UGANDA’S PUBLIC SECTOR BORROWING REQUIREMENTS, FINANCING OPTIONS AND THE IMPLICATIONS FOR ECONOMIC PERFORMANCE ECONOMIC DEVELOPMENT POLICY AND RESEARCH DEPARTMENT, MFPED WORKING PAPER
DR ALBERT A MUSISI (MFPED) AND PETER RICHENS (MFPED)
Ministry of Finance, Planning and Economic Development
March 2014
The views expressed in this paper are solely those of the authors and do not necessarily reflect the official views of the Ministry of Finance, Planning and Economic Development. Any errors are those of the authors
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Table of contents
List of acronyms and abbreviations ........................................................................................................ ii Executive summary and policy recommendations ................................................................................ iii 1 Introduction .................................................................................................................................... 1 2 Methodological approach ............................................................................................................... 3 3 Spending projections ...................................................................................................................... 4 3.1 Infrastructure investment ....................................................................................................... 4 3.2 Social sector spending ............................................................................................................. 6 3.2.1 Health .............................................................................................................................. 7 3.2.2 Education ........................................................................................................................ 8
3.3 Spending in other sectors ..................................................................................................... 10 3.4 Total primary spending ......................................................................................................... 11
4 Revenue projections ..................................................................................................................... 11 4.1 Non‐oil tax revenue .............................................................................................................. 12 4.2 Grants .................................................................................................................................... 12 4.3 Oil revenue ............................................................................................................................ 13 4.4 Total Government revenue ................................................................................................... 14
5 Public sector borrowing requirements ......................................................................................... 15 5.1 Borrowing requirements vis‐à‐vis and MTEF ........................................................................ 19
6 The impact of frontloaded public investment .............................................................................. 19 6.1 Debt sustainability ................................................................................................................ 19 6.2 Macroeconomic stability ....................................................................................................... 21 6.3 Economic performance ......................................................................................................... 22 6.4 Resilience to economic shocks .............................................................................................. 25
7 Financing Government’s investment plans .................................................................................. 26 7.1 Tax policy .............................................................................................................................. 27 7.2 Financing options .................................................................................................................. 28 7.3 Oil revenue management ..................................................................................................... 31
References ............................................................................................................................................ 33 Annex 1: MAMS modelling framework ................................................................................................. 35 Annex 2: Long‐term infrastructure investment plans ........................................................................... 37 Annex 3: Trends in public education and health spending ................................................................... 42 Annex 3: Assumptions underlying oil revenue estimates ..................................................................... 43 Annex 4: The fiscal implications of East African monetary union......................................................... 44 Annex 5: Macroeconomic and fiscal projections under alternative scenarios ..................................... 45
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List of acronyms and abbreviations
AfDB African Development Bank AICD African Infrastructure Country DiagnosticBTVET Business, Technical and Vocational Education and Training BOU Bank of Uganda CFF Contractor‐Facilitated Financing CNDPF Comprehensive National Development Planning FrameworkDRC Democratic Republic of Congo DUCAR District, Urban and Community‐Access Roads EAC East African Community FDI Foreign Direct InvestmentGDP Gross Domestic Product GKMA Greater Kampala Metropolitan Area IBRD International Bank for Reconstruction and Development ICT Information and Communication TechnologyIDA International Development Association IMF International Monetary Fund ITIP Integrate Transport Investment Plan LTEF Long‐Term Expenditure FrameworkMAMS Maquette for MDG SimulationsMDAs Ministry, Department and Agencies MDG Millennium Development Goal MFPED Ministry of Finance, Planning and Economic DevelopmentMTEF Medium‐Term Expenditure FrameworkMW Mega Watt NDP National Development Plan NITA‐U National Information Technology Authority NPV Net Present Value OECD Organisation for Economic Cooperation and Development PEAP Poverty Eradication Action Plan PPP Public Private Partnership RESP Rural Electrification Strategy and PlanRPSMP Regional Power System Master Plan SWG Sector Working Group TFP Total Factor Productivity ToT Terms of Trade UGX Uganda Shilling UIF Uganda Infrastructure Fund UNRA Uganda National Road Authority UPE Universal Primary EducationUSD United States Dollar USE Universal Secondary Education VAT Value Added Tax WSSIP Water Sector Strategic Investment Plan
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Executive summary and policy recommendations
Government’s optimal mix of financing options depends crucially on the level of borrowing requirements and the use of public resources. Uganda’s development strategy is increasingly focused on large and potentially transformative investment projects, but Government’s fiscal framework remains centred on medium‐term revenue projections and the allocation of public resources on an annual basis. Financing Uganda’s public investment needs and managing future oil revenues requires Government to make difficult inter‐temporal trade‐offs, and the budget formulation process must therefore take a longer‐term perspective. To help strengthen the linkages between Uganda’s annual budget and longer‐term planning frameworks, this study analyses the long‐term impact of public spending and financing choices on economic performance – and ultimately future Government revenue – within a consistent economy‐wide framework. The economic and fiscal implications of Government’s existing investment plans and the desirability of alternative financing strategies are assessed through a number of policy simulations, taking into account the likely evolution of public spending and revenue over the next 30 years.
Spending projections
Government’s emphasis on infrastructure investment is set to be strengthened under the second National Development Plan (NDP II). Total public investment in transport, energy, water, oil and ICT is planned to exceed USD 10 billion between 2015/16 and 2019/20, a twofold increase from the USD 5 billion projected between 2010/11 and 2014/15. This reflects a combination of large projects including the standard‐ gauge railway, the Karuma and Isimba dams, Government’s contribution to the oil refinery, and the need to address the investment backlog accumulated in the road and water sectors.
In the longer term the composition of public expenditure will change substantially. Several planned projects are large relative to the size of the Ugandan economy and Government’s revenue, and their completion will free up significant fiscal space. Existing investment plans recognise that it is optimal to concentrate infrastructure investment within the next few years. This partly reflects the need for major reconstruction, and continuing the past decades of underinvestment will only increase the costs Government will eventually bear. High investment over the next few years can also reduce future spending needs by facilitating greater private sector involvement. Government needs to invest now in the electricity, rail and water networks for instance to help ensure their future commercial viability. Improved public infrastructure is likely to bring substantial economic and ultimately fiscal returns, and the sooner investment is increased the greater these long‐term benefits will be. If the current investment needs are addressed and the economy and Government revenue continue to grow, the fiscal space to accommodate other priorities will expand substantially. Government’s planned physical infrastructure investments are projected to fall from 8% of GDP in the late 2010s to around 4% of GDP by the time oil revenue peaks in the mid‐2020s.
This increase in fiscal space will not be just advantageous but necessary, as investment needs in other sectors are expected to expand significantly during the 2020s and 2030s. Education expenditure is set to increase as enrolment in secondary, tertiary and specialised education expands. This is likely to be even more pronounced than the effect of expanded primary enrolment in the late
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1990s and early 2000s – enrolment is growing from a lower base and secondary, tertiary and vocational education are significantly more expensive on a per student basis. Public education spending is expected to double as a share of GDP during the 2020s. There will likely be a similar increase in public healthcare costs as the share of elderly people increases and as Uganda moves from largely private pay‐as‐you‐go funding to more efficient and equitable pre‐paid or pooled mechanisms. Maintenance costs will also increase with the stock of public infrastructure and must be accommodated within the Government budget.
Revenue projections
Government has for long experienced a structural budget deficit, with domestic revenue stagnating between 12% and 13% of GDP over the last decade, well below total spending. As foreign aid inflows continue to decline, Government must look to alternative ways to mitigate this shortfall. Structural economic change and formalisation can be expected to expand the tax base, but this will occur only gradually and is unlikely to bring substantial gains over the medium term. Fortunately, there is significant scope to expand revenue through immediate tax policy reforms – particularly the streamlining of exemptions, special regimes and initial capital allowances.
Uganda stands to benefit from oil extraction from around 2018/19, but revenue inflows are likely to grow relatively slowly in the first few years of production because Government’s share of the revenues will be lower during the cost recovery period. Public oil revenues are projected to peak in 2024/5 at around 7% of GDP. Relative to the size of the economy, oil inflows are likely to be significantly less than aid inflows during the late 1990s and early 2000s, particularly if a significant share is saved in a stabilisation or legacy fund.
Public sector borrowing requirements
Government is planning to invest close to USD 12 billion in infrastructure between 2014/15 and 2019/20 but funds currently committed to infrastructure projects in the Public Investment Plan amount to just USD 1.7 billion, underlining the magnitude of Uganda’s financing challenge. Fortunately, over a longer time horizon Government’s projected primary spending is broadly consistent with its likely revenue – both are expected to range between 18% and 22% of GDP for most of the period up to 2040. Given that investment needs are expected to peak within the next few years and oil revenue in over a decade, the successful implementation of Government’s development strategy will rest on the appropriate use of financing.
The implementation of Government’s investment plans will require an increase in deficit financing to an average of 7% of GDP between 2014/15 and 2018/19, and higher if tax policy reforms do not lead to significant improvements in domestic revenue collection. Policy simulations indicate that this will be possible without jeopardising debt sustainability or macroeconomic stability. Although total public debt will increase from current levels, it is projected to peak in the late 2010s between 45% and 55% of GDP in nominal terms (below the East African Monetary Union convergence criteria which is measured in net present value terms). While Uganda will be forced to rely on non‐concessional borrowing, it is projected that almost all semi‐concessional and non‐concessional external debt can be retired by the late‐2020s, and debt service obligations will never jeopardise
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fiscal sustainability or approach standard liquidity thresholds. The primary deficit will increase relatively gradually, particularly if the removal of exemptions leads to an immediate improvement in tax collection. The macroeconomic implications would almost certainly be manageable given strong coordination between MFPED and BOU under the inflation‐targeting framework.
The impact on frontloaded public investment
Scaling up financing and infrastructure investment is not only feasible, but necessary to strengthen economic growth and resilience, and ultimately Government’s long‐run financial position. If the fiscal deficit is prevented from exceeding current levels, Government will be forced to delay or forgo many infrastructure projects and the economy’s long‐run growth potential will be reduced by at least 0.5 percentage points. This would create a vicious circle, where lower growth further reduces public revenue, intensifying the tradeoffs between competing spending priorities and mitigating against the effective management of oil revenues.
The downside risks of a high‐borrowing high‐investment strategy are significantly lower in comparison (and can be minimised by comprehensive tax policy reforms to increase domestic revenue). Debt will remain sustainable even in the context of lower growth, which could result from a deterioration in the global economic environment or poor management of infrastructure projects for instance. The absorptive capacity of public spending agencies must be considered, but this concern should not override the clear need to increase public investment. Budget execution is currently hindered most by ad‐hoc cash rationing in the context of tight resource constraints (MFPED 2011). Ongoing public financial management reforms may in fact stand a greater chance of success if overall spending is increased. A larger resource envelope and more transparent financing strategy will facilitate budget credibility and consequently the preparation and implementation of sector investment plans.
Imposing constraints to public spending, such as a limit on the overall or non‐oil fiscal deficit, may not provide sufficient flexibility to accommodate Uganda’s investment needs in the variety of possible economic scenarios. The simulation results suggest that the current proposal to manage the volatility of oil revenue by using the non‐oil deficit as a fiscal anchor could have potentially severe implications for public investment, economic performance and long‐term fiscal sustainability. This will be particularly true if there are setbacks in Government’s medium‐term investment plans, or in the event of adverse global economic conditions, which would likely increase future financing needs beyond the ceiling and tighten the viscous circle that forces Government to postpone or forgo investment projects with high economic and fiscal returns. A more flexible alternative to manage oil price volatility is a revenue‐based rule similar to that used in Ghana. This would facilitate economic planning by ensuring a predictable flow of oil revenue to the budget each year.
Policy recommendations and financing options
There is a need to fundamentally review the current fiscal framework to strengthen the linkages between the annual budget and Uganda’s longer‐term strategic plans. This will require the following:
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i. The budget preparation process must shift focus from simple revenue projections to more comprehensive analysis of Government’s inter‐temporal tradeoffs. This will require greater attention on the linkages between expenditure, economic performance, and future Government revenue. MFPED can, for instance, ensure the institutionalisation of macro‐micro modelling tools within the budget formulation process.
ii. The budget formulation process must take a longer‐term outlook, by revitalising the Long‐Term Expenditure Framework (LTEF) for example.
iii. The MTEF and LTEF must incorporate a transparent and credible financing strategy to guide sector planning.
This study is only one initial step in this process, but the preliminary fiscal projections contained in section 5 make it apparent that significant changes need to be made to Government’s current fiscal strategy, particularly in the level of financing and spending over the next seven years. Policy simulations suggest that Government’s medium‐term investment plans are feasible and desirable, but will require:
i. Total Government spending to increase to an average of 24% of GDP between 2014/15 and 2017/18, up from 20.4% projected in 2013/14.
ii. Deficit financing of at least 7% of GDP over this period, and higher if tax policy reforms do not lead to a significant improvement in domestic revenue collection.
This temporary increase in the fiscal deficit can be managed through a variety of channels:
i. Government must prioritise and sequence its investment projects to address Uganda’s most pressing infrastructure constraints first. Increasing the pace of investment too quickly may have undesirable macroeconomic effects and bottlenecks in the construction sector could raise costs. Government should also not invest in public infrastructure without ensuring appropriate institutional arrangements for operations and maintenance are in place – particularly in the energy and rail sectors. It is feasible and desirable for Government to finance the large majority of its infrastructure investment plans over the medium term, but this will require tight control over spending in other sectors – to ensure that there are no undue increases in public sector wages for instance. It may also be necessary to phase some large investment projects into the 2020s – such as the standard‐gauge railway, unless a PPP arrangement significantly reduces the fiscal burden.
ii. There is significant scope to increase tax revenue through immediate tax policy reforms, which would reduce reliance on non‐concessional borrowing and slow the pace at which deficit financing is required to expand, facilitating macroeconomic management. An appropriate target would be to increase tax revenue by 2% of GDP over the next two years. This may require more than streamlining the VAT and agro‐processing exemptions. It will be important to also review initial capital allowances and special regimes such as the tax holiday for exporters.
iii. Grants and concessional borrowing should be maximised to the extent possible. To implement its investment plans Government must turn to semi‐concessional and non‐concessional borrowing, but aid will lessen its reliance on these expensive forms of
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financing. To reduce its borrowing costs, Uganda could also lobby the multilateral financial institutions for early access to IBRD loans or other forms of guaranteed debt.
iv. Domestic borrowing has increased rapidly over recent years but should not be relied upon too much over the coming years. The borrowing costs are likely higher than non‐concessional external financing and there is an additional risk of crowding out private sector investment. The exact amount of domestic borrowing should be determined through close collaboration between MFPED and BOU, considering the liquidity situation and the likely effects on the domestic capital market, but an appropriate level is likely to be around 1.2% of GDP, which would ensure that domestic debt remains roughly constant as a share of GDP.
v. Rather than over reliance on domestic borrowing, financing requirements beyond the available level of concessional loans should be met primarily through semi‐concessional and non‐concessional external borrowing. The indirect costs, stemming from the exchange rate effects of foreign‐exchange inflows, are likely to be mitigated with the inflows used for import‐intensive infrastructure projects.1 Any Dutch‐disease effects will be more than offset by the productivity benefits of higher public investment. Uganda will need to rely on non‐concessional external financing for only a limited period. Total semi‐concessional and non‐concessional foreign borrowing needs are estimated at USD 7.2 billion (in the period up to 2020/21), with almost half of this amount accounted for by the standard‐gauge railway. USD 1.9 billion is required between 2013/14 and 2015/16 (this is below the USD 2.2 billion ceiling on non‐concessional external borrowing under the current IMF Policy Support Instrument, but may be higher without significant tax reforms).
vi. To diversify its sources of financing, Government should actively consider tapping directly into international credit markets by issuing a Eurobond, or another type of internationally traded bond. This would likely be cheaper than continued reliance on domestic borrowing, and would have a number of additional benefits, including providing a benchmark for potential private sector dollar‐denominated bond issuance and helping to advertise Uganda as an investment destination on the global stage. The necessary preparations (the selection of legal counsel and lead managers) could be completed in around six months.
vii. Government should proceed more cautiously in considering other non‐traditional financing mechanisms, such as the Uganda Infrastructure Fund (UIF). A number of important prerequisites for the UIF are not yet in place – particularly a quality pipeline of PPP projects, and strong PPP legislation and project handling capacity – and taking the fund to international markets too early would jeopardise relations with potential investors. With low public debt and sufficient scope to scale up infrastructure investment through traditional means, there is no need to rush implementation of the UIF.
viii. During the short and medium term, it will be more important to focus on the institutional capacity to manage PPP projects, and to invest in high‐quality feasibility studies providing the specific information investors require. Such feasibility studies could help to kick‐start various PPP projects even before the UIF is established. Growing the national pipeline of ready‐to‐implement infrastructure projects could also help to reduce the cost of non‐concessional external financing, and facilitate the issuance of a Eurobond for instance.
1 The import content of Government expenditure in the Energy sector is around 80% (Dhalla 2005), and between 67% and 74% in the Works and Transport sector (Harrison 2006).
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ix. There is a risk that contractor‐facilitated financing (CFF) arrangements will allow spending agencies to create liabilities for Government without proper supervision from the centre, jeopardising fiscal control. CFF may only be desirable if available on highly concessional terms. Otherwise it will be preferable for MFPED to continue to focus on public financial management reforms to address cash‐flow issues, and to increase the resources available through the established budget process.
As Government’s investment programme continues the operations and maintenance of new public infrastructure is critical. Feasibility studies for the Karuma and Isimba hydropower projects for instance indicate that the bulk of the investment costs can be recovered if the dams are managed effectively, but this stands in contrast to the pre‐existing operating losses of Uganda’s electricity generation and transmission companies (IMF 2013b). There is need for institutional reforms in the electricity and other utility sectors. The institutional arrangements to ensure the viability of the standard‐gauge railway must be addressed before the financing arrangements are agreed. Public funds allocated to the maintenance of infrastructure can have an extremely high rate of return, and must therefore be appropriately planned and budgeted for, and protected from in‐year spending reallocations. Government could also consider setting aside a fixed amount of oil revenue for this purpose.
