Government has withdrawn a financing request of €500 million from Amarog Capital Limited and Sovereign Infrastructure Group.
The decision comes as 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.
The Minister of Finance in charge of General Duties, Hon. Henry Musasizi made an amendment to his motion, choosing to withdraw the financing request.
The decision to withdraw the request was made on Thursday, 25 May 2023 in a sitting of Parliament chaired by Deputy Speaker, Thomas Tayebwa.
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.
“We have received new developments indicating that the company’s experience is limited and they have not handled transactions of this magnitude. We need more information about this company. Additionally, they recently requested changes to the terms by introducing insurance,” said Musasizi.
Despite Butambala County MP, Hon. Muwanga Kivumbi seeking to prohibit the amendment, the Deputy Speaker Thomas Tayebwa guided that the question be put and the committee report be read after the House decides.
Musasizi sought the indulgence of the House to allow consultation on whether to proceed with the financing.
The House granted this request.
In the committee’s report, Deputy Chairperson, Hon. Robert Migadde highlighted a significant concern with one of the conditions precedent; the tax waiver on interest and fees paid by the borrower.
This condition contradicted Section 83 of the Income Tax Act and deviated from the domestic resource mobilization strategy.
The committee recommended that the government negotiate tax regimes for non-concessional loans to ensure citizens benefit from the gains in such transactions.
The report also raised concerns about the repayment of the loan, particularly Clause 4.4 of the financing agreement which allowed changes in the calculation of interest rates, potentially affecting the loan’s terms and conditions.
The committee pointed out that altering the interest rate determination basis would violate Article 159(2) and (3) of the Constitution, which mandates parliamentary approval for loan terms and conditions.
The report also highlighted the increasing waiver of sovereign immunity.
Clause 17 of the financing agreement stipulated that the borrower, Uganda, would waive its immunity from proceedings in any jurisdiction regarding the agreement or related transactions.
The committee expressed concern about the growing number of loan agreements where Uganda waived immunity over its assets within and outside the country.
They recommended that the government negotiates to safeguard sovereign immunity in all agreements to protect Uganda’s assets and property.
The committee also recommended investigating officials who sourced and presented the loan proposals for possible linkage with the mentioned lead arrangers.
However, the House approved a request by the government to utilize part of Uganda’s IMF SDR quota allocation equivalent to US$250 million.
They also approved a request by the government to borrow up to SDR 90 million (approximately US$ 125 million) from the International Monetary Fund (IMF) to finance the budget for the financial year 2022/23.
Katikamu South Member of Parliament, Hon. Hassan Kirumirasaid that committees be given enough time to scrutinize loans and applauded the withdrawal of the Amarog financing.
Tororo County MP, Hon. Jonathan Angura hailed the committee for highlighting the need to improve the tax to GDP ratio to avoid excessive borrowing.
“Widening our tax base is a solution that we should all start looking through to avoid the borrowing,” he said.
Hon. Asuman Basalirwa (JEEMA, Bugiri Municipality) raised concerns about how the remaining funds would be utilized as the financial year was nearing its end.
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