Does Covid-19 Stimulus package offer some relief for pandemic pain?

Since Covid-19 become a fixture in the country nearly 20 months ago, government’s stimulus package to deal with the pandemic seems to have blown hot and cold, until the ongoing Shs100,000 cash payment being made to slightly more than half a million vulnerable Ugandans appears to have triggered some renewed interest around government incentive to struggling businesses.

Some of the country’s leading economists, key sector players  and government economic planners interviewed for this article say Micro, Small and Medium (MSME) Enterprises, currently being constrained by the Covid-19 pandemic and the resultant containment measures, also deserve a direct stimulus package to enhance their battered productivity.

For the Ministry of Finance, Planning and Economic Development to raise its growth rates from 4.3 per cent estimated for Financial Year 2021/22 to at least 7 per cent in the medium-term, analysts say it is incumbent that MSMES segment which makes up to 90 per cent of the country’s economy, is properly facilitated to regain its footing.

Already, government and analysts alike, to some extent, agree that supporting MSME by extending Covid-19 relief measures and access to long term affordable capital shouldn’t be an option, but rather part of the wider stimulus package that should be enforced immediately. 

It is  no longer a secret that both the private sector and the government are in consensus pertaining to the business recovery support to the MSMES that continue to be adversely affected by the Covid-19 pandemic and the containment measures.

Both agree that this should include credit relief with a view to enable businesses to improve their liquidity and cash flow. As a result the restructuring of private sector bank loans has been further extended from April 01, 2021 for a further six months, allowing restructuring of loans for up to three times. This restructuring can be applied to any borrower before end of September 2021.

There is also an agreement that access to affordable medium-to-long term capital is key to boosting business. For that, Uganda Development Bank has according to government been further capitalised with an additional Shs103 billion in financial year 2021/22, in addition to the Shs555 billion disbursed in the previous Financial Year 200/21 for lending to Small and Medium Enterprises affected by the Covid-19 pandemic.

Information from the ministry of Finance indicates that the Agricultural Credit Facility (ACF) at the Bank of Uganda, the Emyooga programme through the Micro Finance Support Centre (MSC) and the Uganda Women Entrepreneurship and Youth Funds will continue to provide targeted funding for agriculture, women and youth group projects respectively. According to the Deputy Secretary to the Treasury, a further billion shilling has been specifically earmarked for particularly micro businesses to partake. 

Before that, direct fiscal interventions totalling Shs2.6 trillion were implemented, according to information contained in the 2021/22 budget speech prepared by the Ministry of Finance. In addition, Shs7.3 trillion private loans in commercial banks were restructured, as part of the stimulus package.

The economic stimulus supported household economic welfare; firms to survive the crisis; and maintenance of financial stability to avoid the potential collapse of the economy.

Before the ongoing cash support of Shs100,000, in the first phase of the lockdown, some vulnerable groups in the Kampala Metropolitan Area were provided relief food.  Some Shs60 billion was spent to fund food distribution to 683,000 households covering 1.9 million persons, according to 2021/22 budget speech delivered by Mr Amos Lugolobi, the NRM Member of Parliament for Ntenjeru North.

To support recovery of business, Private sector loans totalling Shs7.3 trillion, representing 43 per cent of all loans, had repayments postponed, a quarter of which were loans in tourism, trade, and commerce. Tax relief totalling Shs2 trillion was provided to businesses disrupted by Covid-19.  In addition, government paid Shs677 billion in arrears to private sector firms it owed to ease their liquidity.

The Uganda Development Bank was allocated Shs555 billion to finance manufacturing, agribusinesses and other private sector firms affected by the Covid-19 pandemic. Seed capital amounting to Shs416 billion was provided to the youth, women entrepreneurs and Emyooga.  A total of 6,394 Emyooga SACCOs in 349 constituencies have received Shs200 billion, going by the information contained in the budget speech.

