Civil Society Organizations (CSOs) have raised concerns over the newly passed budget of shs72.136 trillion, highlighting several gaps and potential economic risks. Julius Mukunda, the executive director of the Civil Society Budget Advocacy Group (CSBAG), outlined these issues during a press briefing on Sunday, stressing the effects this budget could have on Uganda and its citizens.
The budget increase from shs52.7 trillion to shs72 trillion necessitates substantial borrowing. Mukunda pointed out that 55.1% of the 2024/25 financial year budget will be financed by debt, while only 44.9% will come from domestic revenue. This heavy reliance on borrowing raises concerns about the country’s fiscal sustainability and economic stability.
“The government plans to further increase debt by borrowing shs8.9 trillion domestically from commercial banks. This poses risks to private sector lending due to the heightened exposure of Uganda’s commercial bank assets to government debt and loans,” Mukunda explained.
Interest payments on the debt have returned to pre-pandemic levels after a temporary slump. These payments are expected to rise from shs8.2 trillion to shs9.5 trillion. Commitment fees from projects have surged by 44%, reaching shs1.112 billion.
“These developments will compromise service delivery as a big portion of the collected revenue goes to service debt. High-interest payments on loans now consume a substantial portion of the budget and domestic revenues. The cost of servicing debt has placed Uganda in a situation of debt distress and increased vulnerability to a debt crisis,” Mukunda noted.
Mukunda pointed out that a poor revenue performance and limited absorption capacity, which signal a serious financial crisis for the government. As of December 2023, there was a shs2.1 trillion shortfall in revenue, coupled with a shs1.8 trillion overspend in domestic borrowing. These figures paint a picture of the government’s financial management.
“The failure to collect enough revenue to meet targets not only strains the budget but also raises concerns about the government’s ability to fund important services and projects,” Mukunda emphasized.
One of the important issues pointed out by CSBAG is the low absorption rate of allocated funds. With only 84% of the budget absorbed, there is shs2.3 trillion left unspent. This inefficiency in government spending processes hinders the timely implementation of projects and the utilization of allocated funds.
“The low absorption rate indicates obstacles hindering the timely implementation of projects and utilization of allocated funds. This not only delays progress on essential infrastructure and development initiatives but also leads to a waste of taxpayers’ money,” Mukunda added.
The planned borrowing from domestic commercial banks poses a significant risk to private sector lending. By increasing the exposure of commercial bank assets to government debt, there is a heightened risk of crowding out private sector borrowing. This could hinder economic growth and limit the availability of credit to businesses and individuals.
The heavy reliance on borrowing to finance the budget could have long-term economic implications for the country. As debt levels rise, the country faces increased vulnerability to external economic shocks and fluctuations in interest rates. The high cost of servicing debt limits the government’s ability to invest in critical sectors such as health, education, and infrastructure.
The concerns raised by CSBAG and other Civil Society Organizations highlight the need for the government to address the gaps in the new budget. While borrowing is a necessary tool for financing development, excessive reliance on debt can lead to economic instability and undermine the country’s long-term growth prospects.
As the Finance Minister prepares to read the new budget to the public later this week, it is important for the government to consider these concerns and take steps to enhance revenue collection, improve spending efficiency, and reduce dependency on borrowing. Ensuring a balanced and sustainable budget will be key to securing Uganda’s economic future and improving the quality of life for its citizens
