Uganda: 53% of the country’s budget to be funded by borrowing yet we have existing unutilised loans

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In accordance with Article 155[1] of the Constitution of the Republic of Uganda and the Public Finance and management Act of 2015, the Hon. Matia Kasaija, Minister for Finance, Planning and Economic Development exercised his delegated power by H. E the President and delivered this financial year’s budget to parliament. This financial year’s budget Ugx 23.972 trillion which is Ugx 8.9 trillion away from the last FY 2014/2015 of about Ugx 15 trillion is guided by  the theme:  Maintaining infrastructure investment and promoting excellence in public service delivery of Uganda’s economy.

The Uganda Revenue Authority is expected to collect about Ugx 11. 3 bn, or rather the government is expected to finance 47% of the budget while the remaining 53% is expected to come from domestic borrowing as well as foreign aid and borrowing. Out of the Ugx 23. 9 bn, Ugx 17. 3 bn has been allocated for spending by Ministries, Departments and Agencies, which includes statutory expenditure amounting to Ugx 1.148bn. Ugx 6.643bn is debt repayments plus interest on total debt. The latter expenditures clearly indicate that government is borrowing to pay debts instead of borrowing to fund development ventures. Question is;  where did the money for the debts we contracted to which we are borrowing to pay go? Below is an attempt to answer the question.

First and foremost, there a number of loans which have been contracted by the government in the key sectors that are lying idle. While appearing before the Parliamentary Committee on Budget, Hon David Bahati, Minister of State for Finance Planning and Economic Development (Planning), to respond to issues regarding to poor performance of public loans, he informed the committee that as of February 2015, the government of Uganda had contracted a loan obligation of about US$4.1bn of which only US$1. 6b [39%], has been disbursed. And out of the remaining 6.1%, there is about 30% of the money which has not been utilized yet they are paying interest. He blamed the poor performance of loans on poor project preparation and design, over commitment to multiple projects, delays at different stages for example in cabinet and rarely in parliament, inadequate capacity in government as well as delays in land acquisition.

His colleague Hon Daudi Migereko, Minister for Lands, Housing and Urban Development observed failure to cater for development costs for the projects as the major problem. All these excuses may not hold; Question is  why enter contractual obligation without completing all the necessary approvals and the due-diligence as well as addressing the internal technical inabilities and incapacities? And for the latter, we assume  that all these projects emanate from the National Development Plan. Why are these costs not catered for?

In his account of the economic performance and economic outlook for the FY2014/2015, Hon Matia Kasaija, informed the house that the stock of outstanding public debt is projected to reach US$7. 6bn by the end of the this concluding financial year compared to US$7.2bn for FY 2013/2014, of which 60% of the debt is external and 40% is domestic. This increase justifies the increase in borrowing. His account also acknowledged a shortfall in expenditures on externally funded development projects. He re-echoed the same excuses of weakness in project implementation in some areas which is caused due to limited understanding of disbursement procedures, late procurement and land compensation and protracted approvals at various levels.

Many of the loans that are under-utilized are in the sectors of agriculture, health, education, water, energy and transport which are the main drivers of economic growth for a country like ours because they are so vital and basic in the day to day life of all masses. In the agricultural sector out of the US$251m total loan commitment fee only US$103.59m has been disbursed, the transport and energy sectors which has been considered as the government core priorities for a period of almost 4 years have the highest loan commitment fee of US$1.3bn and US$533. 92m respectively, out of this only US$474.4m [37%] and US$191.32m [35%] has been disbursed respectively. While the water and health sector have a loan obligation of US$505.32m and US$256.5m respectively, so far only US$91.53m [18%] and US$102.54m [40%] has been disbursed respectively. Some of these loans, government made commitments 7 years back. For instance government secured US$10. 64m loan for a project of constructing small bridges in Northern Uganda and North Eastern Uganda. But up to now only US$1. 95m has been disbursed with US$8. 69m remaining yet the initial closure for the loan was Jan- 2013. What is amazing is that  while presenting their ministerial policy statement to the respective parliamentary sectoral committees, almost all accounting officers were complaining of  low budgetary provisions.  And in most of the unfunded priorities there were words like under – funded and unfunded projects. They were appealing to parliament to help them and pressurize government to find money for these priorities. The only way this can do so is to through taxation and borrowing from both foreign and domestic yet there loans that have not been maximised at all.

The second issue is that of misallocation of resources both by the Executive and the Legislature. A case in point is the Ugx 89. 4 bn that was allocated to the President for donations. Although its domestic funding, such colossal amounts of money could have been used to finance the transport infrastructures, which are making us to borrow endlessly. It is also obvious in the current Uganda’s public administration that is corruption. For about 5 years, the transport sector has been among the core priorities in the budgets. It is undeniably true that we need a good transport system as a catalyst for our economic development. However, for a long time there has been a looming debate of the high unit cost for construction of 1 kilometre of tarmac road in Uganda compared to other countries the East African region. Although the minister reassured the country that the debt burden is sustainable hence the country not being in a debt crisis, Ugandans shouldn’t be borrowing to service debts whose contribution can be hardly traced. If this tradition continues, the history of 1998 and 2000 is most likely to repeat itself. That was when Uganda benefited from a debt relief under both the first Heavily Indebted Poor Countries (HIPC) and the Enhanced HIPC Initiative respectively. Only that this time we may not get the offer because a number of loans are from money lenders not World Bank.

Now that the National Development Plan II has been adopted, we should desist ourselves from taking up multiple projects for political reason.   Ministry of Finance should always carry out an assessment of the required amount of money which is sustainable and absorbable. Unless this model of budgetary funding coupled with inefficient and ineffective use of the borrowed funds is addressed, it is most likely to facilitate more decline in economic activities and development as well as hampering service delivery.

SOURCE: Parliament Watch Uganda, 22/06/2015,