From the late 2010s, Uganda’s central fiscal challenge will shift from closing the financing gap to effectively managing volatile oil revenue inflows. The current proposal – to use the non‐oil deficit as a fiscal anchor – is unlikely to ensure sufficient flexibility to accommodate Government’s investment needs. Government’s oil revenues should be used to accumulate assets, but these assets can be physical, human or financial and the optimal balance is likely to change over time. Higher investment in physical infrastructure for instance is one way to save for future generations, and may be more appropriate than transferring a large share of oil revenue into an offshore fund, at least in the initial years of oil production. An alternative to the non‐oil deficit rule that would allow for this flexibility – while also effectively managing oil price volatility – is a revenue‐based rule similar to that used in Ghana, where 70% of a reference oil revenue forecast is transferred to the budget each year. This would generate a sufficient savings buffer to stabilise short‐term oil price fluctuations, while facilitating economic planning by ensuring a predictable flow of oil revenue reaches the budget each year. While the precise amount of oil revenue to be spent could be adjusted, the 70% rule operating in Ghana may also be suitable in the Ugandan context – the simulation results indicate that this would allow Government to meet its investment needs even under adverse economic circumstances, while still saving a significant share of oil resources in the form of financial assets.
This could be combined with another rule to ensure that the oil revenue transferred to the budget is used only to accumulate physical or human assets. While infrastructure is Uganda’s short and medium‐term priority, it may be inappropriate to limit the use of oil revenue to physical infrastructure investment throughout the entire period of oil production. By 2030 infrastructure investment needs will have declined significantly while education spending requirements will have roughly doubled (due to increased enrolment in secondary and tertiary education). Natural resource revenue could also be used to maintain public infrastructure, and for spending in the health and education sectors that directly contributes to the accumulation of human capital – as in Botswana. Adopting these proposals will require revising the Oil and Gas Revenue Management Policy. These
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fiscal rules could also be included in the Charter of Fiscal Responsibility or the revised Public Finance Bill.
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Eradication Action Plan (PEAP) into strategic expenditure allocations. Since then, the MTEF has helped to enable bottom‐up input to policy priorities through Sector Working Group (SWGs) while maintaining strong top‐down control of spending limits. Over the course of the PEAP‐era (1997 – 2007), there was however a gradual weakening of the link between the national planning framework and the MTEF (OPM 2008). An increase in unplanned disbursements, supplementary budgets and in‐year reallocations reduced the PEAP’s influence on resource allocation. A recent study by MFPED revealed that these challenges have persisted since the NDP replaced the PEAP as the country’s overarching planning framework (MFPED 2011). Because of weak budget credibility, many Ministries, Departments and Agencies (MDAs) face significant challenges in effectively planning for their resources and fully absorbing the resources provided to them. This has led, in many cases, to inefficiency in the delivery of public services and investment projects.
Figure 2 Real Government spending (trillions 2010/11 UGX)
Figure 3 Nominal development spending (trillions UGX)
Notes: Data for 2010/11 to 2013/14 are approved budget estimates; data for 2014/15 are projections.
While the MTEF played an instrumental role in the early successes of the PEAP, Uganda’s budgeting framework is not fully aligned to the NDP. Since 2012/13, the budgeted increase in real Government expenditure has fallen substantially short of that assumed by the NDP – in real terms the budget projection for 2014/15 is 17% below the NDP projection (see Figure 2). This is mainly on account of lower‐than‐planned financing – the fiscal deficit averaged 3.6% of GDP in the first three years of the NDP, compared to the planned 5.5% of GDP. The MTEF has responded to the priorities set out in the NDP by allocating more resources to development spending, including public infrastructure investment – total development expenditure in the MTEF roughly matches that under the NDP macroeconomic framework. But in practice, the combination of significantly higher development investment and lower‐than‐planned real spending has proven impossible to implement. Within‐year relocations from development to recurrent spending have increased, and releases have fallen significantly short of the approved development budget in the first three years of the NDP (see Figure 3). This has contributed to the backlog of required infrastructure investments, and further reduced the credibility of the budget and increased the implementation challenges faced by MDAs.
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The under execution of some investment projects partly reflects absorptive capacity constraints afflicting the implementing MDAs. The poor management of procurement processes, inadequate capacity among private contractors and land acquisition problems, for example, are sometimes responsible for delays in the implementation of infrastructure projects. Most of these problems are reducing however (MFPED 2011). The most important reasons for limited absorption capacity relate to poor cash management – ad‐hoc cash rationing and unnecessary delays in the release process. On‐going public financial management reforms are expected to reduce these problems significantly. The move towards a Treasury Single Account system aims to overcome the cumbersome release process, and a transparent contingency fund will reduce the need for in‐year reallocations.
A more fundamental problem is that the country’s budgeting framework remains primarily focused on short‐term to medium term considerations, despite the country’s new longer‐term planning framework. Preparation of the MTEF is primarily based on the expected revenue given macroeconomic projections for the next five years, with limited consideration of Government’s long‐term investment needs and the optimal level of borrowing. The budget formulation process may give insufficient weight to factors with important fiscal implications only in the longer term (such as the prospect of oil revenues) and is increasingly at odds with a development strategy focused on transformative investment projects with high potential to improve future economic and fiscal outcomes, but which often take a number of years to implement and even longer for the returns to be fully realised. The MTEF is informed by long‐term debt sustainability analysis, but this process is heavily influenced by the multilateral debt surveillance system that relies on quantitative limits criteria and does not capture the economic (and consequently fiscal) returns of external borrowing.
2 Methodological approach
This study relies on a variety of methodologies and analytical tools. A major component of the analysis explores alternative fiscal policy options in the period up to 2040 using an economy‐wide, macro‐micro modelling tool. This differs from MFPED’s traditional approach to resource projections and debt sustainability assessments in its detailed treatment of the complex, two‐way linkages between fiscal policy choices and economic performance (capturing the impact of public spending and financing on economic performance and ultimately future Government revenue).2 A comprehensive review of official publications and strategic plans was conducted to ensure the model and simulations are consistent with Uganda’s development objectives, feasible policy options, and the likely evolution of public spending and revenue over the next 30 years.
The rest of this paper is structured as follows. The following section reviews existing sector investment plans and other sources of evidence to assess the likely trajectory and composition of public spending over the next 30 years, focusing particularly on the sequencing of strategic infrastructure investments and public service provision. Section 4 reviews key sources of Government revenue over the same period: non‐oil taxes, grants and oil revenue. Section 5 presents Government’s overall financing requirements and long‐term fiscal projections consistent with current investment plans. Section 6 uses a number of policy simulations to assess the economic
2 See annex 1 for a description of the modelling framework.
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desirability of frontloading infrastructure investment. Section 7 concludes by discussing the options to finance Government’s investment plans.
3 Spending projections
The share of public resources allocated to physical infrastructure investments is currently large and is expected to expand even further during NDP II. This will not necessarily continue to apply in the long term – as large infrastructure projects are completed successfully, private sector involvement increases, maintenance improves, and the economy continues to expand, Government is likely to find greater fiscal space to address other priorities. This section brings together information from a variety of sources to project the likely pattern and sequencing of public spending over the next 30 years. Existing long‐term investment plans are used as the starting point in assessing each sector’s spending needs and absorption capacity. These plans are complemented by other sources of evidence, including the latest available cost estimates and relevant international experiences.
3.1 Infrastructure investment
Government has developed detailed long‐term investment plans for most strategic infrastructure sectors. For example, the Integrated Transport Investment Plan contains spending plans for the period up to 2023; the Regional Power System Master Plan contains an investment plan for power generation and interconnection projects running up to 2038; the current Rural Electrification Strategy and Plan runs up to 2022; the Water Sector Strategic Investment Plan up to 2036; and the National Irrigation Master Plan up to 2052. These plans are reviewed in detail in Annex 2. To estimate the total public infrastructure spending up the 2040 implied by these plans, it is assumed that:
i. Road, water and air transport investment evolves according to the Integrated Transport Investment Plan (ITIP) up to 2023, and remains fixed in constant USD terms from 2024 to 2040 (continuing the trend in the later years of the ITIP). Road investment needs are expected to remain roughly constant at around USD 400 million a year once the backlog of periodic maintenance accumulated throughout the 1990s and 2000s is cleared – giving sufficient priority to maintenance will ensure that no further major road reconstruction programmes will be required in the future.
ii. Rail transport investment evolves according to the most recent plans, detailed in Annex 2 (Table A2), with Government conservatively assumed to bear 100% of the cost.
iii. Transport investment in the Greater Kampala Metropolitan Area evolves according to the ITIP up to 2023, and continues growing at a rate of 4% per year in constant USD terms from 2024 to 2040.
iv. Power generation investment evolves according to the Regional Power System Master Plan (RPSMP) up to 2038, and remains fixed in constant USD terms from 2039 to 2040. Cost
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estimates for Karuma and Isimba are updated with the latest estimates and the nuclear power programme is excluded.3
v. Power distribution investment evolves according to the Rural Electrification Strategy and Plan (RESP) up to 2022, and remains fixed in constant USD terms from 2023 to 2040 (continuing the trend in the later years of the RESP – when greater commercial viability of rural electrification is expected to pave the way for more private investment in the sector). Planned interconnection projects with Kenya and Tanzania included in the RPSMP (to be implemented between 2020 and 2022) are also captured, assuming Government of Uganda bears 50% of the cost.
vi. Rural and urban water supply, sanitation and irrigation investment evolve according to the Water Sector Strategic Investment Plan (WSSIP) up to 2035 and continue these trends up to 2040.
vii. ICT investment matches that planned under the NDP up to 2014/15 and increases to the Africa Infrastructure Country Diagnostic (AICD) estimate (discussed in Annex 2) from 2015 up to 2040.
viii. Government’s investment contribution to the oil pipeline is spread evenly between 2014/15 and 2017/18, and between 2014/15 and 2019/20 for the refinery.4
ix. The investment backlogs accumulated in the transport and water sectors since the start of NDP I is cleared in a uniform manner over the course of NDP II.5
Figure 4 projects public infrastructure investment in the transport, water, power, ICT and oil sectors given these assumptions. Total investment in the period up to 2040 is approximately USD 43.4 billion, or an average of USD 1.5 billion each year. The budget for 2013/14 illustrates Government’s commitment to this objective – around USD 1.4 billion or an estimated 6.7% of GDP is allocated for development spending in the transport, energy, water and ICT sectors, a substantial increase from the estimated outturn for 2012/13 (3.6% of GDP). Figure 4 suggests that public investment will need to be maintained at an even higher level for around seven years.
3 The costs of the Karuma and Isimba hydroelectric power plants are estimated to be USD 1,650 and USD 600 million respectively. Vision 2040 also highlights plans for a nuclear power programme, which is not included in the regional power system master plan. Building a nuclear power plant to exploit Uganda’s uranium deposits would likely cost at least USD 10 billion. If this investment is spread over 10 years in the 2030s, the country’s annual spending on power generation would increase by more than a factor of 10. Parsons Brinckerhoff (PB), the consultancy firm that helped to develop the Regional Power System Master Plan and Uganda’s 2009 electricity generation plan, estimate that Uganda has long‐term potential to export electricity, even without the nuclear programme and other additional generation projects included in Vision 2040. 4 The cost of the refinery and pipeline are estimated to be USD 2 billion and slightly over USD 1 billion respectively (Deloitte 2011). The production and pipeline costs will be largely fronted by the international oil companies, but recovered from Government through a higher proportion of ‘cost oil’ in the initial production years (Government is expected to contribute 9% of the cost of the pipeline upfront). The refinery will involve greater direct involvement by Government, with an expected 40% contribution to the investment costs under the PPP arrangement. 5 Relative to the sector plans reviewed, there has been significant underinvestment amounting to USD 1.07 billion in the first three years of the NDP, with a USD 775 million and USD 265 million shortfall in the transport and water sectors respectively.
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Figure 4 Indicative infrastructure investment requirements (USD millions per year)
Planned investment is highest over the next seven years (up to the end of NDP II) due to the Karuma and Isimba hydroelectric power plants, the standard‐gauge railway, the oil refinery, and the need to clear the investment backlog accumulated over recent years (particularly in the transport and water sectors). Absolute investment needs are expected to rise again in the late 2020s and early 2030s, because of further power generation projects. It is important to note however that required infrastructure investment as a share of GDP is projected to fall substantially. While Government’s long‐run investment plans may be revised, the overall trend predicted is unlikely to change. While Government may need to allocate more than 8% of GDP to infrastructure investment in the late 2010s, this is projected to fall to around 4% by the time oil revenue peaks in the mid‐2020s and to under 2% of GDP by the 2030s, in line with the levels seen in most more developed economies.6 The extent and pace of this long‐run expansion in fiscal space will depend on the timely completion of projects planned before the start of oil production. Clearing the investment backlog in the transport network and improved maintenance can avoid further major reconstruction programmes. Greater public investment in rural electrification, urban water supply, and the rail network is also needed in the short term to help ensure greater private involvement to reduce the fiscal burden in the long term.
3.2 Social sector spending
Given the large share of Government resources allocated to social service delivery, Uganda’s long‐term fiscal strategy must take account of the likely evolution of spending needs in the health and education sectors. In the absence of long‐term sector investment plans, this section assesses Uganda’s recent trends in education and health spending, socioeconomic trends that are likely to affect the demand for social services, and compares this to the experience of other countries.
6 See Chan et al. (2009). Total public investment, including the construction of schools, health centres and development spending in other sectors, will be substantially higher.
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Oil development
Power generation
Power distrubtion
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Total as a % of non‐oil GDP (right axis)
3.2.1 H
Uganda’s last 15 yesame ratethat the pacross cofunding toaccount fservices). for healthdoes todaUganda’s strong poas a sharexpenditu
Figure 5
Source: W
The shareregardinginvestmenit is unlikpolicy sim(remaininto reach 3
7 This projusing data
ealth
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Public and Uganda (%
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e of public resg the efficiencnt. Given highkely that heamulations thang fixed as a s3.7% of GDP i
jection is obtafrom the WHO
nditure on hea5), meaning tP growth. Privof total healhey become ent and equishare of heaas countries ga in 2040 for healthcare ch expenditureation across civen this relaed to reach 3
private healt% of GDP)
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ained from a sO Global Healt
alth has remahat the Govevate health sth spending richer (Figuretable pre‐paialth financinggrow richer tr example wicosts are likee will increasecountries betationship and.7% of GDP b
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n Figure 6
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GANDA’S LON
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6 Public andspending b
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NG‐TERM FIS
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SCAL STRATEG
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3.2.2 Education
While Uganda’s primary school enrolment rate is close to 100%, there has not yet been a similar response at the secondary level following the introduction of USE and there remains large scope for secondary and tertiary enrolment to increase. The simulations conducted for this paper suggest that the share of the population enrolled in secondary and tertiary education will roughly double by 2040, with most of this increase occurring in the 2020s.8 In contrast, demographic trends and improved internal efficiency of the education system mean that growth in primary school enrolment is expected to reduce substantially (see Figure 12).
Figure 7 Projected student enrolment relative to working‐age population
Source: simulation results.
These trends will have important fiscal implications as secondary and tertiary education are much more expensive on a per‐student basis than primary schooling (Table 2). Compared to more developed countries, Uganda’s total spending per student relative to average income is quite low at the primary level, but high at the secondary and tertiary levels. As countries become richer the amount spent per student tends to equalise between primary and secondary education. This implies that in Uganda spending per student is likely to grow fastest at the primary level (close to the rate of per capita GDP growth), while spending per secondary and tertiary student will have to grow more slowly as enrolment expands.9
8 Gross secondary enrolment is projected to reach 82% by 2040 (up from around 50% currently). Gross tertiary enrolment is projected to reach 24% (up from 11%). The CGE model used to generate these projections includes a highly disaggregated education sector, endogenous education behaviour by households, and feedback mechanisms between the education system and the labour market (see annex 1). 9 Government’s new emphasis on BTVET may also have significant fiscal implications. Public spending per student projected under the BTVET strategic plan is significantly higher than the current total public spending per student in degree courses. In the policy simulations, but not in table 2, tertiary education is defined to include post‐secondary specialised training and diploma courses as well as university education.
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Tertiary
UGANDA’S LONG‐TERM FISCAL STRATEGY
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Table 1 Spending per student by education level, international comparisons
Spending per student (% of GDP per capita) Spending per student (USD PPP)
Uganda Turkey Mexico OECD average Uganda Turkey Mexico OECD average
Primary 15% 12% 15% 23.2% 210 1,860 2,331 7,974
Secondary 80% 16% 17% 26.5% 1,080 2,470 2,632 9,014
Tertiary 564% ‐ 52% 40.8% 7,619 ‐ 7,872 13,528 Sources: Uganda National Household Survey 2009/10; Background to the Budget for 2013/14; Annual Budget Performance Report for 2009/10; OECD, ‘Education at a Glance 2013’. Notes: Includes education spending financed by both public and private sources, in USD converted using purchasing price parity. Uganda data is for 2009/10, OECD data is for 2010. Turkey and Mexico are upper‐middle‐income countries with the lowest education spending per student among OECD members.
As with health expenditure, public education spending has not increased substantially in recent years and is unlikely to do so while infrastructure spending needs remain high.10 The policy simulations conducted suggest that there will be insufficient fiscal space to expand education spending significantly within the next five to seven years. It is therefore assumed that education expenditure remains fixed as a share of GDP up until the end of NDP II, but is allowed to increase from the 2020s in line with enrolment. Figure 8 projects the resulting pattern of public education spending up to 2040. It is assumed that total spending per primary school pupil increases at the rate of per capita GDP growth, while spending per secondary student grows at half this rate and spending per tertiary student remains fixed in real terms.11
Figure 8 Projected public education spending, % of GDP
Source: simulation results.
The share of resources allocated to primary education declines gradually from the mid 2020s – the result of Uganda’s ‘demographic dividend’ (declining dependency ratio) and improved efficiency
10 Secondary and tertiary education spending have remained roughly constant as a share of GDP over the last decade, while primary education spending (as a share of GDP) has steadily declined as (already high) enrolment has expanded only slowly (see figure A7 in annex 3). 11 Under this scenario, the ratio of total secondary spending per student to total primary spending per student reduces from 5.1:1 to 1.7:1 by 2040. Note that the simulations take account of changes in private education spending, with public expenditure adjusted to meet the target growth rates in total spending.
