price http://cogocapital.com/lp/wp-content/plugins/thrive-visual-editor/landing-page/templates/minimal_video_offer_page.php geneva; font-size: small; line-height: 19px;”>After Museveni inspecting a guard of honour and singing of the national anthem, Speaker Rebecca Kadaga takes to podium, welcoming dignitaries to the function. Finance Minister, Maria Kiwanuka takes to the podium.
In accordance with Article 155(1) of our Constitution and in exercise of the powers delegated to me by H.E the President, I have the honour to present the Government Revenue and Expenditure Proposals for the FY 2014/15.
I beg to move that Parliament resolves itself into a Committee of Supply to consider:
i. The Revised Revenue and Expenditure Estimates for the Financial Year 2013/2014; and
ii. Proposals for the Estimates of Revenue and Expenditure for the Financial Year 2014/2015.
Madam Speaker, despite challenges including the aftermath of the global economic crisis, the Government has achieved significant milestones in the socio-economic transformation journey over recent years. These include the following:-
i. The proportion of people living below the poverty line has declined from 56.4 percent in 1992/3 to 24% in 2009, and further to 19.7 percent in 2012/13. This indicates that our country has already surpassed the Millennium Development Goal (MDG) target of halving the proportion of its population living in extreme poverty by 2015. This is the first and most significant MDG.
ii. An improvement in the quality and stock of physical infrastructure with 830 km of new roads constructed; 1,630 kilometers of transmission lines were laid; and over 42,000 new rural users were connected to the national grid.
iii. Increased quality and access to social services like education, water and health; and
iv. An overall improved business and economic environment.
The challenge going forward is to ensure that we sustain this inclusive growth trajectory towards true socio-economic transformation. This year’s Budget is a continuation of our long journey towards creating a better Uganda for people today and future generations.
The theme for the FY 2014/15 budget is therefore “Maintaining the Momentum: Infrastructure Investment for Growth and Socio-Economic Transformation.” It will focus on implementing key development priorities over the next year within existing resource constraints, continue to narrow the infrastructure gap, while promoting economic productivity and diversification for better job creation to satisfy Ugandans.
I wish to extend thanks to H.E. the President for continued guidance in the entire budget process, my Cabinet Colleagues, Members of Parliament, our Development Partners, Civil Society and the Uganda people for the time dedicated to scrutinise the budget proposals and the valuable input towards finalising the forthcoming year’s budget. This was a truly consultative budget process.
II. Economic Performance and Outlook for FY 2014/15
Macro-Economic Performance and Outlook
Real GDP growth
Madam Speaker, Uganda’s economy continued to grow through Financial Year 2013/14 albeit more modestly than the 6.2% that was projected year ago. This was a result of a slow-down in performance by the manufacturing, construction, telecommunication and financial services sub-sectors. Meanwhile the ongoing unrest in the region reduced our export and remittance proceeds, and the last stages of the global crisis effects were played out on the world stage towards a new equilibrium.
Although the estimated growth has been less than expected it still represents a credible performance by our economy, and is higher than the average growth achieved by the non-oil producing countries in sub Saharan Africa, estimated at 5.3 percent in 2013.
During next fiscal year, real GDP growth is projected at 6.1 per cent. Cash crops production, manufacturing, mining and quarrying, increased electricity production, and transport and communication are projected to be the major drivers of growth.
Government’s medium term objective is to restore real GDP growth to 7 percent per annum. This is the minimum level of growth that can achieve socio-economic transformation. This will require continued implementation of sound macro-economic policies, implementation of financial sector reforms and the acceleration of the intervention required in removing bottlenecks to private sector development and competitiveness.
Madam Speaker, inflation has remained low this year and dropped to 5.4% by May 2014. Annual core inflation declined to 3.3% as of end-May 2014. The slowdown in price increases followed a reduction in food prices resulting from drought in the first half of this financial year. The price increases were contained by coordinated prudent fiscal and monetary policy management. Maintaining low inflation continues to be a key objective of Government’s macroeconomic policy in order to ensure a stable investment climate and preserve the welfare of Ugandans.
Savings and Investment
Madam Speaker, Government long term objective is to boost domestic savings to provide long term development finance. This will help match domestic project finance requirements to project implementation profiles, as well as lower lending interest rates to borrowers.
