The media is inundated with the undressing protest exploit by Dr Stella Nyanzi, a Makerere Institute of Social Research research fellow, against a decision to lock her out of her office.
Underneath the daring act may be the fear of the chronic and growing social problem of unemployment. The Uganda National Household and Population Census 2014 statistics indicate a nearly even split between the working population and those outside the working population. The working population (15-64 years) account for 49.2 per cent, while those below the age of 14 are 47.9 per cent. Adding to the latter, the 2.7 per cent who are above 65 years gives a dependency ratio of 103 per cent. By implication, more than 50 per cent of Ugandans consume more than they produce and they also require lots of resources, inter alia, food, clothing, housing, medical care, and schooling.
The youth unemployment bubble is fast rising, estimated at 83 per cent. The situation is envisaged to continue worsening given that 42 per cent of the working population are full-time students. Also notably, 64.7 per cent of working population is involved in subsistence farming in agriculture sector, arguably not economically meaningful employment.
The trend is also corroborated by Uganda Poverty status 2014 revelation of 63 per cent of Ugandans earning less than $2 per day. The unemployment trend coupled with the persistent inflationary trend implies that the misery index (unemployment plus inflation) is on the rise.
To illustrate the misery of inflation; using the average annual inflation over the last five years of 9 per cent as a discount factor, implies that Shs10 million today is equivalent to Shs6.4 million in 2011. This underlines that purchasing power of the Shilling has weakened and the weaknesses remain looming since inflation pressure is likely to prevail.
The misery is further compounded by Bank of Uganda policy response to curb inflationary tendencies. To arrest the inflationary pressure experienced for most of 2015, BoU raised its Central Bank Rate (CBR) from 11 per cent in March to 17 per cent in October 2015. The CBR arguably serves as benchmark rate for all interest rates, as also exhibited by the corresponding rise in lending and the government securities rates. BoU has since reduced the CBR to 16 per cent in April, attributed to the easing inflationary pressures and modest growth forecasts.
The borrower today, who apparently has Shs6.4 for every Shs10 in 2011, faces even higher interest rates. At an average annual lending rate of 28 per cent, borrowing Shs10 million today would tantamount to total repayment of Shs19 million in five years. Considering the cost of inflation would equate to borrowing Shs6.4 million and paying back Shs19 million. The rule of thumb is that any planned borrowing should have a return higher than the real cost of the loan (the inflation rate and the borrowing rate).
It is not only the private sector borrowing, government domestic borrowing is on the rife. Government securities (Domestic public debt) at face value reached Shs11 trillion at end of March. One end, this has short term cost in form of interest payments since most of the domestic securities are short-term. Interest payments on domestic debt are poised to reach Shs1.6 trillion in 2016/17. On the other end, the longer term domestic securities will imply future high taxes on arguably, the already overburdened small working class. In addition, given that Uganda’s economy nominal economic growth is less than the interest rate charged on debt, it is likely to be difficult to reduce the domestic debt and a higher tax burden is inevitable.
The unfortunate fact though is that our policy makers to some extent are insulated from the realities of the misery, thus the policy laxity and focus. For example, parliamentarians have approved the tax on secondhand clothes and shoes to be increased from 15 per cent to 20 per cent, at the same time passing a no tax regime for their allowances. The irony is that their monthly earning is nearly nine times the average annual income per Ugandan. A 2-3 child policy is warranted, since the fertility rate of 5.8 children per mother below the long-term replacement rate of approximately two children a woman.
Mr Twinoburyo is an economist.
0 comments:
Post a Comment