By Oweyegha-Afunaduula
McKinnon and Huw Pill (1998, 2005) allocated enormous intellectual energy in articulating and clarifying the overborrowing syndrome in East Asian countries in relation to economic liberalization. Long ago President Tibuhaburwa Museveni decided to completely open up the economy of Uganda.
It was called economic liberalization. It was not accompanied by political liberalization. There is widespread belief that the overborrowing syndrome applies to President Tibuhaburwa Museveni’s Uganda as well. In this article, however, I want to use the phrase “cancerous borrowing” to mean more or less the same thing. I use the word cancerous to mean “unpleasant, detestable and disease-like”.
The word cancerous is derived from the word cancer, which is a disease that abnormally grows, feeds on the organs of the v, renders them dysfunctional and kills it . When applied to a system, it spreads throughout it and soon makes it dysfunctional. Dysfunctional means “not operating normally or properly” or “unable to deal meaningfully or efficiently with normal social relations”.
In this case, when I say that the overborrowing of the NRM regime government is cancerous, I mean that the economy of the country has become so dysfunctional that it can no longer meaningfully and efficiently deal normal social relations within the country. This is compounded by President Tibuhaburwa Museveni’s overglorification of infrastructure development at the expense of social development.
This is enshrined in his philosophy of development, which is simply that development (meaning infrastructure dev elopement) must come first with nature and environment interspersed between infrastructure development and people last. It is unlikely that. socioecology and socioculture are integral to such a philosophy of development.
This explains why President Tibuhaburwa Museveni’s preoccupation with infrastructure at the expense of human development is being pursued at so much ecological, environmental and social cost, seen in ecological, environmental and social decay and collapse.
Therefore, when applied to an economy, cancerous overborrowing may end up rendering the organs of a country dysfunctional, by making the brains of technocrats, leaders and governors dysfunctional. A functional brain, in this case, is a one which is unable to ensure that all organs of a country work without overdependence on borrowing either domestically or externally.
In fact, reliance on borrowed financial resources is put ahead of reliance on domestic production. Inadequate resources are invested in economic, social, intellectual and environmental production. Instead, consumptive ventures are overcapitalized to the detriment of domestic economic, social, intellectual, environmental and, hence, human development.
It goes without saying that the long-reigning militarized National Resistance Movement (NRM) regime of President Yoweri Museveni has made “overborrowing” domestically and externally a “spiraling source of financial resources to do its business as usual. Doing business as usual involves putting corruption at the centre at government functionality and dysfunctionality.
External financial resources have recently declined, largely due to the government’s anti-homosexuality stance. This stance has openly contradicted the West’s now institutionalized, almost religious homosexuality faith and practice. However, financial resources from China, whose loans have no strings attached, have shot up. Chinese foreign cash givers do not question the human rights, social and environmental behaviour and records of their foreign cash recipients. And of course is anti-homosexuality.
We know that in giving exorbitant foreign cash to the NRM Government, China is not only aiming at extending its ecological footprint into Uganda (whereby our country is becoming more or less an appendage of China economically, ecologically and environmentally), but by extension has almost free access to our assets and resources.
Increasingly, some of our national assets are now in the hands of the Chinese as security to recover the enormous loans they have extended to the government. Reportedly Entebbe Airport is in the hands of the Chinese. There is no secret anymore that the Chinese are mining sand on the shores of Lake Victoria and exporting it to their country.
The Chinese have acquired large tracts of land to grow crops to feed its people at our expense. Many mines, such as mercury and gold mines, are owned by Chinese. The more the borrowing cancer of the NRM regime spirals upwards, the more Chinese own mines such as gold mines, perhaps as fronts for, or in venture business with some big shots in the regime.
There have been reports that the oil fields of Bunyoro were used by the NRM regime to borrow incessantly from Chinese financial markets even before they produced oil. There are unconfirmed reports that for a long-time crude oil was being secretly ferried out of the country under heavy military security.
I am not sure if the oil was for the Chinese to recoup the cash it had extended to the NRM regime government. We don’t know whether the very rich gold reserves of Busoga are not already being stealthily exploited by the Chinese.
