Now I will go through how the IMF is describing the economic situation in Uganda. It will have similarities with the budget of 2015/2016. Seem like the Ministry of Finance in Uganda. The numbers and fiscal standards are exactly the same. Still I think it will good to see and give what the Western Hemisphere and the monetary organ is saying about the economy of Uganda. So that people can see the similarities and also the difference quotes from the situation.
Min Zhu the Deputy Managing Director and Acting Chair in the IMF commented on Uganda in this way:
“The economic policy mix is expected to remain focused on attaining growth and inflation Objectives” (…) “The Bank of Uganda is encouraged to remain firmly focused on the maintenance of price stability” (…) “Enacting regulations to implement the new PFM Act and a charter of fiscal responsibility, and improving cash management are critical remaining reforms. Amending the Bank of Uganda Act and enacting financial institutions legislation are key steps to further enhance central bank independence and strengthen financial resilience”.
The Executive board:
“Uganda’s recent economic performance has been favorable. Real GDP growth is projected at 5¼ percent for FY2014/15 supported by a fiscal stimulus and a recovery in Private Consumption” (…) “Economic policies in FY2014/15 have supported growth and stability objectives. The fiscal deficit is estimated at 4½ percent of GDP, below previous projections, on account of a sharp tax revenue increase” (…) “The outlook is promising. Growth is estimated at 5¾ percent in FY2015/16 and an average 6¼ percent over the medium-term, driven by scaled-up public investment and a rebound in private demand”.
The Executive Board Assessment:
“Directors stressed the need for continued fiscal discipline in the pre-electoral environment, and recommended strengthened communication with the markets” (…) “Directors welcomed the adoption of the Public Financial Management Act, and advised prompt enactment of its regulations”.
Staff report from the 12th June 2015:
“Security concerns following unrest in neighboring countries and terrorist attacks in the region have weighed on Uganda’s spending needs, exports, and remittances. Declining donor support in reaction to concerns about governance and human rights and reduced development partners’ aid budgets have spurred domestic borrowing requirements” (…) “During a period of moderate growth, inflation has come down significantly from its 33 percent peak in 2011; and despite a decline in international reserves and a pickup in public debt, both remain at comfortable levels” (…) “The reduction in the stock of domestic arrears was smaller than targeted reflecting a decision to backload intra-year repayments, but the annual target is expected to be met. Contracting of nonconcessional borrowing (NCB) for hydropower plants (HPPs), roads, and electrification was within the $2.2 billion limit. Most end-March ITs were met” (…) “The approval of the Public Financial Management (PFM) Act in November 2014 was a major milestone, and structural benchmarks on finalizing preparation on its regulations and the Charter of Fiscal Responsibility (CFR) were observed. The Treasury Single Account (TSA) set-up has laid the stage for improved cash management although more time will be needed to eliminate movements of cash and incorporate donor accounts in the system. The submission to parliament of amendments to the Bank of Uganda (BoU) Act was postponed” (…) “the government has started the implementation of an ambitious investment package aimed at narrowing the infrastructure gap, enhancing regional integration, and preparing for oil production”.
“real GDP growth was 4½ percent in FY2013/14, driven by services, trade, construction, and manufacturing—below the estimated potential of about 6 percent” (…) “The nominal exchange rate against the US dollar appreciated by 7 percent in the year through February 2014, and since then depreciated by 20-25 percent” (…) “The real effective exchange rate appreciated by about 4 percent in 2014, mainly reflecting the weakening of Uganda’s main trading partners’ currencies” (…) “Annual core inflation fell to 2.7 percent in December 2014 and rebounded to 4.8 percent in May 2015” (…) “GDP was revised upwards by 17¼ percent in FY2009/10, the base year. The services sector and to a lesser extent the agricultural sector increased their share in GDP, while the share of industry and construction declined” (…) “Short-term benefits of the oil price decline have been less pronounced in Uganda than in other countries in the region. In the past nine months, petrol average pump prices have declined by 10 percent in domestic currency” (…) “Oil investments might be delayed in the context of lower profitability. Moreover, many interrelated investment decisions are dependent on the oil price, including granting production licenses; signing commercial and financial arrangements; developing engineering, procurement and construction plans; and agreeing on transnational infrastructure works” (…) “The current account deficit remained large owing to structurally high trade deficits. Imports of capital goods and petroleum products are increasing, while both coffee and non-coffee exports have stagnated since mid-2013 reflecting depressed food exports to South Sudan” (…) “The monetary policy transmission asymmetry is explained by the banks’ cautious focus on loan recovery and their high operating costs, coupled with some crowding out effects as government’s domestic borrowing requirements increased at that time” (…) “The number of commercial banks has increased from 14 to 25 with a large influx of foreign banks, which currently hold 80 percent of assets” (…) “the BoU kept a tight policy stance, holding the CBR constant at 11 percent from June 2014 to April 2015, and then raising it to 12 percent, on account of global developments and the ongoing and expected exchange rate pass-through. The BoU’s intervention in the foreign exchange market has been focused on its program of announced dollar purchases for reserve build-up, but in the last few months it has been intervening on the sale side to smooth the fast-paced shilling depreciation. This intervention, along with increased infrastructure-related government imports, drove reserves down from $3.2 billion in end-December to $2.9 billion in mid-May (about 4 months of imports)”.
