November 29, 2020

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Parliament approves UGX 5.4 trillion loan to finance budget deficit

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Speaker Rebecca Kadaga

Kampala, Uganda | THE INDEPENDENT | Parliament has approved up to 5.4 trillion Shillings loan to finance the budget deficit for the current financial year 2020/2021.

This followed the adoption of Parliament’s National Economy Committee report in a plenary session chaired by Speaker of Parliament Rebecca Kadaga.

The approved funds are meant for items like classified expenditure for State House and Ministry of Defence, Uganda Development Bank, Ministry of Health, Ministry of Trade and for recurrent domestic arrears and a bilateral road infrastructure project between Uganda and the Democratic Republic of Congo (DRC).

Initially, the government had sought to borrow up to 6.2 trillion Shillings to finance the budget deficit and out of this USD 600 million (2.2 trillion Shillings) was proposed to be borrowed from the International Monetary Fund (IMF) and a total of 4.3 trillion Shillings proposed to be borrowed from the domestic market.

However, in the report presented by the Committee vice chairperson Lawrence Bategeka, legislators recommended approval of only Shillings 3.25 trillion through domestic borrowing and the approval of USD 600 million (2.2 trillion) from the International Monetary Fund (IMF).

Bategeka defended the cut on the proposed borrowing by government noting that borrowing Shillings 4.3 trillion from the domestic market would slow down private sector credit growth from 8.9 percent registered in financial year 2019/2020 to 3 percent in financial year 2020/2021.

“The committee recommends that the World Bank loan resources that were disbursed at the beginning of the financial year should be included in the resource envelope of the current financial year, which will eliminate the projected revenue shortfall that is a partial basis for the borrowing,” said Bategeka referring to an earlier 1 trillion loan from World Bank.

He emphasized that government should borrow only Shillings 3.25 trillion from the domestic market since the projected shortfall on the revised resource envelope is addressed by the World Bank resources, and the borrowing proposal would create an excess borrowing of Shillings 1.04 trillion.

Bategeka also said that the government should prioritize the borrowed resources towards expenditure on only productive areas that will stimulate economic growth.

Meanwhile, Bategeka recommended that parliament approves 2.2 Trillion Shillings loan from IMF. He however said that if the economy is unable to register a significant rise in foreign inflows, the government should adjust its fiscal policy stance and opt to cut spending in less critical areas, without undermining economic growth objectives.

While presenting the loan request to parliament last month, State Minister for Planning David Bahati explained that the outbreak of COVID-19 pandemic had greatly affected the economy of Uganda and that the economic growth projections were revised downwards from 6 percent to 4.5 percent in the financial year 2020/2021 due to the impact of the pandemic.

“Madam Speaker in the financial sector, the past financial year 2019/2020 registered a shortfall in revenue collection of 1.2 trillion Shillings, and in the current financial year, we are registering a shortfall of 2.5 trillion Shillings due to the impact of COVID-19,” he said then.

In May 2020, parliament approved a total budget of 45.4 trillion Shillings for the financial year 2020/2021 that kicked off on July 1, 2020. Out of this budget, 21.8 trillion Shillings is to be financed through revenue collection while 15 trillion Shillings is to be financed through external borrowing.

According to Bahati, 1.5 trillion Shillings has so far been raised from domestic financing leaving a deficit of 1.4 trillion Shillings to be raised from the domestic market to finance the budget. He also told parliament that the government has been having different financial pressures and that due to these, the government had been forced to seek a loan to further finance the budget.

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