Uganda: Debt - Borrowing for Energy Sector Has Not Benefitted Ugandans

16 January 2019

On Tuesday, January 8, 2019, after its 5pm news bulletin, Sanyu FM aired some of its listeners' views on what their expectations of 2019 are.

Most of the sampled listeners expressed fears of a hard 2019. Worries over economic and political hardships were rife. One particular listener's views caught my attention, however. In Luganda, he groaned that his two meals a day would be reduced to one in 2019.

Why? He must have heard the alarm raised by the auditor general (AG) and civil society organisations (CSOs) about Uganda's rising debt. CSOs say Uganda's borrowing is unsustainable.

The AG also expressed discomfort over the country's debt burden, standing at Shs 41.3 trillion. Further, in the 2018/2019 financial year, over 65% of revenues collected by government are supposed to be used on debt servicing! Hence the above listener's worries.

He said that in 2019, government was going to suck citizens dry to pay the mounting debt. As such, people such as himself would have to forego basic necessities such as food!

Interestingly, on the day the above listener's views were aired, Hon Matia Kasaija, the Finance minister, held a press conference at the Uganda Media Centre to soothe the public. He is reported to have told journalists that Ugandans should stay calm.

He said that at a debt to GDP ratio of 41.5%, Uganda's debt is below international sustainability thresholds of a debt to GDP ratio of 50%. To further calm Ugandans, the minister is reported to have said that if some of them are still around, there is no way the country would be led into debt stress!

He also reassured Ugandans that because money borrowed has been invested in the productive sectors of roads and energy, the debts would pay off.

HAVE ENERGY SECTOR DEBTS PAID OFF?

However, a look at available evidence and Uganda today shows that the above assertion by Kasaija is erroneous. Over the last ten years, (2009/2010-2018/2019), government has allocated over Shs 16. 871 trillion to the energy sector.

This was 16.57% of Uganda's GDP as at June 2018. Some of the above money has been borrowed and invested in the construction of dams with the view that electrification will address poverty among other challenges in Uganda. Indeed, Kasaija affirmed that monies borrowed have been invested in dams such as Isimba and Karuma.

Noteworthy is the fact that the costs of Bujagali, Karuma and Isimba dams alone cover over 30.4% of Uganda's $10.7 billion debt burden. Have Ugandans however benefitted from monies borrowed and invested in the electricity and roads sector?

Well, in 2015, the World Bank reported that for every dollar invested in infrastructural projects, less than a dollar is recouped. In addition, despite all the money that has been invested in the electricity sector, a dismal 22% of Uganda's population had access to electricity as at June 2018.

Further, a look at the World Bank's access to electricity data shows that in some instances, development of dams has had a negative impact on electricity access. For instance, before commissioning of Bujagali dam in 2012, urban electricity access stood at 55.4%.

This was in 2011. In 2012 when Bujagali was commissioned, urban electricity access dropped to 51.2%. By 2015, Ugandan urbanites were in yet to recover with only 51.9% having access to electricity.

Our rural counterparts fared worse. Even more indicting is the fact that according to 2016/2017 survey results released by Uganda Bureau of Statistics in 2018, poverty levels in Uganda increased from 19.7% in 2012/2013 to 21.4% in 2016/2017.

Rural poverty rose to 22.5% and urban poverty to 9.4%! How then, are Uganda's debts expected to pay off as the minister reassured Ugandans if increased borrowing is followed by increasing poverty?

Moreover, with the corruption, high costs and procurement scandals that rocked the Karuma and Isimba dam deals, power from the two dams is unlikely to be as cheap as government promises it will be.

This means that the envisaged socio-economic transformation arising from completion of the two dams is unlikely to happen!

The author is the Senior Communications Officer of Africa Institute for Energy Governance (AFIEGO).

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