Under the theme of “stimulating the economy to safeguard livelihoods, jobs, business and industrial recovery“, Uganda plans to raise its spending by 12% in the financial year 2020/21 to 45.5 trillion shillings.
During Matia Kasaija’s budget speech on Thursday, the finance minister said the government will borrow 3.55 trillion shillings from domestic markets in 2020/21 up from 2.8 trillion shillings in 2019/20. External financing will amount to 12.4 trillion shillings.
The 2020/21 budget kick starts the 3rd phase of the National Development Plan (NDP III). However, there are expenditure risks that could hinder the NDP III aspirations in the 2021/21 financial year.
Uganda’s resource envelope of 45.5 trillion shillings is largely driven by tax revenue, which is expected to grow to 14.3% of GDP for the next financial year. Out of this, 7.2 trillion shillings is non-resource (an amount that will be put to the consolidated fund). As such the 2020/21 budget for expenditure is UGX 38.3 trillion.
Upon adjusting the total expenditure by interest and loan repayment, we have UGX 34.3 trillion for expenditure relating to service delivery as distributed among the sectors.
The 34.3 trillion sector expenditure level is 24% higher than what was projected in 2019/20. As a percentage of GDP, the level of expenditure for the 2020/21 financial year is projected at 23.4% compared to the 21% of GDP programmed for the previous year. This expenditure drive is what has driven the fiscal deficit to 9.4%, an increase from the 8.7% fiscal deficit in 2019/20.
In this case, recurrent expenditure overrides development expenditure. This is mainly due to the interest and debt repayments that are currently souring at over UGX 12 trillion. Taking into perspective the development budget, you will see that out of the UGX 17.8 trillion, UGX 9.5 trillion (53%) is going to be external.
The debt portfolio of Uganda keeps growing and its something we should all be worried about
Uganda’s debt portfolio is growing, which is creating a lot of concerns. The budget deficit and therefore financing have grown in absolute terms from UGX 4.5 trillion in FY2015/16 to 12.4 trillion in FY2019/20.
Increasing debt implies that more money will be allocated to interest payments, and less on service delivery and development spending. Also, increased borrowing from domestic sources crowds out investment in the private sector, affecting employment and output.
Uganda clearly needs to use some economic resuscitation. The government needs to increase domestic resource mobilisation through aligning the budget with the NDP III, expanding the tax base, as well as increasing efficiency in the use of public resources through sealing corruption loopholes in order to reduce the reliance on external financing and public debt.
Author: Kirembwe Andrew
Andrew is a young, enthusiastic, and self motivated individual who loves sports and enjoys writing and sharing informative content about business, tech, lifestyle and entertainment. He is also an entrepreneur by trade.