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The often used phrase, 'the world is a global village' speaks volumes. This is because negative events in one corner of the globe are not confined to that particular corner. Today the spread of negative or even positive effects (economic, social, political and health) is much faster than it was five decades ago, says Collison Lore.
During the month of June 2012, Uganda and the wider East African Community generally, released the annual budget covering the 2012/13 financial year.
Before delving into the detail of Uganda’s budget it would be useful to outline the International Monetary Fund’s (IMF) view of the global forecast and potential risks. According to recent IMF reviews, the general global outlook is slowly improving, but it remains fragile. There are a number of key assumptions underlying the baseline:
The state of the Euro zone and the sluggish growth in America and Canada has also dragged down growth in Asia notably India and China. How does all this impact on Uganda's budgeting process?
Following the rough international economic climate, Uganda’s economy also slowed down. The slowdown in growth this financial year was due to drought, weaker demand of our exports, high international fuel prices, and imported inflation coupled with the weak shilling due to a strong dollar globally. It is projected that real GDP growth is at 3.2% this financial year. In taking cognizance of Uganda’s rapid population growth, of approximately 3.5% per annum, it is essential that economic growth that exceeds population growth and that is more inclusive and sustainable be restored.
The slow growth cut across a number of sectors; the service sector for instance slowed to 3.1%, with trade, financial, education and health services sector registering negative annual growth rates. Furthermore, growth in industrial production slowed to 1.1% during the year. The hardest hit industrial sub-sector was the formal manufacturing sub sector, where growth contracted by 4.4%.
Indeed, the Uganda Shilling depreciated against major international currencies earlier in the financial year now ending. Depreciation of the shilling was a consequence of the widening balance of trade as imports continued to grow much faster than exports. Presently the shilling has stabilized against the major currencies. This is underpinned by export of goods & services during the year totaled US$ 4.1 billion, compared to imports of goods which amounted to US$ 5.31 billion.
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In order to boost investment, the government has placed priority on key sectors of the economy and is also striving to ease doing business in the country.
The government concluded a comprehensive review of business licenses, and recommendations made to simplify requirements, reduce discretionary powers, and eliminate redundant procedures. Consequently, close to 27 licenses will be eliminated all of which were found to be redundant.
An electronic licenses registry that will serve as a repository for all approved business licensing in Uganda will be established. Implementation of the agreed recommendations is estimated to lead to savings in excess of Shs 78.3 billion for the private sector. Government is to establish a One Stop Centre to provide online registration services for the various licenses required to start a business.
Government has set an ambitious target for URA to collect over Shs6 trillion. The government is looking to generate a substantial portion of the proposed more than Shs10.2 trillion budget from domestic sources. This will ensure that the government continues to finance the national budget from locally available funds.
Despite the budgetary challenges facing the Ugandan economy, there are significant rays of hope.
Annual inflation peaked at 30.5% in October 2011 but has declined to 18.6 in May 2012. Food crop inflation that was 42.2% in May 2011 has declined to 8%in May 2012. This offers consumers of products a breathing space, allowing them options in the face of easing austerity.
Tackling inflation remains Government’s overriding macroeconomic objective in order to protect macroeconomic stability. To its credit, the Government of Uganda has put in robust measures to tame inflation and this is paying off dividends. The IMF advises that the government should bring inflation down to single digits, maintain a tight monetary policy stance and tight budget, as is currently being implemented by Bank of Uganda.
The government appreciates the important role played by mobile money transfer in the economy. In this context, the Bank of Uganda licensed four Mobile Money network operators to offer mobile money services, as a means of bringing about greater financial inclusion with the move towards branchless banking. By February 2012, the operators had registered 2 million mobile money clients and 13.2 million transactions worth Shs.551.0 billion had been processed between January and March 2012.
Uganda has continued towards the path to financing her own budget with reduced donor dependence. Locally mobilized resources, including tax collections and domestic borrowing will finance about 75% of the budget during 2012/13, whilst 25% will be provided by development partners. This represents a rise in domestic financing of our budget. Revenue collections for next financial year are projected at Shs7,251 billion.
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