Various observers predict good things for the Uganda economy this year. The Bank of Uganda maintained their projection of a 6.5 percent growth for the financial year, but ballooning domestic arrears, monies owed by government to the private sector, could dampen these and future prospects for the economy.
With the budget cut by at least 25 percent and the date for
first oil pushed back at least another year, one can expect that government will
not have its huge stock of domestic arrears, touching sh7trillion at last
count, at the top of the agenda.
We all need to appreciate that domestic arrears are not just
a number, but have real implications on people’s lives and livelihoods.
"While the economy is reported to be going from strength to
strength, suppliers to governments are having to jump through hoops to stay
alive, as payments are often delayed for months and even years. It is so bad
now that many banks will not accept invoices to government for working capital
facilities...
In the daily workings
of business, one may not have all the money at hand to meet various obligations.
The banking industry can however provide working capital against invoices for
work done. Basically if someone has done work and is due payment of say sh100m
in future the banks can lend you money against that promise of future payments.
So if banks are not taking government invoices you can
imagine how squeezed our businessmen are for liquidity.
This has the knock on effect of limiting businesses ability
to invest, expand or even just stay alive. Given that government is the biggest
client to the private sector most, if not all businesses are affected by this ever
increasing inability of government to honour its obligations.
The deafening silence around this issue in government
communication makes one wonder.
"An economy is only as vibrant as its private sector, as the
former communist countries showed us, government’s mounting debt to the private
sector in contravention of all measures to guard against this can, only spell
doom for the private sector and by extension the economy...
But one can not help but wonder about certain contradictions
in the economy. Given how government is squeezing life out of the private
sector, it came as a surprise when Uganda Revenue Authority (URA) reported it
had beaten the half year revenue collection targets by sh300b.
This should be welcome news for any economy. It suggests that
revenue administration is improving, that URA is not only plugging the holes
but also widening the tax base. The worry may be as the domestic arrears
continue to bite even URA will struggle to collect.
The worrying thing for URA and the economy as a whole is
that many of these businessmen will not just roll over and die. They will seek
to survive by any means necessary. It is not a stretch to imagine that many of
them will revert to informality if only to stay one step ahead of the tax man.
But beyond that these unmet obligations will erode
confidence in government with far reaching implications for things like the
cost at which we can contract loans in the open market. Lenders will not be averse
to adding a point or two on interest rates to provide for government’s risk of
default.
Again this rising number is not one we can hide under the carpet.
The remedies seem obvious. For starters government really needs to rein in its accounting officers. The Public Finance Management Act not only provides a legal framework for managing government resources, but in addition in the Charter of Fiscal responsibility mandates timely payments to avoid arrears accumulation.
The government’s laissez faire attitude to accumulating domestic arrears flies in the face of this and clearly no one is being held accountable...
With that we can at best stop the accumulation of domestic
arrears or at worst slow down their accumulation.
Which still leaves is with almost $2b of domestic arrears to
grapple with.
A policy needs to be
drawn up if it hasn’t been, to prioritise the clearing of these arrears and regular
audits to confirm and validate outstanding obligations. And there need to be
credible sanctions against officials who ignore these initiatives. Up to now it
seems they are not even getting a slap on the wrist for their impunity.
It is inconceivable that government can clear these in one
budget cycle. However, government can go to the bond market and borrow money to
be paid over years. While this will increase our domestic debt, which now
stands at about sh55trillion, it would revitalize the private sector and the economy.
We can not continue hoping for first oil in the hope it will give some much
needed impetus to the economy.
Last week government raised sh990b from the bond market.
Imagine we could ring fence a bond auction a month for clearing domestic
arrears, we would have done commendable progress by the beginning of next year.
The privatization of the state enterprises and the liberalization
of the economy starting in the 1990s, unlock individual initiative making the
economy more robust and vibrant. As a result we have been able to shrug of many
shocks – local, regional and international.
It is in our best interest to make sure our private sector
is strong and able to continue bringing us through these tests.
Resolving our domestic arrears issues would be a good place
to start.
