Thursday August 28 2014

Dear honourable MPs, here are some debts you should really worry about

By Daniel K. Kalinaki

There is always a lot of talk of debt in Parliament, but of the wrong kind. Despite earning tidy sums, many MPs are constantly in debt and flirting with civil prison.

Others have mastered the art of dodging loan sharks. They dash into Parliament in the wee hours of the morning, only leaving after twilight when the court bailiffs have retired.

One would thus expect that our MPs, aware of the vagaries of unsustainable personal debt, would pay close attention to the rapidly rising level of public debt.

Uganda was the first country to benefit from debt relief from the late 90s, which saw our debt drop from $3.7 billion to $1.6 billion. However, it has been rising since then, and is now around $7 billion.

Any good economist will tell you that some debt is inevitable, even desirable, for the kind of capital-intensive investments we require. In addition, a lot of the debt is to build much-needed energy and transport infrastructure, including roads, hydropower dams, and railway links.

Still, there are many areas of concern.
First is the speed at which the debt is growing. Between June 2010 and March 2014, for instance, it went from $4.3 billion to the aforesaid $7 billion. It is going to rise more, faster.

There are pending requests before Parliament to borrow another $2.7 billion or so, not counting the anticipated borrowing for the new railway, Agago Dam, oil pipeline, refinery and other associated costs.

The IMF, the Finance ministry, and the parliamentary committee on the economy all say we are still within reasonable debt-to-GDP ranges.

As mildly comforting as that may be, it leaves many unanswered questions. For instance, what are the must-do infrastructure projects that we should give priority, and which ones can wait? Surely we can’t do a dozen such projects simultaneously without the economy over-heating!

What is the best model of developing these projects? We seem to have swung from one extreme, of bureaucratic delays and wrangling, to the other, of contracts awarded arbitrarily by the President and ministers, before due diligence and financial comparisons or negotiations are made.

This leads to the kind of wrangles we are currently seeing between rival factions, but also violates the law by committing the country to loans without, or before, parliamentary approval.

Who keeps an eye on these “off-budget” loans that are agreed upon between politicians and foreign firms that start work before the loans, including details of how much, and on what terms, have been made public or tabled before Parliament?

How do we deal with the money we borrow but can’t absorb and yet continue to pay interest on? Or, for that matter, loan-backed projects that remain white elephants?

Let us expand the conversation to the macro-level: what other investments do we have to make, say in agriculture, to ensure that when we build a new road it actually allows goods to come to the market, instead of providing a ‘clean’ surface for peasants to dry their cassava and maize?

How do we support local firms so that they can grow, from sub-contractors to major contractors on these projects? When do we get to a point where it is our own local firms fighting over the railway tender?

These mega-infrastructure projects could unlock our country and economy or bring us down in a pile of rubble and debt and Parliament should debate these deals more robustly.

MPs straining under the weight of personal debt should use their time hiding in the precincts of Parliament to worry more about this growing pile of public debt.

Unlike them, Uganda will have nowhere to hide when the international loan sharks start circling.

Mr Kalinaki is a Ugandan journalist based in Nairobi.
&Twitter: @Kalinaki