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Government spends less as foreign grants reduce

Grants from donors to government dropped in August, partly contributing to a drop in public expenditure during the month, a state of the economy assessment has shown.

The report for August 2017, published by the ministry of Finance, shows that government planned to receive at least Shs 209.7bn from donors in August but only received Shs 14bn – a shortfall of Shs 195.7bn.

Usually, government grants are not expected to be repaid – which plugs the problem of low tax revenues and limits heavy reliance on borrowing.

Overall, government’s revenues were Shs 1.1tn in August 2017, registering a Shs 234.5bn deficit on the planned incomes.

“The biggest part of this shortfall was in grants,” ministry of Finance says.

Finance minister Matia Kasaija with President Museveni

Expenditure and net lending during the month amounted to Shs 1.8tn against the projection of Shs 1.9tn. This meant that government’s total expenditures – while lower than planned – exceeded revenues by Shs 709.7bn, the update said.

The ministry’s report shows that taxes performed below target too, with Uganda Revenue Authority only able to collect Shs 1tn in August, slightly below the target by Shs 39.4bn.

Non-tax revenues on the side were above target, posting Shs 28.6bn against the Shs 28bn planned collection. This was majorly due to more than anticipated earnings from ministries, departments and agencies as well as Uganda’s missions abroad.

“Of all the major tax heads, it’s only direct taxes that performed above target majorly due to Pay As You Earn (PAYE), withholding tax and corporate tax resulting into a surplus of Shs 13.3 billion for the month,” says the report. This shows that areas where URA has easy control will likely perform.

Poor performance of the indirect taxes is not just an indicator of low appetite for consumption among Ugandans but also that some traders hide sales by selling without issuing receipts, which URA can use to collect indirect taxes.

Indirect taxes were below target by Shs 23.7bn while international trade taxes were lower than expected by Shs 33.2bn due to underperformance of excise duty and Value Added Tax on imports.

Lower than anticipated revenues affected government spending in the month. The ministry of Finance says spending during the month totalled Shs 1.8tn which is below the projected spending for the month by Shs 65.7bn (3.5 per cent).

“This is largely attributed to the underperformance of the externally financed development budget, which was Shs 292.8bn short of the projection, and net lending, which performed at only 10 per cent of the projected levels,” the report says.

It added that the underperformance in external development expenditure was due to delayed provision of counterpart funding especially for the oil roads, Mbale–Bubulo road and Rukungiri–Kihihi roads, among others.

Also, government says, projects funded by African Development Bank, which were scheduled to kick off in the first quarter – July to September – of 2017/18 financial year have been delayed by procurement processes.

There was also delay by creditors to pay contractors despite government of Uganda having already issued certificates of payment (invoices) for the hydropower projects of Karuma and Isimba.

Government says “works on these projects are on schedule” and that it has provided Shs 7.6bn in the form of counterpart funding during the month.

amwesigwa@observer.ug

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