT on imports.

On the other hand, direct taxes continued to perform better than expected, by 196 billion shillings, mainly due to higher performance in collections of Pay as You Earn (PAYE).

In January, the Ministry of Finance revealed that the Government would spend up to 24.9 trillion shillings servicing the public debt, which was estimated at 97.1 trillion Shillings by the end of June 2023, excluding loans totaling 7 trillion Shillings which parliament approved later in December.

Next Financial Year, several debts will be falling due and the ministry said that it plans to focus on payment of each debt as and when it falls due to avoid penalties, according to Stephen Ojiambo, Commissioner of Accounts in the Treasury Operations.

These mainly include the 950 billion Shillings on the Karuma power project, 190 billion on the Isimba dam and 108 billion Shillings on Kabalega International Airport.

Others are 218 billion Shillings which will go to Afrexim Bank’s Budget support, 241 billion to Standard Bank and 365 billion Shillings on Diamond Trust Bank.

The government also plans to start repayment of the 1.2 trillion Shillings in compensation to the Democratic Republic of Congo as ordered by the International Court of Justice in 2022.

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