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The East African : Mar 30th 2015
52 MONEY WOES Uganda fiscal deficit to rise to 6.4pc The≥e a≥e f≥esh fea≥s of inc≥eased domestic bo≥≥owing and diminished access to c≥edit By BERNARD BUSUULWA The EastAfrican steadily against the US dollar, the country’s fiscal deficit is projected to rise to 6.4 per cent of gross domestic product this financial year. This fiscal deficit — that is, excess E expenditure levels weighed against available resources — has raised fresh fears of increased domestic borrowing, diminished access to credit and doubts over external fundraising plans. In comparison, the country’s fis- cal deficit stood at 3.8 per cent of GDP at the end of 2013/14, an outcome supported by lower than projected expenditures and delays in the implementation of large energy and transport projects, World Bank data shows. Faced with a higher fiscal defi- cit, and modest tax collections and budget support, the government may borrow more locally, economists predict, thereby locking out many private borrowers over the medium term. Whereas a slight recovery in revenue collections yielded an $8.2 million surplus during the first half of 2014/15, tax growth appears fragile due to slow economic activity and sharp shilling depreciation. “The fiscal deficit is likely to grow bigger by the close of 2014/15 due to infrastructure-related spending and potential declines in tax revenues caused by low growth rates. Latest supplementary budget demands could escalate it even further in the event that the national coffers suffer a funding gap,” said Dr Fred Muhumuza, an economist with KPMG Uganda. Donor budget support fell by MEASURES The disbursement of $313 million for construction of Karuma and Isimba power dams had a direct effect on Uganda’s fiscal deficit . Picture: File roughly 45 per cent to Ush69 billion ($23.8 million) in the current financial year, amid misgivings about the country’s anti-corruption efforts and gradual aid reduction by development partners since 2005. Recent massive government bor- rowing has seen the share of domestic borrowing grow from 8.8 per cent of GDP at the end of 2012/ 13 to 14.2 per cent at the end of 2013/14, World Bank data showed. This was shown in rapid movements in government borrowing in the last half of 2013/14. Total government borrowing in the domestic market amounted to Ush1.7 trillion ($587 million) against a ceiling of Ush1 trillion ($345 million), leading to increases in rates on government securities and a slowdown in private sector lending, analysts “The fiscal deficit is likely to grow bigger due to infrastructure-related spending and potential declines in tax revenues.” pointed out. Consequently, private sector credit grew by 12 per cent in the previous financial year compared with 14.5 per cent target, according to the Bank of Uganda. So far, accelerated domestic bor- rowing by the government has put pressure on Treasury bill and bond rates, increasing lending rates among commercial banks. Interest rates earned on the 91-day and 182-day Treasury bills partly determine mainstream lending rates and, therefore, any increase in the former directly feeds into average borrowing rates charged on bank loans. For example, the yield earned on the 91-day Treasury bill rose from 12.4 per cent on March 11 to 14.16 per cent on March 18, according to BoU reports. Efforts by the central bank to curb rising yields on government securities have raised more fears of shrinking access to credit. In an attempt to slash liquidity levels in the interbank market and minimise banks’ ability to invest heavily in Treasury auctions and currency speculation, BoU has shrunk In spite of looming domestic debt management challenges, the Finance Ministry is keen on taming distress risks in the country’s external debt portfolio. Finance PS Keith Muhakanizi said the government has disbursed $313 million for construction of Karuma and Isimba power dams but it intends to bring down the deficit to around three per cent in the next financial year. In order to maintain strong debt sustainability ratios, borrowing requirements for the Standard Gauge Railway project have been cut down from $8 billion to $3 billion, he added. inflows of funds injected into this window for short-term borrowing needs. As a result, overnight and one-week borrowing rates in the interbank market shot up to 15 per cent and 18 per cent, respectively, in the past two weeks compared with 8.5 per cent and 11 per cent, respectively, in February, according to Stanbic Uganda financial trading reports. Interbank rates also influence commercial banks’ lending rates, with most lenders factoring them into rates charged on overdraft facilities and short-term loans of less than five years. ven as Uganda fights to salvage a shilling that has been falling The EastAfrican BUSINESS MARCH 28 - APRIL 3, 2015 IMF gives mo≥e cash to Bu≥undi By KENNEDY SENELWA Special