Follow by Email

Tuesday, June 19, 2018

THE BUDGET: THE DEVIL IS IN THE DETAIL

The shocking murder of MP Ibrahim Abiriga and the arrest of former Inspector General of Police General Kale Kayihura overshadowed a budget reading which in years gone by would have been a celebratory one.

Minister Matia Kasaija’s sh32.7trillion budget maintained an emphasis on infrastructure development with works and energy ministries between them hogging a fifth of the budget.

The more than decade long push on infrastructure Kasaija suggested are beginning to pay off as the economy seems to have pulled out of the doldrums, growing by 5.8 percent the highest rate since 2010/11’s 6.7 percent.

Last year the economy squeaked out a 3.9 percent improvement in output, lower than the previous year’s 4.7 percent.

Growth in industry and services helped lift the economy off the floor but also agriculture whose growth doubled from the previous year buoyed by good weather, seed distribution and improved extension services.

The devil of course is in the detail.

While agriculture grew at 3.2 percent, according to Uganda Bureau of Statistics (UBOS) figures from 2016/17 agriculture accounts for 24.9 percent of GDP. About eight percent of all agricultural output comes from cash crops. It is not clear whether UBOS is using the primary school definition of cash crops as coffee, tea and cotton. Food crops account for 54 percent of all agricultural output.

This statistic is a double edged sword.

"While it implies that our farmers are able to sustain themselves it also indicates why that may be all they can do. A greater proportion of cash crop production would suggest more rural incomes for the farmers. Without higher incomes in the rural areas through improved productivity or higher crop prices poverty will continue to bite....

You raise productivity through better farming practices and in addition higher crop prices come with easier access to market.

It is not difficult to see why our farmers do not rise up to their productive potential.

To begin with the agriculture sector budget is 0.3 percent of the total budget. The argument that the infrastructure being laid down around the country services agriculture is a valid one. But for agricultural incomes to start rising meaningfully there has to be an emphasis on improved inputs for farmers, extension services and irrigation.

The research institutions get less than 10 percent of the sector’s meagre budget while curiously the discredited NAADS secretariat gets a fifth of the sector’s budget.

Away form the much flogged agriculture budget something happened in this budget that seems to have gone unnoticed.

Last year the government committed to rein its domestic borrowing to under a trillion shillings overshot this resolution by 70 percent and expect to borrow even more from domestic markets.

On one hand it explains why lending rates continue to remain in double digits. Why should lenders invest in private sector project appraisals when they can just shovel over their surplus funds to the government for double digit returns?

On the other hand as the finance minister pointed out some donor funding did not come through and they had to raise the budgeted finances from the local market.

It is safe to say that the donor taps may never flow like they used to a decade or so ago. With improved revenues on our part and differences of opinion on the country’s development priorities this pattern of increased domestic borrowing can be expected to continue. And that is really as it should be.

"No country developed on aid but through mutually beneficial arrangements in trade and investment that were fair and enduring...

Therefore to mitigate against crowding out the private sector government should be looking to mobilise more savings into the formal sector.

There was no mention of that in the finance minister’s speech.

The new tax measures while much criticised were an attempt at expanding the tax base – the levies on mobile money and social media expected to rope in an additional sh400b, with non-tax payers being called upon to shoulder their responsibility.

The mandatory savings written into law by a previous government, was a stroke of genius which has made NSSF the biggest fund in the region. Members now save five percent of their gross and increase in this figure would do a world of good for the workers when they hit retirement and for the private sector who may see lending rates go down as a result.


In the short term we need to keep our fingers crossed for good weather so that the good times can keep rolling on. In the longer term we need to mobilise more of our own resources so as to determine our own development priorities.

1 comment:

  1. eToro is the ultimate forex trading platform for newbie and established traders.

    ReplyDelete