Part Two: Medium Strategies.
KAMPALA – Yesterday, I highlighted some of the short-term measures (1-3) months that the government needs to focus on to ensure the survival of its people during the “lock-down”. Today, I take the stretch to focus on strategies that cover the medium term (3-9) months, following the survival strategies outlined in my first write-up. In the medium term, the focus of government should be on working closely with the private sector to ensure continuity of activities even though at a small scale; ensure essential services can continue and salary earners continue earning some money to push through the storm.
- STATUTORY CONTRIBUTIONS FOR EMPLOYEES: I do not agree with Rwakakamba regarding the 10% NSSF payout. NSSF may not have these funds considering that they’re held in government borrowing through treasury bills and bonds. Some of the NSSF funds are also held in shares, stocks and real estate and would require time to liquidate. NSSF doesn’t operate like a bank, that you walk in and get your money anytime. It is an investment fund with a clear time horizon and that is how it earns the interest it pays to members. NSSF, however, maintains some liquidity to pay-out those that withdraw from the fund as per the fund’s criteria. These funds are not in any way enough to pay every saver 10% as being suggested.
At a time like this, it is therefore not practical for NSSF to liquidate funds held in various investment instruments to afford the 10% payout Rwakakamba is suggesting or getting a government already in distress to buy back the treasury bills and bonds.
Since salaried employees are looking for ways to survive and any income earned would smoothen consumption, my proposal to the 10% would be to terminate NSSF contributions immediately and allow the 15% [employee-employer) monthly contribution instead paid to employees as part of the salary. This would help increase the average income available to spend in the medium term for all salaried employees.
- SURVIVAL OF COMPANIES: As business activity slows, some companies are likely to go under and with them, millions of jobs. We need to ensure these companies can survive in the medium term even if it means limping on through the 18 months – the period we have been told the vaccine will/might be available. To do so, we need to quickly grant a tax holiday to these companies but encourage them to keep staff even if it is means maintaining them at quarter pay for purposes of survival in the medium term. The companies can review critical staff positions that can be placed on half-pay and probably send the rest on leave at half or quarter pay depending on what these companies can afford. The governments’ tax amnesty and a future stimulus that I will tackle in the long-term strategies should be enough to convince these companies to take this path.
- RENT: After food and school fees, rent presents the biggest pain point for many people especially the local income earners. They rent places of residence, but also places of business. A slump in income means they can have no place to work nor place to stay. While the government does not control the property market, it can still convince landlords to reduce rent by 50-60% during the six months for both residential places but suspend rent for business premises except for those trading in essential services such as food. Those trading in food will continue working and therefore can continue paying rent. The government can in return offer tax amnesty on the property and rental tax to land-lords for one year. A few landlords will argue that some of the houses are built on loan, in the short-term strategies I addressed this issue and therefore it cannot suffice. It is also not fair to push residential rent suspension completely as some landlords entirely depend on these rent collections to survive with their families.
- REMOVE VAT ON ESSENTIAL COMMODITIES: Commodities that are used in day to the life of the people should be zero-rated. This should be done to keep prices low and affordable to everyone at least for a period lasting six to nine months.
How will the government meet the revenue shortfall?
- Most Ministries still have funds leftover funds for the period ending June 30th, 2020. Except for essential ministries such as health, agriculture, and energy, that critical at this time, the treasury should collect all unspent monies from these ministries, departments, and agencies that had been earmarked for activities that will not happen because of the Covid19 disruption. I am confident that these funds are still significant and should be re-directed to fill the revenue gaps arising from tax cuts.
- All civil servants and parastatal employees earning a salary of over 10 million Uganda shillings should take a 30% pay cut. While we are encouraging those in the private sector to do the same, the same principle should apply to government officials whose salary exceeds 10 million as most of them have alternative income sources and can survive over 6 months.
- Borrow: The World Bank has set aside $14b in emergency financing to help countries deal with the Covid19 effects. These funds are available and can be quickly accessed to fund some of the initiatives the government finds difficult to finance as tax collections will continue to drop during this period. These funds can be used in the long-term as well to help stimulate and finance recovery efforts for some private sector actors who will not be able to bounce back given the impact of Covid19.
In my final write-up, I will tackle the long-term strategies (9-18) that should border on bouncing back the economy, stimulating some activity and easing the effects of lock-down. If the Government adopts the short-term strategies, we should not register new infections and therefore people can already get back to work and activity should quickly bounce back in six to seven months– if the experience from Wuhan is anything to go by.
Nathan Were is the President of The Nathan & Christine Were Foundation. A charity with interests in Education, Health and Social Welfare of the Poor.