Revenue Collection Seriously Affected Political Tensions, Climate – Uganda

By Xinhua 

May 10, 2024

The Ugandan Ministry of Finance, Planning and Economic Development said on Thursday that ongoing geopolitical tensions, tightening global financial conditions, and climate change are key risk factors to the country’s revenue collection.

The ministry, in its Fiscal Risk Statement for the financial year 2024/2025, which starts July 1 this year, said the global economy has faced increased geopolitical tensions in recent years, such as the conflict in the Middle East and the Russia-Ukraine crisis. These conflicts, according to the ministry, are likely to disrupt supply chains and cause volatility in global commodity prices.

The ministry also said the ongoing conflicts in neighboring South Sudan and the eastern Democratic Republic of the Congo are likely to disrupt regional trade and increase the country’s security spending, posing a fiscal risk to the country’s 2024/2025 national budget.

As advanced economies tighten monetary policy to curb rising inflation, the ministry said capital flight in search of higher returns abroad may affect foreign exchange inflows to Uganda, putting significant pressure on the Ugandan shilling, which in turn may pose risks to the cost of living, production and debt servicing.

The statement added that tighter global financial conditions are significantly increasing the cost of external borrowing. This, combined with reduced access to concessional financing, poses significant financing constraints on the government budget.

Climate change-related natural disasters have increased in frequency over the past 20 years, with annual economic losses estimated at 87 million U.S. dollars. These losses are expected to increase as the global climate continues to change. As a result, the budgetary impact (relief, recovery, and reconstruction) of natural disasters also puts significant pressure on national budgets, according to the statement.

The ministry said these risk factors require a vigilant and adaptive approach to fiscal policy that not only responds to immediate fiscal pressures but also strategically prepares for future uncertainties.