Uganda and the Shortcomings of the HIPC initiative[1]

5th December 2002

Uganda is known as the star-pupil of the IMF in Africa. During the last ten years, the country pursued exactly the policies, which the IMF usually prescribes, i.e. fiscal austerity combined with structural adjustment, and also implemented a far reaching poverty reduction strategy. Based upon these achievements, Uganda was the first country to benefit from debt relief under both the original and enhanced frameworks of the Heavily Indebted Poor Countries (HIPC) Initiative. She reached the completion point under the original framework in April 1998 and under the enhanced framework in May 2000. The total debt relief, which Uganda should have received under the HIPC framework, amounts to $347 million and $656 million in net present value (NPV) terms.

However, even though 2 years have passed since the reaching of completion point, Uganda has up to now not been able to secure full HIPC relief from all her creditors. Assuming full HIPC relief, Uganda’s stock of debt in NPV terms as of June 2001 would have amounted to $1,147 million. Yet, the failure of several creditors to deliver their share of relief, meant that actual debt stood at $1,469 million, i.e. $322 million more than expected. While most multilateral organizations and all Paris Club creditors have agreed on delivering their full share of debt relief, several of the non Paris Club members as well as some commercial creditors refuse to participate in the HIPC process. Iraq and some commercial creditors have even filed lawsuits against the Ugandan government to gain full repayment of their loans, and in three cases, the Ugandan courts have already decided in favor of the plaintiffs.

What makes things worse is that even if all of Uganda’s creditors delivered their full share of debt relief, the country’s debt burden would still not be sustainable according to the debt to export criterion in the coming years. Assuming full HIPC relief delivery, Uganda’s debt to export ratio would have stood at 171 percent in 2000/01, would peak at 209 percent in 2002/03 and then decline slowly to below 150 percent by 2012/13. However, if only the HIPC assistance, for which agreements has already been reached is taken into account, the debt to export ratio amounted to 219 percent in 2000/2001. This compares very badly with the projections made in the decision point paper from 2000, which predicted that Uganda’s debt to export ratio would stand at 128% in 2000/2001 and decline steadily in the following years.[2]

Thus, even the star-pupil of the IMF does not have a sustainable level of debt after reaching completion point twice – a devastating result for the whole HIPC initiative. Uganda’s debt will probably never fall below the initiative’s sustainability threshold if no further measures are taken. It is therefore necessary that Uganda’s creditors – especially the World Bank and the IMF, which hold 73% of the country’s total debt – top up the relief for Uganda and support her in her development efforts. Uganda would certainly deserve such a step because she has already proven that she uses the saved money well: as Jubilee Research’s report “Relief works”[3] shows, the country was able to increase government spending on education and health as a result of HIPC relief. Thus, after Uganda’s government has delivered on its obligations, it is now up to her creditors to deliver on theirs.