CSO’s raise red flags over 2024/25 budget

June 12, 2024 in Business, Finance, Policy, Trade & Industry by Editor

Days to the presentation of Uganda’s fiscal plan for 2024/25, activists are concerned that despite an expanding budget, ballooning debt is taking resources away from the social sector. The shrinking resources going to the social sector despite a 37 percent increase in the size of the proposed budget, highlight the unfolding crisis of debt-financed spending, poor prioritisation and resource absorption, say Uganda civil society organisations under their umbrella, CSBAG, the Civil Society Budget Advocacy Group.

Sharing perspectives on the UGX 72 trillion spending plan proposed by the executive, activists June 9, praised the government for containing inflation, which is still within the target band of 5pc, and budget transparency which still tops East Africa. Growth for the year, currently trending at 5.5pc is projected at 6pc and within target, CSBAG said.

But the collective expressed concerns about manipulation of the budget formulation process, during which lawmakers were ambushed to approve an additional UGX 14 trillion, that was presented through a corrigendum to the original estimates. The tactic opens the window to potential abuse of the budget process they warned.

“Ugandans need to be wary of the rising abuse patterns of the budget-making process witnessed this year particularly through FY2024/25 corrigenda. To us, some of the items in this corrigendum do not meet the criteria of error and omission,” Julius Mukunda, executive director CSBAG.

Equally some of the items in the corrigenda worth UGX 12.5 trillion are considered wasteful according to CSBAG, Mukunda added.

According to Mukunda however, the precarious balancing act is in the structure of the proposed resource envelop. Domestic revenue is projected to contribute UGX 32.3 trillion (44.9pc), Budget support UGX 1.3 trillion (2pc), domestic borrowing UGX 8.9 trillion (12.4pc), Domestic debt refinancing will amount to UGX 19.8 trillion (27.5pc), and project support will contribute UGX 9.5 trillion (13pc) of the UGX 72.130 trillion budget.

This implies an increase reliance on debt which will finance 55.1pc of the FY 2024/25 budget. Domestic revenue at 44.9pc will likely trigger new tax proposals and more aggressive methods to force compliance the collective warned.

While the bulk of the budget is going to debt finance absorption capacity and fiscal indiscipline remain challenges.

“Fiscal indiscipline is the biggest risk to budget execution, and we are not going to achieve targets if we are not careful,” Mukunda said citing irregular disbursements by the executive and legislature, as well as risky investment ventures.

For instance, Dei Pharma, a private enterprise has been given UGX 722billion without a proper value for money audit. Also, the government has so far sank UGX 476 billion in Lubowa Specialised Hospital project but there is no corresponding value to show while Atiak Sugar Factor has become a bottomless pit with UGX 353billion sank in so far.

“Government needs to come clean on the business case for these investments and projected returns,” Mukunda says.

Despite an expanding budget and ballooning debt, resource absorption remains poor with only 84pc of disbursed resources spent at the end of the half-year point for fiscal 2023/24.

As much as UGX 14.4 worth of contracted loans could not be disbursed because of lack of capacity to spend. This attracted a UGX 111billion penalty in commitment fees for loans that were not used.

The debt situation is becoming complicated for Uganda. The IMF forecasts that Uganda’s public debt will reach UGX 110.6 trillion by the end of fiscal 2024/25. The current nominal Debt to GDP ratio is 53pc, raising questions about debt sustainability.

The domestic interest payment to revenue ratio is at 16.3pc, well above the benchmark of 12.5pc; while at 19.1pc, the external Debt to GDP is still below the threshold of 40pc. However, high-interest payments on loans now consume a substantial portion of the budget and domestic revenues. The government plans to borrow an additional UGX 8.9 trillion domestically from commercial banks in fiscal 2024/25, pushing interest payments to UGX 9.5 trillion from UGX 8.2 trillion in FY2023/24. Additionally, commitment fees from projects under review surged by 44pc from UGX 77.5 billion in FY2021/22 to UGX 112.018 billion in FY2022/23.

