The case for repudiation of Uganda’s public debt

8 December 2017 by Mary Serumaga

Uganda is in imminent danger of defaulting on its debt repayment obligations. The Auditor General notes in 2017 that interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. payments on the public debt exceeded legal limits (15% of the annual budget) and are likely to be unsustainable going forward.

What will follow will be attempts by International Lending Agencies (ILIs); the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
, the IBRD/World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

http://worldbank.org
/IDA and commercial banks to restructure the loans to ensure that they are paid. This should come as no surprise to those familiar with the governance of this resource-rich yet otherwise poor country.

It is the purpose of this paper to analyse the public debt with a view to demonstrating that much of it was nugatory expenditure. To the extent that loan funds were misspent, Uganda has no obligation to repay them. It will be seen from the intended purposes of economic recovery that the country is not in a position to repay the loans by reason of the nugatory nature of the expenditure. It is argued in this paper that an audit of the debts will reveal that the funds contributed little, if anything, to Uganda’s development. If that is confirmed by a debt audit then repayment by the State is out of the question.

Uganda’s economic recovery programme implemented under an IMF structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
programme (SAP) was designed by the IMF and World Bank and implemented by the World Bank and their agents. The extent to which the Ugandan public participated is limited by the fact of a lack of a democratic dispensation under which the financial management of the economy could have been debated. The Government of Uganda became an agent of the World Bank while it became less and less accountable to the citizens of the country.

Bank performance in project design, implementation and supervision is judged primarily on evaluation reports produced by the Bank’s Operations Evaluation Group. The Auditor General’s Report of 2015/2016 is the primary independent source of information on the outcomes of the projects.

Information on Bank performance on the power generation project (Power III) and the Feeder Roads project is taken from the Jubilee Debt Campaign.
Multiple internal evaluation reports prepared by Bank staff demonstrate that their own errors of judgment in each phase of the lifecycles of key projects seriously undermined the potential of the Sructural Adjustment Programme (SAP) to deliver the goals of sustainable economic growth and a capacity for ever-improving service delivery, a decent standard of living and the economic administrative infrastructure that that entails. Overall, the documents show the Bank’s performance ranged from poor to catastrophic.


Repudiation of Structural Adjustment Programme (SAP) Loans

Because World Bank (Bank) performance on the foundational interventions of the SAP, namely the Economic and Financial Management Projects I and II (EFMP I & II), the Civil Service Reform Project (a component of EFMP I) and the Public Service Performance Enhancement Project was so poor, all subsequent programmes dependent for their success on sound financial management and an efficient and effective public service were adversely affected.

The priority programme areas (PPAs) for economic recovery; primary health, primary education, agriculture and feeder roads have fared badly. By the World Bank’s own evaluation, pre-existing public primary education standards were decimated by the ill-conceived and poorly implemented universal primary education project. The agricultural sector revitalization projects are reported to have been totally unsuccessful in one instance and largely unsuccessful in the other. Agriculture has made no progress in irrigation or in adding value to produce grown. According to the latest report from the Auditor General the Cotton Development Authority did not receive the budgeted funding necessary to pre-process cotton and sell it on the international market. In the communications sector the Bank has recently taken the step of cancelling a road project that had already cost government millions of dollars for reasons related to poor implementation.

Not only were targets missed that would have assured Uganda of economic recovery, severe damage was done to the economy. Savings anticipated from privatization were not realized leaving the country poorer and yet without the means to sustain commercial activity. The power sector was privatized along with the copper mines, textile plant, breweries, bottling plants, the national carrier and much else. Where once smallholder farmers earned enough to finance the Nalubaale (Owen Falls) Dam from cotton and coffee sales, Uganda now needs foreign aid to purchase planting material.

Surveys show significant foreign direct investment has not materialized. Foreign investors that have been attracted bring misery to the population by refusing to pay their tax dues and engaging in other sharp practices.

The enabling environment for investment and one might add for ordinary living, did not emerge from the IMF SAP as expected; surveys show investors are discouraged by
i. electricity tariffs 80% higher than internationally accepted standards following the privatization of the Uganda Electricity Board
ii. high levels of corruption in the public sector despite thirty years of financial management interventions (i.e. EFMP)
iii. an inadequately trained workforce in spite of extensive education sector interventions and iv. social instability.

For these reasons, all the expenditure under the IMF Structural Adjustment Programmes has been nugatory. Further servicing of the debt is not only an insult to the citizens but is a gross waste of public resources and should cease with immediate effect. A formal audit of the public debt is necessary to document the extent to which the IFI’s wasted money including bi-lateral aid and local contributions through ill-conceived and badly implemented and poorly supervised projects.


The Background to Uganda’s Structural Adjustment Programme

Uganda’s Economic Recovery Programme which began in 1987 with the advent of the National Resistance Movement (NRM) under the leadership of President Yoweri Museveni was envisaged as a corrective to the aftermath of the six year war that was won by the NRM, and for the devastation of the economy that began in 1966 and continued to 1986.

While most of the financing was to be borrowed from ILIs, various components were to be funded by significant grants donated by countries to sectors in which they had a track record or specific interest. The donors or development partners include the DfID (UK), Danida (Denmark), Sida (Sweden), Norad (Norway), Ireland, Austria, USAID and IFAD. Participating banks are the Africa Development Bank and the European Investment Bank.

Allowing others to set the parameters for development in return for aid is fraught with hidden dangers. To begin with, the priorities of the borrowers and lenders may not agree. In 1987 the lenders were focused on facilitating the recovery of debts incurred prior to 1986 and acquiring more banking business from the ‘new Uganda’. As we shall see, if this meant liquidating the assets of the borrower; the railway, the electricity generating company, the national airline then that is what they would do. The borrower, anxious in the post-war period to revive basic services accepted the terms.

A notable case is the manner of introduction of Universal Primary Education (UPE). Few now remember the Ministry of Education had in fact developed its own plan for universal education or that this indigenous plan developed over a prolonged period was adopted by a candidate in the presidential elections of 1996. However it was immediately hijacked by the incumbent who updated his already broadcast manifesto to include UPE for all grades at once. This populist electioneering plan was largely financed by money Uganda recovered under the Highly Indebted Poor Countries debt-forgiveness scheme. It was supported by co-financing from DfID and other donors.

UPE outcomes are discussed in some detail later, suffice it to say here that by the Bank’s own assessment, the quality of education that existed in Uganda prior to the introduction of UPE was degraded to the extent that the system risks being abandoned by children who find “they are learning too little”. This outcome was evaluated as ‘satisfactory’ and ‘highly satisfactory’ by the Bank.

