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Deficit Financing: MoFPED propose to borrow 2 trillion shillings to cover the budget shortfall!

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).

In the original budget for 2019/20, the estimated domestic revenue of the state was about Shs. 20 trillion shillings, while the rest would be covered by close to Shs 10 trillion shillings in this manner the budget would cover the 40 trillion shillings. Today in Parliament, the debt trap, which was forecasted by several of Civil Society Organizations and others was proven.

Not only with the recent stipulation of the first Supplementary Schedule to the Budget Year of 2019/20, but also the lack of domestic revenue. This again proves the trouble with generating even half of the budget. As the Parliament are this week, either accepting borrowing 2 trillions domestically to boost the lack of domestic revenue. That means the Uganda Revenue Authority (URA) and the state haven’t delivered on the promise. As the state was spending more and more, but not having the funds to do so.

Therefore, if the state does this. Than, Shs. 2 trillions are loaned to cover for the lack of delivery, the lack of preparations from the government and the added costs of the local government units created. The government knows this, but acts surprised that state have to invest in it. That’s why they have a supplementary budget for it and surely there will be more schedules before the end of the financial year.

Just look at this:

To address the projected revenue shortfall presented in paragraph 3 and the additional expenditure pressures presented under paragraph 9, Government requires a total amount of Euro 600 million equivalent to UGX 2,439 bn (Two Thousand Four hundred and Thirty-nine Billion) to finance part of the budget deficit” (Ministry of Finance, Planning and Economic Development (MoFPED) – ‘THE PROPOSAL TO BORROW UP TO EURO 300 MILLION (EURO THREE HUNDRED MILLION) FROM STANBIC BANK (U) LTD AND EURO 3OO MILLION (EURO THREE HUNDRED MILLION) FROM TRADE DEVELOPMENT BANK TO FINANCE THE BUDGET DEFICIT FOR FY 2019/20, December 2019).

Given the revenue performance in the first two quarters of the FY 2019/20, the projected revenue turnout for FY 2019/20 is Shs 181575.18 billion, against the target of Shs 20,448.73 billion. This

reflects a projected shortfall of Shs 1,873.55 billion” (MoFPED, 2019).

In line with the above Section of the PFMA 2015, Ushs 437.631 billion representing 1.08% of the Approved Budget for FY 2019/20 has been authorized by the Minister of Finance, Planning and Economic Development as Supplementary funding. The purpose of this letter therefore, is to submit Supplementary Schedule 1 FY 2019/20 for consideration by Parliament. Please make arrangements for the Minister of Finance, Planning and Economic Development to lay the schedule before Parliament” (Keith Muhakanizi – ‘SUPPLEMENTARY SCHEDULE 1 FY 20I9/20’, 21.09.2019).

Rt. Hon. Speaker, in line with Section 25 (1) of the Public Finance Management Act, 2015 (as amended), I authorized and have accordingly submitted to Parliament Supplementary Schedule 1 amounting to Ushs. 437.6 billion for this FY” (MoFPED, 2019).

In line with the above, the budget for FY 20Lgl20 is facing the following constraints:

– URA shortfall in revenue of Shs 1,873.55 billion;

– Additional expenditure pressures of Shs. L,432.2bn

– Non-receipt of World Bank budget support funds of Shs. 375 bn

and

– Non-receipt of capital gains tax of Shs. 225 billion (USD 60

million);

10. The total revenue resource shortfall in the FY 2019/20 therefore amounts to Shs. 2,473.55 billion” (MoFPED, 2019).

We know this is serious, when the budget of the FY 2019/20 was 40 trillion. When 2,4 trillion of these have to get borrowed domestically. Even if 437bn of these are supplementary budget and wasn’t in the original budget of the FY. Still, the 2 trillion are a big slice to borrow and gain more loans. This is a debt trap, trapped by even more trap. As the tax-base isn’t growing as forecasted or as possible. By this estimation of the original budget, the domestic borrowing in this financial year would go up from about shs. 10 trillion shillings to about shs. 12 trillion shillings.

Because, with to much taxation, the funds are taken out of the circulation and isn’t spread as much. Not having the ability to generate more earnings for the citizens. They cannot spend, because they are actually paying taxes. That’s why you need sustainable taxes, which makes sense.

That’s why these loans are coming, because the state defaults on taxes, lacks the tax-base and doesn’t have the opportunity to gain the needed revenue. This the reality of the state. They will ask for the loans and add more debt. However, the government will not take responsibility for the acts done. The state are deficit financing and not generating revenue. That is why they are loaning even more debt. At a rate, which should worry anyone following it. Peace.

Kenya: Council of Governors – Press Release on the Non Payment of County Commitments due to the Vacancy in the Office of the Controller of Budget (29.11.2019)

Kenya: The Judiciary – Internal Memo – Subject: Uploading of FY 2019/20 Half Year Budget (05.11.2019)

Kenya: Executive Office of the President – Head of Public Service – OP/CAB/18/19/10A – Re: Budget Alignment Process for Financial Year FY 19/20 (23.07.2019)

Burundi: OLUCOME – Communique de Presse – Portant sur le Project de Budget General de l’Etat de l’Exercice 2019/2020 au fisc Exagere vis-a-vis de la Population tres Pauvre (05.06.2019)

Deficit Financing: The art of fresh loans for the FY2019/20!

