Gov’t to Borrow UGX1.923Tn from World Bank for Urban Development

Parliament has approved a request by the Government to borrow up to US$518 million approximately Shillings 1.923 trillion from the World Bank to finance the Greater Kampala Metropolitan Area Urban Development Programme.

This follows the adoption of a report presented to the House by John Bosco Ikojo, the Chairperson of the Committee on National Economy, which scrutinized the requisition during a plenary sitting chaired by Deputy Speaker, Thomas Tayebwa on Wednesday.

At a plenary sitting held on May 24, 2023, the Minister of Finance, Planning, and Economic Development presented a proposal to the House to borrow up to Special Drawing Rights – SDR 34.8 million, an equivalent of USD 48 million from the International Development Association- IDA of the World Bank Group, and also borrow up to Euro 40 Million (USD 42.66 Million) from Agence Francaise De Development (AFD). With an estimated population of 5.8 million, the Greater Kampala Metropolitan Area comprises Kampala City, and eight Local Government entities namely; Entebbe, Kira, Makindye-Ssebagabo, Mukono and Nansana Municipalities and Mukono, Mpigi, and Wakiso districts.

Based on the anticipated allocations, the maximum amount any one of the entities would receive in total ranges from US$4.4 million (16.244 billion Shillings to US$23.38 million (86.317 billion per year, based on minimum conditions plus a performance top-up. In the report, Ikojo explained that the borrowing is expected to spur the achievement of Uganda Vision 2040 of upper-middle-income status which depends largely on the transformation of Greater Kampala Metropolitan as a productive, resilient, and liveable city.

The program component includes road rehabilitation and upgrading, drainage channels, markets, and artisan parks as well as institutional strengthening among others. The project will cost an overall US$1.179 million, approximately 4.380 trillion Shillings over a period of five years as detailed in the GKMA Economic Development Strategy (2020 – 2030). Cabinet approved the Development Framework 2040 in 2013, and was adopted in 2019 to promote the vital economic contribution and competitiveness of GKMA, and gazetted it as a special planning area worth an investment portfolio of US$2,995 million.

KCCA and the eight entities will co-finance US$571.31 million (2.109 trillion Shillings) under their current budget and the World Bank will provide a total funding of US$566 million (2.089 trillion Shillings), through a credit of USD$518 million (1.912 trillion) and a grant of USD$48 million (177.213 billion Shillings). The Agence Francaise De Development (AFD), the French Development Agency will provide an additional total funding of US$ 42.66 million, an equivalent of 157.498 billion Shillings through a credit towards the financing of the GKMA Economic Development Strategy.

Currently, the Kampala Metropolitan Area is faced with critical infrastructure breakdown especially roads, poor drainage systems that have led to recurrent devastating floods, and lack of widespread reliable transport leading to unbearable traffic jam that disrupts economic activities. For instance, in the Kampala Capital City Authority (KCCA) alone, out of a total road network of 2,100 km, only about 300km are paved and in good condition, and the situation is in three districts and five municipalities.

According to the Committee, KCCA and the eight local government entities will receive the money when delivering the infrastructure investments to be assessed annually by the Office of the Auditor General (OAG) and will focus on three parameters, namely; quality, efficiency, and effectiveness. The Committee noted that the annual average damage to buildings caused by frequent floods is US$ 49.6 million (183.129 billion Shillings) affecting more than 170,000 people – and more than 10 percent of all jobs and main roads in Kampala lie in flood-prone areas.

A 2012 Survey by the KCCA found that 24,000 man-hours are lost daily in traffic jams and an estimated loss of about US$800 million (about 2.953 billion Shillings) per annum. It’s currently estimated that the daily cost of congestion in GKMA is equivalent to US$1.5 million, about 5.537 billion Shillings (4.2 percent of GKMA’s daily GDP amount).

Uganda’s Current Public Debt Stock

As of December 2022, the total public debt stock stood at US$ 21.74 million, about 80.775 billion Shillings, increasing from US$ 20.99 million (78.833 billion Shillings) as of the end of June 2022. The external debt constituted 59.2 percent, an equivalent of 47.760 billion Shillings while domestic debt stood at 40.9 percent (33.015 billion Shillings).

However, this loan was already incorporated in our Public Debt Sustainability Analysis conducted in December 2022 so its effect on Public debt is included in the current debt figures. Ikojo concluded that with the growing level of Public Debt due to its significance in meeting the country’s huge financing development needs, there is a need to pay close attention to the cost of debt and the economic rate of return of projects financed through debt.

This could probably be the last loan disbursement to Uganda after the World Bank Group announced the suspension of new public financing to the country on 8 August 2023 in protest of the Anti-Homosexuality Act passed by Parliament in May which it said “fundamentally contradicts the Group’s values.”

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