Government fails to spend Shs17 trillion loans

Fitch, one of the top credit rating agencies in the world, recently gave Uganda a negative score in its latest revised outlook that sought to alert the authorities of the perils ahead, if nothing is done about the country’s appetite to borrow.

The negative revision of Uganda’s outlook, according to Fitch, reflects downside risks to public finances and growth from the coronavirus shock amid a build-up of government debt and persistent twin deficits, which is projected to continue into the medium term.

The rising debt and losses through nugatory expenditures on undisbursed loans to a tune of Shs17.2 trillion as of June last year, indicate potential risks and missed investment opportunities.
Finance minister Matia Kasaija acknowledges that “the low absorption capacity for resources has continued to increase the cost of government debt.”

For instance, in the first half of Financial Year 2017/2018, Mr Kasaija disclosed that the government paid $7.8m (Shs27.9b) in commitment fees compared to first half of Financial Year 2015/2016, which was $1.8m (Shs6.4b) and first half of Financial Year 2016/2017, which was $17m (Shs60.9b).

The Eastern and Southern African Trade and Development Bank (PTA) and Exim Bank of China received the biggest portion of commitment fees on unutilised/undisbursed loans to a tune of 38 per cent each,  followed by African Development Fund (ADF) that received 15 per cent and the rest of the creditors (ADF) 16 per cent, Germany three per cent, and France three per cent.

Daily Monitor understands in the PTA and Exim Bank of China loans, the government in Financial Year 2017/2018 agreed to pay one per cent ($2 million) management fee for the PTA loan and the large quantities of loans recently acquired from the Exim Bank of China, that have not been fully disbursed.

Article 2.03 of the financing agreement between the Government of Uganda and International Development Association (IDA) indicates that undisbursed funds shall be charged a maximum commitment rate of one-half (1/2) of one per cent per annum, payable by the recipient.

A review of the loan releases according to the latest report of the Auditor General revealed that several loans appeared to be performing poorly, with some nearing expiry; while others reached the closing date without fully disbursing the funds.

Ms Christine Byiringiro, a policy analyst at Uganda Debt Network (UDN), warned of consequences if government fails to tame its appetite to borrow.

While the public debt has continued to take on an upward trajectory, (for instance from Shs 56 trillion as at June 2020 to Shs66 trillion as at March 2021), on account of heavy investment in infrastructure development, particularly power and roads, Ms Byiringiro said:  “There shouldn’t be any excuse for low absorption or turning in unspent borrowed funds. That speaks to lack of coordination and seriousness.”

 Ms Byiringiro told Daily Monitor, that poor absorption of borrowed funds are mainly in the roads and energy sector, due to the recurring unresolved land compensation issues affecting project implementation schedules.

 For example, the Busega-Mpigi and Kagitumba-Kayonza Rusumo roads project (2016-2020), which as of June 30, 2019, had only 0.69 per cent of the approved project loan amount had been disbursed, meaning the undisbursed amount was 99.3 per cent and had not been touched by the time the project closed on December 31, 2020.

The delayed implementation of this project led to accumulation of a total of Shs4.1 billion in project service charges by June 2019, since inception (2016).

 Then there is the East Africa Public Health Laboratory Networking Project (2016-2020) where $9.6 million was available for spending during Financial Year 2018/2019. Eventually, only $4.1 million was spent, resulting in a total of $5.4 million unutilised by the end of the year.

Ms Maris Wanyera, the director debt and cash management at the Finance ministry, explained that all projects have different profiles. Some disbursement increases over time and that is not necessarily a bad thing.

However,  she admits that government has been encumbered with challenges relating to compensation and multitude of whistleblowers whose complaints always derail implementation progress, adding that prescription to challenges delaying or inhibiting projects funded using public debt, has been found.
 
Ms Wanyera revealed that some projects are committed when not ready, many times due to what she called “designs readjustment and sometimes on account of poor preparation, all contributing to delay.”  

The government has since introduced a Public Investment Management Board (PIMB) to vet and endorse development projects that tick all the boxes to avoid unnecessary delays and costs in servicing the undisbursed loans.

Sectors with undisbursed loans

A number of sectors had huge amounts of external loans and grants that were approved, but not spent as of December 31, 2020.

Out of the $3.2 billion external funding, including loans and grants, approved for Financial Year 2020/2021, at end December 2020, only $1.3 billion was released posting an average disbursement rate of about 39 per cent across the sectors.

Records from the Finance ministry indicate that out of $66.3 million approved for accountability sector, only $6.3 million was released representing nine per cent disbursement.

Agriculture had $147.1 million approved, but only $32.6 million was disbursed, representing 22 per cent, budget support had approved figures of $758.8 million and $379.43 million was released representing 50 per cent.

Education had $58.2 million approved, but only $22.5 million was released, representing 39 per cent, Energy and Mineral Development had approval of $512.2 million, and got $103.79 million, a 20 per cent disbursement, while out of $312.1 million for health, only $42 million was released representing 14 per cent.

ICT and National Guidance approved external support of $19.48 million and only $7.35 million was released representing 38 per cent, Lands, Housing and Urban Development approved $133 million and $82.6 million was released representing 62 per cent and Public Sector Management had $145.2 million approved and $82.3 million was released, standing at 57 per cent.

Out of $34.8 million approved for Science, Technology and Innovation, nothing was disbursed, tourism, trade and industry had $2.7 million budgeted and $1.1 million was released representing 41 per cent and security stood at 84 per cent of disbursement, with $82.2 million out of $97.4 million of the funds released.
Water and Environment had $280.6 million and $147.6 million released standing at 53 per cent, Works and Transport had $652.7million and got $265.4 million, representing 41 per cent.

Justice Law and Order sector was the only entity that received more funds that had been approved. The sector had approval of $16.5million but instead received $22.6 million, standing at 137 per cent.

ISSUE
Undisbursed loan
The increase in undisbursed debt stock is attributed to the following;
• New loan agreements that have been approved by Parliament and signed but are yet to fulfil the preconditions for disbursement
• Delays in the procurement processes which tie up large sums of funds especially for projects with large infrastructure components.
• Delayed implementation of some projects.
• Delays in requesting for money as per their implementation plans.