Economic Outlooks and Risks:
“Public investment financing, alongside weaker exports and tourism receipts, will drive the current account deficit up while preserving reserves at 4 months of imports” (…) “Low consumer prices—with average core inflation projected to remain within the PSI consultation inner band at 3½ and 6¼ percent for end FY2014/15 and FY2015/16″ (…) “Slower growth in key trading partners and further spillovers from lower global liquidity could trigger capital outflows, squeezing liquidity and generating currency mismatches for banks and corporations. In the medium term, the complex commercial and legal aspects surrounding FDI in the oil sector could delay the planned investments”.
Supporting Medium-Term Growth:
“The latter has been at the center of the authorities’ economic agenda as infrastructure investments of around $11 billion—including PPPs—are expected over the next ten years” (…) “With recoverable crude oil reserves of 1.7 billion barrels out of potential reserves of 6.5 billion, oil production would start in FY2020/21 under a model that entails a crude export pipeline and a domestic refinery” (…) “Uganda ratified the Monetary Union Protocol, and has been actively participating in work to establish EAC regional institutions and to create a fiscal surveillance process” (…) “the Uganda Revenue Authority (URA) to improve enforcement and compliance, but a sustained increase in the ratio will require incorporating the large informal sector into the tax-paying portion of the economy and ensuring that large taxpayers comply with their obligations” (…) “Sustainable financial deepening will largely rely on making steady progress on financial inclusion, which will in turn depend on actions to boost the bank deposit base; enhance the intermediation role of non-bank financial institutions, including the National Social Security Fund (NSSF); and develop the money and capital markets” (…) “Staff’s debt sustainability analysis, which includes the infrastructure package as a whole, concludes that the public and publicly guaranteed external debt-to-GDP ratio in net present value (NPV) terms would peak at about 25 percent in FY2020/21. Even combined with domestic borrowing plans, total public debt would remain well below the benchmark associated with heightened vulnerabilities” (…) “The tax-to-GDP ratio in Uganda was one of the lowest in the region prior to the GDP rebasing and is definitely the lowest afterward. Over the past ten years the ratio only increased by 0.2 percentage points per year, on average” (…) “Planned improvements include URA’s efforts to assess income from rental properties and identify businesses that are accessing local services but not filing national tax returns. Use of enhanced controls and creation of a single central processing center for all customs clearances should boost customs revenue” (…) “EAC convergence criteria, Uganda has targeted a tax-to-GDP ratio of 25 percent by 2021”(…) “Social protection in Uganda is entrenched in the Constitution, Vision 2040 and the NDP II. Interventions have nonetheless been limited and fragmented—with only 0.4 percent of GDP a year devoted to direct income support and 1.2 percent of GDP to total social protection”.
