Well, we are in the middle of election hiatus and all, the Nomination and planned campaign that last to 18th February 2016. This here will not be on that, but be crunches numbers delivered from the Bank of Uganda Yearly report for the 2014/2015 budget year. This here will tell what I see as important from that report.
“The external position weakened with the current account deficit excluding official grants deteriorating to 11 percent of GDP compared to 8,8 percent in 2013/14. The deterioration of the current account deficit was largely driven by the services deficit, which deteriorated to US$ 731 Million in 2014/15 from USD 323 million in 2013/14 mainly account of higher payments of government services related to infrastructure projects, particularly Karuma and Isimba Hydro Power Projects” (BoU P:1).
That is big change in deficit! That must be a bit worrying that the amount of monies is becoming this big. Also with the infrastructure projects makes so big hunch of that deficit.
Financial risk management at Bank of Uganda focuses on the risk exposures in both the foreign exchange reserves portfolio as well as other operational areas of the Bank. Notably, foreign exchange reserves account for over 86 percent (2014: 74 percent) of BOU’ assets” (BoU, P: 12).
A lot of foreign exchange is major parts of the reserves of the bank. Is that a safe way to do it and doesn’t that devalue its own currency?
“The higher than programmed expenditure was partly, compensated for by the over performance in government revenue. Total government revenue, including grants amounted to UGX. 10,866.0 Billion, which has higher than target by UGX. 249.1 Billion. Grants and domestic revenues over performed by UGX. 173. 0 Billion, respectably” (BoU, P: 28).
The good news is that Government is able to collect more revenue as of taxation and grants to the Government. Though we can say it is a steady rise and the bank doesn’t explain how the rise happen, because this can’t all be collected on the Cellphone, Alcohol or VAT taxes, but something else.
“The fiscal deficit of UGX 3,621 Billion was financed by both domestic and external source, which amounted to UGX. 2,479.0 Billion and UGX. 919 billion, respectively. Domestic financing included a drawdown on savings amounting to UGX. 1,060.0 Billion and net issuance of Government securities of UGX. 1,386.0 Billion. The drawdone of savings was specifically used to finance expenditures related to the public infrastructure projects” (BoU, P: 29).
This here continues on how the financed and the fiscal deficit and sure the drawdone on the savings to build infrastructure projects.
The total public debt stock, in nominal terms, at end June 2015 is estimated at UGX. 24,242.0 billion, an increase of 24,2 percent of UGX. 19.518. 0 Billion at end of June 2014. External and domestic debt increased by 27,7 percent and 21,1 percent, respectively” (BoU, P: 29).
This here is frightening how much the rise is steady and getting more… The terms of it and the rise should make people shake their heads and worry. The Government of Uganda continues to hedge the Public loans and having a rise like this can’t be a sign of a healthy economy.
The depreciation pressures which started in early 2014 continued through June 2015, with the Shilling depreciating by 18,8 percent year-on-year on a trade weighted basis and by 29.1 percent against the USD to an average mid-rate of UGX. 3,398,49 per USD” BoU, P: 31).
That the currency loses value towards the dollar should also be worring. When you see how much shillings you need now to get the dollar now.
“Petroleum Revenue Investment Fund:
In June 2015, the Government opened two accounts (UGX and USD) in order to operationalize the PF. These accounts are to receive all oil related revenues. In June 2015, USD 36 million was received as part payment of the USD 250 million capital gains tax (CGT) liability from Tullow. This sum includes USD 142 million received in 2012 and USD 108 million to be paid in three equal installments of USD 36 million in 2015, 2016 and 2017” (BoU, P: 45).
“During the year, an amount of UGX 1,607,814 million was transferred from the Oil Tax Revenue Fund to Uganda Consolidation Fund. This balance relates to an amount of UGX 1,161,737 million from Tullow Oil paid to GOU for the settlement of tax dispute between the Government and Heritage Oil & Gas (U) Limited. It also includes stamp duty of USD 171 million (UGX 447 million) on sale of Tullow Oil’s assets to Total and CNOOC” (BoU, P: 107).
“In addition, the bank received USD 36 million (UGX 119,057 million) on 22 June 2015 on behalf of GoU, relating to Tranche 1 Tullow Oil tax settlement” (BoU P: 107).
“Ugandan Consolidation Fund refers to the Government appropriation account where all tax receipts are credited and appropriations made. During 2014/15, UGX 1,612,080 million relating to the oil tax revenue collections was transferred to the UFC” (BoU, P: 107).
