The tax-to-GDP ratio declines in a context of growing financing needs

The tax-to-Gross Domestic Product (GDP) ratio has fallen to 11.4%, which Finance Ministry Permanent Secretary Ramathan Ggoobi says calls for a multifaceted approach to help Uganda achieve its development agenda.

The tax-to-GDP ratio is a measure of a country’s tax revenue relative to the size of the economy.

The ratio has decreased over time from 14.6% in FY 2018/19 to 12.2% in FY 2019/20.

Speaking at a high-level conference titled: “Building Stronger Partnerships for Sustainable Financing in Uganda,” Mr. Ggoobi said the government was undertaking a five-point approach in an effort to help Uganda to carry out its development program.

Among these, he said, the government will increase the tax-to-GDP ratio by 0.5 percent per year over the next five years to mobilize more resources to pursue established development programs.

Other approaches, Mr. Ggoobi said, will include inclusive economic growth, which aims to improve education and financial inclusion, debt management by borrowing only for critical projects and on concessional terms, a strategy medium-term sustainable public management and a project review to identify projects. that can add value to national development while bringing about tangible changes in people’s lives.

The government continues to struggle in a number of areas, which has held back growth amid falling tax revenues.

For example, debt management was a major challenge, which Finance Minister Matia Kasaija said had reached worrying levels.

Speaking at the same event, Minister of State for Finance for General Duties, Henry Musasizi, said that while public debt remains sustainable, interest payments on public debt have increased, which limits the ability of the government to spend on priority programs.

“Interest payments on the public debt rose from 17% to 21% in May 2022,” he said, noting that this somehow limits the allocations of priority programs, which have the capacity to stimulate the economic growth.

The World Bank yesterday called on the government to hedge against rapidly rising public debt levels by diversifying its sources of funding for development programs, increasing national savings and focusing more on concessional borrowing.

Mr. Samuel Munzele Maimbo, Director of Development Finance at the World Bank, said Uganda should adopt the Sustainable Development Finance Policy, which emphasizes transparent and sustainable financing.

“It is designed to encourage reforms that ensure debt sustainability,” he said, noting that Uganda today finds itself at a crossroads due to external economic shocks, in the midst of the need to fund development programs that require sustainable funding.

Mr Maimbo also warned the government of the challenge of increasing interest payments on the debt, which continues to shock operations.

High interest rate on public debt

According to Mr. Jibran Quresihi, Head of Regional Economic Research for Africa at Standard Bank Group, Uganda’s investment spending has been low, but interest rates on long-term government debt are among the highest in the region, draining the country’s ability to save to finance critical projects.

Therefore, he said, the government should boost national savings, assess the quality of investments, increase the efficiency of public investments, consolidate public finances and improve regulatory reforms.

Debt management

One of the things that continues to challenge the government is paying down the debt, the interest on which continues to soar. For example, according to the Minister of State for Finance for General Duties, Henry Musasizi, interest payments on the public debt rose from 17% to 21% in May 2022.

High interest rate on public debt

According to Mr. Jibran Quresihi, Head of Regional Economic Research for Africa at Standard Bank Group, Uganda’s investment spending has been low, but interest rates on long-term government debt are among the highest in the region, draining the country’s ability to save to finance critical projects.

Therefore, he said, the government should boost national savings, assess the quality of investments, increase the efficiency of public investments, consolidate public finances and improve regulatory reforms.

Sallie R. Loera