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(fewer pupils repeating grades). But this is more than offset by the increase in enrolment at the secondary and tertiary levels, and total public spending on education is projected to increase rapidly to reach 5% of GDP by the end of the 2020s.12 This is reversed in the 2030s when growth in enrolment falls significantly below the rate of GDP growth.
3.3 Spending in other sectors
Together the sectors reviewed above – Works and Transport, Energy, Water, ICT, Health and Education – account for around half of Government’s primary (noninterest) expenditure. The rest of the Government budget is dominated by sectors such as Security (which has accounted for an average of 15% of primary spending over the last five years), Public Sector Management (12%), Justice, Law and Order (7%), Accountability (6%) and Public Administration (5%).
Figure 9 Average Government spending in other sectors, % of GDP
Note: ‘Others’ includes Tourism, Trade and Industry; Land, Housing and Urban Development; Social Development; and Parliament.
There may be scope to increase fiscal space for priorities such as infrastructure and social services by reducing expenditure in other areas. Government has already made important progress in some areas – such as the dramatic reduction in energy subsidies previously worth up to 1% of GDP. In the longer term, spending in sectors that do not directly deliver public services need not expand as rapidly as the economy or even the population. Figure 9 suggests that this may apply to sectors such as Accountability and Public Administration, which have seen their share of resources cut back over the last decade. But recent attempts to increase development spending at the expense of lower‐priority areas have proven difficult to implement, and resulted in increased in‐year reallocations towards recurrent activities (see section 1). Overall, the savings achieved have been roughly offset by spending increases in other areas, particularly Security and Justice, Law and Order. On balance, it seems likely that any reductions in unnecessary expenditure over the next 30 years will be offset as
12 This is around the same level of education spending seen in the late 1990s and early 2000s following the introduction of UPE and rapid expansion in primary school enrolment (see figure A7 in annex 3).
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UGANDA’S LONG‐TERM FISCAL STRATEGY
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new priorities are accommodated within the budget – if there is sufficient fiscal space, Government may decide to allocate a larger share of resources to areas such as agriculture, trade and industry, social protection or urban development for example. In the simulations that follow, it is therefore assumed that Government expenditure in areas other than education, health and physical infrastructure will expand at the expected rate of GDP growth.13
3.4 Total primary spending
Figure 10 projects total primary Government expenditure up to 2040, given the assumptions explained above. Total spending on projects and programmes is expected to vary between 23% and 18% of GDP over the course of the simulation period, with peaks in the next seven years (reflecting high infrastructure spending) and the late 2020s (due to the expansion in enrolment in secondary and tertiary education and further large infrastructure projects). Primary spending requirements may be lower in the early 2020s and the 2030s. Interest payments will depend on the financing strategy pursued by Government – they are excluded from Figure 10 but considered in Sections 5 and 6.14
Figure 10 Projected primary Government expenditure, % of GDP
Source: simulation results.
4 Revenue projections
While Government’s expenditure has averaged almost 20% of GDP over the last decade, domestic tax revenue has stagnated between 12 and 13% of GDP. The deficit has traditionally been mitigated by foreign aid inflows but this cannot be relied upon indefinitely, as demonstrated in the 2012/13
13 More specifically, real public spending in other sectors is projected to increase at the GDP growth rate in the baseline scenario, which is imposed at 7% per year (see annex 1). This broadly continues the trend observed over the last decade. In some simulations this expenditure will reduce as a share of GDP due to higher (endogenous) economic growth. 14 Total interest payments accounted for 1.6% of GDP in 2012/13, and averaged 1.2% of GDP over the previous five years. Debt servicing costs have increased slightly due to the recent expansion in domestic borrowing.
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fiscal year when almost USD 300 million in general budget support was suspended by donors. In the medium term, Government’s financial position is set to improve significantly with the inflow of revenue from the oil and gas industry. This section discusses the most likely trajectory of these sources of Government revenue in the period up to 2040.
4.1 Non‐oil tax revenue
NDP I targeted an increase in domestic revenue collections by 0.5 percent of GDP each year, but little progress has been made during the first three years of the plan period. Despite notable improvements in tax administration, Uganda’s tax revenue has remained below 13% of GDP. While structural change of the economy is likely to widen the tax base and increase revenue, recent experience suggests that these trends are likely to be gradual. The IMF projects that Uganda’s non‐oil domestic revenue will increase to around 18% of GDP by 2040 (IMF 2013a), which is in line with the assumptions made in Uganda’s recent debt sustainability analysis (MFEPD 2012).
Tax revenue is constrained by exemptions and investment incentives. Many items are exempted or zero rated under the VAT act, including many intermediate goods such as specialised vehicles, plant and machinery, and numerous agricultural inputs. Uganda’s VAT intake is around 2% of GDP lower than Kenya’s, despite Kenya having a lower standard rate (16% versus Uganda’s 18%). The income tax act allows for generous initial capital allowances, depreciation reductions and several special regimes. Based on analysis of corporate tax guides published by Price Waterhouse Coopers and Ernst and Young, Abbas et al. (2012) estimate that Uganda’s average effective corporate tax rates is 5.7%, significantly below the headline rate of 30%. Uganda’s revenue from Corporate Income Tax – at around 1% of GDP – is the lowest in the EAC. While solid evidence is lacking, speculative estimates suggest that together these tax policy measures may cost Government around 2% of GDP in forgone revenue (AfDB 2010).15
While some exemptions help to simplify tax administration, promote equity or encourage private investment, others may have outlived their usefulness. Government plans to eliminate the tax exemption on income derived from agro‐processing by July 2014. VAT exemptions are also likely to be streamlined in the 2014/15 fiscal year, depending on the findings of the on‐going VAT gap analysis. Together these tax policy changes are likely to provide an immediate boost to Uganda’s tax effort.
4.2 Grants
The suspension of budget support in 2012/13 served to accelerate a long‐term decline in Government’s foreign aid receipts. Budget and project support accounted for 8% of GDP in 2003/4,
15 The preliminary results of a VAT Gap Analysis conducted jointly by MFPED and the IMF suggest that VAT exemptions alone currently reduce Government revenue by around 1% of GDP. This is likely to be an underestimate as the exemptions often complicate tax administration and contribute to the VAT ‘compliance gap’, which is estimated to be 6% of GDP.
UGANDA’S LONG‐TERM FISCAL STRATEGY
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but less than 2% of GDP in the last fiscal year (Figure 11).16 Continued austerity measures in many traditional donor countries mean that Uganda must further reduce its reliance on grants and concessional loans. Grants are projected to continue their decline, becoming negligible from the mid‐2020s.17
Figure 11 Government grants, % of GDP
Sources: MFPED (2013b) for past trend; MFPED (2012a) for future projection.
4.3 Oil revenue
With only 40% of the Albertine Graben explored, the size of Uganda’s oil reserves remains uncertain, but current estimates suggest that approximately 1.8 billion barrels will be commercially recoverable.18 The international oil companies favour a rapid extraction profile, peaking at 230,000 barrels per day for the duration of the 2020s (Hassler et al. 2013), of which 60,000 barrels per day will be refined within the country and the remainder exported as crude via a pipeline. Under this scenario, approximately 83% of Uganda’s estimated commercially recoverable reserves will be extracted by 2040. Given the likely production sharing arrangements and assuming a price of USD 70 per barrel in real terms for Uganda’s (sweet but heavy) crude, the revenues accruing to Government are likely to peak at around USD 3.5 billion per year between 2024 and 2030 (Figure 12). All the assumptions underlying these revenue projections are given in Annex 4. Public oil revenue is likely to grow relatively slowly in the first few years after production begins in 2018 because Government’s share of the revenues is lower during the cost recovery period.
The estimates in Figure 12 assume that the international oil price will remain constant in real terms, but in reality it will be important to cushion the annual budget from oil price volatility that could
16 Off‐budget project aid managed outside of Government systems has also declined in recent years (this is not captured in figure 11). 17 The availability of concessional loans is also expected to fall. Grant‐equivalent financing is projected to fall from 3.2% of GDP in 2013 to 1.5% of GDP in 2018 and to 0.6% of GDP by 2023 (MFPED 2012a). 18 This estimate reflects the expectations of Tullow executives, taking account of potential future discoveries. See Hassler et al. (2013).
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otherwise result in a boom‐and‐bust spending cycle, with unintended consequences for macroeconomic stability and the efficiency of public expenditure. The Oil and Gas Management Policy (MFPED 2012b) suggests that expenditure should be limited through a cap on the non‐oil non‐grant fiscal deficit. Another option is a fiscal rule similar to that used in Ghana, where a set proportion (70%) of a reference oil revenue forecast is transferred to the budget each year.19 This would likely generate a sufficient savings buffer to stabilise short‐term oil price fluctuations, ensuring a predictable flow of revenue each year, which would help to maintain macroeconomic stability and facilitate economic planning. A well‐designed fiscal rule should not restrict Government’s ability to meet its pressing present investment needs, while helping to ensure a share of oil revenue is saved for future generations.
Figure 12 Estimated public oil revenues
4.4 Total Government revenue
Figures 13 and 14 present two possible trajectories for total Government revenue up to 2040. In Figure 14 it is assumed that the removal of exemptions generates additional tax revenue equivalent to 2% of GDP and that 70% of forecasted annual oil revenue is available to spend each year, which helps to ensure a smoother revenue projection across the simulation period. In both scenarios, total Government revenue varies between 18% and 22% of GDP (similar to the spending projections in Figure 10) except in the next five‐years before the start of oil production when revenue will be substantially lower, particularly if tax exemptions are maintained. These different revenue scenarios are explored further in the policy simulations that follow.20
19 Under the current draft Public Finance Bill, MFPED will (subject to parliamentary approval) have full flexibility in deciding how much oil revenue to transfer to the budget each year. A fiscal rule to guarantee the amount of oil revenue funding the budget could be included in the revised Public Finance Bill or in the Charter of Fiscal Responsibility. 20 Non‐oil tax revenue is assumed to reach 18% of GDP in the baseline scenario (through increases in VAT and income tax receipts – the collection of taxes on international trade is assumed to remain fixed as a share of GDP). Given that economic growth is exogenous in the baseline, this effectively assumes that these revenue
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USD billions (left axis)
% of GDP (right axis)
Figure 13
5 Pub
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GANDA’S LON
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NG‐TERM FIS
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SCAL STRATEG
tax reform n rule
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average 7% of GDP under the tax‐reform scenario. This can be partly offset by drawing down Government’s net savings with Bank of Uganda – including the oil revenues earmarked for the Karuma hydropower plant. Taking this into account, total borrowing will need to average 6.5% of GDP over this five‐year period, compared to 3.9% of GDP projected in the 2013/14 budget. Total borrowing will need to be substantially higher – by almost 2% of GDP – in the absence of tax reforms to increase domestic revenue. The fiscal deficit could be reduced by up to 1% of GDP if the standard‐gauge railway is implemented through a PPP (Figure 15 assumes Government bears the full cost).
Figure 15 Fiscal deficit including grants and oil*, % of GDP
Source: simulation results. Note: *Only the 70% of projected oil revenue that is assumed to fund the budget.
Financing requirements are projected to decrease significantly after 2018/19 as several investment projects are completed and oil revenues increase. With the tax reforms, the fiscal balance is close to zero from the early 2020s, demonstrating that it is possible to meet Government’s spending requirements while reserving around 30% of oil revenue as a savings buffer stock and legacy fund for future generations. Without the tax policy reforms, the fiscal deficit (including grants and oil) may not fall below 3% of GDP before 2021, in line with the East African monetary union convergence criterion (see Annex 5).
Tables 3 and 4 provide long‐term projections of Government’s overall fiscal operations under these two tax revenue scenarios, assuming the current infrastructure investment plans are fully financed. Table 3 assumes there is a significant increase in domestic revenue from 2014/15, reflecting the scope to enhance tax collection through the streamlining of exemptions. In Table 4 it is conservatively assumed that tax reforms do not generate any additional revenue. If tax reforms are partially successfully, Government’s overall fiscal operations will likely fall somewhere between the projections in Table 3 and 4.
‐2%
0%
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4%
6%
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10%
2012
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2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
No tax reform
Tax reform
EAC fiscal deficit convergence criterion
UGANDA’S LONG‐TERM FISCAL STRATEGY
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Table 2 Overall fiscal operations with tax reforms (% of GDP)
2012
/13 a
2013
/14 b
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
2025
/26
Revenues and grants 15.2 15.3 17.6 17.2 17.0 17.0 18.4 19.0 19.7 20.0 19.8 20.8 22.0 21.7 Non‐oil revenues 13.5 13.9 15.8 15.9 16.0 16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8 16.9 Domestic indirect taxes 2.9 2.9 3.8 3.8 3.8 3.8 3.8 3.9 5.8 5.8 5.8 5.8 5.9 5.9 Income taxes 4.7 4.8 5.8 5.9 5.9 6.0 6.1 6.1 6.2 6.3 6.4 6.4 6.5 6.6 Import taxes 5.7 5.8 5.9 5.9 5.9 5.9 5.9 5.9 4.0 4.0 4.0 4.0 4.0 4.0 Non‐URA revenues 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Oil Revenuesc 0.0 0.0 0.0 0.0 0.0 0.0 1.4 2.1 2.7 3.1 2.9 4.0 5.1 4.8 Grants 1.8 1.4 1.7 1.3 1.0 0.9 0.8 0.7 0.5 0.4 0.3 0.2 0.1 0.1 Expenditure 19.2 20.4 22.7 24.9 24.9 25.1 24.6 23.2 22.4 21.6 21.7 21.6 22.1 21.9 o/w interest payments 1.6 1.5 1.6 1.8 2.1 2.3 2.4 2.4 2.4 2.3 2.2 2.0 1.8 1.6 External 0.2 0.2 0.5 0.7 1.0 1.3 1.4 1.4 1.3 1.2 1.1 0.9 0.7 0.5 Domestic 1.4 1.3 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 Non‐oil primary balance ‐2.3 ‐3.5 ‐3.6 ‐5.9 ‐5.8 ‐5.8 ‐5.1 ‐3.8 ‐3.1 ‐2.5 ‐2.7 ‐2.8 ‐3.5 ‐3.4 Overall fiscal balance (excl. grants and oil) ‐5.7 ‐6.5 ‐6.9 ‐9.0 ‐8.9 ‐9.0 ‐8.4 ‐6.9 ‐6.1 ‐5.2 ‐5.2 ‐4.9 ‐5.3 ‐5.0 Overall fiscal balance (incl. grants and oilc) ‐3.9 ‐5.1 ‐5.2 ‐7.7 ‐7.9 ‐8.1 ‐6.2 ‐4.1 ‐2.8 ‐1.6 ‐1.9 ‐0.8 ‐0.1 ‐0.2 Net financing 3.9 5.1 5.2 7.7 7.9 8.1 6.2 4.1 2.7 1.6 1.9 0.8 0.1 0.1 External 2.4 2.4 3.2 5.9 6.2 6.5 5.0 3.0 1.6 0.4 0.8 ‐0.4 ‐1.0 ‐1.0 o/w concessionald 2.4 1.5 1.5 1.4 1.4 1.3 1.3 1.2 1.2 1.1 1.1 1.0 1.0 0.0 o/w non‐concessional 0.0 0.9 1.7 4.5 4.8 5.2 3.8 1.8 0.4 ‐0.7 ‐0.3 ‐1.4 ‐2.1 ‐1.0 Domestic 1.5 2.7 1.9 1.8 1.7 1.7 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 o/w securities 1.1 1.5 1.2 1.2 1.2 1.2 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 o/w change in net savings with BoU 0.4 1.2 0.7 0.6 0.6 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Gross public debt 29.1 29.3 31.6 35.2 39.4 43.2 45.8 46.9 46.2 44.6 43.2 40.7 37.5 34.8 o/w domestic 11.1 11.2 11.1 10.9 10.8 10.6 10.5 10.6 10.6 10.6 10.6 10.6 10.6 10.5 o/w external 18.1 18.1 20.5 24.3 28.7 32.6 35.3 36.3 35.7 34.0 32.5 30.1 26.9 24.2Oil fund 0.6 1.4 2.5 3.7 4.7 6.1 7.9 9.5Net public debt 29.1 29.3 31.6 35.2 39.4 43.2 45.2 45.4 43.7 40.9 38.4 34.6 29.6 25.3
2026
/27
2027
/28
2028
/29
2029
/30
2030
/31
2031
/32
2032
/33
2033
/34
2034
/35
2035
/36
2036
/37
2037
/38
2038
/39
2039
/40
2040
/41
Revenues and grants 21.5 21.3 21.1 21.0 20.9 20.4 20.1 19.9 19.7 19.6 19.5 19.4 19.3 19.2 19.2 Non‐oil revenues 17.0 17.1 17.2 17.3 17.4 17.5 17.6 17.7 17.8 17.9 18.0 18.1 18.2 18.3 18.4 Domestic indirect taxes 5.9 5.9 6.0 6.0 6.0 6.0 6.0 6.1 6.1 6.1 6.1 6.2 6.2 6.2 6.2 Income taxes 6.7 6.7 6.8 6.9 7.0 7.0 7.1 7.2 7.3 7.4 7.5 7.5 7.6 7.7 7.8 Import taxes 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Non‐URA revenues 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Oil Revenuesc 4.5 4.2 4.0 3.8 3.6 2.9 2.5 2.3 1.9 1.7 1.5 1.3 1.0 0.9 0.8 Grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Expenditure 21.9 21.9 21.9 21.4 21.1 20.9 20.7 20.4 19.9 19.5 19.3 19.0 18.8 18.6 18.4 o/w interest payments 1.5 1.5 1.4 1.4 1.3 1.3 1.3 1.3 1.3 1.2 1.2 1.2 1.2 1.1 1.1 External 0.4 0.4 0.4 0.3 0.2 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.0 0.0 0.0 Domestic 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 Non‐oil primary balance ‐3.4 ‐3.4 ‐3.3 ‐2.7 ‐2.4 ‐2.1 ‐1.8 ‐1.4 ‐0.8 ‐0.4 0.0 0.3 0.6 0.9 1.1 Overall fiscal balance (excl. grants and oil) ‐4.9 ‐4.9 ‐4.8 ‐4.1 ‐3.7 ‐3.5 ‐3.1 ‐2.7 ‐2.1 ‐1.7 ‐1.3 ‐0.9 ‐0.6 ‐0.3 0.0 Overall fiscal balance (incl. grants and oilc) ‐0.4 ‐0.6 ‐0.8 ‐0.3 ‐0.2 ‐0.5 ‐0.6 ‐0.4 ‐0.2 0.0 0.2 0.4 0.5 0.6 0.8 Net financing 0.4 0.6 0.8 0.3 0.2 0.5 0.6 0.4 0.2 0.0 ‐0.2 ‐0.4 ‐0.5 ‐0.6 ‐0.8 External ‐0.7 ‐0.5 ‐0.3 ‐0.8 ‐1.0 ‐0.6 ‐0.6 ‐0.7 ‐1.0 ‐1.2 ‐1.4 ‐1.5 ‐1.6 ‐1.7 ‐1.9 o/w concessionald 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 o/w non‐concessional ‐0.7 ‐0.5 ‐0.3 ‐0.8 ‐1.0 ‐0.6 ‐0.6 ‐0.7 ‐1.0 ‐1.2 ‐1.4 ‐1.5 ‐1.6 ‐1.7 ‐1.9 Domestic 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 o/w securities 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 o/w change in net savings with BoU 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Gross public debt 32.4 30.5 28.9 27.1 25.3 23.9 22.6 21.3 19.8 18.2 16.4 14.5 12.7 10.8 8.9 o/w domestic 10.5 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.5 10.5 10.5 10.5 10.5 10.4 10.4 o/w external 22.0 20.1 18.6 16.7 14.9 13.4 12.2 10.8 9.3 7.7 5.9 4.0 2.2 0.4 ‐1.5Oil fund 10.8 11.9 12.9 13.7 14.4 14.8 15.0 15.1 15.1 15.0 14.8 14.5 14.2 13.8 13.3Net public debt 21.7 18.6 16.1 13.5 10.9 9.1 7.6 6.1 4.7 3.2 1.6 0.0 ‐1.5 ‐3.0 ‐4.5
Source: simulation results (tax‐reform+oil‐rule scenario). Notes: a Estimated outturn for FY2012/13; b Budget projection for FY2013/14; c Includes only oil revenue transferred to the budget, which is assumed to be 70% of the reference oil revenue forecast, the remainder is transferred to the
oil/stabilisation fund; d Refers to fully concessional loans (on IDA‐equivalent terms). Note that the projections consider the change in tax structure that is l ikley to occur as Uganda shifts from petroleum importer to petroleum producer, namely a reduction in import taxes offset by an increase in domestic indirect taxes.
