Uganda’s government has asked parliament to approve an increase of more than five per cent in public spending for this financial year but opponents said it was a campaign ploy to win votes in next year’s elections that could weaken the currency.
President Yoweri Museveni, 70, in power since 1986, is widely expected to stand for another term but has not yet stated his intention. Extra spending before the 2011 vote drove prices higher and sent the currency to record lows at the time.
Amos Lugoloobi, a ruling party lawmaker who chairs parliament’s budget committee, told Reuters on Monday his group would review the request for more funds before a vote in the assembly. Parliament is dominated by Museveni’s supporters.
He said Kampala had last week requested an additional 800 billion shillings ($270 million) for the fiscal year which began in July, representing a 5.3 per cent increase over an original spending forecast of 15.1 trillion shillings.
Uganda’s shilling touched a new record low against the U.S. dollar of around 2,970 on Monday, continuing a slide partly blamed on the global strength of the greenback but mainly attributed by analysts to concerns over increased state spending before the 2016 presidential and parliamentary elections.
“This is money to fight Museveni’s political enemies and finance his campaigns,” said Francis Mwijukye, a spokesperson for the main opposition party, the Forum for Democratic Change.
“The shilling is already plummeting because of this recklessness,” he told Reuters. “This time the economic crisis is starting early.”
Government spokesperson Ofwono Opondo denied that the extra funds would be used for campaigning, saying they were earmarked for unforeseen security and other needs, without giving details.
After the 2011 election, inflation surged to an 18-year high, accompanied by a sharp weakening of the shilling and a spike in interest rates. Violent protests followed and at least nine people died in an ensuing police crackdown.
Ratings agency Fitch forecast a budget deficit for 2014/15 of 5.6 per cent of gross domestic product. It was not immediately clear what the deficit would be after any spending rise.
Although Uganda’s inflation remains low, interest rates on government securities have recently soared on expectations that the government will tap the markets to finance a surge in spending before the elections.
The shilling has lost 6.7 per cent against the dollar this year.
“This does not augur well for the currency and interest rates,” said Stephen Kaboyo, managing director at Alpha Capital Partners.