Domestic arrears owed to Ugandan private sector and individuals have nearly touched sh8trillion but government has only allocated sh200b in the current budget to settle these.
Using a straight line analysis if government owes your
business a million shillings they will pay you sh25,000 towards clearing the
debt this year.
"Interestingly interest does not accrue on these debts, so
government can sit on your money indefinitely and let inflation lower the
burden on them. You try that with Uganda Revenue Authority (URA)...
Government is still the biggest client to many suppliers in
Uganda. In a small economy like ours this is inevitable. If you want to make
serious money you have to deal with government.
Everybody should be ambitious, but when your ambition leads
you to deal with government? The graveyard of corporate Uganda is filled with
the corpses of businesses that went into business with government.
In fact often times when businesses plead for government bailouts,
all they are asking is for government to make good on its obligations to them.
Which pleas often fall on deaf ears and hence the growth of corporate Uganda’s
graveyard.
The irony of it all is that government cannot seem to able
to help itself, despite refusing to pay off its debts it continues to build up
more debt, totally oblivious to the heap of debt it still has and its effects
on the economy.
These are not only numbers with a lot of zeros attached to
them, but has a far reaching effect on the economy and its continued
sustainability.
A recent media report showed that the number of tax payers by income group who earn sh100b and above had fallen to only six in 2022/23 from 125 in 2019/20. A lot of the attrition can be attributed to the covid pandemic but the jump in what government owes to the private sector I believe, has more to do with it.
During the same period the domestic arrears have jumped from
below five trillion shillings to their current levels.
It is a no brainer. If business attrition is accelerating with
no sign of slowing down, revenues will follow suit, infrastructure development
and social services will suffer, leading to increasing poverty and inequality
and then chaos. It is a straight line logic that is impossible to argue
against.
You therefore wonder why a seating government would allow such
a thing to get out of hand, especially with the demonstrations in Kenya as a
backdrop.
The Kenyan demonstrations are against the current finance
bill, which lays out how government will raise revenues to finance the budget.
The new taxes in the finance bill have acted as a trigger for the demonstrations.
Kenyans pushed to the wall are saying they have no waist left to tighten their
belts around.
President William Ruto’s administration unfortunately is suffering
the effects of at least two decades of reckless debt accumulation – Kenya’s
debt to GDP is about 70 percent and runaway corruption, which has left more and
more Kenyans desperate for survival.
It would be nice to do a thorough forensic audit on how the
domestic arrears keep mounting year on year in Uganda, but we may not have time
for that right now.
At last count the verifiable domestic arrears were about
half of the total stock (one wonders why the issue of verifiable debt should
even arise?) so about sh4trillion can be verified.
Government should issue a bond for whatever duration say ten
or even 20 years of sh4 trillion. Let say they name it the domestic arrears
bond. The current 10 year bond has a coupon rate of 16.7 percent, the new bond
can be issued at even 15 percent, as long as government removes the 10 percent
withholding tax on it and the market will snap it up.
"This would do two things, most immediately the funds will be available to lessen what government owes to the private sector, while at the same time pushing the final debt repayment further back into the future....
In 2014 the budget was sh15trillion it has since grown five
fold since then. By extension paying off sh4trillion 10 years from now,
assuming the same rate of economic growth, will not be a big deal. Meanwhile
government’s annual bill would be about sh600b in coupon payments to the bondholders,
well within its means when you consider the wastage of public funds we experience
daily.
But even more beneficial is that there will be an injection
of economic activity with this pay off. Businesses will be back in business,
banks will get paid, which money they will again lend out into the public. Invariably
consumption will go up and tax revenues will come in. It is a win whichever way
you look at it.
This is not rocket science and has been discussed already at
the highest levels of government.
History shows that economies are only as vibrant as their
private sectors. It’s the private sector that creates wealth and jobs, pays
taxes and stabilizes nations. If you have a weak private sector it is only a
matter of time before things head south.
This is not a revelation. This is textbook stuff. So who is
trying to bring this government down?
