What you need to know:
- The Auditor General had in the 2019/2020 financial year report cautioned that if the government does not restrain its hunger for loans, the debt will be unsustainable and future governments will not be able to borrow.
The government is asking for another loan of $1 billion (Shs3.5 trillion) from the International Monetary Fund (IMF) to mitigate the impact of Covid-19 on the country’s economy, the Finance Ministry confirmed on Wednesday
However, this comes a few months after the Auditor General (AG), Mr John Muwanga, warned that the country’s national debt had escalated and that it was becoming unsustainable.
The IMF yesterday said the Shs3.5t loan will help Uganda tackle the near-term impact of Covid-19 and its recovery by safeguarding macroeconomic stability and generating more inclusive growth.
“IMF staff have reached [the] agreement with the 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),” Mr Amine Mati, an IMF official, said in the statement.
He added: “The staff-level agreement is subject to IMF management approval and Executive Board consideration, which is expected in the coming weeks.”
According to the statement, the agreement followed meetings held between May 25 and 28 attended by the IMF staff team, Minister of Finance Matia Kasaija, acting Permanent Secretary and Secretary to the Treasury, Mr Patrick Ocailap and the Central Bank Governor Mr Emmanuel Mutebile.
The Finance ministry Spokesperson, Mr Jim Mugunga, confirmed to Daily Monitor that the meeting happened and that the agreements about the loan were made.
“The central objective of the authorities’ reform programme—supported by an arrangement under the IMF’s Extended Credit Facility (ECF)—is to support a recovery from the Covid pandemic. This will enable us as a country stay on course to generating a strong and inclusive private sector-led growth,” he said.
He added: “The budget deficit and debt will be reduced over time (as the Covid-19 shock eases) through higher productivity and government revenue. The Ministry of Finance and other agencies of government remain committed to ensure greater efficiency in funds absorption and use that will include among others spending on social programs such as health.”
But the Auditor General had in the 2019/2020 financial year report cautioned that if the government does not restrain its hunger for loans, the debt will be unsustainable and future governments will not be able to borrow.
In December 2019, Uganda’s debt burden stood at about Shs49 trillion but by December 2020, it shot to Shs65.8 trillion, which is a Shs16.8 trillion increment, according to information from the government. This caused a considerable increase in the debt- GDP ratio to 46 per cent as of 2020.
But IMF said it will continue to give loans to Uganda to close financing gaps and help in recovery from the impacts of Covid-19.
“Uganda’s economy has been hit hard by the Covid-19 pandemic that eroded people’s livelihoods. Growth has halved compared to pre-crisis levels and poverty has increased, reversing decade-long gains in wealth creation and inclusion despite the support measures introduced by the authorities,” Mr Mati said.
He added: “The fiscal deficit has widened considerably, pushing public debt to close to 50 percent of GDP by June 2021 and increasing financing costs. Emergency financial assistance from the IMF and the World Bank helped close financing gaps and supported mitigation measures, but important fiscal and external financing needs remain over the next few years.”
Ms Cissy Kagaba, the head of Anti-Corruption Coalition Uganda, said even in countries that did not borrow as much as Uganda did to cushion the population from the effects of Covid-19, their Covid-19 figures in terms of percentages of the population are not as far from Uganda’s.
“The problem is not that we are borrowing excessively, it is that we are borrowing for the wrong reasons. Even when we borrow for the wrong reasons, the custodians of this country exaggerate the amounts of money borrowed to cater to their selfish ends,” she wrote earlier in one of the opinion articles published by Daily Monitor.
But Mr Mugunga said the loan is not a big threat since it is interest-free. “The ECF carries a zero-interest rate, with a grace period of five and half years, and a final maturity of 10 years. The duration of Uganda’s ECF-supported programme is three years for a loan of about $1 billion, disbursed in semi-annual tranches,” he said.