The opposition in parliament says that the main reasons the government doesn’t have enough money to run its business are that it borrows too much from the Central Bank and doesn’t pay it back.This comes at a time when several local governments are saying they don’t have enough money to pay their employees’ salaries for September and haven’t sent back local tax money, among other spending problems.
Documents before the Finance Committee of Parliament authored by the Minister of State for Finance, Henry Musasizi, regarding the underlying circumstances that informed budget cuts to Ministries, Departments, and Agencies (MDAs) in the first quarter of the financial year 2022/2023 indicate that only 10.25 trillion Shillings out of the 14.57 trillion Shillings that the Ministry released in the first quarter, creating a deficit of 4.3 trillion Shillings.
The first quarter of the financial year runs from July to September. 5.62 trillion Shillings of the 10.25 trillion Shillings released went to debt and interest payments, with the remaining Shillings, 4.67 trillion, going to MDA discretionary spending. A breakdown of the released funds shows that 1.603 trillion Shillings catered for wages, 1.813 trillion Shillings for non-wage, 596.7 billion Shillings for the development budget, and 661.9 billion Shillings for arrears.
There was zero development expenditure released except for the Ministry of Defense, State House, Ministry of Works, and Uganda Revenue Authority (URA) equipment. Muhammad Muwanga Kivumbi, the Shadow Minister of Finance, says that the failure by the government to fund statutory expenditures that should have had first call on the budget is a cause of concern for the government’s ability to fund its affairs.
Accounting officers for Wakiso and Sironko districts have urged their officers to utilise their resources sparingly due to the lack of releases for September salaries. “This is an indication that the government is challenged in funding statutory expenditures,” said the Butambala County MP. He also says that local revenues haven’t been sent to local governments yet, even though a motion for a resolution of Parliament in September 2021 asked the government to change the rule that said all local revenues had to go to the Consolidated Fund.
The MP says that the government’s actions have hurt public services, waste management, the building and maintenance of water sources, education and health facilities, and more. He or she also says that the government’s actions have broken the law.
Bank of Uganda Borrowing
The inadequate budget releases have been pegged on the government’s borrowing of 8 trillion shillings from the Bank of Uganda (BoU) due to revenue constraints. Kivumbi says that this was over the legal limit set by Section 36 of the Public Finance Management Act, which says that the government can only borrow from the central bank up to 10% of the country’s annual income.
“In the budget of the financial year 2022/2023, 25.78 trillion Shillings were approved as domestic revenue. Hence, the government is only permitted to borrow 2.57 trillion from the Bank of Uganda. The provision further demands that funds should be repaid from URA collections within the financial year in which they have been borrowed. However, the government has failed to pay back the funds that were borrowed in past financial years, “the Shadow Minister said.
Before the current financial year started, the government reported having an outstanding advance from the Central Bank of 3.03 trillion shillings for the last financial year 2021–2022. This, in addition to the latest borrowing, brings the BoU debt to 11 trillion Shillings. Because the government couldn’t pay back advances from the Bank of Uganda, on February 18, 2022, it signed an Addendum to the Service Level Agreement (SLA) with the Central Bank to include a debt provision. Kivumbi says this goes against the Bank of Uganda Act, which says the bank’s job is to lend money.
“No wonder, creditors, particularly the International Monetary Fund (IMF), have conditioned that before the government repays advances from the Bank of Uganda, there would be no further external financing releases to Uganda. This has compromised the availability of discretional resources for the running of the affairs of the government. Besides, it is uncertain how much revenue URA has collected so far, “he said.
Amidst these queries, the Deputy Speaker of Parliament, Thomas Tayebwa, tasked the government side on Wednesday to present a well-structured response on the issues in one week, saying that the issues were critical. In a recent statement to the Finance Committee, Minister Musasizi said that the Finance Ministry is aware of how the Quarter One releases will affect the country, but that borrowing more money to close the budget gap would have negative social and economic effects.
He said that when the macroeconomic fundamentals improve, the resources will be released as appropriate, taking into consideration the revenue performance. Finance Minister Matia Kasaija said again at the National Budget Conference for the next financial year that this year’s performance was hurt by shocks they hadn’t expected, especially the sharp rise in global inflation, which has caused local commodity prices to go up.
Parliament approved a budget of 48.1 trillion Shillings for the financial year 2022/2023 and, out of this, 17 trillion Shillings is for interest and debt repayment. The budget was supposed to be paid for with 25.7 trillion Shillings in tax money, 2.1 trillion Shillings in grants, and 7.1 trillion Shillings in domestic loans.