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EDITORIAL: Finance ministers owe citizens the truth on budgets

Friday June 12 2020
budget

The Uganda 2020/2021 National budget presentation. EAC Finance ministers struck an optimistic posture, perhaps trying to lift the spirits of a region. PHOTO | MORGAN MBABAZI | NATION MEDIA GROUP

By The EastAfrican

With the possible exception of Burundi and South Sudan, the East African Community member States presented their spending plans for the 2020/21 fiscal year right on cue on June 11. Given the unusual circumstances, the Finance ministers struck an optimistic posture, perhaps trying to lift the spirits of a region weighed down by the ripple effects of varying levels of Covid-19 related lockdowns in three of the member states.

Kenya’s Finance Cabinet Secretary Ukur Yatani unveiled a $27 billion budget, closely followed by his Tanzanian counterpart Dr Phillip Mpango who plans to spend $20 billion. Mpango’s budget was all the more unique because it even projects an 18 per cent growth in revenues.

In Uganda, Finance Minister Matia Kasaijja who expects to finance 75 per cent of his plan from domestic resources flexed the tax collectors target from Ush20.5 trillion to Ush21 trillion.

Coming against a backdrop of back to back missed targets by the taxman and the uncertainty around Covid-19 and the global economy, these budgets are either based on informed optimism, or simply a bluff.

The other possibility is that having been firmed up well before the coronavirus crisis, there was little time to adjust for present realities beyond some stimulus and the Finance ministers will soon be back in parliament to present amendments. Uganda’s Kasaijja suggested as much when he told legislators that they should not be surprised to see him back seeking new approvals in the coming weeks.

The challenge for any African Finance minister in the present circumstances is that it is difficult to cut social spending because present budgets are already below minimum thresholds.

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As the biggest consumer of goods and services in the economy, any cut in public expenditure will have a ripple effect across the economy.

With that stark reality at the back of their mind, the ministers appear to be gambling on the odds that the adverse impacts of the coronavirus crisis will abate early in the new financial year. Were that to be the case, then the post severe impacts will be limited to the last quarter of the financial year ending June 30.

What remains to be seen is how they will be able to meet targets without something giving way.

Trade and income taxes are the biggest source of revenue. The performance of trade taxes is contingent vibrant domestic and external sectors. Domestically, stimuluses will deny governments some of the money they have been collecting from business while wage cuts will reduce income taxes.

There is also domestic and external debt to contend with. External debt is already up thanks to the rush of goodwill loans that were offered to insulate against Covid-19 disruptions. The proposed ratios of domestic financing suggest that treasury will be raiding the markets for money. That will put the state in direct competition for credit and will inevitably raise the cost of borrowing for private business.

Amidst subdued exports, how will the economies sustain themselves, without a little trimming of the coat to fit the cloth?

Citizens need hope but leaders also owe them the truth if they are to make realistic personal plans for the next 12 months.

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