UGANDA DEBT NETWORK CIVIL SOCIETY POSITION ON GOVERNMENT S LOAN CONTRACTION FOR THE MILLENNIUM VILLAGES PROJECT (MVP) PHASE II: (2013 2015) May 2013, Position Paper No.7
Debt is a two-edged sword. Used wisely and in moderation, it clearly improves welfare. But, when it is used imprudently and in excess, the result can be disaster Stephen G Cecchetti et al, 2011
Table of contents Pamela, please help me to generate an automatic table of contents
Abbreviations/ Acronyms FDC GDP ICT LG MDAs MDGs MoFPED MP MVP NAADS NDP NMS NRM OIC PPP SACCOs SVP UBOS UDN UNDP UPC Forum for Democratic Change Gross Domestic Product Information and Communications Technology Local Government Ministries Departments and Agencies Millennium Development Goals Ministry of Finance Planning and Economic Development Millennium Promise Millennium Villages Project National Agricultural Advisory Services National Development Plan National Medical Stores National Resistance Movement Organisation of Islamic Cooperation Public Private Partnership Savings and Credit Cooperatives Sustainable Villages Programme Uganda Bureau of Statistics Uganda Debt Network United Nations Development Programme Uganda Peoples Congress
1.0 Background In 2000, Uganda was part of several countries that endorsed the United Nations Millennium Development Goals (MDGs) to work towards achieving particular targets in the overall global development agenda. To achieve this by 2015, developing countries are expected to make significant investments in social and economic sectors. In the MDGs status report of 2010, Uganda recorded considerable progress towards achieving the MDGs and other human development indicators. Progress was shown in reducing the share of the population that lives in absolute poverty from 56% in 1992/93 to 31% in 2005/2006 1. In addition, a report by the Uganda Bureau of Statistics in 2012 reported that the estimated number of poor Uganda s had further dropped to 24.5% 2. There has also been significant progress reported on the targets related to gender equality and empowerment of women, access to HIV/Aids treatment, and provision of safe water. The report, however, acknowledged that progress had been slow to meet the MDGs and, in a few cases, there was a reversal in the case of Uganda 3. 1.1 Introduction to the Millennium Villages Project (MVP) The Millennium Villages Project is a partnership between the Earth Institute at Columbia University, the United Nations Millennium Project, United National Development Programme (UNDP) and Millennium Promise (MP) which aims to help poor villages become self-sustaining units by 2015. The project is an integrated holistic approach to rural development with the objective of empowering local communities fight poverty on their own to achieve the UN MDGs. The MVP focuses on achieving three over-arching goals which include, a) supporting Millennium Village communities and Local Governments (LGs) to achieve the MDGs by 2015, b) creating a system of success, i.e. a clear path to achieving the MDGs which can be transferred to other communities and Governments that wish to adopt it; and c) working with Governments around Africa to scale up the project interventions and achievements so that best lessons are quickly put into practice around the continent. It targets all MDGs; although its primary focus is on five main core interventions through investment in health, food production, education, access to clean water, and the building of essential infrastructure. The project began in 2005 in three villages in Kenya, Ethiopia and Rwanda but later was expanded to Uganda, Tanzania, Ghana, Malawi, Mali and Nigeria 4. The Sustainable Villages Programme (SVP), under which the MVP falls, is a US $121.2million programme supporting six countries in three phases. Phase 1 of the programme has been implemented in Chad and Sudan; and Phase 2 in Mozambique and Kyrgyzstan Republic. Uganda and Djibouti have been selected for Phase 3. Over the last five years, the MDG Centre of Columbia University, USA (MDG Centre), the MP Alliance and the Government of Uganda (including Isingiro District LG and Community members) implemented the pilot scheme of the MVP Phase I using a grant funding of up US$ 12million from the UNDP in Isingiro District. The scheme covered the sub counties of Nyakitunda and Kabuyanda and one Town Council of Kabuyanda, benefiting 150,000 people. This phase of the project started in 2006 and ended in 2011. 1 MoFPED (2010), Millennium Development Goals Report for Uganda, pg 13. 2 UBOS (2012), Statistical Abstract, Pg 13. 3 MoFPED (2010), Millennium Development Goals Report for Uganda, pg 13 4 UNDP, The Millennium Villages Project: Progress Report, November 2006