To add insult to injury one D. Stasavage, in his paper On the Role of Democracy in Uganda’s Move to Universal Primary Education (June 2003) states that the fact that the concept of UPE was first mentioned by President Museveni (not true) in the context of an election (or electioneering, not the same thing), illustrates the benefits of democracy.

Views differ on the nature of Ugandan democracy but the following incident is pertinent. While watching the broadcast of President Trump’s inauguration with a Ugandan lady, I pointed out President Obama to her at which she turned to me in horror and asked, “Won’t they kill him?” She had never experienced a transfer of power. She then described her voting experience.

In the weeks leading up to Election Day, she and the inhabitants of her county were treated to feasts such as they had never seen before. This is a scene that was repeated all over the country according to the election monitoring report by ACFIM. |1| On Election Day itself, according to the young lady, the ballot papers were delayed. When they finally arrived, the queuing voters were handed a ballot paper each with instructions to vote for President Museveni.

While World Bank Group President, Jim Kim, defines service delivery as an enterprise “to provide needed goods and services to citizen beneficiaries “in a way that meets their expectations”, the Bank degraded the standard of education, one of Uganda’s finest achievements, called the outcome ‘highly satisfactory’ and then expects Ugandans to pay for the service. Standards unacceptable in the developed world were deemed satisfactory for Ugandans. This amounts to institutional racial abuse.


ILI Ownership of the Structural Adjustment Programme

It cannot be emphasized enough, the objectives of the lender on the one hand and the standards to which the borrower aims may diverge on critical points. The quality of life to which the citizens aspire may not coincide with the standard of living of the lenders see as befitting them.

Who is to say access to a water source within the Millennium Development Goal of 200 metres is an acceptable target - United Nations officials or the woman who has to actually carry a twenty-litre jerrycan to and fro over those 200 metres twice a day; the mother of the 4 year old staggering behind her with the 5-litre kagalani? By whom was it decided that water is perpetually to be carried in the countries with the most natural resources and that produce the most commodities Commodities The goods exchanged on the commodities market, traditionally raw materials such as metals and fuels, and cereals. while it is piped in to the homes of those who consume them?

The lenders in this case; the IMF, the World Bank (the Bank), their partners and their hired agents were responsible for the appraisal, design, planning, implementation, supervision, monitoring and evaluation of the SAP projects and each of the public sector reform projects under it. It is reasonable to expect those institutions to bear the responsibility for the limitations of their officials. It was a reasonably foreseeable risk they took on when they assumed responsibility for the public administration of Uganda.


Structural Adjustment and Aid Dependency

Once the SAP priorities were set, other vital functions of government which were deemed to be important but not important enough for local capacity to be built around them, were farmed out to donors and consultants from their countries. It seems to be the case that the ex-colonial power of a country is given precedence over other donors and the UK played a leading role in policy-making in Uganda.

International NGOs then take up outstanding projects. For example, few African governments are responsible for routinely vaccinating their children. They lap up congratulations for achieving 50% coverage while Unicef covers the rest. Who will vaccinate the water-carriers when outsiders are no longer willing or able to continue to do so? This is a very real possibility if under Donald Trump’s presidency the U.S.A. withdraws funding from United Nations organs as he has pledged to do.

It has been demonstrated that even the poorest countries, once they make primary health care a priority, are able to exceed donor-assisted targets. Cuba’s ratio of 6 doctors per 1,000 Cubans and community health programme are well known. But not being IMF programmes, they have not been replicated anywhere. IMF-led countries generally have maintained the one doctor or less per 1,000 patients existing since they gained independence in the 1960s.

Aid dependency created under the SAP has the added disadvantage of stifling local industry and commerce. If the provision of pharmaceuticals for primary healthcare remains the responsibility of Unicef and the WHO, the financial beneficiaries will remain the Western pharmaceutical suppliers who are awarded those contracts. How then will locally produced vaccines be developed? Uganda’s Auditor General warns in his 2016 report that the availability of donor-subsidized ARVs has crowded out the locally manufactured alternative. Would it not make strategic sense for government to subsidize locally manufactured alternatives? The cost could easily be covered by the amounts currently spent on teargas.

By appraising themselves of the economic realities, the citizens of African countries will be able to make the transition to saner arrangements without being stampeded in to acquiring further debt. Waiting for the crisis causes succeeding administrations of debt-distressed countries to operate in crisis-mode and succumb to freshly imposed loan restructuring schemes the terms of which only serve to prolong their indebtedness. Boris Johnson’s visit to the Gambia within days of ex-President Jammeh’s forced exit is telling in this respect.

Whenever Africans wait to act post-crisis they find they are not be in a position to repudiate the illegitimate debt of the previous regime. They cannot at the time of transition argue the case that if the original loans were not sustainable, restructuring cannot bestow sustainability on them. Morally, the debt remains wrong if in the beginning loans were not taken out in the country’s best interests and this will be reflected in the manner in which the funds were used. Restructuring cannot cure this and therefore all illegitimate debt should be repudiated.

When the president of one of the poorest countries on earth, who was born poor and has been a public servant all his working life, is listed as one of world’s wealthiest individuals alive, but is unable to point to a machine that he invented or a best-selling book he wrote or otherwise explain how his net worth came to be comparable to the amount the country receives annually in foreign grants, it is time for a stop loss intervention.

The country’s failure to respond to any kind of reform programme with visible human development is the inevitable outcome of decades of poor governance powered by the reckless lending of IFIs, both local and foreign commercial banks and grants from donors. Whether they are well-meaning but misguided or knowingly facilitating wealth extraction by foreign direct investors has yet to be determined.

It is neither too early nor too late to repudiate the debt that facilitated the rise of the kleptocracy in Uganda. To act now, before the crash is fully upon us, would offer the possibility that the event will not be experienced as an unforeseen crisis but as an opportunity to re-set our relationship with the international community.

In repudiating the debt we need only stand on Uganda’s constitution: “Recalling our history which has been characterized by political and constitutional instability; recognising our struggles against the forces of tyranny, oppression and exploitation; committed to building a better future by establishing a socio-economic and political order through a popular and durable national Constitution based on the principles of unity, peace, equality, democracy, freedom, social justice and progress; [all Ugandans including the writer] exercise our sovereign and inalienable right to determine the form of governance for our country.”


Determining the Illegitimacy of the Debt

Much of Uganda’s debt falls within the classic Sackian description of odious debt: “If a despotic regime incurs a debt, not for the needs and in the interests of the State, but to reinforce its tyranny and to put down any resistance on the part of the people, then this debt is deemed odious for the population of the entire State. It is not an obligation of the nation: it is the debt of a regime, a personal debt of the power that incurred it. Consequently, it falls when the power falls.” (p. 157) “The reason why such ‘odious’ debts cannot be considered as incumbent on the State is that they do not fulfil one of the prerequisites of State debts, namely that State debts must be contracted, and the funds that they provide utilised, for the needs and in the interests of the State.”