What we know is that the Basoga have been told by none other than President Tibuhaburwa Museveni to concentrate on farming, especially sugarcane and food crops to feed themselves and earn cash, instead of putting their hope on gold. The leaders of Busoga are silent on the issue of gold. Yet they should be leading their people to agitate for a fair share of the gold worth an estimated US$ 12 trillion, far more than the gold reserves of the Democratic Republic of Congo are worth.
Ranald I. McKinnon and Huw Pill (1998), in their paper “International Borrowing: A Decomposition of Credit and Currency Risks” published World Development Vol. 26 (No. 7), have highlighted the importance of effective regulation and supervision of capital markets, with a focus on limiting the speculative currency positions of banks, especially those that form the core of the domestic payments system and, therefore, enjoy a (possibly implicit) public guarantee.
Improving the institutional infrastructure of financial supervision is the only effective way of mitigating the macroeconomic costs of overborrowing. In another article “The Overborrowing Syndrome and Economic Liberation” McKinnon and Huw Pill (2005) relate overborrowing to economic liberalization.
In yet another an article on “Credible Economic Liberalizations and Overborrowing” McKinnon and Huw Pill (1997) show that it is possible for a country to have credible economic liberalization and still engage in overborrowing.
The NRM regime opened up the economy of Uganda to full-blown economic liberalization. While it is doubtful if Uganda’s full-blown economic liberalization is credible, given that it is riddled with corruption and too much political ethnization.
We have witnessed that the NRM regime government is not only using public funds to overcapitalize the businesses and enterprises of a select few ethnically oriented individuals and families, but it is also overborrowing both domestically and externally, with no clear indications that it can control the phenomenon.
Some of the borrowed money is used to give what are called “foreign investors” start up capital, while at the same time giving them tax holidays for as long as 10 years, and unrestricted leeway to ferry their money back to their countries. It is mostly Indians and Chinese who have benefited this way, ostensibly from the liberalized economy.
The question is: what does the NRM regime government borrow for? Parliament Watch Uganda, in an article by Godfrey Mwesigye titled “Uganda’s State of Borrowing and its Sustainability”, states that “For the last couple of years, much of the borrowing has been for infrastructural development, particularly roads and energy.
These are irrefutably good for economic development since they are long-term investments that can boost the country’s production. That notwithstanding, Uganda continues to experience [electricity] load-shedding and poor road networks in some parts of the country”. However, we know that the government has also been borrowing from domestic and external markets to pay its workers (i.e, teachers, doctors, nurses, lecturers and civil servants and bureaucrats, to name but a few).
We also know that recently the government has been pumping a lot of money into consumptive ventures such as wars and military peace missions in places such as Somalia, Central African Republic (CAR) and Democratic Republic of Congo (DRC).
On the other hand, the Parliament of Uganda has been incessantly and repeatedly allocating large sums of money in formal budgetary strategies and in supplementary budgets to the State House, where the President and his wife stay. However, State House has been converted to a state institution, now engaged in some activities that in the past were for specific Ministries.
State House activities include maintaining a chain of Resident District Commissioners (RDCs) and Resident City Commissioners (RCCs) and their deputies. The work of these State House linked officers is mainly political, in favour of the ruling Party.
Other non-productive ventures include employing and maintaining a chain of highly-paid, not necessarily professional State House workers, usually aligned to the ruling party. It would probably not be far-fetched if one stated that the functions of the President’s Office and State House are fused.
There is no doubt that State House hunger for money is contributing heavily to the growing indebtedness of Uganda. In a Parliament Watch article by Prisca Wanyama (2023) titled “Inside UG 3.5 trillion Supplementary Request as State House Eats Big” we are told that in just two quarters into the implementation of the 2023/24 financial year national budget, the government returned to Parliament with a request for UGX 3.5 trillion supplementary funding.
The article adds, “Almost a permanent fixture one every supplementary budget, the State House has requested UGX 100 billion worth of classified expenditure, something that has left some lawmakers concerned”. One school of thought suggests it is most likely that it is such money that has been used to build schools, hospitals and roads, in neighboring countries.