Maintaining Fiscal restraint while raising Public Investment:
“The overall deficit increased by 2 percent of GDP between FY2011/12 and FY2014/15” (…) “The overall deficit is projected to increase by an additional 2½ percentage points by FY2017/18 fueled by a continued expansion in capital spending (3¾ percentage points) and a small increase in current spending (¼ percentage point), and curtailed by a further improvement in revenues of at least ½ percent of GDP each year” (…) “the supplementary budget used part of the windfall revenue and expenditure savings to cover operational shortfalls at several ministries, and Electoral Commission outlays, among other pressing needs. All in all, the overall fiscal deficit is now projected to reach 4½ percent of GDP (6¾ percent in the program) and issuances of securities in the domestic market should remain within the target” (…) “The FY2015/16 budget will increase the overall fiscal deficit to 7 percent of GDP largely financed by NCB on favorable terms” (…) “The contingency provision was reduced by 0.2 percent of GDP at the time of budget approval to facilitate one-off spending on police activities linked to the election and allowances to parliamentarians, leaving little budget flexibility and requiring prudent execution in the year ahead”.
Protecting the Inflation objective:
“Some challenges remain, including insufficient institutional arrangements to prevent government’s use of deposits in BoU accounts beyond agreed levels, and shortcomings in inflation forecasting capabilities and fiscal-monetary policy coordination” (…) “Given the high share of imported goods in the CPI, import prices play a key role in inflation behavior, with an estimated pass-through factor of 0.4–0.5” (…) “The BoU has taken steps to reduce volatility in overnight market rates by allowing all banks (previously only primary dealers) to access BoU operations”.
Securing a more effective contribution of the Financial Sector to Growth:
“The BoU does not stress test banks’ resilience to lending rate hikes because of insufficient data availability” (…) “High dollarization. 37 percent of deposits and 43 percent of loans are denominated in foreign currency” (…) “banks’ business models, with a large share of assets devoted to investments in Treasury bills, reflect cautious risk taking, as well as curtailed policy predictability given the large swings in interest rates, thus jeopardizing credit growth”.
Building Institution and improving the Business Environment:
“Core fiscal targets: These targets are based on the EAC convergence criteria, and consist of an overall deficit target of 3 percent of GDP by FY2020/21 and an annual debt ceiling of 50 percent of GDP in NPV terms”.
“That fiscal policy decisions will be strictly aligned to the budget is essential to influencing banks’, corporations’, and households’ behavior. Even more critical, however, is that policy implementation adheres to the budget to build a track record of fiscal discipline during pre-electoral periods and preserve the economic objectives”.
Can you believe it and how the inflation numbers together with the borrowing are not totally the same, that is for the reason that the Budget Deficit has been set by the government of Uganda is on the size of the yearly budget instead of the GDP as the IMF they set it there, the number will significant better and also smaller. Still, the Yearly Review which was ‘Value for Money’ told the same, even if the number will be different next year from URA and Ministry of Finance, Planning and Economic Development (MoFPED) will hopefully drop similar numbers next time. Since the numbers for deficit are going up and also the loans because of missing donor money. While waiting for the money from the Oil Development. Still, wait for how the budget year 2015/2016 will go. Peace.
How the Implementation of the IMF Policy Support is going:
Letter from the Ministry of Finance, Planning and Economic Development (MoFPED) to the IMF:
International Monetary Fund – IMF Country Report No. 15/175: STAFF REPORT FOR THE 2015 ARTICLE IV CONSULTATION AND FOURTH REVIEW UNDER THE POLICY SUPPORT INSTRUMENT—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR UGANDA (July 2015).
The limitations of the oil and gas industry in Uganda is combined and conformed by this certain institutions:
Parliament, Revenue Authority (URA), Bank of Uganda (BoU), and the National Oil Company (NOC), the Auditor General (OAG) and the Petroleum Authority of Uganda (PAU) and the Petroleum Exploration and Production Department (PEPD) (Magelah, P1, 2014).
The biggest issue for all the institutions in Uganda is the financial and human resources to enforce their mandate on the matter: “At present the house has about 5 full time researchers for about 370 Members of parliament” (…)”Under the PFB for example the minister has powers to change from the goals of the Chatter of Fiscal Responsibility without seeking parliament’s approval, under clause 61 the minister can direct BOU on what to do, the minister appoints the petroleum investment committee and under clause 59 the minister can chose where and in which form investment of petroleum funds should be. The framing of clause 59 is such that the minister’s decision on investment of petroleum funds is final and all institutions must obey it. Under clause 71 the minister keeps the excess funds meant for district” (…)”One such example is BOU which according to article 162 of the Uganda constitution provides that BOU should be independent and not subject to the control or direction of any person” (Magelah, P2, 2014).
