A fiscal year in Uganda runs from 1st July 2020 to the 30th June. What is really rare is that the Parliament and the Government gave itself a Supplementary Budget on the 26th June 2020 to cover arrears of supposed 1 trillion shillings. These funds are to paid out in the budget year and cover expenditure not hold. It is really sketchy do that so late in the budget year. As this is the end of the Fiscal Year of 2019/20 and days ahead of the 2020/21.
So in a budget of about 34 trillion shillings, the state needed another 1 trillion in the end. Meaning the budget wasn’t prepared correctly since they needed to amend it to this extend. To add yet another trillion shillings like it was nothing.
What is striking is how easy it is to adjust the cash balance, the fiscal year and the supplement budgets. These are easily voted through and the money doled on whatever. This time it wasn’t paying the water-bills of the State House. However, other random projects of the state. Which suddenly lacking funds. It just appearing right that and just right now. It was needed to be done now. In mind that it wouldn’t look to bad or be able to keep this accountable for later.
That you need a trillion shillings this late in the fiscal financial year is sketchy at best. Especially considering the implication of a new financial years just days ahead. These sort of arrears should be considered into the next financial year. If these numbers are real and have a basis. It could just be taken out of thin-air and cover whatever else the state needs ahead of campaigns and elections. These years are always more expensive and a trillion shillings for the campaigns wouldn’t be far fetched. To cover added expenses, cars for VIPs and such. Which comes with every single election.
The President, the Office of the President, State House and Office of the Prime Minister would suddenly eat more food and expand their organization. As it has to pay off cronies, new allies and ensure the electorate get a pinch of the future middle-income country. They get some soap, food and small tokens to carry them for the next four years. This is what they always do. Some even come with a few thousand or a thousand shillings as a part of the NRM Village Project Outreach, which it also does during elections.
None of the added expenses is cheap. It cost to be king. The king needs to give the public, food and circus. That is what he does and it continues the way it has always done.
The NRM, the President and the whole team passes this along. Knowing there will be no overlook or accountability over the sudden 1 trillion shilling added in the end of this fiscal year. Not like these billions here and there couldn’t end elsewhere. As long as they are voted for and can be used by the state to campaign.
The General Election is coming up and the incumbent needs a treasury chest. If there ever was one. The one trillion shillings would be helpful to run an campaign. I wouldn’t be shocked if it went missing and was used for campaigns. That would be just another day in the Republic. Peace.
“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.
Let me just say, that tonight, this evening I am tired of reading headlines from various of Republics and Countries where they state they don’t have funds for pledges nor supposed basics during this global pandemic. Yes an global pandemic of COVID-19 or the Coronavirus isn’t a planned affair, unless your a conspiracy theorist who makes up ghost stories out of thin air. The rest of us lives in reality and try to figure the best way out of this.
What is boring in these troubling times is when the state says they doesn’t funds for PPE, Masks, Medicine, Salaries for Front-Line workers and whatnot. It is just an endless stream of costs, payments, allocations and expenditure the state has to carry. The imports of sudden extra equipment, ventilators and such. By all means its an expensive enterprise to cover this and ensure enough of the basics. Still, if the people, the citizens and the well-being of them matters. Than this should be shielded first.
However a reason for the lack of funds is that the state hasn’t this as a priority. This isn’t their breadwinner, this isn’t their ballpark. No, this is a side-show, a show where donors, where foreign donations and other comes in to cover the basics and the needed cover. In sunny days this is usually enough, because the ones getting hurt isn’t an priority and the ones whose VIP gets treatment abroad anyway.
That is why the Health Care system isn’t fully functioning nor has the capacity it should have in consideration per capita. The lack of enough beds, ICUs and such are now a contrast to the amount people in the dominion. Therefore, the state has lost the battle, if it gets bad quickly. The state cannot assume they will get help from elsewhere. Since they are already hurting themselves and are damaged by the virus as well.
So in this regard, when the state is complaining and stating lack of funds for this now. Its all about priorities. These states usually has no issues getting loans, grants and donations to cover deficits. They have no issues getting loans and supplementary budgets to secure new revenue-streams in sunny days for infrastructure and development projects. However, securing the well-being of the citizens and their welfare. That is burden it cannot shelter. Not to the max, not to the appropriate levels. That is just to expensive. Unless, a drunk uncle, snappy-nephew or an in-law is kicking in some remitted funds to shelter its own family at family. That is how this goes.
The governments can run their coffers dry, they can create huge deficits in the times of needs. They can boost their stimulus and use the credit, the forecasted revenue and the sales of treasury bonds. All of that cover it in the future, as the government and state can in practicality never cease nor get bankrupt. That as a sovereign state and therefore, has more gains and possible future income to cover debt and deficits.
That is why in these times of need, the government can prove where their loyalty lies. Either its with their citizens or its with the corporate agenda. They can show that solving it and investing in the Health Care system matters.
We can see if it is a priority or just talk. We can see by the pounds sterling, the US dollars or whatever currency spent on it. That its a priority or not. If they priorities it, they are risking a bigger deficit for now. If not, they are shielding the hurt and hoping it just goes back to normal quick. Peace.
You want another rap? Nah, didn’t think so. Even if President Museveni wants a BOP. Not a DaBaby track or anything. His just approved the US$500 million dollars to the Republic. This was reported earlier this month and he approved it on the 6th of May 2020, but stamped by the Ministry of Finance, Planning and Economic Development (MoFPED) on the 11th of May 2020.
What is unique here is that this loan is given on the idea of “Balance of Payments”. Economist would know that this to cover the deficit and the balance the budgets. This is to ensure the state has enough revenue to already cover the deficit it has. That is why grants and loans comes to ensure the levels of revenue covers the spending. This means that the state has spend a hundred dollars, but only had 50 dollars in liquidity. So, to ensure the accounts are balanced, the BOP comes in and fix the shortfall.
Museveni writes this in the letter:
“The money that goes to the Bank of Uganda is for “balance of payments support”. “Balance of Payments supports” does not only mean helping the country to “import more” but must also mean helping the country to “import less” by manufacturing these products here. With this undertaking, I approve the loan” (Museveni, 06.05.2020).
Because what the support does in the instance of the hundred dollars budget with a shortfall of 50 dollars revenue. The BOP support is the missing 50 dollars and makes it zero. Meaning, the accounts and financial flows should turn into zero. That means with the budget with its expenditure and its revenue its should be a nil or zero sum game. Therefore, when the President claims this helps local industry and less imports. I don’t see it.
Especially, if this is a BOP. Because, a BOP is a fixated way of balancing the budgets, not secure more trade. Its to cover deficits between expenditure and revenue. This isn’t a magical sphere of happiness and joy. This is budgetary measure to cover the shortfalls and lack of domestic revenue. To cover expenses that appeared or was already budgeted. Therefore, the need of Balance of Payments from the IMF to cover those.
This can be seen as a Financial Inflow to cover the deficit.
-100 dollars budget/Import
+50 dollars revenue/Export
+50 dollars Financial inflow (BOP Support)
That is why, when the man says like this. Its a game of balancing the budget. Not putting a wand on the thing and swiftly changing things. This is just a financial measure to cover a deficit. A short-term solution to a shortfall. That will not solve anything, but by time. Not cover debt, not create a market nor make a big difference. Its just covering expenditure. Nothing else.
The President can make it seem so, but that wouldn’t be a BOP. That would be another instrument and another measure. Where the funds was actually meant for investment. This is covering the basics.
Let me end with DaBaby: “I needed some shit with some bop in it (Let’s go)” (DaBaby – ‘BOP’ of KIRK, 2019). Peace.