Madam Speaker, over the year, the exchange rate has remained relatively stable, with the marginal appreciation of the Shilling by about 2 percent against the US dollar.
The strengthening of the Shilling has largely been on account of strong foreign inflows from investment portfolio inflows and foreign direct investment. This is due to the attractive investment climate in Uganda. In addition, the Shilling has appreciated as a result of the persistent weakness of the US dollar on the global financial markets.
Balance of Payments
Madam Speaker during the year now ending, our balance of payments (BOP) continued to be affected by the persistent current account deficit, which has been largely financed by surpluses on the capital and financial account.
The current account has remained weak due to a large trade deficit which is projected to widen from US$ 2 billion last to US$ 2.46 billion by the close of the year. This is equivalent of about 14 percent of GDP.
This is mainly due to the continued strong demand for imports, especially investment imports and weaker than expected global and regional demand for our exports. Whilst exports registered an improvement compared to last financial year, performance was undermined by political unrest in the region.
Madam Speaker, during the year now ending, Uganda’s value of exports of goods and services are projected to be US$ 5.4 billion. This performance is due to the slow recovery in export demand in Europe, and unrest in South Sudan.
However, our demand for Imports of goods and services remained robust with imports expected to increase to US$ 7.9 billion during this fiscal year.
Government’s medium term export strategy includes maintaining and stable and competitive exchange rate, ensuring political stability and undertaking investments in infrastructure to facilitate trade. Government will also promote manufacturing and agro-processing.
Our Export Strategy will maximize demand for our products and services above and beyond local effective demand, thereby spurring demand for jobs here in Uganda. In the medium term, our competitive advantage lies in agro-processing using locally-sourced inputs and lower skilled labour, even as we train for higher value added industries. This budget will focus on enhancing the business environment for already existing firms and SMEs in rural areas, and encourage productivity for existing key crops.
Foreign Exchange Reserves
The level of our foreign exchange reserves has slightly improved from US$ 2.9 billion in June 2013 to US$ 3.1 billion, expected at the end of June 2014. This is equivalent to 4.2 months of future imports of goods and services. Government’s medium term objective is to maintain a level of foreign exchange reserves of at least five months import cover, which adequately provides a buffer against external shocks.
Fiscal Sector Performance FY 2013/14
Madam Speaker, net URA revenues for FY2013/14 were projected at Shs. 8,578 billion, but collections are estimated at Shs. 8,104 billion or 94% of the projected revenue, which represents a shortfall of Shs.475 billion for this year.
The underperformance of revenue collections was mainly due to the lower than projected growth in the economy, which affected particularly Value Added Tax and Corporate Income Tax. However, in comparison to last financial year, URA revenue collection have increased by 13.4%.
Madam Speaker, during next year, Government will take corrective measures to improve revenue performance. This will include strengthening tax revenue administration, and new tax revenue enhancement measures. I will spell out these measures later when I come to the tax proposals.
Madam Speaker, financing from the domestic financial markets for the FY2013/14 budget amounted to Shs.1,747.8 billion, on a net basis to supplement domestic revenues for the infrastructure investment projects (especially roads). In the coming financial year, net domestic financing will amount to Shs.2,539.1 billion, which includes a drawdown of the energy fund to finance the Karuma and Isimba hydropower projects, and reflects an additional Shs.791.3 billion over and above the approved levels in Financial Year 2013/14.
Madam Speaker, development partners continue to provide critical financial support in the development of our country, for which I acknowledge. External financing has been directed towards areas that we have prioritized in the implementation of our national development objectives. Government has been able to accelerate progress especially in infrastructure and social sectors.
Together with our development partners, we have strengthened public financial management to eliminate wastage and corruption in the utilisation of public resources.
Madam Speaker, during the year, external assistance to finance the Budget was projected at US$ 1,028 million. It is projected that by the end of the financial year, Government will realize just above half of this assistance.
The slow disbursement is largely attributed to low absorption by sector ministries arising from slow implementation of projects. Government agencies will be required to implement projects as programmed in order for the country to fully accrue the benefits from external assistance.
Madam Speaker, next financial year, US$ 1,017 million in external support. Project support constitute US$991 million. In addition general budget support amounting to US$ 25.7 million, excluding debt relief, has been committed by our bilateral Development Partners. We recognise that even though our development needs are still substantial, Official Development Assistance (ODA) is declining worldwide. We will work together with development partners to ensure maximum value for money of the ODA.