Three other main concerns is the basic movement between government agencies: “The end result has been court cases where oil companies are challenging URA for taxing them. It is clear from these cases that the PEPD never consulted URA in granting tax exemptions and his has resulted in the present situation”.
Second concern is: “The NOC was created under the petroleum upstream act, however the act did not provide for funding, accountability and auditing of the NOC”. Where its hard to prove and also see if there are transparency for the agencies and governmental organizations and also see the progress of the companies who drill the oil.
Third concern: “here is also luck of provisions for participation in Extractive Industry Transparency Initiatives (EITI). The National Oil and Gas policy provide for government to participate in the EITI”. It says itself: you can now see how limited the organization in Uganda is on the matter of drilling and oil and gas. Their mandate and little manpower from both the 5 researchers and to support the 370 MPs. So we can now see how this will affect the new industry and how these weak and vague institutions will keep the upkeep for industry as whole.
Magelah, Peter Gwayaka – ‘Institutional Limitations for Uganda’s oil and gas sector Paper presented at workshop on Deepening Transparency and Accountability of Extractive Sector in East Africa’ (17.09.-19.09. 2014)
Here is my discussion on the document that is about the new Public Finance Bill of 2014.
Professor Ezra Suruma wrote a paper called ‘Will Parliament lose influence to the Executive in the budgeting process under the new Public Finance Bill?’ in August of 2014 (Suruma, 2014). Ezra Suruma is a Ugandan economist he works at the Brookings Institute in Washington D.C. where he is a part of the African Growth Initiative of in the institute. Second occupation is senior advisor to Ugandan President on finance and economic planning (Wikipedia, 2014).
Ezra Suruma says about the part of macroeconomic and fiscal policies where he is quoted to say: “The development of fiscal policy and the charter of fiscal responsibility lie solely with the minister. However, in the first session of Parliament, the minister is required to prepare and submit to Parliament the Charter of Fiscal responsibility for approval” (Suruma, 2014, P: 2).
New Zealand government has a splendid way of looking at what Fiscal responsibility:
“Fiscal policy comprises decisions about government spending and taxation. These decisions are made with a view to goals such as the optimal allocation of resources, economic stabilisation and the longer term sustainability of public finances” (New Zealand Government, 2005).
So if there is only transparency for the Minister and not the responsibility for the Parliament to oversee an approval. Then we know that there will be instances where the Ministers doesn’t have to show their progress or work to a broader public. This isn’t what you would call a transparent fiscal policy from the government of Uganda.
“The Minister shall within one month of the commencement of the first session of Parliament, submit to Parliament the Charter of Fiscal Responsibility for approval.”(Suruma, P: 2 2014). Suruma comments that it will only take from 31. December to the 1st of February until reading the budget, something which seems like a little time to prepare and give the opposition time to answer and make switches and tweak the budget of that year to come.
There is given specific powers to the Parliament which is part of ‘Clause 10’ in the new Public Finance bill of 2014 says:
“(1) The Parliament shall analyze the policies and programs that affect the economy and the annual budget and where necessary, make recommendations to the Ministry on alternative approaches to a policy or program. (2) The Parliament shall ensure that public resources are held and utilized in a transparent, accountable, efficient, effective and sustainable manner and in accordance with the Charter of Fiscal Responsibility and the Budget Framework Paper.” (Suruma, P: 2, 2014).
All of this should be in a bill, if you expect the parliament to shine lights on the budget and are main objective for the Fiscal Responsibility. The Parliament should make recommendation to the Ministry to a certain policy and give insights to other visions of what the government need to use sufficient funds and budget enough for the expenses of running the state and its obligations to its people.
This was on the Part II Budget preparation, approval and management on page 3 (Suruma, 2014). Directly from the new law text:
“12. Approval of annual budget by Parliament (Suruma, P:3, 2014).
(1) The Parliament shall, by the 31st of May of each year, consider and approve the annual budget and work plan of Government of the next financial year and the Appropriation Bill and
any other Bills that may be necessary to implement the annual budget (Suruma, P:3, 2014).
