Loan to underdevelopment pipeline: The credit freeze

What wasn’t expected was President Museveni’s Road to Damascus epistle to Ugandans dated August 17. In it he deplores the misuse of loans and gives as an example $800 million borrowed by the ministry of Agriculture over a period of 10 years, most of which he says was spent on seminars at the expense of agricultural equipment and irrigation. 

He has not, however, mentioned State House’s average daily expenditure of Shs2.8 billion ($760,965), Shs30 million ($8,036) a week on groceries alone. Nor did he repent of the $147,372 a year allocated to his wardrobe and a larger annual amount on furniture reported to Parliament by Ssemujju Nganda, MP.

As far back as 2005, while most of today’s activists were still at school, one Joel Barkan (RIP) caused a stir after reviewing World Bank lending to Uganda, when he recommended the World Bank ceases all but humanitarian activity in Uganda.

He argued, Uganda has “beg[u]n—but has not finished—the process of democratisation […] It is the failure of the Museveni government to achieve this third goal that now puts the entire record at risk […] We have seen these patterns before, and the scenario is not good. It is not good for Uganda. It is not in the interests of the United States. And it is not in the interests of Uganda’s other development partners who together provide the massive flows of aid on which the regime depends, because these flows are directly and indirectly financing the downward spiral.”

Barkan gave an excellent description of odious debt, debt whose purpose is to repress the population and preserve the regime, “…over the past two years the President has authorised the transformation and enlargement of his personal security unit into the Presidential Guard Brigade, a praetorian guard of an estimated 7,000 men. Its primary purpose is to keep President Museveni and his entourage in power, not national defence. (Barkan. J. Uganda: An African ‘Success that has Peaked? 2005).”

As with the appeals of ordinary Ugandans, Barkan’s too was ignored. If memory serves correctly, the World Bank went as far as disowning him by stating that he was just one of so many advisors whose recommendations did not constitute Bank policy. 

Barkan tried again in 2011 in his paper Uganda: Assessing Risks to Stability, “Notwithstanding its regular elections, Uganda is not a democracy…elements of democratic practice mask authoritarian and personal rule […] The potential for instability is heightened by the issue of political succession.”

These arguments, like the collective rights-based, moral and economic arguments that came before and after, mostly got no responses from the Bank. It continued to lend against annual audit reports replete with examples of failed programmes and projects, corruption, wanton waste of public funds, nugatory expenditure, elite capture of resources and the regime’s sheer incompetence to restore control over the economy. Challenged in 2020 by a team from National Unity Platform (NUP), the country manager claimed the regime was trying its best to control expenditure.

Now that the economy is in freefall and the Special Forces Command (SFC), the all-powerful successor to the Presidential Guard Brigade (PGB), has wiped out all semblance of a democratic election process, and the contingent instability Barkan warned of has crystallised culminating in the massacres of August to September 2018 (Arua, Mityana and elsewhere) and the two-day sniping exercise carried out by the police and the SFC in November 2020, our friends at the Bank are considering closing off the loan-to-underdevelopment pipeline. 

There is a body of voices pleading that the poor will suffer, as though the poor are not already suffering. The poor have never been anybody’s major concern. Government ministers and Members of Parliament have been caught red-handed stealing iron sheets meant for roofing the homes of nomadic Karimojong youth – Karamoja has the highest poverty rate in the country.

Instability is highest in Karamoja where 41 percent subsist on one meal a day. Drugs, ambulances, Parish Development Model funds earmarked for revolving funds for the youth, all are stolen with abandon and precious little recovered.

Examining the actual performance of the loans, one notes that it is poor to bad. In Bankspeak, “Moderately Unsatisfactory” to “Unsatisfactory”. Had those on either side of the argument examined the actual performance of the loans, they would have realised value-for-money (VFM) is slim to nil. The poor suffer most from sub-standard or absent health and education services displaced by loan repayments. 

Development indicators are repetitive but to participate in their own governance, Ugandans need to know these statistics as well as they know their arithmetic tables; health facilities are understaffed by 31 percent, undernourishment increased by an average of one percent per year over 13 years reaching 41 percent in 2019 (the data are no longer published on the World Bank online databank), only 44 percent of rural women have access to ante-natal care contributing to one of the highest maternal death rates in the world, inadequate modes of transport of women in labour is a leading cause of cerebral palsy (in a country with no national programme for special needs education), the primary school dropout rate hovers around 40 percent and only 60 percent of those who pass the primary leaving exam, transition to secondary school. Once there, only 30 percent complete lower secondary school. 

