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REPORT OF THE BUDGET COMMITTEE ON THE NATIONAL

BUDGET FRAMEWORK PAPER FOR THE FY 2016/17 – 2020/21

KAMPALA, UGANDA

OFFICE OF THE CLERK TO PARLIAMENT

DECEMBER, 2015

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INTRODUCTION

Rt. Hon. Speaker, Hon. Members,

1. In accordance with the provisions of Articles 90 and 155 (4) of the

Constitution, Section 9(1) to 9(8) of the Public Finance Management Act 2015 and Rule 177 of the Rules of Procedure of Parliament, Committees

are mandated to among other things, to critically examine Government budget estimates and make recommendations for general debate in the House as well as commenting on any policy matters affecting Ministries

under their jurisdiction.

2. In compliance with above provisions, I beg to present a report of the Budget Committee on the National Budget Framework Paper for the Fiscal year 2016/17- 2020/21 for consideration and approval by the August House as

required by section 9(8) of the PFMA 2015

3. On 16th December, 2015, the Executive complied with the PFMA 2015 by

laying on table the National Budget Framework Paper (NBFP) for FY 2016/17 – FY 2020/21 and the Certificate of Gender and Equity

Compliance.

SCOPE 4. The Committee considered the NBFP which is required to be approved by

Parliament in accordance with section 9 (8) of the PFMA 2015

The report is structured in two parts:

Part 1: Government Medium Term Macroeconomic Plan, Medium

Term Fiscal Framework, Policy Measures and Indicative Revenue Framework

Part 2: The Sectoral Committee‘s observation and recommendations made thereon.

METHODOLOGY 5. Members of the Committee analyzed the NBFP to acquaint themselves with

the detailed contents of the document before interacting with the Sector Committees.

6. The Committee held meetings with all the Chairpersons of Sectoral Committees of Parliament and discussed their observations and

recommendations on the components of the NBFP under their jurisdictions.

7. Section 9(4) and Schedule 3 of the PFM Act 2015, prescribes the format of the NBFP. The Committee analyzed the compliance of the NBFP to the

provisions of the law.

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PART 1: GOVERNMENT MEDIUM TERM MACROECONOMIC PLAN, MEDIUM TERM FISCAL FRAMEWORK, POLICY MEASURES AND INDICATIVE REVENUE FRAMEWORK

Compliance of the BFP to the PFM (2015) Act 8. According to section 9(3) of the PFMA 2015, the NBFP must be consistent

with the National Development Plan (NDP) and with the Charter of Fiscal Responsibility. The Budget Committee observes that FY 2016/17 will be the second year running of current NDP II, hence the need to closely

scrutinize the consistency of the NBFP with the NDPII. The Committee observes that during preparation of the NBFP 2016/17 – 2020/21, efforts

were made to ensure that it is consistent with the NRM Manifesto, the Vision 2040, the NDP II and the SDGs.

9. The NBFP is consistent with the NDP II and reflects its the key strategic objectives. Specifically, the commitment to increase the stock and quality of strategic public infrastructure is given priority as reflected by the

increasing share of the development expenditure in government budget. Government is proposing to start implementing the NDP flagship projects,

like the standard gauge railway, oil refinery, oil related infrastructure in the albertine region, a number of new roads and electricity transmission projects. These projects are in line with the vision 2040 and the EAC

Monetary Union Convergence criteria.

10. However, the NBFP, falls short of meeting all the requirements imposed by Section 9(4) of the PFM Act 2015 (Schedule 3). The law requires that the national budget framework paper shall indicate the actual, estimated and

projections covering the previous two financial years, the current financial year and the next five financial years and indicate in respect of each year the following economic variables:

average and year end gross domestic product;

rate of inflation (average and year-end);

rate of employment and unemployment;

average and year end exchange rate;

interest rates; and

Money supply.

The current NBFP does not indicate projections for money supply,

exchange rate, rate of employment and unemployment and interest rates.

Therefore, the Committee‘s efforts to scrutinize the Macroeconomic

variables and to assess realism and reliability of the projections,

consistence and validity of the variables were constrained.

11. The Certificate of Gender and Equity compliance of the NBFP was laid at table by the Minister, as per the requirement of the PFM Act (section 9(6)).

However, the Committee notes that the country lacks baseline Gender compliance indicators upon which compliance can be premised. Government should conduct a baseline study which will guide compliance

assessment for future NBFP and Budgets.

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12. While the Ministry of Finance has developed a Charter of Fiscal Responsibility (CRF) FY 2016/17 – FY2020/21 it is still in a draft form

pending finalization and consideration by the 10th Parliament. The CRF must include a statement of measurable fiscal objectives subject to

Parliamentary oversight, fiscal policy operation guidelines and fiscal reporting requirements. From FY 2016/17, fiscal policy will be underpinned by the five-year CFR which will help to strengthen

accountability, transparency and stability of Government‘s fiscal policy framework. However, the Committee notes that in its current form, the submitted draft CRF is short of the requirements of the PFM Act (2015). It

is expected that the final CRF will be ready by May 20161.

Medium Term Macroeconomic Outlook and Indicative Revenue Framework 13. The Committee notes the emphasis of the macroeconomic objectives of

achieving and maintaining the real economic growth of at least 6% per

annum; maintaining the core inflation close to the 5% and headline inflation within single digit; maintaining foreign exchange reserve cover of at least 4.5 months of imports; maintain a market determined real

exchange rate and; attain a monetary and economic convergence and compatibility within the EAC.

Real GDP Growth 14. The Committee notes that although the economy expanded at 5% in FY

2014/15, this was less than the 5.8% projected by the NDPII in April 2015 (refer to BFP 2015/16 – 2019/20). The current projection revises downwards the overall NDP II growth projection from an average of 6.3% to

5.94% for the medium term (refer to Fig 1).

15. The downward forecasted growth rate could be justified by the prevailing tighter than expected monetary, credit and fiscal stances in the economy, attributed to the unexpected foreign exchange depreciation pressures and

inflation in the first half of FY 2015/16.

16. The growth projection in FY 2015/16 will further be affected by factors

related to the upcoming elections which fuel speculations as political campaigns intensify. The uncertainty surrounding the general elections

usually affects foreign direct investments, private investment decisions, general production and tax collection efforts, however, consumption spending generally increases.

1 https://www.imf.org/external/pubs/ft/scr/2015/cr15175.pdf

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17. In the medium term, growth is projected to accelerate, although at a lower rate than previously projected, due to globally declining commodity prices,

reduced capital inflows, increasing financial market volatility hence increasing pressure on the currency. Some domestic factors that will negatively affect growth include the slow pace at which public investment

are executed (due to absorption challenges in the economy); constraints to access credit for the private sector; unpredictable weather conditions and;

the limited diversification of commodities for exports.

Annual Inflation

18. Consumer prices are affected by both domestic and external factors. The

Committee observes that in the first half of the FY 2015/16 the inflation buildup was mainly attributed to currency depreciation pressures and domestic food prices, however the monetary authorities timely and

rightfully responded to the inflation pressures. Nevertheless, the Central Bank‘s projections indicate that headline inflation will peak at around 10%

in the first quarter of FY 2016/17, owing to continued and lagged pass-through of the exchange rate depreciation to domestic prices and food price effects due to El-Nino weather conditions. According to the IMF

projections2, headline inflation will decline towards 7.7% and 6.3% for FY 2015/16 and FY 2016/17 respectively, before returning to the 5% target in the medium term; these projections are consistent with the BFP.

2 http://www.imf.org/external/pubs/ft/scr/2015/cr15321.pdf

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Unemployment

19. The Committee notes that, despite the stronger economic growth reported each year, unemployment keeps increasing, among both the graduates and

drop-out youth. Agriculture has remained the main source of household income in the rural areas. Although the youth have tried, without

adequate support, to engage in non-agricultural household enterprises to supplement household income, such enterprises are not sustainable without sufficient empowerment and affordable sources of financing. In

addition, the absence of domestic light manufacturing machinery, retooling and skills transfer for value addition technologies and agri-business besides the access to reliable markets.

20. The last time a manpower survey was conducted in Uganda was in 1987.

Over time, Parliament has recommended that Government carries out a comprehensive manpower survey to ascertain the Manpower gaps to inform public policy. In absence of this information, youth in Uganda, may not

take advantage of employment opportunities in the EAC region. The Committee recommends that, Government should come up with a deliberate programme for re-skilling of the unemployment youths to turn

them into innovators and job creators, especially in the light industry and service sectors of the economy.

Exchange Rate projections

21. The Committee observes that the exchange rate depreciation pressures started around January 2015 and persisted until October 2015. Between

June and September 2015, the shilling depreciated by 20% against the US dollar. External factors that mainly contributed to currency depreciation pressures include a weaker demand for Ugandan exports, less favourable

terms of trade and the tightening of global financial conditions. Domestically, the upcoming general election uncertainties have weakened

investor confidence as political campaigns intensify.

