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Uganda government spending to jump 71 pct; shilling tanks
Uganda Minister of Finance Matia Kasaija displays a briefcase carrying national budget before presenting it to the nation during a budget speech in Uganda's capital Kampala, June 11, 2015. PHOTO BY REUTERS/James Akena
By Elias Biryabarema
12/06/2015
KAMPALA (Reuters) - Uganda on Thursday said it would increase its budget 71 percent in the 2015/16 fiscal year, exacerbating investor fears about pre-election spending and driving the shilling to a record low.
The currency plunged after Ugandan Finance Minister Matia Kasaija said spending for the coming fiscal year, which begins in July, would jump to 23.972 trillion shillings ($8 billion) from 13.988 trillion in the previous year.
At 1405 GMT, commercial banks quoted the shilling at a new low of 3,155/3,165 against the dollar, a 1.28 percent decline for the day. The previous low was reached hours before Kasaija's speech.
"Given that this is an election year, investors may ... be concerned," said Razia Khan, head of research for Africa at Standard Chartered.
The surge in spending was likely to further weaken the shilling, down 14 percent against the dollar this year. The currency has been under pressure since January from corporate demand for dollars and worries about just such spending before presidential and parliamentary elections in early 2016.
Khan also pointed to the "sizable deterioration" of the fiscal deficit, which widened to 7 percent of GDP compared with 4.5 percent for this year. The government said it was looking to fund much of the gap from external loans.
Kasaija projected Uganda's economy would expand at 5.8 percent over the next fiscal year from 5.3 percent in 2014/15, mainly driven by a recovery in private consumption and public and private investment.
Robert Mpuuga, a foreign exchange trader at Housing Finance Bank, said the central bank is expected to keep intervening in the market and ratchet up policy measures to support the shilling.
"Overall, the shilling will remain weak, but I see robust action from the central bank to limit any damage from expanded government spending," he said.
($1 = 3,155.0000 Ugandan shillings)
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