Committee on National Economy to Scrutinize $650M Loan Proposals

by Christopher Kiiza
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The Parliamentary Committee on National Economy will scrutinise government proposals to borrow funds to upgrade roads and finance the Climate Smart Agricultural Transformation Project.

The requests were tabled before Parliament by the Finance Minister, Matia Kasaija during the plenary sitting on Tuesday.

Government seeks to borrow US$295 million from the Islamic Development Bank and US$30 million from the OPEC Fund for International Development, to update the National Roads Project.

Under the project, government will contribute US$22 million.

According to the Minister, the implementation of the project will increase the stock of transport infrastructure, reduce freight transportation costs and reduce travel time.

The funds will facilitate the upgrade of 70 kilometres of Katine-Ochero Road connecting Soroti and Kaberamado districts, and will also include a link to the ferry landing site for the Bukungu-Kaberamaido-Kagwara ferry.

The loan will also facilitate the construction of Masindi Port Bridge as well as upgrading 68 kilometres of the Kyenjojo-Bwizi-Rwamwanja-Kahunge and 37 kilometres of the Mpara-Bwizi Road.

Relatedly, to finance the Uganda Climate Smart Agricultural Transformation Project, government seeks to borrow US$325 million from the International Development Association of the World Bank Group, along with a grant worth US$25 million.

Under the project, government will contribute US$4.7 million.

The funds aim to reverse the country’s low agricultural productivity trajectory through investing in efficient irrigation, agricultural mechanisation and enhanced farm infrastructure.

The funding proposal by the finance minister indicates that the agricultural project will be implemented in 69 districts including seven refugee hosting districts in the six agro-ecological zones of Uganda.

Kasaija noted that the value chains promoted in the project are consistent with those of the Parish Development Model, and will benefit 13.4 million individuals directly and indirectly, including refugee hosting communities.

Kasaija observed in the proposal, that Uganda’s debt remains sustainable with the nominal value of public debt to GDP of 47.1% as at June 2023, compared to 48.4 per cent as at June 2022.

However, it is worth noting that these new loan proposals show increased government appetite for borrowing despite the escalating public debt.

At the budget reading for the 2023/24 financial year in June, President Yoweri Museveni said that he would personally authorize all loans to be borrowed by the government as a result of the country’s escalating debt, which necessitated a significant portion of the 2023/24 financial year budget to be allocated towards debt servicing.

An astounding 17 trillion shillings out of the total budget of 52.7 trillion shillings was earmarked for servicing public debt which led to significant budget cuts across various government Ministries, Departments, and Agencies.

Museveni criticized government officials for unnecessary borrowing, and vowed to approve every loan himself.

“You heard your budget, Ugandans, of 52 trillion. While I support that budget because there is no other solution in the short run, it is important to know that 17 trillion shillings of that budget is to pay debts. He (Finance Minister, Matia Kasaija) talked about it towards the end of his speech, but it should be highlighted. The 52 trillion you are talking about, 17 trillion of it is to pay debts,” Museveni said.

“Many of these debts were being pushed by the new colonial public servants until recently when I put down my foot and insisted on approving every loan. That’s why you hear these loans take time now to be approved, because I insisted I must approve every loan (external loan). Because all this money was not was not worth borrowing. If you audit it, it was not borrowed for a good purpose,” he added.

Uganda’s public debt was projected to increase from 86 trillion shillings (48% of the GDP) to 88.9 trillion shillings by June 30th, 2023.

This growing appetite for borrowing places the country in a precarious position, as it becomes increasingly challenging to maintain the debt at sustainable levels.

Uganda primarily raises funds for budget financing through tax and non-tax revenues. However, the Uganda Revenue Authority (URA) targets to collect only 29 trillion to service the 52.7 trillion shillings budget. The fact that the resources collected by URA fall significantly short of the amount required to finance the entire budget, including the repayment of debt, leads to a fiscal deficit that necessitates further borrowing.

Uganda’s rapid increase in borrowing and the soaring debt levels have exacerbated the country’s debt-to-GDP ratio. The debt-to-GDP ratio, which compares a country’s total debt to its Gross Domestic Product, serves as an indicator of the nation’s ability to repay its debts relative to the size of its economy.

The Deputy Speaker, Thomas Tayebwa tasked the committees scrutinising the loan requests to report back to the House in time.

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