§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Conway.]11.13 pm
§ Mr. Mike Watson (Glasgow, Central)
I am grateful to have the opportunity to raise the matter of debt in Uganda on the Adjournment of the House. Uganda is the fourth poorest country in the world, with a gross national product per capita of just $170 in 1991. Despite having access to every available debt relief measure already instituted by northern creditors, it still faces a foreign debt of some $2.6 billion. That debt is simply unpayable.
The most recently available figures show that Uganda pays about $100 million a year in debt servicing and repayments, which approximates to one third of the Ugandan Government's budget, and almost four times the amount spent on health and education combined throughout the country. Last year, debt service payments accounted for 48 per cent. of the value of all exports from Uganda. If the total debt service owed to all creditors had been met, the figure would have risen to a massive 83 per cent. of exports.
Further consideration should be given to the extent to which Uganda is able to tackle the severe health problems which afflict its people. Many tropical diseases are endemic, and AIDS is a major problem. The HIV-positive level among women in Uganda is a frightening 17 per cent. Yet Uganda is able to spend only half of the World Health Organisation recommended minimum of $12 per head for sub-Saharan Africa. Of that, a mere 20 per cent., or just over $1 per person, is contributed by the Ugandan Government themselves. The remainder comes from donor sources.
In quoting a raft of statistics, one runs the risk of obscuring the reality of the argument. The bare facts in respect of Uganda are that the country is stuck in a quagmire of debt, and is in real danger of being sucked under. The tragedy is that, unlike some other countries defined by the World bank as severely indebted low-income countries, Uganda has not deliberately defaulted on its debts.
In 1987, the Ugandan Government, assisted by the International Monetary Fund and the World bank, embarked on an economic recovery programme. It aimed to promote economic rehabilitation and growth, restore internal financial stability and establish a liberal economic environment which encouraged private sector investment. It succeeded. The result has been a liberalisation of prices, the removal of trade restrictions, the privatisation of state enterprises, and cuts in the numbers of people employed in the civil service and the armed forces.
I am by nature, as you might understand, Mr. Deputy Speaker, suspicious of and even hostile to such structural adjustment programmes imposed by the international financial institutions on countries such as Uganda. All too often they represent the application of a model of economic management which fails to understand the basic needs of people living in the world's poorest countries, and lead to living standards being driven still further downwards. However, in the case of Uganda, like it or not, the programme worked.
The IMF and the World bank arranged financing of about $1.2 billion for the programme, and the result has been a reduction of inflation to below 1 per cent. by the 395 middle of last year, from an all-time high of 240 per cent. in 1987. A revised version of the economic reforms was agreed for 1991–94, accompanied by additional financing of $1.7 billion. The result is that Uganda's economy grew by 7 per cent. in 1992–93, and a further 5 per cent. growth is forecast for the current year. The 1991 programme also involved a debt management strategy designed to reduce accumulated arrears and achieve a sustainable level of debt service.
So the Ugandan Government have done everything that could reasonably be expected of them to regenerate their economy and reduce their debt under existing rules. Yet they remain saddled with a crippling and still mounting debt burden. Their major problem is multilateral debt, almost exclusively to the IMF and the World bank. That accounts for almost 70 per cent. of Uganda's total—about three times the average for sub-Saharan African countries.
Crucially, annual debt servicing to the IMF bleeds one third of Uganda's foreign exchange earnings. If repayments owed to the IMF, most of which were loaned on a non-concessional basis, continue to increase at the present rate, in 1997–98 cash flows from that organisation to Uganda will be negative. What possible justification could there be for one of the world's poorest countries paying money to one of the world's richest multilateral organisations? The lunatics really are poised to take over the asylum, if they are not already installed.
It should be clearly stated and understood that no meaningful reduction in Uganda's crushing debt burden is possible until its payments to those institutions are reduced. Although the World bank accounts for a large proportion of total debt stock, it has provided a net transfer of funds to Uganda of about $600 million since 1987. That was facilitated through the conversion of International Bank for Reconstruction and Development loans into IDA concessional terms under its fifth dimension programme. Despite this, debt servicing to the bank remains high, and existing measures must be accelerated through the provision of additional resources.
Attempts by the IMF to increase concessionality through the enhanced structural adjustment facility have failed to alleviate the burden of Uganda's repayments, and its present soft loan agreement with ESAF comes to an end in November this year. The only practical option available to Uganda is to seek a replenishment of the ESAF to carry it over the next few years.
Currently, the Ugandan Government are using aid given for balance of payments support to repay multilateral debt. So bilateral debt is incurred to meet the immediate payments due under multilateral debt—never its donors' intended purpose. Bilateral debt to the so-called Paris Club currently stands at $282 million, or 11 per cent. of Uganda's debt. But, under club rules, there cannot be any rescheduling or reduction of debt contracted after a country's first visit to the club—in Uganda's case, 1981.
