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Concern as Uganda's public debt enters danger zone, 90 years needed to clear

President Yoweri Museveni has always defended the borrowing

President Yoweri Museveni has always defended the borrowing

Uganda’s public debt is set to increase from the current 48.4 per cent to 53.1 per cent in 2023, according to the estimated budget for the FY 2023/24 released by the ministry of Finance.

For a debt to be sustainable, particularly for developing countries of which Uganda is part, the International Monetary Fund (IMF) says it must not exceed 50 per cent of the country’s gross domestic product (GDP). 

According to the Budget Framework Paper, the stock of public debt increased from USD 19.54 billion in June 2021 to USD 20.99 billion in June 2022. As a share of GDP, public debt increased from 46.90 per cent to 48.4 per cent over the same period. 

This represents an increase of 7.4 per cent compared to 27.45 per cent in the previous financial year.  This, the paper notes,  is a result of the government's deliberate policy of fiscal consolidation aimed at ensuring that debt remains within the set threshold of 50 per cent of GDP in the medium term. 

The paper notes that out of the almost Shs 50 trillion projected budget, the country will spend almost Shs 9 trillion on debt repayment and servicing. This represents 16 per cent of the whole FY 2023/2024 budget. Although the paper notes that the debt will level off to below 50 per cent in FY 2025/2026, nonetheless economists and politicians alike have already raised red flags. 

In November this year, the deputy governor of the Bank of Uganda, Micheal Atingi-Ego told parliament’s finance committee that the country’s public debt had hit Shs 80 trillion as at end of September 2022, which was then approximately 50 per cent of GDP.  

Atingi-Ego said that Uganda’s debt servicing in the current financial year 2022/2023 is at a ratio of tax revenue estimated at 30 per cent and this suggests that any further borrowing with associated servicing in the short to medium term would constrain government development efforts. 

"But in terms of sustainability, I think we're still sustainable. The only challenge that we have is what we call the leading indicators that you observe in order to assess whether you are able to pay. So for example, if you have to look at our tax revenues the debt service to tax revenue ratio is very worrying. It is about 30 per cent - so it means that for every shilling that you collect as taxes, 30 cents goes on debt service which means that you're clouding out other important expenditures like social expenditures to service the debt," said Atingi-Ego.

"Failure to resist expenditure pressures amidst rising debt servicing costs and failure to revamp growth remains the most significant risks to debt distress. Outlook to debt sustainability is dependent on the government’s commitment to the fiscal consolidation path and the evolution of global, domestic financial conditions and the growth of the economy,” Atingi-Ego added.  

He also then told MPs that other indicators that need to be looked at are the debt servicing to exports. He advised that any external loan being acquired should be interrogated to ascertain how it is going to conserve and generate foreign currency in order to help the country’s debt servicing. 

"If you borrow money, particularly external loans, you need to be able to generate foreign currency revenues in order to repay this debt. If it doesn't generate those revenues and the maturity is due, where do you get foreign currency reserves to pay this debt? It means you have to come to our reserves in Bank of Uganda to service that debt. So for any external loan that we're getting, we should really ensure that we should interrogate how it is going to concern foreign currency, how it is going to generate foreign currency," said Atingi-Ego.

The deputy governor noted that the rising foreign debt servicing and government imports of goods and services have significantly pushed down the international reserves to $3.65 billion as at end of October 2022 from $4.54 billion at the end of April 2022. He said that this is amidst low inflows of foreign currency that have inhibited the purchase of dollars from the domestic market. 

“In the financial year 2022/2023, the government imports plus foreign debt servicing will require about $1.8 billion which will further reduce international reserves. The rise in foreign debt servicing is largely due to the maturity of non-concessional loans. In addition, the debt service/export ratio is also projected to increase beyond the 20 per cent threshold between financial years 2021/2022 to 2025/2026,” Atingi-Ego said.

In the coming financial year 2023/2024, a total of Shs 8.343 trillion is projected as external financing. Of this, Shs 2.452 trillion will be obtained as budget financing loans and Shs 5.891 trillion from project loans. According to the Budget Framework Paper, external debt repayments are projected to amount to Shs 2.453 trillion compared to Shs 2.412 trillion in the financial year 2022/2023. 

Over the medium term, external debt payments are projected to increase due to the increase in commercial loans over the last few years.  Interest payments are projected to amount to Shs 6.135 trillion, equivalent to 2.9 per cent of GDP. Of this, Shs 5.227 trillion are projected for domestic interest payments while Shs 907.9 billion will be foreign interest payments and commitment fees. Most of the government borrowing is towards investment in infrastructure.  

Although President Museveni and officials from the ministry of Finance have defended this continuous borrowing saying it is not a threat to the country, reports show that Uganda will need more than 90 years to pay back these loans costing each Ugandan having to pay at least Shs 1 million going by the current population estimates of 44 million people.

The United Nations Conference on Trade and Development (UNCTAD) agrees that borrowing by the governments is an important tool for financing investment critical to achieving sustainable development as well as for covering short-term imbalances between revenues and expenditures.

It also notes that government borrowing can also allow fiscal policy to play a countercyclical role over economic cycles but nonetheless, it adds that high debt burdens can impede growth and sustainable development. 

In its March 2022, report, the IMF notes that although Uganda’s date is still moderately manageable, nonetheless, it has started entering danger zones especially if the oil revenues don’t start flowing as anticipated in 2025.

“Given the planned unwinding of crisis measures and implementation of fiscal consolidation, Uganda’s public debt continues to be sustainable in the medium term…Uganda has a moderate risk of external and overall public debt distress, with limited space to absorb shocks…Nevertheless, stress tests highlight breaches of external debt burden thresholds and the public debt benchmark, especially in relation to export shocks. Specifically, given that a median shock could lead to a breach of the external debt service indicators, Uganda has limited space to absorb shocks. Key risks include a slower recovery from Covid-19, environmental shocks, tighter global financial conditions, delayed reform implementation, further delays in oil exports, and a shift to non-concessional loans,” the IMF report reads in part. 

