Gov't Asked to Seek Alternate Infrastructure Funding Sources

1679 Views

In short
A report published by the Economic Policy Research Center EPRC says that alternative financing other than official development assistance would stimulate growth and plug huge deficits in sectors like energy and transport.

Government has been advised to tap into other forms of financing to fill existing infrastructure gaps. 

A report published by the Economic Policy Research Center (EPRC) says that alternative financing other than official development assistance would stimulate growth and plug huge deficits in sectors like energy and transport.

The researchers, Ezra Munyambonera and Joseph Mawejje in a report titled "Financing Infrastructure Development in Uganda" point to studies showing huge infrastructure gaps under the current mode of financing.

Both the Second National Development Plan (NDP II) and Vision 2040 have set ambitious targets aimed at propelling Uganda to lower-middle-income status by 2020, progressing to an upper-middle-income category by 2032 and attaining per capita incomes of USD  9,500 (33 million Shillings) in 2040.

The researchers say achieving these targets will require tremendous infrastructural investments to unlock the productivity of physical and human capital.

They argue that recent evidence shows that Uganda's infrastructure gaps will require sustained expenditure of approximately USD 1.4 billion (4.9 trillion Shillings) per year over the next decade but the figure far exceeds the budget provisions in the medium term.

Currently, Uganda spends approximately USD 1 billion (3.5 trillion Shillings) annually on infrastructure, equivalent to approximately 11 per cent of GDP, with a funding gap of approximately USD 0.4 billion (1.5 trillion Shillings) per year.

 With the funding gap, many planned infrastructure investments in the country have yet to been completed, dampening their effect on economic activity and resulting in slow growth.

The findings seem to tally with PriceWaterHouseCoopers (PwC) Uganda Economic Outlook 2017 findings on infrastructure.  The PriceWaterHouseCoopers report said there is risk that planned heavy public may not deliver the expected outcomes due to slow implementation.

The report says there is likely to be slowdown in the economy with the delay in implementation of public infrastructure projects like the Standard Gauge Railway (SGR) and the oil pipeline and refinery.

Ezra Munyambonera and Joseph Mawejje say prioritizing the Standard-Gauge Railway and the upgrading of strategic national roads from 3,795 to 5,295 kilometers (km) will be key to moving to middle income status.

Traditionally, Uganda has relied on external development assistance to deliver crucial public investments. But traditional development assistance from the Organisation for Economic Co-operation and Development-Development Assistance Committee (OECD-DAC) has gradually decreased as western economies begin to have a more inward-looking focus due to challenges with the global economy, terrorism and immigration.

The Economic Policy Research Center (EPRC) report says there are now other emerging sources of development assistance such as China and India, and the potential role of new modes of private finance such as infrastructure bonds and pension funds.

Chinese funding has increased from approximately USD 13.5 million (48 billion Shillings) per year between 2002 and 2009 to USD 56 million (198 billion Shillings) per year between 2010 and 2013.

Other assistance from non-DAC partners only totaled approximately USD 4 million (14 billion Shillings) in 12 years. Over the same period, the assistance from other official flows from OECD-DAC partners and multilateral development institutions amounted to USD 229 million (811 billion Shillings) over the 12-year period, averaging USD 19 million (67 billion Shillings) per year.

It is projected that by 2025, as Uganda moves to realize its infrastructural development requirements, non-ODA loans will constitute 70 per cent of new government borrowings, amounting to USD 7.4 billion (27 trillion Shillings) in value. Borrowing from China Exim Bank is expected to account for almost 80 per cent of all non-ODA.

The study suggests the country also use pension funds as an important source of private capital for financial investment in infrastructure.

The value of assets and member contributions at National Social Security Fund (NSSF) is estimated at 6.7 trillion in 2015 with other pension funds holding an estimate one trillion Shillings.