Low revenue forces gov’t to borrow Shs 2trn in January

KAMPALA, March 1, 2025 – In January 2025, government operations resulted in borrowing of Shs 2,065.45 billion, exceeding the planned fiscal deficit of Shs 1,952.72 billion for the month, according to the latest Performance of the Economy Monthly Report released by the Ministry of Finance, Planning and Economic Development [MFPED].

The report, published this month, states that the borrowing arose from higher-than-expected expenditures coupled with a shortfall in both tax and non-tax revenue during the month.

According to the report, tax revenue collections for January 2025 amounted to Shs 2,344.50 billion, against a target of Shs 2,411.82 billion, representing a shortfall of Shs 67.32 billion. ‘‘This was primarily due to lower-than-expected collections for indirect taxes, which were short of the target by Shs 45.12 billion, and taxes on international trade, which missed the target by Shs 17.19 billion,’’ the report explains.

The report further shows that government’s total expenditure for January 2025 amounted to Shs 4,040.76 billion, exceeding the monthly target of Shs 3,630.96 billion. ‘‘This was driven by the supplementary budget for the current financial year, which led to higher-than-expected expenditure on items such as compensation of employees, purchases of goods and services, as well as grants to local governments, tertiary institutions, and referral hospitals,’’ the report states.

According to the report, government spent Shs 531.70 billion on the acquisition of non-financial assets in January 2025, which represents 51.6 percent of the planned Shs 1,031.14 billion for the month. ‘‘The shortfall was mainly due to certain budgeted projects not being ready for execution, while other ongoing projects faced delays caused by unmet pre-disbursement conditions,’’ the report explains.

Economic activity

According to the report, high-frequency indicators of economic activity show continued improvement in the level of economic activity and business perceptions since the start of the 2024/25 financial year, although the pace of improvement slowed in January 2025.

The Composite Index of Economic Activity [CIEA] increased by 0.2 percent to 168.4 in December 2024, up from 168.0 in November 2024, indicating a sustained improvement in economic activity in the country. This increase was partly driven by growth in exports and higher Value Added Tax (VAT) collections in December 2024, says the report.

However, the Purchasing Managers’ Index [PMI] declined to 49.5 in January 2025, falling below the 50.0 no-change threshold, signalling a deterioration in business conditions for the first time since March 2024. ‘‘This decline from 53.1 in December 2024 was driven by lower new orders, mainly due to weaker consumer demand, which affected output and employment during the month,’’ the report notes.

Additionally, the report states that input prices rose due to higher staff costs and the increased purchase prices for foodstuffs, stationery, cement, and toiletries. As a result, businesses passed these rising costs onto consumers, contributing to the increase in annual headline inflation.

However, the report suggests that this decline is expected to be temporary, with economic activity expected to strengthen in the coming months, supported by positive sentiments within the business community, as reflected in the Business Tendency Index [BTI].

https://thecooperator.news/mbarara-city-faces-potential-revenue-loss-of-shs-240mln-annually/

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