DEBT BURDEN: “Reduce On Expenditures To Curb On Increasing Debts” – CSOs Urge Government

By PATRICK JARAMOGI

KAMPALA-SHIFTMEDIA– It is going to get worse before it gets better. The discussion now is whether Uganda’s skyrocketing debts should be totally cancelled as suggested by Uganda Debt Network’s Julius Kapwepwe, or more efforts should be geared towards boosting the domestic revenue collections.

According to Bank of Uganda, the nations’ current external debt is over Shs63 trillion, in simple mathematics, according to Jane Nalunga the Southern and Eastern Africa Trade Information and Negotiation Institute (SEATINI) Uganda Executive Director, each Ugandan has to debt of Shs1.5m to pay.

Uganda’s public debt is projected to hit 47.5 percent of the Gross Domestic Product (GDP) because of increased borrowing and expenditure to counteract the COVID-19 pandemic on the economy.

Already over shs200 billion out of the over Shs18 trillion borrowed for Covid 19 relief can’t be accounted for according to the Auditor General John Muwanga’s report latest report.

Suggestions regarding how Uganda can recover from the debt shocks is what characterized the SEATINI Uganda, Uganda Debt Network, CSBAG, Transparency International Uganda, and AFRODAD Media debate held in Kampala on Thursday.

The increased public debt amidst low domestic tax remittance is only compounding the already fragile situation.

But according to Jane Nalunga, government must immediately resolve means of increasing domestic resource mobilisation and also decrease on un necessary expenditures.

“We can’t continue like this with all these constituencies, and Members of Parliament. These expenditures must be reduced if the nation is to steer forward and reduce foriegn debts,” said Nalunga.

According Julius Kapwepwe, Uganda Debt Network Executive Director, all debts should be totally cancelled.

He said that Uganda has had a poor trend of public debt management which prompted a debt campaign by civic groups like Uganda Debt Network and Development partners including IMF and World Bank inter alia and the subsequent relief worth US$2b in 1990s through the Highly Indebted Poor Countries initiative (World Bank, 2000).

Over a trillion shillings received from International Finance Institutions and Donors like the World Bank , International Monetary Fund (IMF), the European Union (EU) and African Development Bank to support the government set in place measures to ensure the provision of relief to businesses that have been most affected the pandemic and foster economic recovery, amongst others is yet to be accounted for.

Government has signed over 100 loan agreements worth over USD 8.8billion with China (in particular EXIM Bank) being the largest creditor at over 25% of the total loans.

Uganda has seen an increasing share of Chinese loans in roads (Entebbe Express) and energy projects (Karuma, Isimba Dams) in excess of USD 3bn. This is slightly above 10% of Uganda’s current GDP at USD27.53 billion (World Bank, 2015).

Auditor General Warns

After the Covid 19 pandemic broke lose, the 10th Parliament passed over 10 loans in its short period and about 5 loans are currently under considerations. However, according to the Auditor General’s report challenges in utilization and absorption of externally acquired loans like low disbursement rate, increasing commitment fees, delayed execution of projects etc. were cited which are likely to raise the debt burden for ordinary Ugandans.

The Auditor General expressed concern over the increased commercial bank borrowing with non-fixed interest rates. According to the latest auditor general’s report for the year ended June 30, Muwanga observed that loans from commercial banks that are non-concessional, had grown from Ugx.192bn to Ugx.2.8 trillion representing a 137% spike over the past three financial years.

Muwanga noted that the contracted loan had very short repayment periods with high interest rates as compared to concessional loans.

This is what Kapwepwe advocated for as he addressed the media breakfast meeting at Fairway Hotel in Kampala

”Concessional loans have lower interest rates than the market rates and also provide longer grace periods. Contracting debt at non-concessional terms has exposed the government to high interest rates,” said Kapwepwe.

He said that Tax revenue collections in Uganda have dropped with the Government projecting a net revenue collection of 18 trillion UGX compared to an earlier projection of 21 trillion UGX to be raised within the current financial year.

Experts in the debate observed that Issuance of Special Drawing Rights (SDRs) is one of the best viable and sustainable financing options to fight against Covid-19 and African economic recovery. “SDR allocations can play a role in providing liquidity & supplementing member countries’ official reserves.,” said an AFRODAD member.

Jane Nalunga said there is a link between borrowing and mobilizing resources. “Our economy before Covid wasn’t doing well. We import more than we export. The ability of government to mobilise resources has also drastically reduced (2020-2021- projection was 21 trillion which has dropped to 18trillion,” she said.

She said that options would be to increase taxes but that would be squeezing water out of stone because the country is already ailing. “Debt cancellation won’t work for now because we have private money lenders who need their money,” she said.

Muwanguzi Joash the Ag Assistance Commissioner Domestic Debt Management office said it would not be prudent to advocate for total debt cancellation because Uganda is steering towards a middle-income economy.

When you talk of total debt cancellation, I don’t agree. Because Uganda is gearing towards the middle-income economy if you ask for total debt cancellation where does that put you.

“Let’s focus on the right projects that will be used to generate revenue to pay our debts, that is more sustainable. We also need to enhance our domestic resource mobilisation as a country,” he said.

Sophie Nampewo the Civil Society Budget Advocacy Group (CSBAG) budget Specialist urged government to always account for borrowed monies.

The Transparency International Uganda (TIU) Program Coordinator Lilian Zawede tasked government to first account for all Covid 19 relief funds.