Tuesday, July 17, 2018
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What You Need To Know About Uganda’s Shs29.2 Trillion Budget For 2018/19

The 2018/19 budget is estimated to be Shs29.274 trillion, according to the National Budget Framework Paper (NBFP) for Financial Year 2018/19 obtained by Business Focus.

This means that the 2018/19 budget will slightly increase by over Shs200bn from the 2017/18 budget.

Out of the estimated Shs29.274trillion budget, Uganda Revenue Authority (URA) is expected to collect Shs15.5 trillion, of which Shs15.1 trillion is tax revenue and Shs418 billion is non-tax revenue. If approved, URA’s target will be Shs500bn higher than the 2017/18 budget.

Borrowing

Like it has been in recent years, the government is not about to stop borrowing.

Domestic borrowing (through issuance of securities by the government) will contribute about Shs940bn, down from Shs954bn in 2017/18, while project support (external financing) will contribute Shs6.7trillion, slightly down from Shs7trillion in 2017/18. Domestic refinancing contribution remains unchanged at Shs4.9 trillion while appropriation in aid will contribute Shs872bn, up from Shs757bn in 2017/18.

“This domestic borrowing is in line with Government’s strategy of maintaining borrowing within one percent of GDP over the medium term in order to support private sector development. Domestic borrowing is projected to decline further to Shs611 billion in FY 2019/20 and reach Shs409 billion by FY 2022/23,” NBFP reads in part.

Debt Repayments and Interest Payments

Amortization of external debt is projected at US$ 236.5 million, equivalent to Shs894 billion in FY2018/19, which is relatively high, compared to past levels because of repayment of the PTA loan, says the NBFP.

Thereafter, external debt amortization is projected to reduce to US$ 131.8 million in FY 2019/20.

Government’s interest payments are projected at Shs2.7trillion in FY2018/19, of which Shs2.279trillion is interest on domestic securities (Treasury bills and bonds) and the rest is interest on external debt.

”Interest payments constitute 9.8 percent of total resources available for spending next financial year.  The figure is projected to rise to Shs2, 788 billion in FY 2020/21 and will amount to Shs.3084 billion during FY2021/22. A great percentage of interest payments about 84 percent is domestic interest payments which partly reflects high cost of domestic borrowing,” says the NBFP.

Allocations; who takes what?

Government expenditure (excluding domestic debt refinancing) is projected to amount to Shs22.579 trillion in FY 2018/19. This is equivalent to 21.2 percent of GDP.

Like in the recent past years, works and transport, energy and mineral development and education continue to enjoy a lion’s share of the budget.

In 2018/19, works and transport sector’s proposed allocation is Shs4.7trillion, representing 21.4% of the budget. This is slightly higher compared to Shs4.58trillion allocated to the sector in 2017/18.

Energy and Mineral Development’s proposed allocation is Shs2.52trillion in 2018/19, representing 11.5% of the budget. In this current year, the sector was allocated Shs2.31trillion (10.5%).

Education and health sectors have suffered budget cuts. Education’s proposed allocation is Shs2.41trillion, down from Shs2, 5trillion, while health sector has been allocated Shs1.63trillion, down from Shs1.82trillion in 2017/18.

Security’s allocation is also being cut from 6.7% this year to 6.2% in 2018/19. In nominal terms, security’s proposed allocation is Shs1.35trillion, down from Shs1.47trillion in 2017/18.

On the other hand, public sector management retains its 6.6%. Justice, law and order sector will get 5% down from 5.1% allocated to it in 2017/18.

The rest of the remaining 10 sectors will take the balance with each getting less than 4% of the resource envelop. These include key sectors like Agriculture and Tourism. Agriculture employs majority of Ugandans.

Agriculture’s proposed allocation is Shs831.7bn (3.8%), from Shs828.5bn (3.8%).

Other sectors with meager proposed allocations include Tourism, Trade and Industry Shs119.4bn (0.5%), ICT & National Guidance Shs109.1bn (0.5%) and Science, Tech. &Innovation Shs71.8bn (0.3%).

2018/19 budget strategy

According to the BFP, the medium term strategy is anchored on the Second National Development Plan (NDPII) that seeks to strengthen Uganda’s competitiveness for sustainable wealth creation, employment and inclusive growth.

Like the previous budgets, the 2018/19 NBFP indicates that the budget will focus on improving production and productivity in the primary growth sectors – agriculture, manufacturing minerals, and tourism– to drive faster growth of the economy.

Further, the budget will address the infrastructure gaps and other constraints to private sector development as well as overall improvement in delivery of public services to the population, mindful of the need to address emerging issues such as efficient management of urbanisation and hastening demographic transition to reap the demographic dividend.

The strategy also aims to take Uganda into modernity through job creation and inclusive development. The BFP also says that next year’s strategy will also deal with poverty numbers that increased from 19.7% in 2012/13 to 27% in 2016/17.

“This development strategy is summarised in our budget theme for the FY2018/19 and the medium term – Industrialisation for Job Creation and shared Prosperity,” the BFP reads in part.

The strategy also aims to keep macroeconomic indicators in check; with GDP growing above 5%, inflation remaining within the official target of 5% and the exchange remaining stable.

Economic Outlook

Uganda’s economy grew at a revised rate of 4.0 percent in FY 2016/17, against an earlier estimate of 3.9 percent. The slight improvement follows better economic activity in the second half the year, says NBFP.

However, the revised growth for FY 2016/17 is lower than 4.7 percent recorded in FY 2015/16 and the FY 2016/17 budget target of 5.5 percent.

The key reason for this is that growth has been driven by the services sector which employs a small proportion of the population at the expense of agriculture and manufacturing sectors that have very strong forward and backward linkages and spill-over effects in the economy.

“In fact, the current slowdown in economic growth is attributed to productivity losses in agriculture sector (resulting from among others, lack of access to market, agricultural financing, weather vagaries and associated climatic changes) and manufacturing sector (due to low market base, inadequate infrastructure, low human resource, low financial markets development, etc.),” the NBFP reads in part.

Economic growth in FY 2017/8 is projected at 5.0 percent and in FY2017/18 at 5.5 percent supported by accommodative monetary policy, improvement in public investment management and increase in private sector credit growth.

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