22. The impact of a persistently depreciating currency in Uganda on growth is

negative given that the real exchange rate depreciation gains are eventually eroded due to the large pass through to domestic prices in form of inflation. The Committee in concerned that Inflation reduces real incomes, increases

real interest rates as the monetary authorities tighten money supply to contain inflation. Depreciated currency makes imports of intermediated

goods more expensive hence affecting domestic production and aggregate demand.

23. No exchange rate projections have been indicated in the NBFP probably due to uncertainty in factors surrounding the process and timing of

normalizing the monetary policy in the United States and the United Kingdom and the perception of the investors on the Ugandan politics.

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Balance of Payments

24. The Committee notes that in the previous four financial years, the Current Account deficit (including grants) has been at an average of 8% of GDP.

However, the current account deficit is projected to widen further to an average of 12.8% in the medium term. The projected widening current

account deficit is on account of the lower export demand, weaker tourism receipts and the anticipated public infrastructure investment with high import content. Imports are expected to grow from the previous average of

30% of GDP to 34.5% of GDP in the medium term. Exports are expected to grow at a slower pace compared to imports from the previous average of 19.7% of GDP to 21.5% of GDP in the medium term.

25. The Committee observes that the current account deficit will be financed

externally by higher concessional loan inflows while preserving the official reserves (at 4 months of imports cover) and public debt at comfortable levels.

MEDIUM TERM FISCAL FRAMEWORK

26. The Committee notes that Government‘s fiscal policy is targeted to support the maintenance of macroeconomic stability at the same time stimulating

economic growth and reducing on infrastructure deficit. Government has set fiscal targets for the medium term, demonstrating an expansionary

fiscal policy with expenditure growing faster than revenue and grants hence a widening overall fiscal deficit up to FY 2018/19 (refer to fig 2).

27. The fiscal policy will mainly be undertaken with the aim of increasing mobilization of domestic revenues, maintenance of prudent and sustainable levels of public debt. Government will ensure management of

fiscal risks in a prudent manner consistent with medium term expenditure framework and the NDP II.

28. The framework is based on the assumption that the tax system will remain stable and that there will be improved tax compliance and strengthened

administrative systems for enhancing tax collection efficiency. In addition the framework assumes that priority will be given to infrastructure development while preserving public consumption at the FY 2015/16 level.

Revenue

29. The Committee notes that total revenues and grants are expected to

increase from 15.8% of GDP in FY2015/16 to 16.6% of GDP in FY2020/21. Tax revenue is projected to improve from 13.3% of GDP in FY 2015/16 to 15.8% by FY 2020/21. Non-Tax Revenue (NTR) is projected at an average

of 0.36% of GDP in the medium term. Grants are projected to drop from an average of 1.37% of GDP in the previous three years to an average of 0.8% of GDP in the medium term. This is in line with the country‘s

overarching goal of self-reliance. In the medium term, the framework

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assumes some dismal oil revenues at an average of 0.05%, as the requisite infrastructure to support oil production is not yet in place.

30. The Committee observes that Uganda‘s efforts to raise the tax revenue to GDP ratio has been hampered by the large informal sector, tax evasion, tax

holidays/exemptions to investors and lack of proper accountability of NTR. The Committee notes with concern that besides the Republic of Burundi, Uganda‘s tax revenue to GDP ratio is the lowest in the EAC. At the end of

FY2014/15, Kenya, Tanzania, Rwanda and Burundi reported tax revenue to GDP ratios of 20.9%, 17.7%, 15.9% and 12.9% respectively3.

31. The Committee notes that, in the medium term, tax administration will be a key driver for domestic revenue enhancement. In particular, Government

will institute measures targeting sectors that currently contribute a large amount to GDP but less to tax effort (e.g. agriculture, construction, hotels, real estate and education).

32. The Committee recalls that the NDPII envisages some improvement in

domestic revenue mobilization (excluding oil revenues) in the medium term. These gains will arise from minimizing the use of non-standard VAT tax exemptions which have compromised the effectiveness of tax collection.

If neglected, these exemptions are estimated to reduce Government revenue by 1 percent of GDP. In addition, the exemptions also complicate tax administration and increase the risk of non-compliance thereby costing

Government about 6 percent of GDP in foregone VAT revenue annually.

3 African Economic Outlook Report, 2015

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The Committee recommends that government reviews and resists temptations to grant tax exemptions.

33. The NDP II also envisages that there will be increased efforts in domestic revenue mobilization, particularly focusing on raising corporation tax

revenues, widening the VAT coverage and improving efficiency of tax collection. In this regard, the Committee recommends that Government

urgently institutes measures to substantially improve revenue collections in the medium including:

Fast tracking the Integration of ICT in tax administration. The e-tax system should be improved further and expanded to link with other

information management systems in the country,

Government should further support initiatives like the acquisition of an

Intelligent Network System by UCC for monitoring tele-traffic of the telecom companies‘ in order to ascertain the exact revenue earned by

companies and hence taxed,

To utilize information from Identity Card project and roll-out of the

National Postcode and addressing system country-wide. This will go a long way in making URA‘s work fast in tracking individuals for payment,

URA should continue with taxpayer registration, sensitization and

education as well as intelligence in order to net more Tax payers

Government should review and rationalize VAT exemptions and zero-

rated taxable supplies,

Amend investment incentives that have outlived their usefulness (e.g

CHOGM incentives to hotels), including initial allowances;

Improve the audit capacity of URA, particularly in the services sector;

and enhance efficiency in Government procurement and tax payment.

Strengthen the URA risk management strategy, focusing on the major

Tax-payers segment, and prioritizing compliance risks by Tax-payer segments;

Improve compliance, through strengthening the Tax-payer Registration and Expansion Project.

Improve NTR collections and accountability and URA should be given the mandate to collect and harmonize NTR collections for efficiency and

transparency.

34. The Committee recommends further that efforts to ease tax administration

will include measures to eliminate ambiguities within the tax laws so that compliance can be enforced by Uganda Revenue Authority (URA).

Expenditure

35. The Committee observes that, Government is assuming an increasing expenditure trend in the medium term, projected at an annual average growth of 9.4%. Development and Recurrent expenditures are projected to

grow at an annual average of 14.4% and 11.8% respectively. This is in line with Government‘s commitment to infrastructural development and to

attain sustained growth by reducing consumption in favour of investment in the medium term.

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36. In the medium term, the share of Central Government Ministries and Agencies expenditure in the national budget will decline to 68% from 73%

in the FY 2015/16 (refer to fig 3). The Committee recommends that more resources should be allocated to Local Governments, which carry a big

scope of decentralized responsibilities for public goods, to ensure enhanced service delivery.

37. The Committee notes that in FY 2016/17, more resources will be spent on statutory interest payments constituting 10% of the National budget from 9% in FY 2015/16, on account of increasing public debt both domestically

and externally. Interest payments will be subjected to risks related to the prevailing interest rates domestically and the foreign exchange rate for

foreign currency denominated debt.

Overall Balance

38. The Committee observes that in the recent past, the overall fiscal deficit

has been increasing and largely financed domestically given the substantial decline in concessionally financed external loans. This illustrates the challenges developing countries face in securing external budget support.

The overall fiscal deficit is projected to widen by 2% of GDP between FY 2014/15 and FY 2015/16. The overall balance/Fiscal deficit (including

grants) is projected to continue worsening fast at an annual average of 10.1% in FY 2016/17 until FY 2018/19 when it will start improving at 10% per annum (refer to Fig 2).

39. The Committee notes that the fiscal deficit is projected to be financed mainly from external sources at an annual average growth of 7%, mainly

by concessional project loans that will grow at an annual average of 15.4%. Only 30 percent of total expenditure and net lending is expected to be

financed by external loans and grants in FY 2016/17, compared to 45-50 percent a decade ago, and the external finance is expected to decline to 23% by 2019/20. The domestic financing sources will grow at 5.4% in the

medium term, mainly from Commercial Banks together with the Non-banking Institutions.

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Fig 3: Projected Percentage Share of Budget in the Medium Term (%)

Fiscal Sustainability Assessment

40. Fiscal policy can be regarded as sustainable when the prevailing legislation and policy decisions determining the tax and spending, can be maintained in the long-term without resulting in excessive public debt accumulation

(Blanchard, 1990a). Fiscal policy is sustainable when government maintains the ratio of government net-worth to GDP at the present level

(Buiter, 1985).

