Uganda will never seek debt relief, says Finance minister

Thursday June 27 2019

Heavy borrowing. Uganda has been borrowing

Heavy borrowing. Uganda has been borrowing heavily to fund a number of infrastructure projects such as dams. FILE PHOTO 


Kampala. Finance State Minister in charge of Planning David Bahati has said government will never ask for debt relief again.
In April 1998, the World Bank and International Monetary Fund joined a list of multilateral lenders writing off substantial sums of money that Uganda had been holding in debt.
Specifically, the World Bank and the IMF wrote off Shs2.4 trillion ($650m), relieving Uganda the burden of repaying various loans.
Speaking in Kampala during a budget breakfast meeting early this week, Mr Bahati said the NRM government is not thinking of asking for debt relief “because everything is under control”.
“Our debt is sustainable in the medium to long term. We are a very cautious lot. We shall never go back to beg for debt forgiveness [relief] and certainly not under the NRM government,” he said, noting that once oil begins flowing, government will offset some of the loans it holds.
According to data from the Finance Ministry, Uganda’s debt stock rose to Shs42.7 trillion ($11.5b) as of December 2018 up from Shs37.2 trillion (10.2b) as of December 2017.

Debt stock
External debt constitutes 66.5 per cent of the total debt stock, amounting to Shs28.4 trillion ($7.7b). Domestic debt constitutes the balance.
Worth noting is that between 1998 and 2000, under the Heavily Indebted Poor Countries Initiative, more than $2b (about Shs7.5trillion) in debt was written off while the balance is taken up by domestic debt.
Uganda’s debt ratio to gross domestic product, according to data from the IMF, currently stands slightly above 41 per cent but is expected to rise due to increased infrastructure borrowing.
For instance, the IMF said last month, Uganda’s debt ratio to gross domestic product is expected to increase to about 50.7 per cent by the 2021/22 financial year.
The IMF has, however, warned that although Uganda’s debt remains sustainable, external vulnerabilities such as weak global growth, a strong dollar and falling global oil price, continue to threaten the sustainability in the long-term.
Mr Bahati said Uganda’s debt ratio is far below the 50 per cent threshold, which experts have warned would be disastrous if it hits or goes beyond this mark.
Uganda, he said, has borrowed heavily to implement infrastructure projects.
Much of the borrowing in the 2019/20 financial year, according to Mr Bahati will be used in financing roads, energy and petroleum sector development. This will be in addition to health and education infrastructure.
Uganda Revenue Authority Commissioner General Doris Akol, said Uganda “can no longer rely on handouts from foreigners to support our own activities”, noting that “we need to live within our means and avoid over spending.”
This, she said, is in line with moving away from donor dependence and a number of administrative measures will be implemented to increase domestic revenue mobilisation.

Government is seeking to raise resources to fund the Shs40 trillion budget. Government is expected to mobilise Shs20.4 trillion domestically with the rest coming from external borrowing and donor support.

Protecting industries

Consume: According to Mr Julius Mukunda, the Civil Society Budget Advocacy Group executive director, government needs to use taxes to protect local industries from undue competition resulting from imported products. This, he says, should be supplemented with rigorous implementation of the Buy Uganda, Build Uganda policy, which seeks to increase local production thus widening the tax base.
Mr Gideon Badagawa, the Private Sector Foundation Uganda executive director, challenged government to prove that it has capacity to implement a people-driven budget composed of a strong private sector.