Can Uganda thrive without World Bank?

On August 8, the media was awash with news of World Bank’s decision to stop new public funding to Uganda. The  World Bank position was in response to Uganda’s passing of the Anti-Homosexuality Act 2023.

The decision also came at a time when the country had just started a new financial year with plans to spend a staggering Shs52.73 trillion. It should be noted that Shs10.5 trillion or 20 percent of this budget is external financing in form of project support. 

This will be financed through external borrowing from multilateral and bilateral lenders, including the World Bank. World Bank’s position, however, may have far-reaching consequences. One is that it could signal other development partners like the IMF and the European Union to also withdraw funding. It also sends a bad signal to potential investors which could negatively affect Uganda’s Foreign Direct Investments (FDI) that has been steadily growing.

The government could also resort to commercial loans and domestic borrowing, which worsens the public debt. It should be noted that Uganda’s public debt stock experienced a two-fold increase in the last five years from Shs41.5 trillion in 2018 to Shs86.6 trillion in 2021, according to the Auditor General’s report of December 2022. World Bank loans are non-concessional with very low interest rates and extended payment periods, which reduces the pressure of debt servicing. It will be difficult to find development partners to replace a funder like the World Bank.

The Ministry of Finance in March released the report on public debt, grants, guarantees and other financial liabilities for FY 2022/2023. This report provides information on loans and grants mobilised to finance the budget as planned. 

According to the report, Uganda’s external debt, including arrears, has been increasing over the years. As of  December 31, 2022, it stood at $12.96 billion compared to $12.90 billion as of December 31, 2021. The outstanding debt stock, including arrears from multilateral creditors, is largely from the International Development Association of the World Bank (IDA).  The same report shows that between March 2022 and March 2023, Parliament approved nine new external loans amounting to $1.259 billion to finance the budget.

This money came from different creditors, including Islamic Development Bank, Arab Bank for Economic Development in Africa (BADEA), Standard Charted Bank and the International Development Association of the world Bank. 

Of this $1.259 billion or Shs4.7 trillion, the International Development Association or World Bank provided $618.55 million or Shs2.3 trillion representing 49 percent of all the external loans that were approved by Parliament in this one-year period. This was followed by Standard Charted Bank, which provided $464.13 million representing 37 percent. The Islamic Development Bank and BADEA both contributed seven percent each.

This shows how heavily Uganda depends on the World Bank and disapproves the bloated statements made by politicians on Uganda’s inflated ability to operate normally without the World Bank. So, if I was to answer my own question on whether Uganda can thrive without the World Bank, my answer would be no, Uganda cannot thrive without the World Bank, but it can survive. 

However, to even survive, major reforms must be made. The government must reduce the cost of public administration by speeding up the process of rationalising government agencies and reducing the administrative units, ensuring fiscal discipline, as well as reducing misuses of public resources. The government should also try the option of negotiating with the World Bank to reverse their decision of halting new financing for Uganda.

Mr Pascal Muhangi is an Economist at Civil Society Budget Advocacy Group (CSBAG). 
Twitter: @p_muhangi