Rewarding corruption: World Bank gives more money to corruption-riddled Uganda

(October 14, 2010) While corruption in Uganda becomes more endemic, the World Bank continues to hand over millions of dollars of foreign aid funds—not realizing that this money is making the situation worse, writes Brady Yauch.

While the World Bank admits that good governance practices in Uganda have failed to meet expectations, it has, nevertheless, offered Uganda another $100-million in “budget support,” which it says will help the country deal with challenges “posed by the global economic crisis.”

The $100-million aid package is, ironically, intended to reprimand government officials in Uganda over what the Bank says is, “the slow progress on important governance reforms and growing corruption challenges.” Over the past three years, the Uganda government received $150-million annually in budget support from the Bank—but the new and smaller aid package is meant, supposedly, as ‘punishment’ for Uganda’s corrupt ways.

In no other industry, other than foreign aid, do we show our disapproval by cutting a $100-million dollar cheque.

More worrying is that the Bank doesn’t consider the fact that the hundreds of millions of dollars it handed over to the Uganda government in recent years may have actually created the corrupt governance it’s now “denouncing”. But that’s exactly what Andrew Mwenda, the political editor of the Daily Monitor, a newspaper in Kampala, Uganda, said in his report, “Foreign Aid and the Weakening of Democratic Accountability in Uganda”.

Mwenda believes that because more than half[1] of Uganda’s budget is made up a foreign aid, the government is not accountable to its own citizens. Ultimately, he says, “foreign aid enables the government to pay its bills without having to undertake further necessary economic reforms.”

Mwenda says the country needs to implement drastic reforms in order to bring its fiscal house in order and promote development using its own resources—starting with a more efficient and enforced system of taxation. He says tax collection by the Uganda Revenue Authority amounts to about 12 percent of GDP—well below the sub-Saharan African average of 18–20 percent and far from the government’s target of 24 percent.

“Uganda does not need more foreign aid,” Mwenda says. “Rather, it needs to improve its tax administration by investing in better staff and motivating them with better pay and better facilities.”

The failure to implement an efficient tax system, he believes, is a direct result of foreign aid, which he says acts as a disincentive to“reform tax administration and to streamline public expenditure.”

Mwenda is not alone in highlighting the potential of tax revenue to promote domestic development and wean a nation off foreign aid funds. Mario Pezzini, director of the OECD development centre in Paris, African leaders attending the World Economic Forum on Africa earlier this year and Pakistan’s Federal Minister for Finance and Revenues, Shaukat Tareen have all said better systems of taxation would help their countries to get off, often contentious, aid packages.

But as the aid taps remain open in Uganda, corruption continues to flourish and the self-reinforcing cycle of aid, corruption and a crippled tax system becomes more vicious.

A report from Transparency International Kenya, “The East Africa Bribery Index 2010” said the country’s agency in charge of fighting corruption recently admitted that corruption, already rampant in the public sector, is increasing and the country’s agency in charge of tax collection, the Uganda Revenue Authority, ranked as one of the most corrupt institutions in all of East Africa.

And according to a Reuters report earlier in the year, corruption is now so endemic in the country that a number of donors were threatening to suspend all aid to the country.

Tough that tough love appears to be too tough for the World Bank, which wants to use therapy instead.

“The undeniable lack of government action to follow up on cases of grand corruption is a key area of development partner concern,” Kundhavi Kadiresan, the World Bank’s representative in Uganda told Reuters. “Corruption in Uganda is endemic and we have seen no sign of improvement,” she admitted. But instead of doing the obvious—cutting off aid—some donors, she said, “are currently considering a range of actions. This may include withholding disbursements, reductions in aid or reprogramming away from direct budget support.”

Meanwhile, the writing on the wall is hard to ignore. A damning report in the Guardian said that when, “aid comes in and is added to locally raised government revenue, it is misappropriated or extravagantly used by the elite in the leadership.”

“A bulk of local revenue and aid money is outrightly swindled and the balance officially used by those in leadership to pay their salaries, allowances, office furnishings and to buy luxury 4X4s.”

Foreign aid finances corruption throughout the Third World, and probably spawned it. If the World Bank can’t see that, then the World Bank is the problem and should be wound down in an orderly but determined manner.

Brady Yauch, Probe International, October 14, 2010

Further Reading from Probe International:

BACK TO POST: 1. Recent reports say that figure has now fallen to 30 percent.

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