With or without the World Bank

Recently, the World Bank Group (WBG) announced that it would not issue new loans to Uganda mainly due perceived misalignment of the country’s legislation, on sexual minorities, with the bank’s environmental and social standards. This is a blow to our country, which for years has been making efforts to close the infrastructure gap with funding from the WBG and other lenders. If it was up to us, this would not happen, for this is not a time to lose development partners, especially those who contribute to our basket of development financing. That said, the withdrawal of the WBG may have several implications going forward.

Most profound is the performance and sustainability of the specific current and future projects with prospects of a WBG financing. The WBG has, most recently, supported activities related to enhancement of climate-smart agriculture, support to women enterprises, improvement of infrastructure of Kampala and secondary cities, scale up of electricity access and support to industrialisation and employment. For the laudable objectives of these projects to be achieved, financing plays a vital role. For instance, the scale up of electricity access will not only lower the cost of doing business, due to scale in shared cost; but also studies, by the Economic Policy Research Centre (EPRC), show that new and/or improved access to electricity is associated with increased  household income and a reduction of household poverty.

The withdrawal of the WBG could also rattle the markets and raise the risk premium of Uganda’s financing due to perceived economic uncertainty. This would increase the cost of borrowing, both externally and domestically, due to perceived market risk. Most recently, the Uganda shilling has come under pressure depreciating by 3 percent in one day. Continued depreciation, due to speculation and as investors exchange the Uganda shilling for the dollar, could strain the Bank of Uganda (BOU) attempt to intervene in the foreign exchange market to stem volatility. In addition, a sustained depreciation could diminish the stock of reserves with, long-term, consequences on the balance of payments and external competitiveness.

However, the BOU remains optimistic, for it cut its key lending rate to 9.5 percent in August 2023.  The optimism could be buoyed by improvement in domestic economic circumstance after the consequences of Covid-19 and food supply chain shocks driven by Ukraine-Russia conflict.  More profoundly, the year-on-year inflation rate dipped to 3.9 percent, in July 2023, from 4.9 percent the same time last year. This is the lowest inflation rate Uganda has registered since February 2022.

Another source of optimism is the fact that Uganda is forecast to grow at high rates, of 6 percent and above. The country is commercialising its petroleum discoveries and this could cushion the country from any sudden withdrawal by a creditor. However, investment in hydro-carbon do respond to macro-economic news and any perception of risk as this could increase the cost of developing the resource.

The other source of optimism is related to existence of other alternative sources of financing. For example, China’s portfolio of unconditional loans to Uganda has increased over time and could offer a cushion. However, Uganda cannot afford to lose any of its creditors. Each of the creditors is important and they all contribute to the financing pool. Each creditor also offers distinct, but important, expertise and knowledge, which is useful for the country’s development, going forward. Even if that was not so, we cannot ignore the evidence that WBG loans are, arguably, the cheapest in the market; have a longer grace period; and have zero to low-interest credits and grants to developing countries like Uganda. Over time, WBG loans have increasingly been associated with measurable development impacts in spite of perceived unequal distribution of power and conditionality.

We must also appeal to history, to pick lessons, and design responses. Apparently, this is not the first time the WBG is withdrawing from financing Uganda. In 2014, the WBG postponed a $90 million loan to Uganda’s health system over human rights concerns. The best lesson, from past disagreements, is that the Museveni administration has managed to keep the dialogue channel open on matters that are in dispute. Admittedly, most past dialogue between the Government of Uganda and WBG has yielded mutually beneficial outcomes. Therefore, we urge the two protagonist to sit down and find an amicable position. Besides Uganda and the WBG have been partners for the 60 years. It will be difficult to break a 60-year bond.

Ms Eunice Musiime is the Executive Director, Akina Mama wa Afrika (AMwA)