Uganda’s 2020/21 budget shoots to Shs 45.4trillion

Analysts say the proposed budget should focus on key sectors that support revamping the economy

Kampala, Uganda | ISAAC KHISA AND JULIUS BUSINGE | Over the past six weeks, Uganda has been in a total lockdown. Shops, except pharmacies and agro vets, had been shut. Transport paralysed. Hotels switched to survival mood; sending away a section of their workers on  forced leave to cut costs as government moved to implement a raft of measures to contain the spread of coronavirus (COVID-19).

But during the lockdown, parliament passed a whooping a Shs45.4trillion budget for the next Financial Year 2020/21 compared with the Shs 40.5trillion for this Financial Year ending June.30 amidst the ravaging coronavirus pandemic.

Surprisingly, the government had earlier proposed to lower the budget for the next financial year to Shs 39.6trillion.

The government plans to collect Shs 21.7trillion compared with Shs 20.4 trillion this current financial year  through various taxes and the rest through domestic and external borrowings, aids and grants to finance the planned budget.

Some of the proposed measures include; excise duty of Shs 1,115 per litre on beer produced from barley grown and malted locally, excise duty of Shs 1,700 per litre on ready to drink spirits, Shs 2,050 per litre on malt beer, excise duty of Shs1, 350 per litre on gasoline, Shs300 per litre on kerosene, and Shs1, 030 per liter on gas and oil.

The other proposed measures are excise duty of Shs 2,300 per litre on wine made from locally produced raw materials, excise duty of Shs 1,500 per litre on undenatured spirits made from locally produced raw materials, excise duty of Shs 250 per litre on non-alcoholic beverages (Soda) not including fruit or vegetable juice and excise duty of Shs 100,000 on licenses for provision of professional services among others.

The government’s move  to propose an increase in the budget for the next financial year is in sharp contrast to other countries around the globe that have, instead,  come up with a raft of  economic stimulus packages  including tax breaks to protect businesses and economies from coronavirus fallout.

This development comes at the time the COVID-19 pandemic has led to a severe contraction in economic activity due to a combination of global supply chain disruptions, travel restrictions, measures to limit contact between persons, and the sudden decline in demand.

Emmanuel Tumusiime-Mutebile, the governor Bank of Uganda said in his latest Monetary Policy Statement for April that as a result of the pandemic, the economy is projected to slow down drastically in the second half of Financial Year (FY) 2019/20, with GDP growth for the FY projected at 3 – 4 percent.

He said although GDP growth is projected to gradually recover in the second half of FY2020/21, the emerging output gap is projected to persist until 2022.

On the other hand, the International Monetary Fund’s latest World Economic Outlook projections for 2020 pegs Uganda’s GDP growth rate at 3.5 this year, compared with 4.9 per cent in 2019. The global Fund sees the country’s economy recovering to 4.3% next year.

“However, there is significant uncertainty over the depth and duration of the current slowdown… Uganda shilling depreciated against the US dollar by 2.2 percent between February and March 2020,” Mutebile said.

“In addition, the propagation of COVID-19 bears severe consequences on Uganda through worsening of external position, due to capital outflows, adverse effects on the flow of international trade, tourism, workers’ remittances, foreign direct investment and loan disbursement, exacerbating exchange rate depreciation pressures.”

Budget allocations

In terms of sector allocations, works and transport has been allocated Shs 5.88 trillion compared with Shs 6.4trillion in this financial year. This is followed up with security that has been allocated shs4.52 trillion, up from Shs3.65trillion.

Education sector has been allocated Shs3.5 trillion, up from Shs 3.3trillion, health sector Shs2.7 trillion, up from Shs 2.5trillion and agriculture sector allocated Shs1.3 trillion, up from Shs 1trillion. Energy and Mineral Development takes shs2.6 trillion, down from Shs 3.0 trillion.

Ministry of ICT and National guidance has been allocated Shs 163bn, up from Shs 146bn, Justice, Law and Order, Shs 2trillion, up from Shs 1.78trillion, with Water and Environment ministry allocated Shs 1.69trillion, up from Shs 1.1trillion.

In addition, trade and industry ministry has been allocated Shs 174.7billion, down from Shs 212 billion, Science, technology and Innovation Shs 238.11billion, up from Shs 186.7bn and tourism ministry allocated Shs 193.95bn, up from Shs 193.73bn.

Most surprisingly, however, is that the interest payments will take a whooping Shs 12.4 trillion of the proposed budget. This is up from Shs10.3trillion this current year.

Finance Minister, Matia Kasaija, thanked parliament for passing the proposed budget but was quick to note that parliament should keep the door open for any review in the proposed document arguing that it has been considered under unclear circumstance of the COVID-19 pandemic.