41. By utilizing the Tax-Gap methodology for assessing the medium term

Fiscal Sustainability for Uganda, Parliamentary Budget Office (PBO) discovered that, although declining, there is a big tax to GDP gap of 7.68% in FY 2016/17 (refer to table 1). Government urgently needs to adjust the

projected tax to GDP ratio for FY 2016/17 from 13.9 percent to 21 percent in order to avoid excessive debt accumulation in the medium term. The

proposed adjustment has vital implications for future spending and debt service. The Committee recommends that Government should come out with strong measures and an intensive adjustment campaign to close the

projected tax to GDP gap at an average of 3.54% per annum and maintain the Debt to GDP level as at June 2015.

Table 1: Estimated Tax / GDP gap (%) FY 2016/17 – 2020/21

Year 2016/17 2017/18 2018/19 2019/20 2020/21

Projected Tax/GDP Ratio (%) 13.9 14.4 14.9 15.3 15.8

Sustainable Tax/GDP Ratio (%) 20.98 17.94 15.96 14.47 14.87

Tax Gap/GDP (%) 7.68 4.64 2.66 1.17 1.57 PBO staff Computations from BFP FY 2016/17 – 2020/21 data

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42. A direct consequence of failing to bridge the tax to GDP gap will be the

perpetual increase in public debt, a fact that will fuel debt dynamics even further and render debt management more challenging in the future.

Risks to the Medium Term Macroeconomic Outlook and Indicative Revenue Framework

43. Domestically, the major risks to the framework stem from the excessive expenditures fueled by the political elections and campaigns that is likely

to result into inflationary pressures. Other risks include: the supplementary expenditure pressures arising from unforeseen contingencies during and after the general elections and; the El-Nino

weather conditions which will affect food prices. Other risks to the framework stem from increased lending rates as a result of monetary

tightening hence constraining private sector credit and capacity constraints to timely execution of public infrastructure projects and; the complex commercial and legal aspects surrounding FDI in the oil sector causing

delay of the planned investments.

44. Externally, the major risks stem from the regional unrest and insecurity

concerns, declining commodity prices and lower demand for exports and slower growth in key trading partners. The Committee notes that uncertain

global financial condition, further spill over from lower global liquidity prompting capital outflows, the pace and timing of the normalisation of the US monetary policy, could also pose risks to the macroeconomic

framework.

Macroeconomic Risks and Revenue Mobilisation

45. The Committee observed that any divergence from the Macroeconomic

assumptions underpinning Government‘s fiscal framework poses a risk to revenue mobilization efforts. Uganda‘s medium-term growth projection will

mainly depend on the stimulatory impact of new public investment projects (with high import content) particularly in infrastructure. Any pro-longed delays in the execution of these projects due to absorptive capacity

constraints could negatively impact Uganda‘s growth performance and fiscal indicators on revenue.

46. In order to mitigate these risks, Government reforms in public finance management and other structural reforms should be fast tracked and fully

implemented to ensure effective use of available resources and reduce delays in procurement and the implementation of projects.

Tax Compliance Risks

47. According to the IMF4, Uganda has a large Tax compliance gap and it has grown wider in the last 10 years. Uganda is only collecting about 60

4Revenue Administration Gap Analysis Program-The Value-Added Tax Gap: the International Monetary

Fund, April 2014:

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percent of its potential VAT collections. Specific compliance risks identified in Ugandan VAT include the following:

Tax planning and avoidance by larger companies.

Diversion of declared exports to the domestic market, fraudulently

avoiding output tax,

Widespread failure to register by small taxpayers and/or evasion and

fraud,

Widespread input tax fraud,

Widespread smuggling of goods into Uganda and,

Widespread evasion in the cash economy.

48. The Committee notes that whereas the progress in implementing tax administration reforms is appreciated, more effort is needed to mitigate the

risks posed by;

Identifying the Tax compliance gap and closing measures through

continuous monitoring and surveillance,

Reducing the list of exempt and zero-rated supplies on business-to-

business transactions which could decrease both the complexity of tax

administration and compliance costs for both Revenue Authorities and

Taxpayers and hence reduce the compliance gap;

Enhancing the registration of small Taxpayers and;

Generally, enhancing tax administration measures.

Resource Envelope for the FY 2015/16 and FY 2016/17

49. The Committee observed that the projected total resource inflow (excluding

Appropriation in Aid-AiA) for FY 2016/17 will increase by 6.29% owing to an increase in domestic revenues and improved external budget support.

However, growth in resource inflow will not match growth in the economy. Resource inflow will reduce from 21.8% of GDP in FY 2015/16 to 21.1% of GDP in FY 2016/17 (Refer to Table 2). External debt repayments will

remain at 0.2% of GDP, while the Interest payments on public debt will grow by 21.6% or from 1.9% of GDP to 2.2% of GDP.

50. The Committee notes that the discretionary resources available for Government expenditure will grow by 3.2% from shs. 11,057.52 bn in FY

2015/16 to shs. 11,411.45 bn in FY 2016/17, hence an increase in available resources by shs. 353.93 bn. However, as a share of GDP, discretionary resource will drop from 13% of GDP to 12.2% of GDP over the

same period.

51. The Committee observes that besides the additional resources that could

be mobilized from tax collections, Government should take advantage of anticipated savings arising from the one-off activities in the current budget

at the same time institute cost-saving efficiency measures to raise more resources for reallocation to other priority areas. For instance, resources

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will be saved in FY 2016/17 from the General elections related activities, UBOS Census, Presidential swearing in ceremony and costs related to

Papal‘s visit to the Country.

Table 2: Showing the Summary of the Resource Envelope for the FY 2015/16 and FY 2016/17 (Ushs. Billion)

As %age of GDP

S/N Source FY

2015/16 FY

2016/17 Variance Growth FY

2015/16 FY

2016/17 Variance

Budget Projections (%) Budget Projections

1 Domestic Revenues 11,333.00 12,417.54 1,084.54 9.57 13.3% 13.3% -0.1%

o/w URA Revenue 11,061.50 12,056.70 995.2 9.00 13.0% 12.9% -0.1%

o/w Non-Tax Revenue 271.5 286.53 15.03 5.54 0.3% 0.3% 0.0%

o/w infrastructure levy 0 74.31 74.31 0.0% 0.1% 0.1%

2 Budget Support 51.3 322.29 270.99 528.25 0.1% 0.3% 0.3%

3 Net Domestic Financing 1,581.45 943.82 -637.63 -40.32 1.9% 1.0% -0.9%

4 Project Support 5,597.50 6,046.36 448.86 8.02 6.6% 6.5% -0.1%

Total Resource Inflow (1+2+3+4) 18,563.25 19,730.01 1,166.76 6.29 21.8% 21.1% -0.7%

5 External Debt Repayments -172.04 -178.19 -6.15 3.57 -0.2% -0.2% 0.0%

6 GoU Resource Envelope Less External Debt Repayments 18,391.21 19,551.82 1,160.61 6.31 21.6% 20.9% -0.7%

7 Domestic Arrears Payment 80 80 0 0.00 0.1% 0.1% 0.0%

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GoU Resource Envelope Less External Debt Payment and Arrears 18,311.21 19,471.82 1,160.61 6.34 21.5% 20.8% -0.7%

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GoU Resource Envelope Less External Debt Payment, Arrears and Projects 12,713.71 13,425.46 711.75 5.60 15.0% 14.4% -0.6%

Interest payments 1,656.19 2,014.01 357.82 21.61 1.9% 2.2% 0.2%

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GoU Resource Envelope Less Projects, Interest Payments and Arrears 11,057.52 11,411.45 353.93 3.20 13.0% 12.2% -0.8%

Nominal GDP 84,984 93,473

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Sectoral Priorities for FY 2016/17

52. The Committee notes that the budget strategy for FY 2016/17 will be guided by the NRM Manifesto, Vision 2040, the NDP II and the Sustainable Development Goals (SDGs). Therefore, the budget allocation will focus on

the following areas:

(i) Maintaining and sustaining National Security and Defense as a fundamental condition for economic growth and development;

(ii) Promotion of Production, Productivity, Investment and Export of Goods and Services through Value addition to Strategic Commodities;

(iii) Sustaining the Development and Maintenance of Strategic Infrastructure with emphasis on Energy and Transport to Accelerate the country's competitiveness;

(iv) Enhancing Human Capital Development by improving Access to Quality Critical Social Services

(v) and Skills Development; (vi) Enhancing Domestic Revenue Mobilization; and (vii) Strengthening the Quality of Public Service Delivery to Facilitate Private Sector

Investment.

53. The Committee notes that the total budget is projected to grow by 9.54% in FY 2016/17; however, as a share of GDP, expenditure will remain the

static at 21.5% of GDP (refer to Table 3). The highest growth in allocation will be in favour of Social Development (109.91%) followed by Agriculture

(53.7%), Lands, Housing and Urban Development (40.92%), Tourism trade and industry (33.74%), Accountability (22.63%) and Interest Payments (21.6%). On the other hand, there will be declines in the following sectors:

Information Communication Technology (-66.8%), Public Administration (-33.5%), Energy and Mineral Development (-16.76%) and Legislature (-14.1%).

