Monday, May 9, 2016

TIME HAS VINDICATED THE SAPS

Imagine a situation where your income is dwindling while the demands on that same income are rising – rent, food, fuel and family. For a while you try sticking your head in the sand and ignore what has to be done.

The truth be told you know what you have to do --  cut down on spending and/or get a better job.

 After a while of postponing the inevitable, things have become unbearable enough and you call in your friend who has expertise in finance, who to help you out insists that you put your house in order first.

His prescription? Move to a cheaper house/neighbourhood, downgrade children to Kyanamukaka PS, reduce meat eating to Easter and Christmas (it had got that bad) and if you must drink replace marwa for your favourite Black Label.

The basic idea is that by cutting down on your spending you can stretch the few shillings you have a bit longer. The resulting surplus can be used to service the debt your financial guru friend may organise.

Uganda’s situation in the 1980s was not unlike the fictional one described above.

The economy had contracted by almost half since 1970(income was low), the population had doubled (family members up) and you had a huge public sector that was bringing little income but consuming most of your budget (huge staff doing nothing at home).

"With empty coffers, a backfiring economy and at its wits end, the government, like almost all others in Sub-Saharan Africa, turned to the International Monetary Fund (IMF) and World Bank for help.
In order to access lifesaving loans and grants it was prescribed that we cut public spending and raise revenues, unpopular recommendations wherever they were proposed....

We cut spending by retrenching civil servants, shedding non-performing companies off our books and cutting out other expenditures we couldn’t afford but could live with out – closing embassies, reducing the government fleet among others.

In order to raise revenues we sold our companies to more efficient operators, opened up the market to more competition and set up URA.

We take it for granted now but there was a time in our recent past when people got paid without working and once paid did not pay taxes.

Of course what was going for the NRM at that time was that it really didn’t have any political opposition to make the prescriptions unworkable.

And thank God for that.

Since the economic reforms started in 1990 we now collect 1000-fold more revenue, we finance 80- percent of our own budget, which was the opposite then and we have a more vibrant private sector, which not only have boosted revenues but are more efficient at delivering goods and services – can you believe there was a time it took months, even years to get a telephone line?

"We have short or selective memories, but those reforms proposed by the IMF then have to a large part got us to where we are now, which is a more robust economy and a good launching pad for the next stage of our development journey....

On Tuesday this week the IMF launched the Regional Economic Outlook report in Kampala and in a discussion with senior economists, it was clear that while Uganda has come a long way there still remains a lot to be done.

The time for resting on our laurels is not yet here.

The world economy is stalling as China, which has provided most of the demand in recent years sees output plateauing, while the US, Europe and Japan are still trying to work their way out of the after effects of the global financial crisis.

The net effect of this is that demand for commodities, which most African countries rely on to boost their accounts, is at historical lows and prices have plummeted. Their currencies have followed suit, making it hard for them to meet their international obligations.

The countries that will come out on top are those which will hold the discipline of cost management, while at the same time creating the environment for business to thrive and therefore raise more revenue.

Ironic as it sounds, we will stay out of the IMF’s clutches if we keep doing what they recommended.
To return to the analogy of your household, once you have swallowed your pride and moved into a smaller house, ejected all the hanger ons, adopted a spartan diet, increased your income and climbed out of your earlier depression, now is not the time to throw a party and return to the ways that got you in the hole in the first place.


"You need to hold the course so that you can accumulate more of a surplus that will hold you in good stead to push more ambitious reforms through or for when the next crisis comes along, because for as night follows day there will be another crisis soon enough...

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