Uganda: A nation chocking on Debt.
Parliament of Uganda last week approved a loan of UGX 1.7 trillion ($455.3 million) that government will get from foreign lenders namely; Nippon Export and Investment Insurance (NEXI), a Japanese insurance firm and the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) brokered through Standard Chartered Bank.
A letter from Finance Minister, Matia Kasaija seeking approval for the UGX1.7 trillion loan from the Auditor General revealed that this loan is meant to finance development and infrastructure. More specifically to facilitate the construction of a Conference Hall at Munyonyo Commonwealth Resort, augment salaries for civil servants across various government agencies, and also cover classified expenditures for State House among others.
Majority of the opposition members in Parliament were in array and objected the proposed loan acquisition because it is commercial in nature with high repayment costs and unfriendly terms and yet the country is overwhelmed with both local and external debt.
Already, Uganda’s public debt stock stands at UGX 79 trillion ($21.159 billion) as the country struggles to pay its creditors. The newly approved loan will bring Uganda’s debt portfolio to UGX 80.7 trillion ($21.6 billion), having increased by more than 23% from UGX 69.5 trillion ($18.6 billion) by end of the 2020/2021. The Pearl of Africa has a debt stock rising even at a faster rate than its economy because of the government’s unquenchable thirst for loans.
The new loan will increase Uganda’s domestic debt to UGX 32.4 trillion ($8.6 billion) from UGX 30.7 trillion ($8.2 billion) in FY2020/21. This comes at a time when President Museveni has warned against excessive internal borrowing most recently while meeting members of the Uganda Bankers Association.
The country’s public debt however continues to soar with no signs of slowing down amidst the skyrocketing mismanagement of public affairs. The Inspector of Government’s report released last year in October reported that Uganda loses approximately UGX 20 trillion ($5.3 billion) to corruption through procurement and budgeting among others.
Mushiime Moses, a Lawyer and Economist, criticised government’s decision to go for a commercial loan as opposed to a concessional loan with friendlier terms. He told SecretsKnown that in a period such as this where there is a slowdown in economic growth with the country bordering a recession, it is unreasonable for Uganda to take a non-concessional loan.
He revealed that the loan from the private foreign lenders involves guarantee fees, contingency fees and agency fees of about $14,999 per year with a grace period of only 4 years. More so, Standard Chartered Bank is not even the institution giving the loan, but simply the broker/ mediator between Uganda and other financial institutions. “…Standard Chartered Bank is in fact just doing brokerage…” Mushiime said.
The terms of this loan have been considered very unfriendly, like any other commercial loan and this begs a couple of questions. Why would government push through a bad loan? What are the interests here?
It is indeed baffling because government of Uganda opted to acquire the loan from Standard Chartered Bank rather than directly approaching other multilateral financial institutions, for example, the World Bank, and International Monetary Fund whose interest rates a times even goes at 0% with a repayment period of up to 10 years. Mushime believes that government considered taking this loan because it is not conditional and can easily be abused.
In an interview with Public Policy Analyst-Olweny Charles, he told SecretsKnown that Uganda is run like a black-market country with brokers and beneficiaries who want to benefit from the loan. “Even before a loan is awarded, it is already known who is getting what share…” he added.
It should be noted that the list of development projects to be financed under this “new loan” were initially concealed even from Members of Parliament and it had to take the Parliamentary Committee on National Economics to press government to release the full details of the loan disbursements before their approval. The concern here is whether this money is even going to do what government purports.
This is reason enough for citizens to demand to be part and parcel of the conversations on loans because in any case it is them to pay. And yet there is no public outcry on the growing debt yet without doubt, every Ugandan, including those yet to be born are shareholders in this public debt and will suffer the consequences.
SecretsKnown recommends that it is high time Uganda rethinks its domestic resource mobilization strategies and also get rid of generous incentives that limit the country’s capacity to collect local revenue in order to guarantee economic growth.