2.0 Rationale for Borrowing and Parliamentary Proceedings. The Government of Uganda through Ministry of Finance, Planning and Economic Development (MoFPED) presented the loan request to the Parliamentary Committee on National Economy for discussion. Overall objective: To contribute to poverty reduction and achievement of MDGs Specific objectives: These include; 1. To improve health, education, and livelihoods of selected poor communities in Uganda through achieving the target key indicators of the MDGs. 2. To increase agricultural productivity and incomes among rural households through access to improved agricultural technology and investment in rural infrastructure. 3. To establish rural water schemes for both human consumption and production, while also exploring locally-available and affordable sources of energy. The Parliamentary Committee made a report which was presented to Parliament seeking parliamentary approval (granted in May 2013) of a loan of US$ 9.75million. The loan was from the Islamic Development Bank to support the consolidation and scaling up of the Millennium Villages Project in Isingiro District. The Government of Uganda sought parliamentary approval to borrow US$ 9.75million to consolidate and scale up the MVP approach in Isingiro District and to conduct a baseline assessment and technical design which are intended for future roll out in the districts of Gomba, Nakaseke, Bukedea, Oyam and Amuria. 3.0 Civil Society Concerns on the MVP Phase II Civil Society appreciates Government s efforts in recording the achievements so far made in the MVP of providing community villages, contributing to poverty reduction and making appreciable progress towards the achievement of the MDGs. This paper highlights proposals for the effective implementation of the MVP Phase II for possible action and adoption of recommendations by the Ministry of LG which is coordinating the programme 1. It has been shared with Parliament and the Ministry of LG and it will be disseminated further to other Government MDAs like Bank of Uganda and the MoFPED. UDN hopes to achieve an overall improved delivery of project implementation to the benefit of citizens in the selected areas. 1. Performance of the Pilot Phase The Parliamentary Committee on National Economy observed in its report that following their site visit, the MVP Pilot Phase 1 UDN wishes to extend her appreciation to the Policy Officer, Ms. Juliet Akello and Director of Programmes, Mr. Julius Kapwepwe Mishambi for ensuring the development of the position paper and Ms. Pamela Kamusiime, the Communications Officer, who ensured its production. Special gratitude is also extended to the Senior Economist, Parliamentary Budget Office, Mr. Julius J. Kabatsi for his guidance during the development of this paper. activities were visible on ground and had caused significant impact on access to water, health service delivery, access and quality of primary education, increased agricultural productivity, among other developments. The MVP brief presented by MoFPED to the Committee also summarizes achievements of the Pilot Phase. However, the brief did not present the targets/outcomes of the Pilot phase vis-à-vis the achievements. Government should carry out a comprehensive evaluation or assessment of the Pilot Phase in order to ascertain the achievements of the Pilot Phase vis-à-vis its targets/outcomes. This will ensure that the implementation of the subsequent phases of the project will be more effective. 2. National Agricultural Advisory Services (NAADS) Funds The NAADS programme has been implemented for the last 12 years but its returns are not commensurate to the funds
injected, even with revisions made to improve the implementation of the programme. Therefore, i) Rather than borrow all the funds to facilitate the MVP, NAADS funds should be rechannelled to finance MVP Phase II project for more accelerated development and quicker gains; especially since the MVP seeks to address more components, among which is improving agricultural production and productivity. ii) The NAADS programme could be redesigned to fit in the MVP model in future since there is a possibility of rolling it out throughout Uganda. 3. Private Public Partnerships One of the objectives of the SVP under which the MVP falls is to promote integrated and inclusive development driven by communities and promoting Public Private Partnerships (PPP) to strengthen interventions like development of basic infrastructure. This implies that the success of the MVP project is premised on the effective implementation of a PPP framework that is comprehensively regulated. The PPP legal framework is however non-existent in Uganda. Parliament should expedite and conclude the PPP Bill (2012). 4. Component 2 of the MVP Phase II: Business Development and Micro-Finance One of the expected key outcomes of the MVP project is to raise rural households incomes. This will entail access to micro finance through Savings and Credit Cooperatives (SACCOs) for business investments, and training potential entrepreneurs in business skills, among others. The MVP project is to establish five SACCOs in selected areas of Isingiro District. It should however, be noted that the ability to access micro financing in Uganda has been severely undermined by the high cost of credit. Communities are supposed borrow from SACCOs for agricultural activities or commercial business at interest rates of 9 per cent and 13per cent respectively. This nonetheless, is not the practice on ground. Most SACCOs charge higher interest rates. In addition, the effective legal framework for the regulation of SACCOs in the country is non-existent. Government should expedite the SACCOspecific Law and also consider providing credit to SACCOs at a rate lower than the current 9 per cent and 13 per cent per annum to enable citizens have access to cheaper credit. 