Another school of thought suggests such money has been used to fund incessant wars in and outside Uganda under State House supervision. Meanwhile our public schools, hospitals, many institutions and roads are continually and consistently becoming derelict.
According to one MP, unlike the earlier supplementary requests that have been raised through the suppression of other budgets, especially those of the socially-relevant health, education and agriculture, the government is seeking to borrow in order to fund the 2023/24 supplementary budget.
What is happening, according to Parliament Watch, forced political science Professor Elijah Mushemeza, the MP for Sheema South, to wonder why the Government was not budgeting within its own income such as that from taxes, grants and loans other than making unrealistic budgets. This was more or less questioning the financial intelligence of the planners of government, if they at all plan.
In his article of June 30th 2023 in the Daily Monitor, titled “High domestic Debt Putting Pressure on Bank Deposits” Deogratius Wamala writes that Government owes lenders some 88 trillion shillings, nearly twice as much as the national budget of 52.7 trillion, 47.9 trillion is due to foreign lenders. The country’s debt to GDP ratio is 48.6%; close to 50% threshold”.
The political gimmick from the mouth of Matia Kasaija, President Tibuhaburwa Museveni’s Minister of Finance and Economic Development, is that of optimism. He said that Uganda’s debt is manageable. By June, he was expecting that government would spend 8.4 trillion shillings on paying domestic debt over a 12-month period.
Over the same period government expected to spend .6 trillion shillings to service the external debt and 6.1 trillion shillings on interest payment. Kasaija promised that domestic borrowing would be reduced to 5.85 trillion shillings to 5,0 trillion shillings.
Meanwhile, as I have stated elsewhere in this article, the external sources of loan money have tightened the nooze around government by reducing available money for borrowing because of what they say are human rights abuses by the rulers, especially the supposed rights of homosexuals.
Reuters of 5th December 2023 reported that at least three European countries announced the withdrawal of millions of dollars in direct support to Uganda’s government, and the World Bank announced it was delaying a loan to the country. Uganda depends on donors for about 20 percent of its budget.
The Dutch government said in a statement that it was suspending aid to Uganda’s government but would continue supporting nongovernmental groups. It joined the governments of Norway and Denmark in taking such action.
Norway announced it was withdrawing at least $8 million but would increase its support to human rights and democracy defenders. Denmark said it was restructuring aid programs worth $8.64 million away from the Ugandan government over to private actors and civic groups.
The World Bank on the other hand said that it had postponed a $90 million loan to Uganda over its anti-gay law. Until the West made homosexuality an issue in the flow of financial capital to Uganda, the country was the darling of Western extenders of loans and grants, ostensibly to financially power development, transformation and progress of the country. Reuter added that the anger in the West against Uganda’s Anti-homosexuality Law has now forced the NRM government to turn to domestic borrowing.
According to the Ministry of Finance and Economic Development cited by Reuters, Uganda was planning to more than double its level of domestic market borrowing to 6.8 trillion Uganda shillings (1.79 billion) in the 2023/24 Financial Year to help finance new spending needs.
This contradicts with what the Independent told the nation it its headline story of 16 June 2023 that “Kasaija to limit domestic borrowing as Uganda’s public debt soars”. Some forecasts have indicated that Uganda’s national debt will increase between 2023 and 2028 by a total 7.9 billion U.S. dollars (+29.95 percent).
Correspondingly, the domestic debt will rise to fill the gap created by more and more of the countries of the West expressing their anger against Uganda’s anti-homosexuality stand. Kasaija agreed that this would limit the amount of money to some of the sectors aimed at the delivery of services. Those sectors are definitely education, health and agriculture, which are the socially-sensitive sectors.
Meanwhile fears and concerns are supersonically mushrooming among different publics in Uganda, and even abroad, that the NRM regime government is likely to continue borrowing beyond its means in a non-accountable and untransparent manner. However, there is no evidence whatsoever that the regime government has any credible strategy to dehook Uganda from the debt trap it has put the country in.
