Structural Adjustment from Below

In looking for solutions to the cost-of-living crisis in Kenya and Uganda it may be helpful to look for patterns in governance that give rise to these perennial crises. The major similarity between the two countries is that both are undergoing another cycle of structural adjustment. It may be that Kenya and Uganda differ in their capacities to implement reforms.

Uganda’s attempts at structural adjustment in the 1990s produced a litany of underperformance or failed targets. That opinion is based on the official reviews of the World Bank at the close of the projects. The trend continued into the new millennium. Having missed reform targets in the areas of economic and financial management reform, Uganda attempted to redo the reforms. I argue that redoing failed loan-financed projects using further loans contributes to Uganda’s low standard of human development, and that public finance management and governance generally are such that the country is no longer capable of implementing complex programmes. Perennial austerity, insufficiency, inequality and social unrest are merely symptoms of that fact. Any plans to break out of the cycle need to address the question: When a project fails because of lender incompetence or even corruption, are the citizens of the borrower country liable for the debt?

In the second half of this presentation I shall discuss the contribution the International Monetary Fund and the World Bank have made to the cost-of-living crises.

The Kenyan uprising

Kenya’s recent uprising against an insupportable cost of living follows in the tradition of anti-austerity protests. The austerity is a result of IMF and World Bank economic policies adopted by indebted governments of developing countries. A similar wave swept across Latin America, North Africa and the Middle East in 2019.

More recently, 12,500 cost-of-living protest events circled the globe between November 2021 and October 2022 (Friedrich Ebert Stiftung 2022), protesting shrinking access to essentials such as fuel, gas, and electricity.

In Kenya, the 2024 protests were triggered by proposed cuts in fuel subsidies, income tax increases, and a housing levy on both employees and employers.  A tax on bread and an “eco-tax” went a step too far and were the first to be dropped by the government in its gradual climb-down from the Finance Bill 2024. President William Ruto’s government is now considering funding the budget through cost-saving measures rather than by maintaining the current extravagant level of expenditure and demanding ever more frugality from the public.

Uganda too has hunger issues. Undernourishment rose by 1 per cent a year between 2006 and 2011 and accelerated by two percentage points every year from 2011 (World Bank). It rose from 39 per cent in 2015 to 41 per cent in 2016 when that particular indicator was suspended from the World Bank online databank for Uganda. There was the First Thousand Days nutrition programme meant to alleviate malnutrition during which undernourishment increased – the programme failed because like many others, Uganda did not meet its co-financing obligations.

Uganda still faces structural issues that were meant to have been adjusted in the 1990s – i.e., high administrative overheads. They were supposed to have been fixed by the US$90 million Economic and Financial Management Project of 1991-1995. Cash for investment in better quality and more far-reaching service delivery was meant to be freed up by reducing the size of the administration (from 39 to 22 ministries), reducing the number of public servants by about half, eliminating allowances paid to staff and stopping extravagant expenditure such as departmental vehicles and fuel. Remaining staff were meant to receive enhanced salaries in order to maintain lifestyles comparable to private sector workers. Within twenty years the number of ministries had crept back up and exceeded the original number, the size of parliament has more than doubled, and status-related allowances were reinstated (including the new service awards or “honoraria”) payable on leaving office on top of the statutory retirement benefits – these run to the equivalent of US$135,000 for parliamentary commissioners. That UShs 500 million is enough to furnish rural schools with 5,000 desks for primary school children. Many currently sit on bricks.

Key sectoral reform targets 

Under the Ugandan SAP the key sectoral reforms included reducing electricity subsidies paid to the Electricity Board by privatizing power production, transmission and distribution and making them more efficient; increasing food yields by privatizing agricultural extension; increasing access to primary education through a universal primary education programme; and broadening access to healthcare through a national health insurance scheme with a minimum national healthcare package. 

Those programmes closed in the 1990s without yielding the expected results. Electricity generation and transmission were privatized and dams were built. Subsidies to the private electricity distribution company, Umeme, far outstripped the level paid to the old Electricity Board. In 2022, two private industrial parks (Lao Shen in Kapeka and MMP Industrial Park in Buikwe district) were given subsidies making their tariffs some of the lowest in the country. The private distributor was also guaranteed compensation for any losses owing to low uptake of electricity.

Moreover, whereas between 2006 and 2009 30 per cent of the targeted connections had been made, in 2020, rural electrification met only 7 per cent of target connections while just 51 per cent of the planned 240,000 connections were made in 2017/18. After the retrenchment of public agricultural extension workers, the US$162 million National Agricultural Advisory Service (NAADS) did not increase food yields according to an official review. It was reportedly captured by the elite who received most of the agricultural machinery distributed.

The US$65 million District Health Services Pilot and Demonstration Project (DHP – December 1994) did not produce the expected model for financing a national health insurance scheme. Over the life cycle of the DHP, the population migrated towards private healthcare providers, abandoning public sector healthcare. Twenty years on, Uganda still has no national health insurance scheme.

Moreover, having privatized public enterprises on the principle that the public sector is not good at business (SAP I), Uganda has gone back to investing in parastatals with little success.

