Uganda Faces UGX 270b Shortfall over Coronavirus

The Ministry of Finance has said that the country will face a revenue shortfall of as much as 270 Billion shillings ($70m) due to the coronavirus lockdown.   

Matia Kasaija says that the shortfalls will come from international trade taxes through the reduction in the value of imports and consumptive taxes which include Value-added Tax and Excise duty due to the slowdown in the industry and service sector.   

 Kasaija was on Thursday making a statement in Parliament on the economic impact on the coronavirus to the country. 230,000 People worldwide have tested positive for coronavirus, while 9.000 people have died.   

 As a result of the outbreak, trade in goods and services has been affected as several countries close their borders and issue travel bans.   

 According to Kasaija, revenue collections will register an additional shortfall of about 82 billion shillings for the remaining period of this financial year, and about 187 billion for the next financial year assuming that Uganda doesn’t register any case. 

 In case of an outbreak in Uganda, the revenue shortfall is expected to drop further to 638 billion shillings for this financial year ending, and next financial year.   

 Kasaija also says Ministry of Health needs 25 billion shillings to handle the coronavirus challenge, and more money will still be required. 

 “More financing may be required to facilitate continued surveillance, aerial and ground spraying of locusts as well as continued awareness creation and sensitization as well as to provide support to the people whose livelihoods will be affected,” Kasaija says. 

Kasaija also says that 780,000 Ugandans are mostly likely to be pushed into poverty, due to the low activity in the service and industry areas, and this will lead to a decline in economic growth.   The economic growth for the country for financial year 2019/2020 has been revised downwards from 6.0% to 5.2% or 5.7% depending on the severity of the virus impact in Uganda.  

 According to Kasaija, the biggest impact of the coronavirus will be on the services sector. He says travel restrictions are already affecting the tourism sector including hotels, accommodation and transportation.

 “Supply chain disruptions are hampering trade, and this is expected to continue until the virus is contained at the global level. Travel restrictions at the global level will also affect the flow of imports into the country leading to disruption in the supply of inputs into the Industry sector. This will affect industrial output.” Kasaija says.   

 He says to deal with the possible negative impacts on our balance of payments, the Government will seek support from the International Monetary Fund to support the Central Bank in ensuring that international reserve buffers remain strong and that the exchange rate remains stable.   

 According to Kasaija, imports will decline by 44% in the last four months of this financial year, and loan disbursements are projected to decline by 50%.   

In the worst-case scenario, if an outbreak is confirmed in Uganda, economic growth for financial year 2019/2020 which is ending would decline to between 4.6 percent and 5.1 percent, and an additional 2.6 million Ugandans would be pushed into poverty. Revenue collections would decline to 600 billion shillings. 

 Kasaija says that in total, the Government of Uganda is faced with a preliminary additional financing gap of approximately 370 billion shillings for financial year 2019/2020 and shillings 350 billion shillings for financial year 2020/20221 due to revenue shortfalls and additional expenditure needs. 

 To deal with the financing gap in the Government budgets for this ending financial year and next financial year, the Ministry seeks a budget support loan on concessional terms worth 720 billion shillings for this ending financial year and financial year 2020/2021 from the World Bank.  

 According to Kasaija, the money is meant to deal with the challenges in the health sector, needs arising from the desert locust invasion and related support to people whose livelihoods will be affected.