By reason of their demonstrated incompetence in the administration of the affairs of the Republic of Uganda, the successive governments of Uganda had and have no legal standing to incur debt in the name of the people of Uganda. IFIs and local and foreign commercial banks were reckless in loaning money to individuals who clearly lacked the intention or the capacity to translate the funds in to the development that would have enabled their countries to repay the debts.

In his definition of odiousness, Sack continues, “The State is not liable for ‘odious’ debts incurred and utilised, with the knowledge of the creditors, for ends which are contrary to the nation’s interests, should that State succeed in ridding itself of the government that had incurred them. […] The creditors have committed a hostile act with regard to the people; they cannot therefore expect a nation freed from a despotic power to take on the ‘odious’ debts, which are personal debts of that power.”


Lending to a Captured State

The observance of human rights was a key component of the planned enabling environment for development. The SAP was to be implemented within an environment conducive to foreign investors. Therefore it was necessary to re-establish the rule of law and electoral democracy by strengthening the institutions supporting them. However the Ugandan human rights record continues to deteriorate. During the lifecycle of the SAP which began in 1987, it became clear the citizens of Uganda had fallen victim to state capture and yet the credit continued to flow.

What did the IFIs know about the operations of the NRM regime and the public service and when did they know it? There is documentary evidence that the Bank knew of the nature of the NRM regime dating to at least 2005 when J. Barkan (an expert on which it sometimes relied) wrote, Uganda: An African ‘Success that has Peaked? (2005). In that essay he described the government of Uganda as having “…beg[u]n—but has not finished—the process of democratization […] It is the failure of the Museveni government to achieve this third goal that now puts the entire record at risk […] We have seen these patterns before, and the scenario is not good. It is not good for Uganda. It is not in the interests of the United States. And it is not in the interests of Uganda’s other development partners who together provide the massive flows of aid on which the regime depends, because these flows are directly and indirectly financing the downward spiral.”

Beyond that point in 2005, can government and the World Bank still be said to have been acting on behalf of the citizens of a sovereign state? World Bank credits advanced to Uganda under the SAP at least since Barkan’s first warning of July 2005 when what Barkan called ‘corruption and inflationary patronage’ was rife and discernible, is odious and continued lending in this context was an act of recklessness.

Again in 2011 Barkan advised the World Bank and other development partners to cease advancing credits to the government of Uganda. Published by the Centre for Strategic and International Studies he stated in Uganda: Assessing Risks to Stability, “Notwithstanding its regular elections, Uganda is not a democracy…elements of democratic practice mask authoritarian and personal rule […] The potential for instability is heightened by the issue of political succession.”

Since then the election observers of 2016 were very critical of the manner in which elections are carried out in an atmosphere of State violence and the intimidation and arrest of opposition leaders.

It is not acceptable for IFIs to continue to transact business purportedly on a State’s behalf with public officials who if they lived in the countries from which IFI’s come, would be charged with criminal negligence at the very minimum. The current head of the IMF was convicted of negligence in handling public funds for an incident when she was Minister of Finance of France approved a payment of 400 million euros. Do the same standards of financial probity not apply when the losers are people who have to carry on their heads twenty-litre jerry cans of water 400 metres a day?


General Illegitimacy of the Debt

Even if Sacks’ narrow definition were to be rejected, international law is settled on four matters: to be payable Payable A sum of money that one person (debtor) or group of people owes to another (creditor). public debt agreements must be
(i) entered in to by legally authorized officials and in compliance with the laws governing public financial management.
(ii) incurred with the consent of the people, and
(iii) for the benefit of the people.
(iv) finally the law imposes responsibilities on both the borrower and the lender; the borrower must enter the transaction with a reasonable belief that the he can repay the debt and the lender must have a reasonable belief that the borrower will be able to repay. This goes to the issue of sustainability of the debt.


Legality and Consent

It is argued here that where leaders of sovereign States act recklessly in acquiring debt, the citizens of those States cannot be said to have conferred authority on them to do so. Consent can only be construed as consent to actions that benefit the citizens and the state.

Furthermore, consent in law is interpreted as informed consent. It is therefore arguable that for loan agreements to be binding, the people in whose name they are taken must be informed about what they entail and any known risks attached. This principle has been established in the sale of financial investment plans to the public and should be applied to public financial plans such as the SAP. The risks of the SAP that crystallized in the Ugandan context were known to the IFIs; they had occurred before in Latin America with similar devastating effects.

Where loan agreements are secretly made with commercial banks, the public has no means of establishing the purpose of the loans or whether the law was complied with in their acquisition. These are void ab initio.


Lender’s Duty of Care

In the case of Uganda there is evidence in the Auditor General’s Report for the year 2015/2016 that much of the published public debt owed to IFIs and unhidden private external loans (taken from foreign commercial banks) is illegitimate by reason of
i) the intention of officials of misappropriating the funds or their inability to protect the funds from misappropriation
ii) the radical liquidation of national assets under the Structural Adjustment Programme enabling public officials to squander the proceeds through mismanagement and possibly fraud
iii) the constructive and actual knowledge on the part of the IMF that this was likely to be the outcome based on the NRM’s track record and similar outcomes in other parts of the world.


The Public Interest

The public interest is in receiving adequate and ever improving service delivery. The path to development has been determined by IFIs with the agreement of our elected leaders (the question of the integrity of the elections is not debated here.) Interventions included:

  1. devaluing the national currency in order to bring down the prices of exported goods and sell them for strong currencies,
  2. reducing public administration costs by implementing a Civil Service Reform Programme,
  3. privatizing public enterprises and property including that of Uganda Co-operative Society which was built up by smallholder farmers over a period of decades,
  4. eliminating public subsidies paid to service providers by privatizing parastatals e.g. the Uganda Electricity Board.
  5. Because it was and still is the norm for Ministries, Departments and Agencies (MDAs) to receive treasury releases below the amounts allocated to them in the budget, certain sectors deemed to be essential to development were ring-fenced. These Priority Programme Areas (PPAs) were protected by the rule that the amounts allocated to them in the annual budget were to be released to them in full without fail. PPAs were:
    - primary education,
    - primary healthcare,
    - agriculture,
    - water and sanitation, and
    - feeder roads.

