Uganda’s self-inflicted wounds

How reliance on misguided cultural and nationalistic sentiments are driving Uganda into a bad debt situation

THE LAST WORD | Andrew M. Mwenda | Our country is headed directly into the storms of economic crisis. And it is unlikely it can pull itself back from the brink. This is because too much sentiment overrides reason in government policy making. Every day, our country inflicts greater pain on its festering wound. Last year, our parliament passed the infamous (largely abroad) but popular (in our local politics) Anti Homosexuality Act (AHA). Western governments responded by cutting off their money taps. The World Bank followed suit, suspending new loans to the country worth $3 billion earmarked for Uganda. Then International Organisations cancelled conferences meant to held in Uganda and many tourists from the West have done similar.

This declining situation has been compounded by international factors beyond our control. Beginning 2022, Western countries hiked interests on their bonds to manage domestic inflation. Consequently, portfolio (or offshore) investors in our domestic bonds sold their Ugandan holdings to take advantage of the high yields in the West. This not only depreciated the shilling, but it struck a major hit on our foreign exchange reserves. To make matters worse, the Kenyan government issued two major bonds with good yields. The remaining holders of our bonds sold to invest in Kenya, depreciating the shilling further in April but also reducing further on our foreign exchange reserves. This could not have come at a worse time.

Since 2012 when Uganda first passed an AHA, international creditors and grant givers suspended budget support. Rather than cut spending to fit its new fiscal circumstances, Uganda continued with her spending binge. It now began borrowing from the local market to compensate for donor lost revenues. Domestic debt grew as did reliance on commercial lenders, both of which have high interest costs and short maturity periods. This financial year, interest payments on our domestic debt stand at Shs5 trillion and on foreign debt at Shs1 trillion – a total of Shs6 trillion, about 20% of our total revenue. If we add rollover debt of Shs8 trillion (here government borrows from Peter to pay Paul) plus repayments on the principal (Shs4 trillion), total loan repayment obligations are about Shs18 trillion, not to mention domestic arrears worth Shs4 trillion.

Basically, this financial year Uganda will collect taxes worth Shs29 trillion, Shs22 trillion of which would go to repay debts. And it is obligatory that Shs10 trillion (more than 30% of our revenues) of this amount must be repaid in this budget. Of course, government has been cheating its own citizens by accumulating huge domestic arrears, which is counterproductive because it is killing the goose (the private sector) that is supposed to lay the golden egg of growth. This situation is going to get worse next financial year.

As already mentioned above, government borrowed short term money and high interest costs from abroad to invest in oil roads and also fund the budget during covid. Many of these loans are maturing next year. So, government will have a bill of $1.2 billion to pay to her foreign creditors. Having depleted our foreign exchange reserves from 4.5 months of import cover to the current 3.5 months, next year is going to witness the worsening of this crisis. Nothing will stop this slide given that the AHA will still be in place as we enter an election year where such an issue cannot be removed from the table and when government spending can only increase.

This is where emotions have replaced strategy in our policy decisions. First, Uganda’s problem right now is not its debt levels but the cost (high interest rates) and short maturity (three to four years). If we were borrowing from bilateral lenders (Western nations) and multilateral lenders (like the World Bank), our debt obligations would not be hard. The world Bank and the Japanese etc. lend at 0.1 percent interest over 40 years repayment period with ten years grace period. Basically, you can borrow today and go ten years without needing to pay anything on principal and interest.

To manage this situation would have required a strategy that does not annoy international lenders. Therefore, there was no need to pass the AHA, however deeply we felt about our “cultural and religious values.” Government of Ugandan officials and parliamentarians cheat on their wives, beat their domestic workers, lie, steal from the public purse and on occasion kill. All of these offend our moral, cultural and religious sentiments. Why have we made homosexuality such a central issue in our politics even when we know it was going to isolate our country from Western credit?

Although I am one of the leading warriors against the AHA, I know that the law is popular and therefore democratic given our deeply held religious and cultural bigotry. But the country needed sane minds to block it from being passed for the simple reason that it offends our partners in trade, investment, tourism and financial support through credit facilities. Besides, everyone involved knows that government was not even interested in enforcing since no one has been arrested and prosecuted under it. Besides Uganda has had an anti-homosexuality law for a century but I can count the number of cases it has prosecuted on the fingers of one palm of my hand.

If government cannot stop boda boda riders from driving through red lights and driving on the right side of the road in broad daylight, how is it going to enforce a law where two consenting adults have sex in the privacy of their home? This is where madness can seize a country and turn its fortunes upside down. The lawmakers and everyone involved knew the cost of passing this law. They also knew there was no chance in hell it would be enforced. So why stick their finger in the eyes of our Western partners especially when we need them for cheap long-term money to fix our economy?

Finally, I am aware that some homophones here will say the law was necessary to protect our children from being abused. Be reminded that our country has a tough defilement law to handle this. Besides the biggest source of child abuse in Uganda (according to the 2022 police crime report) are not homosexuals but heterosexual men sleeping with little girls – 97.7% of the cases. Supporters of this law also claim it was meant to stop the “recruitment” of our children in schools into this “vice.” But if there has been recruitment, how come no one has ever been arrested for it?

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amwenda@independent.co.ug