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

By: MUSA MU­GOYA

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.

MoF
Minister of Finance Matia Kasaija at the reading of the FY 2015/2016 budget on 11 June 2015. Photo Credit; Reuters

The Uganda Rev­enue Au­thor­ity is ex­pected to col­lect about Ugx 11. 3 tril­lion, 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 tril­lion, Ugx 17. 3 tril­lion has been al­lo­cated for spend­ing by Min­istries, De­part­ments and Agen­cies, which in­cludes statu­tory ex­pen­di­ture amount­ing to Ugx 1.148 tril­lion. Ugx 6.643 tril­lion 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. 6bn [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.