External Budget financing on the decline, says Kasaija

The Ministry of Finance, Planning, and Economic Development has said external financing for the National Budget is constantly on the decline.

According to the ministry, this requires the government to strengthen domestic revenue mobilisation to finance the Budget for the Financial Year (FY) 2025/2026.

While presenting the Budget Strategy for the Financial Year 2025/2026 at the National Budget Conference in Kampala on Wednesday, Finance minister Matia Kasaija said: “We shall finance the Budget for FY2025/2026 using our domestic resources, as well as external resources.

However, as I already indicated, external financing has been on the decline and this calls for strengthening of the implementation mechanisms of our Domestic Revenue Mobilisation Strategy (DRMS).”

In this regard, Mr Kasaija said the government shall repurpose the resources in the current Budget and improve allocative efficiency to focus on the prioritised sectors of the economy, ensure greater accountability for tax expenditures, and improve return on public investments.

Mr Kasaija said in the FY2025/2026, the government will ensure effective implementation of the DRMS with a major focus on combating tax evasion and smuggling.

Government will also incentivise the diversification of private capital to balance government securities vis-à-vis other forms of private finance, for example equities. It will rethink the reform of the pension sector, insurance, and capital markets (for instance, infrastructure bonds) to unlock the huge financing potential.

Mr Kasaija further said the other measures include incentivising and promoting corporate debt financing to relieve government of the debt burden generated from financing such institutions, for example.

He said the government shall target to attract more Foreign Direct Investment (FDI) through sound economic and financial policies, infrastructure development, reducing the cost of doing business, and improving governance.

Presenting the statement by the Local Development Partners Group (LDPG), Mr Joost van Ettro, the head of cooperation at the Embassy of the Netherlands, said: “Given that we are here to consult on the Budget, the development partners would like to emphasise a few priorities for the 2025/2026 Budget, which, among others, are domestic revenue mobilisation.

Mr Ettro said the ambitious targets in the DRMS can partially be achieved by improving revenue collection through closing the existing loopholes in tax administration, and rationalising tax expenditures (reducing tax expenditures by 0.2 percent of GDP each year) that have grown substantially over recent years and eroded the tax base (equal to around 12.5 percent of total tax collections in FY2022/2023).

“We encourage the government to effectively implement the Public Investment Financing Strategy (PIFS), which provides a framework for widening the scope of mobilisation of financial resources from domestic, external, and innovative financing options, especially climate financing. At the same time, we encourage the government to further prioritise the development and capacity building of effective and accountable public institutions prepared to fight corruption and impunity as also emphasised clearly by President Museveni,” he said.

Mr Ettro said the development patterns recommend that the government should increase human capital development, stressing that Uganda’s underinvestment in human capital is adversely impacting the future productivity of its citizens, as evidenced by the World Bank’s Human Capital Index (HCI), which shows that a child born today in Uganda will only be 38 percent as productive when he grows up as compared to how he could be if he enjoyed complete education and full health.