Govt plans face a Ush3 trillion funding deficit

By News Agency , Agency
Published at 09:00 AM Apr 17 2024
Bank of Uganda headquarter
Photo: File
Bank of Uganda headquarter

THE government spending plans have fallen short by Ush3.337 trillion in the first seven months of this financial year, as revenue mobilization continues to be a thorn in government operations.

This failure to meet its spending targets, made it worse for project implementation, as even the little revenues collected, saw a big chunk of it go to interest payments which overshot the planned amount by Ush46.9bn.

The higher-than-planned interest payment levels resulted from the high interest rates amid tight financial conditions.

“The combination of interest payments and external debt principal repayments places heightened strain on tax revenues,” says Bank of Uganda (BoU) in its Economic Performance Report for March 2024.

Overall, by the end of January 2024, government expenditure was Ush20.68trn, out of the Ush24trn that the Ministry of Finance, Planning and Economic Development had planned to spend in the period.

The main contributor to this was underperformance in development expenditure of Ush1.941trn, according to data at the BoU.

The shortfall in spending was mainly a result of the government failure to meet the targeted revenues, despite Uganda Revenue Authority (URA) having collected 12.4 percent more than what it collected in the same period of the previous.

Over the period, the government realized Ush2.6trn lower than budgeted, despite an increase of 12.4 percent in domestic revenue, with grants registering the highest “disappointment” By the end of January, the government expected grants worth Ush1.9trn, but just Ush350bn was realized.

And the realized domestic revenue was Ush15.5trn, including non-tax revenues, of which net URA tax revenue amounted to Ush14.45trn, short of the budgeted by Ush1trn.

On the other hand, non-tax revenues, which comes from revenue collecting agencies like Uganda Registration Services Bureau, the Courts and Police, amounted to Ush1.07trn, recording a shortfall on Ush130.8bn.

Overall, these have, for the first seven months of Financial Year 2023/2024 resulted in a deficit of Ush4.82trn, which has to be mainly financed by borrowing from domestic sources.

An analysis of the URA performance shows that the less-than-expected revenues resulted from the lower collections in taxes on international trade, which underperformed by Ush722.5bn and indirect domestic taxes, which returned a shortfall of Ush366.6bn.

For indirect taxes, the underperformance was largely due to a shortfall Ush225.2bn in Value Added Tax (VAT), while the underperformance in international trade taxes was largely because of lower collections of VAT on imports.

On the other hand, direct taxes continued to perform better than expected, by Ush196bn, mainly due to higher performance in collections of Pay as You Earn (PAYE).

In January, the Ministry of Finance revealed that the Government would spend up to Ush24.9trn servicing the public debt, which was estimated at Ush97.1trn by the end of June 2023, excluding loans totaling Ush7trn which parliament approved later in December.

Next Financial Year, several debts will be falling due and the ministry said that it plans to focus on payment of each debt as and when it falls due to avoid penalties, according to Stephen Ojiambo, Commissioner of Accounts in the Treasury Operations.

These mainly include the Ush950bn on the Karuma power project, Ush190bn on the Isimba dam and Ush108bn on Kabalega International Airport.

Others are Ush218bn which will go to Afrexim Bank’s Budget support, Ush241bn to Standard Bank and Ush365bn on Diamond Trust Bank.

The government also plans to start repayment of Ush1.2trn in compensation to the Democratic Republic of Congo (DRC) as ordered by the International Court of Justice in 2022.