Shs15trillion idle loans: Inside government’s waste and abuse

Officials in the implementing agency, ministry of Education, however, told this newspaper that the project was “highly successful.” The project coordinator, Mr Edward Ssebukyu, had offered to share information regarding the project but several days later, said he could not find the information because the project had “closed” and there were “staff to refer to”.

Ms Ali Munira, the IGG spokesperson, in an email confirmed the ombudsman was trying to recover the money.

“We can’t confirm the exact amount of funds recovered to date and how much is pending.” She, however, said the inspectorate would not investigate the quality of the works done.
“The IGG was only tasked to recover unaccounted for funds, which process is still on-going,” she said.

UPPET was a Shs513b ($150m) programme supported by the World Bank, with among other objectives, to increase and improve equitable access to post primary education (Universal Secondary Education), with emphasis on the poorest rural and peri-urban areas that presently do not have sufficient capacity to absorb qualifying students; and improve the quality and relevance of post primary education and training.

The project was supposed to run in phases, phase 1 from 2009 to 2012; phase II from 2012 to 2014 and phase III from 2015 to 2018. The last phase, intended to consolidate post primary education reforms, was estimated to cost Shs2 trillion ($750m) of which the WB’s International Development Association (IDA), the concessional funding arm to low-income and post-conflict countries, would contribute Shs342b ($100m), but based on results of the external evaluation.

This newspaper could not officially establish the number of schools constructed. However, sources familiar with the project put the number to about 500 schools in different parts of the country “adjusted to only quantity, not quality.”

The funds, the sources said, were wired to head teachers’ accounts in areas where classrooms, teacher’s quarters, pit-latrines and other amenities, had been marked for construction. Often, the ministry would wire between Shs5m to Shs300m.

The money was wired to the head teachers’ accounts, who often struggled with accountability.
“In other instances, head teachers were “ambushed” with money for construction,” a source said. In other instances, some head teachers would get transferred in the middle of the project implementation, causing further accountability issues.

“In the process, the teachers would take the fall but not the project overseers.”

Statistics from the ministry show there are more than 1,050 government-aided secondary schools that were meant or benefited from the project.

According to an assessment by the ministry of Finance, about 573 schools were expanded out of 659 targeted; of the 610 incomplete structures earmarked for completion, only 497 were completed, and 3,193 classrooms were constructed out of 3,559 targeted.

At the close of the phase II in 2014, the Finance ministry asked the WB to cancel Shs30b ($8m), which was undisbursed. The ministry of Finance put the absorption of funds at 94 per cent or Shs486b ($142m), but on several projects, the quality of civil works leaves a lot to be desired.

“Finance asked us only to trace and try to recover the money,” said Ms Munira when asked about the contradictions in the quality of work done.

Still by the end, according to an audit by Finance, a total of 60 schools were left incomplete; out of which 28 contracts were terminated, while 17 contracts were never started.

A total of 32 head teachers were interdicted for diversion, mismanagement and failure to account for funds and their contracts even revoked. The incomplete civil works were worth Shs20b, not mentioning the accountability issues that remain unresolved to date.

The ministry of Education said previously, the head teachers are to blame for the miscarriages in the project but officials at the IGG and Finance, however, admit that top officials in the Education ministry were beneficiaries from this waste, either directly or at another level.

World Bank assessment
The World Bank is the single largest institution that extends loans to the Uganda government at 22 per cent.

In its own assessment of performance on external financing, the government had performed dismally, with 72 per cent of projects being unsatisfactory between 2007 and June 2016. Only 15 per cent of projects are considered satisfactory.

A quick review of several ongoing projects funded by the World Bank shows that several are rated as either “unsatisfactory” or “moderately unsatisfactory.”

Besides the World Bank, according to Finance records, some of the other huge loan portfolios include Shs1.4 trillion ($413m) by the Saudi-based Islamic Development Bank (IDB), Shs3 trillion ($854m) by the African Development Bank and Shs7.5 trillion ($2.2b) by China’s EXIM Bank. The government borrows primarily to finance budget deficits, support the Balance of Payment and execute development plans—usually listed in annual budgets sometimes as presidential pledges.