It is important to note that government’s commitment to civil service reform and economic recovery was revealed as a hoax when the budgets of all sectors were reduced by twenty-five per cent in order to finance the invasion of the Democratic Republic of Congo (DRC). This was unconstitutional as Parliament was informed only after the army was in DRC. The International Court of Justice has since given DRC judgment against Uganda. For the looting and pillaging of Congolese gold and hardwood that the military carried out, the State must pay compensation of US$10 billion. Needless to say as the invasion was not agreed to by the representatives of the people of Uganda who did not benefit from the looting, the State is not responsible for the judgment debt.


IFI Incompetence to Administer Uganda’s Public Affairs

In each of these priority areas there were significant failures in design, planning, implementation and supervision of the component projects by World Bank officials and their agents. Missed targets in these areas undermined the entire SAP. It is reasonable to expect public institutions to bear the responsibility for the limitations of their officials. It was a reasonably foreseeable risk they took on when they assumed responsibility for the public administration of Uganda.

Evaluation reports prepared by the World Bank reveal issues that had a negative impact on the success of these projects. Individual projects are rated as follows: highly satisfactory, satisfactory, moderately satisfactory and unsatisfactory. Risks to the development objective range from significant to moderate.

A number of questions arise; in the event the planning, supervision and monitoring of a project by the Bank and its agents is less than satisfactory, does the loss fall on the borrower or on the Bank which had design, implementation and supervisory control? A case in point would be the recently cancelled roads project that failed because of unsatisfactory performances by the Bank, government officials and the contractor. US$176 million had already been disbursed. While Jim Kim was candid about Bank failings on the project, he was silent on the question of who should bear the consequent loss.

In the following section, World Bank project objectives in Uganda are analysed based on the Bank’s own internal evaluation reports.


Failures in Project Design and Supervision and Falsified Evaluation Reports

Incompetence and possible fraud is evident in the Public Service Performance Enhancement Program, Project ID Number P050440, Report Date 12/31/2011. Performance Enhancement was financed by a loan of US$20.3 MN and co-financed by donor grants amounting to US$15.5 MN.

The objective was to transform the public service to make it affordable, efficient, accountable and effective in the use of public resources and to improve policy, institutional and regulatory environments for sustainable growth and service delivery.

It is clear that the project is a catch-all for those elements of the CSRP (under EFMP I) that were unsuccessful. It was faulty from the outset. At evaluation it was found the planned objectives were too ambitious in scope and complexity to be realized given what was known during the planning phase about the weak capacity of the Ministry of Public Service (seven senior officials were later convicted of corruption.) The Irish government pulled out early requesting a refund of the grant it had made after corruption was discovered in the Ministry while the Bank cancelled US$47 MN of the loan.

The claim by an evaluation team member, that an Integrated Payroll and Personnel System (IPPS) was implemented in all government establishments under this project is an embellishment of the facts: only one of the nine components of the IPPS was completed as the AG reported in 2016. The system was scheduled to be replaced in May 2017 without ever having been completed. The resulting financial loss owing to payroll and pensions fraud has been massive: UGX11.39 BN (US$3.25 MN) in the local government for the year 2015/2016 alone as reflected in the AG’s report.

Claims about the completion of rolling out Results Oriented Management, an unfinished task carried over from the Civil Service Reform Programme of the mid-1990s, are unlikely to be genuine either. Nugatory expenditure resulting from IFI negligence such as this cannot be the responsibility of the citizen in whose name the money was borrowed.

It is a measure of the weakness of this project that the evaluation group manager was unable to find anything at all with which to mitigate its ratings as was done with UPE. Total failure is admitted: “Taken together, these ratings are indicative of significant shortcomings in the project’s preparation and implementation….” It was given an ‘unsatisfactory’ outcome rating as were the Bank, borrower (Government of Uganda) and implementing agency (Ministry of Public Service.)


Issues Arising from Project Failures

Given the inter-linkages between components, how is the cost of the knock-on effect of one failed project on other components calculated? The cost of implementing the project aside, how is the cost of the loss of the expected project outcomes for economic recovery and the disruptive effect of the failure determined? Instances such as this lead one to question the bona fides of the lender – is the goal development or mere indebtedness?

Ratings are given by Bank officials and agents, it is unclear at which point the putative borrower expresses his satisfaction or otherwise, in other words, borrowers do not rate projects. In fact the Implementation Completion and Results Reports (ICRs) in other projects mention the fact that in some cases there was no ‘ownership’ of their interventions by government officials and the new reforms were unlikely to be sustainable for that reason.

In the event a satisfactory rating is given to a project that was clearly unsatisfactory or a failure in its outcome, is the borrower obliged to bear the cost? Are there no consequences for the Bank in the same way that there were no consequences for Christine Lagarde whose professional record was instead praised by the trial judge after she was convicted of financial impropriety?

Commercial banks also lend to government. The AG notes that their interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
are gradually moving closer to commercial rates offered to the general public, indicating falling assurance of government’s ability to pay. However, they keep lending because they have seen bailouts elsewhere. The lenders are not acting prudently or in good faith, a fact which has a bearing on the legitimacy of the debts they think they are owed.


Waste Caused by Failures in Foundational Projects: Economic and Financial Management Capacity Building

A major example of a foundational project gone awry and in fact the only example needed, is one in the area of economic and financial management skills, systems and equipment, which were critical to the success of the all the rest of the projects under the SAP. Capacity-building was tackled twice under Economic and Financial Management Programme (EFMP) I and II.

Under these projects, the government was being prepared to begin to receive aid directly in to the government’s consolidated fund from where they were to be disbursed by the Treasury according to the usual rules governing local funds. The practice of donors setting up individual country projects and managing them themselves was to be phased out. To work, the skills, physical infrastructure and regulations needed to be in place.

In the pre-appraisal and appraisal phase for the Economic and Financial Management Programme (EFMP) Phase II, Bank missions commissioned a local information systems specialist who advised them on the weaknesses of the financial management systems. |2| The weaknesses were to be addressed under EFMP II.


Economic and Financial Management Project Report Date: July 19, 1999

The project cost US$51 MN of which US$30 MN was a loan, US$3.6 government funds and US$17.1 grants from six donors which were exclusively spent on civil service reform. The objectives of EFMP I were wide-ranging and included:

  1. Strengthening budget development,
  2. Improving treasury accounting, inspection and audit functions,
  3. Strengthening revenue collection,
  4. Strengthening Management Information Systems,
  5. Improving cash management,
  6. Strengthening Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

    ECB : http://www.bankofengland.co.uk/Pages/home.aspx
    MIS, debt monitoring and foreign exchange management, and
  7. The civil service reform programme.