“Hot air” or “Ghost stimulus”

So far it looks like the government is the only player that is fully contented with the stimulus measures it has undertaken. Stakeholders in civil society organisation among them Ms Jane Nalunga who is an expert on trade, tax and investment related issues and Mr Julius Mukunda, an accomplished policy and budget analyst, think MSMES deserve much better and more tailor-made stimulus packages than what is on currently on offer. Both cite the UDB ShsI trillion meant for SMES funding as an example of a perfect mismatch. Both say the focus of the UDB funds do not speak to the MSMES priorities, currently being constrained by effects of containment measures. This is because by design, the UDB funds are meant for “the industry big boys and girls”.  

The Federation for Small and Medium Enterprise (FSME) executive director, Mr John Walugembe, largely concurs with two. He recommends a review of stimulus packages, saying it is yet to register any success story in terms of access by any of his membersmost of whom are in need for funding.

He noted that most of the stimulus in form of taxes and other statutory incentives were simply deferred instead of being suspended for the period the MSMES are grappling with effects of the pandemic and its resultant containment measures. 

A scrutiny of the stimulus package by SEATINI-Uganda, Oxfam, Argidius and the Federation for Small and Medium Enterprises shows that disbursement and management of the funds government allocated to the stimulus package has largely not served its intended purpose, with the biggest culprit being MSMEs.

A call for applications issued by UDB earlier this year indicated that the development bank is not lending out money below Shs100m to enterprises. This remains way above the money MSMEs would regularly borrow. The bank has also stated that these funds are not meant to support MSMEs or struggling businesses, but for its recapitalisation.

It emerged that the loan interest rates at which UDB is disbursing its loans is 14.5 per cent and not 12 per cent, which is almost the same as those of commercial banks.

In an interview, Dr Adam Mugume who is the director of research and policy at Bank of Uganda,  suggests that some projects should be deferred to free up some cash.

 “Are there some projects that now can be delayed and therefore free resources to allow provision of assistance to the most vulnerable group?  How do we keep our public debt in check if we don’t have enough resources to support our vulnerable people, and that is the fiscal space challenge I am talking about.”

But the National Budget didn’t have a provision for the Shs100,000 assistance meant for slightly more than half a million vulnerable Ugandans, although it is one of the most effective economic stimulus, according to economists Prosper Magazine spoke to.    

To raise slightly more than Shs50 billion for vulnerable Ugandans among other Covid-19 responses, Mr Ocailap said the government has cut the budgets for most of the ministries, departments and agencies by up to 40 per cent. This is almost the natural way to go or else borrowing from somewhere,    would be the other option including asking for more budget support from donor community.

A stimulus to boost demand

As long as the households circulate the Shs100,000 Dr Mugume believe it qualifies as a stimulus package. This is because if the household uses it to purchase basic goods such as soap and other commodities then the money will be circulating within the economy which is good for businesses, many of which are starved of customers with effective purchasing power.

The focus after this, according to Dr Mugume, should then be turned to businesses such as restaurants, hotels, schools that are suffering as result of the Covid-19 containment measures.

In another interview with Dr Fred Muhumuza, lecturer Makerere School of Economics, the Shs100,000 being provided to half a million Ugandans, the government categroised as the most vulnerable in the 42 days of lockdown, is what he termed as a proper stimulus akin to pumping oxygen into the lungs or blood cells of somebody who is having difficulty in breathing.

“This is one of the best initiatives,” said Dr Muhumuza in an interview.

This he says is far better than getting whatever amount and giving it to one big company or three other big companies to go and try to look for these individuals. With this approach, you are now stimulating the economy right from the grassroots.

They say...

Mr John Walugembe, executive director at Federation for Small and Medium Enterprise (FSME).

I recommend a review of stimulus packages, because it is yet to register any success story in terms of access by any of  my members most of whom are in dire need for funding. Most of the stimulus in form of taxes and other statutory incentives were simply deferred instead of being suspended for the period the MSMES are grappling with effects of the pandemic.

Dr Fred Muhumuza, lecturer Makerere School of Economics.

These are not people who are going to buy a new watch, a new phone out of that Shs100,000 they have received. It will stimulate low income demand at those lower income levels. Eventually that will trickle down to our factories that produce those items.