Uganda At 61: Is The Country Economically Independent?

by Christopher Kiiza
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On October 9, 2023, Uganda marked 61 years of independence from the British rule. The independence day celebrations were held in Kitgum district in northern Uganda.

However, as the country commemorated liberation, many voices were raised about whether the country is truly independent or it still relies on external assistance for economic survival.

Many questioned how Uganda could be economically independent yet the country is unable to fully fund its budget, coupled with soaring external debt caused by massive external borrowing to finance the country’s development programs.

Uganda’s budget for the 2023/24 financial year is 52.7 trillion shillings. This jumped by 4.6 trillion up from 48.1 trillion shillings for the 2022/23 financial year. Of the 52.7 trillion shillings’ budget, the Uganda Revenue Authority (URA) is projected to collect 29.7 trillion shillings, of which 27.4 trillion will be tax revenue and 2.3 trillion will be Non-Tax Revenue.

This means that 23 trillion shillings will be borrowed to finance the budget.

Of the 52.7 trillion budget for the 2023/24 financial year, 17 trillion shillings was budgeted for debt repayment, taking the biggest chunk of the budget.

Uganda is heavily indebted to foreign creditors. This debt burden limits the government’s ability to invest in its economy and social programs.

The debt burden that Uganda carries is another aspect of neocolonialism. The country has taken on significant debt, often from foreign lenders or international financial institutions. These loans come with stringent conditions and interest payments that can be burdensome. The cycle of debt and the need to repay often shape economic policies, sometimes to the detriment of the domestic population’s welfare.

As of December 2022, Uganda’s public debt amounted to 80.8 trillion shillings, with more than half (47.9 trillion shillings) being external debt.

Currently, the country’s public debt stands at 86 trillion shillings, equivalent to around 48% of the GDP.

The above casts doubt on Uganda’s economic independence which is defined as the ability of a country to control its own economy and to meet its own economic needs without relying on other countries. This means having a diversified economy, a strong export sector, and a stable financial system. Economic independence also means being able to resist external economic pressures and shocks.

Economic independence is important because it allows a country to pursue its own economic development path without being beholden to other countries, makes a country more resilient to external shocks, such as economic downturns or natural disasters, and gives a country more political leverage in the international arena.

World Bank Suspension of Funding in Uganda

Uganda’s economic independence was best put to test in August this year after the World Bank announced that it was suspending any new funding of projects in Uganda, and would review the ongoing projects, over Uganda’s passage of the anti-homosexuality law.

The World Bank decision would affect projects worth 6.7 trillion shillings.

The country and the government developed anxiety as worries grew over the fate of the affected projects.

In just two days of the World Bank’s announcement, government announced that it was going to revise the country’s 52.7 trillion shillings’ budget downwards.

The State Minister for Finance in charge of general duties, Henry Musasizi informed members of the finance committee of parliament that the government’s move to revise the budget downwards was a rigorous effort aimed at protecting the economy from the repercussions of the suspension of financial assistance from the World Bank.

“We took a firm decision, and we agreed that we would face the consequences. We shall be coming [to you MPs] soon. I want to prepare your minds that very soon we are going to revise the budget downwards, and we shall be coming to you for support. Even the emoluments are going to be affected given the preliminary results we are seeing. We shall be coming in one week or so to tell you the consequences and ask for your approval on how we shall move forward with the current challenges,” Musasizi said.

This happened just one month into the 2023/24 Financial Year.

It became crystal clear that the World Bank’s decision to withdraw funding posed a significant challenge to Uganda’s ambitious economic transformation plan.

Withdrawing this funding would lead to a variety of consequences that include, stalled development projects: The lack of funding would result in the delay or even cancellation of ongoing and planned projects, and this would hinder the improvement of critical infrastructure, education, healthcare, and other sectors that are central to Uganda’s economic transformation.

Additionally, without the financial support provided by the World Bank, Uganda will most likely experience an economic slowdown as it struggles to achieve the desired economic growth rates. The World Bank funding contributes to the creation of jobs, investment, and overall economic stimulation.

The withdrawal of funding also has direct consequences on the well-being of Ugandan citizens. Programs focused on poverty alleviation, healthcare access, and education improvement will be curtailed, affecting the overall quality of life.

