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Parliament calls for stringent fiscal rules on the management of oil revenues

The move is meant to curtail government’s uncontrolled withdrawals from the Petroleum Fund to finance budget deficits and/or priorities. 

Members of Parliament on the Natural Resources Committee have called for an amendment of the Public Finance Management Act to introduce a cap on how much oil revenues can be withdrawn from the Petroleum Fund to finance budget priorities.

The MPs proposal is contained in the report of the Parliamentary Sectoral Committee on Natural Resources on the Ministerial Policy Statements and budget estimates for 2019/2020 dated April 2019.

The introduction of a cap, MPs argue, will curtail the uncontrolled withdrawals of revenues from the Petroleum Fund to finance budget priorities.  For instance, according to the report Shs 125 and 200 billion was withdrawn from the Petroleum Fund to finance budget priorities for the financial years 2017/2018 and 2018/2019 respectively.

According to the Appropriation Act, 2019, government will further withdraw Shs 445.8 billion from the Petroleum Fund to finance budget priorities for this financial year (2019/2020). As at December 30, 2018, the balance in the petroleum fund stood at Shs 288.7 billion.

“Parliament should amend sections 58, 59 (1) – (7) of the PFMA, 2015 to introduce a cap on how much oil revenues can be appropriated to the consolidated fund or the investment reserve by Parliament,” the report reads in part.

The Public Finance Management Act (PFMA) 2015, ring fences oil revenues for only infrastructure projects and development. However, the MPs noted in the report, it was not clear whether the oil revenues so far withdrawn from the petroleum fund have been spent on infrastructure projects. The Auditor General has noted in various reports, that there are no assurances as to whether the withdrawals from the Petroleum Fund are actually financing infrastructure and development projects because the Appropriation Act often does not disclose the purpose of the withdrawals.

“The law [Public Finance Management Act, 2015] should be amended to sufficiently provide a format for the Appropriation Act which shows, purpose, activities and amount of petroleum funds to be appropriated under the consolidated fund or transferred to the investment reserve account,” MPs further recommend in the report. This will ensure that oil revenues will be managed for the benefit of current and future generations.

MPs also noted the lack of an investment policy and profile to guide infrastructural and developmental projects eligible for financing by petroleum revenues.

“An investment profile of oil revenues should be developed so as to guide the balanced growth and sustainable development of Uganda. This would be essential in profiling infrastructure and development projects eligible for financing by petroleum revenues,” MPs recommended.

Weighing in on the proposal, Didas Muhumuza, the Extractives Governance Coordinator (and Managing Editor of the Oil in Uganda magazine and website) at Action Aid International Uganda (AAIU) said a review of the law is long overdue.  “The proposal is a good mechanism that will provide the much needed checks and balances for better control of the financial in-flows and out-flows from the Petroleum Fund and ensure better management of oil revenues for the present and future generations,” Muhumuza noted. 

However, with weak enforcement of laws plus regulations, it remains unclear whether a review of the law can curtail government’s appetite for oil revenues.

by: Edward Ssekika,
Edited by Muhumuza Didas