54. The Committee notes that, as a share of GDP, the Agriculture sector will

receive the highest increase followed by Interest payments, Accountability and Works and Transport. The losers include Energy and Mineral Development, Public Administration and Security. In nominal terms, the

largest share will be allocated to Works and Transport and the least will go to ICT.

55. The Committee observed that the security sector is among the priorities in FY 2016/17, its share in the total budget is projected at 7.5% with a share

of GDP at 1.6% of GDP.

56. The Committee appreciates an increased allocation to the Agriculture

sector, from 2.6% in FY 2015/16 to 3.7% of the total budget. This illustrates Government‘s commitment to the NDP II to promote production, productivity and value addition to agricultural produce. The Committee

recommends that Government should address issues related to access to agricultural land, land productivity, the high cost and limited availability of

quality inputs (seeds, seedlings, animal stock) to the agricultural sector in

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addition to re-instituting advisory, regulatory and monitoring roles originally played by extension workers.

Table 3: Showing the Sectoral Nominal Allocations, Year to year growth and Percentage Shares for the FY 2015/16 and FY 2016/17 (Excluding External Debt Repayments and Arrears)

Amount (shs '000) bn Share of the Total

As %age of GDP

Sector 2015/16

Approved 2016/17

Projection FY

2015/16 FY

2016/17

Y-to-Y growth

(%) FY

2015/16 FY

2016/17

Works And Transport 3,328.8 3,786.9 18.2% 18.9% 13.76 3.9% 4.1%

Energy and Mineral Development 2,826.4 2,352.6 15.4% 11.7% -16.76 3.3% 2.5%

Education 2,029.1 2,276.9 11.1% 11.4% 12.21 2.4% 2.4%

Interest Payments Due 1,656.2 2,014.0 9.0% 10.0% 21.60 1.9% 2.2%

Security 1,636.1 1,503.9 8.9% 7.5% -8.08 1.9% 1.6%

Health 1,270.8 1,407.3 6.9% 7.0% 10.74 1.5% 1.5%

Accountability 1,005.5 1,233.0 5.5% 6.1% 22.63 1.2% 1.3%

Justice/Law and Order 1,051.3 1,057.5 5.7% 5.3% 0.59 1.2% 1.1%

Public Sector Management 948.1 995.6 5.2% 5.0% 5.01 1.1% 1.1%

Agriculture 480.0 737.7 2.6% 3.7% 53.70 0.6% 0.8%

Water and Environment 547.3 532.1 3.0% 2.7% -2.79 0.6% 0.6%

Public Administration 757.7 503.8 4.1% 2.5% -33.50 0.9% 0.5%

Legislature 371.3 318.9 2.0% 1.6% -14.10 0.4% 0.3%

Lands, Housing And Urban Development 164.8 232.2 0.9% 1.2% 40.92 0.2% 0.2%

Social Development 90.2 189.3 0.5% 0.9% 109.91 0.1% 0.2%

Tourism, Trade and Industry 81.2 108.6 0.4% 0.5% 33.74 0.1% 0.1%

Information Communication Technology 66.7 22.1 0.4% 0.1% -66.80 0.1% 0.0%

Unallocated1 786.2 0.0% 3.9% 0.0% 0.8%

Grand Total 18,311.50 20,059.03 100.0% 100.0% 9.54 21.5% 21.5%

Nominal GDP 84,984 93,473

1 Salary enhancement, pension and gratuity & Taxes

57. The Committee strongly recommends that Government should re-establish

the Co-operative movement and a Co-operative Bank as an integrated institutional framework to support the sector with affordable financing,

motivated production and means of access to profitable markets.

58. The Committee recommends that the Agricultural sector should spearhead

effective disease control, research and dissemination of research findings, without surrendering such responsibility to the whims of external

financiers.

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59. The Committee notes the increased allocation to Works and Transport, which demonstrates Government‘s commitment for investment and

maintenance of the strategic infrastructure in the transport and energy sectors. The Committee recommends that Government should to address

the absorption challenges and inadequate readiness of project implementers. Government should re-examine its pre-project development processes, monitoring and evaluation systems with a view of catalysing and

fast tracking implementation of core projects. In addition, Government should create a sustainable maintenance programme for the stock of the completed infrastructure; for instance, by establishing regional

construction and maintenance Units, with sufficient equipment to keep roads in good conditions.

60. The Committee notes that the share of the health sector budget allocation is projected to increase from 6.9% to 7.1% in order to continue improving

on the health sector indicators. The sector indicators to be improved include the under-five mortality rates, maternal mortality rates, HIV/AIDS prevalence, availability of essential drugs and medicines, malaria incidence

and immunization coverage against major killer diseases.

61. The Committee recommends that Government should rehabilitate and at the same time address the inadequate operational and maintenance costs in the referral and general hospitals. In addition, Government should find

a solution to the inadequate number of health workers, accommodation and motivational packages at all levels.

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62. The Committee observes that the allocation to the Education sector will increase but allocation is low, given the numerous challenges in education,

such as the lower than predicted primary school completion rates, slow progress in improving the education outcomes such as proficiency,

numeracy, literacy and skills development. The Committee recommends that Government should address issues related to titling of Institutions‘ and Schools‘ land, salary enhancement for teachers in schools and the

non-teaching staff in public universities.

63. The Committee notes the increased allocation to the Social Development is

in response to Government‘s commitment for the empowerment of the youth, women, people with disability and other interest groups in

vulnerable conditions. The Committee recommends that Government should review its strategy for empowerment, with a view of creating effective community mobilisation systems, efficient management and

sustainability of the programme. Government should manage all the different interest groups under one ministry and in turn create a revolving fund for sustainability.

64. The Committee notes the enhanced allocation to the Tourism, Trade and

Industry as another commitment of the NDPII for developing the tourism sites and infrastructure, in order to attract more tourists and exploit the tourism potential in the country. The Committee recommends that

Government should diversify the tourism products, strengthen tourism research and planning, intensify tourism promotion and marketing and undertake further tourism development of key sites. In addition, the

Committee recommends that the sector should fast track establishment of industrial parks at all regions to create jobs and to attract and retain

Foreign Investors. The sector needs to offer adequate support towards small and medium enterprises to generate employment. To facilitate trade, Government needs to strengthen domestic commercial trade, at Local

Governments, and export promotion services at the international and regional levels.

65. The Committee noted the increased allocation to the accountability sector aimed at fast tracking the re-establishment of the Uganda Development

Corporation as a custodian of Government industrial establishments and to re-capitalize Bank of Uganda for enhanced management and supervision of the financial sector in the economy. The Committee recommends that

the sector should improve on tax education, awareness, equity, compliance and administration to mobilise sufficient revenue and finance the national

budget.

66. The Committee notes that although the Energy and Mineral Development

sector allocation will reduce, the sector is challenged with shortage of the counterpart funds towards the Rural Electrification Project which aims at expanding coverage of the national grid to 30% by 2020. The Committee

recommends that Government should fast track the Rural Electrification Project to facilitate provision of electricity for social-economic

transformation in an equitable and sustainable manner. In particular,

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Government should avail counterpart to the tune of shs. 120 bn to facilitate implementation of donor projects under the Rural Electrification

Agency for FY 2016/17.

Adjustment to the Resource Envelope and Re-allocation

67. On 23rd December, 2015, the Ministry of Finance submitted a revised

resource envelope and some proposals for sectoral re-allocations. The revision was formally presented to the Budget Committee for scrutiny, with

the permission of the Rt. Hon. Speaker of Parliament. The Minister identified some additional resources, amounting to shs. 818.7 bn, arising from anticipated additional revenue in FY 2016/17 and some savings from

the one-off activities in the FY 2015/16 budget (refer to Annex 1). The Ministry made proposals of critical priority areas that required urgent

funding in order to boost production and to promote efficiency in the delivery of services.

After scrutinizing the proposals the Committee made the following

recommendations:

Uganda Police should retain shs. 51 bn out of the shs. 60 bn that would be saved from the one-off police activities in the FY 2015/16

budget. The justification for the retention of the shs. 51 bn by the

Uganda Police is that, the funds will cater for the post-election

policing activities, to ensure security and stability.

Funds for the one-off ISO operations and ESO classified expenditure in the FY 2015/16 budget should be retained. The justification is

that, these two votes have in the past had critical funding gaps for

their effective operations. So the shs. 7 bn for ISO and shs. 10 bn for

ESO should be retained.

