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Last Updated: Sunday, 20 February, 2005, 16:23 GMT
Uganda still struggles to pay its way
By Orla Ryan
BBC News business reporter

Thousands of Ugandan schoolchildren benefited from free education when the country's debt payments were waived.

Bono, Tony Blair and Gordon Brown at the Labour party conference
Celebrity and political endorsement of debt relief is on the up

That fact alone has convinced many that debt relief is a good thing.

The issue is high on the political agenda and Uganda, one of the first countries in the world to be granted debt relief, is often cited as an example of how it can work at its best.

And yet, when taking a closer look at the country's case, it soon becomes clear that it is not quite that simple.

Mounting payments

When Uganda first got debt relief in 1998, almost a fifth of its budget was soaked up by debt repayments.

It was a clear candidate for help, made so by its strong economic growth and its willingness to implement economic reforms.

Under the Highly Indebted Poor Countries' Initiative, the money that would have been spent on meeting debt payments was directed into the Poverty Action Fund, managed by the Ugandan Ministry of Finance.

Voters in Kampala in the 2001 general election
Ballot box debate: Poverty reduction is an electoral issue

From there, the money was channelled into the country's health and education systems.

Without debt relief "they wouldn't have been able to recruit teachers and at the same time build classrooms", says Uganda Debt Network's founder Zie Gariyo.

"I don't think the same number would have enrolled [to receive an education]".

Disappearing cash

The Poverty Action Fund is widely seen as a success, but it also has its critics.

This is largely because as the money slowly filtered through the country's complex local government structure, some of it disappeared into the pockets of officials who connived with contractors, Mr Gariyo admits.

Some opposition politicians say up to half the cash was lost.

We in the West are total amateurs. We haven't an idea of what goes on behind closed doors in African countries
Goal founder John O'Shea

Romilly Greenhill, an ActionAid policy worker who used to work in the Ministry of Finance, accepts that there could have been greater transparency at local level.

But, she says, the key points are that the money was spent on poverty reduction - as promised - and not diverted to other government projects, and that the government kept its spending in those key areas constant.

Renewed borrowing

The freed-up funds may have gone in broadly the right direction, but Uganda's debt levels are no more manageable now than they were when debt relief was first granted.

The proportion of its budget spent on debt is about 15%, only a fraction lower than the 1998 levels, Mr Gariyo says.

"On the debt sustainability issue, it hasn't worked," admits Keith Muhakanizi, acting deputy secretary of Treasury in Uganda's Ministry of Finance.

Debt relief should go to the countries that have used the debt relief properly and we have used the debt relief properly
Keith Muhakanizi, Ministry of Finance

A handful of reasons are put forward for this, some of which were clearly beyond Uganda's control.

Not all creditors who had said they would forgive Uganda's debts did so, Mr Muhakanizi points out.

Moreover, Uganda's exports, and thus income, were hit hard by falling coffee prices.

But other factors clearly lie within the government's remit.

Tax collection remains low, with revenues eaten into by corrupt revenue officials.

(Uganda scored less than three out of ten in Transparency International's 2004 Corruption Perceptions Index, a level which indicates rampant corruption. The anti-corruption body did however say that this was an improvement on 2003.)

And, crucially, Uganda continues to borrow, this time to invest in infrastructure.

Further relief

Mr Gariyo questions the benefit of this fresh borrowing, which he estimates to have exceeded $1bn.

For Uganda's debt to be sustainable, he says, the government needs to borrow less, or only borrow to invest in areas which can create wealth.

However, when asked what is needed to make the country's debt sustainable, Mr Muhakanizi's answer is simple: more debt relief.

Muddy waters

The water is further muddied by political change in Uganda and by country's conflict with the neighbouring Democratic Republic of Congo.

Congolese rebel
Congo's mineral riches have helped fuel conflict in the region

Leading Irish charity Goal's founder, John O'Shea, says the Ugandan administration should be denied both aid and debt relief because of its aggression in the Congo.

Widespread looting of Congolese diamonds has boosted sales of diamonds from Uganda and fuelled corruption within the country, he insists.

Within the donor community, concern is mounting, both about the long-running war in the north of the country and about President Yoweri Museveni's perceived desire to remain in office indefinitely.

Add to this the fact that the government increased military spending at the expense of social spending in 2003, and Uganda's image is soiled.

Domestic affair?

Campaigners such as Romilly Greenhill argue that as long as the money freed up by debt relief reaches the poor, governance issues are a matter for Ugandans.

"Governance within Africa is a matter for Africa to sort out," she says.

"Outsiders can have a role to play in governance, but the more conditions you set [for debt relief] the fewer countries get it.

"Debt relief is a justice question."

Success story?

The current round of debt relief under the Highly Indebted Poor Countries' Initiative is close to an end.

The Commission is moving at the right pace but I think that it limits Africa
Kasozi Lubega, Uganda

With the international consensus swinging in favour of greater debt relief, campaigners hope Uganda will get more.

"Debt relief should go to the countries that have used the debt relief properly and we have used the debt relief properly," insists Mr Muhakanizi.

Goal's Mr O'Shea sees it differently.

He believes there is a desire in the West to promote Uganda as an African success story, no matter what the reality is on the ground.

A recognition of Ugandan shortcomings could - some analysts say - be seen as amounting to a poor return on the West's investment.

"We in the West are total amateurs. We haven't an idea of what goes on behind closed doors in African countries," he says.

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05 Feb 05 |  Business

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