5. Component 3 of the MVP Phase II: Promoting Universal Access, Retention and Quality of Education Under this component, the project plans to improve the quality of education through conducting teacher refresher courses to benefit 2,400 primary school teachers in the selected areas. Some of the key hindrances to quality primary education in Uganda however, are inadequate emphasis on early childhood development, inadequate teacher inspection/ supervision and a high pupil-to-teacher ratio averaging 49:1. i) Government should consider recruitment of more primary school teachers who are able to handle training of children to support and boost their early childhood development in these selected areas. ii) There should be improvement in inspection of teaching programmes in primary schools as part of its counterpart funding obligation. 6. Component 4 of the MVP Phase II: Strengthen health service delivery systems In a bid to improve access to basic health care, the project plans to liaise with the National Medical Stores (NMS) to ensure sound and functional procurement and supply chains of drugs, and medical equipment, among others. According to the Value-for-Money report by the Office of the Auditor General (March 2010) however, NMS stocks drugs without regard to buffer stock levels. As such, certain drugs are
in excess of the one-year requirement, while others are under-stocked. In addition, NMS does not maintain proper procurement plans in accordance with the stock replenishment policy and uses unreliable Average Monthly Consumption figures which it does not even comply with. These findings partly explain why NMS does not supply drugs and medical supplies to meet public health orders or needs. It is paramount that Government strengthens the procurement function of the NMS in order to improve the supply chain of drugs and medical equipment country-wide. 7. Criteria of Selection of Beneficiary Districts The report made by the parliamentary Committee on National Economy noted that the criteria for selection of Phase II of the beneficiary MVP districts included the degree and annual level of water stress. Other considerations were the potential for economic transformation and equitable distribution of resources, among others. It is, however, observed that the criteria did not consider poverty-related indicators as a selection criterion and areas that are severely water stressed like the Karamoja sub-region. Government should ensure that the selection criterion includes the poverty density per district/ or Sub County as a basis of an MVP beneficiary area. Poverty density is the number of poor people (those living in absolute poverty) per square kilo metre in a sub-county. 8. Counterpart Funding The report on Loans, Grants and Guarantees presented to Parliament in June 2012 by the MoFPED, noted that inadequate and untimely release of Government counterpart funds for projects remained one of the major reasons for slow implementation of donor-funded projects in Uganda. This was mainly due to the lack of proper planning and budgeting for counterpart funding by the Ministries, Departments and Agencies (MDAs). It should further be noted that undisbursed commitments attract a commitment fee. For instance, the African Development Bank or African Development Fund charges a commitment fee of 0.50 per cent per annum on undisbursed commitments. Government should address the challenge by ensuring proper budgeting of counterpart funding in order to control delays in project implementation and avoid commitment charges on undisbursed commitments. This otherwise amounts to financial loss, distorts national cash flows and the very essence of planning and budgeting. 9. Regulations of Organization of Islamic Cooperation (OIC) Article 2 (paragraph 2.7) of the loan agreement for the MVP Phase II states that, the Borrower shall abide by the Regulations of the OIC concerning Boycott of Israel. A clarification should be made on what OIC Regulations imply on the Boycott of Israel with regard to the bilateral arrangements between Israel and Uganda. 10. Special Account Article 2 (paragraph 2.7) of the loan agreement states that, a Special Account shall be opened with the Central Bank of the Republic of Uganda, or any other bank, for easy and timely disbursements. This provision of the loan agreement could be used as a loophole to channel project funds to several bank accounts and thereby undermine the financial controls and prudent public sector management in Uganda. The Loan agreement should be amended to state that the Special Account shall be opened only with the Central Bank.