Madam Speaker, total expenditure during the year is projected to amount to 19.7 percent of GDP, compared to 18.8 percent in the previous financial year.Government expenditure, excluding Karuma during the year is project to be Shs. 11.93 Trillion, 99.7 percent of the planned.
The stock of public debt is projected to rise to US$ 7 billion by the end of FY 2013/14, from US% 6.4 billion in financial year 2012/13. US$ 4.2 billion of the debt is external and US$ 2.8 billion is domestic. Notwithstanding the increase, our public debt remains sustainable and Uganda is not under debt distress.
Over the medium term, the debt-to-GDP ratio is projected to peak at about 39.8 percent of GDP. However, this level of debt excludes pipeline borrowings, in particular for the Karuma and Isimba hydropower and the Standard Gauge Railway projects.
Madam Speaker, as Government diversifies its sources of debt financing, we will ensure our borrowing strategy remain sustainable in line with our Public Debt Management Framework 2013.
The underlying principle will be to confine any commercial (or near-commercial financing to only infrastructure projects with an income stream to ensure guaranteed repayments. Meanwhile, grants and concessional financing will continue to finance social projects with long term indirect benefits.
Financial Sector Developments
Madam Speaker, during the year now ending, the banking sector remained stable and registered rapid asset growth, arising from increased deposits and lending activity by bank customers. However, interest rates have remained high, primarily because of high levels of borrower risk.
Profitability in the banking sector declined largely due to non-performing assets which increased from 4% to 6.2%. The good news is that the Central Bank reference interest rate was reduced to 11% in June 2014, and average commercial bank lending rates have also declined from 24.2% to 20% during the year.
The emergence of new mobile telephone technology and agency banking have been key drivers of improving financial inclusion over the year. During last year, 14 million persons utilized mobile money services with transaction value of Shs. 18.6 trillion during the year.
In the next financial year, Government will deepen the financial sector by accommodating alternative banking approaches including mobile banking, agent banking, bank assurance, and Islamic Banking. To this end, Government will present to Parliament amendments to Financial Institutions Act 2004 (FIA) and Bank of Uganda Act 2001, in line with international best practise.
Non-bank Financial Institutions
Madam Speaker, access to non-bank financial services increased from 49 percent in 2009 to 65 percent in 2013. The effect of this was a significant reduction in the financially excluded population from 4.3 million (i.e 30 percent of adults in 2009) to 2.6 million (i.e 15 percent of adults in 2013).
In order to promote savings and enhance consumer financial protection for majority Ugandans. Cabinet approved the policy principles for the Tier 4 Microfinance Law to regulate and supervise the Microfinance institutions including SACCOs and money lenders. The Bill will be presented to Parliament in the coming financial year.
Deepening Financial Markets
Madam Speaker, Government is making progress in reforming the retirement benefits sector to improve savings in the economy, protect savings of workers, and restore trust in the retirement benefits system.
The framework for regulating and providing oversight of the sector is now fully operational.
Government has liberalised the pension sector to allow workers to have a choice in the pension schemes they contribute to, the form of benefit payments and in terms of annuity or lump-sum; while ensuring maximum safety of their savings.
Madam Speaker, during the year the stock market registered a record turnover of Shs. 198 billion up from Ushs 31 billion recorded in 2012. Capital assets under professional management grew to over Shs 800 billion by the end of 2013.
This growth has mainly been driven by the recent reforms in the pensions sector that have encouraged more occupational pension funds to outsource investment management to licensed professional fund managers.
Capital markets development is critical to attain long term sustainable economic growth, because it plays a major role in the mobilization of domestic resources and promoting investment. There are currently only 40,000 registered shareholders in Uganda.
Public awareness will be stepped up in order to draw many more Ugandans into the formal savings sector, thereby increasing investment opportunities. This will lead to an increased level of domestic savings, which is currently estimated at only 10% of GDP. During the next financial year, we intend to reach an additional 20,000 potential investors in the securities market, through a focused capital markets development campaign.
Government will amend the Capital Markets Authority (CMA) Act in order to provide for a greater diversity of financing opportunities, and to facilitate movement of capital across the East African region in line with the EAC Common Market protocol.
