How to unchain Uganda, continental peers from global predators

The need to reform the global financial architecture is increasingly gaining momentum because of not only its toll on rising debt levels but also its negative impact on trade, investment and industrial development. 
In recent months, In neighbouring Kenya, mounting debt-fueled public discontent sparked widespread strikes premised on the new tax measures introduced to enable the state to generate sufficient revenue to service the growing debt portfolio.

In Uganda, nearly 30 per cent of domestically mobilised revenue is used for debt servicing at the expense of service delivery. This is not helped by the rampant Illicit Financial Flows (IFF) – estimated in excess of Shs more than 2 trillion with multinational companies in sectors such as telecom, oil and gas, extractives, manufacturing, and lately technology being the biggest perpetrators of this vice, depriving the economy much-needed revenue for social services.    
The global financial eco-system also not only prioritizes the interests of lenders mainly from wealthy nations, but it also suffocates the inability to trade in high-value goods or access value and supply chains in manufacturing and industry, derailing economic development.

As a result, Uganda and indeed most African countries, often turn to mobilizing foreign direct investment (FDI) to boost industries by offering unwarranted tax incentives to investors, an approach that leads to further revenue losses, even as spending needs remain high.
Monitor did find out in the course of this investigation, that the government services public debt which is often highlighted as a potential enabler for development, by acquiring new debt. According to the Ministry of Finance, new loans are acquired to service existing debt!

 This, according to Dr Fred Muhumuza, an economist and former advisor to the Ministry of Finance, has an impact on development spending. He argues that vicious cycles of debt mean that the repayment burden will fall onto citizens through high taxes and reduced public spending even on key sectors such as health, education and infrastructure development.

   
Need for reform
It is for this reason that the advocates in favour of reforming the global economic system say if done, it will be essential in establishing a fairer and just economic architecture that addresses the issue of debt, trade, investment and industrialization.

For this to happen, Prof. Rob Davies, global trade and investment expert also former Minister of Trade and Industry, South Africa, is of the view that African countries must be at the table of negotiation or else they will be appropriated positions that are not in tandem with their interests and realities. In agreement is Prof. Ndebesa Mwambutsya, one of the brains behind the Equator School for Alternative Development Model.

According to Prof Mwambutsya, it is about time Uganda and African countries in general developed home-grown capacity to address their development agenda, on the ground that the global financial and economic system being fronted by multilateral institutions have proven ineffective in dealing with challenges facing Global South countries like Uganda.  
Prof Mwambutsya cites inequitable bargaining power in determining loan terms and resolving the trade imbalance resulting from the unfair global economic and financial structures as some of the challenges that Uganda and its peers will continue to pay the price for until an alternative local model to the likes of Bretton Woods Institutions – IMF and the World Bank, is developed.

Need help
 While Government technocrats and economic managers at the Ministry of Finance believe the global financial architecture is skewed towards safeguarding the interest of developed economies, financiers and lenders, Monitor observed that they seem helpless to engage beyond quietly raising red flags to the cabinet for executive and political action whose involvement often times doesn’t generate the required outcome.

It is for this reason that organisations such as Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI – Uganda), African Forum and Network on Debt and Development (AFRODAD), Tax Justice Network – Africa, and Stop the Bleeding campaign are not only increasingly calling for urgent reform of the international financial and economic architecture to address the multiple crises and systemic inequalities among particularly African countries, but also urging government to stand up and be counted.

According to an assessment by the aforementioned organizations, the growing divide between wealthy and impoverished nations presents a clear threat to the global economy. Without immediate, ambitious reforms, this gap risks deepening into lasting economic fragmentation and geopolitical tensions.
The assessment points out that It is crucial for both developed and developing nations to come together to reform the international financial architecture. Such reforms are essential to restoring trust in the system and preventing further division in global economic relations.

“We must establish a new framework of rules and institutions designed for the 21st century—one that fosters global economic convergence and supports the achievement of sustainable, inclusive, and just transformations. The international financial architecture must be restructured to actively facilitate the Sustainable Development Goals and uphold human rights,” reads their assessment report in part.
“Achieving this requires bold reforms focused on more inclusive, representative, and effective global economic governance,” researcher Kiiza said after concurring with the aforementioned assessment. 
 
