Uganda warned on endless borrowing from China

2nd African conference held on debt accountability mechanism

Kampala, Uganda  | IAN KATUSIIME | Fears about growing debt in African countries led to the hosting of the second African conference on Debt and Development that happened simultaneously in five African countries. Uganda Debt Network (UDN), a national advocacy organisation on development, hosted the conference in Uganda which was on August 18 where a host of speakers deliberated on the debt situation in the country.

The conference was held under the theme “Towards an African debt accountability mechanism: a critical tool for achieving public debt sustainability in Africa.” The conference sessions explored Transparency and Accountability for public debt, infrastructural Development as key drivers for public debt, the role of PPPs in infrastructural development and their effect on public debt and Climate Financing and Debt to which recommendations will be advanced by all stakeholders for implementation towards strengthened transparency, accountability, and governance of public debt in Uganda and Africa at large.

Uganda’s persistent loans from China for constructing roads and dams have further sunk it into debt caused uproar with wild speculation that the superpower may take over installations like Entebbe International Airport to recoup its capital.

Bloomberg reported that China, the largest government creditor to Africa, will forgive 23 interest-free loans to 17 African countries and redirect $10 billion of its International Monetary Fund reserves to nations on the continent.

It reported that Foreign Minister Wang Yi announced the cancelations in a meeting at the Forum on China-Africa Cooperation. Kenya will not be part of the 17 nations reportedly due to its status as a middle-income nation.

Although the relief plans gives respite to Uganda, experts say there is a lot more to be done to tame Uganda’s appetite for borrowing.

Jane Nalunga, the executive director of Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI), set the tempo of the conference when she drew parallels with the economic crisis in Sri Lanka that resulted into a popular uprising that toppled President Gotabaya Rajapaksa. The Sri Lankan government borrowed too much resulting into a fully-fledged political crisis.

In his keynote address, UDB Board chairman Fred Omach, said that the covid19 pandemic had exacerbated Uganda’s debt stock where it increased by 15.4% in a space of one year to $20.7 billion (73.5 trillion shillings) as at December 2021 up from $18.0billion (65.6 trillion shillings) in December 2020.

Omach added “The rising debt is way beyond revenue mobilization on the continent – clear proof that governments are living beyond their means and accumulating more debts than they can service especially with increasing commercial and non-concessional components of public borrowing.”

The former state minister of finance said the debt quagmire is worsened by low levels of debt productivity usually plagued by corruption and execution issues which grossly undermines GDP growth and ability to generate local revenues to service debt. As a result, he said substantial shares of the national budgets each year have been allocated to debt repayment/servicing at the expense of other social service sectors.

Stephen Mukitale, a former MP for Buliisa County, who took part in the conference said the commercial loans are a “double tragedy.” Mukitale said there is pre-financing where the contractors uses their money which the government has to pay back while they finish processing the loan for the road construction.

Mukitale said the debt situation is worsened by foreign firms being registered as local companies which leads to evasion or avoidance of tax. Mukitale was an MP for an oil producing region and said the dominance of Chinese in the infrastructure sector means Uganda has done more borrowing than is necessary to accommodate the Chinese.

Wrong debt computation

Busiro County East MP Medard Sseggona, the chairperson of the Public Accounts Committee (Central) while speaking at the event said Uganda has an elaborate legal framework for Transparency and Accountability for Public Debt through its Public Finance Management Act (2015), Treasury Bill Act (1969),

Treasury Instructions 2017 and Bank of Uganda Act.  Sseggona said though there is a wrong computation of public and publically guaranteed debt which is supposed to be “total public debt plus debt guaranteed by government.”

The MP noted that when it comes to guaranteed debt, Debt Sustainability Analysis (DSA) (2020/2021) by government only includes guaranteed debt that has become a liability to government upon default by the responsible debtor.

Sseggona also expressed concern that on February 18, the government signed a Service Level Agreement with Bank of Uganda that redefines advances to include debt provision.  “This s not only tantamount to back door borrowing because it has no approval from parliament but also borders on an illegality,” he said.

The veteran legislator conceded that while parliament is empowered to approve all forms of borrowing and guarantees, its scrutiny mechanisms are weak and damaging to the economy. Many a times parliament focuses on the intentions of the borrowing and fails to undertake adequate scrutiny of the terms and conditions of the borrowing.

“Consequently, it approves unfavorable borrowing conditions especially for Chinese loans,” he noted.