Uganda: Government Releases Shs5.7 Trillion for First Quarter of 2019/20

Government yesterday released Shs5.7 trillion to ministries, departments and agencies, with a warning to accounting officials who accumulate arrears by failing to pay service providers.

Announcing the release of the funds at the Ministry of Finance headquarters yesterday, the Permanent Secretary and Secretary to the Treasury, Mr Keith Muhakanizi, said the money has been released for Quarter One expenditure of the 2019/2020 financial year, which represents 28.7 per cent of the approved budget and excludes expenditure on external debt and debt on Karuma and Isimba hydro-power projects.

“Accounting officers must prioritise payment of service providers on time and avoid the accumulation of arrears. There should be a display of the payrolls for salaries and monthly pension on government institutions’ noticeboards every month; the accounting officers must ensure timely submission of performance reports and accountability; and clearance of domestic arrears must be prioritised during this quarter,” he said.

Mr Muhakanizi said over the last three years, the Ministry of Finance has been committed to timely release of funds and all stakeholders are advised to take the information in the media.

“We release salaries, wages, gratuity on time for those accounting officers. The ones who have not complied, actions have been taken against them and it is going to be tougher in the next three years,” Mr Muhakanizi said.

He noted that accounting officers are accumulating arrears through cancellation of Local Purchase Orders (LPOs) and issuance of new ones for other activities.

“Starting from FY2018/2019, it was agreed that the Accountant General grants the authority to approve and cancel LPOs. This will continue in FY2019/2020. Accordingly, any accounting officer, who wishes to have any LPOs cancelled, will first seek approval from the Accountant General or myself with justifiable reasons,” he said.

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The economic consequences of persistent arrears accumulation by governments can include the following: Reduced economic growth. Arrears imply a liquidity problem in the economy, which can have a detrimental impact on aggregate demand.

For businesses, which are dependent on government contracts, arrears can cease or delay activity as a result of payment delays or impose difficulties in accessing credit from commercial banks, resulting in reduced pace of economic activity and increased unemployment.

There is increased cost of service provision in institutions because government suppliers try to mitigate the risks and the opportunity cost of delayed payments by adjusting their initial prices upward. This reduces the efficiency of government expenditure and contributes to economy-wide inflation.

In the current budget of 2019/2020, the government allocated Shs445 billion for clearance of domestic arrears.

The consequences

Mr Muhakanizi said many companies are collapsing because of loans.

“We should not allow this to happen. I and the governor [for Bank of Uganda] our first priority is to promote economic growth,” he said.

“We have to ensure we support our domestic suppliers so that they (companies) don’t collapse. Service providers not getting paid by the accounting officers must not be the reason for their collapse.

“That’s why whenever the accounting officer fails to pay the suppliers in time when money has already been released serious actions have to be taken against them,” he said.

However, Mr Muhakanizi directed that all service providers to the government must be tax compliant.

“You must be tax compliant. We cannot pay you and you don’t pay taxes to the government. When you are doing that you are cheating the government,” he said.

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Mr Muhakanizi said there are reforms going on in government with Ministry of Finance staff– the accountants and internal auditors– to make sure everything they do is properly verified.

Released funds

Central Government

Wage: Shs1.183 trillion

UNRA: Shs585 billion

Statutory obligations: Shs284 billion

Domestic arrears. Shs250 billion

National Airlines: Shs445 billion

Local government Grants: Shs310 billion

Uganda police: Shs181 billion

Water and Environment: Shs86 billion

National Medical: Shs128 billion

Energy Capital expenditure: Shs62 billion

Missions: Shs76 billion

Local Government

Wage: Shs531 billion

Non-wage: Shs158 billion

Development: Shs153 billion

Pension: Shs33.5 billion

Gratuity: Shs25.2 billion

Pension & gratuity arrears: Shs54.5 billion

Salary Arrears: Shs7.4 billion

Total : Shs962 billion

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