So the Ugandan Government are left with an unsustainable debt repayment bill to the Paris Club, which amounts to a convincing case for bringing forward the cut-off date. This should certainly be no earlier than 1986, when the present Government, under President Museveni, took office. It is surely wrong—not to say grossly unfair —to hold the present Government and the Ugandan People liable for debts incurred by earlier autocratic regimes which abused human rights and siphoned off millions of dollars of aid assistance, some of which left the country, never to return.
396 What can be done to provide the helping hand which Uganda needs so desperately? Earlier this month, my hon. Friend the Member for Monklands, West (Mr. Clarke), accompanied by the right hon. Member for Tweeddale, Ettrick and Lauderdale (Sir D. Steel) and Mrs. Carolyn Culey of Oxfam, visited Uganda. My hon. Friend reported that, while scarcely surprised to find the country facing severe economic difficulties, he was nonetheless shocked to learn at first hand of the price being paid by ordinary Ugandans for the debt crisis burdening their country.
He saw the extraordinary efforts being made by Ugandan health professionals, as well as British aid agencies, to tackle not only the AIDS pandemic but also the results of poor nutrition and the remaining effects of the dreadful civil wars of the 1970s and early 1980s. He was in no doubt that the current health crisis which afflicts the country is not the result just of bad luck or bad planning, the legacy of the Amin tyranny, or the falling price of coffee on the world commodities market. It was clear that the major factor is the diversion of scarce resources from human development to debt repayment.
All members of the delegation returned with the unshakeable belief that, as Uganda has taken every possible step to deal with the internal causes of its debt, urgent action is needed to assist it in dealing with the external causes. I strongly support the view of Oxfam that the international community which lent money to Uganda has a responsibility to help Uganda to repay it.
For some time now, as part of its "Africa: Make or Break" campaign, with which I am privileged to be involved, Oxfam has called for the Governments of the northern nations to encourage the IMF to sell part of its gold stocks. That would generate the necessary resources to write off the debt owed to the fund by Uganda, as well as several of the other most heavily indebted countries.
It would hardly represent a revolutionary step—after all, the IMF's original structural adjustment facility was financed by this method, and, indeed, the Chancellor of the Exchequer recently proposed a further sale to finance the replenishment of ESAF. For Uganda, it would represent a lifeline.
The British Government have recently shown their willingness to take the lead at G7 level in relation to finding a means of relieving the most indebted nations. The proposal to reduce the Trinidad terms is perhaps the most obvious, but the pressure applied on the Japanese in Washington last year by the Chancellor also represented a welcome initiative, and an attempt to achieve agreement within the world's richest nations on the question of debt.
Tonight I ask the Economic Secretary what steps he is prepared to take in terms of the case of Uganda. There is nothing more which Uganda can do itself to address its debt problems. Will the Government accept that the international community should now accept its share of the responsibility? In the past, money was lent recklessly at high interest rates to Governments which squandered it. Why should the present Government of Uganda bear sole responsibility for that?
On current projections, there will be a net outflow of around $200 million over the next five years from Uganda to the IMF as ESAF repayments become due. Will the Government accept that it is morally wrong for one of the world's poorest nations to be transferring resources to one of the richest institutions? If not, why not?
Until now, the Government and most of their northern counterparts have argued that multilateral debt cannot be 397 written off, because to do so would undermine the credibility of the international financial institutions, while selling part of the IMF's gold stocks would generate inflationary pressures. I suggest that such assertions do not withstand close scrutiny. I have already referred to the sale of gold stocks and the precedents for it.
Given the relatively small scale of finance involved and the depressed state of the global economy, it is difficult to envisage how any of the actions that I have suggested might cause serious inflationary pressure. Fears about setting precedents for middle-income countries could be answered by imposing strict criteria for eligibility.
Further, what do the Government have to say about the ability of developing countries to pay their debts? Governments have accepted that as the critical factor in dealing with bilateral debt—rightly so—so what is the rationale for refusing to apply the same principle to multilateral debt? Why should not there be limited reductions for severely indebted low-income countries, of which Uganda is one of the most extreme examples?
If the Government will not meet such a request, will the Economic Secretary agree to take steps to deal with Uganda's immediate problem? For example, will the Government make an additional £5 million available in response to the Ugandan Government's appeal for a £25 million fund to meet debt repayments? Uganda needs that level of support immediately in order to make repayments to the multilateral agencies. Failure to meet those obligations will jeopardise Uganda's ability to secure desperately needed development assistance.
