Uganda’s growing public debt

Is debt prohibitive, unsustainable?

This leads us to the second and third questions: is the cost of borrowing prohibitive and is the debt therefore unsustainable? First, 99% of Uganda’s total foreign debt is from multilateral and bilateral bodies. It is given on highly concessionary terms: it has a high grant component (20-40%), with a long grace period (six to ten years), and an even longer maturity period (30-40 years) at very low interest rates (0.75% to 1.5%). This is what makes our foreign debt sustainable. Sustainability of foreign debt is measured by the ratio of debt service to export receipts. In 2018 Uganda earned over $6.4 billion from export of goods and services. However, debt service is only  $209 million – 3.27%.

Now to the final question: do our investments in transport and energy infrastructure have a good rate of return? It depends on what you are looking at. In terms of economic return, some do, some do not. But I do not think the only reason a country develops infrastructure is about dollar returns. For example, Uganda built a road from Sorori to Moroto and from Moroto to Nakapiripirit, which I suspect has no viable return in a strict economic sense. But it has an important social return of taking services to Karamoja and integrating that region into this nation. The opposition can argue, quite convincingly, that we can invest in productive regions first, and the gains therefrom can finance investments in Karamoja. But the opposition does not argue that.

Equally, Uganda has invested heavily in rural electrification. It does not strike me as an investment with a positive return on the dollar. But taking electricity to the rural poor has political value: politicians win votes, a factor we cannot avoid in a democracy. Secondly, it may have a positive impact on education (kids in villages do not have to read on tadooba (wick candles) and ruin their eyes, health (rural people do not have to suffer chest infections inhaling kerosene smoke), and environment (it may reduce the burning of trees). One would have to look at all these factors before concluding that a particular investment does not have a good return.

Now there is one problem with Uganda’s borrowing for infrastructure, which Mafabi raised – low levels of local content. I wished Mafabi could have focused on Museveni’s 32 years of promoting policies that have either displaced or stifled the growth of local firms; especially in construction. Consequently, Uganda is now borrowing and spending over $20 billion for infrastructure and there is hardly any local firm taking any of these mega construction projects. Chinese firms have also been known to import cement and steel for these projects, although the government has since intervened and stopped this.

Secondly, Uganda has peak electricity demand of 600MW yet by end of this year when Karuma comes on board we shall have installed capacity of 2000MW. Even if we connected every hamlet and home to the grid, domestic users cannot consume all this power. Besides the cost of investment in transmission and distribution cannot be recovered from the tariff without making electricity unaffordable to the poor or causing government to pay heavy subsidies, a point Muhumuza raised.

Let us remember that electricity demand is growing at an annual average rate of 10% i.e. by 70MW. So where can Uganda sell her surplus? Rwanda, Tanzania and Kenya have installed capacity above their needs. Our petty quarrels with Kigali also undermined Rwanda as a destination for our power exports. The only export options are South Sudan and DRC – countries lacking basic transmission and distribution infrastructure (both hard and soft) to evacuate power from the border, sell it, collect money and pay us back. So export markets are closed.

Therefore, only by attracting large manufacturing firms can Uganda hope to increase demand for electricity to meet supply that we shall have. Otherwise we have installed capacity way above our current demand yet we have foreign loans to pay back. This is a strategic risk for the country, which Mao, Mafabi and Musumba could have raised. They didn’t even try.

Government has been investing in hardware (infrastructure) but has done little investment in software (policies that can make investment in manufacturing attractive). For example, there is limited access to long-term affordable credit. Three years ago government decided to recapitalise Uganda development Bank (UDB) with Shs500 billion but only Shs200 billion has been released so far, a drop in the ocean. Government can do more on Ease of Doing Business, on tax and other policy incentives that make investments decisions by firms difficult to resist. On the contrary, the Uganda government seems forever committed to IMF and World Bank policies that are out-dated, ideological, and inappropriate for our context.

What is even absurd is that government has not synchronised her investment decisions. For example, last year a private investor completed a 43MW dam in Aswa. Six months later there is no transmission line to take this power anywhere it can be consumed. Consequently, under the Power Purchase Agreement, the government is paying $43,000 per day to this investor for no electricity being produced because it cannot be evacuated. Delays in procurement to build a transmission line are evidence of disorganisation and incompetence. Even Karuma will be completed before a transmission line has been built. Uganda’s opposition lack even such basic facts as ammunition in their struggle. Why? Because they only care about political power, not policy!

There are many more issues about our national debt and the existing plans or lack of them to make its use more productive. Yet only Bahati made informed arguments. The rest were totally clueless. I am aware that it is fashionable and cool to be seen to oppose Museveni these days, regardless of one’s values, cause or facts. For the mass of frustrated angry Ugandans on social media, a panellist only makes sense if they just denounce Museveni. This has led to development of a culture that does not care about the quality of the alternative. This attitude can cause change but not for the better. Remember righteous anger is rarely a basis for sound public policy or liberal politics. All too often it has led to anti-democratic outcomes and destructive policies.

It is understandable that many Ugandans are tired of Museveni’s long and corrupt rule. Yet those who denounce his misrule are often beaten and teargased by the police, their rallies blocked violently. This has created a lot of sympathy for the opposition but equally blinded many well-meaning intellectual elites in Uganda from the glaring disaster in the opposition; especially their lack of basic interest in and knowledge of public policy.

Many Ugandans hope, quite naively, that any change would be better. I do not agree. Opposition politicians must be taken to task to explain their policy alternatives; we must demand that they do serious research about public issues. The opposition politicians I watched on television that January 8^th night are ill equipped to even manage the economy of a sub-county.