Finance minister clarifies government not broke

February 21, 2018 in Finance, Policy by Editor

February 21—Matia Kasaija, the finance minister, was quick to react to a newspaper headline yesterday that the government would have to borrow UGX736 billion (nearly$200 million) just to cater for a salary hike for civil servants but clarified that a shortfall in tax collections made it necessary if the bills for major infrastructure projects are to be paid.

Kasaija said in a statement, “I would like to inform the general public that this story was an exaggeration of the proposed borrowing that I laid before Parliament. We borrow to a large extent to finance capital development and production.”

Last year, an industrial action by government doctors resulted in a promise of higher wages planned for first quarter of financial year 2018/19. This was after some protracted negotiations and against a back drop of another strike by state prosecutors and a threats of one by nurses. Parliament has to approve the UGX736 billion request.

“It’s important to note that the borrowing will ensure that we meet the financing obligations of on-going infrastructure projects whose certificates will fall due this financial year as well as other statutory obligations such as wages,” he said.

Kasiaja said during the first half of the current financial year, there was a shortfall of UGX324 billion (about $90 million). He broke down the number into lower collections for VAT (UGX139.04 billion);  a drop in international trade taxes (UGX53.07 billion) and a fall in income and excise taxes (UGX144.85 billion).

“As a result of the above shortfalls and in order bridge the funding deficit, UGX736 billion will be borrowed from the domestic market. This borrowing will not have a significant impact on the private sector given that liquidity in the market currently amounts to UGX 2 trillion ($540 million), and it comes at a time when interest rates are low. Currently the Central Bank lending rate (BR) stands at 9%,” he said.

The Minister said although UGX48 billion of the borrowing will meet the shortfall on salaries, this is only 1.3% of the total government wage bill.  “The Wage Bill for this financial year, amounts to UGX3.58 trillion and a total of UGX2.70 trillion (75.4%)  has already been released covering the first three quarters of the financial year. It is therefore, erroneous to assume or create the impression that Government has no money to pay salaries,” he said.

He said 79% of the approved 2017/18 budget has been spent  and of this, development expenditure especially for infrastructure projects is performing at 73%. Kasaija said the government is already paying off the promised UGX300 billion for this financial year towards clearing some of the government arrears, especially to businesses. Provision of the UGX1.16 trillion for the Uganda National Roads Authority is also on track.

“I want to assure the public that in spite of the short term revenue shortfalls being experienced, the budget for FY 2017/18 overall is performing well and its execution is on track as appropriated by Parliament and Government will continue to meet its obligations including salaries and wages which take the first call on the budget,” he said.