Achievements

EFMP I addressed in part macro-economic management and the functions of the Ministry of Finance Budget Department, the Accountant General, the Central Bank and the Treasury as well as activities that were eventually devolved to local government. Capacity-building at that level is generally agreed to have been successful in some areas. The complexity of the project makes a blanket rating difficult.

That said, all the objectives excluding the civil service reform programme were rated either ‘unsuccessful’ or ‘unsatisfactory.’ The civil service reform programme success was attributed to the completed retrenchment programme and the installation of a personnel system in the Ministry of Public Service. The only problems with this ‘success’ are:

  1. No personnel system was installed. Further efforts to install one were made under the Performance Enhancement Programme which closed in 2011. The outcome was disastrous as has been seen earlier in this essay.
  2. The manner in which retrenchment was carried out disorganized government functions for many years to come. For instance the provision of agricultural extension services under the Bank’s NAADS project failed mainly because thousands of experienced extension workers had been retrenched and it was found agricultural extension services are not widely available in the private sector. The AG’s report of 2016 attributes much of the US$9 MN lost through financial mismanagement attributable to the lack of skilled staff.

This is another instance of misleading reporting by Bank officials leading to further disbursements which cannot be safely managed.

It is encouraging to note, and it strengthens the case for repudiation, that Bank documentation of the lessons it had learned from EFMP proves knowledge that subsequent projects had little chance of success. The lessons as the Bank sees them, provide an insight in to project design and implementation shortcomings on their part. Underlying all the difficulties they encountered was the fact that the government was not sufficiently involved in the intervention, quote,

"Management of complex, multi-component projects should be undertaken by the government (emphasis added), utilizing a high-level, government-wide co-ordination mechanism. This would ensure that a prioritized list of activities is developed within each project and across projects - to ensure that prioritization/sequencing is consistent (e.g., pay reform issues as part of civil service reform are resolved before an expenditure reform programme requiring skilled staff commences)” (Operations Evaluation Department ICR Review)


The Second Economic and Financial Management Project, Project ID Number P044679 Report

Date 13 August 2007 eventually cost US$73.18 MN against an estimate of US$42.3 million. The project closed at the end of 2006. The loan component was US$47.9 MN with co-financing of US$4.45 MN (NB the report does not identify the co-financiers.)

The objectives included:

  1. improving the effectiveness of public expenditure management processes by harmonizing central and local government planning and budgeting and supporting decentralisation,
  2. strengthening financial management, and
  3. building capacity to monitor development performance, service delivery and impact of public expenditure on poverty trends.

The Bank rates the risk to the outcome of the institutional development target as being ‘significant’. The risk was that the loan funds were made available during the election cycle of 2006, which was expected to result in populist spending and possibly government diverting money to the campaign and being unable to meet budget targets. To quote the report,
“Lack of budgetary discipline and uncertain political environment, which do prevail in Uganda (emphasis added), could easily derail progress achieved through the implementation of the project.” |3|

Nevertheless, Bank performance was rated only ‘moderately unsatisfactory’.


The Auditor General’s Report on Local Government Expenditure

The 2016 audit report shows that eight years after EFMP II, financial management capacity limitations still undermined service delivery at every level;

  1. Payroll anomalies resulting in overpayments of UGX11.3 BN (US$3.25 MN ),
  2. Procurement anomalies affecting UGX1.31 BN (US$374,284). They are attributed to lack of capacity, understaffing and deliberate flouting of procurement regulations,
  3. Funds not accounted for amounting to UGX3.9 BN (US$1.1 MN ),
  4. Under-collection of local revenue amounting to UGX17.1 BN (US$4.9 MN) owing to missing records, understaffing and failure to carry out enumeration and assessments,
  5. Failure to enforce contracts with private revenue collectors owing to apathy,
  6. 14 municipalities failed to use UGX94.7 BN (US$27 MN) for amongst other expenditures, capacity building. The reason given was a lack of capacity to procure equipment for surveying and engineering and environmental equipment.

Understaffing owing to a recruitment freeze. The freeze itself was a requirement of the SAP. Most understaffed local government entities are short of twenty per cent or higher of strength.

Note: where officials do not enforce government contracts and collect dues often indicates rent-seeking; they are likely being paid for the favour.


- Total spent on Financial Management capacity building under EFMP I begun in 1992 and EFMP II which ended in 2006: US$124.1 MN of which US$77.19 MN were loans, US$3.6 government funds and US$21.55 MN grants from the Netherlands, Sweden and Austria and three other donors not listed by name in the evaluation.
- Total local government losses through financial mismanagement and lack of capacity in 2015/2015 alone: UGX33.6 BN or US$9.62.


Priority Programme Area: Primary Health Care - Uganda - District Health Project Report Date: September 22, 2003

Cost: US$65.3 MN, Loan: US$45 MN, Co-financing: US$17.5 MN.

Objectives

  1. "To improve the health status of the Ugandan people, through pilot-testing and demonstration of the feasibility of delivering an essential health services package to District-level populations, within a prudent financial policy framework for the sector.”
  2. To improve the quality and quantity of public health care services. A new health care financing scheme was to be designed and pilot-tested before being demonstrated in selected districts.

Outcomes according to a World Bank evaluation

  1. Expected improvements in service delivery and health outcomes were not realized.
  2. Project was unsuccessful in demonstrating the feasibility of delivering an essential health services package. There was no evidence that the Pilot and Demonstration districts had better health gains than other districts.
  3. Over the life cycle of the project, the population migrated towards private health care providers [abandoning public sector healthcare.]

Project Shortcomings

  1. An unrealistic time-table which resulted in the pilot having to be abandoned and merged with the demonstration phase. The project therefore did not have the benefit of pilot-testing.
  2. There was a shortfall in co-financing.
  3. None of the new health care financing schemes designed under the project was found to be appropriate and government cancelled cost-sharing.
  4. There was a lack of a monitoring and evaluation framework, no performance targets were identified.

Sustainability: Likely.

Evaluator’s comment

"Prior project lessons warned against complex projects such as this (emphasis added). Design had unrealistic timetables and omitted M&E framework; failure to restructure at Mid term (Sic) Review, little appreciation of political economy of reform program; failure to ensure commitment of partners led to financing shortfall; and unplanned expenditures undermined project implementation.”


Priority Programme Area: Primary Education The Education Sector Adjustment Credit, Project Identification Number P002972 Report

Date: October 16, 2001 commonly known as the Universal Primary Education Programme or UPE, is a priority programme area.

We have already touched on UPE. The project cost was US$311 million financed by debt written off under the Highly Indebted Poor Countries initiative. US$155 million was made available as direct budget support. Denmark, Sweden, Ireland, the Europeans Union and USAID provided co-finance in the form of grants amounting to US$58 million.

