An executive disconnected from reality or an argument in favor of a good economy?

On May 1, Presidents Yoweri Museveni of Uganda and Uhuru Kenyatta of Kenya presided over Labor Day celebrations in their respective countries. Their speeches came with mixed fortunes for the citizens.

As President Kenyatta announced a 12% increase in the minimum wage to protect workers from the high cost of living, Mr Museveni took the opportunity to recommend the consumption of cheaper food varieties. Cassava, he said, could be eaten instead of bread.

“If there is no bread, eat muwogo (cassava). Ugandans really confuse each other. If you complain that there is no bread or wheat, please eat muwogo. I don’t eat bread myself,” Museveni said.

Mr Museveni had previously told members of the ruling National Resistance Movement (NRM) parliamentary caucus at Kololo Independence Grounds on April 26 that his government would not lift a finger to control soaring commodity prices. It was not soft music for most Ugandans.

Faced with a chorus of calls for government intervention from, among others, Archbishop Stephen Kaziimba of the Anglican Church, Mr. Museveni’s remarks were unlike those of someone who had in his Easter message claimed to be aware that the price spiral “is worrisome”. our people”.

Professor Paul Wangoola, a former member of the National Advisory Council, who served in Uganda’s Parliament under Presidents Yusuf Lule and Godfrey Binaisa, says the President has over time become so detached from ordinary Ugandans to appreciate their plight.

“The president lives in a buffet economy. He chooses what he wants and in the quantities and quantities he wishes to have. It becomes very difficult for a person who has lived such a life to understand what is going on in the lives of ordinary people,” says Professor Wangoola, adding that the executive is isolated by law – the President’s emoluments and benefits, vice-president. President and Prime Minister Act 2010 – against what most Ugandans suffer.

Under the said law, the President is entitled to an education allowance to cover the tuition fees of four biologically or legally adopted children under the age of 25 up to university level. The state can pay for undergraduate studies for these children when their courses are not available in Ugandan universities.

The president is also entitled to first-class air travel or a presidential jet for himself and his spouse; one trip per year for each child; travel for medical and educational purposes; a salary of 3.6 million shillings, 40% of salary as a gratuity payable every 12 months in office or as required by the president and; a fully facilitated State House. This means consumer items like soap, sugar, salt and food items.

The law also provides for adapted transport in the form of cars with driver with a capacity of between 4,000 and 5,000 cc; safety and; medical treatment for himself and his family. Transport also includes police cars, official limos and escort vehicles.

To remove or not to remove taxes?

But the chairman of the opposition Forum for Democratic Change (FDC) party, Mr Patrick Amuriat Oboi, says the president’s inaction is due to a bigger problem.

“Even if he doesn’t feel the pinch because everything is bought for him, he knows what is happening in the country. The only problem we have is having someone on top there who doesn’t care about people,” he explains.

Mr. Amuriat argues that although high commodity prices have been caused by mainly exogenous factors, the government has not done enough in terms of policy adjustments to bring prices down.

“We have already proposed the abolition of the fuel tax. It is better if people can survive one more day and we don’t collect so much revenue than people die and there is no revenue that will be collected even for the future,” says Mr. Amuriat.

However, Mr. Julius Mukunda, executive director of the Civil Society Budget Advocacy Group (CSBAG), says tax abolition is not sustainable.

“Rising commodity prices were triggered by external shocks and are supply-side. Disruptions to global supply chains due to the Covid-19 pandemic have led to increased transportation costs, shortages of shipping containers and raw materials, and increased fuel prices.

Kampala city center at the height of the second lockdown last year. Some experts have blamed disruptions to global supply chains on the Covid-19 pandemic. PICTURE/ FILE

According to Mukunda, apart from the fact that there is no guarantee that the abolition of taxes will lower prices, such a decision will complicate matters for a government which is already struggling to repay its debts.

“The tax cut will put more pressure on the government to service the debt and will also not address other spending pressures such as wages and the like. The URA is already struggling to achieve its goals.

Cutting taxes is no guarantee that prices will go down, especially since our inflation is imported,” argues Mr. Mukunda.

