Monday, July 19, 2004
Politics Sinking Uganda into Debt
By A. MUTUMBA-LULE
THE EASTAFRICAN
UGANDA'S EXTERNAL debt last month hit an all-time high of $4.3 billion, despite a commitment by the government to reduce the burden, as the effects of the charged political atmosphere created by debate over President Yoweri Museveni's third term and the grant of a federal status to the Buganda kingdom begins to bite.
Corruption is also blamed for the crisis, with members of the diplomatic community – like their counterparts in Kenya – taking the government to task over embezzlement of public funds.
Debt service payments have also risen from $133 billion in 1999/2000 to $172million in the 2002/03 financial year, before reaching the current rate of $180 million, thus making the benefits accruing from the debt relief initiative announced by donors in 1998 negligible.
Increased payments to service the debt will make it difficult for the government to implement the Poverty Eradication Action Plan (PEAP), for which most of the money was borrowed.
Already, the poverty level has risen from seven million in 2000 to over nine million currently.
Addressing Bastille Day celebrations in Kampala last Wednesday, the French Ambassador, Jean-Bernard Thant, said it was common knowledge that corruption was rife in Uganda, yet nothing was being done to curb the vice. Two days earlier, the British High Commissioner in Nairobi, Edward Clay, criticised the Kenyan government for doing little to stop corruption.
Ministry of Finance sources in Uganda say the debt may rise further to $5 billion as the country has many political commitments in the next two years, such as the 2006 presidential and parliamentary elections and the referendum on political parties next year, yet the government does not have enough resources.
But political activity was still heightened. Buganda last week started a week of "mourning" following the Cabinet's rejection of the kingdom's request for a federal system of government.
The "mourners," who spent Friday night singing war and traditional songs, have vowed that Buganda will not rest until Kampala city was made part of the Buganda kingdom and a federal system of government was introduced.
However, State Minister for Information Nsaba Buturo says that there is still a chance for Buganda, as parliament was yet to debate on a federal system of government.
However, this was not the only political circus in town last week. In a surprise development, one of the legislators who started a parliamentary advocacy group against President Museveni's third term, Emanuel Dombo, said he was now supporting the president to run for another term.
The president last week was quoted as saying that he supports the third term demonstrators (ekisanja). This was the first time that he came close to saying that he was seeking a third term.
Donors have in the past advised the government to cut expenditure by reducing the size of parliament – which has 306 members – the 65 strong-member Cabinet and the Resident District Commissioners (RDCs), but President Museveni has yet to act on the proposals.
Uganda's foreign debt has grown from $3.4 billion in 1998, when the country first qualified for debt relief, even though the country has received more than $1 billion in debt relief.
The governor of the Bank of Uganda, a former secretary to the Treasury, Emanuel Tumusiime Mutebile, warned early this year that it might be hard in the future for government to reduce its foreign debt because of the many commitments that it has.
Finance, Planning and Economic Development Minister Gerald Sendawula says the situation is unsustainable and will lead to high levels of poverty, especially as earnings from exports have also been affected by the global commodity prices.
While the debt relief was expected to reduce the debt burden to sustainable levels, to-date a number of creditors have not extended debt relief to Uganda. The country was relieved of a $650 million debt by the World Bank and International Monetary Fund (IMF), which was spread over 15 years.
Last financial year, according to sources in the Ministry of Finance, only two HIPC debt relief agreements were concluded between Uganda and the OPEC Fund and South Korea.
Moreover, some creditors, including Yugoslavia, Transroad and Bank Arabe Espanol have sued Uganda and have won huge payments.
However, the Inspectorate of Government says that some creditors are being encouraged by Ugandan lawyers to pursue the payments.
Since the HIPC completion point for Uganda was reached, the country has borrowed $1.5 billion from multilateral creditors and, although the loans have been secured on highly concessional terms, their impact on the debt stock, combined with lower export growth and low prevailing world market interest rates, is the increase in the net present value of the debt to exports ratio of 305 per cent.
The debt stock ratio to the gross domestic product has also reached 70 per cent, having risen from 67 per cent in 1999/2000.
Uganda's foreign debt has been growing by an average of $108 million annually during the past four years while, at the same time, the country's earnings from exports – mainly coffee – have been declining.
The World Bank, under the HIPC Trust Fund, had offered to pay 12 cents per dollar of the money owed to Uganda's creditors such as Tanzania, Libya and Burundi.
Under the same arrangement, creditors had to agree to either forgive Uganda's debt or accept a debt buy-back at this rate.
The arrangement was meant to help Uganda manage its foreign debt, which has seen poverty levels rising and affecting funding of social programmes such as health and education.
While presenting the 2004/05 budget, Mr Sendawula said, "To enable us to restore the sustainability of the external debt burden, government will take action to reduce external borrowing. I am putting in place a process which will enable us to put a ceiling on government's annual new borrowing to a level that is consistent with debt sustainability."
He said that once the process was established, the ceiling would be announced each year during the annual budget speech. The criteria for future borrowing will be mainly to support value addition to exports, competitiveness and increased production
Additional reporting by Vincent Mayanja
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