Prior to grants being made to support UPE the British government commissioned a systems review to determine whether government accounting systems would be able to track the expenditure in order to provide accountability to the British parliament. |4| The payroll was important because fifty-eight per cent of UPE expenditure went on teachers’ salaries.

The systems review report stated clearly that in their current state the computerized financial management systems were weak and cited evidence of massive payroll fraud. Also, unusually, during the review the individual responsible for adding fake records to the payroll was identified and made an admission. He stated that he had instructions to do so from his bosses. This information was passed on to the authorities at the time. Some two years later, the Permanent Secretary of Public Service, the Minister of Public Service, and Director/Budget and DfID were reminded of the report’s existence by the consultant. However no action was taken.

Some were relying on EFMP to remove the danger by implementing new financial management systems. Unfortunately, sixteen years after it was first discussed, a secure computerized payroll system has not materialized.

Achievements

As far as UPE went there was a predictably massive increase in enrolment. The evaluation notes; a greater share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of recurrent expenditure was allocated to the education sector, enhanced efficiency and effectiveness in resource use and better sector management. It is difficult to see how these last two achievements were measured.

Sustainability

The evaluation plays down the evaluation team’s findings that because 70% of the expenditure is donor funded, sustainability of UPE is fragile. In evaluating sustainability, the evaluation report further notes:
"The decline in the quality of education makes the system vulnerable to abandonment by students who may not learn enough to find school worthwhile and could compromise UPE goals.”

Failures are admitted to:

  1. “During the project the Bank tried to protect the quality of education, but the project design was too ambitious to make this possible, as reflected in the QAG’s [Quality Assurance Group’s] assessment of quality-at-entry.”
  2. The evaluators go on to admit that this would not have happened had UPE been phased in one academic year at a time. She goes on to refer to what she calls a “dramatic deterioration of inputs” and lists the now famous UPE statistics:
    - pupil: book ratio 6.7:1 although the project was aiming at a target of 3:1
    - pupil: classroom ratio 120:1, pre-UPE it was 40:1
    - pupil: teacher ratio 65:1 although the project was aiming at 55:1

But the mistakes are justified anyway
“Although the project fell short of its targets in preventing a decline in education quality, a comparison of what actually happened with the counterfactual (what would have happened without the project) would have provided better information on the project’s accomplishments in this area.”

The project evaluator argues that in the context of emergency assistance the outcome was satisfactory, i.e. government was going to do it anyway and therefore the WB intervened to make it better than it otherwise would have been. The only difficulty with this logic is that the experts at the Ministry of Education had designed a different plan and there was no emergency.

Independent Evidence of Project Failure

Independent student testing showed 60% of UPE students have basic numeracy and literacy skills below the expected standard.
Because of the sheer size of the project, it provided an opportunity for procurement fraud – a study showed approximately 60% of UPE funds were lost in transit from the Treasury to the schools. Collapsing school buildings owing to shoddy workmanship present a real physical danger to students and staff.

Excuses about emergency assistance are rubbish of course. It is widely accepted locally that Bank policy was to support the incumbent’s election campaign. It was believed, and Bank and other donor officials were prepared to say so in private, that the opposition was too weak and lacked military backing. In short, the policy was to ensure the victory of the strongman candidate.

The unmitigated disaster that is UPE is rated by the Bank as follows:
- Outcome: Highly Satisfactory,
- Institutional Development: Substantial,
- Sustainability: Highly likely,
- Bank Performance: Highly Satisfactory,
- Borrower Performance: Satisfactory.

Long-term effects

In fact the system is being abandoned by students, in droves. Only twenty-four per cent of those who enroll in primary one complete the seventh and final year. (Unicef, 2012, administrative data).

The evidence suggests that knowing loan expenditure to have been nugatory, in many cases, lenders took steps to disguise that fact in order to justify advancing further credits and continue to earn interest. Wherever the Bank did not act in good faith, the loan agreements they made with Uganda are void and the only economically viable, appropriate, democratic, just and sensible action is repudiation.


Priority Programme Area: Agricultural Extension
Uganda - National Agricultural Advisory Services Project
, Project ID Number: P044695 Report Date: 12/31/2009. Cost US$162.66 MN, Loan: US$ 53.5 MN Government counterpart funding: US$51.9 MN, Co- financing US$19.9 MN from the International Fund for Agricultural Development and US$33.6 BN from unnamed bi-lateral agencies. DfID is mentioned in connection to the Accountability Working Group, 2010. Loan funds for advisory services were to be matched by government

Objectives
“To assist poor men and women farmers to become aware of, and be able to adopt, improved technology and management practices in their farming enterprises so as to enhance their productive efficiency, their economic welfare, and the sustainability of their farming operations.”

To provide:

  1. Support for on-farm technology development and market linkage development.
  2. A regulatory framework for extension service providers.
  3. Farmer institutional development to build capacity for farmer orientation and mobilisation to use extension services and adopt new agro-technologies and seed varieties.
  4. A forum for planning between farmers and service providers.
  5. Training for all participants.
  6. Technical advisory information for farm advisory services, information and communication services for farmer groups (FGs) and on farm adaptation and testing of agricultural technologies.
  7. To facilitate partnerships between market actors and farmers, market research and information and develop linkages between farmers and input/output markets.
  8. To provide technical advisory services to individuals and institutions to enable them to provide advisory services.
  9. To assist the NAADS secretariat to develop and adopt regulatory standards for service providers.

Outcomes

  1. Awareness and adoption of technologies and management practice took place. After 2007 uptake was more rapid among the non-NAADS control group than in the NAADS catchment area.
  2. Owing to extensive retrenchment, there was a shortage in the supply of trained extension workers.
  3. Reliance on private sector extension workers was insufficient as such a service was virtually non-existent locally. Farmers lost 80% of their access to advisory services.
  4. The poorest families (described as those with ’’primitive roofs") experienced growth in their incomes. The wealthy benefitted ahead of the middle-income group who were said to be limited in their capacity to acquire the improved technologies being promoted.
  5. By 2006, the system was systematically rewarding wealthier, better connected clients.

Sustainability

  1. The scanty monitoring and evaluation data available to the evaluation team indicated to the team that the sustainability of farm operations under the project may be worsening rather than improving.
  2. There is said to be a significant risk to the expected development outcome.
  3. Government raised the concern that NAADS strategy would lead to soil fertility mining as it did not adequately invest in soil fertility management practices.
    - Achievement of development goals: Modest.
    - Bank performance: Moderately Unsatisfactory.
    - Borrower performance: Moderately Unsatisfactory

Government changed the focus of the project without consultation with the co-financiers.
Government injected its committed funds late and a smaller amount than pledged.