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).

Just as it is soon a new Financial Year and also another budget. This time its for the FY 2019/20, the last one before campaigning. Therefore, the added strain on the economy will come, as the state funds are used for campaigns for the ruling regime. This is a steady act of the National Resistance Movement (NRM) and President Yoweri Kaguta Museveni. We can expect more of it. That is the reason why the lack of fiscal responsibility is evident. As the state is within a year going from spending 32 trillion shilling into 40 trillion shillings. This without substantial rate or even more revenue to cover the added expenses. That means the state is more addicted to loans and grants.

Surely, the people should be aware, as the state has already gotten more loans and has to pay more in interests than before. With the new infrastructure loans and other development projects will hit the costs in future budgets. Even with Petro-Dollar, the state still has a lot of old debt to get revenue to cover. Especially, in the short-term window, as the grace periods of old loans will hit the budgets too. It seems like the state is only considering the debt-rate, but not the actual cost of the loans in itself.

That is why I will take one quote from the IMF, before showing what reports there was from Parliament, As they have voted for a new budget, which has escalating spending further without the revenue. That should be a worry. Take a look!

IMF May 2019:

Rising debt puts more strain on the budget as more resources need to be allocated for interest payments. One shilling paid for debt service is one shilling less going to a school or a health clinic. The current ratio of interest payments to revenue is comparable to what countries with high risk or in debt distress typically face” (IMF – ‘Uganda’s Economic Outlook in Six Charts’ 09.05.2019).

Rising debt:

The Committee noted that , the total public debt stock increased by 12.5 percent to USD 11.52 billion as at end December 2018 from USD 10.24 billion as at end December, 2Ol7 out of which domestic and external debt accounted for 33.5 percent (USD 3.86 billion) and 66.5 percent (USD 7.66 billion) respectively. The external debt stock increased by USD 0.78 billion to USD 7.66 billion by end December 2018 from USD 6.88 billion at end December 2017. The increase was mainly from China (25 percent) and World Bank (40 percent)” (REPORT OF THE BUDGET COMMITTEE ON THE ANNUAL BUDGET ESTIMATES FOR FY 2O19/20, P: 7, 2019).

Minority report on growing debt:

Worrying to note is the fact that huge portion of the budget resource is to be financed through borrowing. Out of the projected by domestic revenue of UGX 20.59 trillion (51%) while the budget of UGX 40.48 trillion, 9.44 trillion (48%) will be sourced from both domestic or external borrowing” (…) “It should be noted with concern that projected are almost debt expenditures in FY2019/20 equal to tax revenue (URA tax collection) of UGX 20.59 trillion” (A MINORITY REPORT ON ANNUAL BUDGET ESTIMATES TY 2019/20, P: 4-5, 2019).

It should be worrying how easily this budget was passed. How between last FY 2018/19 to FY 2019/20 the state could add 8 trillion shillings on the budgets. This without counting or even having the added revenue needed. This meaning the state has a giant deficit, which is about half of the budget. Where they have to get funding from outside sources, either by loans or grants. Lots will be loaned for and has to be paid for later with interests.

Certainly, this is a way of ensuring that for every shilling paid in loans, the state could have delivered state services to the public. That is even something the IMF was pointing out. This should be a worry for Ugandans, as the state is misusing the funds, loaning and borrowing on their future, without certainty of being able to repay these loans. That is what is shocking as the oil revenue has been postponed again and the lack of progression on the matter. This means the state is not hitting its targets, while taking up more loans on future revenue. Anyone should be worried about this, because who knows tomorrow and what if the economy totally tanks before the industry takes off. They are clearly living large on Deficits Financing and hoping the golden goose soon lays eggs. Since, they are continuing to fund their operations and the state with loans.

Than, the oil will be sold wholesale, as the state cannot manage to gain revenue and has to trade off everything. The risks it is taking is reckless. The spending is bonkers. That the state is initially a year before an Election Year is creating this huge deficit. Isn’t a sign of strength, but of weakness. As well, as having a blind faith, hoping for a narrow escape in the realm of Deficit financing. Peace.

Opinion: Supplementary Waste to the State House!

We know President Yoweri Kaguta Museveni is someone whose eating of the plate of the government, that is practically his job. The National Resistance Movement (NRM) is praising this as a government tour, where they are even asking local pledges for the upkeep as they did in Moyo Town, where his scheduled later this week. This whole Manifesto Week and continued Tour is an extravagance the Republic cannot manage and was certainly not budget for. As the State House is now asking Parliament for more funds.

The President is asking for Ush. 17,5bn shillings or about $4,6 million USD for this enterprise, where his indulging himself and his comrades in every valley and creek of the Republic. Where the is known steps of typical NRM campaigning of voter tourism, as they pay participants, give them free t-shirts and offers small gifts to participate. Because, he cannot generate crowds out of popularity. They have to be paid and be ferried there.

