Written By MARK KIDAMBA
The golden rule: He who holds the gold makes the rules was recently put into play when the World Bank, one of Uganda’s major financiers, in a statement publicized on August 8, 2023, cut all new funding to Uganda for passing the Anti-Homosexuality Act.
This action followed a directive signed by eleven members of the USA Congress in a letter dated July 25, 2023, urging the newly appointed president of the World Bank Ajay Banga to “immediately postpone and suspend all current lending to Uganda until the recent Anti-Homosexuality Act, signed by President Yoweri Museveni on May 29, 2023, is struck down”.
The release of this statement threw the country into a frenzy, prompting responses from President Museveni to assure his fellow countrymen that “Uganda will develop with or without loans”.
Other technocrats like the permanent secretary and secretary to the Treasury of Uganda Ramathan Ggoobi in a pique muttered that BRICS provides a good opportunity for the global South and gives developing countries like Uganda viable alternatives in pursuit of their development agenda as per the ministry of Finance’s official Twitter page.
Loud whispers of cutting down the recently passed national budget have also gotten louder in the corridors of the ministry of Finance. The World Bank’s firm stand on homosexuality doesn’t come as a surprise since one of its founding fathers, reknowned economist John Maynard Keynes was openly gay, meeting his first boyfriend Alfred Knox while both were studying at Eton.
This gives nuance to the reality that homosexuality and ‘sexual and gender minorities’ are a virtue deeply ingrained in the bank’s gene. That said, over the years the World Bank’s revered loans have come shrouded in difficulty such as: up until 2018, the bank has been charging Uganda very high interest on its loans irrespective of her political and economic situation.
As an example, with Uganda three years removed from the bush war in 1989, the World Bank charged Uganda its highest interest rate to date of 40 per cent, and then went ahead to impose structural adjusted programs [SAPs] as conditions for lending money to Uganda.
SAPs rolled out the selling of government-owned entities and led to the retrenchment of many nationals. To this day, the country hasn’t fully recovered from this egregious strategy. The international lender has justified these high interest rates the world over by quoting its credit ratings protocol as the reason for expensive loans. Uganda has poor/negative credit ratings: B for S&P Global, B2 for Moody’s, and B+ for Fitch ratings.
This directly translates in it borrowing expensively with interest charged in years 1986 [33.3 per cent], 1988 [35 per cent], 2012 [26.2 per cent], 2016 [23.9 per cent], and so forth. Paradoxically, Uganda is charged a higher interest rate on loans than Burundi which is considered the world’s poorest country and has no credit rating from international agencies: S&P Global, Moody’s and Fitch.
In 2012, Burundi borrowed at a rate of 11.8 per cent; in 2016, 14.2 per cent; and in 2018, 14.8 per cent; all lower than the rates Uganda got World Bank loans in the same years. This defeats the principle of the international financier’s lending based on credit ratings which it continually uses to issue loans to the USA, and UK at incredibly low rates of 0.5 per cent in 2012 and 2014 [UK], and 3.5 per cent in 2020 and 3.4 per cent in 2021 for the USA.
Not known to many, World Bank loans take years to materialize. Afsaneh Beschloss, the former treasurer and chief investment officer of the World Bank, revealed: “For example, getting a loan from World Bank takes seven years on average”.
This, she mentioned on Bloomberg television in an April 2023 interview. This is more time than Uganda would need to take out a much-needed loan from a bank, or corporation. What is more disturbing is that even with the bulging debt of the international lender’s biggest customer, Africa, the World Bank is reluctant to restructure the continent’s loans, Uganda’s inclusive. Debt restructuring is when the lender agrees to renegotiate the terms of payments for the borrower.
When the 13th World Bank president David Malpass was asked in a January 2023 Bloomberg television interview about China’s request to the World Bank to “eat some losses” in debt restructurings in Zambia, he said: “There’s not a mechanism to do that…” translated as the World Bank has no renegotiation policy with debtors even when they land on hard times.
World Bank loans are famous for tactfully being directed at projects that don’t matter to the lowly but the affluent who are corrupt. In September 2020, the bank approved $300 million to boost service delivery in education, health, water and environment through local governments in Uganda.
Monies like this end up in the pockets of the affluent and corrupt who short-change these projects for their benefit. The World Bank knows this but continues to issue credit with minimal shepherding, knowing that whatever the outcome, Uganda will be liable to pay these loans, placing the country in a debt trap which they later use as leverage to arm-twist it for resources, and political capital.
As it is, the effect of the monies injected into Uganda hasn’t been felt as many in the country still study under trees; hospitals and health centres are in a deplorable state with no medicine, and millions have no access to safe water in Uganda.
According to worldbank.org in the last five years; FY 2018 to FY 2023, Uganda has received $3,291.2 million [Shs 12.1 trillion] in loans, and $1,089.6 million [over Shs 4 trillion] in grants bringing the total amount to $4,380.18 million [Shs 16.1 trillion] in funds got from the World Bank.
To the World Bank’s applause, during the said period, it has extended credit to Uganda at zero to low interest in what is called IDA credits. There’s no doubt that the cutting off of such amounts of dollars from the Ugandan economy is going to have colossal effects.
Like, the dropping in value of the Uganda shilling against the USA dollar because there will be less dollars in circulation, which ultimately raises its value against the shilling — inflation. With an insufficient USA dollar in-flow, and the absence of the buffer of a strong foreign currency reserve, the shilling is going to significantly drop against the dollar, making international trade expensive and local borrowing costly since the central bank will have to raise its lending rate(s) to control inflation.
This is going to result in the shutting down of businesses, unemployment, increased cost of living, and a ferocious tax regime as government is most likely going to raise tax rates to increase its revenue to compensate for the void left by World Bank funding.
Be that as it may, the dark [World Bank] cloud comes with a silver lining, China. The Red Dragon has emerged as a viable creditor lending over $1 trillion in the last decade to Africa, Latin America and Asia. Even when their debt contracts have been stricter than those of the other creditors, China is known not to exercise its loan rights.
This has won over the poor and middle-income countries especially because China treats them as equals. The Red Dragon is known to be flexible with debt payment because they have loans that enable borrowers to pay back in minerals, metals, and oil. This floats Africa’s boat. So, Uganda is most likely going to run into the arms of China for credit.
This threatens the superiority, and ideology of the West. When I reached out to Bernard Tabaire, the external affairs officer of the World Bank Group in Uganda, with respect to the threat posed by China as a ‘dangerous substitute’ creditor he referred me to David Theis, the press secretary and spokesperson of the World Bank Group, who met my queries with radio silence.
It’s in this regard that I reckon that the Mexican standoff between Uganda and the World Bank will not last long because Uganda has credit options: China, Russia, even the on-the-horizon BRICS, and the moral support of Africa.
This poses a threat to the West who are major players in the World Bank. Also, the international lender has dollars which are more useful and productive to them in the hands of poor countries than they are sitting in coffers in Washington.
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