4.0 Issues raised by Members of Parliament on the MVP Phase II Loan On 16 May 2013, the Parliamentary Committee on National Economy presented before Parliament a report recommending the approval of the MVP Phase II loan of US$ 9.75 million requested by Government. This loan request was debated by Parliament on Tuesday, 21 May 2013, with mixed reactions although it was later approved. MPs noted the following: a) Since the loan amount is too small to cover a bigger geographical location (districts), this could cause a negative political reaction from the communities which will not benefit from the project. b) Improvement in the quality of primary education should take care of early childhood development which has not generally been emphasised by the Ministry of Education and Sports. c) The selection criteria of the beneficiary districts was not clear since many MPs raised questions on how this was carried out. They wished their constituencies were also considered1. d) The speed at which the project is spreading through the country is slow if all Ugandans are to benefit from it at a later stage2. e) i) Borrowing such a big loan to partly carry out background assessment in the other districts i.e. Gomba, Nakaseke, Bukedea, Oyam and Amuria is extravagant3. The MVP should be rolled out to the identified districts since it has already been tested and has showed positive results. ii) Increasing debt burden as a result of Government s continuous borrowing which could lead the country into debt unsustainability. The project is expected to implement the school feeding programme for children, however this is not sustainable children will be feeding while depending on borrowed funds 4. Government should provide a sustainability strategy to school feeding after the loan expires. f) Has the MVP approach been adopted in Isingiro District s Planning and Budgeting; and are the Ministries of Agriculture and LG trying to inculcate this approach in the planning process of other beneficiary districts 5. g) Contingency fund to attract 10 per cent of the loan amount. The items that would fall under this vote should be defined because the percentage allocated to it is high. During planning and budgeting, all the items and activities are outlined. 6 i) Government should carry out a comprehensive evaluation of achievements made during the implementation of the MVP Phase 1 with regard to the set targets that were to be met. This will assist to inform the effective implementation of the current loan 7. ii) The Ministries of LG and Agriculture should work jointly to incorporate the NAADS programme in the MVP design since the project intends to cause improvement in the agricultural sector. 1 Hon. Florence Mutyabule (NRM, Woman Representative, Namutumba District), Hon. Margaret Baba Diri (NRM, Woman Representative, Koboko District), Hon. Phyllis Chemutai (Independent, Woman Representative, Kapchorwa District), Hon. Johan Bagoole (Independent, Luuka County, Luuka District) and Hon. Ruth Lematia (NRM, Woman Representative, Maracha District) 2 Hon. Margaret Baba Diri (NRM, Women Representative, Koboko District) 3 Hon. Fungaroo Kaps Hassan (FDC, Obongi County, Moyo District) 4 Hon. Vicent Mujuni Kyamadidi (NRM, Rwampara County, Mbarara Diistrict) and Hon. Bako Christine Abia, FDC, Woman Representative, Arua District) 5 Hon. Grace Kwiyucwiny (NRM, Woman Representative, Zombo) 6 Hon. Santa Alum (UPC, Woman Representative, Oyam) 7 Hon. Vicent Mujuni Kyamadidi (NRM, Rwampara County, Mbarara)
5.0 Conclusion Under the Highly Indebted Poor Countries Initiative, Uganda was the first to benefit from it and her debt level was dropped from 102 per cent of Gross Domestic Product (GDP) in 1992 to 12 per cent in 2007. By 2011, external debt had risen to 26.7 per cent of GDP. The MVP Phase II loan will no doubt increase the country s external debt exposure which stood at US$ 5.8 billion as at 31 March 2013. While UDN recognises that the debt exposure is currently sustainable, the debt commitments are growing exponentially. It is therefore paramount for Government to effectively monitor and evaluate the performance of these loans to ascertain that they are achieving their desired objectives and improve capacity for economic growth and development for Uganda. 6.0 Reference Documents and Reports 1. PARLIAMENT (2013), Report on the Committee of National Economy on the request by Government to borrow USD$9.75Mn from the Islamic Development Bank, for Financing the Consolidation and Scale-up of the Millennium Villages Project in Uganda, Brief to Parliament, May 2013. 2. MINISTRY OF LOCAL GOVERNMENT (2013), Proposal to borrow $9.75Mn from IDB for the Consolidation and Scaleup of the Millennium Villages Project: Responses to issues raised by Hon. Members of the Parliamentary Committee on National Economy, 23 rd April 2013. 3. MoFPED (2013), Proposal to borrow US$9.75Mn from the Islamic Development Bank to support the Consolidation and Scale-up of the Millennium Villages Project in Uganda, Brief to Parliament. 4. UBOS (2012), Statistical Abstract. 5. MoFPED (2010), Millennium Development Goals Report for Uganda 6. UNDP, The Millennium Villages Project, Progress Report, November 2006. http://www.undp.org.sn/new/mv/ Newsletter%20nov.pdf UDN Profile UDN is a policy advocacy organization working to promote and advocate for poor and marginalized people to participate in influencing poverty-focused policies, demand for their rights and monitor service delivery to ensure prudent, accountable and transparent resource generation and utilization. UDN works at the local levels with LGs and Community Based Organizations in 61 sub-counties in 18 districts. At the national level, the organization engages with various Government MDAs among which are Parliament, Bank of Uganda, the MoFPED and the Ministry of LG on issues of service delivery, public sector accountability, budget processes and policy options.