Hidden in plain sight. That is what President Yoweri Museveni’s campaign money for the 2021 election looks set to be, according to experts.
They say the money is this time in the budget and that is the reason the budget has hit Shs.40.5 trillion.
That is a 26 % jump from last year’s Shs32 billion budget. Equally troubling is the fact that huge budget bump, about half of the budget or 44%, is to be financed by debt.
While President Museveni and his ruling party, NRM, have no known sources of income apart from monthly collections from party Members of Parliament (which are usually under a billion a year) and donations from supporters (that never hit Shs.50 billion), they spend hundreds of billions every election cycle.
In the past, the government has either printed or diverted money from other sectors to finance President Museveni’s re-election. This led to sharp spikes in inflation and sharp slowdowns of the economy as the central bank moved in to control the resultant heating up.
This time, it appears, the government is attempting a dual-pronged strategy of borrowing heavily to provide Museveni’s campaign slush fund without sharply cutting the budget votes of other sectors.
The question is whether that is a good or smart move.
To identify potential Museveni election money, one has to zoom into the figures published on https://www.budget.go.ug — the official Budget of Uganda Website managed by the Ministry of Finance.
The most obvious money is a budget item called ‘Presidential Initiatives’ under allocations to State House. It was only Shs.9.9 billion last year. But in the coming budget, the figure has jumped to Shs.132 billion.
The bulk of this is going into donations, which were only Shs.80 billion last year and are now set to swallow Shs.127 billion.
Then there is an item called `Administration and Support to the President’ which was Shs.245 billion. This has increased by Shs.10 billion to Shs.255 billion. The budget for the Vice President has remained unchanged.
In total, allocations to the Office of the President have increased from Shs.66 billion to Shs.92.5 billion and that of State House has almost doubled from Shs.274 billion to Shs.407 billion.
Going by the increases, therefore, under just the State House and Office of the President Budgets, President Museveni has hundreds of billions to move around as he wishes.
Then there is money used for classified expenditure, mainly in Defense and security. Last year financial year, the Defence Budget was Shs.1.9 trillion. It is now set to be a staggering Shs.3.5 trillion.
A huge chunk of this, Shs.2 trillion, has been allocated to capital investments of which a whopping Shs.1.9 trillion is to classified assets. The classified budget was last financial year only a little over Shs.600 billion.
“These resources will easily be diverted to fund elections,” says Economist Fred Muhumuza, who previously advised the Minister of Finance and now teaches at Makerere University.
He is one of those who believe that the chaos visited on the economy around previous election was most likely caused by printing of money and that the cash for elections this time could come from the budget.
“You have a huge budget, which has been increased by 25 percent,” he told our reporter, adding that the ruling party will “change tactic ahead of 2021”.
Muhumuza’s analysis is based on a significant chunk of the Defence Budget being usually classified and the expenditure of the State House and Office of the President budgets being largely at the president’s discretion. These three budget items are, therefore, the most vulnerable to diversion into funding political activity.
Increasing NRM spending
There are no official figures but Museveni’s ruling party spends big money at different times in elections.
Estimates informed by ruling party insiders show that Museveni’s party spent Shs13 billion in the 1996 elections, Shs30 billion in 2001, Shs50 billion in 2006.
Estimates for both the 2011 and 2016 elections are much higher, with insiders putting the figures at between Shs.120 billion and Shs.350 billion.
Overspending on elections was first felt heavily in 2011 and some of the money was drawn directly from the Consolidated Fund under circumstances that central bank Governor Tumusiime Mutebile later said were “not completely transparent”.
After the election, Mutebile said some of the money he made available for classified government expenditure might have found its way into funding Museveni’s campaign.
“I cannot determine how much of the money that I have created ends up in political electioneering. It happens,” he said.
Observers said this was the reason the economy was thrown into “total chaos immediately after the 2011 elections” when inflation hit 30 percent.
