About me.

Andrew M. Mwenda is the founding Managing Editor of The Independent, Uganda’s premier current affairs newsmagazine. One of Foreign Policy magazine 's top 100 Global Thinkers, TED Speaker and Foreign aid Critic

Monday, July 8, 2019

Uganda’s budget dilemma

How our government’s attempts to do too many things for all citizens spreads our meager resources too thin

THE LAST WORD | ANDREW M. MWENDA |  Poor countries suffer a fundamental contradiction in both design and aspiration. The state is designed and thus seeks to perform functions exactly like states in rich countries. Citizens expect and politicians promise to provide free and universal healthcare, primary and in many cases secondary education, clean water, electricity, roads, agricultural extension services etc. These public goods and services are far beyond the classical functions of the state i.e. to provide law and order, infrastructure and the administration of justice.

However, a simple look at the financial and human resources available to governments in poor countries shows that they are too poor to perform the aforementioned welfare functions. There is a wide gulf between design and aspiration on the one hand and capacity on the other. The state is overdeveloped in functions but underdeveloped in capacity, so its reach goes far beyond its grasp. That is the source of all the constant frustrations in our nations. In an ideal world, the state would have been more functional if it focused on classical functions and left many welfare functions to the private sector and/or private charities.

Take the example of Uganda’s 2019/20 Budget, which is Shs40.5 trillion. Shs10.6 trillion of this money will go to debt service of which Shs6.5 trillion is domestic rolled-over debt, Shs3.2 trillion is statutory interest payments and Shs900 billion is debt service on external debt. Therefore, the actual money available for spending on public goods and services by the government of Uganda this financial year is about Shs30 trillion.

Uganda’s population can be estimated to be 41 million people today, giving us public spending per person of Shs730,000. That is $190 in nominal dollars, $665 in Purchasing Power Parity (PPP) dollars. I have added the PPP value here because I intend to compare it with other countries and market exchange rates tell us little about the purchasing power of different currencies in their domestic markets.

This amounts to government spending Shs2,000 per person per day. Yet listening to debates on traditional and social media, Ugandan elites argue as if there is no limit to what government can deliver on this shoestring budget. They expect free, universal and high quality healthcare, education, roads, clean water, electricity, security, justice, agricultural extension services etc. And our problem is not just money. The bigger challenge is the human resource to deliver these basic public goods and services. Essentially, a country that is poor financially will also have poor human resource capabilities.

Many people can legitimately say that it is me who always claims Uganda’s economy has been growing rapidly. After 33 years, why hasn’t it produced huge revenues to pay for better public goods and services? The explanation is simple but fundamental: Uganda has grown from a very low base. In 1986, total public revenues were Shs5.0 billion, which, when adjusted to 2017 prices, comes to Shs32 billion. This financial year, public revenues are estimated to reach Shs20.5 trillion, Shs56 billion collections per day, nearly double annual revenues in 1986.

Again, one can legitimately say that 1986 is a wrong base year to use because the country had just come out of civil war. So we can use 1992/93 financial year when Uganda Revenue Authority (URA) became operational. This is six years after the civil war and gives us a reliable base year. URA collected Shs281 billion which, when adjusted to inflation, is Shs1.26 trillion in 2017 prices. Given that in 1992 Uganda’s population was 19 millon, this is Shs66,000 per person. Today, revenue per person is Shs500,000 i.e. an annual rate of real growth in public revenues of 26%; an impressive rate.

In fact to appreciate how impressive this number is, we can compare the annual average rate of growth in Uganda’s public revenues with that of the best private companies in Uganda and the world. Over the last five years this growth in the revenues of the leading companies has been as follows: Uganda Breweries 6%, Nile Breweries 11%, Crown Beverages 14%, Stanbic 6%, Bidco, 10%. Over the last five years, the annual rate of growth in revenues of the three world’s most valuable companies has been Microsoft 7.2%, Apple 9.2% and Amazon 8.6%. So growth in Uganda government’s revenues beats the best local and global companies.

Now we can do comparisons with other economies. The United States government has the best records of its budget history since it’s founding in 1889. This financial year, federal, state and local government spending will be $7.6 trillion for a population of 330 million people. That is $23,000 (Shs87 million) per person. This is 121 times what Uganda spends nominally or 35 times using PPP. I have also looked at the figures from Senegal, Kenya and Tanzania from 1986 to 2015 and Uganda beats them all.

Thus our government cannot provide a large basket of public goods and services to all its citizens in the quality and quantity the US does for its citizens. Secondly, the USA and Uganda cannot have similar governance strategies. To really understand the challenge in governance poor governments face, one has to compare Uganda with the USA when it had similar per capita spending.

The USA federal, state and local government spending in 1860 was $178 million which, when adjusted to inflation, comes to $5.5 billion in 2019 prices. Given a population of 30 million people in that year, America was spending $185 per person, almost the same figure as Uganda today. Yet if you look at the budget of that time, the USA government did not spend a penny on healthcare, education, pensions or welfare. The entire budget went into the classical state functions such as national defense, public works, law and order functions and a very minimal administration of justice.

It is not until 1890 when it was rapidly transforming into an industrial giant and when it had overtaken Great Britain as the world’s largest economy that the USA began spending on healthcare, education and welfare but not on pensions. The problem with poor countries is that they adopted the spending structure of rich countries at very low levels of income. That is the biggest source of failure to serve their citizens appropriately. They spread their meager human and financial resources too thin. Ugandans need to develop more realistic expectations of their government.


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