Environmentally, the majority of the populations of some districts rely on wetlands and forests for their livelihood. Wetland and forest coverage have fallen from approximately 26 percent in 1992 to under 10 percent today, meaning the livelihoods of the environment-dependent poor are under severe threat.

There are many examples of poorly performed loan programmes already closed and being paid for; National Agricultural Advisory Services (Naads) $50m, Economic & Financial Management Project $30m, Second Economic & Financial Management Project $73m, and the District Health Project $45m. Let’s look at a more recent example: the Uganda Health Systems Strengthening Project (UHSSP) which ran from 2010 to 2017.

The financing for the Uganda Health Systems Strengthening Project was as follows; a loan from the World Bank of $125.6 million and Government of Uganda contribution: $14.31 million. Before going further, note the government contribution did not materialise.

The goal was to deliver the much-touted Uganda National Minimum Health Care Package. The focus was on maternal health, newborn care, and family planning. It was meant to be achieved through improving human resources for health, physical health infrastructure, and management, leadership and accountability for health service delivery. The burden of healthcare falls on health centres which (are supposed to) deliver 75 percent of health services.

As with all Bank projects, the closure of the UHSSP was followed by a Project Completion Report (no. ICRR0021081). The Bank rated its own performance as “Moderately Satisfactory”. The completion report was itself reviewed and was criticised for its reliance on the Ministry of Health’s independent audit which did not explain where the equipment was although it insisted it was at health facilities.

The Auditor General (AG) was more thorough and pointed out several important anomalies in 2016. These included non-delivery of/or missing equipment supplied, supply of non-critical equipment (failure to prioritise), lack of electricity to run equipment, staff shortages, over-supply of some consumables resulting in expiry, and poor quality of some supplies. On the infrastructure component the AG found poor design of health facilities, and completion delays. Since then a number of health centres being upgraded with the $200 million UgIFT credit facility disbursed in 2020 were found abandoned by contractors.

Still, the World Bank thought it prudent to re-open UHSSP under the Covid Response and Emergency Preparedness Project (UCREPP) Project ID: P173906 with a loan of $12.5 million and a grant of $2.7 million. Ironically, upgrades of health centre III to health centre IV with surgical capacity (for caesarian sections) have been left out of the 2023/24 budget in order to complete the backlog.

The second Uganda Health Systems Strengthening Project has been listed by CSBAG as one of those whose closure will cause hardship. It will not. From the outset, the World Bank recognised and stated that for any benefits gained under UCREPP to be sustainable there must be “continued and strong government commitment, enhanced institutional capacity, and predictable financing…. Further work is needed to ensure the financial sustainability of these activities, particularly greater levels of domestic financing” (Project Document 174041). These conditions are not yet in place and it is hard to see how UHSSP II will do better than the first.

Failure to co-finance
It is worth noting that government’s failure to provide co-financing and to fulfil other technical conditions resulted in only 19 percent of the $21 million Skills Development Project loan (2016) being used in three years and just two percent of the related $78 million loan to the ministry of Education in the same period. More recently, after the IMF’s Rapid Credit Facility and UCREPP began and Shs29 billion had been donated by the general public, quarantine centres continued to be without utilities and remained unused. Many of those that opened did so without running water, electricity, bedding, and adequate supplies.

The fact that the World Bank was prepared to keep lending even as earlier credit was being misused, reveals the Bank as a reckless and predatory lender. With its intimate knowledge of Uganda’s demonstrated inability to stump up the necessary co-financing needed to make projects viable, and government’s demonstrated lack of technical capacity to implement projects, and with the expected economic fallout of the pandemic, the World Bank went ahead to use the pandemic as an opportunity to plunge the country deeper into debt. This is one example out of so many of illegitimate debt.

Pivoting towards affordable govt
There are positive outcomes from the threatened credit freeze the principal one being an awakening to the realities of the Ugandan situation. Few people saw efficiency savings as an intervention worthy of discussion. Potential savings were seen as insignificant. The idea of cutting back seemed so undignified and felt so “Third World” it hardly gained traction. Today, cost-cutting is a phrase on everyone’s lips from State House downwards. Suggestions are flowing freely for government to stop buying vehicles, a much smaller Parliament, and abolition of Resident District Commissioners (RDCs) and other sinecures. All are obvious and were set out clearly in at least one election manifesto (NUP). 

During a recent online discussion about the need to reduce expenditure, a panellist stated that there is no budget provision for the creation of cities. Years ago, the same was known to be true of hundreds of town councils. In 2018, at least 228 of the 583 town councils created in the five previous years were excluded from the budget. 

