Uganda borrowing its way to middle-income status’

Kampala.

For Uganda to achieve middle-income status by 2020, the economy must be achieving growth figures of about 9 per cent per annum and that will be driven by government expenditure on infrastructure.

That growth is expected to be driven by public investments like oil-related infrastructure, roads, and the Standard Gauge Railway (SGR).

According to Dr Adam Mugume, the executive director of research at Bank of Uganda (BoU), attaining that status will be driven by increased borrowing for the country to spend on infrastructure projects.

“Uganda to reach middle-income status by 2020 and become a prosperous and modern by 2040, will be driven by public investments. For that to happen, Uganda’s debt has to increase,” he said at a Stanbic Bank Uganda Economic Outlook forum at the Kampala Serena Hotel on Monday.

He noted that it is not such a bad idea to borrow in order to deliver public investment. He questioned the quality of some investments being fronted as not being able to generate enough returns for loans to be paid back.

“Can Uganda grow in the range of 6 to 7 per cent? Yes. But we have to do things differently. Everybody knows that. The choice of public investments matters. Remove politics from the choice of public investments. If a project doesn’t bring the return, don’t do it because someone has to pay for it. For now, if I was to advise I would say forget about white elephant investments like Uganda Airlines and the banana processing plant,” he said.

The growth rates in the economy have been below expectations, delivering numbers of 4.6 per cent. For the economy to rebound, Dr Mugume says there must be more efficiency in designing and executing government infrastructure projects considering that almost all of them will be financed by debt.

“Today in Uganda you wake up and there is something different. The other day we were fussing about Kira Bus. One time we were fussing about processed matooke. The next time we were talking about computers. This time around we are talking about Uganda Airlines. All these require public resources. The question is can we go
through the list of those public investments and iron those that we think are profitable – can generate a high return and also have a high spillover to the private sector,” he added.

Debt burden
Uganda’s debt is still considered to be sustainable because it is still below the 50 per cent of GDP. However, borrowings for the SGR alone could see the figure jump from 35 per cent to about 40 per cent, inching closer to that 50 per cent mark. The government also has plans of borrowing another $200m to finance the revival of Uganda Airlines.

According to Mr Jibran Quiresishi, the East Africa Regional Economist at the Standard Bank Group, affordable and more sustainable financing for infrastructure projects would be better if it came from domestic long-term savings.

“If Uganda has ambitions to finance these large ticket projects to improve the productive capacity of this economy and get this 7 per cent growth, then it has to take on external debt. Then it has to think of innovative ways today to actually boost domestic savings so you can be self-reliant. When we look at the domestic savings situation, there’s a lot that can be done to mobilise funds from the pension fund industry,” he added.

One such move to mobilise savings is by completely revamping the Public Service Pension Scheme to become contributory in order for that money to be invested, just like the NSSF does.

According to Mr Moses Bekabye, the technical advisor in the ministry of Finance, the Cabinet had already given this move the green light.

The projections
On rise. Public debt is projected to increase to $9.8 billion by June 2017. Of the total public debt in FY2015/16, 62.1 per cent is external debt, reflecting higher exposure to failure to service external debt resulting from exchange rate risk and poor performance of exports - 2017/18 National Budget Framework Paper.

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