Gou budget economic analysis 2015 2016 final

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GOU Budget 2015/2016

ECONOMIC ANALYSIS OF THE NATIONAL BUDGET 2015 -2016

Challenges

• The structure of our economy consists of sizable informalsector that accounts for 49% of the economic output.

• The external sector suffers from an imbalance betweengrowing imports compared to the poor performance ofexports (political instability faced by trading partners inthe region, and an economic slowdown in Europe).

• Low competitiveness of the private sector which isconstrained by infrastructure (unreliable electricity and aninadequate rail and road networks). The resulting highcosts combined with the landlocked status make dampenUganda’s competitiveness.

• Increasing (youth) unemployment.

• Low value addition (limiting Uganda’s ability to exploit itscompetitive advantage in agriculture and mineral wealthendowment).

A major objective of the 2015-2016 budget is to addressthe above challenges. The focus of the budgetinfrastructural development and socio-economictransformation hence the theme: “MaintainingInfrastructure Investment and Promoting Excellencein Public Service Delivery”.

2014/15 ECONOMIC

PERFORMANCE

Sector Performance

Economic Growth

�Recent re-assessment (‘re-basing’ of the economy) shows that the economy is 17% larger than previously estimated, and it is now valued at Shs. 75.183 Trillion (approximately US Dollars 25 billion).

�Projected growth is 5.3% in real terms - reflecting recovery from the slowdown that happened in financial year 2012/13.

Sector Growth in 2014-

2015

Services (Information & Telecoms) 10.2%

Construction 6.6%

Industry 5.5%

Agriculture, forestry and fishing 2.3%

Inflation and Domestic Prices

Inflation is an economic reality.

�Headline inflation measures the increase in generalprice levels (including food, energy, fuel and utilities).

�Core inflation which measures the increase in thegeneral price level (excluding food crops, energy, fueland utilities).

Year Core Inflation rate

2013 12.2%

2014 5.6%

2015 2.7%

Monetary and External Sector

Interest Rates

• Interest rates remain high due to two main factors:

(i) the limited supply of long term capital in the economy due to absence of a savings mechanism to mobilize long term capital, and

(i) (ii) the risk profile of borrowers which remains high, as demonstrated by high default rates and non-performing loans in the past.

Monetary and External Sector…

Negative Balance of Payments

• Due to poor performance of exports, and

• A surge in import demand (driven by infrastructure investments in oil, the road network and Karuma and Isimba Hydropower projects), as well as net outflow of short term capital in equity and government securities.

Monetary and External Sector …

Negative Balance of Payments

• Total export revenue for the period April 2014 to March 2015 is estimated at US$ 2,701.6 million, compared to imports of US$5,048.9 million over the same period.

• Current account deficit for this year is projected to widen to 8.5 % of GDP compared to 7.2 % in the financial year 2013/14.


• The overall balance of payments - a deficit of US$475 million, compared to the surplus of US$ 287.4 million that was recorded in the previous 12-month period ending March 2014. This is ‘worsening’ by USD 762.4m.

• External reserves currently amount to US$ 266.5 million. Despite the reduction, reserves remain healthy at $2,972.4 million, equivalent to 4.0 months of future imports of goods and services.


Exchange Rate and Foreign Reserves

The Uganda Shilling, has been weakening against the US Dollar as a result of mainly two major factors;

• Strength of the US Dollar.

• An increase in demand for foreign exchange to meet the import bill.

Revenue Performance

• Total projected tax collections of Shs. 9,577 billion up from 8,031 billion in financial year 2013/14.

• Government has approved a budget of Ushs 23.9 trillion as follows;

Source of Funding UShs

External Financing 5,649 billion

Domestic Funding (TBs)Other sourcesTax Collections

1,384 billion5,606 billion

11,333 billion

TOTAL 23,972 billion

2015/16 Fiscal Framework

Public Finance

Expenditures

� Total Government expenditure is estimated at Shs 13,988 billion compared to Shs 11,456 billion in financial year 2013/14.

� Of this, recurrent expenditure is projected at Shs 7,550 billion and development expenditure at Shs 4,881 billion. Domestically raised revenues will fund 100 % of the recurrent expenditures and 66 % of development expenditure.

