Prepared for Global strategy meeting, Nairobi, July 2016, by Julius Kapwepwe.
Preamble and synopsis of Debt context in Uganda:
Uganda Debt Network (UDN) is an advocacy civil society organization (CSO) formed in 1996 as a result of concerns about the unsustainable level of Uganda's debt, under the global Jubilee campaign movement then. The Mission of UDN is to promote and advocate for poor and marginalized people to participate in influencing poverty focused policies, demand for their rights, and monitor service delivery to ensure prudent, accountable and transparent resource generation and utilization.
Uganda’s Debt situation is older than its independence from the colonial Britain in 1962 e.g. a) $24 million WB loan in 1955 under the broader regional railways & harbors connection in Uganda, Kenya & then Tanganyika b) $8.4 million WB loan for purposes of Owen Falls Dam electricity, eventually commissioned in 1954 (see WB reports). Under HIPC & MDRI initiatives; Uganda has previously defaulted on debt repayment in 1980s. Coming to the 1990s, Uganda was the 1st country in the world that qualified to benefit from the HIPC initiative- with forgiven debt cycles initially in 1998, then 2000 and 2004; and later the MDRI (G8- Gleneagles) window in 2005— leaving the country with a paltry public debt of about $900 million by March 2007. Before HIPC and MDRI initiatives, Uganda’s Debt: GDP stood at over 70%. Whereas Uganda has in place a Legal, Policy and Institutional framework for prudent Debt Management and the Debt Sustainability Indicators (DSAs) seem okay compared to the1990s and early 2000s situation, Civil Society remains concerned, given some of the following issues;
1) Uganda’s level of Indebtedness- is a moving target; With varying figures depending on which source/ method for calculation (e.g. contracted versus disbursed; debt stock plus interest- real versus nominal; only current debt stock; with/ without a factor of inflation), Uganda’s gross public debt was approximately $8.81 billion by end of FY 2015/16 (i.e. June 2016) with a) External debt ($5.48b) and b) Domestic debt ($3.32b)- as per the Budget Speech for FY 2016/17 fiscal period. With official Debt: GDP estimated at 34% (GOU) and 38% (IMF) by May 2016, Debt still appears sustainable.
2) Any economic rebasing linked to appetite for Debt? We are yet to ascertain if the appetite in some EAC States to opt to front load esp. infrastructural projects, has any link with recent GDP expansion due to rebasing. Even when we are resizing (real or perceived) our economies/ GDP- e.g. rebasing by Kenya (2014) & Uganda (2015); UDN analysis; UDN analysis gives higher % figures of Debt: GDP and indebtedness to about $13.7b (not $8.81b), whether 34% (GOU) and/ or 38% (IMF)- thus moving target. Yet the above levels exclude new lined up borrowing e.g. a) $14.2b Standard Gauge Railway b) refined products pipeline c) $400m 8th municipal Infrastructure dev’t (USMID project) d) $500m for Kampala Light Rail construction e) Fertilizer plant f) Ebb airport expansion g) $4.27b Oil refinery and h) phase three of National Transmission Backbone (ICT) Project.
3) Low External loan absorption/performance; Due to long procurement process and lack of transparency, co-funding/ counter-part funds by Government, Delays in approval by Parliament, given inadequate guidelines for approval. How then do we smoothen investment expenditures over time, in broader view of limited absorptive capacity of Uganda’s economy- estimated at $25 billion in 2015?
4) Rapidly growing Domestic Debt; This includes total domestic debt of UGX 1.632Bn (Treasury instruments) & (Domestic arrears) in 2003, to UGX 4.5359 trillion in June 2012, to even higher figures by Dec. 2015. With a rise of 178% (i.e. average annual growth rate of 16.6%) between June 2003 & 2011, the growth rate is simply too big and raises concerns to the Ugandan economy. Yet this excludes debt due to oil recoverable costs for private companies; Public acquired Private debt (under PP Partnerships); cost of debt servicing.
