It looked like news when Mr Emmanuel Tumusiime-Mutebile informed the public about the implications of a few of his many decisions as Central Bank Governor.
I do not call it news because, as Governor, just like many of his peers, his office requires him to play a role in financing the government Budget deficit. As a banker to the government, he can use the government’s own savings, issue government papers (borrow from the public), or print money. The order shows deterioration of quality of actions!
It is the deficit and not the act of raising money that is the problem. Since money is fungible (can be used for anything), one cannot predict what government will do with the money. It is worse for a country like Uganda where unplanned items (supplementary expenditure) for some entities can be 100 per cent of the original budget one year after another. In this case, it becomes a plan not to plan for some expenditures, which is indiscipline at operational level of government.
The Executive, specifically, the Finance ministry, is solely responsible for dealing with such indiscipline. When symptoms persist, go to Parliament for answers as the oversight body will have become an accomplice.
The bigger problem, however, lies with the national economic ideology supposed to deliver the development strategy. An economic ideology should answer the question of how an economy should be structured, run and to what end.
For starters, is Uganda a private sector-led or public sector-led capitalist economy? Traditional economics did not fully provide for a public sector-led capitalist economy since no one assumed of public servants doing private work in a public office – corruption.
In a private sector-led economy, the role of government is to provide a conducive economic environment by way of good physical as well as policy infrastructure.
The roads, energy, land tenure and access, education, health and good political governance are as important as affordable interest rates, competitive exchange rates and low inflation. The delivery of this mandate involves many complex decisions.
Government decision making framework is guided by the broader ideology of who should be the elephant in the room – the public or private sector? If the ideology is wrong or non-existent, things fall apart.
A government deficit is justifiable if it finances public investments that promote private sector activity. The assumption is that a more vibrant private sector will create jobs, increase revenues, and consequently reduce future deficits as well as pay the debt.
Government borrowing for consumption items (electioneering and bloated public service) or financing of overpriced capital development projects, makes a bad economy worse.
The borrowing not only distracts capital from the private sector but also raises interest rates and distorts future budgets by committing resources to debt repayment rather than service delivery.
The debt burden increases (both principle and interest), revenues dwindle due to a collapsing private sector, service delivery remains poor, and government borrows even more, including through the Central Bank, to try and maintain the economic patient.
The last time Uganda was at this point, it was bailed out by the lenders’ writing off the debt. Not anymore! The current lenders include private entities and interests that are entrenched within the public sector.
Until the Executive defines and refines the economic ideology, Mutebile or any other Governor, will continue to borrow for expenditures he possibly does not agree with. Who called it a Banana Republic and insulted our food?
Dr Muhumuza is a senior manager at KPMG Uganda, working with the Financial Services Inclusion Programme. email@example.com
SOURCE: Daily Monitor