Uganda Battling Tripple Effects of COVID-19, Locusts and Floods- Muhakanizi
The Permanent Secretary of the Ministry of Finance, Planning, and Economic Development Keith Muhakanizi has said that the Country is now in a better position to forecast and plan better compared to 2 months ago when the coronavirus pandemic was difficult to predict and understand its trends.
Muhakanizi made the remarks on Saturday while appearing on the Capital Gang talk show on Capital FM.
The PS said more than 2 million people are likely to fall back into poverty.
He said the Ministry of Finance has steered clear impulsive decision making and opted for analysis and research before making decisions.
“Unlike other countries, Uganda is facing the triple effects of Covid-19, floods and locusts which has made the economy vulnerable,” he said.
“Government revenue has been affected. 650bn shillings of what we expected to get is already lost,” he added.
He, however, assured the Country that the comprehensive plan to revive the economy will be revealed by President Yoweri Museveni in his State of the Nation address on June 4, 2020 and also in the Minister of Finance budget speech on 11th June 2020.
“Government focus will be on ensuring that domestic arrears are paid in addition to repairing roads/ bridges, schools and health centres affected by floods especially in Kasese district,” he said.
Muhakanizi also said Uganda Development Bank (UDB) will be recapitalized for small and medium enterprises to access cheap credit, adding that more funds will be made available through the Microfinance support centre to support informal sector through SACCO’s.
“Import substitution is high on the agenda and manufacturing will be supported to ensure that the import bill is reduced,” he said.
Muhakanizi said the budget for next financial year will be adjusted to take care of the current demands.
Commenting on the changes in Management at Uganda Revenue Authority, Muhakanizi said they were sanctioned by the URA Board.
“The challenge at URA is not even the changes in management by revenue collection which now stands at 13.6% of GDP. They should be collecting 15%-16% of GDP,” said PS.
Part of the transcript from the show
Panel: MPs Abdu Katuntu and Semujju Nganda; Mr Kakungulu of the SME Association and Presidential Advisor Moses Byaruhanga. Host: Oscar Ssemweya Musoke
* We’re in a global recession. Any country growing above 0% in calendar year 2020 will be lucky
* Uganda is battling Covid19, floods and locusts
* We have distributed food to the urban poor in some areas
In May we lost Shs 650 billion in tax revenue. It will be worse over the next 3-4 months
* Food prices are falling due to aggregate demand contraction
* Treasury capacity is diminished so we are borrowing to finance a post-lockdown stimulus and minimize the damage though we cannot rectify all the damage. Our response is necessarily limited
* We shall use the money for:
* Local road works using labor gangs
* Microfinance institutions to lend money at low rates
* Arrears to govt suppliers
* Social grants to elderly people
* Recapitalization of UDB
* Cheap credit for SMEs
* BOU has allowed banks to restructure loans and grant debt repayment holidays
Panel Feedback
* Our economy is structured as one where people migrate from agriculture straight to informal trade and services, not manufacturing
* Most SMEs in Uganda are informal
* There is a liquidity crunch across all sectors
* BOU monetary response scores 50%
* GOU fiscal response scores 15%
* No VAT or PAYE tax lowering
* Over centralization of mask production
* Prior policy was not driving import substitution manufacturing. UDC is meant to kickstart manufacturing to lower risk but implementation is poor
* Uganda needs a stronger stimulus of 5% of GDP. Finance is putting in less than 2.5%
Panel Feedback:
* GOU is retaining a largely pre-Covid19 budget with billions for workshops and travel etc. It should have been withdrawn and reconceived to deal with the crises, especially the stimulus. The President has been saying there is no big problem in the economy
* The informal sector has made huge losses which have not even been quantified. Govt is making proposals for interventions in the formal economy. It doesn’t know what to do about the informal sector which is the largest urban employer and has been hit worst
* Companies are cutting salaries and laying off workers. When even govt companies down size, govt loses moral authority to tell the private sector not to downsize. Businesses have no capacity to pay tax and NSSF
* Most hammered sectors have zero response from government
* Govt should have said this is the money we have, let us see where to allocate it
* Some lenders are granting debt repayment holidays but at higher interest rates
Panel Feedback:
* MPs started advising a budget rethink way back in March to reflect adequate response to the crisis but this was ignored
* The interventions announced do nothing for lost incomes which drive aggregate demand yet the budget to be announced next week will still contain lavish foreign travel
* Import substitution has been a government song since 1986. No implementation.
* New initiatives are always derailed by corruption and urgent procurement has no governance
Moses Byaruhanga:
* The informal sector is hard to plan for yet it has suffered huge capital and income losses but it is linked to the formal sector. The solution is to unlock. Allow them to work
* Tax reductions reduce government capacity to finance anything
* More effort will be put into UDC to have govt invest directly in import substitution where action has been very slow
Panel Feedback:
* Govt is trying to limit interventions to the rich and the formal in the hope that the money will trickle down to the poor. It doesn’t work. You need to funnel money to the poor and the informal
* Beyond the focus on the formal, key enterprises are foreign owned and there is a lot of capital flight
Muhakanizi
* We have not achieved zero in import substitution. Manufacturing has grown from 6% to 15% of GDP
Asian labor costs have now shot up and we’re seeing more Asian investors setting up factories here. Ugandans should use the low cost capital we’re putting into UDB and take advantage
* The budget was passed as is because of the April deadline law. We cannot adjust it monthly. We’re going to have one major budget adjustment in July
* Being Secretary to the Treasury has been a nightmare because big people in government were not understanding that the cake has shrunk
* One big adjustment will be to scale up payment of domestic arrears. The current total is about Shs 3 trillion
Panel Feedback:
* The PS is vague on specific allocations
Muhakanizi:
* I cannot preempt the Presidential State of the Nation Address and my Minister’s budget speech which are due in the next few days
Panel:
* Don’t focus on UDB alone. Use micro finance institutions. Expand the channel infrastructure with venture funds, SACCOs, cooperatives etc. Do more inclusive policy consultation
Muhakanizi:
* It is not all about fiscal spending. We have problems in regional trade. Our exports have been hit by non-tariff barriers (Tz: sugar; Kenya: milk). We need to strengthen the Trade Ministry to negotiate better
* Kenya was able to spell out more fiscal intervention details because they have already received US$1billion in loans. In Uganda the matter is still in Parliament
Panel Feedback:
* Cabinet’s priority in Parliament was to pass a resolution thanking the President. On other government priorities, govt either spends before permission or they speed through Parliament. IMF Board approved a loan 2-3 weeks ago. Keith knows the money is available. He has no reason not to detail the priorities
Muhakanizi:
* We hope Parliament will approve the loans on Tuesday
* One of the demand support interventions on the fiscal side will be to give cash vouchers to poor people to make shop purchases
* We are looking at how to support the tourism sector
Muhakanizi:
The changes we’re seeing in today’s social media about senior management in URA were approved by the Board
* The biggest treasury challenge is that while the Tax:GDP Ratio for a developing country like Uganda should be 25%, currently we’re collecting only 13%.
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