By Maureen Agaba
Published: 19th August 2016
Recent media reports of possible Government bailout of about sixty-five distressed companies has elicited a spectrum of divergent perspectives on the underlying implications of this state of affairs. Reports indicate that the controversial bailout would involve government forking out a hefty Shs1.3 trillion from the public coffers, to pay off the loans owed to commercial banks. Amidst all this hullabaloo, consensus is that, a bailout in principle is not bad per se, in fact it could be a pragmatic solution to rescue ailing businesses in the prevailing troubled economy, however the procedure of effecting this is the crux of the matter.
With declining economic growth rate at 4.6% by close of June, deteriorating private sector credit growth as a result of high interest rates, which has constrained domestic activity, not to mention high inflation rate which had peaked at 8.5% by December 2015, little wonder that numerous businesses are highly indebted to commercial banks and have hit rock bottom. This continues to beg the unanswered question, and elephant in the room; what bench marks and criteria were used to select the companies that need bailing out. This is more so since the matter was never brought up for discussion by Parliament, and no legislative or policy framework exists to guide the bailout procedure.
The fact that several of these companies are owed millions of US dollars for unpaid goods and services supplied to the government of South Sudan and yet expect Bailout or handouts from Ugandan tax payer’s money is incredulous. Should Government of Uganda settle the debts of another Sovereign State? More so, Government has been the main proponent of promoting Small and Medium Enterprises (SMEs) for private sector growth and industrial development, given that they employ majority Ugandans and are a source of livelihood for millions of households, so how come these are not being considered too.
Similarly, where some companies are asking Government to clear arrears, this should not be regarded as a bailout, but the Government should accordingly pay outstanding arrears it owes to these companies. Otherwise where is the benefit to the ordinary citizens in all of this? Government forking out shs 1.3 trillion with no provision for it from the National Budget spells adverse negative implications on financing for public sector service delivery and citizen’s welfare. For instance, in the health sector the lack of Cancer machines and other diagnostic equipment is responsible for increasing deaths of citizens, while thousands of other lives are being claimed by Hepatitis B.
According to the Ministry of Health Sector Strategic and Investment Plan 2010-15, UGX 390 billion would provide necessary infrastructure for 312 Health centre III’s for a period of 5 years. Meaning that the proposed Shs 1.3 trillion bailout cash is enough to fund 312 HCs for a period of 16 years and 8 months. The same pay for medical workers in the said 312 HC III’s requires UGX 179.47bn for a period of 7 and a half years.
In light of the above, the time is now for Government to urgently marshal key stakeholders, including the Ministry of Finance, the Central Bank and Uganda Revenue Authority (URA) among others, to critically review and come up with more tenable and prudent solutions to the economic quagmire in Uganda today. This is through broad economic reforms and restructuring process, aimed at fostering feasible monetary policies and a sound Macroeconomic policy framework. An economic stimulus, rather than the financial bailouts would be the sustainable way to go.
By: Jenice Ishimimaana,
Published 19th August 2016
The recent media talk about proposed private company bailouts in Uganda was at first shrouded but later erupted when the purported list of the 66 companies seeking bailouts from Government was allegedly leaked to the public. The said companies needed a total of 13 trillion shillings to bail out their distraught businesses which, according to the owners was due to the high interest rates and non-payment of arrears by Government inter-alia.
The Ministry of Finance,Planning and Economic Development as well as Bank of Uganda have continuously revealed that there is not enough money for Government to bailout these companies but the President in his remarks has always emphasized the need to bailout a few businessmen that are involved in exportation of goods and services to South Sudan.
Bailouts are generally not bad if handled in a positive way. With clear guidelines, this would be a good and welcome move. A good example is the case of the US Government’s Troubled Assets Relief Program (TARP) following the 2008 global financial crisis, 963 financial firms were selected under the TARP on the basis of their implication on the US economy and this was done through transparent policy criterion.
Bailing out the proposed companies in Uganda is however criticized because there is no standard procedure set out to guide the process and a yardstick to determine who qualifies for such bailout. Such a move would be welcome if it were a sector targeted intervention, if such companies have been big contributors to the economy in terms of tax ,employment creation. Other key factors to consider are the general state of the economy and its performance. For our case the entire economy is distressed, how then do we even begin to bail out some companies!
Government of Uganda has, in the past, bailed out or handled cases similar to the proposed 1.3 trillion shillings for instance; The non-performing loans of the former Uganda Commercial Bank under the Non-Performing Assets Recovery Trust (N-PART) from 1995; In 2004 President Museveni directed Bank of Uganda to bail out Mr Basajjabalaba with 21 billion shillings of taxpayers' money ; In 2005, Mr. Museveni ordered a 13.4 billion shillings tax waiver for Mr. Bassajjabala. None of this had a positive impact to the economy.
On the contrary, in the 2013-2014 case of a local investment, Sembuule Steel Mills that was said to have a bank debt of 7 billion shillings for capital development with Bank of Baroda failed to raise the money to pay back the debt. While the plant was said to be worth UGX 50 billion the bank took over the ownership of this company, Government did not grant the plant’s request for bail out.
It is therefore imperative that Government avoids rushing to the aid of these companies but first conducts a reflection of what the problem is, how deep it has become and what the most probable solution would be in the circumstances.Government efforts should be channeled towards improving the general performance of the economy and the suitability of the economic environment must be reviewed urgently. Otherwise, bailing out some companies can only be likened to taking a painkiller to manage pain rather than dealing with the actual problem which, in this case remains and manifests later in even greater intensity.
By: Grace Kobusingye
Published: 19th August 2016
Over sixty five heavily indebted prominent businesses in the country have been crying out to the government of Uganda to bail them out with about 1.3 trillion shillings, said to have accrued from bank loans at high interest rates. To the tax payer, this is not good news; reason being tax payer’s money is likely to be the source and increasing public debt as well as affecting the poor!
It has been said that some companies actually supplied goods and services to the Republic of South Sudan but may not have been paid, in some cases of over the years like since the war broke out in that country. The circumstances or policy conditions that the Government of Uganda has to settle debt obligations of another sovereign State need to be explored. Similarly, in 2007 Ugandan private sector companies were involved in the 2007 Kenya electoral period and mayhem, with huge losses. Were these supported by Government through a financial facility to counteract their losses? Otherwise, there may be a risk of preferential treatment of the South Sudan case. Should attention also be paid to other exporting firms that export elsewhere but have suffered instances of financial distress?
As if that is not enough, it is likely to increase the public debt rapidly as well as, domestic debt which is a public concern. Citizens should note that if the entire national budget was not available for direct service delivery due to debt repayment and restructuring, then where will the 1.3 trillion come from surely!While the debt is increasing very rapidly, the rate of economic growth has been reducing implying that service delivery is likely to suffer. This should raise concerns that the state of the economy will lead to more stress on companies. This is likely to reduce employment, tax revenues, public service delivery and overall growth. Much as it is the global trend to bail out struggling entities for example US and Greece, there should be clear consideration of individual country context. Uganda does not meet some of the critical conditions related to reserves and fiscal space. The general recommendation is for countries to engage in a bail-out if they have sufficient reserves and/or fiscal space to avoid an inflationary situation or depletion of national reserves.
However much a bailout is the solution to the problem; the economy ought to grow fast enough to generate activity for these companies to perform at full capacity. Some have ended up investing in personal properties such as houses and expensive cars which they think are assets but are not. They have no multiplier effect on the economy. Bailing out such companies may not promise well for the public who pay taxes and further, if at all bailed out, will they stop the financial indiscipline!