Experts who turned up at the Prime Minister’s Office for the presentation of the National developing policy recently raised a red flag over government’s excessive borrowing warning that it will plunge the country into a dangerous trap.
World Bank senior economist Rachael Ssebudde cited the example of Ghana which ended up mired in the infamous ‘Ghana trap’ as a result of over borrowing against their newly discovered oil resource and therefore argued government to curtail what she termed the ongoing borrowing spree lest the national debt burden spirals out of control.
“Prudence is very key on the part of the Uganda government to avoid borrowing against the prospects expected from the oil because that puts the country on a path that landed Ghana into a trap they found themselves in, ” Ssebudde warned
“They had too high expectations of their resource to sell at not less than Us $100 per barrel on the world market only to be frustrated when the price on the world market suddenly slashed to US $ 50 a barrel.
The trap was a situation where their oil resource seemed not big enough to service their accumulated debt burden and at the same time support the country’s economic development plans.” She explained.
Like Ghana, Ssebudde opines that Uganda government’s borrowing spree is based on a forecast the World Bank made in the aftermath of oil’s discovery that it could generate annual revenues of over $2 billion at peak production with prices at $75 per barrel.
She was echoed by Dr. Marios Obwona, the former adviser to the Liberian president on the economy.
“It calls for discipline on the part of government to restrain itself otherwise all sorts of lenders can not stop to express willingness to lend us their money as long as they know we are expecting to harvest oil in the nearest future” Obwona said
In the last few years, Uganda has amassed billions in loans from deals with Chinese state banks and other lenders to fund hydropower including among others Karuma and, Isimba and other infrastructure projects swelling Uganda’s debt to one-third of its total Gross Domestic Product (GDP).
Makerere University Economics Professor Edward Bbaale expressed worry that if oil prices remain at current levels of below $50 per barrel, earnings will be much less than anticipated and will need to finance a growing debt burden which he said needs to be brought under check.
“By insisting on that path, we might end the oil bonanza before it actually starts,”Bbaale quipped castigating the practice of government officials in various ministries whom he said have callously made it habit to apply for loans without proper preparations.
“Such negligence is unacceptable. Why should we get loans and then take over two years without beginning to use them when well knowing that they are gathering interests by all Ugandans?” He wondered.
According to Adams Mugume, the Bank of Uganda (BOU)’s head of research, the current debt burden of Uganda stands at US $ 10bn, 4.5% of which has not yet been utilized due to lack of counterpart funding from government
Counter part funding refers to the small percentage usually ranging between 10-20% which borrowing governments must pay as a commitment fee before lenders release the full amount of the loan.
Professor Hyuka Mukwanason’s currently working as a consultant expressed worry that that government is taking concessionary loans with high interest rates which he said are worsening the country’s debt burden.
“The nagging problem of corruption is making it even worse because it prohibits the borrowed funds from being put to their intended purpose but compound the country’s debt burden for which every Ugandan young and old are accountable.” Hyuka said.
But the Chairman of the Uganda National Planning Authority Dr Wilberforce Kisamba Mugerwa has defended the government on the matter saying accusing critics of blowing it out of proportions.
He argued that those lending the Uganda government are not considering only oil after all but a multiplicity of other factors including peace which he said is key in any country’s credit worthiness.
” We don’t have to forget that borrowing for purposes of infrastructural developing will lower the cost of production, increase production and productivity and ultimately lead to social transformation which in tandem with our vision 2040,”