Global Policy Forum

By A.mutumba-Lule

The International Monetary Fund and World Bank's debt relief initiatives have failed to help Uganda sustainably manage its foreign debt as its creditors outside the European Union declined to agree to relief terms spelt out by the Bretton Woods institutions. Uganda says the debt had instead increased. It is currently estimated at $3.6 billion.

Finance Minister Gerald Sendawula said in Kampala on Friday that a hitch in the Highly Indebted Poor Countries (HIPC) programme, whose yields would have been used to provide social services and in poverty reduction, had failed to translate into meaningful foreign debt relief. Mr Sendawula told The EastAfrican that servicing the debt had become a serious problem after Uganda declined to agree to the World Bank's HIPC initiative.

World Bank Uganda country director Robert Blake said last week that when the calculations of HIPC debt relief were made, it was assumed that all creditors would provide relief at the same rate. He said the World Bank had asked multilateral creditors to write off the debts. However, he added, the IMF was more in contact with the creditors than his organisation.

"Calculations were made on the assumption that all creditors would respond at the same rate. But since some of them did not do so, the total package Uganda received was less. If Uganda was to continue servicing these debts, then its social programmes would be strained," Mr Blake said.

Some creditor countries have sued the Ugandan government for non-repayment of loans. Uganda hoped the World Bank and the IMF would intervene and convince the creditors opposed to the HIPC arrangement to relent in their demands. The IMF has already been to war-torn Burundi to convince the government to agree to the terms of HIPC and write off a debt Uganda owes. Uganda Burundi recently sued Uganda over the debt dating back to 1987. Mr Sendawula said IMF officials had been to Bujumbura to discuss the debt relief on behalf of Uganda. But he did not elaborate.

The World Bank, under the HIPC Trust Fund, had offered to pay 12 cents for each dollar Uganda owed to its creditors - mainly the Paris Club members - but according to the Minister for Investments Sam Kutesa, some creditors thought the offer was too small and were now demanding that Uganda pay back in full what it owes.

Officials at the Ministry of Finance said up to 90 per cent of the creditors had agreed to the debt scheme implemented in the 1990s. However, those that had declined to the debt relief agreement had sued the government.

In the past one year, a number of creditors have won big awards in court, but the government maintains that it is unable to service the loans. "If we went by the court rulings, then the debt relief would not be helpful to our poverty reduction strategy as we had hoped," Mr Kutesa said.

He said some debts had been cancelled, but most of what remained was in the form of commercial debts to companies and governments that had filed claims against goods and services supplied to government.

At present, Uganda is indebted to Burundi, Tanzania, India, Nigeria, Pakistan, Iraq and Libya. Burundi wants Uganda to pay up to $15 million, Libya wants $155 million, while Iraq is demanding $6.5 million. Tanzania says Uganda owes it over $31 million resulting from the 1979 war in which its troops helped Ugandan dissidents to topple former president Idi Amin. Dar es Salaam says the debt arose from Tanzanian property destroyed by the Uganda army as well as the equipment and services offered by the Tanzania People's Defence Forces. Kampala is challenging Libya's claim for $155 million as interest on loans Libya gave to Uganda between 1971 and 1979. The government wants Libya to waive the debt under the HIPC initiative.

Meanwhile, IMF announced on Saturday that it had approved a $17.8 million loan to Kampala. The money was meant to prop Uganda's Poverty Reduction and Growth Facility (PRGF) and would be spread over three years. While making the announcement in Washington, IMF deputy managing director Shigemitsu Sugisaki observed that Uganda was now eligible to draw $1.9 million, based on Kampala's Poverty Reduction Strategy Paper (PRSP) progress report.

Mr Sugisaki said strong economic performance combined with determined implementation of a comprehensive poverty reduction strategy had contributed to a substantial decline in the incidence of poverty in Uganda over the past decade. He noted that despite unfavourable external conditions, Uganda had recorded a 5.7 per cent real GDP growth during the 2001/2 financial year.

Because of a drop in food prices, he said, headline inflation fell to negative levels while average underlying inflation dropped to 3.7 per cent. However, the budget deficit increased to 12.6 per cent of gross domestic product in 2001/2 financial year, excluding grants, and was largely financed by net donor inflows, that rose to 11.7 per cent of GDP. The $17.8 million three-year PRGF-supported programme, which is based on the authorities' Poverty Eradication Action Plan (PEAP), aims to reduce poverty further by increasing the rate of economic growth and maintaining macroeconomic stability.

This is expected to be achieved through prudent fiscal, monetary and exchange rate policies as well as continued structural reforms through budget management, tax administration, fiscal decentralisation, governance, financial development and sustained fight against corruption.

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