Borrowing Binge: MPs Approve Astronomical World Bank Loan for Kampala Urbanization

MPs Greenlight Shs 2 Trillion World Bank Loan to Transform Kampala
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MPs Greenlight Shs 2 Trillion World Bank Loan to Transform Kampala

On August 24, 2023, the Ugandan Parliament granted approval to the government’s request for a substantial loan from the World Bank, amounting to $518 million (approximately Shs 1.923 trillion). The primary purpose of this loan is to fund the Greater Kampala Metropolitan Area Urban Development program.

The decision to approve the loan followed the presentation of a report to the Parliament by John Bosco Ikojo, the chairperson of the committee on national economy. This report had been meticulously scrutinized during a plenary session presided over by deputy speaker, Thomas Tayebwa, on Wednesday.

During a plenary session on May 24, 2023, the Minister of Finance, Planning, and Economic Development laid out a proposal before the Members of Parliament. This proposal entailed borrowing up to special drawing rights (SDR) 34.8 million, which is approximately equivalent to $48 million, from the International Development Association (IDA) of the World Bank Group. Additionally, the proposal aimed to secure a loan of up to €40 million (around $42.66 million) from Agence Francaise De Development (AFD).

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The Greater Kampala Metropolitan Area encompasses Kampala city along with eight Local Government entities, namely Entebbe, Kira, Makindye-Ssebagabo, Mukono, and Nansana Municipalities, as well as Mukono, Mpigi, and Wakiso districts. With an estimated population of 5.8 million, the project’s objective is to transform this region into a productive, resilient, and livable urban center, in alignment with Uganda Vision 2040’s goal of achieving an upper-middle-income status.

The program’s components encompass a range of initiatives, including road rehabilitation and upgrading, establishment of drainage systems, construction of markets and artisan parks, and institutional strengthening. The entire project is projected to cost $1.179 million (approximately Shs 4.380 trillion) over a span of five years, as outlined in the Greater Kampala Metropolitan Area Economic Development Strategy (2020-2030).

The government had earlier approved the Development Framework 2040 in 2013, which was later adopted in 2019 to enhance the economic contribution and competitiveness of the Greater Kampala Metropolitan Area. This framework designated the region as a special planning area with an investment portfolio of $2,995 million.

The financing for this project involves co-funding efforts by the Kampala Capital City Authority (KCCA) and the eight associated entities. They are expected to contribute $571.31 million (roughly Shs 2.109 trillion) from their current budgets. The World Bank’s contribution will be a total funding of $566 million (approximately Shs 2.089 trillion), comprising a credit of $518 million (about Shs 1.912 trillion) and a grant of $48 million (around Shs 177.213 billion). The Agence Francaise De Development (AFD) will provide an additional funding of $42.66 million (approximately Shs 157.498 billion) through a credit arrangement.

The pressing need for this development stems from the current state of the Kampala Metropolitan area, characterized by deteriorating infrastructure, inadequate drainage systems resulting in recurrent floods, and a lack of efficient transportation leading to severe traffic congestion. The statistics underline these challenges, including the fact that only a small portion of the road network is paved and in good condition.

The Parliamentary committee emphasized that the disbursed funds will be directed towards infrastructure investments, which will be assessed annually by the Office of the Auditor General (OAG). These assessments will focus on parameters such as quality, efficiency, and effectiveness. Additionally, the committee highlighted the significant financial losses caused by traffic congestion and flooding, impacting both the local economy and residents.

Uganda’s public debt situation was also acknowledged, with the total debt stock reaching $21.74 million (equivalent to Shs 80.775 billion) by December 2022. External debt constituted approximately 59.2% of this total, while domestic debt accounted for 40.9%.

In conclusion, given the increasing public debt levels and the importance of effectively addressing the country’s developmental needs, the responsible committee stressed the need for careful consideration of the costs and economic returns associated with debt-financed projects.

It’s worth noting that this loan from the World Bank might be the last such disbursement to Uganda, as the World Bank Group announced the suspension of new public financing to the country on August 8, 2023. This decision was a response to the passing of the Anti-Homosexuality Act by the Ugandan parliament in May, a move that the World Bank Group deemed to be in conflict with its values.


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