Just take a look:

State House requested for additional supplementary request Shs 33,282,235,000, the breakdown is as follows: Shs 15,700,000,000 for classified expenditure . Shs 17,582,235,000 for H.E the President’s field operations including accommodation and feeding of the teams that accompanying the President; fuel and other logistical expenditure, by the President during the country wide tours” (ADDENDUM TO THE BUDGET COMMITTEE REPORT ON SUPPLEMENTARY EXPENDITURE SCHEDULE LES NO.1 AND NO.2 FOR 2018/19, May 2019).

That is what the state boils down to the MPs Cecilia Ogwal Atim and Muwanga Kivumbi are loyal subjects professing the pledges and the needs, even signing off on the report. They have no boundaries and no levels of pity. As the NRM and Museveni does to this to show strength and get “endorsed” everywhere.

Of the first part of the report, only 9 out 30 MPs in the Committee signed of to these arrangements, so certainly the popularity of paying these funds to the President wasn’t there. What is special also in the report for this funding, is that the MPs are reasoning out why he needs the funding for the Tour his doing, but none for the Classified, because that is not needed. He can spend that on IPOD Delegation or whatever, because who knows where that money goes. Since its all classified and doesn’t need any recommendation, not even from the lawmakers whose job is to verify and check the accuracy of the needs for this.

I will end with the funniest and most Point Blank statement from the report: “Failure for State House to ensure that the president operates within approved budgets sets a bad precedence”. Just let that sink in, as his most likely getting an added payday by default. Peace.

Kenya: Press Statement by the Council of Governors in Reponse to the Press Release by the Cabinet Secretary, National Treasury and Planning of May 9th 2019 (10.05.2019)

Philippines: Senate President Vicente Sotto III signs the PHP3.757-trillion General Appropriations Bill for 2019 before its transmitted to President Duterte for review and signing (26.03.2019)

A fresh Parliamentary Report on the newly created Town Councils and Sub-Counties: Say they lack funds to run them!

“A government which robs Peter to pay Paul can always depend on the support of Paul.”George Bernard Shaw

This January, the Parliament made a Report (REPORT ON THE STATUS OF FUNDING FOR SUB-COUNTIES AND TOWN COUNCILS, January 2019) into the creation of new Town Councils and Sub-Counties, the Local Governments if you may. As the National Resistance Movement (NRM), have with swift haste over the recent years split up the Republic in record speed. As they are continuing to do so. There are added expenses and more salaries to pay, even more officials and public buildings to procure or facilitate. As the Local Government does gain revenue over night either.

Therefore, the release of this report is a story been told before, about how the Parliament are enacting more districts, but doesn’t have the pocket to facilitate it or the fantasy of thinking of the costs of doing so. In the same vein comes this report, that is rewind of the previous ones, but still important to address.

“Government created 108 Town Councils to commence operations on 1st July 2017 and 95 Town Councils to become effective on 1″1 July 2018. Government also created 204 Sub-Counties that became in FY 2018/ 79 (refer to annex 1). However, the operationalisation of the newly created local governments units has not been matched with the requisite budgetary resources”.

Government created a total of 203 Town Councils and 196 Sub-Counties which have not received operational funds. However, during the FY 2017 118, a provision of Ush. 2bn in the budget was made to cater for startup activities for the 35 Town Councils. In FY 2018/ 19, government released Shs. 2.5bn to cater for startup activities for 50 Town Councils. However, the Committee notes that some Town Councils received partial funding against what had been approved by Parliament”.

“The funding requirement for operationalization of the newly created 203 Town Councils and 196 sub-counties is estimated by Ministry of Local Government at Shs. 108.5bn and Shs. 30.7bn respectively and this excludes costs for public administration such as establishment of a police post, health and education facilities in line with the current government policy

The final quotes from the report, which is the recommendations is worth to mention as well: “The government should provide Shs. 139.2bn for operation of all approved Town Councils and Sub- Counties in FY 2019 l20” (…) “The government should review the policy of creation of new, districts and other local government administrative units in view of the constrained resource envelope”.

Surely, we can see that the state is not sufficiently ensuring the creation of the new Town Councils and neither the Sub-Counties. This is the costs of office equipment, the payment of salaries of the local government and all the procurement that needs to be done.

That is if these entities matters or supposed to govern locally. If not it is just made up areas before the elections to garn voters and spilt the districts to ensure problems for the opposition. Which seems more likely. Since the state, haven’t done much to facilitate or even tried to make them functional.

Even with the funding proposed by this Parliamentary Committee, they are still not discussing the other needs for public administration, police posts, health care or education facilities. Which should be the basis for these entities in general, if not their offices with no portfolio in the districts. That is how it seems.

Surely, the Memo on this matters are the same as before, a ploy to gain voters and promise patrons and cronies of a job after elections, but not having the bank balance or the funding to actually do it. That is how the state operates in these matters and that is why this is a recurrent issues. That is always coming up to discussions about the splitting of districts, sub-counties and town councils. It is just reappearing like the monster of the past and the government acts clueless about to get rid of it. Peace.

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