I have already mentioned the difficulties in relation to bilateral debt and the Paris Club. There is a strong political case for moving the cut-off date in Uganda's case to 1986 when the present Government took office. Will the Government support that idea? I believe that they should. The club has a rule that debt which has already been rescheduled once cannot be reconsidered. It would be helpful, to say the least, if that rule could be relaxed; I have to ask whether the Government would be prepared to argue for that on Uganda's behalf with other club members.
What will the Government do to help Uganda? The case for coming to Uganda's aid is perhaps the strongest that can be made on behalf of any developing country. If the Government are not prepared to help, it sends a grim message to the people not only of that beleaguered country but those of sub-Saharan Africa as a whole. I hope that, for their sake, the Economic Secretary will respond positively.
§ The Economic Secretary to the Treasury (Mr. Anthony Nelson)
I applaud the determination of the hon. Member for Glasgow, Central (Mr. Watson) to raise this issue on the Adjournment, and I congratulate him on doing so in such compelling terms. It is a considerable tribute to him and to the issue that he has raised that the debate is so well attended by hon. Members of both parties. I acknowledge immediately that the matter has been raised by many of our constituents, and I know that interest in it goes beyond those hon. Members able to attend tonight to people outside.
I acknowledge in particular the presence of the hon. Member for Monklands, West (Mr. Clarke) who has been to Uganda recently. I have of course had a report of his visit 398 and the deliberations that he had there. I also acknowledge the interest of my hon. Friends the Members for Hertford and Stortford (Mr. Wells) and for Stafford (Mr. Cash), who have written to me separately.
Uganda is a beautiful but troubled country. It is a country of great riches but of great poverty, too. Many of us are conscious of our bilateral and multilateral obligations to those who have struggled with the millstone of debt and the heritage of repression which Uganda has undoubtedly has. Therefore, the sentiments behind and the contents of the hon. Gentleman's speech were well received by the House.
§ Mr. William Cash (Stafford)
Does my hon. Friend accept that President Museveni has fought valiantly for the people of Uganda, and that the prospect of hundreds and thousands of people being driven across the border from the Sudan as a result of the Muslim fundamentalism movement would place an even more intolerable burden on the people of Uganda and make the problems highlighted by the hon. Member for Glasgow, Central (Mr. Watson) even worse than they are now?
§ Mr. Nelson
I agree that the cause and effect of such migration will be a tragedy, and I know the interest that my hon. Friend has in that matter. I believe that he is to visit the country concerned shortly, and I shall be interested in his observations when he returns. I thank him for his contribution to the debate.
Uganda is one of the world's poorest and most indebted countries. The Government recognise that Uganda, like many similar developing countries, especially in sub-Saharan Africa, is confronted by an unsustainable debt burden. I assure the House that I share many of the anxieties that have been expressed.
The Government, and especially my right hon. Friend the Prime Minister, have taken a leading role in the development of realistic and sustainable solutions to the problem of developing country debt. It is important to recognise that there can be no simple blanket solution that is equally applicable to all developing countries. That is why the Government's policy is based on a case-by-case approach. We believe that, for the poorest and most indebted countries, simply refinancing and rescheduling debt service obligations is not enough. If those countries are to make progress towards sustainable economic development, debt reduction is essential.
However, it is wrong to attribute all the problems of developing countries to high levels of external debt as the debt is often a symptom of deeper economic problems. The Government believe that, if the long-term prospects of developing countries are to be sustainable, those fundamental economic problems must be tackled. For that reason, we are committed to working closely with our colleagues in the Paris Club group of creditor Governments and the international financial institutions.
As the House will know, the Paris Club now grants debt rescheduling to the poorest and most indebted countries, under what is known as the Trinidad terms. That concessional form of debt rescheduling is the direct result of an initiative that was launched by my right hon. Friend the Prime Minister when he was Chancellor of the Exchequer in 1990.
As a result of the Trinidad terms initiative, 20 countries, including Uganda, have to date benefited from a reduction in their official debt burdens, almost $6 billion of debts 399 have been restructured and more than $2 billion of debt has been forgiven. Those Paris Club agreements include a commitment from creditors to consider a reduction of the whole stock of official bilateral debt after three to four years, subject to satisfactory performance under an International Monetary Fund programme.
Although those agreements represent a substantial achievement, the Government believe that more could be done to help countries such as Uganda. We are urging our fellow Paris Club creditors to improve the existing Trinidad terms. We hope that they will agree to give debt reduction along the lines of the Prime Minister's original 1990 proposal.
Especially, we believe that some countries should be eligible for an immediate stock of debt reduction—possibly up to 80 cent. in the most deserving cases. To qualify for such treatment, countries would have to be up to date with their debt service payments and have established a one to two-year record of economic reform under an IMF programme.
There is still some work to do before a Paris Club consensus can be achieved, but we are hopeful that such stock of debt operations can be agreed for one or more countries this year. If we are successful, we hope that Uganda can be among the first beneficiaries, although that will partly depend on other creditors' views.
