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The International Monetary Fund has asked Uganda to exercise fiscal discipline in managing its 2010/2011 budget allocations. This, the IMF says will minimise the country’s exposure to the growing debt crisis in the European Union, Uganda’s key development partner.
Mr Thomas J. Richardson, the IMF senior resident representative to Uganda told The East African, a Daily Monitor sister paper that the global environment is still uncertain in the light of the prevailing debt crisis in the eurozone. Therefore it calls for strong fiscal policy that shield the economy from secondary effects of the crisis.
The debt crisis in the EU was sparked off by Greece’s failure to clear its interest obligations on government securities earlier this year, followed by similar problems in Portugal, Italy and Spain.
The crisis is expected to erode economic stability in aid recipient countries such as Uganda. Cuts in government jobs, wages and direct decreases in aggregate demand in the countries affected by the debt crisis are likely to affect Uganda’s export demand, remittances and divert aid commitments towards stimulus packages.
The EU accounts for about 32 per cent of Uganda’s export earnings, particularly horticultural products, while African countries consume $18 billion in EU development aid annually.
Greater fiscal discipline will therefore, restrain government expenditure and ensure minimum economic shock in case of harder times in the Eurozone. Meanwhile, EU countries have mobilised about $924.5 million that will be used to rescue member states faced with fiscal distress.
Recently, Ms Syda Bbumba, Uganda’s Finance minister unveiled a budget that reflected significant aid cuts with donor support projected at only 25 per cent of total expenditure.
Total allocations to the roads sector were also slashed from Ush1.1 trillion in 2009/10 financial year to an estimated Ush0.9 trillion in the 2010/11 financial year on the back of insufficient utilisation.
Dr Richardson however, said the government needed to absorb funds in infrastructure projects in order to boost economic growth. He said: “More focus is needed in the establishment of a co-ordinated road network that comes with more efficiency and easy movement for users,” He said careful project appraisal would help to boost absorption capacity in the infrastructure sector and stimulate aggregate demand.
But in spite of the government’s willingness to support infrastructural development, improve the road network and boost electricity generation, limited absorption capacity in project implementing agencies has left much of the budgeted funds unspent.
For example, the Uganda National Roads Authority has for years been accused of underfunding proposed projects, resulting in inadequate structures, according to World Bank experts. Nevertheless, the economy is projected to grow at 6.4 per cent in the next financial year compared with 5.8 per cent this year.
In the meantime, economic fears in the EU bloc have led to massive appreciation of the US dollar against other currencies. The Uganda shilling for instance, has dropped to about Ush2,290, against the dollar in recent days.
The International Monetary Fund has asked Uganda to exercise fiscal discipline in managing its 2010/2011 budget allocations. This, the IMF says will minimise the country’s exposure to the growing debt crisis in the European Union, Uganda’s key development partner.
Mr Thomas J. Richardson, the IMF senior resident representative to Uganda told The East African, a Daily Monitor sister paper that the global environment is still uncertain in the light of the prevailing debt crisis in the eurozone. Therefore it calls for strong fiscal policy that shield the economy from secondary effects of the crisis.
The debt crisis in the EU was sparked off by Greece’s failure to clear its interest obligations on government securities earlier this year, followed by similar problems in Portugal, Italy and Spain.
The crisis is expected to erode economic stability in aid recipient countries such as Uganda. Cuts in government jobs, wages and direct decreases in aggregate demand in the countries affected by the debt crisis are likely to affect Uganda’s export demand, remittances and divert aid commitments towards stimulus packages.
The EU accounts for about 32 per cent of Uganda’s export earnings, particularly horticultural products, while African countries consume $18 billion in EU development aid annually.
Greater fiscal discipline will therefore, restrain government expenditure and ensure minimum economic shock in case of harder times in the Eurozone. Meanwhile, EU countries have mobilised about $924.5 million that will be used to rescue member states faced with fiscal distress.
Recently, Ms Syda Bbumba, Uganda’s Finance minister unveiled a budget that reflected significant aid cuts with donor support projected at only 25 per cent of total expenditure.
Total allocations to the roads sector were also slashed from Ush1.1 trillion in 2009/10 financial year to an estimated Ush0.9 trillion in the 2010/11 financial year on the back of insufficient utilisation.
Dr Richardson however, said the government needed to absorb funds in infrastructure projects in order to boost economic growth. He said: “More focus is needed in the establishment of a co-ordinated road network that comes with more efficiency and easy movement for users,” He said careful project appraisal would help to boost absorption capacity in the infrastructure sector and stimulate aggregate demand.
But in spite of the government’s willingness to support infrastructural development, improve the road network and boost electricity generation, limited absorption capacity in project implementing agencies has left much of the budgeted funds unspent.
For example, the Uganda National Roads Authority has for years been accused of underfunding proposed projects, resulting in inadequate structures, according to World Bank experts. Nevertheless, the economy is projected to grow at 6.4 per cent in the next financial year compared with 5.8 per cent this year.
In the meantime, economic fears in the EU bloc have led to massive appreciation of the US dollar against other currencies. The Uganda shilling for instance, has dropped to about Ush2,290, against the dollar in recent days.