“These developments will compromise service delivery as a significant portion of the collected revenue goes to service,” CSBAG says.

Although the theme of the budget speaks to Monetization of the Ugandan economy through commercial agriculture, industrialisation, expanding and broadening services, digital transformation, and market access,” Jane Nalunga, the executive director at SEATINI Uganda, says resource allocations in the budget don’t quite speak to the theme.

Only UGX 1.6 trillion has been allocated to agro-industrialisation, a drop UGX1.8 trillion from last financial year.

“I believe we can trade our way of poverty of we put our minds to it. The ministry of trade, which is key to the revival of our economy, has just seen its resource envelope reduced from UGX 170bn to 1113bn to cover the three areas of trade, industry and cooperatives. Where are we putting our money to generate more resources,” she asked?

Agnes Kirabo from the Food rights Alliance says that underfunding for the trade sector has implications for access to essential nutrition.

“Once internal trade is not working, transfer of food from areas of surplus to areas of deficit is not possible

“The other danger of having non-functional internal markets is that farmers are solely dependent on what they have produce. In the first quarter of this year, maize famers could not take children to school or meet basic needs because the farmgate price dropped to UGX300 while at the same time, prices of maize flour remained up, trapping both ends in hunger and malnutrition,” Kirabo said.

She further warned that when farmers fail to sell their crop, they are constrained to provide proper storage, leading to accumulation of aflatoxins which compromises public health.

Furthermore, funding cuts to the agricultural sector, especially the non-wage allocations mean research and innovations designed to address challenges remain on the lab shelves.

“The reductions are in the critical performance areas of the agriculture sector, which is thwarting our ability as a country to guarantee food security and nutrition.”

Angella Kasule of the Initiative for Social and Economic Rights ISER, a lack of political will to reduce consumptive and wasteful expenditure, will perpetuate borrowing with negative implications for social and economic rights like education, health and social protection which will be shortchanged.

Kasule gave the example of the UGX 114bn allocated for foreign travel when only 26pc of tat figure would be enough to rehabilitate the 40pc of UPE schools whose infrastructure is in deplorable state.

“A small fraction of wasteful expenditure could fund the deficit the education ministry is finding in development of school infrastructure,” she observed.

The deficit in funding the social sector could further be plugged by pulling the brakes on tax exemptions, stemming corruption and leakages in the financial system.

“As long as there is no political will to fight corruption, rethinking tax exemptions, and illicit financial flows, we are not going to be able to finance our budget, which shall remain in a vicious cycle of borrowing,” she said.

Uganda is investing the equivalent of just 8pc of its GDP on education. This contrasts with Kenya, which is spending 18pc of its GDP on education.

Sophie Nampewo the acting head of governance and accountability at Oxfam Uganda observed that little of the UGX 72 trillion budget will go service delivery. Even worse, spending is controlled at the centre with local governments, which are at the frontlines of service delivery allocated just UGX 5 trillion of the UGX 32 trillion that has been reserved for program expenditure.

She added that domestic borrowing which will rise to UGX 8trillion, will negatively impact the investment climate. Coupled with an aggressive tax policy, Uganda could lose its edge in attracting foreign investment.

“If we are not investing more in production to generate more revenue, tax will become a burden and strain the economy. As a result, we might see many investors come but leave for more conducive investment destinations in the region,” she warned.

Fatiya Kiyange, the executive director center for health, human rights and development CEHURD, observed that while allocations to human capital development had increased to UGX 9.9 trillion to constitute 26pc of the national budget, there is a need to strike a balance between infrastructure and human resources for health. For instance, Butabika Mental Hospital, the country’s sole sanatorium saw a 2pc reduction in its allocations for fiscal 2024/25, despite the increasing burden of mental disease.

“Infrastructure does not run itself,” she said.