MAKE SETTLING DOMESTIC ARREARS A CAMPAIGN ISSUE

Last week it was reported that government has allocated an extra sh1.4trillion to settle domestic arrears, monies it owes to the private sector.

This is a very welcome move considering that domestic arrears are about sh14trillion and in the last few years government has been earmarking about sh200b towards the budget line.

However, we will be forgiven for asking for more. Because, assuming by some miracle arrears are held steady at sh14tr it would still take at least a decade to clear the current stock, assuming the current rate of redemption. Totally unsatisfactory...

But let us take this out of the realm of the abstract. Let us have a businessman, call him Jack, who wins a tender to supply goods, say cement to government. Let us assume the deal is to supply 10,000 bags of cement to a unit of government over three months.  Jack chases the paper work gets the contract and the accompanying documents to start servicing the deal, which among other things stipulate that he will be paid within 90 working days of delivery or about five months.

But he does not have the money on hand to procure the cement, a few hundreds of millions, so he goes to his bank with the paperwork in hand and gets a loan. He gets the money, buys and supplies the cement to government.

Then suddenly he cannot be paid. Stories galore. His five months turns to a year or two or three. He services the interest with whatever other cashflow he has, but this proves unsustainable and soon the bank auctions his home and other property, he had put up as collateral. All the while there is no evidence the government will make good on their commitment to him soon. Tomorrow never comes.

This is the fate of thousands of suppliers to government.

The pages of our newspapers are filled daily, with the adverts of auctioneers taking this or that businessman to the cleaners. A big part of the reason is the government...

Finance minister after finance minister has admonished his officials not to contract new supplies if there is no money. The bureaucrats on their part blame the shifting priorities of government on the state of affairs – budgeting for one thing but changing its mind when monies are due for payment. The mushrooming arrears have been a perennial lament for the last four decades.

"It has become so bad, that banks are no longer willing to discount government invoices. There is a general lack of confidence in government. Which is a problem since government remains the single largest consumer of goods and services in the economy...

So while the economy continues to grow (do they record arrears as government expenditure when computing GDP?) there is gritting of teeth in the hills of Kampala. It all seems a fiction.

Whichever way you look at it this is not a sustainable situation. It threatens the economic gains of the last four decades – when businesses continue folding, tax revenues dwindle and government continues to accumulate arrears, it will not be long before the economy collapses.

The challenge of course is that our government and its bureaucrats have entered (or have been for some time) in a dangerous phase where it is everybody for himself, God for us all and the devil take the hindmost....

They don’t care. The above is really text book economics, so it would not be a revelation to them. They don’t care.

It is self-destructive. Its shooting ourselves in the foot. What would it benefit a man to accumulate the whole world while his neighbours are scrambling for crumbs? He will soon be fair game.

So thank you very much finance ministry but the sh1.4tr is not half enough. We need to up that number, but more importantly tighten our procurement procedures so these recurring theme is brought to a halt. I will not hold my breath for it.

But I know what would move the needle on this issue. Somebody needs to make it a campaign issue and government will move. Like they did with universal primary education, the abolition of graduated tax and the scrapping of property rates on residential houses. Let someone include the wiping out of domestic arrears in their campaign manifesto and you will see.