The funding of the new economic strategy
Now, we know, how the Government plans to fund its ne economic strategy. It will limit the donor funding at 200m USD or 25% (of the total budget, I assume) - but nobody is really sure. Nobody? No, the State Minister for Finance in charge Planning, Mr Isaac Musumba, knows what the Government will do: "local resources would be raised through local borrowing, mobilisation of savings, increased wealth, and increased taxes among others."
Please correct me, if I am overcritical: Borrowing locally (by the Government) crowds out private savings (i.e. private investments), so there is a trade-off and both compete and try to attract investor by offering favourable interest rate, which raise. This will contradict the ne strategy. Wealth, if measured in nominal terms, will raise, if however measured in real terms will not increase because inflation must be taken into account. Moreover, if tax income shall increase, the wealth will be negatively affected and because of the higher interest rates, which are to be paid for the local borrowings, the net effect will at least decrease. Well, there is however still the option of forced savings in government securities at a certain fixed (low) rate. But this would be never taken into consideration in a market oriented economy.
gov. borrowing - up -> private saving - down => competition via interest rates => interest rate - up
gov. borrowing - up -> interest payments - up => possibly no positive effect on the budget
Didn't they also mention that they would still like to attract more FDI - foreig direct investments? I am sure, the foreign investors will love the idea of state guaranteed break-even cost coverage. I would invest. Hey, I would not lose anything, if I can keep my acutal costs below the costs set by the government.
"Govt to limit donor funding to $200m
By Gerald Walulya & Mwanguhya Charles Mpagi
Feb 21, 2005
KAMPALA - The government has proposed to limit donor funding to $200 million annually in its new economic reforms.
The reforms are contained in a policy paper drafted by the Minister of Finance, Dr Ezra Suruma. In a one-day secret conference at Speke Resort Munyonyo last Friday, which was chaired by President Museveni, the government resolved to adopt new economic strategies that will enhance job creation, rural transformation and increasing the local revenue base as suggested by Suruma.Donor-support to the Uganda's budget currently stands at 48 percent.
The government spokesman, Dr James Nsaba Buturo, told The Monitor that it is government's deliberate plan to reduce reliance on donor funds.
"It's our desire to reduce reliance on donor funding. It is not healthy to continue depending on donors," Buturo said.
The State Minister for Finance in charge Planning, Mr Isaac Musumba, could not confirm the $200 million figure but added that the strategy was to gradually reduce donor dependence.
He said ideally government hoped to have reduced donor budget funding to atleast 25 percent in a period of 10 years.
President Museveni has consistently called for reduction of donor funding to Uganda's budget. Ministers and all Permanent Secretaries attended the conference.
Musumba said on telephone yesterday that local resources would be raised through local borrowing, mobilisation of savings, increased wealth, and increased taxes among others.
Dr. Suruma proposed a return to the interventionist model of macro-economic management. He described the current economic strategy as, "Laissez faire model based on the belief that the government should limit itself to ensuring a stable economic framework and providing public goods like feeder roads, while leaving the peasants to fend for themselves by reacting to market incentives".
He said Uganda has been following this model and the productivity figures remain at the bottom of the world scale. He proposed that the current free-market economy needs to be revisited."
SOURCE: http://www.monitor.co.ug/news/news02214.php
Please correct me, if I am overcritical: Borrowing locally (by the Government) crowds out private savings (i.e. private investments), so there is a trade-off and both compete and try to attract investor by offering favourable interest rate, which raise. This will contradict the ne strategy. Wealth, if measured in nominal terms, will raise, if however measured in real terms will not increase because inflation must be taken into account. Moreover, if tax income shall increase, the wealth will be negatively affected and because of the higher interest rates, which are to be paid for the local borrowings, the net effect will at least decrease. Well, there is however still the option of forced savings in government securities at a certain fixed (low) rate. But this would be never taken into consideration in a market oriented economy.
gov. borrowing - up -> private saving - down => competition via interest rates => interest rate - up
gov. borrowing - up -> interest payments - up => possibly no positive effect on the budget
Didn't they also mention that they would still like to attract more FDI - foreig direct investments? I am sure, the foreign investors will love the idea of state guaranteed break-even cost coverage. I would invest. Hey, I would not lose anything, if I can keep my acutal costs below the costs set by the government.
"Govt to limit donor funding to $200m
By Gerald Walulya & Mwanguhya Charles Mpagi
Feb 21, 2005
KAMPALA - The government has proposed to limit donor funding to $200 million annually in its new economic reforms.
The reforms are contained in a policy paper drafted by the Minister of Finance, Dr Ezra Suruma. In a one-day secret conference at Speke Resort Munyonyo last Friday, which was chaired by President Museveni, the government resolved to adopt new economic strategies that will enhance job creation, rural transformation and increasing the local revenue base as suggested by Suruma.Donor-support to the Uganda's budget currently stands at 48 percent.
The government spokesman, Dr James Nsaba Buturo, told The Monitor that it is government's deliberate plan to reduce reliance on donor funds.
"It's our desire to reduce reliance on donor funding. It is not healthy to continue depending on donors," Buturo said.
The State Minister for Finance in charge Planning, Mr Isaac Musumba, could not confirm the $200 million figure but added that the strategy was to gradually reduce donor dependence.
He said ideally government hoped to have reduced donor budget funding to atleast 25 percent in a period of 10 years.
President Museveni has consistently called for reduction of donor funding to Uganda's budget. Ministers and all Permanent Secretaries attended the conference.
Musumba said on telephone yesterday that local resources would be raised through local borrowing, mobilisation of savings, increased wealth, and increased taxes among others.
Dr. Suruma proposed a return to the interventionist model of macro-economic management. He described the current economic strategy as, "Laissez faire model based on the belief that the government should limit itself to ensuring a stable economic framework and providing public goods like feeder roads, while leaving the peasants to fend for themselves by reacting to market incentives".
He said Uganda has been following this model and the productivity figures remain at the bottom of the world scale. He proposed that the current free-market economy needs to be revisited."
SOURCE: http://www.monitor.co.ug/news/news02214.php
posted by Torsten at 10:13 am
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