Friday, August 5, 2011
IT IS ONLY LOGICAL FOR GOVT TO STOP EXTRAVAGANCE
Jet fighters bought by the government. PHOTOS BY MARTIN SSEBUYIRA
By Martin Luther Oketch
Business leaders have warned government against spending far beyond what it earns, a reason they cite as responsible for the current economic crisis in the country.
The health of the economy is in a dire state with the July inflation hitting a 10-year high at 18.7 per cent underlined by the price of sugar now retailing at Shs6,000 per kilogramme while petrol and diesel continue to rise on the back of a severely battered shilling.
But speaking to Saturday Monitor yesterday, several business and opinion leaders said if the government fails to act, it could find itself with a greater problem to deal with. Instead they accused the government of being insensitive to its own spending.
Makerere University don and economist Prof. Augustus Nuwagaba said the government needs prudent fiscal discipline. “There is too much money chasing few goods. The government must stop the unnecessary expenditures and invest that money in productive areas of the economy to stimulate growth,” he said.
The government has been slow to respond to the crisis claiming the causes of the slide are external factors far beyond what it can do to reverse the trend. “In the event the external shocks, the domestic aggregate demand management policies have to be even more cautious to ensure that their operations do not exacerbate the disruptions due to external forces,” an economist at the World Bank, Ms Rachel Sebudde Kaggwa, said.
She said the government should find a middle ground to balance demand to supply by being prudent in its own spending especially on unproductive activities but investing in agriculture and job creating ventures. Ms Sebudde added: “In the short term, aggregate demand ought to be balanced, and that is why what the central bank is doing to tighten liquidity is appropriate. But on the supply side, there [is need] to increase responsiveness of the aggregate supply in the economy especially from the agricultural sector so that we can have enough supply of products to match with the demand in the economy to mitigate supply shocks.”
Although Uganda’s economy is agro-based, the government has relegated the agricultural role entirely to subsistence production which hardly provides enough to feed into the agro-processing sector as well as feed the 33 million people adequately. High dependence on natural weather for agricultural production is partly to blame for the meager output of food crops.
“The government should arrest its spending because you cannot spend more than you have. It should also try to arrest the runaway inflation, using its technocrats. It should also focus on boosting exports to earn more foreign exchange so as to stabilise the shilling,” Mr Ivan Kyayonka, Shell Uganda country manager, said.
But Ms Sebudde also called on the government to implement marketing and distribution strategies that take care of demand when supply is short. “Storage and proper marketing and distribution of products internally [should be streamlined] so that when there is food shortage in one region and the other region is lacking then the food in other region can be transferred,” she said.
The Shilling has for the last couple of weeks suffered from lack of backing from actual export strategies hence losing value to the US dollar following a growing demand for the greenback globally.
The central bank said average monthly exchange rate for July 2011 stood at Shs2,587.2 to the US dollar, representing a depreciation of 5.1 per cent on a monthly basis and 14.6 per cent on annual basis. The central bank said this was higher than the monthly depreciation of 3.1 per cent recorded in June 2011.
“The country needs to quickly support the expansion of the export sector increasing the supply of dollars into the market in addition to managing the demand for dollars. Hastening the oil production is a sure way of not only internally meeting our petroleum need (which accounts for over 30 per cent of the import need for dollars) reducing on the demand for dollars but will also generate foreign exchange from the sales,” Mr Charles Katongole, Head of Asset and Liability Management at Standard Chartered Bank, said.
He also added that the strengthening of the Shilling in the short run will be largely as a result of a drop in corporate demand and that will happen at small intervals but given the general weak balance of payments; the shilling will generally tend to weaken. These comments come after the government recently bought fighter jets worth Shs1.2 trillion, a move seen by many as extravagance.
In their own words...
Mr Kenneth Kitariko, the CEO African Alliance Uganda.
There is no immediate solution to these problems. Government should quickly implement investments projects particularly the infrastructure projects because infrastructure plays a key role in national development. The next one is increasing investment in agriculture productivity to mitigate the supply shocks.
Mr Sebaggala Kigozi, Executive Director UMA
The government should go back to the drawing board to realign the priorities of the nation. The government needs to know which areas it should spend money. It should also involve the relevant stakeholders in policy formulation processes to avoid making policies which don’t meet the needs of all stakeholders and the private sector.
Mr Peter Kimanthi, Monitor Publications General Manager Finance and Operations
The government can help its population by boosting local production through offering subsidies. The government should also immediately scrap duty from diesel, which is used by manufacturers in production so as to increase production. It should also reduce tax on petrol so as to reduce the cost of transporting food from villages to towns. This will make food and manufactured goods cheaper, boost demand and reduce inflation.
Mr Sikander Lalani, Managing Director Roofings Uganda Ltd
The situation is not to unique to Uganda alone, for instance high oil prices are global problem and the Ugandan government cannot do anything about it. The same applies to the exchange rate as all other currencies in the region have also depreciated.
Prof Augustus Nuwagaba, Makerere University don
The government should also enhance the export sector performance in order to increase export invoices and reduce imports so as to stabilise the shilling which has greatly depreciated because we import too much and export less.
Compiled by Faridah Kulabako