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Economy

Uganda tests fiscal discipline in elections

Uganda Electoral Commission's Dr. Badru Kiggundu (L) while announcing the winner of the 2011 Presidential Elections. Candidates have been accused of overspending during the campaigns, egged on by prospects of striking oil. Photo/YUSUF MUZIRANSA
Uganda Electoral Commission's Dr. Badru Kiggundu (L) while announcing the winner of the 2011 Presidential Elections. Candidates have been accused of overspending during the campaigns, egged on by prospects of striking oil. Photo/YUSUF MUZIRANSA 

The winner of Uganda’s presidential elections faces a hard task of fixing an economy weakened by a carefree campaign spending, perhaps egged on by new oil find, analysts have said.

Uganda’s treasury said it had spent 85 per cent of her Sh259.2 billion ($3.14 billion) budget for 2010/11 by December last year.

Latest press reports indicate that of the $2.5 billion recently approved in the supplementary budget, $676 million was allocated to State House for its non-audited use, believed to be tied to party campaigns.

Kenyans watching

“This is a bit of a stretch, and the worry is that Uganda might overshoot its fiscal deficit plans, but economic impact depends on whether the remaining 15 per cent is sufficient to cover all recurrent expenditure to the end of June,” said Ms Razia Khan, Standard Chartered Bank’s head of research for Africa.

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The matter is being closely watched in Nairobi as Uganda is Kenya’s most important destination for export goods and investment capital.

The Uganda shilling has fallen steadily against the Kenya shilling since the last week of January, making Kenya exports expensive in Kampala.

Data from Uganda Investment Authority indicates Kenyans have registered 14 projects worth Sh5 billion in Uganda over the last 12 months, most of which will start operating after elections.

However, analysts say uncontrolled campaign expenditure is likely push inflation and interest rates further up, poisoning the post election investment climate and lowering the country’s ability to join the EAC monetary union next year.

“That front-loaded level of spending should feed into growth and boost the economy’s performance in the short-term, but Uganda might face the costs of increased borrowing in the long-run if it does indeed see a deficit overshoot,” Ms Khan said.

The comments come just days after International Monetary Fund (IMF) questioned Uganda’s fiscal discipline and faulted its progress in implementing agreed economic and structural reforms.

The Fund’s executive board which met February 11 said Uganda had failed to implement a three-year policy support instrument (PSI) launched in May last year, causing jitters among external financiers who shoulder a significant portion of the country’s national budget.

The PSI seeks to reinforce fiscal discipline by tightening control on public finances while eliminating constraints to growth through increased public investment and structural reforms.

A fallout out with IMF over fiscal prudence is likely to put stress on Uganda’s post-election economy should multilateral lenders like World Bank Asian and developed countries decide to follow suit. IMF nod is normally taken as a clean bill of health.

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