KAMPALA: In July 2024, the East African Community (EAC) witnessed notable shifts in currency values, borrowing patterns, and fiscal management, indicative of broader economic trends within the region. Among the five partner states, all currencies except Uganda’s depreciated against the US Dollar, reflecting pressures within the region, according to the Ministry of Finance’s latest economic performance report. Meanwhile, Uganda’s fiscal developments show a better-than-expected performance, particularly in revenue generation and lower expenditure, which contributed to lower borrowing.
Currency Movements
In a month marked by currency depreciation across the EAC, the Ugandan Shilling stood out by appreciating 1.1% against the US Dollar. This strength can be attributed to improved domestic macroeconomic conditions or heightened demand for Ugandan exports, which likely supported the Shilling. In contrast, Tanzania and Kenya faced depreciation pressures, with their Shillings losing 1.2% and 0.5% respectively against the Dollar. This could signal rising inflationary pressures in these economies or trade imbalances. Rwanda and Burundi also experienced depreciation, with their Francs weakening by 0.5% and 0.2%, reflecting broader regional currency weaknesses tied to global market uncertainties.
Fiscal Developments: A Shift in Borrowing Patterns
Uganda’s fiscal performance in July 2024 was marked by a significant reduction in borrowing compared to earlier projections. The government had anticipated net borrowing of Shs. 975.55 billion to cover its fiscal deficit. However, actual borrowing amounted to only Shs. 29.95 billion. This dramatic shift was driven by higher-than-expected tax revenues and restrained expenditures.
The surplus in revenue collection, amounting to Shs. 2,233.73 billion, exceeded the target of Shs. 2,181.48 billion. This strong performance was largely due to a surge in taxes on income, profits, and international trade. Specifically, international trade taxes exceeded the target by Shs. 34 billion, underscoring the resilience of Uganda’s trade sector, particularly in imports.
Revenue and Expenditure Performance: A Balancing Act
Uganda’s tax collection in July reflects robust performance across multiple categories. Taxes on income, profits, and capital gains saw a surplus of Shs. 21 billion, while goods and services taxes exceeded the target by Shs. 2.4 billion. Strong import duty collections, fueled by heightened trade activities, further bolstered international trade taxes, contributing an additional Shs. 34 billion to government coffers.
On the expenditure side, the government showed discipline, spending Shs. 2,198.50 billion, well below the programmed target of Shs. 2,846.59 billion. The underperformance in expenditures can be attributed to several factors, including delays in payroll system adjustments, which caused only 61% of compensation to employees to be disbursed. Moreover, slower-than-expected procurement processes and longer budget cycles delayed spending, especially on goods and services.
An area of success was social benefits, which met the programmed expenditure, while other spending categories fell short of targets. Local government grants totaling Shs. 505.2 billion were disbursed, with a notable portion earmarked for wages, recurrent expenditures, and development projects, signaling ongoing investment in sub-national growth.
Key Trends and Implications
The overall trend suggests Uganda’s fiscal discipline and strong revenue performance are positioning the country favorably in comparison to its regional counterparts. The Ugandan Shilling’s appreciation, amidst regional currency depreciation, highlights the country’s relative macroeconomic stability.
This positive fiscal outlook reduces the pressure on borrowing, creating space for further investments in infrastructure and development. However, the underperformance in government expenditures, particularly the delays in compensation and procurement, underscores the need for improved efficiency in public financial management.
For the EAC region, the depreciation of currencies like the Tanzanian and Kenyan Shillings may signal broader economic vulnerabilities, such as increased import costs and inflationary pressures. Moving forward, governments may need to recalibrate their monetary and fiscal policies to counteract these currency pressures and ensure sustainable growth.
Conclusion
The fiscal and monetary trends in July 2024 reflect a mixed economic landscape within the EAC. While Uganda appears to be managing its fiscal position effectively, other partner states may need to address the structural challenges contributing to currency depreciation and fiscal shortfalls. The region’s overall economic outlook will depend on how these countries navigate both global and domestic headwinds in the months ahead.
