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Members of the Civil Society Budget Advocacy Group (CSBAG) have urged the government to address domestic arrears in the 2023/2024 financial year.
The civil society group led by their economist, Patrick Rubangakene was on Monday, 27 March 2023 presenting their position on the Ministerial Policy Statements for 2023/2024 before the Committee on Finance, Planning and Economic Development chaired by Hon. Keefa Kiwanuka.
Domestic arrears refer to short-term debts incurred by Governments against unpaid procurement invoices for the supply of goods and services during a given financial year.
According to Rubangakene, the UGX200 billion budgeted to clear arrears is insignificant to reduce the current burden of domestic arrears.
“We appreciate the Finance Ministry for developing a strategy to clear and prevent domestic arrears in June 2021. However, domestic arrears have continued to increase annually from UGX2.75 trillion in 2017/2018 to UGX7.55 trillion in 2021/20222, an increase of 175 per cent,” Rubangakene said.
The Auditor General’s report shows that domestic arrears increased from UGX4.65 trillion in 2021 to UGX7.55 trillion in 2022-⏤ a 62% increase.
“This is an indication of the failure of the commitment control system and exposes the government to litigation risks. The growth trend appears unsustainable and on the rise. This could also be a result of approving supplementary budgets which amounted to UGX.6.42Tn during the year under review with no matching funding, other than utilising the already identified revenue sources, hence reallocating funding within the existing resource envelope and impacting MDAs across government,” the Auditor General observed in his 2021/2022 report to Parliament.
Rubangakene said the ministry needs to urgently address this matter to avoid continued stifling of the country’s economic growth. He also preferred sanctions and penalties for accounting officers who continue to accumulate domestic arrears against contracting frameworks in accordance with Sections 70 and 80 of the Public Finance Management Act, 2015.
CSBAG further urged the government to be cognizant of the accumulating public debt burden whose nominal value stands at UGX86.6 trillion as of June 2022.
“Government needs to develop an annual debt borrowing plan that is consistent with preserving debt sustainability to inform the upcoming fiscal year budget and adhere to it for improved budget execution,” he said.
Reacting to CSBAG’s submission, Hon. Jane Avur Pacuto, the Deputy Chairperson of the Committee on Finance, Planning and Economic Development blamed the Finance Ministry for the accumulating domestic arrears.
“As Parliament, we have tried our best to put what is adequate on the budget. In fact, in this current financial year, we recommended that Finance clears all domestic arrears…The challenge is that what is approved is not what is released [by Ministry of Finance],” Pacuto said.
Otuke County Member of Parliament, Hon. Paul Omara said Parliament is as concerned as the civil society in pursuit of sustainable debt management measures.
“The indiscipline in government is completely unacceptable and there is no guarantee that URA will achieve its revenue targets. In an environment where you are not generating enough revenue, it is foolish to continue borrowing unabated,” Omara said.
Founded in 2004, CSBAG is a coalition that brings together civil society actors at the national and district level to influence government decisions on resource mobilisation and utilisation, gender-responsive and sustainable development.
CSBAG’s concerns are echoed in the Parliament Budget Committee report on the 2023/24 budget on domestic arrears.
“Domestic arrears in Uganda has been a perpetual challenge, to which Government has over the years put in place several measures to address the problem,” the committee noted.
Some of these measures include the introduction of the Commitment Control System (CCS) in 1999; the strengthening of the legal framework surrounding the Public Financial Management system with special provisions entrenching the CCS; the introduction of public financial management systems and reforms such as the Integrated Financial Management System (IFMS), Planning and Budgeting System (PBS); decentralisation of the salary and pension payrolls.
However, it appears all these and the government’s Domestic Arrears Strategy created in June 2021, which emphasises a phased clearance of the existing stock of arrears in the medium term, together with focusing on management control measures to stop the accumulation of new arrears, have all failed.
“The rise in arrears has been mainly attributed to fiscal indiscipline, poor financial management and weak system controls. In addition, arrears pose a reputational risk to Government and seriously constrains the private sector,” the Committee noted.
“The committee, therefore, recommends that Government sets aside adequate resources in the domestic arrears budget to clear the current stock of domestic arrears over the medium term. The current UGX 200 billion is inadequate to substantially reduce the stock of domestic arrears,” the Committee concluded.