As seen Petroleum Revenue Investment Fund and Oil Tax revenue shows how the oil impact has on the economy. We can also see the result of the longstanding dispute of the Government of Uganda and Tullow Oil Company. That has now been overturned and gotten the Total and CNOOC. There will be more monies at stake on a later stage coming with the found oil in the Bunyoro area and Lake Albert.
“The special loan to government relates to an advance to government for procurement of the presidential aircraft with interest rates (LIBOR plus 100 basis points), maturity date and repayment terms agreed between Ministry of Finance and the Bank as stipulated in the memorandum of understanding. The last loan instalment was paid off on 24 July 2015” (BoU, P: 107).
That was an expensive airplane for the president! Though it’s all back-paid this still shows how the President buys what he needs and wants, and not what the people need.
Uganda Consolidation Fund: (by the 31. June of the year)
2014 it was UGX 3, 245,961 million.
2015 it was UGX 2, 386,056 million.
(BoU, P: 117).
As proof with the rising debt and deficits, even with rise of higher taxs returns the Government of Uganda. Stills shows that their spending more than they getting since the Taxation fund is dwindling and become less and smaller account. That in total with the other numbers should be a worrying thing to see. Especially knowing how the NRM-Regime goes mayhem on the economy the coming months of elections paying for every votes with chickens and goats in the districts. We have seen that before and will see it again. This will also lead to rise of inflation with more running through the economy so the value of the currency might also dwindle towards on dollar. Wouldn’t be surprised if the Shilling comes up to 4,000 on a dollar!
And that is not a good luck, since the imports and prices will rise for the rise of cost of imports. But hope my predictions isn’t correct, but election cycles usual make the ordinary voter pay and those receiving just get a patch on the wound created by the mayhem done to economy by the ruling regime. Peace.
Bank of Uganda (BoU) – Annual Report 2014/2015
Here you will see what strategies and plans the Government of Uganda has made for their loans and debts. This is about how the Government will deal with it and how it can be done. The numbers tell what they can expect if they pick the certain ways of dealing with it. It shows what can happen and the shock scenarios are important.
This should be seen as important to follow especially with the growing debt and the rates that come with that. Therefore it will be something that should be monitored. From the sustainability of the ratio according the GDP should be something that also brings fear. Especially since this will have general effect on how the general economy will be hit with the down payments and strain the basic budgets of the government. There its a viable thing that should be well known by people, because this will have big importance until FY 2019/2020
“The Uganda Vision 2040 aspires to transform Uganda into a modern and prosperous society within 30 years through provision of adequate infrastructure, development of agriculture, human resources and services sectors, enlargement of markets, strengthening of the private sector and through industrialization” (…) “Implementation of the Uganda 2040 Vision will require substantial resources that will partly be garnered through the domestic and international borrowing. To ensure that our debt remain sustainable, such borrowing has to be carried out through a properly formulated Medium Term Debt Management Strategy (MTDS)” (MTDS, P: 4, 2015).
“The key aim for the MTDS2015 is to ascertain the cost and risk trade-off of financing the medium term fiscal deficit through borrowing while remaining mindful of our debt sustainability” (…) “To meet Government’s financing requirements at the minimum cost, subject to a prudent degree of risk; (ii) to ensure that the level of public debt remains sustainable, both in the medium and long term horizon while being mindful of future generations; and (iii) to promote the development of the domestic financial market (MTDS, P: 6, 2015).
(MTDS, P: 6-7, 2015).
External Debt Stock:
From FY2006/2007 it was Domestic Debt and Outstanding(DoD) was US$1.47 billion. And in FY 2013/2014 had risen to US$4.3 billion (MTDS, P: 13, 2015).
Domestic Debt Stock:
External debt maturity for the ATM (Average Time for Maturity) was 18.9 Years. The plan is setting that the in 2.3 years will the ATM be 11.8 years.
Aggregrate Medium Term Debt Strategy:
The outlook for the 5.3% in FY 2014/2015 and is looking to reach 5.8% in FY 2015/2016. The plan forward is to attain an average 6.3% for the fiscal framework (MTDS, P: 17, 2015).
