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THE EAST AFRICAN - NAIROBI - KENYA
Regional
Monday, February 10, 2003
Uganda May Lose $150m WB Credit
By WAIRAGALA WAKABI
THE EASTAFRICAN
UGANDA MAY lose a $150 million World Bank credit unless it meets conditions set by the donors before the end of next month.
The deadline for Uganda to take the loan � approved by the Bank's board last July � has been extended twice, the latest being on February 3. A World Bank official told The EastAfrican that if Uganda did not meet the new deadline of March 30, it was likely to lose the funds.
"This is an interest-free loan for which there is more demand than we have supply. If Uganda does not take it, someone else will," Sudharshan Canagaraja, the Bank's Country Economist in Uganda, told The EastAfrican last Thursday. "The money should not be held up."
Last week, the Bank wrote to Finance Minister Gerald Sendawula informing him of the latest extension and expressing its concern over Uganda's inability to get parliamentary approval for the loan. The bank says unless parliament approves, it will not release the $150 million, which is earmarked for the Poverty Reduction Programme.
The lDA (International Development Association) loan is interest-free, with a 10-year grace period and a 40-year maturity period.
Patrick Ochailap, the Commissioner for Aid Liaison in the Finance Ministry, said he hoped parliament would sit soon and approve the loan. "This loan was budgeted for and parliament passed the budget; so, technically, parliament has approved the loan," he said but confirmed that the Bank was withholding the funds until the House "expressly okays the credit line."
"Parliament has delayed the process because MPs are asking why we need to borrow the money," he said. Parliament is in recess until February 11.
World Bank officials have indicated that they are unhappy that parliament has considered the issue of the loan a non-priority matter.
"We are a bit surprised because it is important for Uganda to access this loan. But the MPs think there are some more important things to do before coming to this," Mr Canagaraja said. "We think it is not good to work hard asking for the credit and then to leave it hanging."
Last financial year, Uganda received budget support inflows of Ush739 billion ($411 million), less by Ush217 billion ($220 million) what it had hoped to get. The government, however, did not reduce budget expenditure in response to the shortfall but borrowed from local banks with an offsetting reduction in reserves held by the Central Bank.
Finance Ministry officials explained that the move was possible because the central bank maintains a healthy level of reserves.
The shortfall was due to delays in approval of the World Bank's $150 million credit facility; and a delay in presenting documentation to the African Development Bank to secure a $20 million structural adjustment loan.
The Annual Budget Performance Report for the 2001/02 financial year, which the ministry released last November, says the European Union had also not released an anticipated $44 million for the Poverty Action Fund. It adds that there was a shortfall in Ireland's general budget support, due to the delayed report on Uganda's alleged exploitation of Congo's resources.
But Martin O'Fainin, the Irish envoy in Kampala, told The EastAfrican last week that his country had not reduced aid to Uganda, adding that this year, Ireland will give Uganda $35 million, which is about the same amount it gave the country last year.
Up to 75 per cent of Irish aid to Uganda is for budget support and goes to the health, education and justice sectors. The country also has programmes in three districts � Kibale, Kumi and Kiboga.
Mr O'Fainin said although Ireland could have had some disagreements with Uganda, it had confidence in its development policy. Irish aid to the country has risen from $9.5 million two and a half years ago to the current $35 million.
But EU officials confirmed that there had been a delay in the release of $53 million, which the European Commission had earmarked as additional funds to the Poverty Alleviation Budget Support Programme.
The financing agreement for the additional funds was designed in September 2000 and adopted by the EC in December 2000, but only signed in March 2001. The signing was delayed because Uganda's envoy in Brussels did not have the authority to endorse the agreement.
"The $26.5 million initially earmarked for March 2001 was only released at the end of 2002 because Uganda did not produce on time the supporting documentation relating to its eligibility to enhanced HIPC (Highly Indebted Poor Countries Initiative) debt relief," EU Economic Counsellor Alain Joaris told The EastAfrican.
A second tranche earlier earmarked for November 2001 is about to be released after Uganda provided sufficient documentation. The last tranche, which could comprise million, will be released depending on the performance of EU financing for the education and health sectors.
Uganda has continued to draw from its reserves to make up for delays in the release of donor funds. The World Bank says that, since Uganda has been promised money by donors, and its foreign reserves can cater for imports for 46 months, it is safe for it to borrow from the central bank to meet the shortfall. Uganda's reserves stand at about $810 million, down from $981 million at the end of 2002. Mr Joaris said the EU's agreement with Uganda defined the indicators and the targets on which the assessment of usage of its funds will be based.
"Although the EC has endorsed the outcomes of the successive health and education reviews in 2001 and 2002, the benchmarks adopted during these sector reviews were significantly lower than the indication given by Uganda to the European Commission when the member states gave a favourable opinion to such support to the Poverty Action Fund," he said.
He said that, as a result a revised set of performance indicators and targets (benchmarks), reflecting the outcomes of the October 2002 health and education reviews had to be adopted. The third and final tranche of the funds will be released after the April-May reviews of the education and health sector, at which time the releases will have registered an overall delay of between six and eight months.
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