Rebooting Uganda’s economy post COVID-19

Possible remedies

However, the private sector and the economists say something has to be done to avoid collapse of companies or something similar to the post 2008 financial crisis.

Badagawa said it is time for government to think on how to salvage business and the economy in general because the health sector, too, need it for its smooth operation.

“The health sector now need Personal Protective Equipment as well as food, and this is produced by the private sector,” he said.

He said the private sector has also proposed that the government embrace import substitution to grow capacities of local firms and reduce on demand for foreign exchange, increase investments especially in food storage facilities, and pay arrears to the suppliers of the recently supplied food, stationery and air tickets to further support production.

Prior to the COVID-19 outbreak in the country on March 22, domestic arrears stood at approximately Shs3.7trillion.

He said the private sector has also proposed to government to recapitalize the Uganda Development Bank to facilitate investor’s access to long term credit.

“Value Added Tax refund must be paid to the private sector firms,” Badagawa said. “VAT refunds have not been paid for the last 2- 3 years and this constrains cash flow for these small and medium enterprises. Yet they struggle to produce, employ workers, pay taxes and look for markets.”

He added that they have proposed to government to find an alternative on how to support the tourism sector that is now ‘completely dead’ following flights suspension at the onset of the pandemic coupled with banning of public gatherings.

Over the years, the country’s tourism sector has been the leading source of foreign exchange. In the last financial year, the country earned US$1.6bn annually compared with US$1.45bn in the previous year.

Everest Kayondo, the chairman of Kampala City Traders Association (KACITA) as well as an investor in the tourism industry said it is time for government to reign in the rent issues especially in Kampala City to avoid collapse of small businesses owed to accumulated arrears during the lockdown.

He said this can be done through holding negotiations with banks on behalf of land lords with loans to easy repayment.

“The government should also reduce on the administrative units such as creation of new districts, members of parliaments and cabinet so that more money can be saved for other urgent productive activities,” Kayondo said, in reference the parliament’s recent step to vote for the creation of 15 new cities starting July this year.

Meanwhile, Prof. Wasswa Balunya, an economist said there’s need for government to avail credit to various businesses at different levels to enable them to restart or increase their level of production once the lockdown is lifted.

He said, though he was against Kenya’s move to regulate interest rates, it is time that the government reign in interest rates.

“This is not a normal situation. Interest rates for business should be 10%. Government should now request organizations to forward their re-opening plans and requests for money,” he said.

However, Ramathan Ggoobi, an economics lecturer at Makerere University Business School wrote in Daily Monitor that there are six categories of policies in an economist’s toolbox that the government can use to restart the economy:  (1) fiscal policy (manipulation of government expenditures, taxes and debt); (2) monetary policy – (manipulation of interest rates to achieve price stability); (3) financial regulation policy; (4) social insurance policy; (5) industry policy; and (6) trade policy.

He, however, cautions that conventional monetary policy won’t be very effective. “Instead, fiscal policy should be the first to the rescue because the main shock is coming from the real economy,” he said.

“We need to quickly craft and implement targeted fiscal support for households and firms. The measures include income subsidies for affected workers, tax deferrals, social security (NSSF) deferrals or subsidies, suspend loan repayment, and state loans or credit guarantees for companies.”

Uganda revenue Authority and National Social Security Fund have already announced measures to defer payment of taxes and payment of employees contribution towards retirement, respectively.

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