Government expenditure is on an average to be 20.9% of the GDP for the FY 2014/2015. In the 2015/2016 it is 21.7% of the GDP. The main expenditure for the budget is the infrastructure projects like the upgrading of Entebbe International Airport, Hydro Power projects and Albertine Regional Airport. The total cost for the projects is US$7.0 Billion. There is set to be 5% target for the inflation rate and the exchange rate is set for 12.1% in FY 2015/2016 and average for 2.4% the rest of the years for the medium term (MTDS P: 17-18).
Stylized Financing Instruments:
i: International Development Association (IDA) has the interest 0.75% for the maturity of 38 years.
ii: African Development Fund (ADF) has the interest 0.75% with a maturity of 40 years.
iv: The concessional is with fixed rate loans with 23 years maturity and 6 year grace period. These terms comes from IDA-Blend, Kuwait Fund, Abu Dhabi Fund, UK-Export Credit Guarantee.
v: The fixed rate instrument on the Euro Bond which is priced on a ten-years US-Treasury interest rate.
vii: With Pure commercial loans is a instruments with a 7 years of maturity and with a 3 years grace period.
viii: One T-Bills is a domestic market debt instrument that has a maturity of 91 days, 181 days, and 364 days.
ix: Four T-Bonds is a domestic market debt instrument that has a maturity of 2, 5, 10 and 15 years.
(MTDS, P: 18-21, 2015).
Four scenarios for the Market:
First Scenario: The first thing is possible currency depreciation – is that in the FY 2015/2016 can end up with 30% depreciation and will have to work to sustain that through to 2019/2020.
Second Scenario: A sharp off increase in domestic rates for 2015/2016 and at the Interest Rate will follow the baseline of the Foreign Currency.
Third Scenario: Domestic Interest Rate still set to be baseline assumption that we’re set. And that the denomination on the Foreign Currency following the instruments set for it.
Fourth Scenario: That the Decapitation of the UGX towards the US Dollar in the amount of 15%, that can lead to a shock in the domestic yield a curve for the 2015/2016.
(MTDS, P: 23, 2015).
Analysis of the strategies:
That the total debt-to-GDP from the current level of 28.6% by the end of June 2014, if the end of the time it might end up with 50% level by 2020. This is because of substantial projected increases the fiscal deficit. With the worst strategy the interest rate can go from 1.4% in June 2014 to become 4% in 2020 (MTDS, P: 24, 2015).
Hope you have found it interesting and learn something of the Government of Uganda planning of dealing with their debt. And how they see the future for their economy. Then what kind of strategies and scenario’s that could appear and how they will appear together. The Financial Years that are ahead and how the Ministry of Finance, Planning and Economic Development thinks of their economy. Hope it give you something and also a little feeling about how the economy might progress.
Republic of Uganda/Directorate of Debt & Cash Management – Ministry of Financing, Planning & Economic Development: ‘Medium Term Debt Management Strategy’ (MTDS): 2015/2016 -2019/2020 (April 2015).
On July 27, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Somalia:
Since 1991, Somalis have suffered greatly from civil war. The economy deteriorated as the physical infrastructure was destroyed. In addition to the loss of lives, the war worsened the population’s living conditions, now among the lowest in the world. Even though the political and security situations remain challenging, Somalia has made tremendous progress since resuming relations with the IMF on April 12, 2013. The IMF has been actively involved in providing technical assistance and policy advice in its key areas of expertise, which laid the groundwork for this Consultation. While Somalia has been welcomed back as an active member of the Fund, it remains ineligible for financial assistance pending the clearance of its longstanding arrears. Arrears clearance will be an important part of normalizing relations with the international community and establishing a roadmap to debt sustainability.
As a result of the civil war, all Somali state institutions are severely impaired. Improving governance in key state institutions is critical for progress on economic reconstruction and development. The federal government, working with the international community, has taken steps to improve governance based on the rule of law and the application of international good practices for fiscal and financial operations. IMF technical assistance is largely devoted to enhancing governance in the ministry of finance and the central bank. Rebuilding critical infrastructure and delivering basic social and economic services will be crucial for the new government to gain the trust of the Somali people, advance the process of national reconciliation, and to extend federal government authority over all parts of the country.
Economic activity is estimated to have expanded by 3.7 percent in 2014, driven by growth in agriculture, construction, and telecommunications. Consumer price inflation was 1.3 percent. For 2015, real growth is projected at 2.7 and inflation should remain subdued at about 4 percent. With modest progress on the security front and an absence of drought, medium-term annual growth should be about 5 percent. Nevertheless, growth will remain inadequate to redress poverty and gender disparities.
