No Emperical Literature supports the Economic Consolidation arguement by Morrison Rwakakamba
On reading Rwakakamba Morrison( a newly appointed special presidential assistant on research) article in the Newvision Thursday 5th september 2013 and in african executive magazine- http://www.africanexecutive.com/modules/magazine/articles.php?article=7437&magazine=455 " on Uganda certainly needs no constitutional crisis" I am only tempted to pen down a response just to enrich the debate. This paper attempts to address issues raised by Angelo in his paper- http://angeloizama.com/2013/08/30/speech-why-uganda-needs-a-constitutional-crisis-legal-and-institutional-limitations-of-ugandas-journey-as-one-of-africas-latest-oil-producers/. While the debate focused on constitutional crisis,Rwakakamba delved to a great extent the economic transformation of the economy from 1986 to date. As an economist,i will restrict my reaction to the economic arguments by Morrison. Here are my 3 arguements;
1. Morrison is quick to allude to economic consolidation highlighting that Uganda’s economy has grown by 0ver 80 times in 26 years. In essence the economy has grown at 80/26 times annually in nominal terms. This again wouldn’t be the economic consolidation. The measures of economic consolidation range from the basic Income per capita to Human development index. The figures on GDP per capita show that Uganda has grown from about 280 dollars in 1986 to about 560 dollars i.e. is Uganda GDP per capita has only been able to double in 25years or so. If the same trend is one to go by- Uganda would attain lower middle income in next 25 years (at 1000 USD for GDP per capita).The poverty figure comparison with the East Africa economies is only blind at the fact that the rate at which Ugandan government has reduced poverty is slower than the rate at which population is growing. To illustrate the point- in 1986/1990 with about 12/14 million people, our poverty levels were 56% - making it about 7-8 million people poor. Today at 25%-30% of 35 million Ugandans are poor, that 9-10 million poor people. In a nutshell in no empirical literature is it enshrined that Uganda has attained economic consolidation like Morrison stipulates.
2. Uganda debt levels as assessed by IMF and World Bank are sustainable- This is in sync with Morrison's arguements. But we shouldn’t be blind of the fact that there are also key risks. One of them is the rise in domestic borrowing or risein levels of non concessional loans.In this current FY, Uganda intends to borrow 1 Trillion from the Financial Markets domestically. this should have a huge impact on the movement of interest rates and foreign exchange rates.To illustrate this further, the interest bill in the current financial is a significant share of the budget. At almost 1 trillion, this represents 8% of the budget and twice the budget of agriculture that employs 70% of Ugandan labour force. Who are loans trickling down too? Again the interest bill of 1 trillion as a share of the cumulative debt of 15 trillion means that Uganda is paying almost 7% interest annually. By all means this is not concessional rate. Also lets not forget that also notably In mid-1990’s, Uganda was classified as one of the most highly-indebted poor countries with unsustainable debt burden because it could not pay its debt. Following the accumulation of a debt stock of $3.6bn, Uganda became the first eligible country under the World Bank/IMF led Highly-Indebted Poor Countries (HIPC) initiative to reduce the debt burden, to receive a debt relief amounting to $2bn.Unfortunately, the debt stock shot up again in 2006 to $4.1bn prompting another debt cancellation under the enhanced HIPC initiative. Under the initiative, Uganda’s debt burden was reduced from $4.1bn to $1.6bn.
3. The debate on oil benefits to all is a timely one, but unless Uganda addresses its large implementation gap of policies and laws as well the skewedness towards power consolidation, oil will be as good as any revenue flows in an ineffective system. Again the oil envisaged resources are significant projected at 3.5 Bn dollars per annum for about 24 years BUT not sufficient to uplift Ugandans upper middle income( see uganda's fiscal regime note - in my preceeding blog note for my calculations).
In a nutshell the arguements for economic consolidation are flawed, a simple illustration is a detailed review of the MDG progress beyond just the absolute targets but rather the relative progress.
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