The total adjustment in the proposed additional resource amounting to shs. 68 bn be offset from the Salary and Pension Shortfall of shs.

172.3 bn, hence adjusted to shs. 104.30 bn. The justification for the

adjustment is because the Ministry of Finance and the Ministry of

Public Service are still in the process of cleaning up the salary and

pension payroll.

Ushs 5 bn should be re-allocated from NAADS(seed provision) and to Prisons (breeder seed multiplication and cotton production). The

justification for the re-allocation is to increase the stock of seed that

are locally generated and save NAADS from importing Seed, some of

which has been established to be of poor quality.

All the adjustments to the NBFP and the Committee recommendations

are shown in Annex 1

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Unfunded Priority Items in the FY 2015/16 Budget

68. The Budget Committee wishes to remind the Minister of Finance about the

unfunded priorities that were identified by Parliament during the budget process for the FY 2015/16. The Minister of Finance undertook to consider the following unfunded priorities in the FY 2016/17 budget and

indeed pledged that these items will constitute a first call on the budget (refer to table 4).

Table 4: Unfunded Priority Items in FY 2015/16

MDA Unfunded Item in FY 2015/16 Amount shs. bn

Justice and Constitutional Affairs

To defend Government Civil cases in various courts

4.50

Agriculture, Animal Industry and Fisheries

Vaccines for Foot and Mouth Disease (FMD) 9.00

Gender, Labour and Social Devt.

Youth Development Affairs, SAGE, UWEPA and the green job projects

10.00

Lands, Housing and Urban Devt.

Development of National Physical Plan 4.00

All Public Universities Wage enhancement for non-teaching staff 10.00

Equal Opportunities Commission

Compliance exercise for issuance of the Gender and Equity Certificate as provided

for under the PFM Act(2015)

10.00

Judicial Service Commission

Training Investigators 0.15

All Referral Hospitals Supply of Oxygen 10.00

Local Government Procurement of Bicycles for LC 1 and LC II chairpersons.

9.50

Education and Sports Construction of Secondary schools per sub-county

30.00

Law Development Centre Furnishing the Auditorium and other related activities

1.20

NAGRIC Restoration of various Government livestock farms and institutional capacity

10.00

NPA Restructuring and development of spatial plans

2.40

Office of the Auditor

General Salary enhancement 5.20

Total 115.95

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Conclusion to the Medium Term Macroeconomic Plan, Fiscal Framework and Indicative Revenue Framework

69. In conclusion, efforts were made during preparation of the NBFP for FY

2016/17 – 2020/21 to ensure that it is consistent with Vision 2040, the NDP II and the SDGs. Nevertheless, in some areas the NBFP are still short of the requirements of the PFM Act (2015), which can be rectified in

subsequent submissions. The CRF is still in a draft form, but being developed to meet the requirements of the PFAM Act and to be ready in

time for the 10th Parliament.

70. The NBFP emphasizes the macroeconomic objectives of achieving and

maintaining the real economic growth of at least 6% per annum; maintain the core inflation close to the 5% and the headline inflation within single digits; maintain foreign exchange reserve cover of at least 4.5 months of

imports; maintain a market determined real exchange rate and; attain a monetary and economic convergence and compatibility within the EAC.

71. The objectives of the proposed budget for FY 2016/17 are to continue supporting the maintenance of Macroeconomic stability and at the same

time, stimulating economic growth and reducing the country‘s infrastructure deficit. The coordination of the monetary and fiscal policies

will be paramount to the success of the budget objectives.

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PART 2: SECTORAL PLANS AND EXPENDITURE

LANDS HOUSING & URBAN DEVELOPMENT SECTOR

VOTE 012: MLHUD

Inadequate Provision for the Land Fund

72. The Committee noted the good efforts by Government to correct a historical injustice that was minted to the people of Kibaale and other parts of the country created by the colonial government. The Committee has been

approving an average UGX 13bn and substantial progress has been registered however given the magnitude of the program and the budget

requirement of UGX 1.7 Trillion, the annual allocation of UGX 13bn grossly insufficient is compared to the annual target of UGX 80bn.

The Committee recommends a thorough review of the Land Fund be conducted in addressing the problem as the annual budget cannot do justices to those who have been denied their rights.

Operationalisation & Maintenance Of Ministry Zonal Offices

73. The Committee observes that there has been a delay by the MLHUD in operationalising MZOs across the country. A total of 7 MZOs require UGX

6.44bn to operationalise and maintain in FY 2016/17. The 6 MZOs that are already operational require UGX 1.43bn for their maintenance in the current FY 2015/16, which was requested for under the supplementary

budget but has not yet been availed to MLHUD. The Committee notes that failure to provide the requisite maintenance funding will affect the

effectiveness and efficiency of the MLHUD in service delivery as well as threaten the investment made in constructing and equipping the MZOs. Up to USD 54m was borrowed by the GoU to construct the MZOs and this

investment is currently under threat of wastage.

The Committee strongly recommends that MFPED urgently avail UGX

1.43bn required for maintenance of the existing MZOs and also provide the UGX 6.44bn for operationalisation and maintenance of MZOs in the

FY 2016/17.

National Physical Development Plan

74. The Committee observes that despite its strong recommendations over the

years that a National Physical Development Plan be developed, the Plan is yet to be developed. The MLHUD informed the Committee that an

estimated UGX 8.7bn is required to develop the Plan but is yet to be availed by the MFPED.

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The Committee reiterates its earlier recommendation that this Plan be urgently developed and operationalised in order to provide a

development framework for all physical planning in the country. The MFPED should avail the UGX 8.7bn required to facilitate the

development of the National Physical Development Plan for Uganda.

Land Use Policy & Physical Development Plans

75. The Committee observes that despite enacting several laws and policies to

promote better and organized land use, such as the National Urban Policy and Physical Planning Act 2010, there has been poor implementation and

enforcement. The MLHUD attributed the poor enforcement of the laws and policies to lack of funding to sensitize the public and establish the necessary structures such as the Physical Development Committees and

Plans at the national and lower Government levels including districts and parishes. This has led to poor land use practices and unplanned settlements and developments despite the existence of the necessary laws

and policies.

The Committee strongly recommends that the MFPED endeavors to avail the necessary funds for full implementation and establishment of structures in order to enable the enforcement of the National Land Use

Policy and Physical Planning Act 2010 at all National and lower local government levels.

Counterpart Funding for Projects

76. The Committee observes that several donor-supported projects under the MLHUD are being affected by lack of counterpart funding from GoU to

cater for taxes. Case in point is the Uganda Support to Municipal Infrastructure Development (USMID) project where UGX 21 bn is required; Competitiveness Entreprise Development Project (CEDP) where UGX 8bn is

required; and Albertine Region Sustainable Development Project where UGX 6bn is required. The Committee notes that failure by the GoU to avail

the counterpart funding has affected the relationships with project contractors and project deliverables, including the Scope of Works, which has had to be reduced in order to meet the reduced funding levels.

The Committee strongly recommends that MFPED should urgently and fully provide the counterpart funding it committed to availing when

the donor support was being processed to enable the fast and effective implementation of these projects.

Inadequate Office Accommodation

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77. The Committee observed that MLHUD is scattered with offices in Entebbe, Portbell road and Parliament Avenue, thus making coordination and ‗one

stop centre‘ approach to business impossible.

The Committee therefore recommends that the issue of providing office

accommodation for the Ministry at one location be considered for funding.

MINISTRY OF WORKS AND TRANSPORT SECTOR

Funding of the Works and Transport Sector

78. The Committee noted the increased budgetary provision for the sector by 14% in the FY 2016/17 accounting for 19% of the National Budget for the

FY 2016/17. Further it‘s noted that more resources are devoted to new construction works under UNRA Budget that constitutes 75% of the sector

budget and only 10% under the Uganda Road Fund for road maintenance which has also been kept static for the last two FYs.

The Committee in view of the above observation strongly urges Government to prioritize more resources for the regular maintenance of the road network under the different categorization.

The sector has set a target of 400km of unpaved road to be upgraded to

Bitumen Standards and 80km for rehabilitation of national paved roads among its key deliverable indicators; this confirms the inadequate budgetary provisions despite the sector having the lion‘s share of the

national budget for the FY 2016/17, there are a substantial strategic roads that remain unfunded in the medium term.

The Committee recommends that Government mobilizes more resources for the construction and rehabilitation of National roads as

this is an enabling sector for the productivity of other sectors of the economy and others.

79. The sector has prioritized among it s activities to develop sector enabling policies and regulations including; the finalization of Uganda Construction

Industry Commission (UCICO) Bill, National Building Regulations, the Road Safety Agency and revival of the DURCA programs to ensure cost effectiveness in the management of maintenance of district to district

roads.