Since then, every general election cycle has brought fears that overspending by Museveni and NRM could pose danger to the economy.
Already, the government has secured a supplementary of over a trillion shillings in a sign of increasing election spending as Museveni traverses the country on a poverty fighting campaign.
And some observers are already seeing signs of the economy beginning to heat up. They point at an upswing in the inflation rate from 2.7% in March to 4.5% in April—just 0.5 percent points shy of the central bank’s threshold of 5 percent.
They also point at the shilling’s continued depreciation against major currencies, persistent high interest rates, among others.
Taken together with fears that a significant part of the upcoming budget could be diverted to fund elections has observers tensed up.
But Muhumuza says that Ugandans might not see significant increase in inflation in the build up to and post 2021 and that any inflation increases that may emerge, may not be as a result of printing cash. Mainly, Muhumuza fears that cash could be diverted from other areas—productive areas—which could mean delayed development.
Election to hurt growth
Another economist, Ramadhan Ggoobi, who teaches at Makerere University Business School (MUBS), also sees election related danger to the economy.
Ggoobi fears investors will likely switch to the wait-and-see mode and that the country could see capital flight with some preferring to keep their money away until the environment is less risky, which could also further shrink the economy.
He notes that while exports were beginning to pick, the main driver was a commodity—Uganda exported gold worth $ 350 million in March alone.
“That export performance is volatile,” Ggoobi said, “We would have been better off if we were exporting more coffee, tea, etc.”
At the same time, he notes, imports are rising and will continue as the public sector implements infrastructure projects.
The mitigating factor for all these, Ggoobi notes, used to be donor aid but this too has been disappearing. He explained that when one looks at the current budget donor aid is slightly over a trillion shillings.
“In a budget of Shs.40 trillion that that is negligible,” he says.
As a result, Ggoobi notes, government has to rely on external loans, domestic revenue and domestic borrowing. Both external and domestic borrowing means more debt amidst concerns that Uganda’s debt is growing in a manner that is unsustainable.
On top of all this, the economist adds, the geo-political tensions are not helping the situation. He said that tensions with Rwanda mean that Uganda cannot export there what it used to—about $250 million worth of goods and services.
Indeed, data from UBOS shows that exports to Rwanda last year averaged $ 20 million a month. This March, Uganda only exported goods worth $ 4.2 million and by April the number had fallen to a paltry $ 600,000.
South Sudan and DR Congo, which are Uganda’s bigger regional markets, are not doing any better. Exports to South Sudan averaged at $ 34 million per month last year. In April, Uganda exported only $ 32 million to Sudan.
Uganda’s exports to DR Congo averaged at $ 40 million per month last year. In April, Uganda only exported $ 20 million.
And Uganda’s exports to Kenya averaged at $ 60 million per month last year. In April, Uganda only exported $28 million to Kenya.
Outside the region, many see another risk to Uganda’s economy ahead of the elections stemming from China’s trade war with the U.S.
Ggoobi also sees danger from increased election-related government spending.
“Now politicians are going to pump more money in villages,” he told reporter in an interview.
He also noted that the increased money supply is dangerous because it will not be accompanied by an increase in goods and services.
But for him, the greater danger is that money meant for productive sectors is likely to be diverted to fulfilling promises that the politicians will be making. As a result, development projects will be delayed.
“There is a real risk to growth,” he said, “We are seeing expansion of government spending on areas that are not productive.”
Ggoobi the central bank is already bracing for trouble on the macro-economic front. He suspects that this might explain why, in spite of widespread optimism around the economy, the central has remained cautiously conservative and keeping its Central Bank Rate (CBR) higher than would be expected.
The Bank of Uganda (BoU) increased the CBR, which is its indicative lending rate, from 9 to 10 % in October last year and has kept it at that level. That is BoU’s signal to commercial banks to keep lending to the private sector on a leash.
