My questions about the 2017 budget

A lot of questions are running in my head about this budget(2017) but i will focus on a few elements in my analysis. A budget generally shows how the country intends to use its avaliable resources through expenditure to generate more revenue and achieve other economic objectives such as marco-economic stability, jobs, growth in GDP etc. This years budget is estimated around shs 29 trillions

Obession with infrastructure.
Of course investing in infrastructure such as roads is good to stimulate production but it must be properly aligned to other factors of production.

I will use a case study of Isingiro district. Before 2014, Isingiro had one of the must dusty and poor roads in western Uganda but was the leading matooke producer in the country. With the completion of a tarmac road in 2014, the production of matooke started to decrease until last year when Isingiro was hit by a terrible drought with its proper infrastructure.
What does this mean?? It means that by investing in infrastructure without investing in other facilitating factors of production cannot yeild increased output. Thats why we shall find very poor people staying near a good road.

Investing 20% in infrastructure while investing 3.8% in agriculture is a mismatch which cannot boast production.

So the question is, Do we first invest in infrastructure to encourage production or we should invest in infrastructure where production is already taking place (being well facilitated)??

Increase of import duties on furniture.
As you noted, furniture makers in Nsambya were on the moon after receiving news that there would be a 20% increase in import duties on imported furniture. I will use this simple example to explain that scenerio

Suppose you’re a headteacher of a school where your own son is a student. To ensure that your son becomes the best in class, you should not stop admitting bright students who could outcompete your son but rather build your son’s capacity to withstand the competition. In this case, the budget is aimed at reducing foreign competition rather than building the capacity of local furniture makers to withstand the competition. I would have been happy if the president instead constructed a better techinical institute to train them with better skills or avail them with funds to enable them acquire better equipment to use. By shielding them from competition, you are just increasing inefficiencies because in the longrun you will be creating monopolies. In addition, there will be an increase in capital outflow given the fact that imported furniture is mainly purchased by the rich who have inelastic demand.

Investing in the fundermentals of the economy.
Vision 2040 clearly states that the country should invest in its key fundermentals and we all know that agriculture is our biggest fundermental given its comparative advantage over other sectors.
Agriculture employs over 80% of the population and contributes over 84% of our foreign exchange earnings thus its clear its a big fundermental. Although we have had initiatives such as Plan Modernisation Agriculture(PFA) which ia aimed at transforming agriculture from subsistence production to commercial production, the subsistence sector in agriculture has remained at 68% for the last 10 years. This is partly explained by the underfunding (average of 3% per annum) this sector has always received.

Failure to priotise agriculture has recently increased food insecurity in the country, numerous outbreaks of pests and diseases such as army worm & ticks, riise in food prices among others which has slowed down economic growth. Our export markets continue falling which is worsening our balance of payment deficits.

Issue of domestic borrowing by the government.
This has become a habit by the government which has continued to crowdout the private sector. This explains why interest rates have remained high because the public sector is competing for credit with the private sector and financial institutions prefer to lend to the public than the private sector. This reduces aggregate demand and increases the cost of production on the side of producers.

Moving out of an economic reccession.
Although Mr.Kasaija denied Uganda undergoing an economic reccession, its clear that Uganda is undergoing an economic reccession given by its annual economic growth at 3.9%. There is low aggregate demand, low production levels and increasing prices for most goods, talk of sugar, rice, posho, beans etc. Such a reccession needs shortterm intervetions that aim at increasing both aggregate demand and aggregate supply. In this case, there should be a reduction in interest rates, increase access to credit, borrow from external markets and pay all domestic arrears to suppliers. This would stimulate the economy quickly rather than investing in infrastructure as suggested by Keynes.

Sector prioritisation
The budget also focuses more on sectors which do not give returns immediately. For example, expenditure in health, education, accountability, security, debt repayment & infrastructure do not bring immediate returns which can be used for further re-investment. The government should have invested more in sectors such as tourism, agriculture, recapitalising Uganda Development Bank, technology and industrialisation. These generate more revenue in a shortrun which can be used to invest in longterm projects like hospitals & roads.

Recapitalisation of the Uganda Development Bank.
Lastly a big joke of the day came when only shs 50 billion was allocated to such a bank which is aimed at enabling the middleclass access no interest loans. For sure, am totally disappointed in such a small allocation to a bank that is aimed at transforming scall scale producers to Large scale produces and facilitate industrialisation.

Thanks for reading

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