Facts on unutilised Loans

By Juliet Akello

Shillings seven trillion out of sh12,116.4 trillion borrowed from international lenders by Uganda over the last five years has been reportedly unutilised till now. Uganda’s debt is expected to reach beyond $7.0b by end of FY 2014/15 yet some loans are not performing.

Limited progress has been achieved on same issues raised in the different Auditor General (AG) reports surrounding poor loan absorption capacities.

Yet new loans contractions are expected to finance unfinished priorities in the previous NDP I and those identified in the up-coming NDP II. Below are a few facts related to non-utilisation of loans and sources.

The previous Debt Strategy (2007): cited iscal indiscipline that is; failure to stick within the available resources due to diversion of resources to non-budgeted expenditures.

AG’s Report (2009) Vol.2 Central Government

Fourteen loans worth sh680,279,105,736 either had minimal or no disbursements at all yet they had or were nearing expiry.

AG’s Report (March, 2010) Value for Money Audit on Eight Debt (Foreign) funded projects

1.    Low absorption of external loans by projects where Shs.6 billion was paid out as commitment fees/penalties on loan amounts not drawn by beneficiary projects.

2.    Limited commitment by Government to fulfill obligations on counterpart funding that is; None-approval and release of full funds budgeted for by line ministries.

3.    Four out of eight projects had their counterpart project funds contribution diverted by ministries amounting to sh3,174,454,821

4.    Delayed procurement of inputs denied timely commencement of project implementation.

5.    Poor monitoring and evaluation of projects that is; large number of uncoordinated and un-harmonised monitoring systems within the sector.

6.     Poor project planning and appraisal /designs: Four projects out of the eight were modified during implementation as a result of omissions at the design stage.

AG’s Report (2011):  Value for Money Audit on the Management of the Farm Income Enhancement and Forest Conservation Project

•    Low funds absorption: By 2011, the project had received only sh 57b out of sh111b of loan amount (51% performance) by Project Year four moreover an extension of two years for its finalisation in 2012 was granted. Avoidable commitment charges were paid by Government to creditors.

•    Limited compliance to counterpart funding:  GoU had remitted only Shs.2.8 billion of the expected disbursement of sh12b by Project Year 4 (24% performance level) by June 2010.

AG’s Report (2012) Vol.2 Central Government

Thirteen new loans agreements worth sh1,344,839,797,800 were signed before parliamentary approval. Payment of commitment fees charged on undisbursed loan amounts increased by 64.84% from sh5.474b in 2010 to sh9.023b in 2012.

AG’s Report (2013)

Low levels of loan disbursements: In FY 2012/2013 commitment fees paid on undisbursed loans increased by 40% from sh9.023b in 2011/2012 to sh12.7b in 2012/2013.

Effects

-    Payment of commitment fees/penalty on none performing loans translates into a cost to Government and deprives resource allocation to public services.

-    Accumulation of external loans results in higher interest payments which presents a significant burden on the national budget impacting negatively on economic growth and development.

-    Inadequate counterpart funding slows down the rate of project implementation.

Proposals

-    There is need to examine the monitoring mechanism of non-performance to gain value for money on externally contracted project loans.

-    The Public Debt Management Framework 2013 should effect the publication of a “shame list” for poor performing Government agencies on loans and for accounting officers to explain reasons leading to low loan absorption and cumulative domestic arrears to meet the principles of openness and transparency.  

-    Government should increase domestic revenue mobilisation which will boost private and public investment.

The writer works with Uganda Debt Network