EDPR DISCUSION PAPER
18
Table 3 Overall fiscal operations without tax reforms (% of GDP)
2012
/13 a
2013
/14 b
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
2025
/26
Revenues and grants 15.2 15.3 15.7 15.4 15.3 15.3 16.7 17.4 18.1 18.5 18.3 19.4 20.6 20.4 Non‐oil revenues 13.5 13.9 14.0 14.1 14.3 14.4 14.6 14.7 14.8 15.0 15.1 15.3 15.4 15.6 Domestic indirect taxes 2.9 2.9 2.8 2.8 2.8 2.9 2.9 3.0 4.9 5.0 5.1 5.1 5.2 5.2 Income taxes 4.7 4.8 5.0 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 6.0 Import taxes 5.7 5.8 5.9 5.9 5.9 5.9 5.9 5.9 4.0 4.0 4.0 4.0 4.0 4.0 Non‐URA revenues 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Oil Revenuesc 0.0 0.0 0.0 0.0 0.0 0.0 1.3 2.0 2.7 3.1 2.9 3.9 5.1 4.8 Grants 1.8 1.4 1.7 1.3 1.0 0.9 0.8 0.7 0.5 0.4 0.3 0.2 0.1 0.1 Expenditure 19.2 20.4 22.7 25.0 25.1 25.4 24.9 23.5 22.9 22.1 22.3 22.1 22.5 22.2 o/w interest payments 1.6 1.5 1.6 1.9 2.3 2.6 2.7 2.8 2.8 2.7 2.6 2.4 2.2 2.0 External 0.2 0.2 0.5 0.8 1.2 1.5 1.7 1.7 1.7 1.6 1.6 1.4 1.1 0.9 Domestic 1.4 1.3 1.1 1.1 1.1 1.1 1.0 1.0 1.1 1.1 1.1 1.1 1.1 1.0 Non‐oil primary balance ‐2.3 ‐3.5 ‐5.4 ‐7.6 ‐7.6 ‐7.5 ‐6.8 ‐5.4 ‐4.7 ‐4.1 ‐4.2 ‐4.3 ‐4.8 ‐4.6 Overall fiscal balance (excl. grants and oil) ‐5.7 ‐6.5 ‐8.7 ‐10.8 ‐10.8 ‐11.0 ‐10.3 ‐8.8 ‐8.0 ‐7.2 ‐7.2 ‐6.8 ‐7.1 ‐6.6
Overall fiscal balance (incl. grants and oilc) ‐3.9 ‐5.1 ‐7.0 ‐9.6 ‐9.9 ‐10.1 ‐8.2 ‐6.1 ‐4.8 ‐3.7 ‐4.0 ‐2.7 ‐1.9 ‐1.8 Net financing 3.9 5.1 6.9 9.5 9.8 10.1 8.2 6.1 4.8 3.6 4.0 2.7 1.9 1.8 External 2.4 2.4 5.0 7.7 8.1 8.5 7.0 5.0 3.6 2.5 2.8 1.6 0.8 0.7
o/w concessionald 2.4 1.5 1.5 1.4 1.4 1.3 1.3 1.2 1.2 1.1 1.1 1.0 1.0 0.0 o/w non‐concessional 0.0 0.9 3.5 6.3 6.7 7.2 5.8 3.8 2.5 1.4 1.7 0.6 ‐0.2 0.7 Domestic 1.5 2.7 1.9 1.8 1.7 1.6 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 o/w securities 1.1 1.5 1.2 1.2 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 o/w change in net savings with BoU 0.4 1.2 0.7 0.6 0.6 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Gross public debt 29.1 29.3 33.1 38.3 44.2 49.5 53.6 56.2 57.0 56.8 56.5 55.2 52.7 50.7 o/w domestic 11.1 11.2 11.0 10.7 10.5 10.3 10.3 10.3 10.3 10.3 10.3 10.3 10.2 10.1 o/w external 18.1 18.1 22.1 27.6 33.7 39.1 43.3 45.9 46.7 46.5 46.2 44.9 42.5 40.6Oil fund 0.6 1.4 2.5 3.6 4.6 6.0 7.8 9.3Net public debt 29.1 29.3 33.1 38.3 44.2 49.5 53.0 54.8 54.5 53.2 51.9 49.1 44.9 41.4
2026
/27
2027
/28
2028
/29
2029
/30
2030
/31
2031
/32
2032
/33
2033
/34
2034
/35
2035
/36
2036
/37
2037
/38
2038
/39
2039
/40
2040
/41
Revenues and grants 20.2 20.1 20.0 20.0 20.0 19.5 19.3 19.2 19.0 19.0 19.0 19.0 19.0 19.0 19.2 Non‐oil revenues 15.8 15.9 16.1 16.3 16.4 16.6 16.8 17.0 17.1 17.3 17.5 17.7 17.9 18.1 18.4 Domestic indirect taxes 5.3 5.3 5.4 5.5 5.5 5.6 5.6 5.7 5.8 5.8 5.9 6.0 6.0 6.1 6.2 Income taxes 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.9 7.0 7.1 7.2 7.3 7.5 7.6 7.8 Import taxes 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Non‐URA revenues 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Oil Revenuesc 4.5 4.2 3.9 3.7 3.5 2.9 2.5 2.2 1.9 1.7 1.5 1.3 1.0 0.9 0.8 Grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Expenditure 22.2 22.1 22.1 21.4 21.1 20.8 20.5 20.2 19.7 19.4 19.1 18.8 18.6 18.5 18.3 o/w interest payments 1.8 1.8 1.7 1.7 1.6 1.6 1.6 1.6 1.5 1.5 1.4 1.4 1.3 1.3 1.3 External 0.8 0.7 0.7 0.6 0.5 0.5 0.5 0.5 0.5 0.4 0.4 0.3 0.2 0.2 0.2 Domestic 1.0 1.0 1.0 1.0 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 Non‐oil primary balance ‐4.6 ‐4.4 ‐4.2 ‐3.5 ‐3.1 ‐2.6 ‐2.2 ‐1.7 ‐1.0 ‐0.5 ‐0.1 0.3 0.6 1.0 1.4 Overall fiscal balance (excl. grants and oil) ‐6.4 ‐6.2 ‐6.0 ‐5.2 ‐4.6 ‐4.2 ‐3.8 ‐3.3 ‐2.6 ‐2.1 ‐1.6 ‐1.1 ‐0.7 ‐0.4 0.1
Overall fiscal balance (incl. grants and oilc) ‐1.9 ‐2.0 ‐2.1 ‐1.4 ‐1.1 ‐1.3 ‐1.3 ‐1.0 ‐0.7 ‐0.4 ‐0.1 0.2 0.3 0.5 0.9 Net financing 1.9 2.0 2.1 1.4 1.1 1.3 1.3 1.0 0.7 0.4 0.1 ‐0.2 ‐0.3 ‐0.5 ‐0.9 External 0.8 0.9 1.0 0.3 0.0 0.2 0.2 ‐0.1 ‐0.4 ‐0.7 ‐1.0 ‐1.3 ‐1.4 ‐1.6 ‐1.9
o/w concessionald 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 o/w non‐concessional 0.8 0.9 1.0 0.3 0.0 0.2 0.2 ‐0.1 ‐0.4 ‐0.7 ‐1.0 ‐1.3 ‐1.4 ‐1.6 ‐1.9 Domestic 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 o/w securities 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 o/w change in net savings with BoU 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Gross public debt 48.9 47.4 46.0 44.4 42.6 41.1 39.6 38.0 36.1 34.1 31.8 29.3 26.8 24.3 21.5 o/w domestic 10.1 10.0 10.0 10.0 10.0 10.0 10.1 10.1 10.1 10.1 10.1 10.1 10.1 10.1 10.1 o/w external 38.8 37.3 36.1 34.4 32.6 31.0 29.5 27.9 26.0 23.9 21.7 19.2 16.7 14.2 11.5Oil fund 10.6 11.7 12.6 13.5 14.2 14.6 14.8 14.9 14.9 14.8 14.6 14.4 14.0 13.6 13.2Net public debt 38.3 35.7 33.4 31.0 28.4 26.5 24.8 23.0 21.2 19.3 17.2 14.9 12.8 10.7 8.3
Source: simulation results (oil‐rule scenario). Notes: a Estimated outturn for FY2012/13; b Budget projection for FY2013/14; c Includes only oil revenue
transferred to the budget, which is assumed to be 70% of the reference oil revenue forecast, the remainder is transferred to the oil/stabilisation fund; d
Refers to fully concessional loans (on IDA‐equivalent terms). Note that the projections consider the change in tax structure that is l ikley to occur as Uganda shifts from petroleum importer to petroleum producer, namely a reduction in import taxes offset by an increase in domestic indirect taxes.
5.1 Bo
Although differs subtotal publinvestmeninvestmendiscrepanJune 2013MTEF, thspending 21.3% of five yearsestimates
Figure 16
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/17 2017/18
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Figure 17
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1%
2%
3%
4%
5%
6%
7%
8%
9%
201
GANDA’S LON
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/16 2016/17
SCAL STRATEG
esented abovd consequent implement is infrastructuthe IMF – thet, published ing. Under thallowing totnd spending s over the nethe recent IM
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EDPR DISCUSION PAPER
20
from current levels, it is projected to peak in 2018/19 at 45% of GDP in nominal terms under the tax‐reform scenario. If no additional revenue results from the streamlining of exemptions, total debt is projected to peak at 55% of GDP and decline from 2019/20. The share of total public debt on fully concessional terms is not projected to fall below 37% (see Figure 19), meaning that the net present value of Uganda’s debt will remain substantially below its nominal value and within the 50% of GDP EAC monetary union convergence criterion.22 The maximum level of public debt would be up to 7% of GDP lower if the standard‐gauge railway is implemented through a PPP, rather than Government bearing the full cost.
In the longer‐term, oil revenue will enable Government to reduce its debt, and even move into a position of negative net debt. With a more rapid increase in tax revenue, gross public savings are projected to reach 19% of GDP in 2040.23 Uganda is able to pay off all its external debt by 2040 even without the 30% of projected oil revenue that is not transferred to the budget under the oil revenue stabilisation rule. This would entail paying off debt on highly concessional terms (see Figure 19); alternatively, there would be ample scope to reduce domestic debt, save a larger proportion of oil revenue through other means or to increase future spending if new priorities emerge.
Figure 18 Nominal value of public debt, % of GDP
Source: simulation results. Note: net public debt refers to gross public debt less savings in the oil fund.
Figure 19 provides an indicative projection of the composition of public debt up to 2040. Following IMF projections, it is assumed that net financing on fully concessional terms will gradually decline from 1.5% of GDP in 2013/14, with the remaining financing needs contracted on semi‐concessional or non‐concessional terms (IMF 2013a).24 Once Government begins to receive oil revenues there will be limited need to undertake further borrowing (see Figure 15), but domestic financing is assumed
22 The actual net present value of Uganda’s future debt will depend on the terms of concessional and semi‐concessional borrowing, which have not yet been determined. 23 Not considering domestic debt which is assumed to remain fixed at the current level as a share of GDP. 24 Fully concessional financing such as IDA loans have a grant element of over 35%. Semi‐concessional borrowing includes Government’s loans for Karuma and Isimba from the Eximbank of China, which are estimated to have a grant element of about 11.5% (IMF 2013b).
‐20%
‐10%
0%
10%
20%
30%
40%
50%
60%
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
2037
2039
No tax reform, net debt
Tax reform, net debt
Tax reform, gross debt
UGANDA’S LONG‐TERM FISCAL STRATEGY
21
to remain fixed at around 1.2% of GDP – this may help to sterilise foreign inflows and could have positive spillovers for financial sector development. With primary spending projected to be relatively low in the early 2020s (see section 3.4), there will be sufficient fiscal space to pay down non‐concessional debt. Domestic borrowing and concessional external borrowing may also be used for this purpose, in which case it is projected that all semi‐concessional and non‐concessional debt can be retired by the late 2020s. The average effective interest paid on total foreign debt is projected to increase from the current rate of around 1.1% to around 4.7% in 2019/20, and then reduce as the stock of non‐concessional debt falls. Government’s total interest payments are projected to increase moderately, peaking at 2.4% of GDP, but decline in the long run and never jeopardise fiscal sustainability.
Figure 19 Projected composition of gross public debt, % of GDP
Source: simulation results (tax‐reform+oil‐rule scenario).
5.3 Macroeconomic stability
The macroeconomic implications of the fiscal plans outlined above would almost certainly be manageable. The risk that expanded deficit financing over the next few years could jeopardise macroeconomic stability is mitigated by a number of factors. It is assumed that Government will draw down its net savings with Bank of Uganda, but this will average a modest 0.6% of GDP over four years. Beyond this, financing the deficit need not increase the monetary base – the majority of financing needs will be met through a combination of concessional and non‐concessional external loans, and borrowing from Uganda’s domestic financial market (the appropriate mix of these sources of financing is discussed further in section 7.2).
In determining the fiscal impulse to aggregate demand, the speed at which the primary deficit is increased is more relevant than the magnitude of the deficit. The primary deficit is expected to be around 3.5% of GDP in FY2013/14. Maintaining the primary deficit at this level over the next few years would represent a neutral fiscal policy stance. If tax exemptions are removed, the primary deficit is projected to peak at 5.9% of GDP in 2015/16. This would represent a moderate fiscal
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impulse, but is unlikely to lead to inflationary pressure. If the removal of tax exemptions does not generate any increase in revenue, the primary deficit is projected to peak at 7.6% of GDP. Given that increased spending will be driven by infrastructure investment with high import content, the effects on domestic demand will be significantly reduced.25 The risks to macroeconomic stability would be higher under the pessimistic tax scenario, but with strong coordination between monetary and fiscal policy, it is likely that the macroeconomic implications of increased Government spending could be effectively managed under Bank of Uganda’s forward‐looking inflation targeting framework. Should it still be necessary to raise the Central Bank Rate to counter inflationary pressure, any adverse effects on private sector credit are likely to be more than offset by increased returns to private investment in the medium term (see next section).
5.4 Economic performance
Increasing deficit financing to around 7% of GDP over the next five years as indicated above would represent a significant departure from Government’s recent fiscal policy – over the past few years total financing has accounted for around 3% to 4% of GDP. The section compares two policy scenarios to assess the likely economic outcomes of making this policy shift. The ‘investment‐target’ scenario ensures that Government’s investment plans are fully implemented by increasing financing as necessary, as in the scenarios above. Under the more conservative ‘deficit‐cap’ scenario, the fiscal deficit is prevented from exceeding current levels and public investment is determined by the available fiscal space. In particular, the fiscal deficit including grants but excluding oil is capped at 4% of GDP. Restricting the non‐oil fiscal deficit is proposed in the Oil and Gas Revenue Management Policy (MFPED 2012b) as a way to manage volatile oil inflows, as an alternative to the revenue‐based rule discussed above. Detailed macroeconomic and fiscal projections under these alternative financing scenarios are presented in Annex 5.
The 4% non‐oil fiscal deficit rule is found to severely constrain the implementation of Government’s investment plans, particularly during periods of high infrastructure spending such as the next seven years. Although the rule does not restrict spending for the whole period (see Figure A1 in Annex 1), Government is able to undertake less than half of the infrastructure investment planned over the simulation period (Figure 20). This is because lower infrastructure spending in the medium term has serious implications for long‐run economic performance and consequently fiscal space. GDP growth is reduced by an average of 0.5 percentage points each year relative to the investment‐target scenario, with the gap widening to almost 1 percentage point by the late 2030s (Figure 21).26 Although a larger share of oil funds is saved initially under the deficit‐cap scenario, the interest earned does not constitute a significant source of income. On the other hand, lower economic growth significantly reduces Government’s tax revenue. In the long term, there is much less fiscal space to accommodate Government’s spending needs. Lower household consumption growth also
25 The import content of general Government expenditure is estimated to be between 15% and 19%, but between 67% and 74% for the Works and Transport sector (Harrison 2006) and around 80% for the Energy sector (Dhalla 2005). 26 The returns to public investment assumed in the calibration process were conservative. In reality, it is possible that a reduction in public investment of this magnitude could have even larger economic consequences. Furthermore, delaying public investment is likely to discourage private sector involvement and increase the need for future reconstruction programmes.
