Uganda becomes first country to receive debt cancellation under Cologne Debt Initiative

Uganda this week became the first country to receive debt cancellation under the enhanced 'Heavily Indebted Poor Countries' (HIPC) debt relief scheme agreed at the G7 Summit in Cologne more than a year ago. On 11 September, the Paris Club of 20 major creditor countries finally agreed to cancel $145 million of Uganda's debt. The International Monetary Fund, the World Bank and the African Development Bank will cancel another $511 million shortly – and all of the G7 industrialised countries are now cancelling 100% of the debt that Uganda owes directly to them. In total, about 42 per cent of Uganda's debt is being cancelled.

All but one of the Paris Club countries agreed to cancel 100 per cent, including the so-called `post cut-off date' debt – the part incurred most recently, which has previously been excluded from cancellation. Within the Paris Club, only Austria refused to agree this final step and so is still owed money by Uganda.

Finance Minister Emmanuel Tumusiime Mutebile said the money released by the debt write-off would be channelled into providing safe drinking water, sanitation and better education to the poor.

However, even though Uganda will now get all the debt cancellation available under the HIPC scheme, it will still be paying creditors in the region of $50 million a year. "Practically, I don't think we can pay off our debt,'' said Charlotte Mwesigye, chair of Jubilee 2000 in Uganda. ``We are just recovering from a shattered economy.''

The debt relief comes after creditors approved Uganda's economic reforms and poverty reduction programs. Uganda has been one of the IMF's model pupils. It satisfied all the IMF's stringent conditions in May this year, but the creditors deferred their decision because of Uganda's involvement in the war in the Democratic Republic of Congo and because the government had purchased a jet for presidential use. The presidential jet and war were both debated in Ugandan parliament and by the Ugandan Jubilee 2000 campaign. However in an open letter to Uganda's creditors, Zie Gariyo, Co-ordinator of Jubilee 2000 Uganda condemned the decision for overriding internal processes for ensuring resources freed by debt relief are channelled into poverty reduction. He said to Uganda's creditors: "Your decision and attitude will surely reverse this process and undermine the capacity of civil society in establishing accountability and transparency for public resources."

Ann Pettifor, Director of Jubilee 2000, said, "At last, the bilateral lenders have delivered on their promises to Uganda. But the amount of time it took Uganda to get this promised write-off, and the fact that it's still paying around $50 million a year, demonstrate the need for change in the process.

"Until the multilateral institutions pledge to cancel 100% of the debts of the poorest countries, as the main bilateral creditors have done, countries will still have to prioritise debt repayments over much-needed health and education spending."

Although ten countries have now reached “decision point” in the HIPC initiative and are receiving discounts on their annual debt payments, Uganda is the first country to see part of its debt actually written off.

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