� Statutory expenditure projected to increase to Shs. 1,400.7 billion from 753.9 billion.

Economic Outlook

� The economy is projected to grow at 5.8 % next financial year.

� The medium term outlook for our economy is bright, with real Gross Domestic Product projected at average 6.5 % in the next 5 years.

� Consumer prices increases are expected to remain within the 5 % policy target.

� The current account deficit is projected to widen slightly on account of import demand driven by higher non-oil private and public infrastructure related imports; and expectations of weak exports earnings.

� Uganda’s international reserves are projected to improve gradually to achieve about 4.5 months of import of goods and services cover in the medium term.

Economic Outlook

� Prospects for the development of Uganda’s oil sector remain positive.

� Government strategy in the medium term will focus on accelerating infrastructure developments.

� The budget deficit for the coming financial year is projected to increase to 7 % of GDP compared to 4.5 % for this year.

� Development expenditure is budgeted to grow by 58 % next financial year (Entebbe International Airport, new roads and the Karuma and Isimba hydropower projects).

Economic Outlook

• The deficit will largely be financed by external sources and, to a lesser extent, by issuance of domestic debt (concessional loans).

• Non-concessional external borrowing will be considered only for the financing of highly productive fixed capital investments.

• Government will avoid excessive domestic borrowing to keep the current level of debt sustainable, and to avoid crowding out of the private sector.

Sector Interventions

The sector interventions/investment will focus on

SECURITY AND DEFENSE

• Considerable resources have been committed to defense and security.

AGRICULTURE

• Agriculture employs 66 % of Uganda’s labour force. The role of agriculture in the livelihood of most Ugandans, cannot be overlooked. Government has pledged to expedite the transformation of this sector from subsistence farming to viable commercial enterprises.


The ongoing major Government interventions include;

‒ reform of agricultural extension and advisory services;

‒ providing seed, planting, breeding and stocking materials to famers;

‒ funding agricultural research and animal genetic improvement


‒ support to commodity value chains to improve household food security and incomes; and

‒ Constructed 179 valley tanks with capacity of over 500,000 cubic meters across the country

‒ enforce agriculture standards and regulations including the fisheries regulations;

‒ Control of pests, vector and disease, especially Foot and Mouth Disease.


Government has allocated Shs.479.96billion to the agriculture sector. The strategic interventions to be implemented under the Commodity Based Approach, include the following:-

• Provision of agricultural inputs to farmers;• Promotion of value addition for strategic commodities;• Fund research to increase productivity and disease resistance

varieties;• Control of pests and diseases, with special emphasis on Banana

and Coffee Bacterial Wilt and Foot and Mouth Disease;• Construct valley tanks and dams for livestock and crop irrigation;

and• Provide affordable long term financing under the Agricultural

Credit Facility (ACF) for agriculture, agro-processing and agro-based value addition.


Value Addition and Industrial Development

Interventions were listed by the Hon Minister.

Tourism Development

• Government has developed a 10 year tourism master plan and a 5 year sector Development Plan to guide the implementation of critical activities to drive tourism growth in the country.

• Shs. 81.3 billion has been approved towards the Tourism sector to implement these activities.


Business Climate

• In order to improve the business climate, Government has undertaken legal and regulatory reforms including: reforms in Land administration, business registration and licensing. These reforms have thus far resulted in the following:-

• Comprehensive inventory and review of all business licenses;

• Establishment of a business license e-registry as the sole repository of business licenses to create a one stop center linking to other agencies;


• Launch of a business regulation feedback portal at the Private Sector Foundation Uganda; and

• Completion of computerization of 21 land registries.

• Rationalization of business licenses and procedures to eliminate red-tape in business transactions.

• Improvement of efficiency of the judiciary to reduce commercial case backlog by introducing new technology, making procedures faster, including instituting small claims procedures.


STRATEGIC INFRASTRUCTURE DEVELOPMENT AND

MAINTENANCE

• There are substantial allocations in the Transport Infrastructure and Energy Infrastructure.

HUMAN CAPITAL DEVELOPMENT

HEALTH SERVICE DELIVERY

EFFECTIVE SERVICE DELIVERY

FIGHTING CORRUPTION

Government & Nonprofit

Gou budget economic analysis 2015 2016 final