Country Report Uganda March 2010

Outlook for 2010-11: Fiscal policy

In a bold attempt to encourage economic growth, the 2009/10 budget contained no major new taxes or duty increases but several cuts that will put pressure on the revenue authority to boost efficiency. Despite the cuts, tax revenue growth will be strong (domestic revenue was up by 20% in the first half of 2009/10), driven by continued economic growth and improvements in revenue collection, but it will fall just short of the government's ambitious projections. The deficit will be kept in check, however, as the government is likely to underspend against the budget, owing to capacity constraints and delays with infrastructure projects. Reliance on donor financing is therefore likely to stay at around one-third of total revenue. We forecast a fall in the deficit to 3% of GDP in 2009/10 resulting from better-than-expected domestic revenue collection, before it rises to 4.2% of GDP in 2010/11 as spending grows in the run-up to the election. The government may also look at issuing a sovereign bond in 2011 with the aim of raising around US$1bn for infrastructure spending.

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