Prime
‘Avail Shs150b to UDB for SMEs to leap forward’
Locked shops along Ggaba Road in Kampala following the directive of the President to have a 14-day lock down. The coronavirus pandemic is affecting small businesses in a variety of ways such as limited cash flows. PHOTO BY RACHEL MABALA
What you need to know:
- So far, government has periodically updated the State about the health measures to fight against the Coronavirus (COVID-19) pandemic. However, there are no clear austerity measures aimed at fixing the looming Covid-19 economic crisis. In an interview, Mr Patrick Kiconco Katabaazi, the executive director of the Centre for Budget and Tax Policy, an independent think-tank says that government needs offer some drastic fiscal measures to support Ugandans who are at risk of falling into poverty during and after this period. Excerpts below.
Small and Medium Enterprises are counting losses as a result of the coronavirus lockdown. How should they be supported to regain their footings?
Strategies should be put in place to avail at least Shs150b to the Uganda Development Bank so that small businesses who will be badly hit by this shock can borrow money to stay afloat.
A strategy has to be developed laying down the criteria for accessing this fund. Priority should be given to companies that have diligently paid taxes and all other financial obligations such as National Social Security Fund (NSSF) remittances. This will be critical in encouraging business to formalise after this period.
Some SMEs owe the government some money already. How tough could it get?
According to the Auditor General’s report 2018/19, it is estimated that domestic arrears are now at Shs3.3 trillion, yet the amount provided in the budget has always been less than 15 per cent of the reported arrears.
A huge bulk of these areas are monies owed to local business and non-payment of these negatively impacts economic activity in the country. Many businesses have been pushed out of the market and others are struggling to get out of this debt.
To stimulate the economy, government should urgently pay verified arrears for local businesses.
In addition pension payments have always been characterised by arrears. In the 2018/19 Report, the Auditor General indicated that most of the unspent balances were meant for pension payments.
We therefore call upon government to release payments for pensioners in a timely manner while designing a plan for clearing all arrears. The senior citizens are not only vulnerable economically but also highly susceptible to having adverse effects when infected by the virus.
Why is it important to provide direct income support to formal private sector workers?
This is critical given the potential loss of jobs that is likely to arise in this period. We recommend that all verifiable individuals in private sector earning less than Shs1m be paid Shs100,000.
This proposal is made against the background that most of the formal private sector employees pay PAYE.
Therefore, the state should remember them during these difficult times. In the FY 2018/19, PAYE raised Shs2.8 trillion (URA Revenue Performance Report FY 2018/19). These private sector workers can be identified from URA-PAYE and NSSF databases. This measure is expected to cover about 800,000 people there by costing government Shs240 billion.
We also recommend that PAYE is revised downwards from the least 10 per cent as a way of reducing the burden on individuals during this period. This measure could be set at four months and reviewed after that time.
Where does that leave the informal sector players who also need some kind of incentive to keep them afloat?
Drastic measures of social distancing have and will continue to immensely affect informal sector workers. These are boda boda riders, taxi drivers and conductors, vendors, shop attendants and others.
Some of these workers who have been surviving on hand to mouth are now stuck in urban centres across the country with no sustainable financial base. Disruptions in their income stream condemns them to poverty in the shortest time possible. Lack of basic income has potential to threaten lawlessness and social cohesion.
We strongly recommend an income stimulus for informal sector workers. These can be identified through existing boda boda associations, KACITA , Market Vendors associations, Artisan workers, Taxi drivers association, Mazima Pension Scheme and through other verifiable means to the extent possible.
This measure should begin with Kampala to smoothen transition and relocation if necessary. People in active informal sector in urban areas around the country are estimated to be about 4 million and if these can be supported with basic income support of Shs50,000 per month for four months, this can be equivalent to Shs800b.
Where will the revenue sources come?
Government should borrow. Note that on March 4, 2020, the Managing Director of International Monetary Fund, Kristalina Georgieva indicated that the organisation is ready to support vulnerable countries with different lending facilities, including rapid disbursing of emergency financing, which could amount up to $50 billion for low-income and emerging markets.
Of this, $10 billion is available at zero interest for the poorest members through the Rapid Credit Facility with a grace period of 5½ years, and a final maturity of 10 years. This means financing under the RCF is available to low income countries.
Besides borrowing, how else can the government raise money for economic stimulus and related packages?
This is the right time to suspend non-critical projects. During this period, government should suspend all non-critical projects especially physical infrastructure. Already a shut down on non-essential government services is a saving in itself. These include workshops, travels abroad, field trips and consumables. We need to be frugal with our resources beginning now.
You recommended that government can borrow. So how should they go about managing the public debt?
According to the Auditor General’s Report (18/19), debt increased by 22 per cent from Sh39.9 trillion to Shs41 trillion as at June 30, 2019. Recent numbers have put the national public debt at Sh46 trillion. The rising debt translates into rising interest payments and for the year 2018, this amounted to Sh2.3 trillion. This means if government goes ahead to meet all debt obligations, there will not be resources available to provide social services.
We strongly recommend that government reopens negotiation with creditors to re-structure our debt portfolio and where possible, secure postponement of payment of interest in the medium term.
In times like this, consumer protection is relegated to the periphery. What are your thoughts?
The Attorney General should work with Parliament to put in place strong consumer protection measures during this period. This is critical in ensuring that prices remain stable and consumers are not cheated. If the state of affairs remains, even if the proposed measures are implemented, the positive impacts will be washed away sooner than later.
What should government’s emergence response plan look like to ensure that the country gets back on track after Covid-19?
Setting up economic recovery task force is of utmost importance. Government is further encouraged to set up a multi sectoral task force to guide rolling out of economic recovery programmes. This committee should have representation of government, the Private Sector and Civil Society.
It is also very important to build an elaborate social protection system that links all Ugandans that have contacts with mobile accounts, e-accounts or bank accounts. This will enable government to respond to people in case of emergencies.
Social protection refers to a set of public and private actions that address the deprivation and vulnerabilities of the poorest, and the need of the currently non-poor for security in the face of shocks and the particular demands of different stages of the life cycle.
A well-structured social protection system should be shock responsive to respond flexibly in cases of emergencies or mitigate people’s susceptibility to shocks.
Additionally, Covid-19 has demonstrated that states need to have clear long term strategies to address vulnerable groups. It is time to start debating critical interventions such as adequate senior citizens’ pension, disability grant, child grant and unemployment support.
