Uganda hikes spending ahead of planned oil start-up


Uganda launched expansionary plans for the 2010/11 financial year, with a planned 16 percent increase in spending to $3.31 billion aimed at sustaining growth in a nation readying itself to pump oil.

Uganda, hoping to join Africa’s oil-producing club in 2011, will secure 5.640 trillion shillings ($2.47 billion) from domestic sources, while the remaining 25 percent will come from donor loans and grants, Finance Minister Syda Bbumba said.

The east African nation’s economy is projected to grow at 6.4 percent this year, rising to around 7 percent as the country moves towards oil start-up at the end of next year, by which time elections are also due to have taken place.

That compared favourably with forecast trends in the Eastern Africa region, where growth was expected to rebound to rates of 6 per cent, Bbumba said, adding that the size of the economy was now 34.2 trillion shillings.

Bbumba said that the government was aiming to stimulate demand but maintain inflation at 5 percent.

Education and infrastructure topped spending priorities, with 1.13 trillion and 1.04 trillion shillings set aside for the sectors, respectively. A further 633 billion shillings will be spent on health while defence receives 489.2 billion.
“The spending priorities mentioned are right, Uganda needs to urgently fill its infrastructure gap, generate more electricity and improve on things like health and education services and it was good that the Minister underlined their importance,” said Thomas Richardson, IMF’s Uganda representative.
“It was good the minister emphasized the importance of domestic revenue mobilization because that will help in reducing donor dependence.”

Readying for oil

Long a donor darling, President Yoweri Museveni, who will be seeking a fourth term in power, has found himself increasingly criticised for tightening his grip on power.

The opposition this week threatened to disrupt the polls unless reforms take place.

Donor budgetary support will drop in the coming year, though by just one percent from last year. “This is in line with our objective of gradually increasing the share of the budget financed through domestic resources,” Bbumba said. Foreign investors have flocked to Uganda to try and tap into the oil reserves under the western Lake Albert, where firms including Tullow Oil have found at least 1 billion barrels of oil.

Delays in the official approval for Tullow’s purchase of Heritage Oil’s stake in operations there has unnerved some investors, but Bbumba said $900 million had already been invested in the sector and the figure would rise with production.

Oil revenue would be managed “prudently,” he said.