LUCAS MUSISI
KAMPALA – In the latest release of the World Bank’s Uganda Economic Update for December 2023, concerns are raised over the sustainability of Uganda’s fiscal consolidation efforts due to challenges in revenue collection. Despite government endeavors to narrow the fiscal deficit, driven by a decline in development spending and increased recurrent expenditures, revenue collection remains stagnant at 14 percent of GDP, falling short of targets outlined in the Domestic Revenue Mobilization Strategy (DRMS).
The fiscal consolidation strategy primarily hinges on reducing development spending, raising doubts about the government’s ability to uphold its commitment to a deficit of 3 percent of GDP, as stipulated by the Charter of Fiscal Responsibility (CFR). Notably, expenditure saw a reduction from 21.5 percent to 19.9 percent of GDP, mainly attributed to under-executed projects both domestically and externally financed. Factors contributing to this underperformance include inadequate feasibility studies, poor implementation plans, and weak project management.
Meanwhile, recurrent spending witnessed a slight increase, driven by salary enhancements for certain civil servants and heightened interest payments, partly due to the reinstatement of domestic interest payments revised downward by Parliament during budget discussions. Despite these challenges, Uganda’s allocation towards social sectors remains minimal, with investment in human capital declining as infrastructure projects take precedence, particularly in the energy and transport sectors.
Furthermore, the accumulation of domestic arrears and reliance on supplementary budgets pose significant hurdles to fiscal management, undermining the credibility of the budget process. Although efforts were made to repay outstanding arrears to private service providers, the use of supplementary budgets exceeded statutory limits, further complicating fiscal planning.
On a positive note, revenue witnessed a slight increase, attributed to higher tax receipts from pay-as-you-earn tax, rental income, and casino taxes. However, challenges persist in withholding taxes and corporate income tax collection due to decreased banking sector profitability.
Looking ahead, anticipated oil-export receipts are expected to bolster Uganda’s public debt sustainability over the medium term. However, maintaining fiscal stability necessitates a continued focus on improving revenue mobilization and strengthening public investment management, as emphasized by the joint IMF-World Bank Debt Sustainability Analysis.
Despite these challenges, Uganda’s economic reform program under the IMF Extended Credit Facility remains on track, reflecting the government’s commitment to addressing fiscal concerns amidst a challenging global economic landscape.