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Leading economists raise fear about Uganda’s indebtedness

Several economists have expressed concern about the country’s level of indebtedness, arguing that it is a burden to the next generation.

They also argue that the balance of payments (deficit) position is another cause for worry as the country continues to import more than it exports. The worries came to light during a half-day conference on the state of the balance of payments deficit and national debt at the Uganda Management Institute (UMI) last week. The conference is a quarterly event at the UMI, where experts discuss various topics.

Julius Kapwepwe Mishambi of Uganda Debt Network raised a storm when he stated that the national debt level had reached 52 per cent of Gross Domestic Product, by their estimates. East African Community countries have capped their debt levels at 50 per cent of GDP.

“Our debt level is unsustainable and the ministry [of finance] needs to do something before it is too late,” Mishambi said.

“It is now affecting the performance of various sectors of the economy.” Mishambi explained that most of the debt is being used to service outstanding obligations, instead of boosting production and exports.

But David Bahati, the state minister for Planning, insisted that Uganda’s debt position is still sustainable.

“We are still below 50 per cent of GDP using the internationally recommended formula. Those who believe that our debt situation has reached 52 per cent need to produce their methodology and evidence,” he said.

Uganda's capital city Kampala

However, Bahati agreed that the debt situation was affecting other sectors of the economy.

“For instance, we spent substantial sums of borrowed money on [building] customs posts in 2008 but the roads leading there are only being worked on now due to delays in the procurement process,” he said.

He admitted that the government was now borrowing to service unutilized loans, and added that the ministry had introduced new measures to reduce challenges in the procurement processes.

“Procurement processes for all projects must be completed within three months. Any legal challenges to procurement measures must be completed within two months after the project is secured, so that work can start,” Bahati said. 

“We lost a lot of money [in the procurement process] and as a consequence, Karuma dam is going to cost us $3bn dollars, because we took two years to procure a contractor for the project. That is unacceptable.”

The ministry of finance puts the national debt at $8.4bn while the Uganda Debt Network puts the figure at $11bn, including the cost of servicing the debt.

The formula for calculating Uganda’s indebtedness was also a bone of contention among several scholars, including Dr Nicodemus Rudaheranwa of Makerere University’s Economic Policy Research Centre (EPRC).

“The GDP figures produced by government bureaucrats are wrongly computed ... they do not take into account some sectors of the economy, which are struggling,” Dr Rudaheranwa declared.

“They are set up by donors based on international parameters for their own benefit. We need to set up our own criteria and be able to establish what our true status is, and it is likely to be quite bad.”

BOP DILEMMA

In his presentation, Dr Asuman Guloba of the National Planning Authority explained that Uganda had for long suffered from a balance of payments (BOP) deficit, where import bills outstrip export receipts.

“We are spending more [on imports] than we earn – which leads to a deficit and, therefore, an imbalance,” Guloba explained.

“If deficits are persistent, this may lead to a currency crisis, where a country can’t finance its imports, leading to a speculative attack on the currency.”

He noted that sustained BOP deficits were not good for Uganda and the government needs to do more to end them.

“BOP deficit should not worry us now. However, a persistent deficit should worry us in the long run,” Guloba said.

He insisted: “We will need a radical shift in the monetary policy; otherwise, Uganda will not be able to enjoy private sector-led investment success unless we get less expensive credit.”

He explained that the current credit on the market only serves to support the service sector, and not industry, which is critical for the country to improve its export base.

Guloba prescribed some key strategies that the treasury needs to implement to reduce the BOP deficits. “We need a long-term policy that encourages production, against consumption.”

He charged the treasury to critically review the exchange rate policy, with a view to ensuring recovery.

“We need to make it more attractive to engage in activities that bring in more foreign exchange reserves … what we have is insufficient,” he said.

Rudaheranwa advised that “we should not be comfortable that we have forex reserves because this is insufficient. In addition, we need to contain capital inflows, so that at least those invested in the economy do not have to withdraw 100 per cent profits any time they feel the need to,” he said. “This is to ensure stability of our currency.”

Rudaheranwa and Guloba agree on one thing: for the foreseeable future, Uganda’s import expenditure will continue to exceed its exports. Rudaheranwa also wants the government to set up a bank, beside the Uganda Development Bank (UDB), which would assist medium-scale borrowers with long-term credit. He believes the UDB should be reserved for large-scale borrowers.

Edward Ngobye, an economist with parliament, agreed with Rudaheranwa on domestic debt.

“Private sector debt is growing faster than national debt which constrains growth. The private sector is taxed higher and it has to pay interest on its debts,” he said.

INFRASTRUCTURE SPENDING

Ngobye also agreed with the two speakers but emphasized that the government ought to make a deliberate effort to support local industries engaged in exports through smart investments.

“We ought to target manufacturing more … If we don’t fix what is happening now, we will have to undergo a sharp turn in policy in the future and it may be devastating for some in the economy,” he warned. “If we continuously collect less from exports than we spend in imports, we will remain in a debt trap for some time.”

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Comments   

+1 #1 Akot 2017-07-14 16:32
Only National Education-Subsidised Agriculture will give Uganda chance to ensure the future!

Investment in Education-Agriculture must start & be given priority!

There could never be any developed country today without National Education for ALL while governments work hand in hand with private schools to ensure every child is given Education as far as he-she can go!
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+1 #2 Lysol 2017-07-15 00:04
Quoting Akot:
Only National Education-Subsidised Agriculture will give Uganda chance to ensure the future!

Investment in Education-Agriculture must start & be given priority!

There could never be any developed country today without National Education for ALL while governments work hand in hand with private schools to ensure every child is given Education as far as he-she can go!


The regime and it's cronies always borrow to keep with their lavish lifestyle in order to remain in power for life.

As 2021 approaches, the regime has already ordered 5 military coppers instead of spending on medicine and infrastructure.
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