Inside the Shs6.8 trillion loans Government is procuring as the year ends.

December 30, 2023

When Speaker Anita Among adjourned Parliament Sine Die (without a specific resumption date), the mood in the House was that for the festive season that is now on the horizon but to some people in Uganda, the decision made during Wednesday’s plenary sitting were a Christmas gift.

Among those gifted are the beneficiaries of the loans that were approved by Parliament. Uganda may be raising its debt stock but on the side of service delivery, there is quite a lot that is being done out of the borrowing.

In just one week, Parliament authorized government to borrow up to Shs6.868 trillion from local and international organisations. Though, a Shs3.1 trillion loan was to fund the Shs3.5 trillion supplementary budget passed early this month, at least there are other projects that are benefiting from the loans.

Agriculture sector

From the World Bank, the government is borrowing $325m (about Shs1.234 trillion) to finance the climate smart agriculture projects. According to the report of the Committee on National Economy which processed the loan, the project aims to support having a modern agricultural sector for increased production and productivity, promote value addition through agro-processing.

To the government, the project will address challenges that include; low rates of commercialization and inadequate capacity to invest in adapting to climate related hazards; huge losses in livestock and crops due to the lack of resilience; shrinking lakes and fish population as a result of climate induced drought and floods; among others.

At least 13 value chains have been selected with each sub-region of Uganda set to receive support with four value chains which have been selected based on; potential to earn income for farmers and create employment; potential to support food security and nutrition; potential for scalability; marketability; among others.

The legislators on the Committee while recommending to Parliament to approve the loan, observed that there have been in some instances when loans are secured, late disbursements of money due to the implementing agencies’ failure to adhere to the conditionalities.

“The Committee recommends that the Ministry of Agriculture, Animal Industry and Fisheries should ensure that the above loan disbursements conditions are timely fulfilled in order to trigger the timely disbursement of the loan credit for the project objectives to be met as planned,” read part of the report.

Legislators also approved a recommendation to the implementing Ministry to ensure that all benefiting local governments are adequately well resourced and capacitated to enable them promote economies of scale and mindset change among communities regarding the benefits of promoting climate smart technologies, innovations and management practices.

Roads sector

Also approved was the Government’s proposal for pre-financing for the reconstruction of Masaka-Mutukula Road (89.5Km) and rehabilitation of Nyendo-Villa Maria Road (11Km), upgrading of 3.5Km access road to the UPDF barracks in Masaka, 3.5Km access road to Masaka Industrial Park & additional scope of 28.5Km for Kikagati-Kafunjo Road at UGX 692.680Bn, thus bringing the total amount of loans passed within a week to around UGX 6.868 trillion.

However, it was the loan for the long awaited Masaka-Mutukula Road that raised excitement from the Opposition after Minister Musasizi informed Parliament that the Government had reached an agreement with Chinese firm, Chinese Chongqing International Construction Corporation (CICO) to construct Masaka-Mutukula Road at a cost of UGX 691.680Bn and have the money paid within two years of the implementation of the project.

According to the Government, the CICO expressed interest in pre-financing this road starting for the financial year 2023/2024 on the understanding that the costs of the civil works undertaken will be repaid over a period of two years starting in the financial year 2025/26.

“Masaka-Mutukula road is a critical link to the port in Dar-es-Salaam and the road will facilitate the construction of the East African Crude Oil Pipeline (EACOP). Therefore, it is important that its reconstruction is prioritized before the EACOP construction works reach the Ugandan side of the border. The reconstruction of the road cannot be financed within the 2023/24 and 2024/25 budget ceiling for UNRA since it is over committed during the mentioned two fiscal years with ongoing road projects and those already considered to commence in 2023/24,” said Musasizi.

Leader of Opposition in Parliament, Mathias Mpuuga welcomed the construction of Masaka Mutukula Road saying it had become a monument of shame for Uganda and asked the Government to ensure never to repeat the mistakes it made when it delayed rehabilitating the road.

“I congratulate the Minister for finally working on the Masaka-Mutukula road, it was a monument of shame to the nature of neglect we can visit on ourselves on such an international highway that brings in a lot of revenue into the country. So, I hope that it will drive not only the face, but you drive through Tanzania and enter Uganda and then realize it is a whole new space on earth. It was a huge shame on us, I hope it will lift the image of the revenue in-flow in our country,” said Mpuuga.

The LOP also called for regional balance when it comes to distribution of infrastructure projects, wondering why western region got oil roads, yet the coffee growing areas didn’t receive coffee roads despite supporting the country longer than oil has done.

“I concur with you that finance and (Ministry of) works need to harmonize balancing, while we are going to work on that international highway, the hinterland feeding into that highway is terrible. I admire colleagues coming from oil districts, they have oil roads, for us the coffee farmers have never got coffee roads despite supporting this country for generations,” he added.

Mpuuga isn’t the only leader in Parliament to raise concern over distribution of oil infrastructure projects. Two months ago, Deputy Speaker, Thomas Tayebwa called out the Government for taking all oil and gas related development projects to Western Uganda, in total exclusion of Northern Uganda, yet Nwoya district which has three oil wells has been shunned.

Other loans

Members of Parliament also approved a loan to a tune of Chinese Yuan 1,050,000,000 (UGX 554.689Bn) from China to finance the e-government internet infrastructure project phase.

The approval of UGX 3.149 trillion from the domestic market raised concern in public, after Government revealed that out of that loan portfolio, Government will spend UGX 2 trillion to pay Bank of Uganda, after the Central Bank met some domestic obligations on its behalf at the height of the COVID-19 pandemic.

“As at June 2023, the Government owed the Central Bank UGX 4.8 trillion which had accumulated from Financial Year 2019/20. Members will recall that in order to support the recovery of the economy from the slow down brought about by the COVID-19, the Government expenditure was expansionary in order to provide a fiscal stimulus to various sectors of the economy. However, the Government was not able to fully fund its expenditure,” said Henry Musasizi, Minister of State for Finance (General Duties).

The Minister said that since the Bank of Uganda met the Government obligations on domestic debt redemption and now that the economy is recovering and given the prevailing macro-economic conditions, it is important that the Government pays off its obligation to the Central Bank.

Parliament further chose to seal off their business for the 2023 calendar year in style by approving two more loan requests on Wednesday. These loans are $295m (UGX 1.121 trillion) from Islamic Development Bank and $30m (about UGX 114Bn) from OPEC Fund for International Development to finance the upgrading of national roads.

The Deputy Chairperson of the Committee on National Economy, Hon. Robert Migadde, observed that much as Uganda’s public debt remains within sustainable levels, the country is rated at moderate risk of debt distress.

“The Committee recommends that the Minister for Finance renegotiates the risk premium to a lower rate and also have it fixed for the entire debt servicing period,” he said.

He added that ministries, departments and agencies (MDAs) should always undertake project designs prior to sourcing for money, in order to minimize project delays by effectively compensating project affected persons.