(Bloomberg) -- Offering subsidies or removing levies on key Ugandan imports such as fuel and wheat could deplete foreign reserves and cut tax revenue, according to President Yoweri Museveni.
In a year, the government would lose 2.68 trillion shillings ($734 million) if taxes on gasoline and diesel are suspended, and 520 billion shillings from duty-free wheat, Museveni said in a televised address on Sunday night. Such steps would spike consumption of these products and strain Uganda’s $4.5 billion foreign-exchange reserves, he said.
“Removing taxes or subsidizing many of the imports is suicidal and a blunder,” he said. “How then do we fund our budgets for roads, electricity, schools, medicine, security?”
Gasoline prices in East Africa’s third biggest economy, a net importer of fuel, have risen about 20% since November, while the costs of essential commodities are up due to global supply disruptions caused by Russia’s invasion of Ukraine, the Ugandan leader said.
Reducing taxes on locally produced commodities including sugar and milk is also out of question because revenue has to be protected, he said.
Uganda remains susceptible to vagaries of global fuel supply until its own production begins in 2025, followed by refining in the following year, Museveni said. The East African nation’s oil fields hold as much as 1.4 billion barrels of recoverable oil.
Read: Uganda Rules Out Fuel Subsidies as Prices Jump as Much as 19%
©2022 Bloomberg L.P.