Uganda debt unsustainable again

Ten months after receiving assistance under the Heavily Indebted Poor Countries (HIPC) Initiative, Uganda's debt is once again about to become unsustainable. The fears of debt relief campaigners that the HIPC package for Uganda was too modest have been realised, as the plunging price of coffee has undermined the export projections on which the package was based.

The success of the HIPC initiative was much trumpeted by the World Bank and IMF, when Uganda became the first country to receive HIPC assistance in April 1998. Yet only ten months after Uganda received its assistance, this model HIPC country is back with an unsustainable debt burden.

The UK's development minister Clare Short confirmed this in response to a question in the House of Commons on 3^rd February. She said that “the review of Uganda, which has just received debt relief, was very disappointing. As a result of the fall in coffee prices, it is as badly off as it was in the first place.” ^[1]

The fall in coffee prices is only one reason why the figures have gone so wrong. The original projections were further undermined by the fact that they included exports from the former Zaire as that country was nearing collapse. Those exports are no longer counted.

Uganda's return to unsustainability shows the failure of IMF and World Bank staff to predict with any degree of accuracy the future development of exports for a country such as Uganda, even over a period of months. It also amply illustrates that the criteria used by the multilateral institutions are set at levels that are too high, and by no means provide a lasting exit from unsustainable debt.

This failure adds to the embarrassment endured by the institutions at the time that Uganda reached its completion point last year. Uganda found itself faced with increased payments after receiving supposed debt relief. The bulk of Uganda's debt is multilateral, and the agreement was set to provide a total of $30 million in debt service reduction each year. However, a Multilateral Debt Fund, supported by various European countries and which paid Uganda's debt service to the World Bank and others, stopped providing the $42 million a year once completion point had been reached. Uganda therefore faced an increase in debt service of about $12 million (£7 million) a year post-HIPC. Only after pressure was applied, and agreement given, for multilateral debt relief to be front-loaded, did it became clear that some resources would be released for social expenditure.

It is now clear that this front-loading did no more than buy Uganda more time, and a few months at that.

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Footnotes

^[1] Feb. 3^rd 1999. Mrs. Maria Fyfe (Glasgow, Maryhill): Does she agree that the Government's success in getting the IMF and the World bank to review the HIPC process must result in speedier implementation in order to help the poor in poorer countries because, so far, progress has been rather too slow? The Secretary of State for International Development (Clare Short): I agree with my hon. Friend. The commitment to a review is very important. We must hold the IMF and the World bank to it, and ensure that it is conducted quickly. As well as speeding up the process, we must ensure that it benefits the poor. The review concerning Uganda, which has just received debt relief, was very disappointing. As a result of the fall in coffee prices, it is as badly off as it was in the first place. The initiative needs modification as well as speeding up.