Ministry of Finance, Planning, and Economic Development has issued a fresh warning on government performance next financial year, citing the increased financial risks.
Through the fiscal risk statement, Finance minister, Matia Kasaija says there is likely going to be a reversal of the recent economic gains and a disruption to external debt reduction majorly due to macroeconomic risks; climate change fiscal risks; and other specific risks and contingent liabilities.
Fiscal risks are explained as factors that may cause fiscal outcomes to deviate from expectations or forecasts, especially on expected revenues, expenditures, assets, or liabilities.
They include climate change, natural disasters, unforeseen expenditure pressures, revenue shortfalls, terms of trade shocks, exchange rate volatility, and materializing of government guarantees.
“If any or all the risks materialize, there may be additional pressures on public finances, which might prompt additional borrowing and a consequent rise in public debt, or budget cuts and reallocations,” says Kasaija.
This means, therefore, a more challenging budget planning and execution task, hence the need for sound public finance management as the starting point and foundation for the management of the risk. Under macroeconomic risks, the minister says that these mainly stem from the domestic and external environment and forecast performance against out-turns. These could cause fiscal aggregates like revenue and expenditure to deviate from their forecasts.
External risks arising from geopolitical tensions, tight global financial conditions, and volatility in global commodity prices are a significant source of fiscal risks to public finances in Uganda. The persistent tensions like the Russia-Ukraine war and conflict in the Middle East have the potential to further disrupt global supply chains and cause volatility in commodity prices, according to the statement.
In addition, the conflicts in South Sudan and the Democratic Republic of Congo (DRC), could disrupt regional trade and increase government spending requirements, especially on security, thereby posing significant fiscal risks to the next budget. Uganda, like many developing and poor countries, has encountered a rising scarcity of international finances in the last few years, as advanced economies tighten monetary policy to curb rising inflation.
This is abetting capital flight in search of higher returns abroad, which may affect forex inflows to Uganda thereby exerting significant pressure on the Ugandan shilling, which can in turn give rise to risks on the cost of living, production, and debt servicing.
“Furthermore, tighter global financial conditions particularly make the cost of external borrowing significantly higher. This, combined with a decline in access to concessional financing poses significant financing constraints on the national budget,” explains Kasaija.
The minister also fears that the increasing global crude oil prices will have a significant impact on Uganda’s spend on imports, especially as the demand for petroleum products rises.
WRITTEN BY URN
