Uganda rallies regional states to rethink expensive debt path

Monday February 24 2020

Ramped up. Debt, across the East African

Ramped up. Debt, across the East African region, has been growing and the five member states are now estimated to have ramped up more than $100b. FILE PHOTO  

By FREDERIC MUSISI

A three-day regional conference on debt management in sub-Saharan African convened in Kampala beginning Wednesday is expected to culminate into signing a paper to be presented at several forums.
The forums will include the next World Bank spring meeting in April, to highlight governments’ discomfort with some conditions tied to loans.
Maris Wanyera, the Ministry of Finance acting director for debt and cash policy management, said on Friday the conference, to be attended by delegates from 16 countries, under the theme “sustainable public debt management and a strengthened economic growth” is long overdue in light of the ongoing borrowing frenzy by African countries to finance their development agenda.
“The idea is to come up a strategy; a voice we can use while negotiating some of these loans,” Ms Wanyera said.
“Debt [borrowing] is not bad at all, as long as we borrow for the right purposes and negotiate well, but some of the conditions are not favourable at all.”
Some of the conditions, she says, are high insurance premiums tied to especially loans by export credit agencies, tying of loans to particular suppliers usually from the source countries which constrain local capacity, and in others waiving sovereign immunity over all assets of the borrowing states.

Raising the red flag
A recent report by Auditor General John Muwanga raised red flag over the same conditions as “harsh”, with loans from China being particularly singled out.
Mr Muwanga’s audit noted that tying loans to specific contractors distorts local content and how much Uganda actually receives, and further indicated that Uganda was forced to pay all legal fees without a cap and insurance premiums up to 7.4 per cent on behalf of the lender.
The audit also revealed that Uganda was required by China’s Exim Bank to open escrow accounts where government is obliged to deposit funds over the tenure of the loan to cover the high annual interest and fees for all the ban’s funded projects, namely expansion of Entebbe airport, Isimba and Karuma dams, National Infrastructure Backbone, and Kampala Entebbe Expressway. The escrow accounts held more than Shs150 billion.
Ms Wanyera admitted that most times they cannot deflect the conditions while at the negotiation table and it is high time governments started exploring ways to neutralise such.
“Why make us pay such insurance; we are treated as if we are a private company,” she added. “The conference is a peer-review meeting of sorts to share experiences, learn from each other, and come up with a way forward.”
Besides the next World Bank spring meeting, she also cited other forums such as the Forum on China-Africa Cooperation, where resolutions from the meeting to be held at Commonwealth Resort, Munyonyo, will be shared.
“The issue of debt conditions is a common issue amongst us.”
China ranks as Uganda’s top bilateral lender with about 75 percent, followed by France, UK, which is financing construction of the Kabaale International Airport in Hoima, and Japan, which financed the new Jinja cable bridge.
However, in general, the debt stock is largely from multilateral lenders like the World Bank and African Development Fund
The International Monetary Fund (IMF) in its (East Africa) regional economic outlook last November said that five countries had ramped up more than Shs362 trillion ($100b) in both domestic and foreign debt.
Burundi and Kenya were highlighted as some of the countries facing the highest loan distress with their debt to gross domestic product (GDP) ratios projected to exceed 60 per cent this year.
The Ministry of Finance said last week Uganda’s total debt stock had increased from Shs46.36 trillion ($12.55b) as at end of last year to Shs48 trillion ($13b), of which Shs31.53 trillion is external and Shs17.38 trillion domestic.

Uganda remains at low risk of debt distress

Currently, the nominal percentage value of Uganda’s debt as a percentage of GDP is 48 per cent, which Ms Wanyera says is, in the foreseeable future, intended to below the 50 per cent mark set by the IMF in spite of the planned borrowing, particularly to finance government’s stake in the big ticket oil projects like the crude oil export pipeline.
According to the IMF, Uganda remains at low risk of debt distress, even though debt metrics have deteriorated and one in every five Ugandan shillings collected in revenue will be spent on interest in this financial year.
Additionally, she says, five shillings collected in revenue is being spent on interest payment.
The IMF, in its May assessment, detailed that Uganda’s debt carrying capacity has been raised to strong from medium.
Uganda’s heavy borrowing was premised on assumption that, infrastructure investments yield the envisaged growth dividend, revenue collection improvement by half per cent of GDP per year over the next five years, oil exports commence in 2023 and infrastructure investment, which is envisaged to reduce once the current projects are completed.
Elsewhere in Zambia, Ghana, and Angola, among others, discussion on debt distress remains a major talking point.

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