5) Domestic debt was bigger than total domestic revenue; In FY 2015/16, total domestic debt was bigger than total domestic revenue, so for 2nd year running Uganda has had to roll-over a portion of her maturing domestic debt of about UGX 5 trillion each year, leading to UGX 7.3 trillion (or $2.1 billion) budget allocation in FY 2016/17 for both external and domestic debt i.e. 25% of the total national budget. More than 80% of annual interest payment over the last two years is to domestic markets. In some cases where we are borrowing for feasibility studies, we risk pre-determined biased positive feasibility reports.
6) Poor adherence to existing debt management control systems; Orchestrated by Accounting officers (AOs). So far with no evidence of punitive sanctions to AOs who disregard policy provisions. This is coupled with Fiscal indiscipline – reflected in escalated domestic arrears debt; also due to under -budgeting for fixed expenses (like utilities).
7) Oil-related rapidly growing trends of borrowing (Domestic & External)- i) Just one case, between FY2013/14 and 2014/15, new external borrowing increased by 82% ii) With Debt: GDP growth from 24.2% in 2012 to 38%- IMF/ or 34% (GOU) by May 2016, is Uganda mortgaging her oil with increased borrowing (esp. for infrastructural projects, appetite to opt to front load projects)- even when oil real production is estimated for around 2022? What are the risks with spending in advance on account of future oil revenues? While Government may not borrowing on account of oil, the lenders seem to do so, esp. China through the EXIM Bank.
8) Debt still sustainable? Whether Debt: GDP was at about 34% (GOU) or 38% (IMF) or UDN higher % figures by May 2016, that UGX 2.1 trillion out of UGX 13 trillion projected domestic revenue in FY 2016/17 has been allocated to interest payment alone, or 25% (UGX 7.3 trillion or $2.1 billion) of the budget due to debt repayment (interest & principal) , does that point to sustainable public debt?
9) Increasing debt-related risks?- Is Uganda increasing risks of debt restructuring (e.g. shifting the repayment burden to future generations, with bigger debt obligations? Will Uganda borrow for bail-out or ask for new debt relief- even amidst non-concessional and commercial creditors, or there will be defaulting on repayment? What is the implication on the economy, households, poverty reduction & dev’t? Have we learnt any lessons from the Ghana-rapid borrowing since 2012 and implication on the currency or economy in general, e.g. with $1b IMF bail-out already? Broadly, East Africa’s growing debt levels to finance infrastructural projects could push regional economies into financial distress in the wake of volatile local currencies and falling export earnings.
- A guide/tool to MPs; UDN so far has a draft tool, “Guidelines for Loan Scrutiny and Approval Process in Uganda to influence the loan contraction process” to support Members of Parliament (MPs) in assessment criteria for approval of loans.
- Advocacy Campaigns; For responsible borrowing, including reduced Domestic debt; and broader citizens’ participation - especially the intended beneficiaries for they understand better the local context where implementation is to take place- beyond MPs.
- Campaign against short-term borrowing for long-term investment; Else, how will Uganda pay back if the assumption is that investment will spur economic activities that generate returns (e.g. taxes, self-financing after commissioning) to sufficiently meet debt payback obligations? The burden also weighs heavily on Uganda’s dev’t Budget component (with debt servicing making up to nearly 25% of FY 2016/17, thus being the largest “sector”.
- Resist Eurobonds where possible; Even with the apparent rising debt, Uganda has not been to financial markets/ global market/ e.g. floating a Eurobond. Given the experiences & challenges through this debt instrument, Uganda should continue resist the modality- instead look at reduced opulence & huge consumptive spending- largely recurrent.
- Phased borrowing & investment; Through sequencing of planned projects, rather than Debt/ projects frontloading, given absorption challenges of a small economy.
Finally; Enhance broader North- South; and South-South linkages and corroborative advocacy actions at national, regional (e.g. EAC/COMESA, AU- UNECA) & global levels