Country Report Uganda March 2011

Outlook for 2011-12: Fiscal policy

Uganda's fiscal situation will receive a large fillip in fiscal year 2010/11 (July-June) from the capital gains tax accrued from the sale of stakes in two oil exploration blocks. This one-off payment will disguise an underlying deterioration in the fiscal balance resulting from otherwise slow domestic revenue growth and falling aid. Sluggish global growth will limit the increase in the value of trade, resulting in small rises in revenue from import tariffs, sales taxes and personal and corporation tax. In addition, donors have announced a 15% reduction in planned budget support in 2010/11 owing to government inaction on high-level corruption and concerns over governance. The deficit will be kept in check, as the government continues to spend less than it budgets owing to capacity constraints and delays on infrastructure projects. The deficit is forecast to fall from an estimated 3% of GDP in 2009/10 to 2.1% of GDP in 2010/11, owing to the one-off capital gains tax haul, before widening to 3.2% of GDP in 2011/12, as revenue growth remains weak. The government will increasingly use less concessional forms of finance to cover the deficit. It will draw further on domestic financing and may switch some of the fiscal burden to public-private partnerships and a domestic infrastructure bond.

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