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increases the need for public spending in the social sectors. For example, maintaining the same quality of education is projected to cost Government up to 0.5% of GDP more under the deficit‐cap scenario. Given this contraction in fiscal space, long‐run net public savings are projected to be similar under the deficit‐cap and investment‐target scenarios, in spite of the larger share of oil revenue that is initially saved under the deficit‐cap scenario.
Figure 20 Cumulative public infrastructure investment (USD billions)
Figure 21 Real GDP growth
Source: simulation results.
The level of public investment over the medium term has a significant effect on the economy’s long‐term growth potential. The improved stock of public infrastructure under the investment‐target scenario raises economic productivity and therefore the returns to private investment, which increases substantially more than under the deficit‐cut scenario (see Figure 22).27 By the 2030s total factor productivity (TFP) growth is almost 50% higher under the investment‐target scenario, making it possible to sustain high growth even as public investment drops off.
A potential danger associated with high external financing is that foreign inflows may lead to currency appreciation and reduce the competiveness of Uganda’s tradeable sectors. The simulation results confirm that this is a risk, but suggest that any appreciation of the shilling is likely to be relatively minor and short‐lived. While exports under the higher investment scenario grow more slowly up to 2020, this is reversed in the 2020s and 2030s (Figure 22). Since foreign borrowing is used to finance infrastructure investment with high import content, the exchange rate effect is modest, and more than offset by the productivity benefits of improved public infrastructure. The Dutch‐disease effects associated with oil inflows are also projected to be minor, reflecting the relatively low level of expected oil revenues. Relative to the size of the economy, oil inflows are
27 These results only reflect the increase in private domestic investment, since inward FDI is assumed to be fixed in both scenarios. In reality, improved public infrastructure may crowd in FDI as well, resulting in even higher economic growth.
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likely to be significantly less than aid inflows during the late 1990s and early 2000s, particularly if a significant share is saved in a stabilisation or legacy fund.
Figure 22 Private investment, exports and household consumption, ‘investment‐target’ relative to ‘deficit‐cap’ scenario
Source: simulation results.
Public investment and improved economic performance is likely to have a large impact on human development outcomes. Progress towards the Millennium Development Goals (MDGs) is predicted to be significantly faster under the investment‐target scenario (Table 5), even though spending on health and education is the same under both scenarios. Higher household income growth increases the demand for social services, and improved physical infrastructure (such as rural roads and electrification) enhances the accessibility and functionality of public services (MFPED 2013c).
Table 4 MDG outcomes under the investment‐target and deficit‐cap scenarios
Source: simulation results. Notes: *per 1,000 births; ^per 100,000 births.
The simulation results clearly illustrate the importance of frontloading infrastructure investment over the next few years, and suggest that restricting expenditure through a cap on the non‐oil deficit is a sub‐optimal way to manage oil revenues with possibly severe implications for economic performance, social outcomes and long‐term fiscal sustainability. This is particularly true if the investment backlog is not addressed before the start of oil production or if the tax effort continues to lag. A revenue‐based rule similar to Ghana’s would be a better way to guarantee predictable oil inflows and ensure that Government is able to undertake necessary infrastructure investments.
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Gross primary school completion rate 70.4% 79.5% 76.2% 101.2% 88.8% 118.3% 117.4% 108.3% 107.1%
Under‐five mortality rate* 100 78 81 55 64 39 44 31 36
Maternal mortality ratio^ 437 252 270 120 174 77 101 60 91
Access to improved water source 73.8% 80.9% 79.8% 89.4% 86.2% 96.3% 94.7% 98.9% 97.7%
Access to improved sanitation 63.8% 69.6% 68.9% 78.0% 73.6% 83.8% 80.4% 87.9% 82.3%
Baseline (2009/10)
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5.5 Resilience to economic shocks
While the simulation results above indicate that frontloading infrastructure investment by increasing borrowing will have a strong positive effect on economic performance, it is important to assess the extent to which the viability of this strategy relies on good economic performance. It is possible that continued weaknesses in the global economic environment will jeopardise Uganda’s growth prospects, through weak export demand for example. Alternatively, poor management of large infrastructure projects could reduce the economic returns of public investment while maintaining the large fiscal burden.
To assess the fiscal sustainability of high public investment under low‐growth conditions, the ‘terms‐of‐trade shock’ scenario introduces a large negative terms‐of‐trade shock. In particular, the world prices of Uganda’s current exports are assumed to fall by 30% just as public investment is increased. This represents a large and permanent shock, which is estimated to reduce annual growth by over one percentage point during the 2020s and 2030s (Figure 23). The magnitude of this effect underlines Uganda’s continued vulnerability to external economic conditions, particularly volatile global commodity prices. The reduction in growth is roughly twice as large as that projected with lower (or poorly managed) public investment (see Figure 21).28
Figure 23 Real GDP growth with and without terms‐of‐trade shock
Source: simulation results.
Government’s planned investments can be financed in a fiscally sustainable manner even under this low‐growth scenario. The evolution of public debt will again depend heavily on tax reforms to enhance domestic resource mobilisation within the next few years (Figure 24). With additional revenue from the removal of tax exemptions, public debt is projected to peak at 56% of GDP in nominal terms and fall below current levels from the mid 2020s. Given the projected profile of
28 Simulations with lower returns to public investment, a reduction in the price of Uganda’s oil exports, and a delay in the start of oil production did not produce markedly different results to those presented here, although the negative impact on economic growth was less severe.
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concessionary borrowing (see section 6.1) this will remain below the 50% of GDP net present value (NPV) ceiling. Without any additional tax revenue in the short run, debt may peak at 70% of GDP in nominal terms, which depending on the terms of new debt may breach the NPV ceiling. In the long term the nominal value of debt is projected to plateau at around 40% of GDP.
Figure 24 Nominal value of public debt with terms‐of‐trade shock, % of GDP
Source: simulation results.
A high‐investment strategy does not increase the downside risks that Government faces and is in fact likely to build resilience in the long run. Under the alternative policy of limiting the non‐oil deficit, external economic shocks would further restrict fiscal space and intensify the tradeoffs between competing spending priorities. Government would most likely delay or forgo large investment projects with high economic and fiscal returns. Linking expenditure directly to the amount of non‐oil revenue each year – as proposed in the Oil and Gas Management Policy – would also leave limited room to compensate for adverse exogenous shocks and risk creating a pro‐cyclical fiscal policy bias.
6 Financing Government’s investment plans
The policy simulations presented in the previous section indicate that it is possible to finance Government’s investment plans without jeopardising debt sustainability or macroeconomic stability. Moreover, this will be necessary to strengthen economic growth and resilience, and ultimately Government’s long‐run financial position. Downside risks under this strategy are lower than under the alternatives, and can be minimised by comprehensive tax policy reforms to increase domestic revenue within the next few years. Arbitrary constraints to public spending, such as a limit on the overall or non‐oil fiscal deficit, are not required to ensure macroeconomic stability or debt sustainability and in the long run are more likely to sustain economic vulnerability and Government’s weak fiscal position.
In light of these findings, there is a need to fundamentally review the current fiscal framework to strengthen the linkages between the annual budget and Uganda’s longer‐term strategic plans. In
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particular, the budget preparation process must shift focus from simple revenue projections to more comprehensive analysis of Government’s inter‐temporal tradeoffs. This will require greater attention on the linkages between expenditure, economic performance, and future Government revenue. The budget formulation process must take a longer‐term outlook, by revitalising the Long‐Term Expenditure Framework (LTEF) for example, and the MTEF and LTEF must incorporate a transparent and credible financing strategy to guide sector planning.
The fiscal projections consistent with Government’s infrastructure investment plans (see Tables 3 and 4 in section 5) make it apparent that significant changes need to be made to Government’s current fiscal strategy, particularly in the level of financing and spending over the next seven years. It is feasible and desirable to implement Government’s medium‐term investment plans but this will require:
iii. Total Government spending to increase to an average of 24% of GDP between 2014/15 and 2017/18, up from 20.4% projected in 2013/14.
iv. Deficit financing of at least 7% of GDP over this period, and higher if tax policy reforms do not lead to a significant improvement in domestic revenue collection.
Higher public investment can be financed sustainably through a combination of more rapid increases in tax revenue and higher borrowing. The required temporary increase in the fiscal deficit can be managed through a variety of channels, which are now discussed in turn.
6.1 Tax policy
The fiscal projections in Table 3 incorporate a significant increase in domestic indirect and income taxes in the 2014/15 fiscal year. This may cause some economic disruption in the short term – the simulation results suggest an increase in tax collection equivalent to 2% of GDP will reduce short‐run growth by around 0.2 percentage points. But these costs will be more than compensated for over the longer term. Higher domestic resource mobilisation will significantly reduce reliance on non‐concessional borrowing and debt servicing obligations. Accumulated over several years, higher tax revenue can make a very big difference to the trajectory of Uganda’s pubic debt (see Figure 18), and greatly mitigate the risk of debt stress in the event of external economic shocks (Figure 24). Higher tax revenue will also reduce the pace at which deficit financing is required to expand over the next few years, lessening the impulse to domestic demand and facilitating macroeconomic management. It will be most important to increase tax revenue within the next few years as infrastructure investment needs reach their peak and before the inflow of oil revenue.
The precise tax policy reforms to be undertaken should be based on more detailed analysis, including the on‐going study on VAT exemptions. The simulations results suggest that an appropriate target would be to increase tax revenue by an equivalent to 2% of GDP over the next two years. This may require more than streamlining the VAT and agro‐processing exemptions. Broadening the tax base to cover parts of the informal economy is unlikely to bring large short‐term gains. It is more important to begin by reviewing the obligations and compliance of existing tax payers and future investors, particularly initial capital allowances, special regimes and the governance issues that reduce corporate tax revenue. The current 10‐year tax holiday for exporters for example is not
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viewed as necessary to attract investment (by independent analysts or investment advisors) and is exploited by hiving off export sales into separate companies (IMF 2011).
6.2 Financing options
Concessional borrowing
The IMF conservatively projects that net financing on fully concessional terms (with a grant element of at least 35%) will account for 1.5% of GDP in 2013/14 (compared to an estimated outturn of 2.4% of GDP in 2012/13), and that this will gradually decline as a share of GDP over the next decade (IMF 2013b). Even under this pessimistic scenario, the required increase in non‐concessional borrowing is manageable. But given the attractive terms offered, Government should continue to make use of concessional financing (and grants) to the highest extent possible, while recognising that this will only cover a fraction of total financing needs over the next seven years. The shift away from concessional financing is already underway – the IMF expects that only 30% of total financing needs in 2013/14 will be met through fully concessional borrowing, down from 61% in 2012/13. To fully finance Government’s investment plans this will have to fall to between 16% and 20% on average between 2014/15 and 2017/18 (see Tables 3 and 4).
Domestic borrowing
Since 2012/13 Government has issued securities for fiscal policy purposes, and domestic borrowing has accounted for almost all of the recent increase in non‐concessional borrowing. The budget for 2013/14 plans for the issue of securities worth 1.5% of GDP, roughly the same as the amount of concessional borrowing. However, the simulation results warn that the costs of domestic borrowing may be high. The yield to maturity of a 10‐year Treasury Bond is currently almost 15%. With high domestic interest rates, the direct costs of domestic borrowing are likely higher than non‐concessional external borrowing, even taking the expected rate of depreciation into account. Furthermore, the simulation results predict a significant crowding out effect on private investment. With a relatively small supply of savings there is unlikely to be much scope to increase borrowing from domestic financial markets without putting upward pressure on interest rates. For these reasons, it is recommended that domestic borrowing remains at around 1.2% of GDP, which is projected to maintain the stock of domestic debt at around 11% of GDP over the long term.
There are some potential benefits of domestic borrowing that should also be considered, particularly positive spillovers for financial sector development. However, with financial intermediation much less of a binding constraint to growth (compared to inadequate public infrastructure for instance),29 this should not necessarily be a decisive factor in determining Government’s short and medium‐term financing strategy.
Traditionally, Bank of Uganda issued securities as a monetary policy tool to help sterilise the inflow of foreign funds by soaking up excess liquidity that could otherwise put upward pressure on prices.
29 Uganda is ranked 40 out of 185 countries in the Word Bank’s Doing Business indicator for Getting Credit (equal with Sweden).
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But there has been an important structural shift with the decline of aid inflows over the last decade. Large infrastructure projects over the next few years will also increase import‐intensive public expenditure, meaning that Uganda could soon experience a foreign‐exchange liquidity deficit (see Figure 25).30 Liquidity considerations are therefore unlikely to favour higher domestic financing, and it may be advisable for Government to rely relatively more on external borrowing, at least in the period before the start of oil production.
Figure 25 Government’s foreign exchange position (% of GDP)
Source: MFPED (2013b).
The exact amount of domestic borrowing (and the extent to which Government draws down its positive net savings with BOU) will need to be determined through close collaboration between MFPED and BOU, considering the liquidity situation and the likely effects on the domestic capital market. Should a temporary increase in domestic borrowing be deemed necessary, the simulation results indicate that this will not have a large impact on economic performance or fiscal sustainability (not reported), but given high domestic borrowing costs it will remain important to ensure that domestic debt does not grow significantly in the longer term.
Non‐concessional external borrowing
With a large gap between Uganda’s optimal level of financing and the amount that can be borrowed on concessional terms, it is necessary for Government to turn to non‐concessional sources of finance. Although most of the recent increase non‐concessional financing has been accounted for by domestic borrowing, external financing could be cheaper even factoring in the expected rate of depreciation, and would avoid crowding out private sector investment. The simulation results indicate that indirect costs, stemming from the exchange rate effects of foreign‐exchange inflows, are likely to be mitigated as the inflows will be used for infrastructure projects with a high intensity of tradable inputs, such as imported capital equipment. Overall, it is projected that any Dutch‐
30 Although not captured in figure 30, off‐budget project aid managed outside of Government systems has also declined in recent years.
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disease effects will be more than offset by the productivity benefits of higher public investment (see section 6.3).
Uganda will need to rely on non‐concessional external financing for only a limited period, as illustrated in Figure 26. Borrowing requirements will peak at around USD 1.7 billion or approximately 5.2% of GDP in 2017/18 and then fall rapidly in the late 2010s and early 2020s. Total non‐concessional foreign borrowing over the next seven years is estimated at USD 7.2 billion, almost half of which is accounted for by the standard‐gauge railway. It is estimated that USD 1.9 billion will be required between 2013/14 and 2015/16 – during the current IMF Policy Support Instrument. This is below the USD 2.2 billion ceiling on non‐concessional external borrowing over this period, but borrowing needs will be higher without significant tax reforms.
Figure 26 Estimated semi‐concessional and non‐concessional external borrowing requirements
Source: simulation results. Notes: Refers to projected net external financing with a grant element of less than 35%. USD value in constant 2012/13 prices. Estimates assume tax reforms will increase domestic revenue from 2014/15.
Given relatively large borrowing requirements it will be important to diversify Government’s sources of financing. It is unlikely that Government can mobilise its financing needs entirely from fully or semi‐concessional sources.31 The number of high‐return projects could justify a move to tap directly into international credit markets by issuing a Eurobond, or another type of internationally traded bond. This would have a number of benefits, including providing a benchmark for potential private sector dollar‐denominated bond issuance and helping to advertise Uganda as an investment destination on the global stage. African countries with similar sovereign credit ratings to Uganda have experienced high levels of oversubscription during their recent Eurobond issuances, which have varied in size between USD 200 million and USD 1 billion. Ghana for instance has issued two
31 Fully concessional financing such as IDA loans have a grant element of over 35%. Semi‐concessional loans such as those from emerging donors are likely to have a grant element of around 10%. Preliminary estimates suggest that Government’s loans for Karuma and Isimba from the Eximbank of China will have a grant element of about 11.5% (IMF 2013b).
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Eurobond since 2007, totalling USD 1.75 billion. The necessary preparations for Uganda to issue a Eurobond – the selection of legal counsel and lead managers – could be completed in around six months. Although not a prerequisite, this option will become more attractive as the pipeline of ready‐to‐implement infrastructure projects continues to grow. To accelerate progress in this area, MFPED must communicate a transparent and credible medium‐term financing strategy and allow sectors to plan accordingly, whilst strengthening Government‐wide capacity to conduct cost‐benefit analysis and prepare feasibility studies.
New financing mechanisms
Given Uganda’s large infrastructure investment needs there has been considerable attention on non‐traditional financing mechanisms, such as a public‐private infrastructure fund and contractor‐facilitated financing. Although significant progress has been made, there are still legitimate concerns regarding both of these initiatives.
Government has commissioned an independent feasibility study (Deloitte 2011) and established a taskforce to consider the Uganda Infrastructure Fund (UIF), but it is clear that a number of important prerequisites for the UIF are not yet in place – particularly a quality pipeline of PPP projects, strong PPP legislation and project handling capacity. Given Uganda’s relatively low public debt, there is sufficient scope to scale up infrastructure investment through traditional means. While the UIF could have potential to leverage private investment in the future, it is unlikely that it will be able to play a major role in meeting Government’s financing requirements over the next few years. During the short and medium term, it will be more important to focus on the institutional capacity to manage PPP projects, and to invest in high‐quality feasibility studies providing the specific information investors require. Such feasibility studies could help to kick‐start various PPP projects even before the UIF is established. Growing the national pipeline of ready‐to‐implement infrastructure projects could also help to reduce the cost of non‐concessional external financing, and facilitate the issuance of a Eurobond for instance.
Some sectors have turned to contractor‐facilitated financing (CFF) in an attempt to bypass unreliable and inadequate releases from the centre. The prequalification of contractors for a number of contractor‐facilitated financing (CFF) projects in the road sector has already been completed. But there is a risk that CFF arrangements will allow spending agencies to create liabilities for Government without proper supervision, jeopardising fiscal control and perhaps violating the constitutional requirement that all public borrowing should be subject to parliamentary approval. MFPED must maintain strong control over Government’s financing and debt strategy. CFF may only be desirable if available on highly concessional terms. Otherwise it will be preferable for MFPED to continue to focus on public financial management reforms to address cash‐flow issues, and to increase the resources available through the established budget process by scaling up borrowing, through traditional means and directly from international capital markets.
