Are we running Uganda’s economy without economics?

Even when a dream is not about real life events, it still remains a real dream. In my dream, four young men turned up to arrest me for Like many dreams, I could not connect the dots. I guess it was preventive arrest. However, I remember us discussing why the economy had not created many opportunities for them and their peers. The discussion was diversionary as I later tried to run into the bush before they caught me and I woke up! We wondered whether Uganda had good economic policies as some have claimed and, if so, why the development outcome has offered few opportunities for almost everybody – not just the youth.

Looking at the economics behind the economy, we discussed why government was pursuing both an expansionary fiscal policy (increasing expenditure) that pumps money into the economy and a tight monetary policy to restrict everyone else (call it private sector) from having money. Yet, the same government was wondering why there was limited response whenever it seeks to borrow from the private sector.

Governments that spend more will have decided to tolerate temporary higher inflation on grounds that such spending will eventually yield benefits in terms of jobs, higher production and productivity and eventually lower inflation. This can only be if the monetary and fiscal authorities harmonise approaches. Otherwise, constrained private investment and growth will continue to drive inflation and create no jobs for the youth and all.

Furthermore, government borrowing at more than 20 per cent and lending to the youth at zero per cent, as in the case of the Youth Livelihood Programme, undermines the very livelihoods of the youth. Somebody has to pay the 20 per cent interest and the cost of running the programme. The in-built loss that is passed onto the economy in form of additional borrowing, among others, reduces general economic performance and opportunities for the very youth enterprises.

When I visited such a youth project in Bushenyi, I personally subsidised it further by paying for veterinary services (just to save the animals). The animals were so malnourished that the dozen newborns had died within a day. Reason, the youth group had not been given adequate capital to start and operate a viable project as money had to be spread out to all parishes!

Before an armed ‘Crime Preventer’ joined the arresting party – causing me to run – we had one more issue to discuss. Borrowing to invest in energy for increasing competitiveness. Economists argue that infrastructure loans will eventually make the economy attractive, increase investment, jobs and eventually taxes to pay back the loans.
Unless all the critical factors such as lending rates and governance (mainly corruption), are addressed, competitiveness can remain elusive. The anticipated investors, both genuine and corrupt, will ask for more incentives such as free public land and tax exemptions. The resultant erosion of government assets and revenues means the energy loans can only be paid through higher tariffs.

In a likely event that the original economic distortions undermined local production, the resultant trade deficit (less exports and more imports) will trigger both depreciation and a further increase in all prices, including tariffs. The economy loses any chance of competitiveness and ends up in a worse off situation as it now has a huge debt.
Now I need to really wake up!

Dr Muhumuza is a development economist committed to economics of inclusive growth through markets that work for the poor.



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