Henry Musasizi, the Minister for FinanceBy Prisca WanyenyaGovernment has rejected calls to revise the UGX200 excise duty levy imposed on each litre of fuel, arguing that broad-based subsidies and tax cuts are fiscally unsustainable and create economic distortions.The pronouncement was made by Henry Musasizi, Minister for Finance, while presenting a statement on the State of the Economy during the October 27, 2026 plenary sitting.Musasizi said: “Drawing on our experience in previous periods of high prices, Government will avoid counterproductive and fiscally unsustainable interventions, such as price controls, which can discourage supply, create fuel shortages and ultimately exert further upward pressure on prices. In the same vein, broad-based subsidies and tax reductions can be fiscally unsustainable and create economic distortions.”The Ministry defended its decision, arguing that revising taxes may fail to deliver intended benefits to vulnerable households. Instead, to cushion consumers against high fuel prices, government will continue to promote a free, fair and competitive petroleum market that ensures reliable and uninterrupted supply.He explained: “Subsidies and tax cuts can create incentives for smuggling, arbitrage and the diversion of goods to markets where prices are higher. Tax reductions and the cost of subsidies reduce the resources available to Government, thereby constraining funding for essential public services. Broad-based subsidies and tax cuts often disproportionately benefit higher income households and larger businesses, which generally consume more goods.”However, Karim Masaba, MP for Mbale Industrial Division, rejected the position, wondering why such a measure cannot work in Uganda yet it is working in Kenya.“Why don’t you at this time look at how you can reduce the excise duty on petroleum, on fuel products? Because this affects the entire supply chain in the country. Everything is affected by fuel. We have seen Kenya has done the same because its prices have shot up, but they have reduced VAT,” Masaba said.Shadow Finance Minister, Gyaviira Ssemwanga (Nyendo-Mukungwe), asked government to intervene in skyrocketing fuel prices by increasing investment in Uganda National Oil Company (UNOC).“Currently there is only one importer of fuel, UNOC, and this is a government entity. We think that if government intervened by maybe allocating more money to UNOC or subsidising it so that when UNOC is distributing to retailers, prices are lowered,” he argued.Shilling Under PressureMusasizi admitted that government’s concern is not only the depreciation of the shilling, but also its speed and impact on prices, businesses and household welfare. He revealed that the shilling has come under significant pressure, weakening from approximately UGX3,604 per US dollar in March 2026 to UGX4,500 by late October 2026 – a 25% increase in the cost of a dollar.Government attributed the depreciation to an imbalance between demand for and supply of foreign exchange, particularly dollars.“When demand for dollars to finance imports and meet other external obligations exceeds supply generated by exports and investment, the price of the dollar rises,” Musasizi explained.“First, higher international petroleum costs have increased Uganda’s demand for foreign exchange. Geopolitical tensions in the Middle East have heightened uncertainty and pushed up petroleum-related costs, including shipping and insurance. As a net importer of petroleum products, Uganda must therefore spend more dollars to meet its fuel requirements when international prices rise.”According to Bank of Uganda, net foreign exchange demand from the energy sector increased from $360 million in the three months ending September 2025 to $620 million in the corresponding period of 2026.Musasizi said Bank of Uganda will continue to manage liquidity and, where necessary, intervene in the foreign exchange market to address excessive volatility.Ssemwanga welcomed government’s decision to tap into foreign reserves in the short term to relieve pressure on the dollar.But Patrick Wakida, MP for Kabweri County, rejected the proposal to touch reserves and instead asked Ugandans to be frugal, warning that the economy is entering a recession.“I don’t support anybody in this House that supports that we touch the reserves. If you get your reserve now, pull it out, it is going to buy consumer products. There is no country that can support consumption using its reserves,” Wakida said.“Let us tell our people to manage what they have for now. Don’t borrow, don’t misuse what you have. We are entering a recession.”CBR Hike ConcernsOn interventions undertaken, the Minister revealed that Bank of Uganda has tightened monetary conditions, including raising the Central Bank Rate (CBR) from 9.75% to 12% and increasing commercial banks’ cash reserve requirement from 11% to 13.5%.Dickson Kateshumbwa, MP for Sheema Municipality, however expressed reservations, saying the move has created pressure for borrowers.“I would like to advise the Minister that as you take those measures you should be aware that the actions by Bank of Uganda including CBR and CRR have already created pressure on the private sector, especially borrowers. What is government doing to reassure investors that Uganda is a safe investment destination?” Kateshumbwa asked.Masaba added: “Once we tamper with CBR, then we are tampering with loans that every Ugandan is accessing. Those who got loans five, ten years ago are going to feel the consequences right now. Most Ugandans get loans at a floating rate. They are borrowing because they need to pay school fees, to buy or build a house.”The Minister asked Ugandans to avoid panic buying of foreign currency and speculative transactions driven by rumours that can amplify short-term pressure on the shilling.The post Gov’t Rejects Proposal to Cut Shs200 Fuel Levy, Says Subsidies Unsustainable appeared first on Business Focus.