The Art of Deficit Financing: Budget 2020/21

Deficit financing, however, may also result from government inefficiency, reflecting widespread tax evasion or wasteful spending rather than the operation of a planned countercyclical policy. Where capital markets are undeveloped, deficit financing may place the government in debt to foreign creditors. In addition, in many less-developed countries, budget surpluses may be desirable in themselves as a way of encouraging private saving” (Encyclopaedia Britannica – ‘Deficit financing’ (25.08.2015).

What is striking from the 2020/21 budget is that its not only 45 trillion shillings, but the way they are financing this spending. Because, the budget need financing or revenue to pay the expenditure. You cannot use air to pay the bondsman. The people you owe money or supposed to spend on needs real cash-flow and liquidity to be fiscal responsible.

What we learned again is the debt deficit financing, which has been common staple in the Republic. Since domestic revenue or tax revenue is about 20 trillions shillings. This means that the rest of the budget has to paid for in various of other ways. In this regard, the state are borrowing, refinancing and gaining more debt. As the state is also wasting more of the budget on paying interests.

This is really making a evil circle and continuing debt trap. Even if the trillions upon trillions owned by the state is growing. That this still haven’t hit a debt ceiling. However, the issue here is the amount of paying interests. They are wasting away money on paying for old loans. This is what the state is initially offering. While it is gaining new debt to finance the over-expenditure today.

When the state pays 4 trillion shillings (9% of the budget) in interests. That shows how destructive this is for the budget. How important it has become. When 1 in 10 shillings of the budgets are paid in interest. This money could have been spent in all parts of society. It could have changed people’s lives and invested in the future. Instead its paying on the debt trap created by the same state.

Deficit financing and refinancing will only ensure the future generations are paying for the growing debt created by the current government. They are borrowing on the future growth and supposed revenue. Even as the state is ballooning the budgets, that they are not able to cover more than half. That is worrying and should worry the republic too.

Yes, that budgets get ballooned in election years are common. That the budgets are insincere and write of taxes in these years are typical too. All of this isn’t new. It is what happens when the Republic is preparing for elections in the coming year. Therefore, the state needs a treasure chest to bling out on chiefs, voter tourism and whatever else to look good for everyone.

That is why this budget is like this. We can clearly see that the state are continuing to acquire more debt, which means the interest payments will grow every year. This is why the refinancing and growing debt should worry everyone. Because, just like the interests payments are now at 9% or 4 trillion shillings this year. We can wonder how it will look when the grace-periods of several of loans are over and the initial price of these as well.

The Republic of Uganda deserves better, but the leaders and the ones in-charge are making it like this. They are not concerned about the future and that is very clear. As they are spending and squandering away the future today. Then someone have to pick up the tab in the future. Peace.

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