The Committee recommends expeditious implementation and

finalization of the different policy proposals before the sector to spur and rationalize the investment being made in the sector for appropriate

value for money.

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Coordination of Metropolitan Infrastructure Development

80. The Committee observes that several transport infrastructure interventions

that are currently on-going or planned within the Kampala Metropolitan Area. These interventions are made by different agencies including MWT, KCCA, UNRA and Municipal Councils surrounding the Kampala area

without adequate coordination and integration of efforts. The Committee notes that the proposed Metropolitan Transport Authority (MATA) would better coordinate and rationalize the interventions that are currently being

done in isolation without adequate in-put and control by other key stake holders.

The Committee recommends that the MWT should fast track efforts to create the MATA which will enhance planning, coordination and

implementation of the public transport efforts such as the rapid bus transit, railway transport and light railway transit in the Kampala

Metropolitan areas.

Harmonization & Coordination of Road Network Interventions

81. The Committee notes that road network development and construction at the district, urban council and community level are disjointed and not

linked especially between the districts and at the regional levels. This has resulted in isolated networks and poor maintenance coordination efforts

across the districts in the country and has led to wastage of resources.

The Committee recommends that the MWT should create a mechanism

for better coordination and harmonization of road development and construction efforts at the lower road network levels within and between districts, at the regional level, at the urban council and

community level.

Vote 113 UGANDA NATIONAL ROADS AUTHORITY (UNRA)

Road Maintenance to Development Funding Ratio

82. The Committee notes that GoU has emphasized road development and construction works at the expense of maintenance. It should be

appreciated that a lot of funding over the years has been committed to the development of the road network at the national and lower levels at the expense of adequate funding for maintenance, thereby leading to wastage

of these investments due to poor maintenance culture. Since roads are expensive to construct, there should be well planned, deliberate and timely maintenance interventions to ensure in the long-term less funds shall be

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spent on maintenance of the same roads. These interventions would prevent premature deterioration, accord the roads a longer service life and

reduce the costs of rehabilitation/reconstruction.

The low levels of maintenance funds have been attributed to poor priority setting by the planners and also to the failure to fully operationalise the Uganda Road Fund Act 2008.

The Committee reiterates its earlier recommendation that the MFPED should expeditiously amend the URF Act in order to enable the URF

operate as a second generation fund and that GoU should deliberately commit more funding towards maintenance of the road network at national and lower government levels.

Planning for By-Pass to Major Towns

83. The Committee observes that national road network transiting major towns is poorly planned without provision for by-passes at many locations. For

example, the Committee notes that a major national road backbone like the Tororo-Mbale-Soroti-Lira road has no by-passes, except in Lira, despite the heavy traffic destined for South Sudan which traverses the centre of these

towns leading to congestion.

The Committee recommends that the UNRA should deliberately provide

by-passes for all major towns along busy transport routes in the country in both the medium and long term.

Counterpart Funding for Projects

84. The Committee observes that several donor-funded projects under the UNRA being affected by lack of counterpart funding from GoU for right-of-

way acquisition. Case in point is the Kampala Entebbe Expressway where a shortfall of UGX 100bn is needed for right of way and land compensation.

The Committee recommends that Government evaluates and identifies and prioritizes resources for acquisition of right of way fore-hand before entering into contract for construction works.

WATER, SANITATION AND ENVIRONMENT SECTOR

VOTE 019: MINISTRY OF WATER & ENVIRONMENT

Rural Water Supply

85. The Committee observed that, in order to increase service coverage and functionality of the existing water sources; there is an urgent need for

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specialized equipment for overhauling of boreholes in support of Community Based Management Systems (CBMS). This requires an

increased budget allocation of at least 15bn annually.

The Committee recommends that an extra Ushs. 15 billion be provided

annually to increase rural water supply coverage across the country. With these allocations the rural water supply infrastructure will be in

tandem with ever growing population of about 3.3% per year.

Urban Water Supply

86. The Committee observed that, there is a critical need for increased and

reliable water supply and sewerage/sanitation services in all urban areas to support industrial processes. This will catalyze the push and pull economic effects through establishment of new industries that will create

jobs and improve household incomes as well as provide markets for raw materials produced by households. A total of Ushs. 45bn is required annually as additional funds to this vote function to cope up with the

requirements.

The Committee recommends that an extra Ushs. 45bn be provided annually to the current ceiling in order to ensure adequate urban water supply.

Water for Production

87. The Committee observed that in order to support all-year-round agricultural production (e.g. irrigation) and industrial processes, there is a

critical need to increase water storage capacity countrywide through construction of small and large surface reservoirs. A total of UShs.55bn of additional funds is required annually to undertake rehabilitation of old

dams in phases countrywide, clear backlog and fast track construction of already designed facilities, strengthening of community management for

improved use.

The Committee recommends that an extra UShs 55bn is provided

annually to the current ceiling in order to ensure adequate water for production countrywide.

National Strategy for flood management

88. The Committee observed that the Ministry has no National Flood Management Strategy. A strategy comprises of measures for Early Warning, Flood Protection, Flood Prevention, Flood Mitigation and Flood

Awareness. Immediate benefits of the strategy will be reduction in death caused by floods, protection of infrastructure such as road networks,

bridges, hydropower plants, houses, reduction in water borne diseases and

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improved livelihoods and increased productivity of communities normally affected by floods.

The Committee was informed that an addition Ushs. 1.9bn is required for a flood management strategy for districts in Eastern Uganda, Kasese and

other parts of the country that have continued to suffer the loss of lives and investments due to floods.

The Committee recommends that an extra Ushs. 1.9bn is provided for the development of a National Strategy for Flood Management in the

FY20176/17.

Laboratory equipment for oil & gas

89. The Committee observed that the Ministry requires advanced laboratory

equipment for the monitoring of oil & gas, toxic metals, pesticides and micro-biology in the water discharged by industries. This investment would cost Ushs. 10 bn.

The Committee therefore recommends that an extra Ushs. 10bn is

provided for the purchase of advanced laboratory equipment in order to ensure water quality standards.

Understaffing at the Ministry

90. The Committee observed that the Ministry still has a staffing constraint.

The vacant positions cannot be filled due to annual wage ceiling set by the Ministry of Finance. Present staffing level stands at 64% of the approved

structure. The Ministry has only 268 positions filled leaving 150 vacancies.

The Committee reiterates its earlier recommendation that Government

prioritizes that recruitment of staff in the Ministry in the medium term; for it to fully fulfill its mandate as this sector is critical for the development of the Country.

Uganda National Meteorological Authority (UNMA)

91. Parliament considered and passed the Uganda National Meteorological Authority Act in 2011 that establishes the UNMA. The Authority is

supposed to inform Ugandans on weather developments across the country. Parliament recommended that in order for the Authority to operate fully & effectively independent (financial independence), the

Authority is given a Vote Status. Currently the Authority receives a subvention through Vote 019, Ministry of Water & Environment. The

Committee was provided with evidence that the Authority requested for a Vote status from the PS/ST to Treasury. However, the Authority has not been given a Vote Status.

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The Committee therefore reiterates its earlier recommendation that Government grants the Authority a Vote Status with immediate effect

in order to enhance effective management of the funds.

Weather Monitoring Radar

92. The Committee observed that the National Meteorological Centre is not

equipped with weather (Meteorological) Radar. The Rador is a useful tool in weather forecasting and ensuring security of the country. In day to day Meteorological operations, weather radar data are used extensively for

short-term forecasting and warnings of hazardous weather, including hail, flash floods, damaging winds, lake waves, wind, and storms and wind

shifts.

The Committee therefore recommends that Uganda procures at least

one Weather Radar during FY 2016/2017 to ensure an improved forecasting system by the Uganda National Meteorological Authority. This would require extra funding of approximately Ushs. 9 billion.

Institutional Mandate Overlaps

93. The Committee observed that, there continues to be conflicting mandate between the National Environmental Management Authority and the

Wetlands Division in the Ministry of Water and Environment as roles for either department continue to overlap. This has resulted in the

mismanagement of wetlands. The Committee notes that NEMA is the principal agency in Uganda for the management of the environment and shall coordinate, monitor and supervise all activities in the field of the

environment.

It was further observed that as much as the Authorities were established to

manage the environment, the Ministry remained with the ultimate policy guidance in the sector.

The Committee recommends that the Wetlands Division and the Forestry Department under the Ministry of Water and Environment concentrate on policy guidance and leave matters of implementation or

coordination to the authorities which can handle these activities i.e. NEMA & NFA.

VOTE 150: NATIONAL ENVIRONMENT MANAGEMENT AUTHORITY

Human resource capacity constraint

94. The Committee observed that, the current human resource capacity (employees) of NEMA is grossly insufficient to meet the mandated functions. According to a report on the institutional capacity of NEMA

carried out in 2010, it was recommended to increase staffing from the current 65 to 144. In addition, the Committee had also recommended that

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NEMA‘s human resource capacity is enhanced. However, to date this has not been implemented.

