Background to the budget 1994 - 1995: Economic performance 1993 - 1994 and prospects for 1994 - 1995 fiscal year

Overall economy grew by 7.2 in 1992/93. Growth is expected to be slower in 1993/94 due to slower growth rate in the food crop subsector which accounts for 36 of GDP. Poor rains caused 1.7 growth in food sector in 1993/94 as compared to 9.2 in 1992/93. The industrial sector index of industrial production continued to grow. The index rose 17.4 from 196.2 to 230.4 in Dec 1993. Preliminary indications of growth of 15-18 during 1993/94 in areas of food processing, drinks and tobacco, chemicals, paint and soap. The index of industrial production in food processing increased from 252.5 in Dec 1992 to 335.2 in Dec 1993, for drinks and tobacco 177.0 to 221.4, for chemicals and paints from 300.5 to 355.5 during the same period. Budget deficit is estimated at 3.7 of GDP as compared to 3.1 of GDP in 1992/93. The overall deficit excluding grants declined from 11.7 of GDP in 1992/93 to 9.7 in 1993/94, a drop of 2.0. The improvement in deficit is attributable to reduction in total expenditure of about 0.5 of GDP from 19.7 of GDP in 1992/93 to 19.2 of GDP in 1993/94 and to a lesser extent the slight improvement in revenue as a percentage of GDP. Total recurrent revenue increased by 33.4 in 1993/94 over the previous period with tax revenue increasing by 34.6 in the same period. The steady appreciation of the exchange rate has limited an even higher collection of tax revenue by URA from imported goods. Because of the exchange rate appreciation there was drop in revenue collections from international trade eg. customs duty and sales tax on imports of about UShs. 1bn. the largest single drop from petroleum taxes. Total domestic credit declined by 2.3 from UShs. 208.7bn. in June 1993 to 203.9bn. by June 1994, with sharp drop in credit to government of 130.0 of the total from UShs. 40.0bn. in June to net deposit of UShs. 21.1bn. in June 1994. There was growth in domestic credit to the private sector of 28.0 in 1993/94 over the previous year from UShs. 168.7bn. to 216.0bn., consistent with the government objective of restraining government borrowing from the banking system to allow increased resources to become available for private sector credit. Financial savings continued to grow. The ratio of financial savings to broad money (M2) was 27.6 while that to GDP was 2.6 compared to 2.4. While still low, these ratios indicate that the mobilization of funds is responding to macroeconomic stability. Underlying inflation was stable for 1993/94 averaging 10 for the ten months from Jul 1993 to May 1994. The current account deficit as a percentage of GDP narrowed from -4.9 of GDP in 1992/93 to -3.4 in 1993/94 including grants, excluding grants improved from -13.2 of GDP in 1992/93 to -10.7 in 1993/94. In absolute terms the current account improved by US$55.9m from deficit of US$381.9m in 1992/93 to a deficit of US$326.0m in 1993/94