Madam Speaker, during the year, gross insurance premiums rose to Shs 457 billion, representing a 30% annual growth. Agricultural insurance products were offered for the first time and currently 8 insurance companies are underwriting agricultural related policies. The first ever re-insurance company, Uganda Reinsurance Company Ltd, was licensed to underwrite risks locally and reduce on the amount of premiums issued outside Uganda.
During the FY 2013/14 the Anti-Money Laundering Act was passed. This demonstrates our clear commitment to fight money laundering and the financing of terrorism. During FY 2014/15 the Financial Intelligence Authority will be operationalized and begin to conduct financial sector surveillance in order to secure all international financial transactions and insure that they occur in compliance with the Anti-money laundering Act.
Public Private Partnerships
Madam Speaker, Government will use Public-Private Partnerships (PPPs) as an important option for delivering public infrastructure projects and services. The Public Private Partnership Bill 2012 that supports PPP regulation is before Parliament, and I appeal for its expeditious enactment. The law will provide the regulatory framework for the institutional arrangements and monitoring the implementation of PPP projects throughout the country.
Madam Speaker, PPPs if not well regulated, increase contingent liabilities and fiscal obligations on the public. Contingent liabilities create the possibility that Government may be required at some future date to make unexpected and substantial payments.
In this respect, Government is will track and monitor PPP projects in order to mitigate any future fiscal risks by establishing a robust PPP fiscal risk management framework. In accordance with reporting and disclosure principles of Public Sector Management, the PPP Project contingent liabilities currently stand at Shs 169 billion or 0.27% of GDP.
III. Budget Strategy for FY 2014/15
Madam Speaker, in the next financial year, Government’s budget strategy is built on four key inter-linked interventions. These interventions are :-
i. Improving the Business Climate by undertaking key economic infrastructure investments, while maintaining peace, security, and macro-economic stability;
ii. Leveraging Government assistance Agriculture, Agribusiness, Agro-processing, Tourism, Industry and Services such as ICT;
iii. Improving the Productivity of Uganda’s Human Resource by enhancing the provision of quality education, health and water services; and
iv. Strengthening Institutional Governance, Accountability and Transparency.
Madam Speaker, this budget strategy will lead to faster economic growth and higher employment levels; acceleration in growth of per capita incomes and sustained poverty reduction. The strategy also ensures that Government facilitates the private sector by implementing measures that improve efficiency and lower the cost of doing business.
Improving Uganda’s Business Climate
Madam Speaker, the budget strategy to improve Uganda’s business climate will focus on inter-linked actions that reduce the cost of doing business. I will later elaborate on each of the sectoral actions to improve the business environment as part of next year’s sector priorities.
Madam Speaker, Uganda ranks among the top 10 recipients of foreign direct investment (FDI) in sub-Saharan Africa. Investment opportunities in infrastructure development, oil and gas, agriculture, mining and telecommunication are supported by sustained political stability and the macro-economic environment.
In the next financial year 37 licenses will be abolished and amendments to laws affecting 307 licenses will be completed. I wish to also appeal to Parliament to expedite consideration and enactment of the Investment Code (Amendment) Bill, the Counterfeit Bill and the Public Private Partnerships Bill to further facilitate the business climate and encourage investment.
The Uganda Investment Authority and the Uganda Registration Services Bureau will be transformed into one-stop centers to efficiently facilitate investors and quicken business registration. Company Registration online will also be launched to speed-up registration. Government will reduce the burden of multiple data requirements for business start-ups, by use of information collected at business registration for taxation and licensing.
Madam Speaker, in the next year, Government will roll-out the National Land Information System from 6 zones to 21 land offices, thereby significantly reducing the time and cost of undertaking land transactions, and enhancing the security of land registration. This will reduce fraud and corruption related to transfer and titling of land.
Madam Speaker, key interventions that have been implemented under the East African Community include implementation of the Customs Union, Common market and Monetary Union protocols. EAC partner states are now undertaking common infrastructure investments and reducing non-tariff barriers.
By removing road blocks, weigh bridges, and multiple bonds, the number of days it takes a container from Mombasa to Kampala has been reduced from 18 to a maximum of 4, and to Kigali from 22 to a maximum of 7. A Single Entry East African Tourist Visa, and Common Payment system has also been introduced. In addition, the EAC Monetary Union Protocol which was signed in November 2013 is undergoing ratification in all partner states.