Of course, the Paris Club can only contribute to easing the burden of official bilateral debt. For most countries, but especially in Uganda's case, that is only one part of the story, for more than 60 per cent. of Uganda's debt is owed to the international financial institutions—as the hon. Member for Glasgow, Central pointed out.
Uganda's outstanding debts to the World bank currently stand at $1.8 billion, and she owes a further $362 million to the IMF. Those figures are substantial, but it is important not to lose sight of the fact that cash flow and the ability to pay are at least as important as the level of indebtedness.
Indeed, it is worth remembering that more than 90 per cent. of Uganda's debt to the international financial institutions is on concessional terms, designed expressly to assist the poor countries. Especially, Uganda has benefited from the World bank's International Development Association and the IMF's enhanced structural adjustment facility. Those are both sources of highly concessional long-term finance, with interest rates of only 0.5 per cent. The United Kingdom is an important contributor to both.
In December, the Government announced that they would provide an extra £50 million to help enlarge the enhanced structural adjustment facility. That is in addition to our original contribution of up to £327 million. The United Kingdom has also contributed £620 million to the most recent replenishment of the IDA. Further help in meeting the interest payments on Uganda's nonconcessional World bank loans has also been forthcoming, through the bank's fifth dimension facility.
It is also important to remember that the picture in Uganda is dynamic, not static. In 1992—the latest year for which World bank figures are available—Uganda made debt servicing payments of $37 million to the international financial institutions. However, in the same year, those institutions made positive net transfers to Uganda of $162 million.
The World bank expects its disbursements to Uganda to continue to exceed repayments for several years. Furthermore, although Uganda faces sharp rises in its debt service obligations to the IMF, it is also eligible for a 400 further ESAF arrangement under the enlarged facility. If this is agreed, the funds provided are likely to exceed, or at least match, debt service payments to the IMF.
There is another way in which the World bank has assisted Uganda. In February 1993, Uganda completed a buy-back operation on $153 million of its commercial debt. Under the terms of the agreement, Uganda paid a cash settlement of just 12 per cent. of the face value of that debt, using grants provided through the debt reduction facility of the International Development Association.
In recent weeks, the Government have received a number of representations urging us to support the writing off of Uganda's debt to the international financial institutions. However, the funds of both the IMF and World bank are finite and revolving. They are intended to be available for use by members when and where they are most needed. Writing off debts owed to these institutions would reduce the pool of funds available, and risk undermining their ability to assist all developing countries.
In the case of the World bank, debt write-offs might endanger its high credit rating. It is this high credit rating that allows it to raise money on the most favourable terms, and keeps the interest rates that it charges on its own loans as low as possible.
The Government recognise that the process of economic adjustment for countries like Uganda is long and difficult, especially when their adjustment efforts are hampered by high debt burdens. The Government are committed to assisting this vital adjustment. Last year, aid of £15 million was agreed for Uganda. This will help support economic reform.
However, it is also crucial that progress be made on the problem of Uganda's debt burden, and the Government have been working on ways to achieve this. To date, Uganda has benefited from a concessional rescheduling of its official bilateral debts and from targeted, conditional and highly concessional financial facilities from the international financial institutions.
The Government very much hope that further support from the Paris Club will be forthcoming this year, in the form of a stock of debt reduction, and we shall do everything in our power to achieve this. Furthermore, our representatives in the World bank and the IMF will continue to look for new ways to support Uganda's adjustment efforts.
There are just two more positive things that I want to say in response to the hon. Gentleman. The first is that, as I said earlier, Uganda received a Trinidad terms rescheduling in 1992. Any future discussion of Uganda's Paris Club debts might consider whether the existing cut-off date could be moved from 1981. That point was raised by the hon. Gentleman at the end of his speech.
Under existing Paris Club rules, debts contracted after the cut-off date cannot be rescheduled. But the United Kingdom could, and would be willing to, agree to a call to have the cut-off date moved so as to increase the amount of debt that could be rescheduled. In other words, we agree with the hon. Gentleman. But this is not something that can be done bilaterally; it needs the co-operation of others.
Secondly—this is an important point—the Paris Club is now seriously considering the possibility of early stock of debt operations, although in this area, too, consensus has yet to be reached. However, the United Kingdom has identified Uganda and Bolivia as two front runners for such treatment, and we shall seek every opportunity to press the claims of these most troubled countries.
401 In raising this matter, the hon. Gentleman has done a service not just to the House but, in particular, to Uganda. I applaud the way in which he introduced the debate, and 402 I congratulate all hon. Members, on both sides, for their presence and for their interest in this most important and pressing matter.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-one minutes to Twelve midnight.