Uganda’s government is sitting on a staggering Shs13.2 trillion ($3.6 billion) in unused external loans, raising concerns about debt sustainability and the effectiveness of public spending. This revelation comes from the Ministry of Finance’s latest Debt Statistical Bulletin, highlighting a worrying trend of borrowing exceeding project implementation capacity.
The report reveals that this unused debt stockpile grew by a significant Shs1.8 trillion ($500 million) in the last financial year alone, primarily due to sluggish implementation of government projects. Factors contributing to this backlog include delays in acquiring land rights, insufficient government funding, inadequate project preparation, and unmet conditions for loan disbursement.
Who are the Lenders Holding Unused Funds?
The World Bank tops the list of creditors with the largest share of unused loans at $856 million, followed by the OPEC Fund with $52.3 million. This raises questions about the effectiveness of partnerships with these institutions and the due diligence conducted before loan agreements are signed.
A Breakdown of Uganda’s External Debt
Multilateral lenders: Account for the majority of Uganda’s external debt at 65% ($9.4 billion), with the International Development Association (World Bank lending arm) holding the largest share at $4.8 billion.
Bilateral creditors: Make up 23% ($3.4 billion) of the debt, with the Exim Bank of China being the largest lender in this category at $2.4 billion.
Private banks: Contribute 12% ($1.7 billion), with Standard Bank of South Africa holding the biggest share at $727 million.
This heavy reliance on external borrowing, coupled with the significant amount of unused funds, exposes Uganda to several risks:
- Debt servicing burden: The cost of servicing this debt continues to rise, reaching $1.051 billion in the last financial year. This diverts resources away from essential public services.
- Currency fluctuations: With 56.3% of the debt denominated in foreign currency, Uganda remains vulnerable to exchange rate volatility, potentially increasing the debt burden in local currency terms.
- Missed development opportunities: The inability to effectively utilize borrowed funds hinders the country’s development goals and undermines public trust in government projects.
The Way Forward
Improving project planning and implementation: This includes streamlining land acquisition processes, ensuring timely disbursement of government counterpart funding, and enhancing project feasibility studies.
Strengthening debt management practices: This involves borrowing strategically for viable projects, prioritizing concessional loans with favorable terms, and exploring debt restructuring options where necessary.
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Promoting transparency and accountability: Greater transparency in loan agreements and project implementation, coupled with holding officials accountable for delays and mismanagement, is crucial for building public trust and ensuring efficient use of public funds.