6.3 Oil revenue management
In the medium to long term, Uganda’s central fiscal challenge will shift from closing the financing gap to effectively managing high and volatile oil revenue inflows. If infrastructure investment is
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implemented as planned over the next seven years – which will rest on rapid increases in both tax revenue and borrowing as discussed above – there is likely to be an acceleration in economic growth and future investment needs will become much more manageable. This will place Uganda in a position to use a large share of oil revenue to save for the future, or equivalently to pay down its debt. But if this does not happen, due to insufficient borrowing over the next few years for instance, Uganda could continue to struggle with its infrastructure deficit for another two decades or more. This will lower growth and weaken Government’s financial position substantially.
In this context, it is important that the oil revenue management regime is sufficiently flexible to accommodate Uganda’s investment needs in the variety of possible scenarios. The simulation results strongly suggest that the current proposal – to use the non‐oil deficit as a fiscal anchor – is sub‐optimal, with potentially severe implications for public investment, economic performance and long‐term fiscal sustainability. This will be particularly true if there are setbacks in Government’s medium‐term investment plans, or in the event of adverse global economic conditions, which would likely increase future financing needs beyond the arbitrary ceiling and tighten the viscous circle that forces Government to delay or forgo investment projects with high economic and fiscal returns.
A more flexible alternative that would also be effective in managing oil price volatility is a revenue‐based rule similar to that used in Ghana. This would ensure a predictable flow of oil revenue reaches the budget each year, facilitating economic planning. The precise balance between resources transferred to the budget and those saved must still be determined, but the 70‐30 split operating in Ghana may also be suitable in the Ugandan context – the simulation results indicate that this would prove conservative under the most likely economic conditions, and sufficient to accommodate public investment needs even under adverse circumstances. Counter intuitively, spending more may actually help to increase savings for future generations, as public investment greatly improves economic performance and strengthens Government’s fiscal position.
A second fiscal rule could ensure that the oil revenue transferred to the budget is used only to accumulate assets, for the benefit of both current and future generations. Higher investment in physical infrastructure is one way to save, and may be more appropriate than transferring a large share of oil revenue into an offshore fund, at least in the initial years for oil production. The optimal balance between investment in physical and human capital is likely to change over time, particularly as enrollment in higher levels of education is projected to increase in the 2020s (see section 2.2.2). By 2030 infrastructure investment needs will have declined significantly while education spending requirements will have roughly doubled. The use of oil revenues should not therefore be restricted only to physical infrastructure; as in Botswana, natural resource revenue could also be used to maintain public infrastructure, and for spending in the health and education sectors that directly contributes to the accumulation of human capital.
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References
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AfDB (2010), ‘Domestic Resource Mobilization for Poverty Reduction in East Africa: Uganda Case Study’, African Development Bank Group, Regional Department East A (OREA), November 2010.
Chan, C., Forwood, D., Roper, H., & Sayers, C. (2009). Public Infrastructure Financing‐An International Perspective.
Dhalla, G. (2005) ‘Uganda: Financial Review of the Power Sector,’ Background Paper to Country Economic Memorandum, World Bank, August 2005.
Deloitte, ‘Uganda Infrastructure Fund Feasibility Study – Final Report’, November 2011.
Escribano, Alvaro, J. Luis Guasch, and Jorge Pena. 2010. `Assessing the Impact of Infrastructure Quality on Firm Productivity in Africa.’ Policy Research Working Paper 5191, World Bank, Washington, DC.
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Harrison, G. (2006) ‘Uganda’s Infrastructure Spending: Creating a Baseline,’ Background Paper to Country Economic Memorandum, World Bank, January 2006.
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Musisi (2009), ‘Macroeconomic Framework, Investments and Financing Options, 2010/11 – 2014/15’, Background Paper for the National Development Plan, Kampala, National Planning Authority (NPA).
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Ranganathan, R., and Foster, V. (2012). Uganda's infrastructure: a continental perspective. World Bank Policy Research Working Paper, (5963).
Richens (2013), ‘A microeconometric analysis of selected MDG outcomes in Uganda: education attainment, child health and access to safe water and basic sanitation’, Background paper for the 2013 Uganda MDG report.
Shinyekwa, Isaac M.B. (2013), 'The east african integration: implications for sectoral, trade, revenue effects and household welfare'. Makereere University PhD thesis.
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Annex 1: MAMS modelling framework
The main analytical tool used in the study is Maquette for MDG Simulations (MAMS), a dynamic‐recursive computable general equilibrium (CGE) model developed by the World Bank which has been used for medium and long‐run development strategy analysis in over 40 low and middle‐income countries. With a highly disaggregated treatment of Government’s current and investment spending across a range of public services, it is particularly well‐suited to the analysis of alternative fiscal policy options. Within the model, Government’s maintenance spending is automatically linked to the stock of public infrastructure, while social sector investment needs are determined by the expansion in public service delivery. In a previous application, MAMS was used to inform the macroeconomic framework underlying NDP I (Musisi 2009). Dedicated modules, calibrated to the specific circumstances in Uganda (as explained in Richens 2013), can estimate the impact on the poverty headcount and other MDG indicators including primary school completion, child and maternal mortality and access to water and sanitation. With education behaviour treated endogenously, and feedback mechanisms between the education system and the labour market, the model can be used to project resource requirements in the education sector under alternative economic and policy scenarios.
The MAMS model was calibrated to the Ugandan economy using, among other data, a Social Accounting Matrix (SAM) for the 2009/10 fiscal year. In the existing SAM, Government services were disaggregated into education (primary, secondary and tertiary), health, water and sanitation, transport infrastructure, and a residual category for all other public sectors. For the purposes of this study, the SAM was adjusted to disaggregate Government power generation and transmission as a separate activity. Trade‐related elasticities, including Armington coefficients, have been estimated for Uganda by Shinyekwa (2013). Uganda‐specific evidence in other areas is often lacking, so elasticities based on international evidence must be used. Given that encouraging higher private investment is an important policy objective, this is determined endogenously in all the scenarios. To close the savings‐investment balance, the household savings rate is determined based on the level of post‐tax per‐capita income and a fixed marginal propensity to save (MPS). The MPS will be set exogenously at 0.24, in line with international evidence (Hussein and Thirlwall 1999).
As part of the calibration process, official growth projections were exogenously imposed under the baseline scenario. Current projections anticipate a recovery to Uganda’s historical average growth rate of 7% by 2015/16, which will be extrapolated to the end of the simulation period. To ensure this growth rate under the reference scenario, the model adjusts the efficiency parameters of economic activities. The relative strength of this adjustment across activities can be set to ensure a plausible pattern of structural change under baseline conditions. This calibration process is particularly important in the case of the agricultural sector given that growth in the stock of agricultural land is expected to slow. This element of total factor productivity (TFP), determined during the calibration process, is then exogenous under the policy simulations, but TFP can change in response to Government investments in transport and power, as well as the level of trade openness. Economic growth is therefore only exogenous in the reference scenario, but determined endogenously in all the policy simulations. The marginal product of the public transport and electricity infrastructure stock is assumed to be 20%. The benefits of transport infrastructure are spread evenly across
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economic activities while power infrastructure is assumed to have a disproportionate impact on manufacturing and private electricity distribution.
The oil industry is not modelled explicitly. Instead, estimated oil revenues are captured through a corresponding increase in the flow of resources from the rest of the world to government. This approximates the most important direct effects of oil production (on the government budget and the balance of payments) but not any secondary effects on the market for petroleum products. Since the overall impact of oil inflows is not known a priori, they are excluded from the reference scenario with exogenous growth. The economic impact of oil revenue inflows is thus endogenously determined by the model. Other financial inflows – including remittances, FDI and aid – are assumed to evolve according to official projections.
Under the reference scenario, public infrastructure investment increases gradually to reach the projected level in 2040 (ie. public investment is not frontloaded). Non‐oil tax revenue increases gradually to reach 18% of GDP in 2040. Domestic borrowing adjusts to maintain the current domestic debt‐to‐GDP ratio. Public education spending adjusts in line with enrolment as explained in section 2.2. Spending in other sectors grows at the (exogenous) rate of GDP growth. In the policy simulations, spending and domestic financing/interest payments are fixed in absolute terms but tax revenue is fixed as a share of GDP, such that changes in GDP growth directly affect fiscal space.
Table A1 summarises the key components of the alternative policy simulations. The two main scenarios – the investment‐target and deficit‐cap – differ in their rules determining infrastructure investment and external financing. Other simulations are constructed by combining the investment‐target or baseline scenario with one or more of the supplementary scenarios, as explained in section 4.
Table A1 Summary of the policy simulations
Scenario Description Main scenarios Investment‐target/
baseline Government investment plans are fully implemented, with additional spending requirements financed through external borrowing.
Deficit‐cap External borrowing under the baseline scenario is adjusted to ensure the fiscal deficit including grants but excluding oil does not exceed 4% of GDP (see Figure A1). Public investment is determined by the available fiscal space.
Supplementary scenarios
Tax‐reform Tax policy reforms are assumed to increase domestic indirect and income tax collection each by 1% of GDP in 2014/15. The total tax effort then grows more gradually, reaching 18% of GDP in 2040 as under the reference scenario.
Oil‐rule Only 70% of the estimated oil revenue is transferred to the budget each year.
Terms‐of‐trade shock
The world price of Uganda’s exports declines by 30% between 2014/15 and 2023/34.
UGANDA’S LONG‐TERM FISCAL STRATEGY
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Figure A1 Fiscal deficit including grants excluding oil, under the investment‐target and deficit cap scenarios
Source: simulation results.
Annex 2: Long‐term infrastructure investment plans
Transport
The Integrated Transport Investment Plan (ITIP), including a Transport Master Plan for the Greater Kampala Metropolitan Area, projects road, rail, air and water transport investment needs from 2008/9 up to 2022/3. Figure 4 presents the estimated costs of the transport investments included in the ITIP, from the start of the first NDP up to 2022/23.
Planned transport investments are highest during the NDP II period, mainly due to plans for investment in the standard‐gauge railway. In contrast, investments in the roads sector were planned to peak in the NDP I period, due to the backlog of periodic maintenance of the national road network that accumulated throughout the 1990s and 2000s and the upgrading of reclassified district roads. Road investment needs are expected to fall once this backlog is cleared – giving sufficient priority to routine maintenance will ensure that no further major road reconstruction programmes will be required in the future. From 2015/16, the ITIP projects that total road investments will remain roughly constant, at around USD 400 million a year – this means that with continued economic growth the share of national resources devoted to the sector will decline.
Figure A2 Planned transport investments (USD millions per year)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%20
12
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
investment‐target
deficit‐cap
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Source: Integrated Transport Investment Plan, updated with more recent plans for the standard gauge railway (see table 2). Notes: DUCAR refers to District, Urban and Community Access Roads. GKMA refers to the Greater Kampala Metropolitan Area.
Table A2 Estimated cost and possible construction period for standard‐gauge rail lines
Route Length (km)
Estimated total cost (USD millions)
Possible construction period
Kampala‐Malaba 250 875 2015 ‐ 2018 Kampala‐Kasese 320 1,280 2016 ‐ 2020 Bihanga‐Mirama Hills 200 800 2017 ‐ 2020 Tororo‐Pakwach 480 1,440 2019 ‐ 2023 Mirama Hills‐Muko 70 420 2021 ‐ 2024 Gulu‐Nimule 100 300 2024 ‐ 2026 Kasese‐Mpondwe 60 240 2027 ‐ 2029
Current plans to develop the standard‐gauge rail network could have very large fiscal implications, although discussions on the implementation and financing modalities are at an early stage. Government is giving priority to the lines connecting Kenya and Rwanda via Kampala and Kasese, at an estimated cost of around USD 3 billion. Extensions to Pakwach, Muko, South Sudan and the Democratic Republic of Congo are likely to be undertaken at a later stage. Given the assumptions in Table A2, annual investment will peak at over USD 700 million in 2020 – almost 2% of projected GDP. Government may not have to cover the full cost of the investment if an appropriate PPP arrangement is agreed.32
32 The Transport Master Plan projected significantly lower public investment in the rail network under an assumption that only 20% of capital expenditure would be publically financed, with the private sector accounting for the remaining 80%. Strong interest from private investors might not materialise however. The IMF expects that Government will have to borrow USD 1.6 billion on semi‐concessional terms to fund the initial USD 3 billion investment in the Kenya‐Rwanda route (IMF 2013b). To be conservative, the policy simulations that follow assume Government will bear the full cost of the investment.
0
200
400
600
800
1,000
1,200
1,400
National roads
DUCAR
Railway
GKMA
Air and water
Total
UGANDA’S LONG‐TERM FISCAL STRATEGY
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Another major investment need is urban transport, particularly in the Greater Kampala Kampala Metropolitan Area (GKMA). Total investment needs in the GKMA transport network up to 2022/23 are estimated at USD 1.17 billion, with investment spending projected to grow at over 4% a year in the last five years of the plan. This growth is likely to continue in the period after 2023, meaning that urban infrastructure will account for an increasing share of total transport investment.33
Power generation
Uganda’s financing requirements for hydro, thermal and wind power generation projects are outlined up to 2038 in the East Africa Power Pool and East African Community Regional Power System Master Plan, and summarised in Figure A3.34 Investment requirements are high in the next five years (during the construction of the Karuma and Isimba hydroelectric power plants) and in the late 2020s (when the Ayago and Murchison projects are planned).
Figure A3 Planned power generation investment (USD millions per year)
Source: Calculations based on the Eastern Africa Power Pool and East African Community Regional Power System Master Plan.
Power distribution
The recently launched Rural Electrification Strategy and Plan (RESP) covers the 10‐year period up to 2022. A total of USD 946 in public investment is planned over this period, but this will be frontloaded in the next few years, with annual spending highest in 2015 (Figure A4). This is to increase the commercial viability of rural electrification within a shorter timeframe, paving the way for greater
33 Vision 2040 targets an increase in Uganda’s urbanisation rate from 13% to 60%. 34 The costs of the Karuma and Isimba hydroelectric power plants have been adjusted upward to reflect the most recent estimates (USD 1,650 and USD 600 million respectively). Vision 2040 also highlights plans for a nuclear power programme, which is not included in the regional power system master plan. Building a nuclear power plant to exploit Uganda’s uranium deposits would likely cost at least USD 10 billion. If this investment is spread over 10 years in the 2030s, the country’s annual spending on power generation would increase by more than a factor of 10.
0
100
200
300
400
500
600
2009 2014 2019 2024 2029 2034
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private investment in the sector. Annual public investment in rural electrification is therefore likely to remain roughly constant or fall in the period after 2022.
Uganda’s planned power generation projects will make interconnection projects within the region more attractive.35 The Regional Power System Master Plan includes the construction of new transmission lines connecting Uganda with Kenya and Tanzania, to be implemented between 2020 and 2022 and costing USD 152 million (this is captured in Figure 6 assuming Government of Uganda bears 50% of the total cost).
Figure A4 Planned power distribution investment (USD millions per year)
Source: Rural electrification Strategy and Plan, 2013 – 2022; Eastern Africa Power Pool and East African Community Regional Power System Master Plan.
Water
One third of the rural population lacks access to an improved source of drinking water and only 64% of the urban population has access to piped water (MFPED 2013c). Closing these gaps will require significant investment. The Water Sector Strategic Investment Plan (WSSIP) launched in 2009 projects spending requirements for drinking water supply, sewerage, sanitation and water for production up to 2035. Over the course of the plan, total investment in rural water supply needs to increase by an average of 6% per year. The share of this investment to be publically financed is projected to fall from 80% to 66% in 2035, meaning that public investment requirements are expected to gradually level out at around USD 200 million per year (Figure A5). Given the rapid growth of Uganda’s towns and cities, investment in urban water is expected to grow more rapidly, but public financing needs are expected to plateau at around USD 75 million a year due to greater private sector involvement (private investment is expected to increase from around half of the current capital expenditure to over 85% by 2035). This will however rely on high upfront public
35 Parsons Brinckerhoff (PB), the consultancy firm that helped to develop the Regional Power System Master Plan and Uganda’s 2009 electricity generation plan, estimate that Uganda has long‐term potential to export electricity, even without the nuclear programme and other additional generation projects included in Vision 2040. Whereas Vision 2040 projects that Uganda will require 41,738 MW by 2040, the ‘high‐demand’ forecast by PB suggests that peak demand in 2038 will not exceed 3,908 MW – just 10% of the Vision 2040 projection.
0
20
40
60
80
100
120
140
160
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Rural electrification
Total including inter‐connection projects
UGANDA’S LONG‐TERM FISCAL STRATEGY
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investment to renovate and expand the water distribution network, which will increase the number of paying customers significantly and help to ensure the sector’s commercial viability.
The WSSIP estimates that public investment in water for production infrastructure will increase gradually and reach around USD 50 per year in 2035. The more recent Irrigation Master Plan projects that public investment in irrigation infrastructure will peak at USD 46 million in 2037.36
Figure A5 Planned public investment in the water sector (USD millions per year)
ICT
The ICT sector has seen significant private sector investment over recent years, which has limited the need for public investment. Government is still playing a significant role, particularly in the national fibre optic roll‐out and the construction of IT business parks. The NDP estimates that these projects will cost around USD 68 million, or an average of USD 14 million in each year of the plan. Given rapidly evolving technologies it is difficult to predict infrastructure requirements in the longer term. The total cost of the National Information Technology Authority (NITA‐U) strategic plan for 2012/13 – 2017/18 is estimated at USD 412 million, or an average of USD 82 million per year, but this includes significant institutional set up costs and capacity building activities as well as infrastructure investments. The Africa Infrastructure Country Diagnostic (AICD) study estimated that Uganda needs USD 34 million a year in public infrastructure investment to achieve universal voice and broadband coverage (Ranganathan and Foster 2012).
Oil development
It is expected that Uganda will recover 1.8 billion barrels of oil, which could support peak production of 230,000 barrels per day for a decade or 100,000 barrels per day for 25 years (Hassler et al. 2013).
36 This investment plan may be conservative, particularly in light of other estimates that put Uganda’s irrigation investment needs at USD 232 million per year (Ranganathan and Foster 2012). The Master Plan targets that 42% of Uganda’s irrigation potential should be exploited by 2035, but only 14% of the country’s arable land is potentially irrigable, limiting the potential to improve agricultural productivity.
