Last week, Parliament of Uganda approved government’s request to borrow up to US$96 million to finance the Investment for Industrial Transformation and Employment (INVITE) project
The loan will be issued by the International Development Association (IDA) of the World Bank.
During the House sitting on Thursday, 25 May 2023, a request to receive a grant of US$104 million to finance the project was also approved by the House.
The objective of the project is to mitigate the effect of Covid-19 on private sector investment and employment, and support new economic opportunities including in refugee hosting communities.
However, according to Hon. Richard Sebamala (DP Bukoto Central Masaka District), there were several reasons as to why Parliament was not supposed to approve government’s request to borrow for the INVITE project
When the loan was brought, government had no supporting papers and the proposal was rejected by the committee for National Economy.
Bank of Uganda was called on to explain on the project and the ministry of finance to lay some documents. There are documents on record that the Ministry of finance had been asked to lay before the house. However, they went ahead and made the report.
Even when the report was done, Parliament was not allowed to debate and it was passed within 10 minutes after Hon. Asuman Basalirwa (JEEMA, Bugiri Municipality) moved a motion to adopt the committee report without further debate.
Sebamala and other legislators having not given time to express himself, the public should know that these are the limitations that were not aired out.
The limitations include;
1. The whole project development objective seems to have been overtaken by events. It is anchored around Covid and was supposed to be the World Bank Covid response action. Is this still relevant? Do countries still give what is called Covid response packages? This is observed on Paragraph 34 were the Project development objective is to mitigate the impacts of Covid 19.
2. Why is a grant component higher that the other (credit) components? Grant $104m and Credit $96m. This is a very wrong project structure from the start as it indicates wrong prioritization of utilization of project proceeds.
3. Why is government creating another structure to manage and handle refugees? Why can’t OPM come in as a key implementing partner so that they can access the funding and manage the refugee component?
4. On page 3 the project expects to disburse $42m in 2022 (which already passed) and $ 127.9m in 2023. How will gov’t disburse funds in the previous year and going by the disbursement conditions, it is feasible to disburse all these funds in 2023?
5. An INVITE TRUST FUND is to be created. What is the governance structure of the Invite Trust Fund? What is the duration of this project and what will happen to the Invite Fund at the end of the project?
6. On page 11, about the narrative about the financial sector, Old context was used, a further indication that the project does not speak to the current and future needs, but rather past Covid situation.
7. The project is also a rapid response to mitigate the impact of Covid 19 crisis. Who is still providing Covid rapid response?
8. Window 2.1 on Partial Credit Guarantees. H.E the President at cabinet last year rejected this which as included in the Financial Sector Development Strategy when MOFPED presented the same to cabinet.
9. Para 51. Project beneficiaries. What is the basis of number of beneficiaries?
10. Para 53. Component 1, window 3. Does it include suppliers to government? Thus, payment of government arrears through this component too?
11. Para 74 and 75. Why do you have project implementation teams at Bank of Uganda and Private Sector Foundation Uganda. Why not only BOU?
12. Para 76. Project advisory committee for refugees not needed and according to Sebamala Can be handled by the project steering committee
13. Component 1, window 1 is a grant to commercial banks. Sebamala wants to understand exactly what this is about. Para 78 says it is not recoverable. They would rather give that funding to SMEs as working capital instead of giving the commercial back to recover what they did not collect. SMEs that are capital constrained will be able to work, pay their loans, and retain jobs.
14. Para 77. Why should PSFU lead a whole ministry of finance to do monitoring and evaluation? Who should be leading the other or who should have better capabilities for this?
15. Para 111. Why should PSFU recruit staff for bank of Uganda to implement the project that bank of Uganda is going to manage?
16. 128. As wholesale financial intermediary. Reconcile this with the President as he vehemently rejected this model at the time it was proposed that UDB does wholesale role.
17. When will the project operations manuals be done as these will provide insights into how the project will be implemented? It remains very unclear and yet it is critical at this stage.
The committee recommended that Bank of Uganda should ensure that the lines of credit are applied to only those tier 3 and 4 institutions which have been assessed and deemed qualified according to a set of key indicators
The committee also urged the Ministry of Finance, Bank of Uganda and the Private Sector Foundation Uganda to ensure that the loan conditions are fulfilled in order to trigger the timely disbursement of the credit for the project
Among the legal covenants of the financing agreement are that government has an adequate refugee protection framework, as well as a Project Steering Committee within the Finance Ministry, in line with regulations of the World Bank.
It also states that no withdrawal of the loan disbursements shall be made until the recipient provides satisfactory evidence to the World Bank that the INVITE Trust has been established and made operational.
It should be noted that this loan was approved just a few days after Parliament rejecting to approve Government’s request of €500 million from Amarog Capital Limited and Sovereign Infrastructure Group.
The rejection came after the Committees on Budget and National Economy scrutinized the agreement and raised concerns regarding tax waivers on interest and fees, as well as the increasing waiver of sovereign immunity.
This followed a debate on government’s proposal to utilize US$250 million from Uganda’s IMF SDR quota allocation, borrow up to SDR 90 million (US$125 million) from the IMF, and up to €500 million from Sovereign Infrastructure Group (SOVINFRA), Amarog Capital Limited, and other financial institutions to finance the 2022/2023 budget.
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