New budget hit by Shs1.6 trillion shortfall

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Parliament- The progress of critical projects in key sectors like works and transport, security, social development and energy hangs in the balance after Parliament yesterday approved the 2017/18 Budget with a Shs1.6 trillion deficit
MPs had to haggle through legal hurdles raised by the Dokolo Woman MP Cecilia Ogwal, who authored a minority report arguing that the Budget offends Section 36(5a) of the Public Finance Management Act that commands that loans raised for treasury bills shall not exceed 10 per cent of domestic revenue.
Government, however, through the Finance Minister Matia Kasaija and Deputy Attorney General Mwesigwa Rukutuna, countered that the PMFA allows for borrowing with money paid throughout the financial year. However, some lawmakers expressed fears that increased borrowing to finance the shortfall might eat into funds appropriated for service delivery and national development.
Deputy Speaker Jacob Oulanyah was forced to adjourn the House for 15 minutes to allow the government and the Opposition thrash a way forward as Parliament was in a race against time to pass the budget on deadline day yesterday, in line with the PMFA that orders that the budget has to be passed by May 31.
The opposition and the government agreed that the disputed Shs4 trillion will be treated as deficit financing.
Out of the Shs29 trillion budget passed by Parliament, Security will be the most affected by deficits with a Shs628b gap, followed by Energy and Mineral Development (Shs517b), Social Development Sector (Shs212.6b) and Works and Transport (Shs1.4b)Shs13 trillion was required to fund new and ongoing projects but only Shs11.4trillion was provided in the 2017/18 FY, leaving a shortfall of Shs1.6 trillion.
Under the shortfall that has hit the Works and Transport sector, it is unclear whether ongoing construction works at the Karuma and Isimba hydro-power dams which are being funded by China’s Exim bank.
Works will gobble up the lion’s share of the 2017/18 budget with Shs4.8trillion (21 per cent), followed by Interest’s payment Shs 2.6 trillion (12 per cent), Education Shs2.4 trillion (11 per cent) and Shs 2.3 trillion (10per cent) for Energy and Mineral Development.
With the chunk of the Budget allocated to payment of interest payment, MPs warned that: “the higher domestic borrowing by government has [got] crowding-out effects to private sector growth through interest rates which constrain private sector borrowing, lowers aggregate demand and hence slower growth.”
With Uganda’s total public debt stock amount rising to $8.718b, of which $5.468b (62.7 per cent) is external and $ 3.25b (37.3 per cent) is domestic debt, Parliament’s Budget Committee report raised a red flag the public debt that is accumulating to finance infrastructural projects in the energy sector may shake the economy.
“Although the debt sustainability analyses indicate a low risk of debt distress for Uganda, the rate at which public debt is accumulating, points to increasing vulnerabilities in the country. In addition, there is a growing statistical discrepancy that is not explained by the debt stock-flow adjustment factors which require investigation,” reads the report.
The report warns that debt “makes the country highly vulnerable, to the extent that the Budget can no longer adequately provide for quality education and health services.”

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