The Auditor General, Mr John Muwanga’s audit for the FY2018/2019 indicates that at least Shs736b from 43 donor-funded projects implemented by the different ministries, departments, and agencies (MDAs) was returned to the Consolidated Fund. This is in accordance with the Public Finance Management Act, 2015, on account of being “unabsorbed.”
The audit, submitted to Parliament in January, shows that Shs666b was carried forward from the preceding FY2017/2018 for the same projects.
During the audit year 2018/2019, Shs1.6 trillion was allocated, bringing total available funds for the 43 projects to Shs2.3 trillion of which only Shs1.58 trillion was used.
This represented an absorption capacity of 68 per cent, while the Shs736b was unutilised for, among other reasons, delays in approval of project work plans, protracted procurements, delays in signing of project contracts and the sluggish execution of works.
Project costs increase
As a result of the partial or non-implemented activities, interest charges on unwithdrawn funds of Shs90b increased project administration costs due to project extensions and delayed service delivery.
In that audited financial year, the World Bank-funded Uganda Support to Municipal Infrastructure Development Program Project (USMID)—phase II had the largest unabsorbed portfolio of Shs203.48b.
In effect, this money was carried forward to the last financial year 2019/2020, which ended last month.
But nearly half of it has been returned to the national coffers after the Covid-19 pandemic halted any activities in the country.
Phase I of USMID started in 2013 running for five years at a cost of $138m (Shs510b, and as it neared completion in December 2018, a second phase was hastily conceived, which according to the project coordinator, Mr Isaac Mutenyo, was based “on a number of successes registered.”
“We did our midterm reviews in June 2018, and we were supposed to start phase II in January 2019, but there are a lot of protocols of project approval—locally from Parliament to Cabinet, and then the World Bank,” Mr Mutenyo said last week.
The USMID was created to enhance the institutional performance of select local governments countrywide to improve urban service delivery through, among others, infrastructure development.
The project was given a nod by government in December 2018, and after satisfying all additional conditions, it was approved by the World Bank board in Washington in April 2019.
“So, we received the first funding on June 28th when the financial year was ending, which brought about these distortions,” Mr Mutenyo told Daily Monitor.
He said no work can start until a host of preparatory activities such as environment impact assessment, detailed engineering, and resettlement action studies for each of the project have been done and approved, which consumed the last half of 2019. “So in effect, we started on phase II in February 2020. During phase II (prior to 2015 when the Public Finance Management Act came into force), we used to give local governments money and when they did not use it, they would keep but that changed; it has to be returned and then redistributed.”
While USMID II might be explicable, there are a host of local government projects whose slow progress and chronic failure to spend funds is as a result of incompetence.
A review of the Finance ministry documents indicates that absorptions have improved across the central and local government.
Mr Muwanga in his recent report noted that “it has been observed over the years that activities that are planned and budgeted for by local governments are either poorly implemented or not implemented at all, which affects service delivery, the improvement of the people’s well-being and the country’s ability to attain the National Development Goals.”
For example, during the FY2018/2019, government set aside Shs31b for construction of 48 seed secondary schools in 48 local governments out of which Shs28b was released but only Shs15b was spent, and Shs13b returned to the Consolidated Fund.
In the same breadth, Shs17b was budgeted for upgrading 37 health centre IIs to health centre IIIs in 30 local governments. Though the full amount was released, only Shs7b was spent and Shs10b sent back to the Consolidated Fund.
The local government accounting officers blamed this on the protracted procurements and administrative reviews occasioned by PPDA. But a review of local government audits shows that poor/under absorption of funds is a cross-cutting issue.
Mr Africa Kiiza, the coordinator for trade policies and negotiations at SEATINI, a budget and taxation advocacy group, told Daily Monitor that “most of what we see is a smokescreen” but each financial year, there has been a 5 per cent increase in unabsorbed money.
“When you look at the different timelines by local governments and the Central government, all their activities depend on releases. But then there is a routine delay to the release of funds by the treasury and yet MDAs cannot start work without money. So delayed releases yield delayed activities and unutilised money,” he said.
In the end, Mr Kiiza said this means government is not “efficiently working to deliver on priorities.”
The ongoing mobilisation of donations to deal with the Covid-19 pandemic is illustrative of the problem.
Several medical personnel across the country lack protective equipment, non-payment of allowances has been registered, while the Uganda Virus Research Institute, which is at the heart of all testing, is chronically underfunded and depends on donors.
However, the Health ministry has been allotted billions of shillings in the two supplementary budgets passed in a space of two months, besides the private donations.
Dr Diana Atwine, the ministry’s Permanent Secretary, told journalists on June 22 that they had been instructed by the President to save a big tranche of the donations close to Shs15b—for buying cars for distribution to local governments.
It is not clear whether a budget for fuelling and maintenance of the fleet was considered.
Mr Kiiza said there is a lot of wastage in government, while the country’s debt burden is snowballing—currently at $13b (Shs49 trillion).
