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Loan requests should be checked

Published 2 years ago -


Photo Credit: Sunrise Uganda

In accordance with Rule 166(1) of the Rules of Procedure of the Parliament of the Republic of Uganda, the Parliamentary Committee on National Economy analysed the Report on Public Debt, Guarantees, other financial liabilities and Grants for FY 2014/15 as at February 2015. Article 159(4) of the Constitution of Uganda, Section 13 of the Budget Act 2001 and Part IV Section 36, 42(2) and 44(5) of the Public Finance Management Act, 2015 require the Executive to submit the status report on total indebtedness of government; all grants extended to government; guarantees on loans by government to private and public enterprises; and utilization of each loan and grant.

In its report, the committee noted that as at June 2015, the country’s total public debt stood at UGX 24, 431.07bn equivalent to 32.5% of GDP; of which UGX 14,462.1bn was external debt and UGX 9,969.0bn was domestic stock. The report further points that the country’s debt exposure grew up by 35.1% from the US$ 6.650bn in FY2013/14 to US$ 8.986bn in the FY2014/15, largely due to the need to invest in large infrastructure projects. Despite this, the committee report asserts that the country’s public debt position is sustainable in the medium and long-term with the present value public debt increasing from 24.1% in FY2014/15 to 33.9% in 2019/20 as a percentage to GDP.

Although this amount is below the threshold of 40% of GDP as outlined in the Public Debt Management Framework of 2013, not far away the threshold and therefore, the committee should have strongly recommended that government should not go for more commercial loans. For instance the Proposal by Government to borrow up to US$ 200m from the Eastern and Southern African and Trade Development PTA for a Revolving foreign Exchange Facility to stabilise the Exchange rate which had been lined up for approval on the Order Paper only to be withdrawn from Parliament by the Minister of Finance due to pressure mounted by the Members of Parliament on the floor. This loan had also been highly contested by some members of the committee on national economy for being commercial yet government should opt for concessional ones.

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The committee report is also too generic. It should have gone further to highlight the sectors whose budget which is mostly funded by these loans but we can provide that. Last year in a blog[1] “Transport and energy sectors took the lion’s share of the loan obligation amounting to US$1.3bn and US$533. 92m respectively. Most of these resources in the energy sector are funding the Rural Electrification program yet  the rate of power consumption in rural areas is still wanting.

The report of the Parliamentary Committee on Natural Resource on the National Budget Framework FY2016/17- FY2020-2021 observes that it is 7% of the Population which access electricity in rural areas as of FY2013/14. During the State of Nation Address on 4th June 2015, H.E Gen Yoweri Museveni noted; “we have added 1,627 kilometres of electricity transmission lines to the 1,427 kilometres of transmission we had before 2006. You can go with your foot ruler and measure the new electricity lines since 2006”. It is only fair that the President uses other parameters like statistical data in terms of power consumption and not the ambiguity of  kilometres to emphasize the progress made so far.

A more logical use of the loans other than taking electricity to the rural people who can’t afford the skyrocket power tariffs would be initiatives that aim at improving their household incomes first, at that point rural electrification would be more viable, a solution. The same goes for spending huge sums of borrowed money on roads with a traffic jam of two vehicles per hour. The Government should consider elevating those roads to first class murram instead of tarmac and the remaining resources be channeled into the short term productive agricultural sector.

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There is also need to review the performance of projects which require funding by loans before committing the country for more loan obligations. a case in point is during the consideration of the parliament’s consideration of the government proposal to borrow US $ 75m from the International Development Association of the World Bank to finance the Regional Communication Infrastructure Program Phase 5. During the debate members requested for a review of the project from the minister citing the poor performance of the previous phases but they later approved the request without the minister presenting a review of the earlier phases.

We need to remind those responsible that Uganda became the first country to qualify for debt relief under the Heavily Indebted Poor Country (HIPC) Initiative in 1998 and subsequently under the Enhanced HIPC in 2000. In 2006, it again benefited from another form of debt relief under the Multilateral Debt Relief Initiative. Therefore, it will be unfortunate for us to fall victim again otherwise, it is an impediment for the  realization of the good visions in Vision 2040.

[1] “53% of the country’s budget to be funded by borrowing yet we have existing unutilised loans”http://parliamentwatch.ug/53-countrys-budget-fy20152016-funded-foreign-donations-loans/

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