Cancel debt for economy  to recover, says UDN boss 

In April, the World Bank’s Development Committee and G20 Finance Ministers endorsed the Debt Service Suspension Initiative  following the World Bank and International Monetary Fund’s call   to grant debt-service suspension to the poorest countries to help them manage the impact of the Covid-19 pandemic. The executive director of Uganda Debt Network, Mr Patrick Tumwebaze told Prosper Magazine’s Ismail Musa Ladu, in an interview that this move is only a drop in the ocean. 

What is the rationale for current call for total debt cancellation?   
We appreciate that the previous escalating debt burden situation for low income countries, including Uganda resulted into debt relief programmes such as the Highly Indebted Poor Countries (HIPC) Initiative in Financial Year 1995/96 and the Gleneagles- Scotland’s Multilateral Debt Relief Initiative (MDRI) in Financial Year 2005/2006. 

However, development discourse of Low Income Countries (LICs), social protection strategies and economic outlook are faced with a myriad of challenges, given the global context of Corona Virus Disease (COVID-19) and the full debt situation. 
For this reason, it is proper to call for two-fold approach. First, we are calling for total debt cancellation as opposed to just debt service suspension of outstanding debt owed to the G20 countries, IMF, World Bank Group, regional banks as well as bilateral creditors under Paris Club and Private external creditors under London Club and China.

Secondly, we would want to see a 10-year action of no-interest on new debts by Uganda; and low income countries. The two-fold approaches would consign the LICs into more public expenditure investments tagged to protecting the rights and social protection of the citizens, economic recovery, improved healthcare and others. 

We implore the IMF, World Bank and G20 (world’s richest countries) during 2020 to coordinate a broad global participation of all global actors to this two-fold approach to revive low income economies such as Uganda.
Are those the only reasons why Uganda is facing another debt burden?  
There are several reasons. According to the World Bank and IMF projections, for every five shillings we generate as revenue, one shilling is paid to interest on debt. That means the population is being deprived of resources that would have been spent on service delivery. 

We are heading into a point where we shall be borrowing just to pay debt - meaning, we shall be digging a pit to cover another pit. We don’t want to be in such a situation.

In the recent past, the country has faced calamities such as floods, floating islands, desert locusts, landslides and mudslides, Covid-19 and other infectious diseases as Ebola, Yellow fever and Marburg. Such calamities have compounded the pre-existing economic and healthcare conditions. 

The Covid-19 pandemic has resulted into increased borrowing. So far, about 16 loans have been acquired for Covid-19 and other interventions in the economy just between January and August 2020. Those loans exclude the grants and supplementary budgets at the end of FY 2019/20. 

With Covid-19 alone, Uganda’s poverty levels between January and August 2020 been elevated from 21 per cent to a projection of 25 per cent, with over 2.6 million people likely to slip into poverty by December 2020. 

This will add onto the 8 million poor people at pre-Covid-19 time; thus, totaling up to nearly 11 million people in 2020 alone. This figure could be higher if vulnerability numbers (due to job loss, reduced salaries and wages, excess production capacity of firms) were to be included. 

The above is generally presented across the low income countries while increasing inequalities and social unrest that oftentimes affects the vulnerable poor, especially the youth and women, across the six East African Community states and Africa at large.

We have also seen some investment in infrastructure. Does it explain the debt situation?  
You are right. This is as a result of a global requirement which compels us into investing in income generating projects and in this case, I am talking about roads, electricity among other infrastructure projects. Research has shown that for every one dollar invested, it generates $0.8 (Shs2,960) in economic activity. That is very dangerous. It shows that up to 60 per cent of what you invested is wasteful expenditure. 

According to World Bank, Uganda loses about $300 million (Shs1.1 trillion) in wasteful expenditure annually. When you consider this with the dwindling revenue streams we are experiencing, you see that we are headed for disaster. 

Do we need debts, given their resultant challenges?
Even the biggest economies borrow. USA owes China about $14 trillion. In Uganda, we have a budget of about Shs45 trillion for 2021/22. We are only able to raise about 40 per cent of that through locally mobilised revenue. Remember more than half of that locally mobilised revenue is supposed to pay debt. So we don’t have enough revenue yet we have a budget to execute. Therefore, due to the pressure to deliver services, we have to borrow.

To what extent has corruption undermined many debt relief gains?
According to World Bank estimates, about 60 per cent of funds we get in loans are wasted. We did a research that we are yet to publish and we found that 40 per cent of the loans for mostly roads were behind schedule.

 This is because of mainly corruption and issues around delay of counter funding by government. Despite all that, including wanting transparency and accountability from many of the respective governments and State machinery especially in Africa in addition to abuse of public resources by people who ought to know better, we believe debt cancellation remains most viable move for economic recovery over the short-term, medium-term and long-term.

How about the government overzealous appetite to borrow? Isn’t that a red flag? 
Government need to tame its appetite to borrow. When we closed 2019, the debt levels according to the Finance Ministry were about Shs48 trillion. But our budget is now about Shs45 trillion, meaning the debt we have so far incurred has since surpassed our budget.

I am also afraid that by close of the year, we may surpass the 50 per cent threshold because currently, we are in about 46 per cent. As a country, we are treading on a slippery ground. This is complicated by the fact that most of our locally generated revenue goes to just debt servicing and not repaying the debt. If we include the domestic debt situation in the equation, then I fear the reading may not be nice.

However, the best alternative is to put the borrowed money into ventures that generate more money. This involves investing in productive sectors rather than consumptive ones.

 We have also seen that the government now increasingly turning to commercial loans from private lenders as opposed to concessionary loans. This is a dangerous road to take. It is very difficult to convince say China and private lenders to drop their demands because they are purely profit making organisations. But we shall keep trying until we reach a consensus that is right and beneficial to low income countries like Uganda.  

Any challenges as you call for total debt cancellation? 
The size of public debt seems elusive. As we call for the debt cancellation, there is need for computation of the full-scale of the debt burden. Uganda’s public debt stock value, for instance varies from the figures of Bank of Uganda, Ministry of Finance or even global economic ranking entities like Fitch, Moody’s and Multilateral Financial Institutions like IMF. 
We implore the government to not only harmonise its debt stock figures but also be more transparent about the debt burden.