Experts ask govt to use IMF cash for Covid-19

A team of revenue, budget and economic policy experts in the country have put government on notice, warning that the $346 million (Shs1.2 trillion) allocation of IMF Special Drawing Rights (SDRs) recently made available to Uganda, shouldn’t be used to offset public debt. 

The team recommended that money be channelled towards financing the fight against the Covid-19 pandemic and boosting economic recovery.

Importantly, SDRs, which is essentially money printed by IMF for its members, is not a loan and neither is it refundable nor does it come with any conditions attached to it. The government also has the discretion to use the SDR funds as it sees fit.

According to the civil society experts working on revenue, budget and economic policy related issues, government should take advantage of the debt relief offer provided by a section of her creditors under the G-20 to address its debt situation just like Kenya and Tanzania are already doing.

Daily Monitor, however, understands that government is reluctant to pursue this initiative yet it could save the country more than Shs1 trillion in debt repayments – an equivalent of Uganda Development Bank budget for onward lending to small and medium businesses. 

Considering that usage of the Shs1.2 trillion SDR funds has solely been left to the discretion of the central bank and a few technocrats within the Finance ministry with limited involvement and dialogue with other key players, including Parliament, civil society, and media, there is fear that this will put these resources at risk of mismanagement or having them used for other purposes that may not be of utmost benefit at the moment.

Ms Jane Nalunga, the SEATINI Uganda executive director, while quoting the World Bank report, yesterday noted that the pandemic has pushed more than 3.1 million households into poverty with the total number of poor in the country now standing at more than 11 million people. This means that these households will now have to live on less than Shs6,500 ($1.9) a day.

Further, the pandemic disruption has greatly affected the country’s domestic revenue collections with the Finance ministry registering a shortfall of more than Shs3 trillion in revenue collections within the previous financial year.

This, according to Ms Nalunga, pushed the government to borrow heavily with the country’s debt burden growing to more than Shs70 trillion in June from Shs65.8 trillion in June 2020. 

This huge debt burden has forced the government to spend more than Shs13.2 trillion on debt repayments to the country’s creditors.

“However, this came at the sacrifice of critical public expenditures on health care, social welfare, and investment in the real economy. As a consequence, the country has been unable to purchase adequate vaccines and required protective equipment to fight the pandemic and to reopen the economy,” she said. 

She continued: “In addition, the recent social support programmes rolled out by the government that included the Emyooga programme; the Social Assistance Grants for Empowerment programme; the food distribution; direct cash transfer program all were inadequately funded compared to what was needed.”

Due to the aforementioned challenges, the IMF on August  23 issued new SDRs to a tune of $650 billion, with Uganda as an IMF member country, receiving about $346 million (about Shs1.2 trillion), to help address countries’ liquidity problems and enable them finance the fight against the pandemic and support their national recovery efforts.

Rallying call
There is now a call by organisations such as SEATINI Uganda, Oxfam Uganda, Uganda Debt Network (UDN) and Civil Society Budget Advocacy Group to have the government use these funds to finance vaccine procurement, improve health systems, bailouts for micro, small and medium enterprises and social welfare support for the vulnerable that includes direct cash transfers.

Meanwhile, analyst Ausi Kibowa believes that Bank of Uganda should exchange these resources into freely usable currencies like the dollar and channel them to the finance ministry for budget support rather than keep them on its central bank balance sheet.

And for transparency and accountability purposes, Mr Kibowa argues that the central bank should publish regular reports on the use of these resources.

About SDR 
So far SDRs equivalent to $281 billion US dollars have been allocated to IMF members, including SDR 182.6 billion that was allocated in 2009 in the wake of the global financial crisis. 

These new resources once issued are allocated based on a quota-based formula. 
Each country, therefore, receives a portion of the newly-issued funds based on its quota shares with the IMF. 

Such quotas are determined by member countries’ relative economic position in the world economy with bigger economies taking on larger allocations of any new issuance as compared to their much smaller counterparts such as Uganda. 
•On June 4, it became evident that the IMF reached an agreement with Ugandan authorities on a medium-term programme that could be supported by IMF resources of about $1 billion (Shs3.5t) under the Extended Credit Facility (ECF). This was before another borrowing that happened before close of last year to a tune of $800million (Shs2.8trillion). 
• According to the Ministry of Finance, the largest source of Uganda’s credit for the period ended March remained multilateral lenders, which contributed 62.7 per cent or $7.27b while bilateral lenders accounted for 29.9 per cent ($3.47b). Commercial banks contributed 7.4 per cent or $0.85b. 
• Multilateral debt is dominated by International Development Association, the lending arm of the World Bank, which has a share of 58.1 per cent or $7.3b and African Development Fund with a share of 19.6 per cent or $1.4b. 
•Bilateral debt is dominated by Exim Bank of China, which has a share of 73.2 per cent or $2.5b while Japan has a share of 8.5 per cent or $0.3b. 
•Private and commercial loans are dominated by Trade and Development Bank, which holds at least 41.3 per cent or $ 0.4b.  
•On March 31, 2020, the government sought more Shs284 billion supplementary as a response to deal with the Covid-19 pandemic as presented in table below.