For Online E-newspaper
The East African : Dec 15th 2014
The EastAfrican BUSINESS DECEMBER 13-19,2014 DIFFICULT BORROWING CHOICES Mixed prospects for Uganda after country rebases economy The count≥y can bo≥≥ow mo≥e afte≥ its debt to GDP ≥atio fell, but a deflated ≥evenue base will a≠ect its ability to ≥epay futu≥e loans By BERNARD BUSUULWA The EastAfrican large infrastructure projects has improved after it rebased its economy, the country’s ability to repay future loans remains a challenge due to a deflated revenue base, economists warn. Key infrastructure projects in- W clude building the country’s portion of the standard gauge railway being undertaken by Uganda, Kenya and Rwanda, whose cost is estimated at $8.5 billion. Following the rebasing — a process that involves a review of baseline years used for calculating economic growth and inclusion of new data that reflects changing economic patterns — Uganda’s debt to GDP ratio fell from 39.8 per cent to around 29.2 per cent, while tax to GDP ratio declined from 13 per cent to 11.8 per cent at the end of 2013/14. The ratio of public expenditure to GDP fell from 19.7 per cent to 17.5 per cent. Subsequently, the country’s GDP rose from Ush60 trillion ($21.4 billion) in 2002 to Ush68.4 trillion ($24.2 billion) at the end of the 2013/14 financial year, measured against 2009/10 data, according to latest figures published by the Uganda Bureau of Statistics (UBOS). Whereas a lower debt to GDP ratio creates more leeway to borrow within the regional convergence ceiling of 50 per cent, the diminished tax-revenue ratio has complicated matters for Uganda’s future borrowing plans because there are now fewer domestic resources available for servicing new loans, economists argue. Credit risk profiles Lower tax revenues tend to contribute to higher credit risk profiles, limiting the amount of laon an affected country can access, steep interest rates and shorter repayment periods. This in turn raises overall borrowing costs, economists say. Whereas a sovereign bond would attract fairly high interests projected at 12 per cent per year, a $2.2 billion cap on concessional borrowing set by the International Monetary Fund this year has constrained further utilisation of this credit window. “The debt to GDP ratio has fallen, but this gives us little $24.2b hile Uganda’ capacity to borrow more to finance room for additional borrowing. This is because the debt servicing costs are still stable while the taxrevenue ratio has fallen, and this implies fewer resources available for repaying future loans,” said Lawrence Kiiza, director of economic affairs at Uganda’s Ministry of Finance, Planning and Economic Development. “Besides, absorption levels for committed debt are still lagging behind. Out of the $4.2 billion external portfolio, 48 per cent is yet to be disbursed because of low absorption levels among some government departments.” Public debt Total public debt stood at $7 billion at the end of 2013/ 14 compared with $6.4 billion recorded by the close of 2012/ 13. However, details on debt repayments were not available by press time. Faced with this dilemma, some economists say Uganda’s best option lies in the World Bank’s dedicated lending window for developing countries pursuing huge infrastructure projects. Through the International Bank for Reconstruction and Development, interested countries are subjected to a borrowing limit of $1 billion for a selected project, with interest rates ranging between two and three per cent per year. However, loans issued under this window are directly matched with tax revenues or cashflows expected from specific projects such as power dams and factories. “The lower debt to GDP ratio plus a reduced tax revenue ratio implies less disposable resources to service new loans. This leaves Uganda with difficult borrowing choices. In this situation, the IBRD credit window offers 47 $2.48b: What Da≥ has lost th≥ough t≥ade mis-invoicing By ADAM IHUCHA Special Correspondent TRADE MIS-INVOICING has cost Tanzania $2.48 billion in the past decade. Companies and their agents who deliberately altered prices of their exports and imports in order to justify moving money out of, or into the country illicitly, include some in the mining sector, who inflated fuel import costs to shift taxable income out of Tanzania. An international taxation researcher, Rhiannon McCluskey, estimates that on average $248 million worth of capital has been lost each year over the past decade. This means that over-invoicing on fuel imports, on which mining firms were exempted from paying duties in Tanzania, has been denying the country revenues equivalent to 7.4 per cent of GDP. Ms McCluskey was speaking at the three-day annual meeting of the International Centre for Tax and Development in Arusha. She said that in 2010, the Tanzania Mineral Audit Agency unearthed $705.8 million over-declared capital allowances and operating expenditures when it audited 12 mining firms. 2012 discrepancies In 2012, there were reported discrepancies in import duties declared in the Tanzania Revenue Authority and Geita Gold Mine reports. Ms McCluskey said taking Kampala’s Kikuubo business area. Picture:File DEBT TO GDP RATIO FALLS Following the rebasing, Uganda’s debt to GDP ratio fell from 39.8 per cent to around 29.2 per cent, while tax to GDP ratio declined from 13 per cent to 11.8 per cent at the end of 2013/14. The ration of total public expenditure to GDP fell from 19.7 per cent to 17.5 per cent. better opportunities than a sovereign bond. Current revenue mobilisation measures supported by the national identification card project could raise the tax revenue ratio by four per cent in three years’ time,” said Dr Adam Mugume, executive director of research at the Bank of Uganda. Large businesses Tax experts feel rising pressure Value of Uganda’s current GDP after it rebased its economy, up from $21.4 billion in 2002. to expand the revenue base means trouble for large businesses — a traditional soft target for revenue agencies struggling to beat Subsequently, the country’s GDP rose from Ush60 trillion ($21.4 billion) in 2002 to Ush68.4 trillion ($24.2 billion) at the end of 2013/14 financial year, measured against 2009/10 data, according to latest figures published by the Uganda Bureau of Statistics. advantage of the incentive that enables them to deduct their accumulated losses from their profits, the mining firms had deprived the government of nearly $176 million by declaring losses for many years before they were liable to pay corporate tax. “The Tanzania Revenue Authority must be vigilant in order to ensure that companies do not over-declare their costs and losses in order to delay paying taxes,” she said. Fuel imports in Tanzania are targets. “The reduced tax to GDP ratio could puts pressure on the tax body to collect more and bridge revenue gaps with peer economies; this will lead to a higher tax burden on large businesses. However, Uganda still suffers from quality variations in collection of vital economic data and better implementation of gathering techniques could remedy this shortcoming,” said Muhammed Sempijja, a tax partner at Ernest and Young Uganda. done through the bulk procurement system administered by the Energy and Water Utilities Regulatory Authority and the Petroleum Importation Corporation. Mark Bomani, chairman of the Tanzania Extractive Industries Transparency Initiative MultiStakeholders Working Group, said that the mining firms have reported paying Tsh44 billion ($27 million) to the government while the latter reports having received Tsh39.1 billion ($24 million). He said that Geita Gold Mine paid Tsh35 billion ($22 million) and the other companies Tsh9 billion ($5 million). TRA Commissioner General Rished Bade, said that tax personnel would be trained with a view of improving taxation systems.
Dec 8th 2014
Dec 22nd 2014