In an earlier article of August 15 2022 by Linda Nakato, Enock Bulime “Is Uganda caught up in a Public Safety Debt Trap?”. we are told that in a recent Debt Sustainability Analysis (DSA) reports by Uganda’s Ministry of Finance and the the International Monetary Fund (IMF) show that Uganda’s debt is sustainable but at moderate risk of debt distress in the medium-term and long-term.
This could be a joint effort by the Ministry and IMF to calm the public fears and concerns regarding government’s overborrowing. In my view, however, it is unlikely that the debt will be sustainable with increasing borrowing by government domestically and from China.
In my recent article “How can Uganda liberate herself from the Aid Dependency Syndrome?”, I wrote that “a first line of defense against aid dependence is for the country to seek only aid that supports it to lead its own development, be more accountable to its own people, and mobilise more of its own resources. This way the aid itself will contribute to reducing aid dependency”.
Elizabeth Nuwaha of the Advocates Coalition for Development and Environment (ACODE), in an undated article, recommended many policy measures to try and improve Uganda Government’s debt performance, efficient use of borrowed funds because, according to her, public debt used efficiently can leverage developments that have a high potential to unlock the production competences of the country and increase revenue collection efforts. Her recommended measures include:
Focus on effective planning and implementation of the budget. To close the expenditure gap, the available fiscal space should not be used to cater for temporarily high government expenditures that are wasteful and unproductive. Having a clear direction for fiscal policy in adherence to the fiscal charter and Section 36 of the Public Finance Management Act (as amended) would benefit budget planning and execution
Institute mechanisms to ensure the efficient use of borrowed funds. Debt that finances productive social and infrastructure spending can lead to economic growth that may ultimately offset the cost of debt service and help balance the risks to debt sustainability.
Give priority to borrowing for growth-generating and welfare-enhancing sectors of the economy such as Agriculture and Health which will help foster higher and inclusive growth. This will in turn contribute to increased domestic revenue mobilization to repay the debt., consequently, reducing our reliance 3 on debt in the future and bring the national budget to balance
Uganda Revenue Authority should fast-track efforts to raise revenue (tax to GDP ratio). When an economy collects enough revenue to service the debt, the debt service to revenue ratio goes down. Countries like USA and Japan have very huge debt-to-GDP ratios, but they are not considered to be in debt distress
Establish accountability through oversight systems and transparent decision-making while negotiating debt, this will enhance citizen participation, reduce corruption and bureaucratic red tape tendencies that lead to increased undisbursed debt and debt accumulation loopholes
The heightened accumulation of loans and grants in Uganda must be handled with ultimate transparency including a commitment by government to release real-time data on old and new debt from all sources as required by the constitution. At the same time, the government should reveal all loan conditions including the required guarantees and collateral that put national assets at stake.
Fast track the disbursement of borrowed funds and monitor the utilization of the disbursed funds to ensure effective service delivery
Accelerate reforms aimed at improving the efficiency of public expenditure and augmenting support for export growth
In conclusion, with the anger of the West proliferating towards Uganda over government’s refusal to listen to its dictates over its new faith of homosexuality, it is likely that the country is going to suffer proliferating financial squeeze from many angles.
Unless the country turns more and more towards China, it is likely to find it difficult to have the money from the West to finance the implementation of its programmes. Government must now plan with the people, not for the people, so that the people, not the government, own the projects and ensure the projects succeed. Projects continue to fail but consume a lot of money because they are almost exclusively owned by the government.
Also, it is important that government looks more inwardly to ensure that the productive capacity of our people and communities is supersonically enhanced to reduce overdependency of the country on external sources of money in form of loans and grants.
If people enjoy working in a productive environment, they will be able to produce and pay taxes, which government can use to finance programmes that benefit the country. Besides, government must stop being a spendthrift on unnecessary ventures. It must also manage corruption.
Finally, government should stop boasting about getting trillions from export of our young people to Arab countries where they manifest as slaves. If it focusses on enabling a productive environment, with productive people, we shall be able to create enterprises to employ our young people gainfully.
However, in a parallel way, government must rethink the education system so that the education we give our young people is suitable for the 21st century and beyond. It is that education system that will not release our young people into slavery but will render them employable in our domestic labour market.
For God and My Country.
