Covid-19 impact: Without planning, govt is putting cart before the horse
What you need to know:
- Most economists in Uganda such as Ramathan Ngoobi and Dr Fred Muhumuza have sounded warnings of hard economic times ahead.
On April 26, while laying the Draft Budget and Plans for Approval before Parliament, the Minister for Finance, Planning and Economic Development, Matia Kasija told Parliament that government does not have any evidence to show the actual scope of the impacts of the coronavirus pandemic. He assured Parliament that when such impacts are known, government would bring the motions to the floor for approval of the interventions. The junior minister for Finance, David Bahati, re-echoed this position on a national TV talk-show recently.
However, as the minister was conceding to lack of evidence to inform any economic recovery response, government was negotiating a loan with International Monitory Fund (IMF). On May 6, IMF announced it had approved a loan of $491.5 million (about Shs1.9 trillion) from its Rapid Credit Facility, effectively exhausting 100 per cent our quoter of the facility.
The IMF, in its statement, said the loans will help finance the health, social protection and macroeconomic stabilization measures, meet the urgent balance-of-payments and fiscal needs arising from the Covid-19 outbreak and catalyse additional support from the international community.
IMF country head Clara Mira organised a virtual feedback and Q&A session with the civil society on May 8. She confirmed that the loan will support Balance of Payment deficits (about USD 340m or 70 per cent) which will go to Bank of Uganda (BoU) and the balance will be used in health (for Covid-19 response), social protection and to Uganda Development Bank for private sector interventions.
Ms Mira also stated that stringent transparency and accountability mechanisms are infused in this facility’s agreement which most observers welcomed (subject to details and compliance) and commended the IMF for.
My concern is the private sector intervention package. The government says they have no evidence to inform any interventions and yet borrowing funds for some (unknown) interventions. The IMF said in their statement that this facility is also to “catalyse additional support from international community.”
Indeed, government has stated they are in discussions with the World Bank and other international donors to support Uganda in the wake of Covid-19 impacts. The question that begs is, what is government borrowing for if they do not know or have evidence of the impacts on the economy?
I give the government, especially the Ministry of Finance, some benefits of the doubt regarding the lack of clear intervention plans in the FY2020/2021 Budget. The pandemic shocked the world with its rapid spread, leaving little room for any proper contingency planning. By the time of near global shutdown in mid-March, the Ministerial Policy Statements were in advance stages of passage. Our Public Finance Management Act has strict timelines for Budget preparation and passing. Nonetheless, there was some small window to review some interventions and not leave them as if there was no pandemic in existence even as we enter the new FY.
The ministry cannot, for some inexplicable reasons, claim they have no real-time or preliminary data or evidence yet they are the ones in charge of planning. Perhaps they are borrowing funds to start planning. It has happened many times before.
I concede, the real scope of the economic impacts of Covid-19 to national economies is still unknown. Even the big boys in research like the World Bank do not have any accurate picture. The African Development Bank estimates that African economies may lose upwards of $ 30 billion in GDP. Even the IMF in lending this loan did not state any empirical evidence on the extent of the Covid-19 impact on economy.
However, most economists in Uganda such as Ramathan Ngoobi and Dr Fred Muhumuza have sounded warnings of hard economic times ahead. The anecdotal evidences are overwhelming. These warnings are being dismissed as alarmist by some people in government. President Museveni (and rightfully so) must be the leading voice on this. In one of his briefings on Covid-19, he said Uganda will not suffer so much because our resilience lies in agricultural production. He suggested that impacts will be felt largely on the tourism sector. The president, in a belligerent manner, postured that while people expected doom for our health sector and yet we seem to be winning, the same will be for economy.
As you read this, tens of hundreds of Ugandans have been either laid off or put on unpaid leave for a lengthy period. Companies have cut salaries. The BoU has issued loan restructuring guidelines to ease the financial burden on borrowers. Very loud chorus of tenants crying for rent reprieves are being heard all over the country.
Pressure from a section of NSSF savers for access to a portion of their savings are growing louder and has now reached Parliament. Factory workers are being told to keep home till further notice. Prices of agricultural produce has plummeted to the extent that market price is far below the costs of transport, let alone costs of production. You don’t have to be a super economist to see that many businesses have either collapsed or will collapse.
These are signs of serious economic distress. Yet the government has not done any survey to establish the nature, scope or even the trends of economic impacts. The only attempt I have seen,to generate real-time data, is the Uganda Investment Authority’s Survey Monkey to assess the impacts of Covid-19 on businesses which was communicated on their social media handles on May 4.
While UIA should be commended for this rather late initiative, the Finance ministry should be championing a comprehensive survey and analysis of the impacts based on real-time data. By now, they would have published preliminary assessment report to inform strategies for interventions. If they are doing this, they are either too slow or doing it very secretively that most business owners are not aware of.
The sad result of loan negotiations and disbursements to GoU accounts without a proper plan can only point to one direction: mismanagement and misappropriation. The Minister of State for Disaster Preparedness, Musa Ecweru, recently confessed to this scenario. They sought to distribute food to two million vulnerable households in and around Kampala. When they started distribution, they realised their perception of a “home” and “household” had been grossly misleading. The same was echoed by Minister of State for information when he said the challenge was identifying a “house” and “households” as many people leave in shacks that do not qualify for houses.
Together with challenges of poor-quality supplies and procurements, the food distribution has lasted more than 40 days and yet the plan was to distribute within two weeks. This is a consequence of not doing rapid surveys to generate real-time data.
But government cannot give excuses for lack of real-time data just like an ordinary person or business does. The donors and financial lenders should not lend or grant money to any government without a proper plan informed by proper analysis of real-time data or real-time data based projections. Otherwise, they will be complicit in the mismanagement of resources that will ensue.
We have put the cart before the horse many times before, but this time, the costs may be just too high since other countries have stimulus packages for their businesses. This may tilt competition to their favour and to the detriment of our local business and economic recovery.u
Mr Omonya is an Advocate, a Policy Analyst and Programme Advisor of CSBAG. [email protected]