Parliament on Wednesday approved government requests to borrow three different loans totalling more than Shs5.2 trillion. The loans include; Shs3.5 trillion from local commercial banks to finance the supplementary budget for various government sectors including State House, Office of the President, the Ministry of Health, Ministry of Education among others.
Other approved loans include; Shs1.227 trillion from the World Bank for smart agriculture and Shs554.689 billion from China to finance the supply, installation, commissioning and support of the national data transmission backbone infrastructure/ e – government infrastructure project phase 5.
Of the Shs3.5 trillion supplementary request, Shs1.9 trillion required prior Parliamentary approval while Shs1.56 trillion was within the 3 percent legal limit.
Opposition lawmakers contested the Shs3.5 trillion loan request for the supplementary budget, contending that some of the money the government intended to borrow was already available. They argued that borrowing was unnecessary given the availability of those funds.
The Butambala County legislator who doubles as the Shadow Minister of Finance, Muwanga Kivumbi criticized the government for engaging in expenditure based on anticipation, labelling it as a form of financial indiscipline.
“You cannot borrow when part of the money is already within. Our departure from the majority report [of the Parliament’s Committee of National Economy] is that while the government sought to revote money that was swept back at the end of the last financial year, which is already available, it is again going to borrow the same money which it has. How possible is this?” he wondered.
The Minister of State for Finance in charge of General Duties, Henry Musasizi said the drivers of the supplementary and statutory expenditure included payment of Shs2 trillion for domestic obligations to the Central Bank.
Musasizi noted that by June 2023, the government owed Bank of Uganda Shs4.8 trillion which had accumulated from the 2019/2020 financial year.
“You recall that in order to support the recovery of the economy from the slow down brought about by Covid-19, government expenditure was expansionary in order to provide a fiscal stimulus to various sectors of the economy. However, government was not able to fully fund its expenditures. Accordingly, BOU met government obligations on domestic debt redemptions,” Musasizi said.
In the majority report of the Parliament’s Committee on National Economy read to the House by the Committee Chairperson, Patrick Isiagi, out of the Shs1.9 trillion, State House was allocated Shs441.3 billion under classified expenditure, while the Office of the President was given Shs26 billion for hosting the Non Aligned Movement and G77+1 Summits scheduled for 2024.
The Ministry of Finance was allocated Shs44 billion out of which, Shs13 billion will go towards supporting artists under the Microfinance Support Centre.
The funds will be utilized to capitalize the SACCOs for performing artists, empowering them to deliver financial services to stakeholders in the Creative Industry. Additionally, the funds will aid in developing infrastructure and support for the Creative Industry and artists.
Compensation of the properties of the Kingdoms of Buganda, Bunyoro and Tooro have also been catered for under the Ministry of Lands, Housing and Urban Development which has been allocated Shs10 billion. Buganda Kingdom has been allocated Shs3 billion, Bunyoro got Shs4 billion while Tooro Kingdom received Shs3 billion.
The Ministry of Education and Sports received an allocation of Shs55.7 billion, of which Shs13.9 billion was earmarked for the Higher Education Students’ Financing Board to extend loans to new students.
Shs17.6 billion will be used to complete phase one of renovation works at Mandela National Stadium while Shs24 billion was allocated as additional funding to enable Uganda to host the African Cup of Nations and African Nations Champions.
Shs9.8 billion was allocated to the Ministry of Health to cover Pay as You Earn for Medical interns to ensure that each intern and senior house officer receives a net allowance of Shs1 million.
There was, however, a minority report authored by Mawogola County South MP, Gorreth Namugga; Kassanda County North MP, Patrick Nsamba; and Butambala County Lawmaker, Muwanga Kivumbi, all belonging to the opposition National Unity Platform (NUP) Party.
In the minority report, the committee faulted the government for financial indiscipline which they said if not checked would lead to disaster.
The minority report said this gives leeway to the government to spend the taxpayers’ money with impunity and push the country into deeper debt distress. They specifically raised the issue of the State House which has over the years been the biggest beneficiary of the supplementary budget.
Are the Loans Pushing Uganda to A Debt Crisis?
The approved loan requests exacerbate the country’s debt burden, which, as of August 2023, exceeded Shs88.8 trillion, intensifying the country’s descent into a debt crisis.
This growing appetite for borrowing poses a precarious situation for the country, making it progressively difficult to keep the debt at levels that are sustainable. Uganda’s rapid surge in borrowing and the soaring levels of debt are exacerbating the country’s debt-to-GDP ratio which stands at around 48.8%.
The debt-to-GDP ratio which measures the total debt in comparison to the Gross Domestic Product, serves as an indicator of the country’s capacity to repay its debts relative to the size of its economy.
Uganda’s debt to GDP ratio is slightly below the Government policy target of not more than 50% of GDP and also below the 52.4% threshold provided for in the Charter for Fiscal Responsibility as at end of financial year 2023/24.
The source of funding for the supplementary budget approved by Parliament on Wednesday is largely domestic borrowing despite the reduction of domestic borrowing being among the five major government measures to implement in order to maintain debt sustainability. Others include; effective implementation of the Domestic Revenue Mobilization Strategy to boost the capacity to increase domestic revenue collection, reduction of expenditure in areas of lower priority in order to support fiscal consolidation among others.