Aid Cuts Will Have Limited Impact On The Budget Top story

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In a statement issued on their website, the agency took note that the Uganda government had already become less dependent on aid and that “the authorities have managed the budget through previous suspensions by re-prioritising spending”

Fitch, an international credit ratings agency, has today revealed that Uganda will feel limited impact as a result of donors suspending their aid due to the passing of the anti-Homosexuality Act.

In a statement issued on their website, the agency took note that the Uganda government had already become less dependent on aid and that “the authorities have managed the budget through previous suspensions by re-prioritising spending”

“Grants as a proportion of revenue fell from 40percent in financial year 2001/02 to 12percent in 2012/13, and we forecast them to fall further, to 9percent, in 2013/14, as robust economic growth has boosted other revenues,” it reads.

Adding, “This has reduced the risk to government finances posed by volatile aid flows (there have been several previous instances of aid being suspended due to donors' concerns about corruption and mismanagement, most recently in 2012).”

Netherlands and Norway suspended aid directly to the Uganda government, rechanneling it to civil society organizations and to research, whereas Denmark and Norway suspended most of their aid. Aid to Uganda from Sweden and Denmark is estimated to be 9million United States Dollars. According to Fitch, this is about 0.4percent of GDP, which is considered minimal.

The World Bank also stalled the approval of 90 million United States Dollars loan to Uganda's health sector, mostly to renovate 10 hospitals. Fitch projects that this loan will be approved.
The United States has also said it is reviewing the aid to Uganda, which is about 400 million United States Dollars.

The statement also reports that the critical projects that government had prioritized are less likely to be impacted by the aid cuts. “The government may choose to re-prioritise some spending if additional countries opt to suspend aid, although this is unlikely to affect flagship projects.”

Of the entire 13trillion Uganda Shillings budget, domestic resources will contribute 81percent, the rest coming from grants and concessional loans.

Prof. Emmanuel Tumusiime-Mutebile, Governor, Bank of Uganda (BOU) on Tuesday had warned that there would be uncertainty for the economy as a result of the aid suspension, but was quick to point out the negative effects will be minimal.

The uncertainty was noticed when the shilling depreciated by 3.2percent last week, leading the central bank to intervene three times in a week. The Uganda Shillings had gained by 7percent since 2013 and Fitch notes that the Uganda Shilling “remains one of the strongest performing currencies in the region this year.”

 

Mentioned: fitch world bank