(2) Where the President is satisfied that the Appropriation Act in respect of any financial year, will not or has not come into operation by the beginning of any financial year, the President may, in accordance with Article 154 Constitution, by warrant under his or her hand, addressed to the Minister, authorise the issue of monies from the Consolidated Fund for purposes of meeting the expenditure necessary to carry on the services of the Government, until the expiration of four months from the beginning of that financial year, or from the coming into operation of the Appropriation Act, whichever is the earlier” (Suruma, P3-4, 2014).
As Suruma himself commented on page 3.Read directly part 12:2. Do you see what it is really is saying. That it has to be “one third of the budget would be approved by the executive without the approval of Parliament”. The Executive approve one third of the budget without the Parliament. That is lots of money that doesn’t need any transparency, or votes to the public unit, or in the view of more than the executive. Suruma continues on Page 4: “If this is approved it will reduce the power of Parliament from 100% power over appropriation to 67%. The appropriations for 33% or the first 4 months of the year will now shift to the President” (Suruma, P: 4, 2014). As you see that the approved power will be 33% will be delivered directly to the president. They have only 67 %. The Parliament is supposed to have a full discloser and 100 % power of the budget, not a little over 50 %.
Another main change that is being discussed by Suruma on page 4:
“Although the minister may increase the appropriation of a vote by 10%, the amount so increased must come from the Contingency Fund. The Contingency fund has been raised slightly to 3.5% of the budget” (Suruma, P: 4, 2014). So the minister of finance has also gotten more power than before. Just see the percentage of the vote that he has for the Contingency Fund and also the piece of the whole budget.
“28. Investment of balances on the Consolidated Fund.
Any sums standing to the credit of the Consolidated Fund may be
(a) with an approved financial institution at call; (Suruma, P: 4, 2014)
(b) subject to notice not exceeding twelve months; or
(c) in an investment authorized by the law for the investment
of trustee funds and approved by the Minister.
(Suruma, P: 5, 2014).
(Suruma, P: 5, 2014).
This here has already Suruma pointed on big important points and questions that should be visible and addressed. Like which law question is just so cold and still so clear what he means when Suruma ask it. The minister has authorization and also right to choose investment even though it doesn’t say what kind of law that is authorization to the funds he needs to provide investments or what powers he need to give rights to authorize the actions of the ministry.
Suruma is continuing on Part VI accounting and audit:
(5) An Accounting Officer shall be responsible and personally accountable to Parliament for the activities of a vote (clause 43 (5) (Saruma, P: 5, 2014). As Suruma says and is understood that there is technocrats, there is only Parliament is mention in the law from the page 5 is on a previous audits. As it seems there is technocrats who gets the overview over the budget and not the parliament. This has become very natural process in many nations from the USA, Zimbabwe and even Greece. So this is not a problem only for Uganda, but a modern day issue which shouldn’t be left under a rug.
Under Amendments on page 6 (Suruma, P: 6, 2014). The Committee on National Economy Suruma himself even he comments that the power over the Committee is the Executive branch of the Government. This means that the President can control the Committee on National Economy.
“On Parliament Budget Office:
“(1) There shall be a Parliamentary Budget Office within the Parliamentary Services with the Clerk of the Parliament being the Accounting Officer, consisting of full time and part time budget and economic experts as may be required from time to time” (Suruma, P: 8, 2014).
(2) The function of the Parliamentary Budget Office shall be to provide Parliament and its committees with objective and timely analysis to assess economic and budget proposals including analysis of the economic and fiscal planning and reporting documents and annual budget documents, and without prejudice to the generality of the foregoing shall-
(a) Provide budget related information to all committees in relation to their jurisdiction;
(b) Prepare reports on budgetary projections and economic forecasts and make proposals to Committees of Parliament responsible for budgetary matters;
(c) Prepare analyses of specific issues, including financial risks posed by Government policies and activities to guide Parliament;
(d) Consider budget proposals and economic trends and make recommendations to the relevant committee of Parliament with respect to those proposals and trends;
(e) Prepare analytical studies of specific subjects such as fiscal risks posed by government owned or partially owned enterprises and other sources of risk;
(f) Evaluate the government’s explanations of deviations from the fiscal responsibility principles or fiscal objectives and the plans to address such deviations;
(g) Report to the relevant committees of Parliament on any Bill that is submitted to Parliament that has an economic and financial impact, making reference to the Charter of Fiscal Responsibility and its principles and to the financial objectives set out in the relevant Budget Framework Paper;
(h) Generally give advice to Parliament and its committees on the Budget and economy;
(i) Report on any other subjects relating to fiscal policy and performance requested by a committee or initiated by the Parliamentary Budget Office in the interests of assisting Parliament.
