8/10/2019 Domestic Borrowing: Can Parliament cap what Government can borrow?

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DOMESTIC BORROWING: CAN PARLIAMENT CAP WHAT GOVERNMENT

CAN BORROW?

An Analysis by Keit M!!"!#a

B!siness an$ %inan&ial '(!)nalist at *+an$a Ra$i( Net,()-

The last Financial Year (FY) witnessed a frst or borrowing in Uganda. For the frst

time, Government borrowed rom the domestic market or unsecifed ro!ects.

"nitiall#, borrowing on the domestic market had been done b# $ank o Uganda ($%U)

to stabili&e the econom# and mone# sul#. 'ow the Government can borrow to

fnance ro!ects b# issuing treasur# bills and bonds. hen the Government wants to

borrow rom the domestic market, it inorms $%U on how much is needed. $%U

then calls or otential investors to lend the Government mone# or a eriod ranging

rom three months to fteen #ears.

"n *+-+, Government had roosed to borrow UG/ +.+ trillion. 0owever b# the

end o the Financial Year, the# had borrowed UG/ +.1 trillion. 2n e3tra UG/ 415billion was borrowed. 2ccording to the 6inistr# o Finance, 7lanning and 8conomic

9eveloment, the additional borrowing was to cover the revenue shortall,

sulementar# budgets and to und the U79F activities in :outh :udan. ;evenue

shortalls in *+-+ were UG/ 5** billion ater Uganda ;evenue 2uthorit# (U;2)

ailed to hit its collection target. 2llen ommissioner

General e3lained that the shortall was as a result o low roftabilit# b# most

Ugandan comanies during the Financial Year.

The additional borrowing was not aroved b# 7arliament. "t is onl# until

Government had borrowed = and mone# was sent = that the 6inistr# o Finance,

7lanning and 8conomic 9eveloment came to 7arliament to seek aroval. The6embers o 7arliament (67s) were livid when this issue came u or debate. 67s

tasked the 6inistr# o Finance and then 7rime 6inister, 2mama 6baba&i wh# the#

had gone ahead to borrow mone# without the aroval o 7arliament. 0on. 6baba&i

did admit that borrowing without aroval o 7arliament was wrong. 9uring the

debate, 67s went as ar as calling or whoever was resonsible or borrowing

without aroval to be enali&ed. 2 subcommittee was then set u to ?look into@

the issue and reort back to the 0ouse.

hatever the outcome, 67s need to have assed the 'ational $udget b# the end o

%ctober. To arove the $udget, the issue o domestic borrowing without

7arliamentAs consent has to be dealt with. 7arliament is now reviewing roosals

made b# the Finance 6inister. :ome roosals to increase ta3 revenue have been

shot down. The roosed scraing o B2T e3emtions on agricultural inuts was

re!ected. The UG/ ** e3cise dut# lev# on

8/10/2019 Domestic Borrowing: Can Parliament cap what Government can borrow?

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aears to be no ?new@ alternative to either raise ta3es or cut back on Government

e3enditure.

The "6F in one o its 7olic# :uort "nstrument on Uganda oints out that

?;estrained ublic consumtion in the ucoming #ear, in articular, would create

room or imroved credit conditions, la#ing the ground or a rebound in rivatesector activit#.@ 2dditionall# the "6F does oint out the need to avoid

sulementar# e3enditure, removal o some e3emtions and increased revenue

collections.

?Following the recent large shortall in ta3 revenue and the risk o reductions in

oreign aid, broadening the ta3 base and imroving eDcienc# in ta3 administration

are more critical than ever,@ 2na Eucia >oronel, the Uganda "6F :enior ;esident

;eresentative said in 6a# *+.

"n the *+-+5 $udget, Government lans to borrow UG/ +. trillion rom the

domestic market. "n as much as there is admission that borrowing rom the

domestic market without aroval o 7arliament is wrong, the 6inistr# o Finance

has no Cuick f3es. hat the# did last time was to run to the easiest source o

fnancing. 9r. Fred 6uhumu&a, ormerl# a :enior ;esearch Fellow at the 8conomic

7olic# and ;esearch >entre (87;>) and now 7artner at audit frm