Wednesday, June 8, 2011

INFLATION CONNECTED TO SPENDING DURING 2011 ELECTIONS

Now that the budget has been read and there won't be any change, may be this can highlight the causes:

The elections are indeed over but the financial pinch has just begun. The overall price fluctuations are understandably, a global phenomena but Uganda will be affected more just like Southern Sudan. Why?

First of all, the electoral law requires political parties to declare sources of funds whether local or foreign. Indeed, the enforcing agency; the Electoral Commission, is either sleeping, toothless or helpless as resources used in the past elections were neither declared in accordance with the law nor sanctions taken in regard to this non-compliance.

Article 71(e) of the 1995 Constitution stipulates that Political Parties shall be required by law to account for the sources and use of their funds and assets. In that light, the Constitution did envisage that Parliament shall by law regulate the financing and functioning of political parties.
In enacting the Political Parties and Organisations Act of 2002 and 2005, parliament provided for disclosure by political parties of their finances and assets. The Act requires political parties to file with the Electoral Commission certain declarations and statements as to the sources and use of funds or finances. These include written declaration of assets and liabilities including sources of funds & other assets as well as audited statements of accounts showing membership dues paid, donations in kind and cash, financial transactions of the party.

But as is always experienced, work in the public sector (ministries, departments and agencies of government not directly engaged in the elections business) usually become ardently paralyzed at the height of election campaigns as most of the money is committed to electioneering of the ruling government – in many cases wantonly with no realistic guiding budget. Resultantly, the finances used during the recently ended general elections have not been regulated in the 2011 general elections and the events preceding the elections. Hence, the inflation we are experiencing now is, in a fundamental way, connected to the spending during the recently concluded elections.
Inflation refers to a rise in prices that causes the purchasing power to fall and once the percentage rises over a pre-determined level, it is considered an inflation crisis. There are three major causes of inflation: when governments print an excess of money to deal with a crisis; a rise in production costs; and taxes put on consumer products such as fuel in which cases the burden is passed on to the consumer. Once prices have increased, they rarely go back, even if the taxes are later reduced.

A Uganda Bureau of Statistics (UBOS) report for February 2011 showed that production of meat, beer, sodas, and water went up mainly because of election related consumption. Apparently, the amount money in circulation during elections could have tripled in 2011 because the stakes were high. For example, T-shirts printed for campaigns were over 5 million in number. If each cost a minimum 6,000/=, this translates to Ug. Shs 3 billion before the usual corruption cut and kick-backing which has become part of government expenditure and shouldn’t bother us debating. A popular NRM MP (popular because he was sure of winning, fairly or otherwise), told us that he had spent about 240 million shillings in just party primaries. If one conservatively multiplies this figure by 238 constituencies plus 112 district slots for women MPs, the total is astronomical. An MP earns about 14.5m/= per month which translates into about Shs 870,000,000/= for the 5 year term an MP is in Parliament.

Because of these salaries being outrageously high by Ugandan standards, politics has become a job instead of service. People are now attracted to Parliament to earn rather than to serve. Consequently, all effort to spend is made including selling whatever they have and also entering financial obligations that remain a pain in their pulse but also causes an increased inflation because of the money in circulation.

Presidential elections were as dramatic as the office itself. Pledges were made in-kind and cash envelopes exchanged hands (sometimes officially). Unfortunately, the Bank of Uganda and the Treasury (other than running dry and seeking for supplementary budget 6 months before end of financial year) has not released details of how the initial approved budget funds were spent during the first 6 months. Just mid-way into the 2010/11 financial year, up to 85 percent of the Shs 7.3 trillion national budget had been spent. According to The East African newspaper, Shs 3 trillion was spent in the month leading to the election alone. Most of this money allegedly went to President Museveni's campaign. Bbumba also revealed that government was 'broke' even after parliament's passing of a Shs. 605 billion supplementary budget.
Therefore, we should stop blaming world fuel price increase but the unprincipled spending by politicians including spending on non-productive items like fighter jets at a whopping 1.7 trillion shillings. Moreover, without first seeking Parliamentary approval (I am ignoring the obvious procurement flaws that are part of our national heritage for all classified expenditures). Uganda’s economy (weak as it is), survived the credit crunch, why would it succumb to just fuel price rise at global level. It is like surviving a tsunami like that of Japan and you are killed by a flood after a little rain in Bwaise. We just need to go back to the drawing board.

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