• Thu. Sep 21st, 2023

Ray of Hope as Govt Revises 2021 Fiscal Deficit to 9.7%

UGANDA, Kampala | Real Muloodi News | The Ugandan government has revised its deficit downward by 1 per cent, from 10.7 per cent to 9.7 per cent, the Daily Monitor reported. 

In its post-election economic update, The Ministry of Finance, Planning and Economic explained that: “The reduction in fiscal deficit is owing to a better than previously expected outlook on domestic revenue mobilization for the financial year ending June 30, 2021.”

Further, the Ministry said that the entire deficit for the first three quarters was USh 10.037 trillion against a planned shortfall of USh 11.514 trillion.

The total borrowed to support the activities in the budget is USh 5.816 trillion. Sources for deficit funding include loans from the domestic financial market and external development partners. According to the Ministry, the total borrowed amount is USh 5.816 trillion to support the activities in the budget. 

Comparatively, the Ministry explained that the domestic fiscal deficit amounted to USh 6.470 trillion, compared to the planned budget shortfall of USh 4.436 trillion. The government spent more funds than was available in their budget. 

According to the Ministry of Finance, domestically financed expenditure was more than budgeted; money spent on salaries and capital development projects was more than expected during planning. 

The shortfall was also a result of the COVID-19 pandemic, which allowed several ministries, agencies and government departments to spend more on the government’s response to the health and economic crisis.

During that period, the government reports that the expenditure was USh 25.514 trillion against planned spending of USh 29.006 trillion for the first three quarters of the financial year, which resulted in an 88% performance.

According to the report: 

  • The government spent USh 4.239 trillion in loan financing from external sources.
  • USh 1.344 trillion from the above was for budget support. Other projects received funding from the remainder.
  • During the period, total revenue and grants were at USh 15.477 trillion against USh 17.492 trillion for the period up to March.
  • Domestic revenue collections were at USh 14.351 trillion.
  • USh 1.125 trillion was like grants from development partners.

According to the budget, the planned domestic revenue for the Financial Year 2020/2021 was USh 21.810 trillion (USh 20.219 trillion from tax collections, USh 1.590 trillion from non-tax revenue). 

By March, cumulative revenue collections were at USh 14.351 trillion, i.e., 65.8% of the target for the year. Shortfall equals to USh 1.780 trillion.

The Ministry explained the deficit was because of COVID-19 and its impact on economic activity, as well as delays in implementing tax administration reforms by the Uganda Revenue Authority, e.g., implementing the Rental Tax Compliance System (rTCS) and the Electronic Fiscal Receipting and Invoicing System (EFRIS).

However, according to Daily Monitor, the Composite Index of Economic Activity stood at 143.4 in March, an increase from February showing a pickup in economic activities post-election. The report further showed positive sentiments from businesses in April, showing high optimism in the next three months.


Why is the Government Borrowing?