Correspondent THE INTERNATIONAL Monetary Fund has approved immediate disbursement of $6.9 million to Burundi, after completing the sixth review of the country’s economic performance. Under an Extended Credit Fa- cility (ECF) arrangement, total disbursements to the country now stand at $41.6 million. The IMF board also approved Burundi’s request for an extension of the current ECF arrangement to end in March 2016 and an additional $13.9 million. “These will help strengthen the management of public finances and consolidate the country’s economic reform programme,” said IMF’s executive board acting chairman Mitsuhiro Furusawa. He said economic growth is es- timated to have picked up slightly in 2014 as inflation declined aided by falling global fuel prices and prudent monetary policy while progress under the ECF-supported programme has been satisfactory. ECF is IMF’s main tool for me- dium-term financial support to low-income countries. It provides higher level of access to financing and more concessional terms. Financing under the ECF cur- rently carries a zero interest rate, grace repayment period of five and half years with final maturity of 10 years. Burundi’s three-year ECF arrangement of $41.6 million was approved on January 27, 2012. Mr Furusawa said strengthen- ing tax administration, improving co-ordination between tax policy design with its implementation will be critical to increase the taxto- gross domestic product (GDP) ratio on a sustainable basis. “The near-term economic out- look remains challenging, and prudent policies will continue to be needed in the face of uncertainties in the external environment, and in the run-up to the 2015 national elections,”’ he said. E∞ciency, economy and inf≥astuctu≥e inc≥ease ca≥go at Mombasa po≥t By ISAAC KHISA The EastAfrican CARGO VOLUMES at Mombasa Port are projected to grow 5-10 per cent this year, thanks to efficiency, an improving economy and infrastructure development in the region. “With the increase in the volume of business in the region, we anticipate the growth of cargo volumes to be in the range of five to 10 per cent this year,” Kenya Ports Authority managing director Gichiri Ndua said, adding that the projected six per cent growth for the region’s economies would translate into higher demand for port services. Mr Ndua projects that the volume of cargo going through Mom- basa will reach 27.363 million tonnes this year compared with the 24.875 million tonnes handled in 2014. Similarly, container traffic at the port is projected to rise from 1.012 million twenty-foot equivalent unit (teu) containers last year to 1.3 million teu this year— a 28.8 per cent increase. He said KPA was looking at reducing the dwell time at Mombasa Port from 3.9 days in 2014 to three days this year to cope with the projected increase in the cargo volumes. Mombasa’s main rival Dar es Salaam port, which registered an increase in cargo volumes from 12.6 million tonnes in 2012/13 to over 14 million tonnes in 2013/14, is projecting to reach 15 million tonnes this year, citing efficiency gains. Increased handling of Ugandan volume by 609,830 tonnes, pushed last year’s transit traffic at Mombasa port to 7.2 million tonnes from from 6.7 million tonnes in 2013. Leading destination Uganda continued to maintain a dominant position as the leading transit cargo destination accounting for 76.7 per cent share of the total transit traffic. Its cargo volumes 27.36m grew 12.4 per cent to 5.5 million tonnes on the back of increased trade volumes in the country. However, as at March 4, there were 2,435 Ugandan containers that had been at the port for more than 21 recommended days despite a waiver by the Kenyan government, which expires on April 15. Currently, Kenya and Uganda are developing their oil and gas sector, with the latter planning to start oil production in 2017. Cargo transit to Burundi grew 1.1 The projected volume in tonnes expected to pass through the Mombasa port this year per cent to 79,200 tonnes whereas total transit cargo to Rwanda and Tanzania decreased 1.7 per cent and 2.4 per cent to 235,912 tonnes and to 187,848 tonnes respectively, last year, fuelling fears of the possibility of the two countries opting for Dar. Uganda traders said whereas cargo clearance at Mombasa port has improved, with the number of days for cargo destined to Kampala and Kigali falling from 18 days and 21 days to four and seven days, respectively, following the implementation of the Single Customs Territory last year, Kenya still has numerous weighbridges, increasing the costs of doing business. Ahead of an increase in cargo volume, Mr Ndua said the construction of a second container terminal is 80 per cent complete, and its first phase is set for commissioning in March next year, second phase in 2017, and the third phase in 2019, enabling the port to more than double the handling capacity of containers to over 2.3 million annually.
Mar 23rd 2015
Apr 6th 2015