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Uganda on verge of bankruptcy

Ushs4 trillion lost in interest payments on unused loans

Secretary to the treasury Keith Muhakanizi
Secretary to the Treasury Keith Muhakanizi

Economists have warned that Uganda could soon fail to repay her debts because the government is showing ever higher appetite for borrowing and yet the country’s exports are not growing well enough to meet the rising demand for foreign exchange that is needed to repay the foreign debts.

Speaking at a post-budget symposium organised by Uganda Economics Association (UEA) at Serena Hotel in Kampala this week, most economists concurred that Uganda is saddled with too much debt than it is able to repay.

With the country’s total external debt stock currently standing at US10bn, experts revealed that Uganda is paying a whooping Ushs6.4 trillion in interest alone on debts it owes both local and international debtors. Many concluded that the cost of debt is simply unaffordable by a country as poor and unproductive as Uganda, in terms of foreign exchange earnings.

The sad part of the debt story however is that tax payers have started to pay interest on loans that have not even been used.

According to Dr. Adam Mugume, the Executive Director of Research at Bank of Uganda, only about half of Uganda’s total US$10bn debt commitments have been implemented.

Pian county Member of Parliament in Nakapiripirit  district Achia Remigio offered what many could find an alarming revelation when he said that up to Ushs3.9 trillion was paid last financial year on loans that have not been used.

MP Achia revealed that the tragedy surrounding most unused loans stems from the fact that government lacks counterpart funding, that was pledged as a part contribution by Uganda towards the facility.

“Government stampeded most of these loans through Parliament without the counterpart funding. Now we are stuck with those loans which have started accumulating huge interest,” said Achia.

Held under the banner; Budgeting for Future Generations. Debt Sustainability, Agriculture and Human Development, the debt figures drew anger among some speakers with some suggesting that incompetence or corruption was at play when government officials were contracting the costly loans.

Super-market syndrome

A number of economists argued that Uganda’s debt dilemma stems from its weak export potential on the one hand, and the country’s too liberal trade or (open door) policy that has created what many now refer to as a Super-market syndrome where everything is allowed to enter the country.

The Super-market syndrome, experts argued, is robbing the country of valuable forex. Others argued that Uganda’s too liberal approach left local manufacturers at the mercy of local banks which charge exorbitant interest rates that render them uncompetitive in the market where other players get cheap credit.

More recent export – import figures show that Uganda’s expenses on  imports have risen dramatically to US$6 billion 2016 from US$4.6 in 2008. But the value of exports has not increased the way imports have as shown by the fact that export revenue increased slightly from US$1.7bn in 2008 to US$2.34bn in 2016.

Faced with the question as to whether Uganda’s debt situation is sustainable – most speakers returned a negative response, while others offered a hypothetical yes.

Dr. Adam Mugume said Uganda’s debt would be sustainable only if the country’s Gross Domestic Output (GDP) was growing consistently at over 7 percent per annum for a number of years. Unfortunately, Uganda’s GDP growth as been falling over the past five years but averaged about 5 percent over the last decade.

Focus on roads alone unwise

Dr. Fred Muhumuza, an economist from Makerere University argued that the spiraling debt crisis is not surprising because the government invested disproportionately high sums of money in sectors such as roads and power projects which can not quickly trigger exports from which foreign exchange can be generated to repay the loans.

Dr. Joseph Muvawala of the National Planning Authority (NPA) on the other hand blamed the lack of coherence in government investments that has left gaps in the value chain of exports.

Dr. Muvawala challenged the government on its promise to channel the biggest chunk of the new Ushs800billion agriculture budget towards supplying free inputs to farmers while at the same time ignoring other vital aspects of the value chain.

“Who tells us that inputs are the problem? Why increase inputs without our ability to regulate the sector, to provide fertiliser and extension services?” Muvawala warned: “Unless we develop an effective delivery mechanism, the seeds will go to waste.”

Andrew Rugasira, the proprietor of Good African Coffee – Uganda’s pioneer exporter of instant coffee to Europe, argued that Uganda’s problem is its failure to follow its grandeur vision with a strategy on how to achieve it.

With the theme of Budgeting for Future generations in mind,  economists argued that the country’s huge debt burden is a source of concern for the future generations because they will have to suffer the effects of a burden they didn’t participate in creating.

Unless Uganda finds some magical way to ramp up exports, it seems that Uganda will have to run to the International Monetary Fund (IMF) for some rescue.

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