Uganda's debt, Let's trade carefully

By Julius K. Mishambi

trueThe media has been awash with issues of Uganda’s debt (e.g. New Vision 10th October, 2013 and Red Pepper 5th October). Uganda Debt Network (UDN) is simply re-engineering the debt debate, in view of policy and poverty reduction prospective by Government. We applaud some Members of Parliament (MPs) we have closely worked with to bring issues of debt acquisition and management to the fore, for public knowledge and parliamentary oversight. We together need to see how we obtain policy options relevant to ameliorating Uganda’s debt situation.

In the case of one Rwakakamba, let’s tell the truth, including about national debt. The impression, for instance that “Uganda will borrow $2 billion to build the 600-megawatts Karuma…..” is false. The said funds, by the Chinese Government, through CWE company, will go to two hydro-power projects at Isimba and Karuma (both already commissioned by H.E.  Museveni); and the Isimba-Bujagali transmission line. Uganda is expected to co-fund 15% of the total funds. Meanwhile, Isimba will attract 100% funding based on concessional rates and Karuma with about 45% debt on commercial lending rates. That “Uganda Government is not borrowing money to import luxuries and consumables like perfumes, artificial buttocks………” is known.

Can we, however, borrow when domestic revenue collection capacity has been exhausted? That a huge debt on any economy has serious potential to create macro-economic distortions cannot be over-stated. Indebtedness of the US is no pretext for Uganda’s continued borrowing. The US is already facing challenges and not a good case on debt.  

Except for the multi-lateral debt relief undertakings, Uganda has hitherto faced a debt burden. Despite pressures from the Executive with huge appetite for spending, the team at Bank of Uganda has struggled to achieve relative macro-economic stability. So, the volume of Uganda’s public debt has not crossed the redline. Precisely, debt should not cross the red line. Yet officially UGX 16 trillion of public debt and at least 38% debt to GDP currently, implies that new borrowing gets the country nearer to 50%, the generally acceptable redline. The cost that taxpayers face in order to provide interest rate repayment for Bank of Uganda (BOU) to the commercial banks needs to be interrogated? If BOU is independent it should pay by itself the debt it acquires through sale of bonds; to pass on the cost to the taxpayers through the national budget.

Even within the debt sustainability threshold for Uganda, debt has been increasing tremendously. June 2003 and June 2011, for instance, saw domestic debt stock increased by 177.9%, an average annual growth rate of 16.6%. So, unclear 13 new loans amounting to UGX 13 trillion acquired by the Executive in FY 2011/13 is serious. Moreover, contrary to institutional, policy and legal standards (e.g.  Article 159 of 1995 Constitution and the Public Finance and Accountability Act, 2003). These two major laws are clear on approval of loans, performance, Treasury and Monetary Policy Management, etc.
The assertion that, “Uganda has a long truck record of robust growth averaging seven per cent for than a decade above its African peers….” is not correct. Rwanda, for instance, between 2008 and 2012 sustained average annual growth of 8.2% and certainly higher than Uganda for over two decades now. 

By borrowing about $2 billion into an Energy fund that has already registered holes, where about UGX 147 billion was withdrawn under unclear circumstances, we should be concerned, even for energy.    This could be compounded by oil-related debt, projected to peak $15 billion by 2017. 

Then, how best do we unlock Uganda’s revenue generation that has stagnated at about 13.3% of GDP over the last three decades, to about 18%? Let’s plug revenue loss holes; collect all withholding tax; rationalize Government spending, minimize misuse of Government resources e.g. vehicles and recover lost public funds and land. UDN will soon discuss such financing options in detail. Debt is slavery and let’s trade carefully.

Julius K. Mishambi
Director of Programs
Uganda Debt Network
jkapwepwe@udn.or.ug