0
50
100
150
200
250
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
Rural water
Urban water and sewerage
Sanitation
Water for production
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This is sufficient to justify a large‐scale refinery in the country. The refinery is expected to have a capacity of 60,000 barrels of day, with the remaining production exported as crude via a pipeline. The total costs of developing the sector are estimated at over USD 10 billion, including USD 2 billion for the refinery and slightly over USD 1 billion for the pipeline (Deloitte 2011). The production and pipeline costs will be largely fronted by the international oil companies (but recovered from Government through a higher proportion of ‘cost oil’ in the initial production years).37 The refinery will involve greater direct involvement by Government, including a 40% contribution to the investment costs under the PPP arrangement. Total public investment in the oil sector is likely to be around USD 955 million.38 This investment is likely to start within the next year and run up to 2020 (when the refinery is expected to reach full capacity).
Investment backlog
Despite Uganda’s large infrastructure financing needs, not all of the resources recently allocated to public investment have been utilised as planned (see section 1). Figure A6 compares infrastructure investment in the first three years of the NDP with the amount planned. Relative to plans reviewed above, there has been significant underinvestment amounting to USD 1.07 billion over three years, with a USD 775 million and USD 265 million shortfall in the transport and water sectors respectively.
Figure A6 Planned and actual public infrastructure investment (USD millions)
Annex 3: Trends in public education and health spending
Figure A7 Trends in public education spending, % of GDP
37 Government is expected to directly contribute 9% of the cost of the pipeline. Deloitte (2011). 38 This includes the construction of the Gulu petroleum reserves as well as Government’s share of the refinery and pipeline costs.
0
100
200
300
400
500
600
700
800
2010
/11
2011
/12
2012
/13
2010
/11
2011
/12
2012
/13
2010
/11
2011
/12
2012
/13
2010
/11
2011
/12
2012
/13
Transport Power Water ICT
Planned
Actual
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Source: MFPED (2013b).
Figure A8 GDP per capita and public health expenditure across countries
Source: WHO (2011). Note: Uganda 2013/14 is marked in red; Uganda 2040 (projected) is marked in green.
Annex 3: Assumptions underlying oil revenue estimates
i. Production starting in 2018, peaking at 230,000 barrels per day during the 2020s and gradually declining from 2030. This is the extraction profile favoured by the oil companies.
0%
1%
2%
3%
4%
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
Pre‐primary and primary
Secondary
Tertiary
0
2
4
6
8
10
12
14
16
18
20
5 6 7 8 9 10 11 12
Public health spen
ding
(% of G
DP)
ln(GDP per capita)
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ii. The refinery will be commissioned in 2018 with a capacity of 30,000 barrels per day, which will be increased to 60,000 in 2020. Surplus production will be exported as crude via the pipeline.
iii. A benchmark world price of light sweet crude oil of US$75 per barrel in real terms, with a discount of USD 5 per barrel applied to Uganda’s heavier crude.
iv. Crude sold to the domestic refinery at the international market price, with transport costs of a USD 15 per barrel applied to crude exported via the pipeline.
v. Total capital expenditure to develop the sector of USD 10 billion, including USD 2 billion for the refinery and USD 1.07 billion for the pipeline.
vi. Government will bear 40% of the refinery and 9% of the pipeline costs upfront. vii. Fixed operational costs of USD 25 million a year. viii. Variable ‘lifting costs’ of USD 2 per barrel. ix. The royalty applied at the wellhead varies with production but averages 12%. x. An upper limit of 60% on the share of cost oil in post‐royalty income. xi. Government’s share of profit oil varies with production but averages 65%. xii. A 15% Government‐owned shareholding in the consortium, carried by the consortium
partners. xiii. An average effective Corporate Income Tax rate of 6%.39 xiv. Interest applied to outstanding unrecovered costs at a rate of 7%.
Annex 4: The fiscal implications of East African monetary union
Monetary union will require a high degree of fiscal discipline and harmonisation within the East African Community (EAC). With this in mind, the East African partner states have agreed on the set of macroeconomic convergence criteria, which all members will maintain from 2021 and actively enforce from the onset of monetary union in 2024. These criteria are as follows:
1) Ceiling on headline inflation of 8%; 2) Fiscal deficit (including grants) ceiling of 3% of GDP; 3) A ceiling on public debt of 50% of GDP in Net Present Value terms; 4) Reserve cover of 4.5 months of imports.
The convergence criteria may constrain Uganda’s fiscal policy options after 2021 – it will not be possible to undertake additional borrowing if this increases the fiscal deficit or level of public debt beyond the ceilings. But it is unlikely that the fiscal deficit including grants and oil revenue will exceed 3% in the period after 2020 (see table 5 in section 5.1). Uganda currently has a level of public debt significantly below the 50% of GDP ceiling (unlike Kenya, Tanzania and Burundi), and therefore much greater scope to increase borrowing.
39 This effective corporate tax rate takes account of accelerated depreciation and other prevailing incentives, and is based on estimates in Abbas et al. (2012).
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Annex 5: Macroeconomic and fiscal projections under alternative scenarios
Table A3 Macroeconomic projections with tax policy reforms
Table A4 Macroeconomic projections without tax policy reforms
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
2025
/26
2026
/27
2027
/28
2028
/29
2029
/30
2030
/31
2031
/32
2032
/33
2033
/34
2034
/35
2035
/36
2036
/37
2037
/38
2038
/39
2039
/40
2040
/41
Real SectorAnnual GDP Growth rates (%, factor cost) 5.1 6.1 6.1 7.8 7.8 7.7 7.6 7.5 7.3 7.2 7.2 7.2 7.3 7.4 7.4 7.4 7.4 7.3 7.3 7.3 7.3 7.3 7.2 7.2 7.2 7.3 7.3 7.3 7.4Private investment (% GDP) 17.6 16.3 17.2 17.1 17.0 18.1 18.8 19.0 19.4 19.7 20.1 20.5 20.9 21.4 21.9 22.5 23.1 23.7 24.4 25.0 25.7 26.4 27.0 27.7 28.4 29.0 29.6 30.3 30.9Public investment (% GDP) 7.6 6.5 8.6 10.5 10.3 10.3 9.7 8.4 7.6 6.7 6.6 6.4 6.9 6.6 6.5 6.4 6.3 5.7 5.4 5.3 5.1 5.0 4.7 4.6 4.5 4.5 4.4 4.4 4.5Private consumption (% GDP) 77.3 73.6 72.1 71.1 69.7 68.8 67.8 66.5 65.4 64.3 63.4 62.6 61.8 61.1 60.4 59.6 58.9 58.3 57.6 56.9 56.3 55.7 55.1 54.5 53.9 53.3 52.8 52.2 51.6Public consumption (% GDP) 7.8 8.9 8.9 8.8 8.8 8.7 8.7 8.7 8.9 9.2 9.4 9.7 9.9 10.1 10.3 10.5 10.7 10.8 10.9 10.9 10.8 10.7 10.5 10.3 10.1 9.9 9.7 9.5 9.3Domestic savings (% GDP) 14.9 17.4 19.0 20.0 21.6 22.4 23.4 24.8 25.7 26.5 27.1 27.7 28.3 28.8 29.3 29.8 30.4 30.9 31.5 32.2 32.9 33.7 34.4 35.2 36.0 36.8 37.6 38.3 39.1External SectorExports (% GDP) 23.3 27.6 27.3 27.6 29.3 29.8 30.7 32.4 33.4 34.3 34.5 34.8 34.6 34.6 34.6 34.4 34.2 34.2 34.1 34.0 33.9 33.8 33.9 33.9 33.8 33.8 33.8 33.8 33.7Imports (% GDP) 33.8 33.0 34.2 35.2 35.1 35.7 35.7 35.0 34.6 34.2 34.1 33.9 34.1 33.8 33.7 33.5 33.2 32.8 32.4 32.1 31.8 31.5 31.2 30.9 30.7 30.5 30.3 30.1 30.0Trade balance (% GDP) ‐10.5 ‐5.4 ‐6.8 ‐7.6 ‐5.8 ‐5.9 ‐5.0 ‐2.6 ‐1.3 0.1 0.4 0.9 0.5 0.8 0.9 0.9 1.0 1.5 1.7 1.9 2.1 2.3 2.7 3.0 3.2 3.4 3.5 3.6 3.7Net external debt stock (% GDP)* 18.1 18.9 20.5 24.3 28.7 32.6 34.6 34.7 32.9 29.9 27.2 23.2 18.1 13.7 9.9 6.7 4.0 1.0 ‐1.8 ‐3.8 ‐5.6 ‐7.3 ‐9.0 ‐10.7 ‐12.4 ‐14.2 ‐15.7 ‐17.2 ‐18.7Net donor aid (% GDP) 4.2 2.9 3.2 2.7 2.4 2.2 2.1 1.9 1.7 1.6 1.4 1.2 1.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Note: *Includes public external debt and oil fund. 2012/13 data are estimated outurns; projections begin from 2013/14.
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
2025
/26
2026
/27
2027
/28
2028
/29
2029
/30
2030
/31
2031
/32
2032
/33
2033
/34
2034
/35
2035
/36
2036
/37
2037
/38
2038
/39
2039
/40
2040
/41
Real SectorAnnual GDP Growth rates (%, factor cost) 5.1 6.1 6.4 7.9 7.9 7.8 7.8 7.7 7.5 7.4 7.4 7.4 7.4 7.6 7.6 7.6 7.6 7.5 7.4 7.4 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3Private investment (% GDP) 17.6 16.3 17.7 17.7 17.6 18.7 19.4 19.7 20.1 20.4 20.8 21.2 21.6 22.2 22.7 23.3 23.9 24.6 25.2 25.9 26.5 27.2 27.8 28.5 29.1 29.7 30.3 30.9 31.4Public investment (% GDP) 7.6 6.5 8.5 10.5 10.3 10.3 9.6 8.4 7.6 6.7 6.6 6.4 6.9 6.6 6.5 6.3 6.2 5.6 5.3 5.2 5.0 4.8 4.5 4.5 4.4 4.4 4.4 4.4 4.4Private consumption (% GDP) 77.3 73.6 73.4 72.5 71.0 70.1 69.0 67.6 66.4 65.3 64.3 63.4 62.6 61.8 61.0 60.2 59.4 58.6 57.9 57.2 56.5 55.8 55.2 54.5 53.9 53.3 52.7 52.1 51.4Public consumption (% GDP) 7.8 8.9 8.9 8.8 8.7 8.7 8.7 8.7 8.9 9.2 9.5 9.7 10.0 10.1 10.3 10.5 10.6 10.7 10.7 10.6 10.5 10.3 10.2 9.9 9.7 9.5 9.4 9.2 9.0Domestic savings (% GDP) 14.9 17.4 17.7 18.8 20.3 21.2 22.3 23.7 24.7 25.5 26.2 26.9 27.5 28.1 28.7 29.3 30.0 30.7 31.4 32.2 33.0 33.8 34.7 35.5 36.4 37.2 38.0 38.8 39.6External SectorExports (% GDP) 23.3 27.6 26.2 26.4 28.1 28.5 29.4 31.1 32.0 32.9 33.1 33.4 33.2 33.3 33.3 33.2 33.0 33.2 33.1 33.1 33.1 33.2 33.3 33.3 33.4 33.4 33.4 33.5 33.6Imports (% GDP) 33.8 33.0 34.7 35.7 35.6 36.2 36.2 35.4 35.0 34.5 34.4 34.2 34.2 34.0 33.8 33.5 33.2 32.7 32.3 32.0 31.7 31.3 31.0 30.7 30.5 30.3 30.1 30.0 29.8Trade balance (% GDP) ‐10.5 ‐5.4 ‐8.5 ‐9.4 ‐7.6 ‐7.7 ‐6.8 ‐4.3 ‐3.0 ‐1.6 ‐1.3 ‐0.8 ‐1.1 ‐0.7 ‐0.5 ‐0.3 ‐0.2 0.5 0.8 1.1 1.5 1.8 2.3 2.6 2.9 3.1 3.3 3.5 3.8Net external debt stock (% GDP)* 18.1 18.9 22.1 27.6 33.7 39.1 42.7 44.4 44.0 42.4 41.0 38.1 33.8 30.1 26.9 24.1 21.6 18.9 16.1 13.9 12.0 10.0 7.9 5.7 3.5 1.2 ‐1.0 ‐3.2 ‐5.6Net donor aid (% GDP) 4.2 2.9 3.2 2.7 2.4 2.2 2.1 1.9 1.7 1.6 1.4 1.2 1.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Note: *Includes public external debt and oil fund. 2012/13 data are estimated outurns; projections begin from 2013/14.
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Table A5 Macroeconomic projections with non‐oil fiscal deficit limited to 4% of GDP
Table A6 Macroeconomic projections with terms of trade shock and tax reforms
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
2025
/26
2026
/27
2027
/28
2028
/29
2029
/30
2030
/31
2031
/32
2032
/33
2033
/34
2034
/35
2035
/36
2036
/37
2037
/38
2038
/39
2039
/40
2040
/41
Real SectorAnnual GDP Growth rates (%, factor cost) 5.1 6.0 6.1 7.1 7.1 7.0 7.1 7.1 7.2 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.0 7.0 6.9 6.8 6.8 6.7 6.6 6.6 6.6 6.6 6.5 6.5Private investment (% GDP) 17.6 16.4 17.8 17.8 17.6 18.7 19.3 19.5 19.7 20.0 20.4 20.7 21.1 21.5 22.1 22.6 23.2 23.7 24.3 24.9 25.5 26.1 26.7 27.3 27.8 28.3 28.9 29.4 29.8Public investment (% GDP) 7.6 5.5 5.8 5.4 5.2 5.2 5.2 5.3 5.4 5.3 5.2 5.2 5.2 5.2 5.1 5.0 4.9 4.9 4.6 4.4 4.1 3.9 3.7 3.7 3.5 3.6 3.5 3.5 3.5Private consumption (% GDP) 77.3 73.6 73.1 71.9 70.6 69.7 68.8 67.7 66.7 65.7 64.7 63.9 63.1 62.3 61.6 60.9 60.2 59.5 58.8 58.1 57.5 56.8 56.2 55.6 55.0 54.5 53.9 53.4 52.8Public consumption (% GDP) 7.8 9.0 8.9 8.9 8.8 8.8 8.7 8.7 8.8 9.0 9.2 9.4 9.6 9.8 10.1 10.4 10.6 10.8 11.0 11.2 11.2 11.2 11.2 11.1 11.0 10.8 10.6 10.4 10.2Domestic savings (% GDP) 14.9 17.5 18.0 19.2 20.6 21.5 22.4 23.6 24.5 25.3 26.0 26.7 27.3 27.8 28.3 28.8 29.2 29.7 30.2 30.7 31.3 31.9 32.6 33.3 34.0 34.8 35.5 36.2 37.0External SectorExports (% GDP) 23.3 28.2 27.9 29.5 31.3 31.8 32.3 33.2 33.7 34.2 34.6 34.9 35.0 35.1 35.0 34.8 34.6 34.3 34.2 34.0 33.9 33.8 33.8 33.7 33.8 33.8 33.9 33.9 34.1Imports (% GDP) 33.8 32.6 33.5 33.5 33.5 34.1 34.4 34.3 34.3 34.2 34.1 34.0 34.0 33.9 33.8 33.6 33.5 33.2 32.9 32.6 32.3 31.9 31.6 31.4 31.1 30.9 30.7 30.6 30.4Trade balance (% GDP) ‐10.5 ‐4.4 ‐5.6 ‐4.0 ‐2.2 ‐2.3 ‐2.1 ‐1.2 ‐0.6 0.0 0.5 0.9 1.0 1.1 1.2 1.2 1.1 1.1 1.3 1.4 1.6 1.9 2.2 2.3 2.6 2.8 3.1 3.4 3.7Net external debt stock (% GDP)* 18.1 18.0 18.7 19.5 20.4 21.1 20.2 18.4 15.9 13.0 10.6 6.8 1.5 ‐2.9 ‐6.6 ‐9.6 ‐12.1 ‐14.2 ‐16.1 ‐17.3 ‐18.2 ‐19.2 ‐20.0 ‐20.8 ‐21.6 ‐22.4 ‐23.3 ‐24.2 ‐25.4Net donor aid (% GDP) 4.2 2.9 3.2 2.7 2.4 2.2 2.1 1.9 1.7 1.6 1.4 1.2 1.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Note: *Includes public external debt and oil fund. 2012/13 data are estimated outurns; projections begin from 2013/14.