Mr Amuriat, however, says that if the government cannot remove taxes on fuel and other essentials, it could tackle other factors that have caused the price spike.

“They should at least talk to manufacturers and find ways to reduce production costs. If it’s electricity, we can reduce costs. If it is raw materials, we find out why their cost is high. This is an area that should have been explored, but no effort was made,” says Amuriat.

The idea of ​​the government scrapping fuel taxes gained traction after Kenya and Rwanda moved in that direction, but Museveni told NRM MPs talk of subsidies was a ‘false economy’ .

It must be a new way of thinking. Doesn’t the agreement that the government signed with the Uganda Vinci Coffee Company talk about supplying the company with electricity at a subsidized price of 5 US cents per unit?
NRM Parliamentary Caucus Chairman Mr Alex Brandon Kintu said the President’s remarks were not properly contextualized.

He says giving Vinci Coffee electricity at such a price is in line with government policy which seeks to make electricity for the manufacturing sector cheaper and make the sector more competitive. It is also part of a policy aimed at promoting import substitution and export promotion strategies.

Mr. Fred Muhumuza, a development-oriented policy researcher who also teaches economics at Makerere University, agrees with the president. He says grants are not an option.

“You cannot give grants because they are not sustainable. You don’t want to operate something that can’t be maintained and the government doesn’t have the money anyway,” says Muhumuza.

Mr. Kintu, who is the MP for North Kagoma County, says people are not looking at the long-term impact of subsidies on the economy.

“Kenya and Rwanda removed fuel taxes, but what was the effect? You can only argue for a waiver if you don’t know what’s causing the high fuel prices. If you waive the tax and prices still double as expected due to the exogenous factors causing the problem, you have completely paralyzed the country because you will also not have the income to carry out other strategic interventions. that might be needed. . So Mr. Museveni is right. This subsidy talk may be good politics, but it is definitely not good economics,” Kintu says.

Mr Mukunda weighs in, saying Uganda does not have the resources to support the grants.
“Uganda does not have sufficient revenue to support any form of subsidy. The Bank of Uganda’s Monetary Policy Report for April 2022 indicates that we have built up reserve assets to the tune of $642 million, equivalent to four months of import cover. Therefore, the government’s use of subsidies as an intervention will negatively affect the country’s foreign exchange reserves,” Mr. Mukunda said.

Mr. Adam Mugume, director of research at the Bank of Uganda, said the subsidies would lead to distortions in the economy.

“A subsidy is a negative tax, which means that the government would encourage the continued consumption of the subsidized goods. Second, for the government to provide a subsidy, it either has to cut spending somewhere or borrow more when interest rates rise, which would have a negative impact on public debt,” he adds.

Mr. Muhumuza says the government has handled the situation well. He says there are no immediate solutions to what he described as structural problems in the market system, adding that the best thing to do was to let markets operate with minimal intervention, which the government did.

“Since this is imported inflation, the only thing the government can and has done is to stabilize the exchange rate to lessen the pass-through effect, because if the dollar goes up, the pass-through effect will be higher. The dollar is stable. That’s all they can do,” says Mr. Muhumuza.

Mr. Mukunda agrees that there are no immediate solutions. He says the government should consider strategic investments in creating food reserves and expanding and storing national oil reserves.
Alternatively, says Mr Mugume, the government could step in by giving aid to vulnerable sections of the population.

“The government can offer support to the most vulnerable by providing financial support, as it has done during Covid, provided it does not undermine measures to limit the growth of public debt,” Mr Mugume said. .
Mr Amuriat, however, insists the government has failed to act, which he says is a demonstrable sign that the NRM no longer has what it takes to take Uganda forward.

“Mr. Museveni has proposed a vote of no confidence in himself and his government. I think the most decent thing for him to do is say he failed to lead this country so Ugandans can decide even within a year of his tenure to do something different to bring about change in this country,” he says, an argument Mr. Kintu is quick to dismiss.

“It is not a sign of failure. Mr. Museveni has always delivered when it mattered most. His track record speaks for itself. He is not a reactionary. If he promised to make appropriate interventions to contain the high cost of commodities, it certainly will,” Mr. Kintu said.

Edward N. Arrington