Corruption and wasteful expenditure

The austerity required of the general population is in stark contrast to the lavish lifestyles enjoyed by Kenyan and Ugandan leaders and their patronage circles. In Kenya,  President Ruto has promised to remove wasteful expenditure from the budget beginning with funds foreseen for the renovation of his and his deputy’s official residences. In Uganda meanwhile, the Speaker of Parliament spent UShs532 million (US$143,828) on fencing and lighting her private home. The taxpayer also covers her electricity allowance of UShs4 million (US$1,000) per month. President Museveni’s household, State House, is reliably reported to spend UShs2.8 billion per day ($70,965), the equivalent of the construction and furnishing costs of a secondary school.

Parliament is equally culpable. Billions are spent on attending the East African Parliamentary Games while thousands of schoolchildren don’t have sports facilities or even desks. Ugandan members of parliament across the board have accepted random grants from unclear sources; UShs200 million for personal SUVs, and tens of millions as an inducement to pass supplementary budgets. 

However, denouncing corruption and incompetence has become a national pastime. In order to bring about change, the country needs to go further. Uganda, prompted by Kenya, plans to protest the cost-of-living and also corruption in Parliament and the Executive. The plan is for a peaceful march to Parliament but as with Kenya’s protests, there is the risk of state brutality.

Reckless lending by the IMF and World Bank

Knowing that a borrowing country is run by corrupt leaders who would sooner use loans for regime preservation and their own personal comfort than human development, why do the IMF and WB continue to lend to them?

Banks lend. That is their business. The only relevant question is whether or not they fear to lose their investment. No, they do not. There is a saying that countries do not go bankrupt. There is always a way to recover debt. Not so long ago, Uganda was considering taxing rainwater harvest tanks (as Israel does to Palestinians in the West Bank). China Eximbank has agreements for the government of Uganda to forfeit any public asset should the country default on its debts to build/refurbish the airport and Entebbe Expressway. It will be remembered that Greece was advised to sell ancient monuments like the Parthenon in order to pay its debts. At the time, Greece was accused of wasting the loans; yet they had no trouble getting them.

So, both the IMF and WB can afford to be reckless in their lending to corrupt and inept regimes. The more corrupt, in fact, the more a regime will want to borrow. In order to disguise their unprincipled lending, lenders have a series of reports to mask the situation.

For example, a sign of trouble was the warning from the auditor general in 2016 that Uganda’s debt-to-revenue ratio was the highest in the region at 54 per cent and that it was unfavourable. However, the IMF Debt Sustainability Analysis (DSA) contradicted the auditor general and said Uganda was at low risk of debt distress. The IMF insisted that Uganda’s debt would be sustainable as long as oil production began on time (within three years) and there was better selection of development projects. The oil is late and we have seen a string of project failures, yet the lending continues.

Finally, in the health sector, Kenya and Uganda invested in the East Africa Public Health Laboratory Networking Project to monitor TB and other communicable diseases. Although it ended without completion, when payments fell due, Uganda began to pay. Payments of US$988,160.00 were made during the pandemic and lockdown, even though the lab network was not fit for the purpose of testing for COVID. Shockingly, this and a number of other closed projects were re-opened during the pandemic to enable the government of Uganda to borrow against them (without the usual lengthy procedures required for new projects).

Charting the way forward 

Clearly, some stop-loss measures need to be taken. Previously, some UShs3 trillion in potential savings of public funds were identified in Uganda (NUP Manifesto). The exercise needs to be repeated and the mechanisms available used to pressure public servants to give up allowances and benefits to which they are not legally or morally entitled. Among the protesters there will be lawyers willing to assist with drafting petitions for the recall of members of parliament who do not back the good governance campaign. The savings should be earmarked for previously identified service delivery deficits – for example, desks for schools.

Nugatory expenditure should be suspended, for example, decorations, refreshments in public offices, Dstv subscriptions – these things are not necessary and are certainly not more important than books in classrooms and toilets at schools.

Efforts should be made to recover embezzled funds. Legal means exist to sequester property if it is believed to have been bought with the proceeds of crime. The funds should be set aside for previously identified service delivery projects, for example, irrigation, electrification, post-harvest technologies, etc.

Debt justice: debt audit and repudiation

An audit the public debt needs to be undertaken; it may be that, like with Mozambique’s tuna bonds, a large part of some loans did not go into the treasury. Professional help should be sought to set up a broad-based, non-partisan national debt audit committee as was the case in Greece.

The most challenging goal to achieve, however, will be to repudiate unsustainable and illegitimate debt, and loans that were embezzled or wasted. An example of why this is necessary can be found in Zambia. Having negotiated an expansive structural adjustment package, the country has had difficulty getting access to World Bank funds because the IMF requires it to settle debts owed to predatory private lenders first, regardless of how the Eurobond and other funds so raised were used or where they ended up.

Many arguments are put forward against repudiation of debt but Africans should bear in mind that, firstly, lenders must exercise due diligence in lending to clients; where they do not, the citizens of the borrowing countries are not liable for the consequences of their negligence. Secondly, Africans must bear in mind that the first country to repudiate odious debt (that used for regime preservation rather than development) was the United States of America when it was freeing itself from its colonial shackles.