Uganda’s external public debt as of 2015, according to the Auditor General John Muwanga, stood at Shs34 trillion ($9.97trillion) of which only Shs14.2 trillion ($4.18b) had been disbursed and Shs15trillion ($4.47b) was still lying idle; inclusive of the loans of about $2b approved by the ninth parliament in the financial year 2014/15 that were yet to be touched.

“The delay/failure to utilize the loans increases the cost of debt to government and the tax payers in form of commitment fees paid on undisbursed loans,” Mr Muwanga observed.

Finance records also indicate that commitment fees paid to various creditors on undisbursed funds have also grown over the years, except for the World Bank which temporarily waived commitment fees for Uganda as of 2015.

The current situation is akin to you getting a loan from a bank but instead keep it unused in your account, while it keeps attracting interest.
Before the waiver, at one time government paid the World Bank $61.9m (Shs213b) as interest on unused loans.

Secretary to Treasury Keith Muhakanizi, in an interview with this newspaper last month admitted to the large extent of the problem, saying in part it stems from the Treasury reducing the frequency of leakages in government.

“So the accounting officers then decide to sit back on the money,” he said. “And clearly, if you look at the figures, the rate of absorption has gone down lately. So what do we do, should we open up the leakages?”

This, he described as “inefficiency and incompetence on the part of accounting officers.”
The respective accounting officers in question are well-known but when asked why the Treasury decides to sit back and only lament instead of taking action, this, he said is still “not that easy.”
“For all those loans that have not been absorbed, I have evidence where the ministers of the respective sectors said they were ready.

But then on the other hand, the technical people also argue that the reason the money is still there is because they were not ready for it. So what do we do?”
Mr Muhakanizi described the situation as “an eye opener” and besides engagements with various lending institutions, he said they are “seriously engaging” the accounting officers, right from the permanent secretaries to the district chief administrative officer on taking the matter seriously.

Although there was a general below average performance across all the nine sectors, which scored a combined 39 per cent absorption level, the failure to spend borrowed money has largely affected the transport, education, health, roads, private and the energy sector.

It was only the public sector management (70 per cent) and natural resources (54 per cent) that performed above par having borrowed $500m and $28m, respectively, but were able to absorb $352m and $15m off each of their loans.

It was a different story for the agriculture sector. It borrowed $251m (Shs863b) and has only used $147m (Shs505b) by the time of review. The social service sector (health and education) borrowed $690m (Shs2.3 trillion) between 2009 and 2014 but had Shs1.2 trillion unused by the time of the audit.

The IDA loans such as the $120m (Shs412b) Uganda agriculture technology and agribusiness advisory services (Ataas) project had only utilised half of the money by April last year yet it was supposed to end in June this year.

The project has been rated moderately unsatisfactory on both the development outcome and the implementation process.

Reason? “This project has faced major challenges of policy uncertainties on approaches to delivery of extension services,” reads an explanation in the report.

The Shs69 billion loan picked from IDB, which became effective in February 2015, for the development of a specialised maternal and neonatal health unit in Mulago hospital had by last year only been utilised by 3 per cent. Its initial closure date was June.

Another IDB loan, Shs43b, effected in September 2010 to support phase one of the national education support project, had only 49 per cent used by the time of review.

Also, a $22.95m (Shs79b) education loan, picked and effected in 2010 from the OPEC fund to support the construction and equipping of technical institutions in nine districts, among them Namutumba, Lwengo, Amuria, Hoima, Pader and Kamuli, had performed below the 30 per cent mark. Shs59b lay idle on the account by the time of the review.

The project had initially been planned to close in 2013 but that is when the review of civil works contracts documents was done.

