Debt to GDP ratio to rise to 49.5 per cent, says IMF
Credit. Accessing credit for both dollar and shilling-dominated loans is still expensive. FILE PHOTO
What you need to know:
- According to data from the Central Bank, while lending rates on foreign exchange loans stood at an average of 8.2 per cent in quarter ended December 2018, the shilling-denominated loans averaged at 20.3 remaining high prohibiting growth in private sector credit.
The International Monetary Fund (IMF) yesterday said the ratio of Uganda’s public debt to the GDP will rise to 49.5 per cent by the 2021/22 financial year because of continued large fiscal expenditure by government.
The IMF said over the past five years, Uganda’s budget on repayments has been increasing exponentially, due to growth in the level of public expenditure.
Currently Uganda’s total public debt stock (domestic and external) amounts to $10.7b (Shs41.326 trillion), translating to a ratio of 41.5 per cent.
Speaking a press briefing in Kampala yesterday, Dr Axel Schimmelpfenning, the IMF division chief African department, said public debt will continue to grow in the next two years and is expected to hit 49.5 per cent of the GDP.
“It is very important to plot a debt curve. We have to invest in the people and infrastructure [while] at the same time, you need both but you need to feed in the resources that you have,” he said.
Going forward, Dr Schimmelpfenning said, government must adopt a debt ceiling strategy through nominal terms as opposed to the net present value and it should be at 50 per cent of the GDP.
Last week, during the Bank of Uganda policy rate meeting, the Central Bank said rising debt was a threat to inflationary pressure and a risk to the currently growth.
However, government has persistently indicated that the current rate does not pose any threat to the economy. Uganda, according to the IMF will in the 2018/19 financial year grow at 6.3 per cent and this will be maintained through out to the 2020/21 financial year.
However, Dr Schimmelpfenning said the growth must be inclusive and create at least create 600,000 job annually for the rate to stand.
Finance minister Matia Kasaija, yesterday said that Uganda’s economy was poised to continue growing because of positive economic fundamentals.
However, he said the economy was still shaking off some bottleneck such the cost of borrowing.
This, he said, was “still very high,” thus blocking the growth in private sector credit.
