By Benoni Okwenje
HABARI DAILY I Kampala, Uganda I The Minister of Finance, Planning and Economic Development, Matia Kasaija, recently unleashed Uganda’s annual blue print for financial year 2025/26, that will usher the country into the Fourth National Development Plan (NDPIV).
The budget, whose theme is “Full Monetisation of Uganda’s Economy through Commercial Agriculture, Industrialisation, Expanding and Broadening Services, Digital Transformation and Market Access,” is a mixed bag.
Sized at Shs 72.376 trillion, this is Uganda’s biggest budget ever, which underscores the government’s fiscal consolidation agenda, intended at enhancing revenue collection, limiting borrowing for only critical and strategic investments, and controlling government’s expenditure.
Nevertheless, the budget has both some positive aspects as well as some missed opportunities. I will start by highlighting a few of what I think are the positive aspects.
It is encouraging to see a significant increase in the Health budget to Shs 5.87 trillion, up from Shs 2.946 trillion in the current fiscal year. A population cannot be productive unless it is healthy. This increase is also important in light of the recent funding cuts by United States Agency for International Development (USAID), which has been subsidizing a big portion of Uganda’s health sector, especially in the area of HIV prevention, care and treatment.
Another positive segment in the budget is the Shs 1.4 trillion allocated to offset Domestic Arrears, up from Shs 200 billion in the current fiscal year. This will go a long way towardsn injecting the much needed liquidity into companies which have provided goods and services to government but have not been paid for years. Some of those companies had taken out huge loans from commercial banks to fund their expansion.
Widening the tax base
The allocation of Shs 1 trillion to Uganda Development Bank (UDB), will enable it to continue lending to businesses engaged in commercial agriculture, agricultural value addition, manufacturing, tourism, hospitality and education.
As far as tax laws are concerned, there are some positive changes worth highlighting. The first is the three-year income tax holiday for start-up businesses established by citizens. This will help ease the initial investment costs of setting up the businesses. This also incentivizes the start-ups to be formalized and will eventually start paying taxes once the tax holiday is over. This will contribute to the much needed widening of the tax base.
The other positive change to the tax law is the removal of stamp duty on mortgages and agreements. This will lower the cost of borrowing and contribute to an increase in private sector credit.
Missed opportunities
If I may shift to the missed opportunities in the FY 2025/26 budget, the most out standing one revolves around how it will be funded. According to Kasaija, only 51.8% of the budget will be self-financed. The balance will be procured through domestic borrowing, external borrowing and budget support by development partners.
The Domestic Borrowing amount has been increased to Shs 11.38 trillion, up from the Shs 8.9 trillion target in the fiscal year 2024/25. One important issue to note is that the more government borrows from the domestic market, the more it “crowds out” the private sector. This is made worse by the fact that private sector credit growth has been sluggish, growing at roughly 6%-7%.
In “normal times”, private sector credit growth should be in the range of 11%-14%. The increase in domestic borrowing also directly impacts its associated costs. Domestic debt interest payments in this budget are roughly 25% of total revenues. Overall debt servicing will cost Shs 27 trillion, which is roughly 37% of the total budget. This is a worrying sign in regards to how sustainable our national debt currently stands.
Debt Refinancing
From an expenditure perspective, out of the Shs 72.376 trillion, only Shs 43 trillion is available for spending. The roughly Shs 29 trillion that is not available for spending is due to domestic Debt Refinancing (Shs 10 trillion), Interest Payments (Shs 11.33 trillion) External Debt Amortization (Shs 4.98 trillion) and other statutory obligations (Shs 3 trillion). The Shs 43 trillion will have to be shared between government’s many priorities. This is likely to put a strain on service delivery.
It is also important to note that there is a big split between recurrent expenditure and developmental expenditure in this budget. Recurrent expenditure, which consists of things such as wages, salaries and public administration, will take up 67% of the total expenditure. Developmental expenditure, which consists of things like infrastructure projects, will take up only 33%. Developmental expenditure is what contributes the most to the long-term growth of the economy.
This disconnect, among the many others I have listed above, needs to be urgently addressed by our policy makers.
