Monday, May 6, 2013

WHO WILL BELL THE CAT, REIN IN UGANDA'S SPENDING


The budget is being prepared.

In recent weeks we have seen various ministries and agencies trooping to parliament to defend their proposals.

The police want their budget doubled. The army have a trillion but they want a few billions more. And statehouse is still in the habit of sprinting through its allocation before the house passes the budget.

Its business as usual. But it shouldn’t be. The donors recently pulled the plug on budget support. While aid as apportion of the total budget has fallen steadily to about 30% it still constitutes a significant portion of the monies used for building infrastructure, schools and hospitals.

So one would think good sense would counsel belt tightening but clearly not.

It’s not rocket science.

Governments spend what they earn through revenues and fees. But if their spending outstrips their revenues they borrow as we have been doing for the last two decades and before. You can borrow from the donors or from your own population. Governments which have lost credibility with other governments and their own populations go down the slippery slope of printing money.

Money not backed by production ends up chasing few goods leading to inflation. As our recent history has shown when inflation takes hold it is hard and painful to rein it in.

And why we should be concerned with government going as if it is business as usual, the main driver of inflation is often times government spending.

One only has to look at Greece to see what happens when governments wear blinkers despite the most dire warnings. The already recklessly extravagant Greek government first doctored its books to get admission into the European Union. Once they continued their profligate way as if it was business as usual hiding expenditures off the books and not collecting taxes. To bridge the gap they borrowed from the banks, which in turn were borrowing from international markets at lucrative enough rates that their creditors chose to look the other way.

When the day of reckoning came the earlier assumed €7 billion deficit ballooned into €30 billion deficit after they had found all the  off book entries. Banks across Europe were in trouble and Greece has been on the brink of defaulting on its loans and teetering on the edge of ejection from the EU since 2009.

It was so bad that Greece’s woes threatened the union and the credibility of the single currency, the Euro.

Borrowing is not a bad thing its what government do with the loans that causes problem. Greece of course financed the 2004 Olympics, which they could barely afford and a lot of the facilities have found little or no use after the last medal was given out in Athens.

If on the other hand use the debt to facilitate business by build transport, energy and social infrastructure.

In Uganda of course with our massive government one doesn’t have to have divine powers to know that increased spending will go towards  maintaining the fat cats first before any crumbs can  be thrown to do roads, railways, schools and hospitals.

Or maybe government official’s know something we don’t?

Maybe they are banking on oil money, which will not be expected before 2016, to cover our current extravagance. That would be treading on dangerous ground.

Assuming the donors maintain their hands firmly on the purse strings we can expect some hard times ahead and these will call for hard decisions, not leats of which is that we have to cut down on spending.

But who is going to bell the cat?

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