(3) The Parliamentary Budget Office shal1 ensure that all reports, studies, evaluations, findings, recommendations and other outputs are presented in a user-friendly form and that all outputs are published in a timely manner unless publication is not in the public interest”
(Suruma, P: 8-9, 2014)
Minister’s Report on Performance:
(1) The Minister shall report at least twice per financial year on Government’s performance against the fiscal objectives in the Charter for Fiscal Responsibility and Annual Budget.
(2) In reporting performance against its fiscal performance, the government shall provide-
(a) Updated macroeconomic and fiscal forecasts with sufficient information to show changes from the forecasts in the last Budget Framework Paper or Annual Budget;
(b) Budget execution compared to the appropriations and other lawful spending authorities.”
(Suruma, P: 9, 2014)
The continuation is of the problem that we’re on page 6. The technocrats have the powers over the budget and not the parliament who will execute the budget on these matters. It is not something new in this matter, it’s kind of normal in our day and age. NPM – New Public Management and those technocrats get their wisdom across instead of the people we elect.
PART VII: PETROLEUM REVENUE MANAGEMENT
The major players in petroleum revenue management are the following:
(Suruma, P: 10, 2014)
ISSUES IN OIL REVENUE MANAGEMENT
There ia an old saying that “too many cooks spoil the broth”. There are so many power centres that it is difficult to know how they will interact and not conflict and cause paralysis. Specifically, I wish to make the following observations:
I have two concerns:
(a) Can bank of Uganda do all these reports and continue to its other responsibilities such as banks supervision and monetary policy?
(b) Can the Minister or the Parliament possibly absorb all these documents?
(Suruma, P: 11, 2014)
As seen on Petroleum Revenue Management you can see that there are many actors in it. For the Bank of Uganda and Uganda Revenue Authority has their part. Then it’s all the different parts of the government which is supposed to follow the industry of the oil revenue. From the Parliament, Treasury Secretary to the Investment Advisory Committee and also the External Investment Managers. With this it proves that it should be transparent with the Oil revenue because it has to go by everything from the National Bank of Uganda, the tax office in URA and all the Governmental institutions and committees. This tells it all.
I think the eight points that Suruma has pointed out I don’t think I need to address since there are so valid on their own. You should think about them yourself! There are just a lot of issues for the government and the parliament together with the other institutions of finance that the government has at its disposals.
The technocrats have a lot of power when it comes to budget and also the financial of fiscal transparency. Public Transparency Bill gives much more power to executive branch or the President. The Parliament will now have around 60 percent of its power instead of a 100 % as it has today. Which is a big step for the government and also with the movement of financial transparency has the same issue as the rest of the world where the technocrats has a lot of power over the planning and executing the budget, and not the Parliament or the Executive branch. Even if the Executive branch is getting more place, even the; “Although the minister may increase the appropriation of a vote by 10%, the amount so increased must come from the Contingency Fund. The Contingency fund has been raised slightly to 3.5% of the budget”. This proves that both the Executive branch, the president and also the Finance Ministry gets more direct power even if the technocrats get a bigger oversight over the budget and the finances of the state.
PS: Want to say thanks to Parliament Watch Uganda! For loading the document online.
New Zealand Government – ‘A Guide to the Public Finance Act’ (August, 2005) Link: http://www.treasury.govt.nz/publications/guidance/publicfinance/pfaguide/guide-pfa.pdf
Suruma, Ezra – ‘Will Parliament lose influence to the Executive in the budgeting process under the new Public Finance Bill?’ (August, 2014) Link: http://www.scribd.com/doc/237400795/Public-Finance-Bill-Paper-14-Aug-2014
Wikipedia – ‘Ezra Suruma’ (02.05.2014) Link: http://en.wikipedia.org/wiki/Ezra_Suruma