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 a portion 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 in 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, you 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 least of which is that we have to cut down on spending.
But who is going to bell the cat?
