As debts come due, new expenses push envelope to the brink?

Thursday April 29 2021
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Author: Mr Karoli Ssemogerere is an Attorney-at-Law and an Advocate.

By Karoli Ssemogerere

Uganda is joining a fast growing group of countries requesting for rescheduling of its official $12 billion external debt. Uganda’s largest creditor is the International Development Association (IDA) the acronym for Least Developed Countries that borrow from the World Bank Group under mostly concessional terms with $3 billion. 

Of  three neighbouring East African countries, only Uganda is left in this group as Kenya and Tanzania have migrated to Lower Middle Income status. 
Second is China whose official debt is $2.5 billion absorbed in infrastructural projects. Other lenders in no significant order are banks, IMF, World Bank etc. IMF loans outstanding are $450 million but these come at the top of the envelope for budget support and carry strings in the form of reforms. In the 1980s and 1990s, structural adjustment was imposed on many countries delivering budgetary stability at the expense of social equity. 

Poor countries were forced to dismantle the civil service, state enterprises etc, only to reassemble them in another form as MDAs. 
Uganda closed many banks on account of insolvency but accidentally shut indigenous Ugandans outside the banking sector. The Chinese are flexible on governance but do also insist on iron-clad repayment terms. One of the inventions of the surge in indirect taxes and surcharges are specific repayment terms that require Uganda to keep certain forex reserves on escrow to service debt repayments. Yet these are hardly Uganda’s biggest debt problems. 

Uganda’s economy should be robust for many other reasons. 

First is a relatively young population. Ugandans 65 and over are a very small fraction of the population. Moderating birth rates, Uganda’s fertility rate has dropped from 7.2 children per woman in the 1990s, to 5.7 children today, itself a high number responsible for rapid population growth but likely to improve, but for other social economic problems mostly a collapsing education sector. 

After 25 years of UPE, the number of school dropouts is on the rise at a time when failing to enroll children in school should be an offence. At the most recent LC 1 elections the swearing in ceremonies across the country illustrated why UPE was anything but universal. 

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Uganda’s most famous yet to be parliamentarian Mohammed Segirinnya, who went to school in the UPE era, is a parody on the public school system but so are many others. 

Exclusion is another big problem. Income inequality is rising meaning less money is exchanging hands at the grassroots, and to substitute broad taxes like income tax, the taxman is forced to chip at each sprouting economic activity. In 2021, the taxman proposed an annual flat motorvehicle licence tax 30 years after the MoT was abolished in favour of a tax on fuel. 

Government at the time got wary of forged annual licence stickers some of which covered entire windscreens as expediency allowed motorists to buy a three month or six  month sticker if they could not afford an annual road licence sticker. 

Yet it’s not all lost.  There are still places to cut some lard from the budget. First the high cost of public administration. Second reinventing the tool in the security budget from mass force to special units. 
Third, catching up on domestic arrears which have crippled businesses will allow the economy to grow on its own again. 

Uganda has almost 50 million people, and the tools of yesterday may not work today. Coffee exports of $400 million in 1986 in today’s money are more than $2.5 billion which is not the case today. The much vaunted oil sales will level off at $60 a barrel of crude and may never return to $100 a barrel a fact conceded by the local oil lobby. 

Even the Saudis who can bring to the earth’s surface for less than $20 a barrel are scratching their heads. 
This is good for governance worldwide, and the next time the minister begs Parliament to turn itself into a committee of supply, ask him to replace the spigot with a straw.

 Mr Ssemogerere is an Attorney-At-Law and an Advocate. kssemoge@gmail.com

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