The absorption levels are too terrible that the Auditor General’s follow up report notes that whereas the other East African countries had disbursement levels above the African average of 20 per cent for their World Bank portfolio, “Uganda had a disbursement level of 12 per cent, well below the African average for the year ending June 2015.”

Whenever they fail to meet their deadlines, government officials charged with implementing the projects ask for more time.

It is noted that 14 out of the 17 projects sampled by the Auditor General were unable to meet their timeline requested, on average, for an extension of 556.8 days beyond their initial closing dates.

For instance, further still, Shs40b borrowed in 2012 from the Kuwait Fund for the construction and equipping of four technical institutions in Agago, Ntungamo, Kayunga and Tororo districts, is yet to be spent yet the closure of the project had been planned for 2014. By the time of the review, procurement was “underway.”

The transport sector is the biggest sufferer of the low absorption bug. In spite of securing a $1.2b (4.3)trillion loan for 13 mega projects, the sector had by time of the review only used Shs1.6 trillion yet all but one project—the Shs381b Jinja bridge project— are supposed to end by the close of this year.

Among the affected projects is the Shs34b International Development Bank loan secured for the construction of small bridges in northern Uganda and north-eastern Uganda. Borrowed in 2008 and expected to end in 2013, only Shs6.7b had been disbursed by the time of review.

Seeking solutions

As part of the shuttle diplomacy at play to resolve the matter, President Museveni last month wrote to the World Bank promising a raft of measures to address the situation in the future.

In the immediate aftermath of the bank pulling a plug on the loans, economists and social commentators alike, urged government to establish centralised tracking mechanisms and harmonisation of planning, monitoring and evaluation procedures between the donors, Finance ministry and the project implementing agencies as one of the reforms needed on the ground.

But in a government full of regime cronies, ranging from relatives to untouchable “regime cadres” moonlighting as public servants strategically placed to protect certain interests, a senior official with one of the lending institutions, told this newspaper that “it is unlikely that the same governments can institute strong mechanism of accountability.”

The official added that “our interest is to see your government ensuring the bare-minimum standards; otherwise we don’t quite expect a lot to be done.”

Dr Fred Muhumuza, a development economist, also advanced a similar view point that government cannot enforce strong mechanisms for accountability, partly because the institutions have been personalised and any weakness “serves the interests of someone close to the hierarchy.”

“What, however, I agree (with Mr Muhakanizi) is that there is a lot of unpreparedness before government embarks on borrowing,” Dr Muhumuza added. “The absorption is as result of lack of priorities, weak institutions and absence of tracking mechanisms.

In most cases, money is borrowed and acquired without proper work plans but only ideas. The rest is the situation we found ourselves into. How do we get out, we might need another structural adjustment.”

Mr Julius Kapwepwe, the director of programmes at Uganda Debt Network, says it is sad that in spite of the availability of borrowed resources and the dire need in communities, government institutions fail to use the available resources.

“Then why does government tax us for funds that won’t translate into a service? There is no value for money if we do not use the loan,” he said. “Government should clean its house. Get rid of corruption, human rights abuse and black list all the firms that have been doing shoddy work.”

In the Auditor General’s follow up audit report, procurement processes came off as the cross-cutting cause of the delay in project implementation, subsequently causing low absorptions.

The advice from ministry of Finance has been that implementing agencies should initiate procurement procedures early (advance procurement) without commitment.

Dr Lawrence Bategeka (NRM, Hoima Municipality) and chairperson of the parliamentary Committee on National Economy, the committee that passes the loans, partially blames the low absorption of the failure by government to meet its part of the bargain.

“It takes a long time for counterpart funding to be put in place. Also, sometimes the project designs are done after the loan has been secured. Those things should always be done before the loan has been approved.

Loans per sector

Energy Shs10 trillion

Works & Transport Shs4.3 trillion

Water Shs1.2trillion

Public Sector Shs1.1 trillion

Health Shs574b

Education Shs533b

Lands Shs513b

Agriculture Shs 253b

ICT Shs256b