One of the true tests of leadership is the ability to recognise a problem before it becomes an emergency.” – Arnold Glasgow
Attention is drawn to a recent Saturday Monitor headline, ‘Uganda needs 94 years to clear debt’. There are some underlying assumptions nuanced in the story, but these are not the subject of this writing, which is limited to viable solutions to Uganda’s current sovereign debt situation.
According to Uganda Debt Network, the Total Public Debt for Uganda by end of Financial Year 2016/17 was in excess of $13 billion (about Shs47.5 trillion). Currently, 30 per cent of the National Budget is servicing interest on Uganda’s rising debt.
Although government argues that this is below the 50 per cent threshold beyond which public debt becomes unsustainable, the concern is the rate at which the debt is incurred given that our export bill is not growing at the same proportion.
Furthermore, much of the spending is tied to mid and long-term infrastructure projects that do not have an immediate pay-back. It is this mismatch between when the re-payment obligations mature and when we expect to reap from the capital investments that is worrying.
Arguably, this high debt appetite is one of the moral hazards resulting from the $650 million in debt relief received from its external creditors, under the Initiative for Heavily Indebted Poor Countries (HIPC) a decade ago.
If the present situation is not addressed, Uganda might soon be a playing ground for vulture funds (funds that buy securities in distressed investments). According to the African Development Bank, at least 20 heavily indebted poor countries have been threatened with or have been subjected to legal actions by commercial creditors and vulture funds since 1999.
Signs of distress are exemplified by instances such as government’s recent proposal to borrow money to pay wages for public servants. We are technically insolvent- both on a cash flow analysis and on a national balance sheet test. However, to mitigate against this debt crisis, we need to consider several interventions such as:
Forming an Independent Sovereign Debt Advisory Committee of eminent experts in these matters to advise government on how to harmonise the loan book portfolio. This can be comprised of a multi-disciplinary team that is both thorough and independent.
Conducting a debt review of all the past and outstanding debt. Some of this debt may be odious in nature. A nation’s debt becomes odious debt when government leaders use borrowed funds in ways that do not benefit or even oppress citizens. Such debt can be contested, though this appears not a comfortable legal argument to make given its untested legal status under international financial law.
Conducting a securities review to find out what national/State assets can and what cannot be attached in execution of the respective debts would also aid us in determining how best to deal with the situation. We will also have to find out whether those sovereign securities have been perfected/crystallised under the rules of sovereign finance.
The process should also entail a forensic audit of all debt financed projects for value for money determination.
Other traditional debt management mechanisms such as debt restructuring and haircut negotiations with some lenders, and debt defaults/repudiation (for those caught by limitation/prescription periods, tainted by corruption, money laundering, human rights abuses, etc).