OPINION by Fred K. Muhumuza
The recent suspension of World Bank loans and tedious negotiations government has to do to resolve the impasse brings back to memory the days Uganda had to adopt painful policy and institutional reforms in order to qualify for similar loans and grants. Many still blame the World Bank and her sister institution, the IMF, for the pain of retrenchment of public sector employees, demobilisation of soldiers, scraping of produce monopolies and selling of public corporations like the Uganda Commercial Bank and Uganda Airlines. I have mentioned the last two for a reason. I hear talk of reviving them!
While the mode of implementation of the SAPs in terms of speed and lack of management of negative side effects will remain questionable, the intent was justified to a great extent. I know the underlying economics is complex and fit for a Masters level class but, what can one do for an economy whose structure is so distorted and needs to be adjusted? I guess you do just that – structural adjustment.
Let us do the simple economics of looking at the symptoms which include: A big public budget deficit arising from a large size of government amid limited revenues; deterioration of trade balance since the economy produces less tradable items that can be exported and has to rely more on imports; and high interest rates or inflation depending on how the government decides to finance the deficit. Government can print money and cause inflation or borrow from home and abroad at high interest rates.
If the above symptoms look familiar and you have complained about high interest rates, large government spending that does not necessarily deliver quality public services, too many imports even of basics like clothes and food, etc then it is time to see a doctor. Just remember, the drug is painful and comes with side effects.
The alternative, however, is continued pain from the disease and possible death or stunting of the economy. A stunted economy will not deliver adequate growth, and Uganda has been growing at lower rates; will not create sufficient jobs, I better not labour that one; will literary ‘overheat’ in terms of high interest rates and exchange rates; and generate less revenues partly because of ‘killing’ private businesses. But do we want Mr Jones back? The pigs asked in George Owens’ Animal Farm.
While the World Bank and the IMF have no resemblance to Mr Jones and Uganda is not a pig farm, some other PIIGS (Portugal, Italy, Iceland, Greece and Spain) recently had to take the same old medicine to get their economies out of intensive care units.
Can Uganda carry out the necessary reforms on its own? Not with the current state of politics, policies, technical approaches and corruption. Economic reforms involve socio-economic pain that can be politically unacceptable.
Besides, the country’s current state of the budget deficit and debt is so critical that it needs external support. That is partly the reason there are talks with the World Bank and the IMF for a Policy Support Instrument.
The good thing is that there is more economic knowledge and Uganda can certainly get better medication. Only that Uganda, the patient, has to agree, or be made to agree, that the economy needs another rap! Sorry, another structural adjustment.
Dr Muhumuza, is a development economist committed to inclusive growth through markets that work for the poor.