He continued: “To break free from this cycle of dependency and underdevelopment, Uganda and the EAC must adopt a multifaceted approach that prioritises financial independence and sustainable development.
“First, economic diversification is essential. Uganda must invest in industrialization and the development of regional value chains within the EAC. By processing agricultural and mineral resources locally, the region can capture more value and reduce its reliance on volatile global commodity markets. This approach requires targeted investments in infrastructure, technology, and education to build the capacity for higher-value production.

“Second, tackling illicit financial flows must become a priority. Uganda and the EAC should strengthen their legal and regulatory frameworks to combat tax evasion, transfer pricing, and other mechanisms used by multinational corporations to siphon wealth. Collaborating with international organizations to track and repatriate illicit funds can provide a significant boost to domestic resource mobilization.”
Each year, according to the Illicit Financial Flow (IFF) Report of the High-Level Panel on Illicit Financial Flows from Africa, an estimated $88.6 billion is lost from Africa due to IFFs, exceeding the continent's receipts from Official Development Assistance (ODA) and Foreign Direct Investment (FDI).
 This loss represents nearly half of the financing gap required to achieve the Sustainable Development Goals (SDGs), particularly target 16.4, which calls for a significant reduction in IFFs.

Intra-regional trade
Mr Kiiza who has also extensively analysed regional blocs, proposed that regional integration must be deepened to create a unified economic bloc capable of negotiating better trade deals and reducing dependence on external markets.

He is of the view that a harmonized approach to trade policies, combined with investments in cross-border infrastructure, can enhance intra-regional trade and foster resilience against external shocks.
Uganda and the EAC, must push for equitable trade rules within the World Trade Organization (WTO) and support global movements for debt justice. At the same time, the region should explore alternative financing mechanisms, such as sovereign wealth funds and regional development banks, to reduce reliance on external creditors.

According to Herbert Kafeero, a development and communication specialist, the call for reform is not just about bridging financing gaps, but also about the fundamental overhaul of the global economic order to ensure it is equitable, responsive, supports structural transformation, and capable of addressing long-standing challenges, crucial for global stability and shared prosperity.

IMF and GFA future
A report of the Africa High-level Working Group on the Global Financial Architecture titled the IMF and the Future of Global Financial Architecture issued last month, noted that the Bretton Woods Institutions have to address the challenges associated with their systems.

The working group was set up to design and champion proposals to reform the global financial architecture and to strengthen Africa’s voice in discussions on this issue. The report prepared by the United Nations Economic Commission for Africa (UNECA) in consultation with African Ministers of Finance, Planning, and Economic Development; the African Union; and the African Development Bank—to propose a new work agenda for the IMF to respond more capably to the challenges that low- and middle-income countries are facing.
“This report aims to put forward some of the new thinking and policymaking that the IMF will need to fulfil its new Bretton Woods moment,” reads a statement issued last month.

 According to the statement, four principles will help guide this effort, including the IMF’s special drawing rights (SDR) policies should be less discretionary and more rule-based and analytical. SDR is an asset that a country can exchange for currency when needed. Second, the IMF’s lending horizon and outlook on balance-of-payments problems should be prioritised in the long term.  Third, the IMF must work more assiduously to redress structural inequalities in the global financial architecture by giving greater representation and tending more proactively to the problems affecting low- and lower-middle-income countries.
Fourth, the IMF should align its overall engagement, including its policy and lending instruments, to play a highly catalytic role in mobilizing additional sources of financing while fostering closer collaboration with the World Bank and other multilateral development banks (MDBs).

The statement further disclosed that the IMF and the Future of the Global Financial Architecture among other things should also include: “A new agenda for market access,” and “An International Monetary Fund for the 21st Century: Lending, governance, and future direction.”
By press time IMF had not responded to our queries pertaining to the theme and matters raised in the three-part article.