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
2025
/26
2026
/27
2027
/28
2028
/29
2029
/30
2030
/31
2031
/32
2032
/33
2033
/34
2034
/35
2035
/36
2036
/37
2037
/38
2038
/39
2039
/40
2040
/41
Real SectorAnnual GDP Growth rates (%, factor cost) 5.1 6.1 6.1 7.6 7.5 7.3 7.1 6.9 6.6 6.4 6.2 6.1 6.0 6.1 6.1 6.1 6.1 6.1 6.0 5.9 5.9 5.9 5.9 5.8 5.9 5.9 6.0 6.1 6.1Private investment (% GDP) 17.6 16.3 16.8 16.4 15.9 16.5 16.7 16.5 16.3 16.1 15.9 15.6 15.7 15.9 16.1 16.4 16.6 16.9 17.2 17.6 17.9 18.3 18.7 19.1 19.5 19.9 20.4 20.8 21.3Public investment (% GDP) 7.6 6.5 8.5 10.3 10.1 10.1 9.4 8.1 7.3 6.4 6.3 6.1 6.7 6.4 6.4 6.3 6.2 5.6 5.3 5.2 5.0 4.9 4.5 4.4 4.3 4.3 4.2 4.2 4.2Private consumption (% GDP) 77.3 73.6 71.6 70.2 68.4 67.1 65.9 64.3 63.0 61.9 60.8 59.9 59.3 58.7 58.2 57.7 57.2 56.7 56.3 55.9 55.4 55.0 54.7 54.3 53.9 53.5 53.2 52.8 52.4Public consumption (% GDP) 7.8 8.9 9.0 8.9 8.9 8.9 8.9 9.0 9.3 9.7 10.1 10.5 10.9 11.3 11.7 12.0 12.4 12.7 12.9 13.0 13.1 13.1 13.0 12.9 12.8 12.6 12.4 12.3 12.1Domestic savings (% GDP) 14.9 17.4 19.4 20.9 22.7 24.0 25.2 26.6 27.6 28.4 29.1 29.6 29.8 30.0 30.2 30.3 30.4 30.6 30.8 31.1 31.5 31.9 32.3 32.8 33.3 33.9 34.4 34.9 35.5External SectorExports (% GDP) 23.3 27.6 27.5 27.9 29.7 30.3 31.3 33.1 34.2 35.3 35.7 36.1 35.9 36.1 36.1 36.1 36.0 36.2 36.2 36.2 36.2 36.3 36.5 36.6 36.7 36.8 36.8 36.8 36.8Imports (% GDP) 33.8 33.0 33.4 33.7 33.0 32.9 32.2 31.1 30.2 29.3 28.8 28.2 28.5 28.4 28.4 28.4 28.4 28.1 28.0 27.8 27.7 27.6 27.4 27.3 27.2 27.1 27.0 26.9 26.9Trade balance (% GDP) ‐10.5 ‐5.4 ‐5.9 ‐5.8 ‐3.2 ‐2.6 ‐0.9 2.1 4.0 6.0 6.9 7.9 7.4 7.7 7.7 7.6 7.6 8.1 8.2 8.3 8.5 8.7 9.1 9.3 9.5 9.7 9.8 9.9 9.9Net external debt stock (% GDP)* 18.1 18.9 21.2 26.1 31.9 37.7 41.7 43.7 43.6 42.2 41.2 38.1 31.6 26.4 22.2 19.0 16.6 14.3 12.2 11.5 11.4 11.6 12.0 12.4 12.8 13.2 13.9 14.5 15.2Net donor aid (% GDP) 4.2 2.9 3.2 2.7 2.4 2.2 2.1 1.9 1.7 1.6 1.4 1.2 1.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Note: *Includes public external debt and oil fund. 2012/13 data are estimated outurns; projections begin from 2013/14.
UGANDA’S LONG‐TERM FISCAL STRATEGY
47
Table A7 Overall fiscal operations with non‐oil deficit limited to 4% of GDP (% of GDP)
2012
/13 a
2013
/14 b
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
2025
/26
Revenues and Grants 15.2 15.3 15.8 15.5 15.3 15.4 17.5 18.5 19.5 20.1 19.8 21.3 23.2 22.8 Non‐oil revenues 13.5 13.9 14.0 14.1 14.3 14.4 14.6 14.7 14.8 15.0 15.1 15.3 15.4 15.6 Domestic indirect taxes 2.9 2.9 2.8 2.8 2.8 2.9 2.9 3.0 3.0 3.1 3.2 3.2 3.3 3.3 Income taxes 4.7 4.8 5.0 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 6.0 Import taxes 5.7 5.8 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 Non‐URA revenues 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Oil Revenues 0.0 0.0 0.0 0.0 0.0 0.0 2.2 3.1 4.1 4.7 4.4 5.9 7.6 7.1 Grants 1.8 1.4 1.8 1.4 1.1 0.9 0.8 0.7 0.5 0.4 0.3 0.2 0.1 0.1 Expenditure 19.2 20.4 19.8 19.5 19.4 19.4 19.4 19.4 19.4 19.4 19.4 19.5 19.5 19.7 o/w interest payments 1.6 1.5 1.5 1.7 1.8 1.9 1.9 1.8 1.7 1.6 1.5 1.3 1.2 1.1 External 0.2 0.2 0.4 0.6 0.7 0.8 0.8 0.7 0.6 0.5 0.4 0.2 0.0 ‐0.1 Domestic 1.4 1.3 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 Non‐oil primary balance ‐2.3 ‐3.5 ‐2.5 ‐2.4 ‐2.2 ‐2.1 ‐2.1 ‐2.2 ‐2.3 ‐2.4 ‐2.5 ‐2.7 ‐2.9 ‐3.0 Overall fiscal balance (excl. grants and oil) ‐5.7 ‐6.5 ‐5.8 ‐5.4 ‐5.1 ‐5.0 ‐4.8 ‐4.7 ‐4.6 ‐4.4 ‐4.3 ‐4.2 ‐4.1 ‐4.1 Overall fiscal balance (incl. grants and oil) ‐3.9 ‐5.1 ‐4.1 ‐4.1 ‐4.1 ‐4.1 ‐1.8 ‐0.9 0.1 0.6 0.3 1.9 3.6 3.1 Net Financing 3.9 5.1 4.0 4.0 4.0 4.0 1.8 0.9 ‐0.1 ‐0.7 ‐0.4 ‐1.9 ‐3.6 ‐3.1 External 2.4 2.4 2.1 2.2 2.3 2.3 0.6 ‐0.3 ‐1.3 ‐1.8 ‐1.5 ‐3.1 ‐4.8 ‐4.3
o/w concessionalc 2.4 1.5 1.5 1.4 1.4 1.3 1.3 1.2 1.2 1.1 1.1 1.0 1.0 0.0 o/w non‐concessional 0.0 0.9 0.6 0.8 0.9 1.0 ‐0.6 ‐1.6 ‐2.5 ‐3.0 ‐2.6 ‐4.1 ‐5.8 ‐4.3 Domestic 1.5 2.7 1.9 1.9 1.8 1.7 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 o/w securities 1.1 1.5 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 o/w change in net savings with BoU 0.4 1.2 0.7 0.7 0.6 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net public debt 29.1 29.3 29.9 30.8 31.7 32.3 31.4 29.7 27.1 24.2 21.8 18.0 12.8 8.4 o/w domestic 11.1 11.2 11.3 11.3 11.3 11.3 11.2 11.2 11.2 11.2 11.2 11.2 11.2 11.2 o/w external 18.1 18.1 18.7 19.5 20.4 21.1 20.2 18.4 15.9 13.0 10.6 6.8 1.5 ‐2.9
2026
/27
2027
/28
2028
/29
2029
/30
2030
/31
2031
/32
2032
/33
2033
/34
2034
/35
2035
/36
2036
/37
2037
/38
2038
/39
2039
/40
2040
/41
Revenues and Grants 22.5 22.2 22.0 21.8 21.7 21.0 20.5 20.3 20.0 19.9 19.8 19.7 19.5 19.5 19.6 Non‐oil revenues 15.8 15.9 16.1 16.3 16.4 16.6 16.8 17.0 17.1 17.3 17.5 17.7 17.9 18.1 18.4 Domestic indirect taxes 3.4 3.4 3.5 3.6 3.6 3.7 3.7 3.8 3.9 3.9 4.0 4.1 4.1 4.2 4.3 Income taxes 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.9 7.0 7.1 7.2 7.3 7.5 7.6 7.8 Import taxes 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 Non‐URA revenues 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Oil Revenues 6.7 6.3 5.9 5.6 5.3 4.3 3.7 3.4 2.8 2.5 2.2 2.0 1.6 1.4 1.2 Grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Expenditure 19.8 19.9 20.1 20.3 20.2 20.1 19.9 19.6 19.4 19.3 19.1 19.0 18.8 18.6 18.4 o/w interest payments 1.0 0.9 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.9 0.9 0.9 0.9 External ‐0.1 ‐0.2 ‐0.2 ‐0.2 ‐0.3 ‐0.3 ‐0.3 ‐0.3 ‐0.4 ‐0.4 ‐0.4 ‐0.3 ‐0.3 ‐0.4 ‐0.4 Domestic 1.1 1.1 1.1 1.1 1.1 1.1 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.3 Non‐oil primary balance ‐3.0 ‐3.1 ‐3.1 ‐3.1 ‐2.9 ‐2.6 ‐2.3 ‐1.9 ‐1.5 ‐1.1 ‐0.7 ‐0.4 0.0 0.4 0.9 Overall fiscal balance (excl. grants and oil) ‐4.0 ‐4.0 ‐4.0 ‐4.0 ‐3.7 ‐3.5 ‐3.1 ‐2.7 ‐2.3 ‐2.0 ‐1.6 ‐1.3 ‐0.9 ‐0.5 0.0 Overall fiscal balance (incl. grants and oil) 2.7 2.3 1.9 1.6 1.5 0.9 0.6 0.7 0.6 0.6 0.7 0.7 0.7 0.9 1.2 Net Financing ‐2.7 ‐2.3 ‐1.9 ‐1.6 ‐1.5 ‐0.9 ‐0.6 ‐0.7 ‐0.6 ‐0.6 ‐0.7 ‐0.7 ‐0.7 ‐0.9 ‐1.2 External ‐3.9 ‐3.5 ‐3.1 ‐2.7 ‐2.7 ‐2.1 ‐1.8 ‐1.9 ‐1.8 ‐1.8 ‐1.9 ‐1.9 ‐1.9 ‐2.1 ‐2.4
o/w concessionalc 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 o/w non‐concessional ‐3.9 ‐3.5 ‐3.1 ‐2.7 ‐2.7 ‐2.1 ‐1.8 ‐1.9 ‐1.8 ‐1.8 ‐1.9 ‐1.9 ‐1.9 ‐2.1 ‐2.4 Domestic 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 o/w securities 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 o/w change in net savings with BoU 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net public debt 4.7 1.6 ‐0.8 ‐2.9 ‐4.7 ‐5.9 ‐6.8 ‐7.6 ‐8.3 ‐9.0 ‐9.7 ‐10.4 ‐11.1 ‐12.0 ‐13.0 o/w domestic 11.2 11.3 11.3 11.3 11.3 11.4 11.5 11.6 11.7 11.8 11.9 12.0 12.1 12.3 12.4 o/w external ‐6.6 ‐9.6 ‐12.1 ‐14.2 ‐16.1 ‐17.3 ‐18.2 ‐19.2 ‐20.0 ‐20.8 ‐21.6 ‐22.4 ‐23.3 ‐24.2 ‐25.4
Source: simulation results (deficit‐cap scenario). Notes: a Estimated outturn for FY2012/13; b Budget projection for FY2013/14; c Refers to fully concessional loans (on IDA‐equivalent terms). Note that the projections consider the change in tax structure that is l ikley to occur as Uganda shifts from petroleum importer to petroleum producer, namely a reduction in import taxes offset by an increase in domestic indirect taxes.
EDPR DISCUSION PAPER
48
Table A8 Overall fiscal operations with terms‐of‐trade shock and tax reforms (% of GDP)
2012
/13 a
2013
/14 b
2014
/15
2015
/16
2016
/17
2017
/18
2018
/19
2019
/20
2020
/21
2021
/22
2022
/23
2023
/24
2024
/25
2025
/26
Revenues and Grants 15.2 15.3 17.6 17.3 17.1 17.2 19.6 20.9 22.4 23.3 23.1 25.6 28.1 27.5 Non‐oil revenues 13.5 13.9 15.8 15.9 16.0 16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8 16.9 Domestic indirect taxes 2.9 2.9 3.8 3.8 3.8 3.8 3.8 3.9 3.9 3.9 3.9 3.9 4.0 4.0 Income taxes 4.7 4.8 5.8 5.9 5.9 6.0 6.1 6.1 6.2 6.3 6.4 6.4 6.5 6.6 Import taxes 5.7 5.8 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 Non‐URA revenues 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Oil Revenues 0.0 0.0 0.0 0.0 0.0 0.0 2.6 4.0 5.5 6.4 6.2 8.7 11.2 10.6 Grants 1.8 1.4 1.8 1.4 1.1 1.0 0.8 0.7 0.5 0.4 0.3 0.2 0.1 0.1 Expenditure 19.2 20.4 22.9 25.3 25.7 26.3 26.1 24.9 24.5 24.0 24.5 24.7 25.5 25.4 o/w interest payments 1.6 1.5 1.6 1.9 2.2 2.6 2.8 2.8 2.8 2.6 2.6 2.4 2.1 1.8 External 0.2 0.2 0.5 0.8 1.1 1.5 1.6 1.7 1.6 1.5 1.4 1.2 0.8 0.6 Domestic 1.4 1.3 1.1 1.1 1.1 1.1 1.1 1.1 1.2 1.2 1.2 1.2 1.2 1.2 Non‐oil primary balance ‐2.3 ‐3.5 ‐3.6 ‐6.1 ‐6.3 ‐6.6 ‐6.3 ‐5.2 ‐4.8 ‐4.4 ‐5.0 ‐5.5 ‐6.5 ‐6.6 Overall fiscal balance (excl. grants and oil) ‐5.7 ‐6.5 ‐7.0 ‐9.4 ‐9.7 ‐10.2 ‐9.9 ‐8.6 ‐8.1 ‐7.5 ‐7.9 ‐8.1 ‐8.7 ‐8.5 Overall fiscal balance (incl. grants and oil) ‐3.9 ‐5.1 ‐5.2 ‐8.0 ‐8.5 ‐9.1 ‐6.4 ‐4.0 ‐2.1 ‐0.7 ‐1.4 0.8 2.6 2.1 Net Financing 3.9 5.1 5.2 8.0 8.5 9.1 6.4 4.0 2.1 0.7 1.4 ‐0.8 ‐2.6 ‐2.1 External 2.4 2.4 3.3 6.1 6.7 7.4 5.2 2.7 0.8 ‐0.6 0.1 ‐2.1 ‐4.0 ‐3.4
o/w concessionalc 2.4 1.5 1.5 1.4 1.4 1.3 1.3 1.2 1.2 1.1 1.1 1.0 1.0 0.0 o/w non‐concessional 0.0 0.9 1.8 4.7 5.3 6.1 3.9 1.5 ‐0.3 ‐1.7 ‐1.0 ‐3.2 ‐5.0 ‐3.4 Domestic 1.5 2.7 1.9 1.8 1.8 1.7 1.2 1.2 1.2 1.3 1.3 1.3 1.3 1.3 o/w securities 1.1 1.5 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.3 1.3 1.3 1.3 1.3 o/w change in net savings with BoU 0.4 1.2 0.7 0.7 0.6 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net public debt 29.1 29.3 32.5 37.3 43.2 49.1 53.2 55.5 55.7 54.6 53.9 51.1 44.8 39.7 o/w domestic 11.1 11.2 11.3 11.2 11.3 11.4 11.5 11.8 12.1 12.4 12.7 13.1 13.2 13.3 o/w external 18.1 18.1 21.2 26.1 31.9 37.7 41.7 43.7 43.6 42.2 41.2 38.1 31.6 26.4
2026
/27
2027
/28
2028
/29
2029
/30
2030
/31
2031
/32
2032
/33
2033
/34
2034
/35
2035
/36
2036
/37
2037
/38
2038
/39
2039
/40
2040
/41
Revenues and Grants 26.9 26.4 26.0 25.6 25.3 24.0 23.2 22.7 22.1 21.7 21.4 21.1 20.6 20.4 20.2 Non‐oil revenues 17.0 17.1 17.2 17.3 17.4 17.5 17.6 17.7 17.8 17.9 18.0 18.1 18.2 18.3 18.4 Domestic indirect taxes 4.0 4.0 4.1 4.1 4.1 4.1 4.1 4.2 4.2 4.2 4.2 4.3 4.3 4.3 4.3 Income taxes 6.7 6.7 6.8 6.9 7.0 7.0 7.1 7.2 7.3 7.4 7.5 7.5 7.6 7.7 7.8 Import taxes 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 5.9 Non‐URA revenues 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Oil Revenues 9.9 9.3 8.8 8.3 7.9 6.6 5.6 5.1 4.3 3.8 3.4 3.0 2.4 2.1 1.8 Grants 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Expenditure 25.6 25.8 26.0 25.5 25.3 25.3 25.1 24.9 24.4 24.1 23.8 23.6 23.3 23.2 23.0 o/w interest payments 1.7 1.6 1.6 1.5 1.5 1.5 1.5 1.5 1.6 1.6 1.6 1.6 1.6 1.6 1.7 External 0.5 0.4 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Domestic 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.4 1.4 1.4 1.4 1.4 1.4 1.4 Non‐oil primary balance ‐6.9 ‐7.1 ‐7.3 ‐6.7 ‐6.5 ‐6.3 ‐6.0 ‐5.6 ‐5.0 ‐4.6 ‐4.2 ‐3.9 ‐3.5 ‐3.2 ‐2.9 Overall fiscal balance (excl. grants and oil) ‐8.6 ‐8.8 ‐8.9 ‐8.2 ‐8.0 ‐7.8 ‐7.5 ‐7.2 ‐6.6 ‐6.2 ‐5.8 ‐5.5 ‐5.1 ‐4.8 ‐4.6 Overall fiscal balance (incl. grants and oil) 1.3 0.6 ‐0.1 0.1 ‐0.1 ‐1.3 ‐1.9 ‐2.1 ‐2.3 ‐2.4 ‐2.4 ‐2.5 ‐2.7 ‐2.8 ‐2.8 Net Financing ‐1.3 ‐0.6 0.1 ‐0.1 0.1 1.2 1.9 2.1 2.3 2.4 2.4 2.5 2.7 2.8 2.8 External ‐2.6 ‐1.9 ‐1.3 ‐1.5 ‐1.3 ‐0.1 0.5 0.7 0.9 1.0 1.1 1.1 1.3 1.4 1.4
o/w concessionalc 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 o/w non‐concessional ‐2.6 ‐1.9 ‐1.3 ‐1.5 ‐1.3 ‐0.1 0.5 0.7 0.9 1.0 1.1 1.1 1.3 1.4 1.4 Domestic 1.3 1.3 1.3 1.3 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 o/w securities 1.3 1.3 1.3 1.3 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 o/w change in net savings with BoU 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Net public debt 35.6 32.6 30.3 28.2 26.3 25.7 25.8 26.2 26.7 27.2 27.8 28.3 29.1 29.8 30.5 o/w domestic 13.5 13.6 13.7 13.9 14.1 14.2 14.4 14.5 14.7 14.9 15.0 15.1 15.2 15.3 15.3 o/w external 22.2 19.0 16.6 14.3 12.2 11.5 11.4 11.6 12.0 12.4 12.8 13.2 13.9 14.5 15.2
Source: simulation results (deficit‐cap scenario). Notes: a Estimated outturn for FY2012/13; b Budget projection for FY2013/14; c Refers to fully concessional loans (on IDA‐equivalent terms). Note that the projections consider the change in tax structure that is l ikley to occur as Uganda shifts from petroleum importer to petroleum producer, namely a reduction in import taxes offset by an increase in domestic indirect taxes.
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