Govt on track to get NSSF’s Shs1 trillion
What you need to know:
- The money will be used to build offices for ministries and reduce the amount of money spent on clearing rent.
Government plans to borrow Shs1 trillion from the National Social Security Fund (NSSF) to build a campus that will house ministries in Bwebajja on Entebbe Road, Monitor can reveal.
Highly-placed sources tell us that technocrats at the Works ministry, which will supervise the construction, have started working on design blueprints they intend to complete by June.
To finance this project, the wealthiest provident fund in East Africa—with assets worth Shs17.25 trillion—will lend government Shs1 trillion. We understand this has been enabled by a carefully-crafted clause in the NSSF Amendment Act, clothed in ambiguous text.
Clause 1 of Section 30 of the NSSF Amendment Act reads: “All monies in the Fund, including the reserve account, which are not for the time being required to be applied for the purpose of the Fund shall be invested in such investment as may be determined by the board in consultation with the minister responsible for Finance.”
Clause 2 of the amended section reads further: “…notwithstanding the provisions of any other law, the board may use in-house expertise or Fund managers in the investment under subsection.”
The NSSF Amendment Act, which was gazetted in March 2021 allowed mid-term access for its members that cost Shs1 trillion. For the first time in a decade, in September 2022, NSSF declared a single digit interest rate of 9.65 percent that was paid to members. This drop from 12.15 percent in the previous year was attributed to the pay-out of the mid-term benefits, and the Covid-19 pandemic aftershocks.
But the clause, which grants government carte-blanche to access funds, has elicited suspicion. Fears are abounding that this could expose the provident fund to the domineering control of the government whose lack of frugality and borrowing appetite to sustain a bloated structure may outstrip its commitment to service debt.
During a telephone interview with Monitor, Mr Keith Muhakanizi, the former Secretary to the Treasury and current Permanent Secretary at the office of the Prime Minister, said thus: “That’s a big money investment in which the board must consult the minister because that’s what the law has been saying all along.”
Mr Muhakanizi, who previously served on the NSSF board, proceeded to note thus: “ If that’s not done then there is a big problem.”
Mr Patrick Ocailap, the deputy Secretary to the Treasury, when contacted offered a curt response—“no comment.”
Mr Jim Mugunga, the Finance ministry spokesperson, claimed the story was a “smokescreen.”
“Whoever is giving you that information is diverting you from a bigger story. There’s nothing irregular about what is being done and the money is yet to be approved,” Mr Mugunga reasoned.
NSSF law:What is in store for you?
Attempts to sound out Mr Patrick Ayota—the acting NSSF managing director—about the recent development including the interest on the loan, length of the loan and the security thereof was futile as he didn’t respond to our incessant calls and texts.
Early this week, the Central Bank revealed that it spends 30 percent of taxes to service debt, which consequently piles pressure on domestic revenues to finance debt liabilities at the expense of other priority budgetary items.
In details contained in the State of the Economy Report for the period ended December, Bank of Uganda indicated that “interest payments and debt servicing continue to exert pressure on domestic revenues”, breaching the 2018 Public Debt Management Framework (PDMF) threshold of 12.5 percent of domestic revenues, to grow to 30 percent in the year ended October from 24 percent in the same period in 2020.
“Domestic debt interest payments account for the lion share at 80 percent of total interest payment,” the report reads in part, indicating that as of October 2022, public debt stood at a staggering Shs78.7 trillion.
With rising debt and the possibility of defaulting, there are fears that the government may rely on the clause in the NSSF Amendment Act to plug its budget deficit, which could push the provident fund towards a financial cliff.
A case for borrowing
However, the exponents of this view argue that the borrowing allows the government to make strategic investments meant to inject capital into an economy rebounding from a tailspin sparked by the Covid pandemic and the reverberations of the Ukraine conflict.
For instance, NSSF has invested in assets across the region. Kenya takes the bulk of the investment at more than $1.2 billion and Tanzania where $500 billion has been sunk.
The exponents of this investment argue that the government campus meant to accommodate government ministries is a vital investment into the cash-strapped economy. This project in their view could reduce soaring costs on rent and improve supervision, efficiency, and eliminate apathy and despondency within the workforce.
If the funds for the campus are approved, this project will be built on what used to be J&M Airport Hotel.
This idea was first mooted in 2017 when then prime minister, Dr Ruhakana Rugunda revealed that the government was in advanced talks with NSSF to build the government campus at Bwebajja. Later in 2021, Finance minister Matia Kasaija described it as an “indirect loan” from NSSF to the government.
“We have concluded the biggest hurdle, which was the cost of the land and now we have agreed on the price,” Mr Kasaija said then, adding: “NSSF is funding the project as an investment. It will be recovered from the rent that ministries have been paying.”
The Bwebajja land that was previously owned by businessman Joseph Behakanira, who died in 2010, was purchased by NSSF in 2016 after a Cabinet endorsement.
It cost Shs93 billion after a company named Ssentoogo and Partners was outsourced to handle the valuation. But the acquisition was tainted with suspicion after an acre of land in the same area was valued at Shs350 million, which would have cost NSSF Shs55.8 billion as the purchasing price for the Bwebajja land.
However, those who defended the deal claimed the Shs600 million valuation per acre was based on the investments on the purchased piece of land, including a hotel.
Earlier on in May 2022, Opposition lawmakers asked the government to present, within six months, the roadmap to cease renting private properties and seek to develop domiciles for all institutions as a means of reducing unwarranted expenditure.
The lawmakers suggested that before the budget for Financial Year (FY) 2022/2023 is approved, the government should brief the House on the progress in regard to the proposed government office campus at Bwebajja. It is not clear yet whether the Opposition lawmakers are aware that the government is seeking to fund this project from the NSSF workers’ savings.
The decision by the government to compel NSSF into bankrolling the project comes after the government at the end last year asked potential private sector lenders in the world to advance €500 million (Shs1.9 trillion) to close a 2022/2023 budget gap, adding to an ongoing syndicated Shs1.7 trillion borrowing being arranged through Standard Chartered Bank.
Mr Kasaija noted that the new credit line that the government is seeking is intended to offset the equivalent of net domestic financing (NDF) approved for the current financial year.
The minister in the call for expression of interest asked any potential creditor to determine the interest rate, but agreed that Uganda will repay the money within a decade, with actual loan servicing starting in the fourth year.
“[The] government is, therefore, seeking financing partners to structure medium-term and long-term financing using all available financing options excluding Eurobond,” minister Kasaija wrote, adding, “This is, therefore, to request you to submit your expression of interest with detailed term sheet(s) for the proposed financing. Due to strict implementation guidelines, we request you to submit your expression of interest by the closure of November 18.”