Corruption: The Ministry of Agriculture has audited some misappropriations and misdirections of funds with a view to recovery.

Project Shortcomings

The objectives were relevant to the following objectives of pre-existing projects:

  1. poverty reduction through rapid economic growth, and
  2. modernization of extension services to make them more responsive to farmers needs under the Plan to Modernize Agriculture (PMA) and
  3. transitioning from subsistence to commercial farming under the National Development Plan.

However, it was undermined by significant design flaws;

  1. Co-ordination between NAADS an autonomous entity, and the Ministry of Agriculture which is the parent ministry of extension workers was poor, the ministry was largely left out of the loop as discussions were held with the NAADS secretariat and Ministry of Finance.
  2. The time needed to retrench several thousand public extension workers and convert the service to private sector actors was underestimated resulting in a shortage of this key resource.
  3. There was no mechanism built in to co-ordinate the NAADS project with the Bank’s Agricultural Research and Training II which is expected to link research and extension activities and better disseminate new varieties and technolo4gies.
  4. The usual Bank supervision methods were replaced by joint supervision by the consortium of financiers. Not all put equal emphasis on monitoring and evaluation and this led to weak monitoring and evaluation.

The NAADS project has been reviewed multiple times by agricultural specialists whose assessment is less upbeat than the Bank’s: “[N]o significant differences were found in yield Yield The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value. growth between NAADS and non-NAADS sub counties for most crops.” (International Food Policy Research Institute review paper Discussion Paper 00724 October 2007)


Priority Programme Area: Feeder Roads

Transport Sector Development Project

The following is a Debt policy update, from Jubilee Debt Campaign, 10 February 2016.

Uganda road project cancelled but debt remains

“In January the World Bank cancelled a road building project in Uganda after ‘multiple failures … on the part of the World Bank, the government of Uganda, and a government contractor’. There has been sexual abuse and misconduct by construction workers and mistreatment of staff working forward on the project. Environmental concerns, such as layers of dust on banana plantations, have also been raised. However, the debt from the project remains.

Christine Baryamuzura, local council secretary for women in Bukonderwa, a village in the Ugandan district of Kamwenge, told the Guardian a ‘tragedy that has come to this village. Everything has been destroyed: our gardens, our homes, even our girls. Of course we want the road, but should it be at the expense of our lives? Our leaders care more about the road than the people’s health.’

On announcing cancellation of its funding for the road, World Bank President Jim Yong Kim said ‘It is our obligation to properly supervise all investment projects to ensure that the poor and vulnerable are protected in our work. In this case, we did not.’

However, $176 million of the $190 million of loans planned by the World Bank for the scheme have been disbursed. This is a debt which the people of Uganda through their government now owe for the disastrous project.

Jubilee Debt Campaign has written to the UK’s representative at the World Bank, Melanie Robinson, to ask if ‘Whether as part of the review of the project, the World Bank will consider cancelling part of the debt in relation to its failures on the project?’ and stating that:
‘Loans can be a useful tool when invested well, but if a project has been subject to multiple failures, the people of the country concerned cannot be expected to take on all the costs of debt repayments.’”


Power Generation and Supply

Power III, Project ID Number: P002929, Report Date: December 3, 2002,
Cost: US$320.5 MN Loan: US$ 153 MN, Co-financing: US$153 MN. Partners were Africa Development Bank, Danida, European Investment Bank, NDF, Norad and NTC. The project objective was to provide “least-cost capacity additions to Uganda’s power generation”.

Project Performance
- Outcome: Overall demand has continued to outstrip supply. Only one out of 3 objectives was met.
- Rating given by Inspection Panel: Unsatisfactory.
- Bank and borrower performance: Unsatisfactory.
- Sustainability: Unlikely.

The evaluators complain, “Improvements in UEB’s performance did not materialize.” The reason given was government did not implement its covenants on tariff policy and the reform of Uganda Electricity Board.

Bank Performance

Regarding their own performance, Bank officials list the following grave shortcomings:

  1. Both the Bank and the borrower failed to ensure the prime contractor had adequate qualifications and experience.
  2. Design changes were not adequately appraised,
  3. Inadequate attention was given to economic analyses…and consideration of alternative to hydropower,
  4. Inadequate supervision,
  5. Failure to conduct a Sectoral Environmental Assessment in violation of the terms and conditions of the loan,
  6. Social effects from the loss of income from the tourist industry were neglected,

Lesson learned: “Improvements in institutional and financial performance should be achieved before major new investments are made.”


Privatisation and the Myth of Cost-saving: Power Generation

The Uganda Electricity Board was subsequently unbundled and sold to foreign corporations and interests as
i. a power generation enterprise and
ii. power distribution enterprise - Umeme.

It should be noted that Owen Falls Dam was built at the cost GBP12 MN with a loan from the IBRD-World Bank. The loan was serviced by the taxes and levies on smallholder farmers by the colonial government which had a monopoly on purchasing the commodities. The growers were paid less than fifty per cent of the international price of their coffee and cotton. (Cotton growers caught ginning their product were liable to a jail sentence.) The difference was used to buy supplies for the Allied troops during the Second World War amongst other things. In selling UEB, the IMF continued a tradition of exploiting the Ugandan smallholder farmer who has been the engine for development.

A key reason for selling off public services and enterprises under the IMF SAP was that too much was being spent on subsidizing parastatals. However, post-SAP, a parliamentary enquiry found subsidies have reached levels not attained prior to privatisation.

Between 2005 and 2012 the government paid out subsidies totaling $600m to the privatised companies that used to be Uganda Electricity Board. Umeme, at the time owned by the British government, having bought the energy distribution assets and business, agitated for and received US$300 million as compensation for alleged losses.

Not satisfied with that, Umeme hiked the tariffs to a level that forced government to respond to the public outcry by reintroducing electricity subsidies to the consumer to the tune of US$100 million a year for seven years. On the face of it the government seems limited in its capacity to draft contracts for its own benefit.

On the power generation side, Government entered a partnership with an investor to build and operate for thirty years the Bujagali Falls dam. After a very difficult implementation with one contractor becoming insolvent and abandoning the project, Bujagali was eventually completed but generates power sold at tariffs 80% higher than internationally accepted rates. It is scheduled for re-nationalisation (P. Harper, Jubilee Debt Campaign, 2015).
The Bujagali debacle undermined Power III whose objective was to provide “least-cost capacity additions to Uganda’s power generation.” Continued exorbitant pricing and unreliable electricity undermines the investment enabling environment objective and is one of the leading reasons cited by investors reluctant to operate in the country.

