Bad News – International Monetary Fund Is Back

Lagarde is visiting when the government is desperate for new money but in no mood to listen. Usually that means no deal but possibly not when the IMF and Museveni need each other.

Meetings between teams from IMF and planners of Uganda’s economy, especially President Yoweri Museveni, have historically involved divergent perspectives but common goals. Part of the reason is that they usually happen when the economy is undergoing tough strain imposed on it by a preceding election. It happened in 1990 when then-IMF boss Michel Camdessus visited, in 2007 when then Deputy Managing Director, Takatoshi Kato, and now when current IMF boss, Christine Lagarde, is visiting.

Preceding the visit by Camdessus, Uganda had just held its first election for members of parliament; then called the National Resistance Council (NRC) in February 1989. At the time of the election, Uganda’s economy was growing at a rate of 6.5%. However, this rate dropped dramatically in 1991 to about 2%. These figures are from and have been adjusted to constant prices for all years.

When Takatoshi Kato visited, the country had just gone through the multiparty referendum in 2005 and the first multiparty elections in February 2006. The economy had been growing at a fast rate of 7% in 2006, 8% in 2007, and grew at a rate of 10.4% in 2008. Only the 1995 growth rate of 11.3% had been higher in Uganda’s history.

However, it has been on downward trend since then to the current projected 5.2% for the FY2016/17. What will be the impact of the visit by the current IMF boss, Christine Lagarde?

During previous visits of IMF teams, details of Lagarde’s engagements with Ugandan officials are being carefully guarded and will publicly involve on speeches and press releases. The IMF Uganda country is not talking to journalists. Finance Minister Matia Kasaija has superfluously described Lagarde’s visit as enhancement of the already existing cordial and fruitful relations between Uganda and the IMF. Any details from the discussions will have to be ferreted from anonymous sources.

Fred Muhumuza, a development economist and former advisor to the Minister of Finance, sees the visit as a red flag.

“By the time the managing director decides to leave Washington, D.C for Kampala, Uganda, just know there is something they are looking for or something they did not understand in their periodical policy statements,” he told The Independent in an interview.

He said the country’s soring trade deficit, swelling public debt, and economic slowdown in the region are possibly up for discussion.

Muhumuza says Uganda has recorded success in its economic policy agenda and avoided resorting to short term borrowing from the IMF in the past 15 years. But is this about to change?

Inflation, which was going up at a rate of 30% at the end of 2011, the highest since 1993 when IMF/World Bank SAPs were getting space in the country, has been brought down by BoU’s inflation targeting policy – centred around the Central Bank Rate – to within range of the long term 5% target.

Poverty levels – measured by international ratings of US$1.25 earning per day per person – according to government statistics have declined to 19.7% in 2013 from 56.4% in 1993 – putting Uganda in the bracket of countries that met the target of the first Millennium Development Goal of halving poverty by 2015.

Still, Prof. Augustus Nuwagaba, an international consultant on economic transformation at Reev Consult Uganda told The Independent that Lagarde’s coming is a good opportunity for her to “touch and feel our volatile economy.”

According to him, the IMF should be considering expanding its role in Uganda.

“The IMF should consider giving short term financial support to Uganda given that development financing space is shrinking,” Nuwagaba said.

Lagarde’s visit comes when the IMF has just released a robust outlook for Sub-Saharan Africa from an estimated Year-on-Year growth rate of 1.6% in 2016 to a projected rate of 2.8% in 2017 and 3.7% in 2018.

Nuwagaba is referring to Largade visiting when Museveni is desperately looking for the IMF seal of approval to access more international debt. The World Bank and other lenders have withheld added funding to Uganda over failure by government departments to utilise already borrowed monies. At the last count, unused money amounted to Shs18 trillion.

Over the past few months, the country’s current account deficit has worsened from $216 million (Shs743 billion) to $358 million (about Shs1.2 trillion) during the quarter that ended in August 2016, according to BoU reports.
Similarly, the overall balance of payments deficit during the period was $19 million (Shs65.7 billion).