In 2019, the minister of Finance said there were 300 newly created sub-counties and 200 town councils with no funding. On October 29, 2021, a supplementary budget was requested to operationalise more than 700 town councils. ‘Operationalise’ here means providing salaries, allowances, pensions, vehicles, health benefits, seminars, office equipment and sundries. It does not mean providing services. Yet there was no outcry four years ago. It has taken the threatened withdrawal of credit to focus the national thinking on Uganda’s precarious economic condition and the need for frugality.

The only new thing that came up during the Twitter Space was a panellist’s admission that government makes the mistake of trying to launch more programmes at the same time than it can handle – capacity to implement the budget is coming to the forefront as a matter to be scrutinised. The issue is not so new, Muhammad Mayanja’s proposal for Universal Primary Education (UPE) envisaged a phasing in of one class a year. It was designed for four children per family. When the NRM hijacked UPE during the elections, they decided to best Mayanja by pledging to implement all the seven years in one financial year. 

The $311 million financing, $155 million in direct budget support, has been shown to have been a waste. During “The decline in the quality of education makes the system vulnerable to abandonment by students who may not learn enough to find school worthwhile and could compromise UPE goals. It was further stated that 70 percent of education sector funding came from donors which led to actually led to “a decline in real value of GOU’s additional expenditures, placing sustainability on a foundation which will weaken in the long-term. (World Bank completion report ICRR10975”. 

Regardless, the Bank went on to award itself the following ratings for UPE; Outcome: Highly Satisfactory, Institutional Development: Substantial, Sustainability: Highly likely, Bank Performance: Highly Satisfactory, Borrower Performance: Satisfactory. In fact, the primary school drop-out rate has reached 40 percent. In 2022/23 twice as much of the budget was allocated to loan repayments as to the education and health sectors combined.

Incompetence is legendary in the Government of Uganda, other examples include; the distribution of calves with foot and mouth disease, supply of coffee seedlings with only a 42 percent germination rate, the JiCA PRiDE Rice Scheme of 2012-2017 which reduced national rice production by 72 percent (Auditor General), the Naads project, financed by a $50 million loan, which did not increase food yields per acre, “[N]o significant differences were found in yield growth between Naads and non-Naads sub counties for most crops.” (International Food Policy Research Institute review paper Discussion Paper 00724 October 2007). 

It was to be expected, at the behest of the World Bank, government had retrenched thousands of extension workers. The above report states farmers lost 80 percent of their access to extension support because the retrenched workers did not become private sector operators as had been expected. It should be noted that when coffee and cotton were introduced during colonial times, they did not thrive simply because the soil was fertile and the growers willing. They became our primary income earners because cotton varieties were researched at the Agricultural Research Institute and the best, Uganda long staple, was selected and disseminated through extension workers. Government began selling agricultural research institute land.

On the corruption front, a lawyer charged with handling Naads payments to tea farmers has been found by Parliament’s oversight committee to have embezzled approximately $10,448 from Naads. So confident was lawyer Patrick Kiconco Katabazi in his own impunity that he put in a claim for the balance of $20,364. The project to expand tea-growing in Kisoro and Kanungu at a cost of Shs100 billion ($26,794,940) encountered administrative problems at the outset in 2013. Naads provided $370,860.93 for extension support. 

However, a special audit revealed “All the farmers interviewed indicated that no extension services were provided during the planning period.” As a result, only 24 percent of the seedlings were planted in appropriate conditions (see The Method in the Madness: Uganda’s budget 2018 is divorced from reality June 19, 2018, by Mary Serumaga, cadtm.org).

Agro-processing has not fared much better. The short-lived Kisoro Potato Processing plant (2015-18) received a Shs700m bail-out but closed owing farmers 180m; the Chia & Pyrethrum Factory Kabaale (2015-18) and Uganda-Egypt Food Security (2016-19) also closed. The status of the Soroti Fruit Factory, built in 2016 with a Korean grant faces similar supply bottlenecks as all of the above.

Mercifully, the days may be ending when waste of public funds is so normalised that the Deputy Speaker of Parliament and the Leader of the Opposition feel comfortable arguing on television about the relative size of their convoys, as though convoys are a necessary or reasonable expenditure in a country of perennial drug stockouts.

While there was a lender (mistakenly seen as benevolent) in the background, many were happy to defend extravagance and waste. The trend among the elite online classes was to compete in mystifying public expenditure management by weaving the intricacies of GDP in to every conversation while ignoring the evidence on the ground.

But circumstances are beginning to jump-start critical thinking, there is nothing even “moderately satisfactory” about giving birth on the verandah of a dilapidated public hospital or being randomly shot from a moving police truck. Nothing.