The general point is clear: privatization continues to lose money, in some cases more than the enterprises lost when still in public ownership. Foreign and other investors who having taken possession of public assets wilfully refuse to perform their part of the contracts. Essentially, they have become the recipients of gifts of public property. The AG is silent on whether any government officials are known to have made this take-away arrangement in return for some private consideration (bribes) or whether it is the act of garden-variety imbeciles.


Evidence of Government’s Continued Incapacity Safely to Incur Debt: The Auditor General’s Report 2015/2016

Funding shortfalls to the education, health, the coffee and cotton sectors, roads and ICT could so easily have been covered by the amounts lost through corruption, waste and mismanagement. To illustrate this, the Auditor General’s (AG’s) assessment of government performance is set out below, grouped under the headings of the PPAs. Also listed are audit findings regarding general public administration and management of public assets through public private partnerships (PPPs - themselves an IMF innovation).

Agricultural reform: The coffee sector, our leading foreign exchange earner, did not receive the irrigation technologies recommended by experts to save it from the effects of global warming, nor the drought resistant planting material. The recovering cotton sector did not get the UGX10 billion (US$2.8 million) required to stabilize the price by buying up and holding back the commodity during periods when the international market price is low. As a result, cotton output has been on the decline – growers have little incentive to produce it. Secondly, anticipated funds for value addition although promised by government and approved in the budget also failed to materialize so that 95% of the cotton was exported in its raw state.

Communications: Communications including internet for schools, health centres, university libraries and Uganda National Examinations Board, all key areas in national development. The AG states the Rural Communications Development Fund may not reach its intended target of extending internet connectivity and usage to schools and hospitals because of reasons related to poor power and internet supply and poor user skills. Funds to maintain the equipment and services are also lacking. In other words, the foundation for such a development is not yet in place.

At the same time government tolerates outright theft of public assets: the Chinese investor in Kilembe Mines failed to meet his capital investment and concession fees obligations. Money continues to be wasted on the NEC, a trading Market activities
trading
Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit.
company established after the 1986 ’revolution’ for the benefit of the ‘liberators’. Having been exempted from the IMF-ordered divestment exercise of the early 1990s NEC’s losses have reached UGX32 BN (US$8.9 million).
It will take time to arrive at a conclusion as to whether the SAP was a conspiracy against Uganda or whether the intentions behind it were genuine but misguided. Whatever the case, the citizens of Uganda must begin to interrogate the legitimacy of the debt.


CONCLUSION

If the capacity to pay the public debt was meant to be assured by the success of the SAP, one can only conclude the possibilities of payment were always slim and are now nil. The AG’s warning that current interest payments are approaching unsustainable levels certainly voids any credits advanced from July 2016 when it was published. These would include credits under UgIFT. UgIFT (Intergovernmental Fiscal Transfers Program) is a new World Bank initiative launched in 2017. Their own description of it objectives is “to improve the adequacy and equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. of fiscal transfers and improve fiscal management of resources by Local Governments for health and education services.” In other words, UgIFT is yet another attempt at the objectives of EFMP I, EFMP II and the Public Service Performance Enhancement Project. The total cost is going to be US$787.59 million with US$200 million committed so far.

The loans fail the public interest test for validity. Twenty-nine years of maladministration and corruption on the scale revealed in the AG’s reports cannot be claimed to have been for the benefit of Uganda, the will of Ugandan people or, and this is key, carried out without the knowledge of ILIs, bi-lateral and commercial lenders. The only innocent by-standers are ordinary citizens of donor and developing countries.

By giving misleading evaluation reports about failed projects, Bank officials gave false assurance that critical-path milestones had been reached, which triggered further disbursements of credit.

It is known that commercial bankers are aware of the growing risk of lending to the government of Uganda government. All categories of lender: IFI, bi-lateral, domestic and external commercial have access to the public record and to their own internal sources which go beyond what is available in the public domain, and yet all persist in patently reckless lending.

Validity of the loan agreements is further compromised by the development partners’s aiding and abetting the perpetrators of repression. Under Justice Law and Order sector interventions, of particular interest to the British and Irish governments, the police force is empowered with instruments of repression, especially during election cycles.

Foreign taxpayers many of whom are schooled to see recipients of aid as parasites would do well to understand the dynamics of aid given in their name; the capacity of developing countries to fend for themselves after they gained independence is severely constrained by IFIs collaborating with corrupt administrations; usurping the role of Government; extracting interest on misspent loans and then using donor grants to supplement under-funded public and social services. Taxpayers in donor countries are as much the victims of IFIs and the foreign corporations as are citizens of SAP countries.


Footnotes

|1| Alliance for Campaign Finance Monitoring (ACFIM): Extended Study on Campaign Financing for Presidential and Member of Parliament Races, Final Report 2016

|2| International Development Agency/Second Economic & Financial Management Project (EFMP II) Information Systems Support Consultancy February 1997

Review of GOU plans for Information Systems strategy during the course of EFMP II and to advise on the adequacy of those plans.


International Development Agency Pre-Appraisal & Appraisal Missions May 1997

Assessment of preparatory studies for Economic and Financial Management Programme II and GoU’s Project Implementation Plan.

|3| Election cycle expenditure in 2016 by ACFIM, (Extended Study on Campaign Financing for Presidential and Member of Parliament Races, 2016) physically documented the items and activities paid for by each candidate in 16 sample districts. They then costed the items based on local prices. From this they were able to calculate the cost of illegal hand-outs used to bribe voters. The magnitude of the incumbent’s expenditure suggested funds were diverted from the national budget.

A trend analysis ACFIM carried out revealed that budget overruns peak during election cycles confirming public funds are used to finance the elections. The over expenditure (evidenced by supplementary budgets) peaked in 2011 to a level that several donors threatened to cut off aid. Responding to the threat, the value of supplementary budgets went down by two thirds. This shows that the donors do have the ability to put brakes on waste and mismanagement of money meant to be for development. Where they do not, as with the funding of UPE, it was by political choice.

|4| Government of Uganda/Department for International Development (DFID)
Payroll Audit February – August 1998

This was GOU’s first comprehensive payroll audit during which concrete evidence of payroll fraud was uncovered. As a prerequisite to disbursing a £20m grant to the government for Universal Primary Education, the DFID commissioned an electronic audit of the primary teachers’ payroll. 75,000+ records were interrogated to ensure their integrity. A sample of interrogation results was followed up in 7 districts and more than 20 schools. Computer assurance was also performed for the non-wage component of the UPE programme. A report and presentation of findings was made to the Commissioner, Treasury Office of Accounts and DFID’s senior Economic Adviser.

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