With the economy recovering, many would have expected BoU to lower the CBR in order to signal to commercial banks to also reduce interest rates and encourage more borrowing from the private sector.
Instead, Ggoobi says, as the country edges closer to elections, it is the government’s borrowing appetite that will most likely increase.
As commercial banks lend more to government, which is seen as a less risky customer, the private sector will be squeezed out.
“This directly hurts growth,” Ggoobi says.
Danger of diverting funds
If this happens, it will not be the first time. Ahead of the 2016 elections, politicians decried an April supplementary budget worth Shs.800 billion.
“That supplementary budget is poorly disguised,” said Joseph Bossa, the vice president of the opposition Uganda Peoples Congress (UPC) said then, “It is a flush fund to finance Museveni and the NRM elections.”
The biggest concern was that of the Shs.800 billion, only Shs.11.9 billion was for development expenditure and a whopping Shs.728.1 billion was for recurrent expenditure.
Observers pointed out that most of the money was allocated to departments and institutions whose cash President Museveni directly controls.
When the budget came, similar concerns were raised; especially because the cash for spending was increased from an estimated Shs.4 trillion to Shs.18 trillion. The 2015/16 budget would total Shs.24 trillion but Shs.6 trillion was for debt payment.
Months after elections, signs of the haemorrhage began to emerge as government departments and ministries failed to pay salaries and suppliers.
When our reporter asked him about it at the time, Amos Lugoloobi, the outgoing chairman of parliament’s budget committee who also sits on the committee on Finance, Planning and Economic Development, said the government had suppressed the budget votes by 30%.
This meant that the government only dispersed to MDAs 70% of what it had budgeted for them.
Lugoloobi said the budget for elections was quite heavy, and certain things had not been budgeted for and because government wanted to avoid inflation, it made sure it spent only what it budgeted for.
For instance, just before elections, a major donor, the Democratic Governance Facility (DGF) declined to release some Shs4.5 billion it had committed to the purchasing of equipment to transmit elections after the Electoral Commission (EC) sparked a row by cancelling an agreed contract and awarding the deal ‘secretly’. Government said it would fund the project.
When our reporter put the issue to Kenneth Mugambe, the Director Budget, he denied insisting the suppression, or budget squeeze, was at between 5% and 10%.
Experts like Muhumuza and Ggoobi fear this could be repeated for 2021 and hurt the economy that is still struggling.
The fear of election spending-related economic disruption is deeper today because the next election is happening at a time when there is new optimism around the economy.
In a recent interview with EYALAMA at Sheraton Hotel, IMF Country Representative, Clara Mira reflected this optimism. She said IMF expects economic growth to go from 6% towards 7% in the next five years or less.
She said the growth projections are based on assumptions of stable global environment, private sector confidence being maintained so the private sector credit continues to recover, and the growth dividend from recent huge infrastructure development being realised. The other main assumption is that oil sector investments will be made as planned and oil is going to start flowing at some point in 2023 or so.
But Muhumuza believes that all is not as well with the economy as the IMF and World Bank have suggested recently.
“Their assumptions are faulty,” he told our reporter
He cited impediments to the economy, including lack of clarity on the road to oil production because of government disagreements with oil companies, the persistent failure of the economy to create jobs, the slow growth of the agriculture sector against a high population growth rate, and the economy’s dependence on unpredictable rainfall.
This year, the rains have not been as good,” he told our reporter, “There has not been a turning point in the growth of the economy.”
Patrick Ocailap, the Deputy Secretary to the Treasury, is equally cautious. While discussing IMF’s Regional Economic Outlook in Kampala on May 22 he said the economy could suffer because of external factors.
He said trade tensions between the United States and China and several advanced economies are likely to impact on Uganda particularly through a reduction in Foreign Direct Investment and Remittances, as well as a slowdown in export demand. He skirted the domestic election-related government spending as a possible danger to the economy but that is understandable. To ensure economic stability even with a presidential election, you need confidence not uncertainty.