An Investigative Report On The Institutional And Regulatory Framework For Debt Management In Uganda

Uganda has strong institutional, regulatory and policy environment but some institutional weaknesses still prevail as witnessed in the recent parliamentary approval of the funding of the International Specialised Hospital at Lubowa in Kampala.

Uganda has established legislative safeguards to control public borrowing. The 1995 Constitution states that all borrowing by government must be approved by Parliament. The other legislative framework includes the Treasury Bills Act 1969, the Bank of Uganda Act 2000, the Budget Act 2001, and the new Public Finance Management Act 2015, which repeals Uganda’s Public Finance and Accountability Act of 2003.

In April, 2015 the Medium Term Debt Management Strategy (MTDS) 2015/16–2019/20 for the Uganda was published, which aims to operationalize the Public Debt Management Framework 2013 (PDM2013). MTDS provides a financing to meet the  medium  term fiscal  financing  requirement  that  would  minimise  debt  servicing  budgetary  costs  and the  risks  exposure  to government while  at  the same  time endeavouring  to maintain our debt  sustainable in line with objectives set out in PDM2013.

However, the World Bank 2014 Country Policy and Institution Assessment (CPIA) frame work ratings of Uganda moved below the threshold for ‘strong performer’ status 3.75 to 3.73. Another year with a score below the threshold could see the country downgraded. While the Institutional arrangements for debt management in Uganda largely conform to principles of international best practice, MoFPED still operates a fragmented Debt management unit despite its attempts to create an independent Directorate of Debt and cash management.

The development of the 2015 PFM Act regulations will come handy in addressing this challenge. While, Parliamentary role as enshrined in the legislative framework, is to provide checks and balances on the loans before approval, it is arguable that Parliament does not undertake sufficient checks and balances given the findings of Auditor general on the management of public debt indicating the approval of loans that lack technical feasibility studies. In some cases, the auditor general has noted in the recent reports that Parliament has provided retrospective approvals of loans and guarantees in contravention with the law. Both MoFPED annual report and an Auditor general value for money audit reports were submitted to Parliament in April, 2015 but there is no evidence of debate of the reports.

This reiterates the need for parliamentary follow up on the public debt audit recommendations. In line, with the 2015 PFM Act, Parliament approved domestic borrowing11 to a tune of 20% of the budget 2015/16 without sufficient debate, as this information was submitted to Parliament two weeks to statutory deadline for budget approval of 31st May.

The hasty approval can also be encapsulated in the recent approval of loans on 3rd September 2015, where parliament was recalled from recess.  V. Conclusion Uganda faces economic risks related with the reduced exports and a depreciating Ugandan Shilling against the dollar (over 30% this year), which coupled with the growing trend and composition of debt risks, there is also a risk of stress which can affect future sustainability.

Had it not been for the debt relief initiatives, Uganda would certainly be under debt stress. While, the liquidity indicators suggest that interest cost relative to revenue is still low, where the debt stock is compared to revenue or exports, the indicators are worrying. For example


Prior to that, domestic borrowing did not require Parliamentary approval, the total public debt to domestic revenue is at 300% and the domestic debt stock at end June 2015, alone was larger than the annual government revenue at the time. The solutions lie in a realm of key actions; ensuring efficiency in government budget planning and spending.  This will require taming unnecessary and unaffordable spending related for example to the creation of districts as suggested by MoFPED. Sequencing of large infrastructural projects and rebalancing of priorities is imperative.

Effective planning and project appraisal of loan projects is key as well curbing corruption. Similarly, debt management institutional building is also essential, Revenue enhancement measures (policy or administrative) are essential, explore alternative measures of financing as well as exploring private public partnerships will go a long way towards addressing the debt sustainability issues. Today’s misused debt is a burden on future generations, Parliament has a role to play across the entire value chain of budget planning, execution and approval of loans. Simply put, approve ready and feasible projects, whose return is higher than the interest rates. Approval of loans is one end of the equation; the usage is another, so Parliament has secondary roles to execute in line recommendations 1-3 above as well as follow up on audit recommendations.

So in the wake of Parliamentary approval of International Specialised Hospital at Lubowa, what really happened? Patrick Tumwebaze Executive director Uganda Debt Network says,’ the weaknesses still dogging the system, some stake holders were overlapped, and the system was very fraudy at the very start and more so the reason it was hurriedly passed. To be honest the element of accountability is something that has not yet fully been embraced by the Government.’’

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