Uganda loses Shs359b in unused loan charges

In the last five financial years, the government has paid Shs359 in commitment fees due to non-performing loans.
The figure was disclosed in the Auditor General’s report for the financial year ending June 2022, indicating the cost of undisbursed loans.

In the year under review, the government paid commitment fees amounting to shs77.5bn, a 2 percent drop from the previous year. The government also paid a Shs31.6bn loan for budget support.
Commitment fees are paid for debt that has been contracted but not yet disbursed.

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Mr John Muwanga, the Auditor General, said the total amount of undisbursed loans stood at Shs15.6t, approximately 17 percent of the total public debt in June 2022.
“Government’s failure to draw down and low absorption of contracted government debt continue to attract high commitment fees and affect service delivery,” he noted in the report.

Other loans highlighted in the report to have attracted fees include a Shs355b for the construction of a 45 MW Muzizi hydropower plant. By the time of its cancellation last year, the government had spent Shs3.97Bn in commitment fees. 
The Kampala-Jinja Expressway Project loan amounting to Shs842bn secured from the African Development Bank has already cost the taxpayer Shs3bn in commitment fees. The works on the project are yet to commence.
“Management explained that the Ministry [Finance] is aware of the problem of payment of Commitment fees due to delays in signing of agreements when sectors and implementers of projects are not ready,” Mr Muwanga said.

Mr Jim Mugunga, the Ministry of Finance spokesperson, explained that before securing a loan, the ministry ensures the readiness of the beneficiary entity or agency to utilise the funds.
“The approval process for any loan is elaborate…It is initiated by the beneficiary agency, involves the sector and by the time it comes to finance, some paperwork has been done, and we go through finance systems. We go to the Cabinet, and to Parliament. By the time it goes through, all those checks have happened,” he recently told Daily Monitor.
Timely use of the funds, which would avert the commitment fees, is therefore incumbent on the implementing entities or sectors.
Mr Mugunga, however, explains that implementation or use of the funds can be derailed by other external factors. Delayed utilization of loan, he said can best be judged on a case by case basis.

“There are   a couple of factors that will hinder project progression. Some of them are things you are not in control of. You get litigation for example. We are not in control of the process of court,” he said
In the case of the Kampala-Jinja Highway, the Auditor General said delays in execution were attributed to protracted procurement processes by Uganda National Roads Authority (Unra), the implementing entity.
Mr Muwanga urged the government “to identify and resolve any bottlenecks hindering the smooth implementation of projects/programmes and activities so as to increase its loan/debt absorption rates.”
In response, Mr Mugunga said the Permanent Secretary/ Secrerary to the Treasury, Mr Ramathan Ggoobi, has now directed that no more project loans will be contracted “without thorough complete and complete feasibility studies being undertaken.”

Adding: “Studying the projects to ensure thorough comprehensive and compliant feasibility studies are done which include identifying all potential risks that may impact projects. When that is done even political risks will be identified and mechanisms to deal with them will be considered in the loan agreement so that we negotiate better.”