Withdrawing Funding For EACOP

At the end of last month, Uganda said it was in final stages of negotiations with Chinese financiers to help fund the East African Crude Oil Pipeline (EACOP) project after some Western partners pulled out.

The Permanent Secretary for the Ministry of Energy and Mineral Development, Irene Batebe was quoted by French media AFP as saying, “we are having final discussions with our Chinese partners to provide about half of the finances required for the construction of the EACOP (East African Crude Oil Pipeline). We should be concluding the arrangements with the Chinese financiers this coming month (October).”

Batebe told AFP that Uganda was speaking to two Chinese financiers, the Export-Import Bank of China and Sinosure.

Uganda’s rush to explore alternative sources of funding (for EACOP) or reconsider its developmental priorities to ensure it can continue its journey (after World Bank suspended funding) casts doubt about the economic independence of the country.

It is worth noting that French energy giant, TotalEnergies is EACOP’s biggest shareholder with 62%, with Uganda National Oil Company (UNOC) on behalf of Government of Ugandan holding 15%, Tanzanian – 15% and China National Offshore Oil Corporation (CNOOC) – 8%.

EACOP is a 1,445-kilometer pipeline that will transport Uganda’s crude oil from Kabaale, Hoima District in Uganda to the Chongoleani Peninsula near Tanga port in Tanzania for export to the international market.

EACOP is the longest heated crude oil pipeline in the world and its construction will 3.5 billion dollars.

Trade Balance

A country with a positive trade balance is less dependent on other countries for imports.

In August this year, the Ministry of Finance released the monthly economic performance report for July 2023 which revealed that Uganda’s trade imbalance with the rest of the world had narrowed by 32.2% both on a monthly and annual basis.

The report showed that this was on account of a boost in export earnings that exceeded the growth in import expense.

“Between May and June 2023, the merchandise trade deficit narrowed by 12.3% from USD 282.08 million to USD 247.43 million. Year-on-year, the merchandise trade deficit narrowed by 32.2% from USD 365.11 million in June 2022 to USD 247.43 million in June 2023,” the report reads in part.

However, in June 2023, Uganda traded at deficits with Asia, Rest of Africa, the Middle East, the EAC and Rest of Europe at USD 117.72 million, USD 69.59 million and USD 48.28 million, USD 21.03 million and USD 1.74 million respectively.

During June 2023, Uganda registered a trade deficit with the EAC amounting to USD 21.03 million. This was higher than the USD 6.63 million deficit recorded in May 2023. The increase in the trade deficit was on account of a decline in export receipts during the month. Total export receipts to the EAC amounted to USD 220.70 million in June 2023 down from USD 239.50 million the previous month.

Furthermore, Uganda’s terms of trade are unfavorable, meaning that it exports raw materials at relatively low prices and imports manufactured goods at relatively high prices. This makes it difficult for Uganda to generate the export earnings it needs to finance its development.

President Museveni has been campaigning for value addition on raw materials to put an end to this.

“A non-coffee producing country like Germany, earns $6.85 billion! This is part of the iniquities of the present global parasitic system. In the last 60years, I have been involved in the struggle against this modern slavery for Africa – the curse of producing raw-materials for cleverer people in the world to add value to those raw- materials and get much more value from them. A kilogram of bean coffee of good quality, may go for $2.5 per kg. The same quantity of coffee roasted, ground and packaged may go for $40. This is where there is massive haemorrhage of money from the global South to the global North. It is not only the loss of money per kg, it is also the loss of jobs. If you take the whole spectrum of raw-materials from agriculture, minerals, forest products, etc., the loss to Africa is massive,” said Museveni at the second G25 African Coffee Summit in Kampala in August.

World Bank & IMF Policies

The World Bank and the International Monetary Fund (IMF) have continued to play a significant role in shaping Uganda’s economic policies through various programs and financial support.

While such assistance has been essential in stabilizing the country’s economy, it also raises questions about the extent of Uganda’s economic sovereignty.

Therefore, while Uganda has made strides in formulating its economic policies, external influence remains a part of the economic landscape.

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