How much are we adding to our debt?

Over the past five months, the government has put before Parliament 10 loan requests amounting to more than $1b (Shs3.7 trillion), adding to Uganda’s $ 11b (Shs41 trillion) public debt and further aggravating the debt problem.
The $11b public debt has become a particular cause of concern because if the government borrows Sh10.8 trillion ($2.9 billion) from China’s Exim Bank to finance the Standard Gauge Railway, Uganda’s public debt will go way above the 40 per cent GDP to debt ratio. A country’s debt is considered unsustainable when the debt to GDP ratio reaches 50 per cent.
By close of the Financial Year 2017/18, Uganda’s public debt stood at $11b (Shs41 trillion), of which $7.18b (about Shs27 trillion) was external and $3.35b (about Shs13 trillion) domestic, according to figures from the Finance ministry.
Another $1b (Shs3.7 trillion) will be added to that debt if Parliament approves the loan requests that are before the National Economy Committee.
The loans are to be spent on projects in agriculture, education and road infrastructure.
Details for the conditions for the repayment of these loans are presented when the Finance ministry technocrats appear before Parliament’s on National Economy Committee to defend the loan requests.
But with the Uganda shilling continually losing ground against hard currencies, especially the dollar, repayment of these loans will likely be more costly.
In the Financial Year 2018/19, interest for domestic and external loan obligations was at Shs2.7 trillion (12 per cent) of the national Budget, making it the second largest allocation after Works and Transport, which has an allocation of Shs4.1 trillion.
Civil Society Organisations warned that the increasing expenditure on interest repayment from Shs2 trillion in FY 2016/17 to Shs2.7 trillion in FY 2018/19 is “steadily crowding out expenditure on social sectors”.
Hoima Municipality MP Lawrence Bategeka, the vice chairman of Parliament’s National Economy Committee that examines and approves the loans, says the push for industrialisation and demand for infrastructural projects such as roads has forced the government to borrow.
“What influences our borrowing is our financing needs and also the availability of lenders. The demand for infrastructure is high and the desire for industrialisation is also high. We also assess the principle of usefulness to a country. We have to cross-check the debt implication and also have to seek a no-objection from the National Planning Authority,” Mr Bategeka says.
Presenting the Budget speech this year, Finance minister Matia Kasaija was in a bullish mood, saying that public debt to GDP ratio was at 38.1 per cent and declared that it was “much lower than the threshold of 50 per cent beyond which public debt becomes unsustainable.”
Enter President Museveni
Concerned by the spiralling public debt, President Museveni wrote to the Speaker of Parliament in July last year directing that all government loans must get his “personal approval” and also ordered that only infrastructural development in the health and education sectors be funded by loans.
Mr Museveni ordered that 11 government loans that were before Parliament be rejected on grounds that they do not add value to the economy.
The President had last year ordered that money for construction of the Kampala-Jinja Expressway be generated from road tolls.
Mr Don Wanyama, the senior presidential press secretary, referred inquiries on whether the President’s directives were disregarded to Information minister Frank Tumwebaze.
On October 4, government asked for a Parliament resolution to borrow $40m (Shs150b) from the International Development Association of the World Bank to support Strengthening Social Risk Management and Gender-Based Violence Prevention and Response Project.
This is part of the loans that Mr Museveni directed Parliament not to process last year.
“How will you know which woman fought with which husband?”Mr Museveni asked in regard to the loan, according to his letter which the Speaker read to MPs.
Mr Bategeka, says the request for $40m to fight gender-based violence is an example of “ideological loans” that the National Economy Committee should reject.
Mr Kasaija was not willing to respond to queries regarding Uganda’s debt sustainability, saying he needed more time to study Parliament’s Hansard detailing Mr Museveni’s July 2017 letter to the Speaker about borrowing.
“You can defer the story so that I give you things which are accurate. I do not want to give you things which are not accurate,”Mr Kasaija said two weeks ago.
However, by press time, Mr Kasaija had not responded to our repeated phone call nor reply to our text messages.
Mr Julius Mukunda, the executive director of Civil Society Budget Advocacy Group, a coalition of CSOs working to influence government decisions on resource mobilisation, says the runaway public debt poses two major risks; losing coveted national assets that are set as collateral for the loans and an explosion of “white-elephants” with the government unable to absorb the loans.
For instance, the 2015/16 Auditor General’s report on the operations of the treasury indicates that by June 30, 2016, committed but undisbursed debt was at Shs18 trillion, with Shs6 trillion multilateral and Shs9 trillion bilateral.
Those projects were in electricity, communications, bridges and airports.
The Auditor General’s report also warned that the unabsorbed loans raise the possibility of taxpayers carrying the burden of paying high interest rates and the government running into a collision course with lenders.
Some of the projects whose loans the audit reported as unabsorbed by 2016, included the Kampala Metropolitan Transmission Line ($125m or Shs468b from Japan International Cooperation Agency), Kapchorwa-Suam-Kitale and Eldoret Bypass roads ($88.8m or Shs332b from African Development Bank) and Multinational Lake Victoria Maritime Communications Transport Project ($14.4m or Shs54b)
Mr Julius Kapwepwe of the Uganda Debt Network, explains that a huge sovereign debt undermines the implementation of development plans such as the Sustainable Development Goals and the National Development Plan.
For the Entebbe-Kampala Expressway, motorists will have to pay road toll fees to offset the $476m (Shs1.8 trillion) loan that the government obtained from China’s Exim Bank. The loan is to be repaid in 40 years.
Ugandans are already up in arms over treatment fees at the new Mulago Specialised Women and Neonatal Hospital, which was constructed using a $25m loan from the Islamic Development Bank (IDB). Ugandans will have to pay more treatment fees to clear the $25m (Shs94b) loan.
Mr Dennis Jjuuko, a researcher with the Center for Health, Human Rights and Development, a group that works to achieve the right to health in East Africa, says treatment at the new Mulago hospital will be affordable for Ugandans who were previously going abroad for treatment.