Stanbic Bank
Stanbic Bank
Stanbic Bank
Stanbic Bank
18.5 C
Kampala
Stanbic Bank
Stanbic Bank
Stanbic Bank
Stanbic Bank

Policy reforms necessary to boost state of the economy

Must read

By Samantha Byarugaba

Bank of Uganda (BoU) released its State of the Economy report for the second quarter ended June, 2018, highlighting and detailing various key economic issues in Uganda. The report indicates the major economic trends and such as; inflation, public debt, domestic revenue and interest rates, among others.

According to the said report, the interest rates for commercial banks have had a very slow downward adjustment compared the BoU’s adjustment of the Central Bank Rate (CBR) which has been kept as low as 9 per cent only since February 2018 and yet matched with a reduction to 21 per cent by commercial banks. This trend has been attributed to the high operating costs of financial institutions and heightened risk aversion as a result of provisioning for bad debt during the year.
The agricultural sector has been the most affected by this sticky transition especially since banks are hesitant to give out agricultural loans hindering the economy’s transition from largely subsistence to modern farming.

Uganda’s Public debt

The provisional total public debt stock at nominal value as at end April 2018 stood at Shs39.7 trillion which counts for about 39.3 per cent of GDP. Of this total debt, external debt stood at US $7.2 billion (Shs25.6 trillion) and domestic debt stood at Shs13.2 trillion which represents 26.1 percent and 13.2 per cent of GDP respectively. This new stock value represents an increase of Shs1.8 trillion from the Shs37.9 trillion recorded at the end of December, 2017.

Uganda’s Looming Debt trap

Bank of Uganda states that the Present Value of total public debt to GDP is within the Public Debt Management Framework but there are potential risks associated to the ever increasing debt figures that could result into a debt trap.

As evidenced by the high total debt exposure of US $12.2 billion (Shs45.4 trillion) including committed but undisbursed debt which amounts to 44 per cent of GDP. This is worrisome to Uganda’s debt portfolio, if not sustainably managed.

Low levels of resource mobilization

The situation is further worsened by the low levels of domestic resource mobilization which continue to hamper potential growth levels that could be attained with sufficient revenue levels and also allow the economy to curb over dependence on debt. Domestic resource mobilization however continues to experience a shortfall, and there is slow absorption by government projects.

Total government revenue including grants was Shs642.6 billion lower than the budget amount. Relative to the approved budget, domestic revenues underperformed by Shs390 billion attributed to an under performance in almost all tax heads.

Direct and indirect taxes and licenses and fees recorded shortfalls of Shs450.8 billion, Shs187.4 billion and Shs5.4 billion respectively while international taxes registered a surplus of Shs8.4 billion.

Domestic Tax collections

According to the Annual Revenue Report by URA, June 2018 the gross domestic tax collections in June 2018 were Shs 1174.74 billion contributing 13.9 per cent to the cumulative collections of Shs8448.92 billion in FY 2017/18 with a growth of 12.59 per cent in the same period. However World Bank records show that in the period from 1993 to 2013, Uganda’s tax to GDP ratio grew by an average annual rate of 0.2 percentage points and only recently increased to the recorded 12.59 per cent.

Uganda is lagging behind her regional peers with Kenya reaching 18 per cent, Rwanda about 16 percent and Tanzania 14.5 per cent.

With such low levels Uganda is unlikely to experience the productivity gains associated with better public service delivery since low domestic revenue mobilization affects the ability of government to effectively provide basic services, and also hampers the goal of keeping public debt trajectory on a sustainable path. It is important to note however that Uganda is on the right path to growth in revenue mobilization as shown by the recorded increase to 12.59 per cent which is closer to the desired 12.75 per cent.

Conclusion

With all these factors in consideration, Uganda’s economy is in dire need of policy reforms that aim at increasing productivity and revenue mobilization to shift from dependence to self-sustainability for the citizens and economy at large. In light of the recent security threats, these policies must also be matched with a more secure political and economic environment without which any efforts to increase economic returns will be hampered.

The Writer works with Uganda Debt Network ( UDN ) as Research Assistant

- Advertisement -

More articles

1 COMMENT

- Advertisement -

Latest article

- Advertisement -