Budget preparation and implementation is fraught with difficulty due to deficiencies in revenue mobilization and expenditure pressures that exceed available resources. The budget consists largely of salary and security expenditures contained by strict cash rationing. Deficits have been financed mostly through arrears accumulation. Similarly, the 2015 budget was prepared on a zero cash balance basis with optimistic revenue forecasts and weak commitment control, leading the federal government to ration cash and incur arrears to the defense forces, civil servants, and suppliers. On July 19, an extraordinary session of the Cabinet, chaired by the President, approved and sent to Parliament a revised budget for 2015.
The formal financial sector consists of the central bank, six banks with provisional licenses, and nine licensed money transfer firms. The sector is small and nascent while there is reportedly a large informal sector. The central bank of Somalia (CBS) faces challenges in building financial sector supervision due to technical and human resource constraints. The economy is predominantly dollarized and cash is scarce, particularly in lower denominations. Somali banknotes are not readily available, creating problems for the poorest.
The 2014 current account deficit is estimated at US$644 million (11.3 percent of GDP). Trade consists mostly of exports of livestock to Gulf Cooperation Council countries and imports of foodstuffs from neighboring countries and the Indian subcontinent. The trade and income deficits were US$2,663 million and US$450 million, respectively, partially covered by remittances of US$1,333 million and other transfers of US$1,137 million. The deficit was financed by foreign direct investment of US$434 million, especially in telecommunications, electricity, and hotels, and donor capital transfers of US$150 million.
External debt was estimated at US$5.3 billion (93 percent of GDP) at end-2014, preponderantly arrears. Debt data covers most creditors, excludes commercial debt, and shows obligations to: (i) multilaterals (US$1.5 billion); (ii) Paris Club creditors (US$2.3 billion); and, (iii) Non-Paris Club creditors (US$1.5 billion). Based on a preliminary assessment, Somalia lacks the ability to service its debt in the medium term.
Executive Board Assessment2
Executive Directors welcomed Somalia’s reengagement with the Fund, setting the stage for its first Article IV consultation since 1989. Directors agreed with the thrust of the staff appraisal. They noted that, following the protracted civil war, the country is facing daunting challenges. The first priority is to continue building institutions and administrative capacity, while undertaking key structural reforms to spur inclusive growth and reduce poverty. Directors underscored the importance of continued assistance from the international community to support the authorities’ efforts. They welcomed the launch of the Trust Fund for Capacity Development, and highlighted the important role of Fund policy advice and technical assistance.
Directors stressed the need for decisive steps to build fiscal discipline, underpinned by realistic budgeting and effective implementation systems. They welcomed cabinet approval of a revised budget for 2015 that will avoid new arrears by raising revenues and rationalizing wages and services and other recurrent spending. Going forward, Directors stressed the importance of budgeting within a medium-term fiscal framework, based on sound fiscal principles and transparent reporting, and a public expenditure review to promote the allocation of resources towards investment in human capital and infrastructure.
Directors encouraged the adoption of sound mechanisms to ensure effective and transparent management of prospective natural resource wealth. They recommended building institutions consistent with international best practices to ensure that natural resource exploitation maximizes benefits for Somalis. They also stressed the need for clarity regarding the delineation of authority between the federal government and sub-national entities.
Directors supported ongoing efforts to strengthen the Central Bank of Somalia’s capacity and governance structure, with support from the Fund and development partners. They cautioned that currency reform should not be implemented until all prerequisites are in place, in order to safeguard policy credibility.
Directors stressed that elaboration of a financial sector roadmap will be a critical first step to build credibility in licensing and supervising money transfer firms, in order to help channel remittances through the international banking system. They also recommended bringing the AML/CFT framework in line with international standards. Other priorities include preparing and approving additional prudential regulations, and strengthening compliance.
Directors encouraged the authorities to improve statistical capacity, in order to enhance the scope, quality and timeliness of economic data compilation, with technical assistance from the Fund and development partners.
Directors noted Somalia’s longstanding arrears to the Fund and other creditors, and encouraged the authorities to continue to work towards a pathway for arrears clearance and eventual debt relief. They noted that, in due course, the establishment of a track record of cooperation with the Fund on policies and payments in the context of a well-designed staff-monitored program (SMP) would be a key step in the process of arrears clearance and normalization of relations with the international community as a whole. Directors stressed the need for sustained international support and cooperation, and welcomed the formation of the Technical Working Group on Somalia’s Debt.