In this regard the Committee recommends that an additional Ushs. 3.1 billion is provided to enhance NEMA’s human and institutional

capacity.

Restoration of Degraded Ecosystems

95. The Committee observed that there is a critical need for the restoration of

degraded ecosystems including; lake shores, river banks, rangelands, hilly mountainous areas. For instance Lake Victoria, the world‘s second largest

freshwater lake stands as the most critical economic resource that links its three riparian countries of Kenya, Uganda and Tanzania as well as Rwanda and Burundi which form part of its drainage basin.

The Committee therefore recommends that an additional Ushs. 1.2 billion is provided in the FY2016/17 for increased restoration

activities.

NEMA Oil and Gas Unit

96. The Committee observed that the oil and gas unit in NEMA is in dire need

of monitoring equipment. The Committee is extremely concerned that the environmental compliance monitoring capacity in Oil and Gas sector is still inadequate.

The Committee therefore recommends that an additional Ushs. 1

billion is provided to NEMA in the FY2016/17, to adequately equip NEMA to handle compliance issues specifically in the Oil and Gas sector.

VOTE 157: NATIONAL FORESTRY AUTHORITY

Supply of Tree Seedlings

97. The Committee observed that based on the current demand for tree

seedlings under the community Tree Planting Programme, there is need to increase the supply of tree seedlings from the current 6 million to approximately 33 million tree seedlings annually. This requires additional

funding amounting to Ushs. 4 billion per year. Only Ushs. 2 billion has been earmarked for this activity in the FY2016/17.

The Committee therefore recommends that an additional Ushs. 4 billion is provided to NFA to increase the supply of tree seedlings

countrywide.

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Forest Restoration

98. The Committee observed that NFA embarked on Forest restoration through tree planting targeting 2,000 hectares per year of heavily encroached forest

reserves including river banks, lake shores, steep slopes and high biodiversity hot spots. Encroachment on Central Forest Reserves has led to

their degradation leaving most of them with no trees and destruction of the eco systems and biodiversity.

However, only Ushs. 100 million has been provided for in the FY2016/17, which is inadequate for this activity.

The Committee therefore recommends that an additional UShs 1.2

billion is provided to NFA for the forest restoration of 2,000 hectares.

Forest Boundary Resurveying

99. The Committee observed that only Ushs. 200 million has been provided in the budget of FY2016/17 for forest boundary re-surveying activities. NFA

requires Ushs. 32 billion for forest boundary re-surveying and marking with permanent pillars targeting 12,000km of boundary cut-line.

The Committee recommends that in order to re-survey 3,000km annually with permanent pillars, UShs7.5 billion per year should be

provided to NFA. This will help protect the Central Forest Reserves from encroachers.

Forest Plantation Developments

100. The Committee noted that at the current loss of 90,000 hectares of forests destroyed per year, there is need to encourage afforestation in order to restore the Country‘s forest cover and conserve our environment. The

Committee observed that only Ushs. 650 million has been provided in the budget of FY2016/17 for forest plantation developments of about 650

hectares.

The Committee recommends that in order for NFA to scale up

development of forest plantations at a rate of 1,500 hectares per year, Ushs. 1.5 billion is provided annually.

Generating Revenue

101. The Committee observed that the forestry sub-sector has enormous potential for generating non tax revenue.

The Committee therefore recommends that in order for Government to generate more revenue from the forestry sub-sector, the following measures should be undertaken; Develop a comprehensive Eco-tourism

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strategy to enable NFA maximize the tourism potential of Central Forest Reserves.

102. Explore opportunities for Private Sector Investments where the private

sector may directly/or jointly with NFA invest in mutually beneficial ventures.

ENERGY AND MINERALS DEVELOPMENT SECTOR

VOTE 017: MINISTRY OF ENERGY & MINERAL DEVELOPMENT

Acquisition of land for Energy, Petroleum and Mineral Projects

103. The Committee observed that the acquisition of land for key development projects remains a tremendous challenge. This has significantly increased

project costs and in some cases led to delays in project implementation due to Project Affected Persons rejecting approved compensation values.

The Committee recommends that Government needs to urgently

address the issue of land acquisition for energy projects. Either provide adequate funds for compensation or amend the Land Acquisition Act to provide for free right of way for energy projects like in Ghana and

Tanzania.

Management of Expectations from Discovery of Petroleum

104. The Committee observed that the people of Uganda in general, and in the areas where the discoveries have been made in particular, expect quick

revenues, jobs and businesses, among other things. There are also anxieties about the possible negative aspects of developing the oil

resources like environment degradation and how the revenues will be managed.

The Committee therefore recommends that in order to address this

concern, government should intensify on the implementation of its

Communication Strategy and sensitize Ugandan’s on the realistic development and prospects in the oil and gas Subsector.

Operationalization of the Uganda National Oil Company (UNOC) & the

Petroleum Authority Uganda (PAU)

105. The Committee observed that Parliament considered and passed the Petroleum Exploration, Production and Development Act, 2013 which established the Petroleum Authority, the National Oil Company and the

Directorate of Petroleum to manage the oil resources. The Boards of the UNOC and UPA are now fully established; however, funds to fully

operationalize these institutions are not adequate. In the FY2016/17 only Ushs9.8 billion has been allocated.

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The Committee recommends that Government fully operationalizes the Petroleum Authority and National Oil Company in the medium term, so

that they can carry out their mandate as provided for in the Petroleum Exploration, Production and Development Act 2013. In this regard the

Committee recommends that Government sources for funds in order to finance a funding gap of Ushs. 42 billion in the medium term.

Generation and Access to Electricity

106. The Committee observed that Government is investing large amount of funds in the generation of power. However, there is no corresponding

funding in the transmission and distribution infrastructure to evacuate the power and ensure access to electricity. In some instances, Government

pays for the generation of electricity and the capacity to evacuate the power is not available – the case of Kabalega Mini Hydro Power Dam in Buseruka.

The Committee recommends that Government streamlines this mismatch between Generation, Transmission and Distribution over the medium term in order to ensure that the medium target of 30% access

to electricity is attained.

Illegal Mining Activities

107. The Committee observed that there is an increase of illegal mining activities being carried largely by artisanal miners especially in response to gold

rushes in Mubende, Namayingo, Bugiri and the Karamoja region.

The Committee therefore recommends that Government increases the

supervision and monitoring of mining activities. In addition Government should increase the sensitization of artisanal miners and

encouraging them to form groups which will can be licensed.

VOTE 123: RURAL ELECTRIFICATION AGENCY Non-Remittance of 5% Transmission Levy by UETCL

108. The Committee observed that since May 2015, REA has received

remittance (5% transmission levy) for only one month amounting to UGX 2.5 billion with over UGX 18 billion verified by the Chief Government Valuer. UETCL attributes this to non-payment by UMEME which in-turn

claims that a number of Government Institutions have not cleared their energy bills and yet the ESCROW Account is depleted. This has greatly

hampered implementation of rural electrification projects that were earmarked to benefit from this funding source. Since this source also funds REA‘s operational costs, monitoring implementation of projects and

payment of salaries is becoming increasingly difficult.

The Committee recommends that Government prioritizes the

financing of this gap and in the medium term ensures that all MDA’s are equipped with prepaid meters.

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In addition, to facilitate the successful implementation of the 10 GOU funded projects and the 8 projects funded by BADEA that required the

transmission levy funds, funding totaling to USD 6,488,626 equivalent to UGX 23,359,052,515 is required.

Inadequate Counterpart Funding

109. The Committee observed that over 10,000km of grid extension projects

have been packaged for implementation in the period 2015 to 2019. These projects shall be funded using loans to Government. All the loans have a counterpart component for meeting the costs of Taxes on Local Materials

and Local Services. In this regard there is a funding gap of Ushs. 102 billion.

The Committee recommends that over the medium term Government prioritizes the sourcing of funds to bridge the funding gap of Ushs.

102 billion.

Inadequate Way-leaves Compensation

110. The Committee observed that the financial requirements for way-leaves

compensation continue escalating as new projects are embarked on. The situation is expected to get worse when REA implements a number of projects funded by Development Partners over the next 4 years. The

outstanding way-leaves bill verified by the Chief Government Valuer as at the end of October 2015 for the completed and on-going projects is UGX

18,559,456,017.