The Finance ministry’s report on public debt, guarantees and other financial liabilities for the FY2019/2020 released in March shows that the total outstanding stock of government domestic debt increased by 21.2 per cent from Shs14b in 2018 to Shs17.3b in 2019, and is expected to increase by 31.6 per cent or Shs4b in this FY2020/2021.
Debt cycle and work burden
“When you look at our debt, most of it is on account of infrastructure, especially the non-productive infrastructure, which money is not being utilised under the development budget, and yet money under recurrent expenditure such as wages and allowances is fully absorbed. So it is as simple as people drawing salaries for no work done,” Mr Kiiza said.
In the last FY 2019/2020, the Energy ministry was allocated Shs3 trillion of which Shs1.6 trillion was released but only Shs966b or 32 per cent had been spent by April.
Other sectors such as the Ministry of Education was allocated Shs3 trillion with Shs2.7trillion as recurrent and Shs305.28b as development expenditures, respectively, but only the former had a good absorption capacity of 78 percent by April, while the health sector had an overall poor performance with only 47 per cent of the semi-annual targets achieved by last December.
Several other sectors, according to the half-year reviews, performed well but on absorbing recurrent expenditures.
Mr Kiiza said the continued return of the money to the Consolidated Fund has inspired the unending passing of supplementary budgets with little oversight, “as it shows that money to spend is there in the coffers.”
In the FY2019/2020 ended last week, two supplementary budgets amounting to a combined Shs1.9 trillion were passed by Parliament.Often, the returned money is not ploughed back to the same projects. On a few instances when the funds are rechanneled to the projects, it results into shoddy works. Many donor-funded projects have stalled as a result of this problem.
Mr Patrick Ocailap, the deputy Secretary to the Treasury, told this newspaper that several loans have not been utilised for, among other reasons, disruption of works due to government restrictions imposed following the outbreak of the Covid-19 pandemic, lengthy procurement procedures, and inadequate capacities on the ground.
Mr Robert Kasande, the Permanent Secretary of the Energy Ministry, which has a sizeable portfolio of unabsorbed World Bank loans, acknowledged that they have “some unconsumed loans” as a result of several reasons, especially land acquisition.
“Under the Energy for Rural Transformation, we were supposed to construct a transmission line from Karuma dam; one of the lines was for the Luzira industrial park where we already constructed a substation but as soon as people heard that we are bringing a line they got titles for the land some of which fall towards Lake Victoria swamp and even went to court,” he said.
In the FY 2018/19 audit, the Auditor General revealed that government spent $330m (Shs1.25 trillion) in the preceding FYs 2016/17, 2017/18 and 2018/19 on 18 projects in over 50 districts in counterpart funding towards payment of compensation of project-affected persons.
However, there were significant delays in undertaking payment of project-affected persons “a time lag of three to five years which led to delayed commencement of projects after the loan effective dates.
As a result, government paid between Shs815m and Shs37b in commitment fees on loans acquired for the industrial park and Mbarara-Nkenda projects.
As a result of the delayed payment, the compensation bill increased by Shs28b with registration of new claims and non-standardised application of valuation rates and payment for land held in trust for Ugandans.
Mr Kasande also admitted that some cross-cutting delays on projects are managerial lapses. The Covid-19 pandemic has curtailed the progress of some projects ‘due to international travel restrictions to fly in consultants to review project progress or to fly out to review equipment as required.’
Out of the external debt stock of $13.3b (Shs49 trillion), $4.45b (Shs16 trillion) is the stock of undisbursed debt as at December 2019, up from $4b (Shs14 trillion) in December 2018.
This is on account of new loan agreements that have been approved by Parliament and signed but are yet to fulfil the conditions before disbursement can be sanctioned.
There are also delays in the procurement processes, which tie up large sums of funds especially for projects with large infrastructure components.
The bulk of the undisbursed loans are from World Bank’s IDA, China, and the French development agency, AfDF, with 34 per cent, 14 per cent and 11 per cent, respectively while private banks hold only 2 per cent, according to the Finance ministry. The Finance ministry is currently reconciling figures of the money that were returned to the Consolidated Fund for the last financial year, which ended last week.
Poor absorption of funds, which is a hallmark of inept service delivery, has played a contributory role, as the Covid-19 pandemic pushes millions of Ugandans towards the poverty bracket.
Donor projects. The World Bank has on several occasions suspended budget support to government over failure to implement a raft of reforms to boost absorption of disbursements. Out of the 43 audited by Mr Muwanga in the FY2018/2019, several are World-Bank funded projects. A review of the Finance ministry records indicates that four World Bank projects are due for closure this December, including, the third Northern Uganda Social Action Fund (NUSAF)—$130m, Skills Development project ($100m), Energy for Rural Transformation III ($8m), and the Uganda Multi Sectoral Project ($27m). Four other projects are due to close next year, and three in 2022.