Several months after a major corruption scandal deprived Uganda of the aid of international donors, the government has announced that it is going to issue securities to the private industry to the tune of 0.7% of the Gross Domestic Product with an objective to meet the yawning economic deficit worth $282m.
In November-December period of the 2011-12 fiscal year, a quintet of foreign donors, including the United Kingdom, forfeited aid worth $282m to the East African nation with a Gross Domestic Product of $17b, subsequent to the coming to light of a searing embezzlement scam that saw $13m northern-country recovery aid go down the gutter.
The total aid would have constituted over one percent of the country’s economy, and for this reason, the government has decided to nip any fiscal constraints in the bud by borrowing domestically.
As part of this intention bespoke of the failing growth, which will endure at 4.3% year by year, down from the earlier presaging of 7%, the government has indicated that it will sidestep development undertakings that are worth a decimal eight percent of the economy, in order to carry forth its newly expensive borrowing agenda with austerity.
Why Donors Abstained
Northern Uganda has for over two decades been the hotbed of economic crisis whose genesis is the war with the Lord’s Resistance Army, whose leader, Joseph Kony, has used child soldiers as well as deprived whole populations of their human capital worth.
Several governments from Europe including Denmark, Sweden, Ireland, Norway and Germany, besides the UK, had offered the two hundred and thirty two million dollar kitty, to reconstruct the area, before pulling it back after news of the scam in high places with the development cash came to light.
Pressure to enforce austerity by culling certain budgetary areas from this year’s expenditure has also come from this consortium of countries, with Uganda’s Treasury heeding the caution by deciding to cut the spending money in certain areas like development.
Despite external and internal coercion to tone down spending in the country, a spotlight on the private industry where the government intends to sell securities, to meet its deficit is also suffering borrowing immaturity. Generally, lenders are citing poor demand for their services, a reason to celebrate the government’s move to borrow from them.
A bump on growth rate
In December 2012, the Chinese Xinhua news agency reported that the slap on the face of the economy by multiple donors, in one fell swoop, would see Uganda undergo a slump in growth projections (then 5-7%) by a 0.7 percentage margin.
President Yoweri Museveni’s administration, on the other hand, expects the economy to gain momentum and even pull back a 4.3-percent growth margin in the 2013-2014 fiscal period despite the effects that will come from high-interest borrowing from local financial institutions and other utility companies. Arguably, the 0.8% of the GDP decrease in the budget for the ensuing year may yet keep the government’s dream of a sustained growth rate afloat.