Implications of the World Bank loan suspension

Ugandan government officials are currently engaged in shuttle diplomacy to have the World Bank’s suspension on new lending lifted. Troubled by the potential implications, the scampering of the government is visible as projects in agriculture, health and infrastructure could stall due to the suspension. In September, the World Bank noted that it had put on hold new loans because of low absorption capacity and poor administration of the government on currently funded projects.

The estimation is that about 80 per cent of the funds remain un-utilised by the Uganda government, bringing into question their capacity. The $1.5b (Shs5 trillion) that the World Bank has decided to suspend would have been to finance several projects, allowing the government to use its own generated funds for other purposes. The government is already concerned and this week, has a task of convincing the Washington-based lender on why the suspension should be lifted.
“I wish to state that the Government of Uganda has noted the drastic decision of the World Bank to suspend loans to a number of Uganda’s externally funding projects. As you may already know, Cabinet took up the matter of slow implementation and low absorption of all Uganda’s externally funded projects – from the World Bank, AfDB, IDB,” Mr Ruhakana Rugunda, the Prime Minister told donor and development partners at a meeting recently.

Bad record
Uganda’s reputation on utilising funds has often been a bad one the World Bank and other lenders have often warned the government about.
The World Bank is the single largest institution that extends loans to the Uganda government at 22 per cent. In its own assessment of performance on external financing, the government has performed dismally with 72 per cent of projects being unsatisfactory between 2007 and June 2016. Only 15 per cent of projects are considered satisfactory.

Uganda has accessed $7.3b (Shs24.6 trillion) during that same period, according to the 2015/16 Government Assessment Report.
Ms Jenny Borough, the head of UK’s Department for International Development (DFID) in Uganda, said at the same meeting that Uganda’s record of poor financial management and absorption capacity has also been visible on projects funded by taxpayers.
On several occasions, the Uganda government has been warned by the World Bank on the absorption of funds. The government, on its part, has acknowledged the problem but implementation of reforms to ensure proper utilisation has often fallen short.

This is a mistake that Mr Keith Muhakanizi, the permanent secretary in the ministry of finance, has blamed on other accounting officers in ministries, departments and agencies of government.
“The permanent secretaries, the project managers, and accounting officers; all these people must take the heat for this suspension,” he said.
The agriculture sector has been the largest culprit of poor absorption of funds, utilising about 70 per cent of the funds they receive. The local governments have also had a record of low absorption.

Mr Muhakanizi blames such on poor planning and slow procurement processes in these sectors. However, agencies that fall under these sectors note that their hands are tied. An official from the ministry of local government told the Daily Monitor in a recent interview that delayed disbursement of funds by the ministry of finance was to blame for the failures in utilised of funds.
“Districts often start procurement processes early but because the money from the ministry of finance delays, the projects are also put on hold,” the official notes.
Local governments are also understaffed in several departments like procurement, meaning either the process is delayed or they lack the capacity to carry out any of their planned activities.
The ministry of finance, however, denies that it is to blame, insisting that on a quarterly basis, funds are released in a timely manner. The blame game, unfortunately, gets the government service delivery nowhere.

Implications

On one hand, some have noted that the move by the World Bank is a blessing in disguise because it is going to force the government to adjust. There is recognition by the government to deal with some of the reasons for low absorption such as land acquisition and counterpart funding. That explains the rather subtle assurances made by the Prime Minister to donors that these issues would be dealt with. On the other hand, if the World Bank maintains its suspension, that means service delivery on some projects in the key priority areas of education, health and infrastructure will slow the implementation of government’s ambition to get to a middle-income status by 2020.
Notably, the World Bank funding does not come easy.
The processes considered before money is fully disbursed are cumbersome. In some instances, it takes almost two years to get funds approved for a project that is meant to be operational in a single year.