The report adds that Uganda must strive to move away from a growth model based on debt-financed public spending that has emphasized infrastructure, with one where the private sector leads economic growth, supported by the state through investments in human capital and targeted regulations to promote green and inclusive growth that reduces inequality and ensures sustainability.

Comments

-1 #11 Akot 2022-12-29 16:32
Ebmok, agreed, but,

Why is Museveni ruling since 1986, is assured of lifetime rule & his son will replace him finally?

IFM, World Bank, Total...will join/be with Museveni to get their share of Uganda riches, but is this so for Ugandans?

Why haven't Ugandans understood they are the powerless tribally divided ruled, to whom tribal lands belong, who are keeping Museveni in power & ensuring IFM, World, Bank, Total...help him destroy Uganda for good?

Why are 36 years of Museveni not long enough for Ugandans?

Why are tribal leaders still helping Museveni control, destroy Uganda, knowing only UNITY of a people can show demons way out & shut up IFM, World Bank, Total...?
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+6 #12 Steve Wesonga 2022-12-29 17:20
90 years to pay back? that is if you lowered borrowing to Zero%.

I can understand why Otafire and fellow looters won't leave power. EAT borrowed CASH until their last breath leaving Ugandans to pay
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+6 #13 Pedro 2022-12-30 07:59
How can you say you are going to borrow every financial year to finance the budget and out of the borrowed money you are financing a debt?

How are you tracking your level of indebtedness. What is M7s economy's networth if it were to remove all these debts?Does Uganda really still have a penny?
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+2 #14 Zaitun 2022-12-30 20:02
Quoting kabayekka:
It is indeed sinful and not economic sense for the IMF and the World Bank to continue to lend heavily indebted poor countries money that they cannot pay back in their lifetime.
It is not understandable why the children and grandchildren should continue to pay back such high rates of debts for many years and counting, as the current adult generation without any criticism, continue to borrow money everywhere as if there is no tomorrow?


What is that you have not understood? These callte keepers have already sold the resources of the country to external forces since the took over power.

These external forces are silent today because they do not need to embarass the old man and those around him.

But the day he will disappear from his dynastic throne, will be the time when these will start demanding to be paid, hence terrorising innocent Ugandas while the crooks will be far away with the loot.
Too sad indeed!
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0 #15 sula 2022-12-31 08:27
Pedro : the simple answer that , the country got bankrupt many years ago. Museveni &co are not leaders but fortune-hunters , conmen just enjoying themselves against the stupidity of a few Ugandans and the helpless majority because they have the guns and kill ruthlessly and unashamedly.

- That is why we say Uganda is a captured state - it is under occupation of the Ottafires,sabiti.kandihos,muhozis
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+1 #16 Akot 2023-01-01 17:07
Quoting Steve Wesonga:


90 years to pay back?

I can understand why Otafire and fellow looters won't leave power. EAT borrowed CASH until their last breath leaving Ugandans to pay!


Thanks.

Yet, Ugandans are at peace & Museveni will rule for life, while IFM World Bank...will keep on lending him money & for what reason, purpose?
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+1 #17 Akot 2023-01-01 17:16
Quoting Pedro:


Does Uganda really still have a penny?



Uganda has no Public/Social Services financed with tax money, so doesn't need a penny!

But Museveni need the money to ensure his pocket is full to continue buying off Ugandans in posts!

Without NO to the tribalistic system & UNITY, Ugandans are powerless & Musevei will rule for life & leave the post to his son in +20 years from now!

Even for the son, the waiting will be long, but unlike Ugandans, Museveni's family aren't poor, right?
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+1 #18 Akot 2023-01-01 17:29
Ugandans,

When are you saying NO to the tribalistic system of rule Museveni so cleaverly put in place & UNITING to say NO to him?

How many more years do you need, to understand only you, but in UNITY, can end Museveni's ownership of your land & tax money?

Ugandans, as long as you go along with the tribalistic system of rule that goes against International Principle & protect Museveni with fake elections, you are ALONE with him & family & you will be their slaves for good!

But IFM, World Bank will always loan Museveni money, knowing Ugandans will have to pay it back!

Are Museveni, IMF, World Bank the losers & not Ugandans who don't benefit from the loans?

Ugandans, why is the tribalistic system still standing, ensuring you are POWERLESS slaves in the zone formed by your tribal lands?
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+1 #19 Akot 2023-01-01 17:32
Quoting sula:


If you were to ask Dr Obote, Paul Muwanga or any sensible adult whether they are shocked by the sorry state Uganda is in, the answer will be '' we warned you!

museveeni is hollow, directionless, incompetent, just an opportunist and a sadist''.

What is happening is expected, it is worse than what is reported, it will never be better, the worst is just a few metres away.


Thanks.

Time Ugandans WAKE UP!
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+1 #20 Akot 2023-01-01 17:43
Quoting sula:


even a blindman can see that there is no government but conmen making their own money. Opportunist who came with vengeance to destroy this country later fly out.


Thanks.

Ugandans MUST WAKE UP: NO to the tribalistic system/tribal leaders forced to stand down & UNITY will block & stop Museveni!

Museveni can rule with or without fake elections & will continue getting loans from World Bank, IFM but he can also fly out of Uganda if wants to!

Then, what will Ugandans without National Leadership, without National Goals...do with the debt they have to pay back to IMF, World Bank?

Musevei steals in the names of Ugandans to whom Uganda belongs, right?
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