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Finance Ministry should get Tougher on Ministries

By Ofwono Opondo

May 25, 17   
Early this week the World Bank Group announced it was resuming lending to the government of Uganda having suspended project funding last year citing poor loan absorption, performance, workers’ rights, environmental protection, and other governance related issues.In some instances some companies undertaking major infrastructural projects like roads and power dams were employing workers without giving them written contracts, or personal protective gears. The resumption is a vote of confidence in the some of the measures instituted.
It is worth noting that since Keith Muhakanizi came in as Secretary to the Treasury after the multi-billion financial scams in the pension sector, and in the Office of the Prime Minister (OPM) in 2010, accountability has improved, and loose money from government has also dwindled. In the OPM scam the government of Uganda was forced to refund donor monies that had been stolen by public officials. Some economic watchers attribute the sluggish prices in the land and estate business to the tight control introduced by Muhakanizi among other issues. Some of these measures include the implementation of the integrated financial management system (IFMS), direct electronic funds transfer (EFT) for the entire government collection and payment, and cleaning up the public service payroll.  It is imperative that all accounting officers enforce these and other additional measures to close time and financial wastage, leakages, duplication, fraud and corruption if the theme of the next financial year’s budget of “Industrialisation for job creation and share prosperity,” or Uganda quest to attain the lower middle income status by 2020 is to be realized.
On September 13, 2016, The World Bank Group announced that it was taking a decision to withhold new lending to Uganda effective August 22, 2016 while reviewing the country’s portfolio in consultation with the government of Uganda. The WB cited and demanded that government addresses the outstanding performance issues in the portfolio, including delays in project effectiveness, weaknesses in safeguards, monitoring and enforcement, and low disbursement. The WB suspension affected three major road construction that were on-going at the time among them Kamwenge-Fort Portal, and Lira-Kamdini roads, as well as lending for new projects.
The WB said then that it was still committed with other stakeholders to work closely with government in ensuring that support to Uganda’s development, and all World Bank-supported projects deliver tangible and long-lasting results to all Ugandans, especially the poor and vulnerable.
This suspension also came against the backdrop of suspension of funding by the European Union (EU) following the multi-billion financial scam in the Office of the Prime Minister (OPM) in 2010 that affected especially the Northern Uganda Reconstruction programs.
Since then, there have been reports within government that partly due lack of or weak supervision a lot of donor funding are neither well-structured nor being put to proper use, and sometimes Uganda was contracting loans without feasibility studies, counterpart funding and implementation plans to ensure immediate or adequate absorption.
Additionally, many times different government entities and officials had been left un-supervised and consequently turned their entities into cash-fodders for self, and a small knit circle within the ministries, and as well as among the so—called donors especially from Western European countries leaving trails of poor accountability and corruption. In fact it is said that in many government ministries and agencies, project loans are considered personal tufts and is often a major source of internal fights and an un-ending intrigue and feuding among civil servants.  
Last year during the retreat for cabinet and permanent secretaries at the National Leadership Institute (NALI), Kyankwanzi, it was noted that Uganda government loan portfolio was underperforming, idle and attracting interests, yet government continues to request parliament to approve more loans. At that retreat, it was agreed and directed that the ministry of finance should work with the sector ministries and agencies to review the current loan portfolios with a view to harmonise, and where possible eliminate the loopholes.
While some of these donor preconditions appear foreign driven, they are also good and appropriate to follow when handling projects under internally generally funding in our national budget because the public services being implemented are intended to benefit Uganda in its socio-economic transformation drive.
The Central Bank, (Bank of Uganda) has also indicted government in some of the economic challenges facing many businesses by delaying payments to government suppliers which has greatly contributed to the increasing Non-Performing Loans (NPLs) in the banking industry.
This is contained in the Financial Stability Report (FSR) for the year to June 2016 released on January 02, 2017. The Report shows that the Ugandan banking system faced a difficult year in 2015/16, mainly because of a rise in NPLs from 4% of total loans in June 2015 to 8.3% in June 2016. As of June 2016, bad loans stood at Shs906.2bn.
That survey indicated that the majority of bad loans were due to delayed government payments, insufficient cash flows and diversion of funds which accounted for 24 percent, 22.7 percent, and 14.9 percent respectively, of total non-performing loans. Other factors for the high NPLs according to the report include reduction in economic output and to a smaller extent, exchange rate depreciation.