WORRY ABOUT UGANDA DEBT … OR NOT?

Last week’s budget stated the obvious, that Uganda’s economy continues to grow and that we intend to keep it growing by emphasising infrastructure investments.

However shorter shrift was given to how we intend to spread that economic growth around. And recently there has been some worry about Uganda’s increasing indebtedness, especially of the less concessionary kind to finance its infrastructure ambitions.

The debt discussion is focussed too much on whether we can or will afford to repay the debts when they come due rather than what we are using the debt for.

"Debt is not a bad thing unless it is used for the wrong things, spurious consumption, instead of investing it on income generating activity, which activity should eventually pay for the loan. But even if you use the loan on investments instead of consumption, overpaying for the investment will reduce the margins you make. It’s important that you get the best value at the cheapest price possible...

To illustrate.

Say you have been out of school for a few years. Hard work, enhanced qualifications and good office politics ensures your earnings have been growing steadily. After a few years pressure mounts for you to get your own home. Despite your improved salary it would take years to save up to build or buy your dream home.

So you decide to borrow to build the house. With the added pressure on your income some consumption will have to suffer at home. Out goes the buffet breakfasts, the second family car, the annual holiday. There will be grumbling at home, regardless that money has been shifted to the building site.

If your contractors are good and upright, they will compete the build on budget and on time. If not the project will become a black hole for your money beyond what you borrowed and will not seem to end, prolonging the silent treatment at home.

Of course scared of the lowering of your lifestyle you could have decided to postpone building and just eat the money. But when the money is gone you will have nostalgia for the good old days as you still have to do something about your living conditions when building is more expensive and in an area that is not as ideal as if you had built earlier.

On a larger scale Uganda is facing the same challenges.

"We have to invest massively in infrastructure because of the huge deficit caused by years of non-investment and the current need to keep up with the growing population. Because we are behind schedule we cannot rely only on our savings to make these investments. So we borrow...

Honourable Matia Kasaijja during the budget reading said our current debt stands at about sh30trillion ($8.5b) which accounts for about 34 percent of our GDP. The figure to watch though is how much we will be repaying annually, about sh2trillion – sh431b for external repayments and sh1,592b locally. The expectation is that the foreign debt repayments will rise in coming years as the grace period on some of our non-concessional loans expires.

Thankfully our debt is committed to roads, dams and railways not subsidies on fuel, food and booze.

The idea is that once the infrastructure is in place it will spur more economic activity – through faster movement of people and goods, greater automation and longer working hours because of more power and cheaper transport through the use of the railway. The greater economic activity will lead to higher taxes and repaying our loans will not look so daunting.

We have done it before.

Our economy at about $30b is two-and-a-half times bigger than it was a decade ago at $12b. As a result – and of course because of improved tax administration, our revenues have jumped more than three-fold during the same period to sh11 trillion from sh3.2trillion.

Interestingly our external debt repayments have almost risen three fold to sh431b from sh157b in 2007/08.

"Our debt remains sustainable as long as the infrastructure expansion has a corresponding or greater effect on national output...

However, if these investments are overinflated, delayed or stolen all together, we can expect that we will be hard pressed to meet our obligations in the future and the pain will be felt all around.

So as citizens we need to scrutinise what our government is borrowing money and when they finally get the money are the projects executed on time and on budget.

What is happening now is we are forgoing the good life – breakfast buffet, holidays in the sun and annual shopping spreees, to invest for the future.

Some people say there is a danger that we are overinvesting, that for instance where will we put the more than 800MW that will co me with the commissioning of Karuma and Isimba dam?

A genuine concern but we have seen with telecommunications, roads and even power that there is pent up demand we do not readily have a grip.

When private investors took over the power distribution in 2005 there were about 300,000 power consumers a decade later this number has exploded to 790,000 at the beginning of the year. And Umeme is signing on 16,000 new customers a month or just under 200,000 annually. You wouldn’t be able to fathom these numbers just by looking at the grid in 2005. And still less than one in five Ugandans has access to power.

In 1998 when MTN came to Uganda they had a contract which stipulated that they should add an additional 89,000 lines over the five years of the contract. On day one their 14,000 line switch collapsed under the weight of the people signing onto their network.

Up to that point there were about 4,000 mobile lines and 50,000 land lines.