By Prof. Waswa Balunywa, PhD
The Coronavirus appears an accelerator or an obstacle to the emerging change
The stimulus packages and the policies that are initiated during and immediately after the pandemic should enable the countries to restart and restore economic vitality. But this is not guaranteed because it cannot be predicted. If it does, the growth will come out of new opportunities, recognizing those opportunities and taking advantage of the new technologies (innovations) that are being developed especially in the 4IR changes that are being introduced in the world. But government must be alert because there is no right formula or right way of doing things. Governments are going to do extraordinary things to save their people from starving and death and save their economies from economic ruin.
The Uganda economy may decline by 30% in the current year 2019/2020. Even the subsequent year 2020/2021, may see negative growth. To avoid worse economic performance, government must initiate an economic stimulus package. But it must decide on what the problem is, what the goals of stimulus and how to achieve intended goals.
The Immediate Intervention Measures
There are immediate measures that government must take to kick start and or stimulate the economy. These includes, addressing the budget. Other measures are simply reliefs to enable business restart. Some are handouts. Others assistances to businesses to enable them secure either loans or overdrafts with a view to kick starting their businesses. Some issues deal with rent and tax
We must agree that all nations have incurred losses. The losses are a collective aggregation of losses by individuals and organizations. We have to keep that in mind as we decide. Not an orthodox way of decision making, neither orthodox decisions, but they must be made. They include the following.
Cut the national budget
The first and most important is management of its national budget. Before the Coronavirus, there were shortfalls in the tax collections (Possibly this is what may have led to the change in leadership at the URA). The Coronavirus will lead to decline in GDP this financial year 2019/20. It may be up to 30% decline. Our tax collections are about 15% of GDP, if GDP declines, taxes collected will decline. Government therefore must urgently address the budget deficit in 2019/20 through reduction in expenditure. Luckily the lockdown locked some expenditures, but these may not be much. It was assumed that other than salaries all other expenditure has to be frozen.
Government must negotiate loan repayment with the IMF and World Bank. President Museveni has called for cancellation. Still better than rescheduling. There is no choice. Almost 30% of the countries budget is interest and loan repayments. Next year’s budget 2020/21 must also be recast in light of the recession and low growth expected in that year. Austerity measures, discipline is required. This is tough for a country that cannot meet its entire annual budget, how much can we borrow and what is acceptable? But tough times calls for tough decisions. These will be budget cutting.
Wave Rent for 3 Months
Sounds foolish, yes it does. But very rational. A group of people have not worked for the month of April, part of May and didn’t work part of March. As we re-open, businesses will take time to pick. Even those business that have been open, there was decline in business. I will be surprised if Mobile Money transactions did not drop by over 60% so, nothing is wrong in this crazy proposal. The world has made a loss, and so will government and so will organizations and individuals. Let this country forget rent earnings for three months! And even for URA for that period and PAYE. Individuals and organizations have not been working. Of course there are exceptions, many families have had to receive food! In the same vain there should be a waiver for rent! Waive the rent payable otherwise tenants may simply get out of these buildings. This must be seen as part of the national loss. KACITA, the Kampala Traders Association already listed things they feel government should support them in. These include rent. Crazy but crazy enough to ease business start-up.
These are not ordinary times.
As an immediate measure government needs to address the issue of ideology. Whenever we talk about ideology the feelings many people get is there they go again, they are talking about socialism and communism! We have missed an opportunity to build a national identity because of the scare. Many nations take their young people through a national service. We tried with Kyankwanzi and government was labelled communist. Without a common understanding of our problems as a country, without pride that we are Ugandans and that is what God made us, we cannot build consensus on a development approach. Neither can we build a nation.
Ideology is how we want to manage our society and in summary it is about the role of government in the economy.
We have this famous “Government Etuyambe” demanding help from government, but when it does it is suspected for introducing socialism! We blame government for every challenge we get. During the Coronavirus pandemic, we wait for food from government! Different situation give different lessons. Government needs to assert itself. I noted that our different political parties do not differ much on the role of government. But to expect ordinary Ugandans peddling food in markets and manufacturing products on streets to compete with multi-nationals or foreigners with money is to ask Ugandans swim with the sharks. Perpetuation of poverty is imagining that capitaless Ugandans can compete with foreign capital. This has to change.
Right now, what the country requires is a reduction in tax rates! This means that government is going to collect less money but government must have confidence that by reducing tax it is actually encouraging more people to pay and you may have a neutral tax stance. So, it is important that the following things are done;
Government must revise its budget down both revenue and expenditure. While there was a supplementary budget of about Shs300 billion recently for the coronavirus war. The annual budget for 2019/20 was Shs34.3 trillion. Tax collection in April to June, may drop by 50-80%. The budget must be revised accordingly. Unfortunately, government usually makes quarterly transfers! The money was already sent based on expectation! Very likely we shall borrow externally to meet the deficit. The 2020/21 budget must also be revised down ward. Unless if we can absorb more loans. But having said that, the expenditure burden of government has to increase.
We shall need more money for health, but most important money to restart the economy. We shall apply Keynesian logic of giving people salaries for no real work done. Handouts to business people fit in their category. The biggest challenge our policy makers will have in years!
ii. Individual income tax rate must be reduced to 20% including the PAYE