The debt burden has risen nine percentage points to 33% of GDP in the past four years, and is projected to continue rising towards 45% of GDP by 2020, according to the Moody’s Investors Service. It downgraded rating of the Government of Uganda to B2 from B1 in November last year.

Partly as a result of the squeeze on international borrowing, the Uganda government has been increasingly looking inwards for debt to finance its ambitious infrastructure, energy, and mineral development.

But at the end of its latest review mission to Uganda in October 2016, an IMF team led by Axel Schimmelpfennig, the Mission Chief met Museveni and raised concern about the government spiraling spending. It concluded that if public debt continued to grow at the same rate, Uganda faced real risk of defaulting. That possibly is why Lagarde is visiting Kampala – to staunch a public liquidity crisis. The IMF is a strong advocate of manageable national debt as a precondition for earning its endorsement to other lenders or itself as lender of last resort.

Revenue collection shortfalls at URA that are becoming the norm have been noted, against higher than anticipated public expenditure, growth of unpaid government spending arrears, low value for money on government projects, and a low tax to GDP ratio.

But if the government of President Museveni is listening, it has chosen unusual ways of signaling it. In the week running up to Lagarde’s visit, the government announced salary increases for a slew of public sectors including ministry employees, judges, and the security forces. In some cases, the salaries were raised by over 100%.

The government also was involved in a series of debates and discussion of its Budget Framework Paper for the 2017/18 FY which shows the budget swelling from Shs26 trillion to Shs30 trillion. Only 46.7% is projected to be funded from internally generated funds. The rest is expected to come from donors and debt. These dark numbers are partly a result of new budget reporting approach, but most of them reflect the hard times the economy is experiencing.

Meanwhile, the IMF has been badly flayed for its poor handling of the financial crisis in Europe, especially in Greece and Spain where it sought to introduce the same policies it has always imposed on poor African countries. At one point, its own oversight body, the Independent Evaluation Office (IEO) criticized the IMF for poor handling of the European financial crisis. “Embarrassment for Christine Lagarde and IMF as Fund’s own watchdog slams its Eurozone record” is the headline under which the Independent newspaper of the UK ran the story.

The IMF’s favoured austerity policy approaches – including Structural Adjustment Programs (SAPS), unfettered markets, borderless expatriation of capital gains, and social service downsizing, have all come under negative scrutiny. In some case, they have been found to be downright dangerous to economies.

“The free market fundamentalism of the World Bank and IMF has had a disastrous impact on Africa’s development contrary to the stated aims of the SAP which from the perspective of development broadly understood as involving economic growth, structural change, and elimination of poverty. Macroeconomic stability has improved modestly in a few African countries, but many analysts doubt its sustainability given the experience of Cote d’Ivoire, Senegal, Uganda, and Zimbabwe. In Uganda however, where slight macroeconomic stability has occurred, volatile external finance has been largely responsible. Moreover, stability has been achieved mostly at the great expense of domestic investment even in basic infrastructures which are central to sustainable growth and development.” That is the conclusion of a study on “The Impacts of the World Bank and IMF Structural Adjustment Programmes on Africa” by the Sacha Journal of Policy and Strategic Studies.

Therefore, it appears, when Lagarde sits across the table from President Museveni and his team from the Ministry of Finance, Bank of Uganda, and others, it will be a meeting of minds groping for ways to restore their credibility. At this time, The IMF and Museveni need each other.

After being praised as an ‘IMF success story’ in the 1990s, Museveni’s credentials as an astute disciple of IMF doctrine have taken a battering at the same time as the IMF role in the global economy is dwindling.

But Museveni is emboldened partly by the emergence of China as a counterweight to pressure from Bretton Woods on poor countries desperate for debt.

So Museveni and the government remain bullish and are pushing most of the budget to areas such as Infrastructure development, interest payments, security and defense, social services, and public sector management which are not the IMF’s pet projects.

By Julius Businge

Please follow and like us:
Source: The Independent

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Widgetized Section

Go to Admin » appearance » Widgets » and move a widget into Advertise Widget Zone