WB funding cuts: Slashing govt expenditure can save Shs10t

What is at stake here?
Currently, Uganda has 30 active World Bank projects and 13 of which are in the pipeline, all amounting to $13.9 billion (about Shs51 trillion). Out of that, some $9.5 billion (Shs35 trillion) is for the 30 ongoing active projects and $4.43 million (about Shs16.5 billion) is for the 13 projects in the pipeline. It is also worth noting that Uganda has the largest outstanding multilateral debt stock of Shs29.91 trillion including arrears largely from the World Bank financing arm, the International Development Association (IDA). 

By December 21st 2022, Uganda had received grants from IDA amounting to $204.6 million (Shs760.5 billion), of which, the largest share of up to 85 per cent was for Human Capital Development. During the same period last year, the WB (through IDA) undisbursed debt stock, was the largest of the total undisbursed debt stock of $4.81 billion (nearly Shs18 trillion). The only good news for now is the reassurance by the WB that ongoing projects to the tune of $9.5billion (Shs35 trillion) will not be affected by this freeze.

Generally, what are the implications of the decision?
According to Africa Development Bank Economic Outlook report, 2023, poverty in Uganda increased by 4.2 per cent in 2022 from 15.61 million Ugandans to 16.36 million. In the event that the government is forced to promote austerity linked measures, we are afraid that economic inequality may further widen disparities in access to health, education and other social services.

How is that feasible?
We shouldn’t lose sight of the fact that the WB contributes significantly to funding social sector projects that impact the livelihoods of people in the country. For examples these projects - the U-learn project, which is aimed at expanding traditional schools and the Phase II of the Agriculture Cluster Development Project totaling to $250 million whose major purpose is to increase productivity and marketable volumes of selected value chains. Should both see the light of day, our economy would be the biggest beneficiary.

Additionally, there will be increased pressure for commercial loans and domestic borrowing. Note that the country’s public debt stock experienced a two-fold increase in the last five years from Shs41.5 trillion in 2018 to Shs86.6 trillion in 2023. This trend is likely to worsen with the WB suspension of its funding to Uganda, which is non-concessional. We have concerns that this will exert pressure on the government to borrow from other sources at concessional terms which will increase the burden of debt servicing. 
The government may also be forced to increase domestic borrowing which will increase the interest rates and crowd out the private sector.
Uganda’s foreign exchange stability as a result of this decision will be affected. WB funding also plays an important role in boosting the portfolio of Foreign Direct Investments (FDI) in the country. This therefore goes without saying that our economic trajectory will face many challenges, including having negative effect on the private sector companies that have been working on WB projects and had acquired loans to support their activities will likely default their obligations, increasing the nonperforming loan portfolio in the financial sector.

So what now that the horse looks like it has left the barn?
Government must to re-examine its spending patterns with  th main objective of further cutting down on its public administration costs. This can be done through reviewing the public service salary structure to harmonise and promote equal pay based on experience and hierarchy. Revising downwards the current emolument package for especially Cabinet, Parliament, and Civil Servants with exception of staffers in health, education and security should be the way to go.
This is the time for accounting officers to walk the talk of minimising wastage and misuse of public resources, which is the norm especially in public procurement and project management.

The Auditor General’s findings (financial year 2021/22) established that government lost close to Shs2.2 trillion due to public procurement irregularities, Shs863billion due to commitment fees paid on undisbursed loans, andShs3.3trillion due to interest payments on undisbursed loans. In FY 2021/22 alone, government officials failed to account for close to Shs3.5 billion according to the Office of the Auditor General. This shouldn’t be tolerated.

We would also like to see the Finance Ministry conducting a thorough review of ongoing and planned projects, ranking them based on a hierarchy of priority and then reallocate resources accordingly. For example, the Lubowa project, costing Shs86billion, SGR, Atiak sugar (with a budget of Shs274 billion, can all be paused as we negotiate our way out of this situation.

This restructuring alone will save the government approximately Shs360 billion. With proper review of expenditure and operations done across the government Ministries, Departments and Agencies, our estimates indicates that we can save up to Shs10 trillion – an amount of money that can  be redirected in productive areas of the economy. 

However, crucial social sector interventions in health, agriculture, and security should be protected from these pending budget revisions. Specifically, areas like supply of drugs and medicines, items and equipment, educational facilities, agricultural inputs like fertilisers, seeds, Agri-chemicals, and extension services should not be tempered with. These budget lines uphold the human capital development path of the country. There are programmes like roads maintenance and repair if not done will likely increase the cost of production and therefore deserve attention.

Government should request other lenders for a moratorium on debt servicing for at least three years and renegotiate with the bond holders to increase the bond maturity periods.

We shouldn’t be so naïve as to think that there will be no risks involved with this decision halting funding to our country. We were encouraged by President Museveni’s statement on seeking dialogue with the WB.