The Committee recommends that over the medium term Government

prioritizes the sourcing of funds to bridge the funding gap of Ushs. 18.56 in order for the completion of the on-going rural electrification projects

ICT SECTOR

Sector Funding Gap

111. According to the Budget Framework Paper and other information, the ICT

sector requires Ushs 426.3 billion of which only Ushs 172.99 billion has been identified from all categories including NTR. This results into a total

funding gap of Ushs. 253.3 billion which represents 59.4% of the required amount. The Committee observes that the huge funding gap constrains the sector from achieving its key priorities stipulated in the Strategic

Investment Plan for FY 2016/17 – FY 2020/21. This means that most of the interventions critical for the country‘s socio-economic transformation cannot be implemented.

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112. The Committee observes that whereas Government recognizes ―access to efficient and affordable ICT services in promoting private sector investment

as an engine of growth in the Ugandan economy,‖ the indicative budget allocation to the sector at 0.3% of the National Budget is inadequate to

stimulate public investment in the sector.

113. The Committee noted that even with the current low levels of investment in the ICT sector, the sector‘s contribution to the Gross Domestic Product

(GDP) is over 2% and it employs over 1.3 million Ugandans and contributes over Ushs 484.4 billion in tax revenue from telecom companies.

The Committee recommends that funding to the ICT sector be enhanced in the medium-term so as to benefit from its fast growing

contribution to GDP, employment levels and tax revenues.

Cyber Security

114. The Committee noted a funding gap of Ushs 2.33 billion for cyber security interventions and incident response capabilities of the national Computer

Emergency Response Team (CERT). This is risky given the fact that cyber security attacks can cost the country billions of shillings which may never be recovered.

The Committee recommends that the Government provides the Ushs 2.3 billion to facilitate the security of Uganda in cyber space.

Charges on international telecom traffic

115. The Committee notes implementation of a US$ 0.09 per minute Excise Duty on all incoming international calls except for Northern Corridor partner states by the Government, coupled with similar initiatives in

Tanzania, Rwanda and Burundi have made calls to Uganda from the rest of the world extremely expensive.

The Committee recommends that Government adopts a friendly and investment oriented charges that support investments given the

strategic contribution of communication in investment.

MINISTRY OF FOREIGN AFFAIRS AND MISSIONS ABRAOD

Northern Corridor Integration Project

116. The Committee was informed that Uganda hosts NCIPs Summit twice every

year but budget allocation provided is meant for one summit. This implies the Need for additional funds amounting to Ushs. 1,289,841,315 to cater for the second NCIP summit and Ushs. 4,417,808,663 for the

Establishment of the Northern Corridor Authority.

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The Committee recommends that these funds be availed so that Uganda can continue to reap the benefits from these summits.

Loss On Poundage For Missions Abroad

117. The Committee was informed that the Missions abroad have faced shortfalls in the first two Quarters of FY 2015/16 due to the depreciation of the shilling. During the budgeting process, the Missions used the budget

rate of 1USD=2,792, but by the time quarter one funds were released; the rate was 1USD to Ushs. 3,418 in quarter one and 1USD to Ushs. 646 in quarter two. In quarter one, the Missions lost up to Shs. 5,846,258,973

and Shs. 14,390,033,838 in quarter two. The total loss in two quarters is Ushs 20,236,292,811.

The Committee recommends that this should be addressed by the Ministry of Finance.

Opening Missions in Brasilia and Lusaka

118. The Committee was informed that the Ministry will need UGX

4,997,040,164 to open Missions in Lusaka, Zambia and Brasilia, Brazil. Uganda does not have any Mission in South America yet there are strategic

interests in this continent to be tapped into.

The Committee recommends that these funds should be availed given

the strategic importance of these new missions especially that Brazil is one of the members of the BRICS, which is a source of FDI. Commercial Diplomacy Project

119. The Committee was informed that the Ministry intends to use 12 Missions to pilot the project. The overall purpose of the program is to enhance the

capacities of the Ministry and its Missions abroad in promoting commercial and economic diplomacy with emphasis on tourism, trade investments, external resource mobilization and Technology transfer. The cost of the

project is UGX 5,372,540,000.

The Committee recommends that, given the importance of

commercial diplomacy in terms of increased investments and FDI, this shortfall should be addressed.

Contributions to International Organizations

120. The Committee was informed that the Ministry has accumulated arrears on

contributions to International Organizations over time, the current allocation is not enough to meet annual subscriptions this implies that the

Ministry will continue incurring arrears every other year. The Ministry requested for additional funds to offset the current deficit that stands at Ushs 46,312,012,676. The Committee was further informed that the

arrears have been worsened by the depreciation of the Shilling.

The Committee recommends that to avoid international

embarrassments associated with non-payments the Ministry of Finance should pay directly to these organizations all the arrears.

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New Appointments

121. The Committee was informed that the Ministry has received communication on new appointments in the current Financial Year which

were not foreseen during the budgeting process for FY 2015/16 including newly created Human Resource Units. The financial implication of these appointments is a wage bill amounting to Ushs 268,357,512.

The Committee recommends these new appointments should be verified and adequately budgeted for in the wage bill for the sector.

Benefits from International Scholarships to Uganda

122. The Committee was concerned about the monetary value of all scholarships secured by the Ministry and their distribution. The ministry informed the Committee that the monetary value of the scholarships

secured is not provided explicitly. However, the number of secured opportunities from various countries is available. These training opportunities are disseminated as follows:

All the short term scholarship are sent to the respective MDAs, who in turn nominate the required candidates accordingly; and

Long term scholarship programs are referred to the Central Scholarship Committee in the Ministry of Education, Science,

Technology and Sports for further Management. The Committee recommends that the monetary value of all secured

scholarships should ascertain and fully reported so that Parliament and the country know the exact contribution of the providing

countries. Formulate a Foreign Policy for The Country

123. The Committee is concerned about the delay in formulating a foreign policy blue print to guide foreign operations. This is impacting on the Ministries capacity to fully implement programmes and improving its resources

allocations.

The Committee therefore recommends that this should be finalized without any further delay.

Sector Strategic Investment Plan (SIP)

124. The Committee was informed that the Ministry‘s Strategic Investment Plan (SIPII 2015/16-2019/20) was approved by Senior Management and

submitted to National Planning Authority. Further comments were received from NPA and the Ministry is working on finalizing the document.

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The Committee recommends the updated Sector Investment Plan (SIP) should be expedited so that it guides the sector budget proposals and

sector outcomes and to be consistent with the NDP11 and Vision 2040.

Externalization of Labour

125. The Committee was concerned about the inadequate budgetary provisions

for cater for this activity yet so many Uganda working abroad face many challenges. The budgetary provision was only Ushs.50 million. The Committee also noted that there is policy on labor externalization which

puts many Ugandans working abroad at risk of over exploitation and abuse.

The Committee therefore recommends that government should expedite the formulation of the policy framework on labor

externalization and also register and accredit all companies dealing in this activity for effective monitoring.

PRESIDENTIAL AFFAIRS

RDCs and DRDCs

126. The Committee observed that government has endeavored to facilitate the RDCs and DRDCs but their output remains wanting as they continue to

engage in partisan politics and fail to execute their core mandate.

The Committee strongly recommends that RDCs and their deputies should adhere to their duties and disciplinary action should be taken against those defying the regulations.

Model Villages

127. The Committee observes that the idea of model villages is a very good one and deserves more funding in order to improve on people‘s livelihood.

The Committee recommends that the Programme should be facilitated by increasing the budget; and all regions in the country should equally benefit to balance development in Uganda.

ESO and ISO Arrears

128. The Committee observed that despite the colossal sums of money passed by Parliament to settle the arrears for ESO/ISO in a number of financials

years, non-payment of the same arrears in the security organizations still persist.

The Committee recommends that Office of the President treat the matter with urgency; budget for what is demanded so that the arrears are settled.

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The Committee further recommends that Ministry of Finance, Planning and Economic Development should take heed to Parliament’s

recommendations and release funds for security organs as required.

129. The Committee observed that the activities of the Uganda AIDS Commission are generally of the health nature.

The Committee reiterates its earlier recommendation that the UAC be placed under the health sector for purposes of proper supervision and oversight.

Ethics and Integrity

130. The Committee observed that the directorate of Ethics and integrity budgeted for purchase of land to construct its own premises. However, this budget was reallocated to other items after budget approval citing

escalation of land price. The Committee believes that construction of own premises remain a top priority for the Directorate and therefore recommends that purchase of land meant for this purpose should be done

in a phased approach in the medium term and should be restated as a priority.

Emergency Relief

131. The Committee observed that the Office of the Prime Minister is not responding to the emerging disasters as fast as possible. There have been serious floods covering most parts of the country; Northern and Karamoja

Regions are seriously hit by starvation but the response from OPM is sluggish.

The Committee strongly recommends that the budget for financial

year 2016/17 should cater for the emerging disasters and the Ministry of Finance, Planning and Economic Development should desist from the bureaucratic red-tape release funds to cater for natural cal