Loan uptake sparks pay back fears

Wednesday November 13 2019

Expensive. Repayment of borrowed money, some of

Expensive. Repayment of borrowed money, some of which has not been absorbed, is increasingly becoming expensive. FILE PHOTO 


Uganda’s public debt had risen to $12.2b as at June this year from about $9.4b in 2017, Ministry of Finance data shows.

The rapid accumulation of debt has raised repayment concerns, even as government economists tread between defiance and caution while analysts cite serious financial risks tied to new borrowing.

The national debt, equivalent to 37 per cent of GDP in 2017, has now risen to 42 per cent of annual economic output.

The bulk of the loans are intended to finance big infrastructure projects in the transport and energy sectors.

Total interest payment on debt has risen from Shs9.9 trillion ($2.6b) in 2016/17 to Shs12.3 trillion ($3.3b) by end of 2018/19.

The increased payments have been made worse by diminished tax revenue growth and limited economic benefits linked to some infrastructure projects.


Despite a revenue surplus of Shs258.89b ($69.3m) recorded in 2018/19, Uganda Revenue Authority posted revenue collection deficits for three preceding years in a sign of harsh economic conditions experienced by many businesses and low consumer spending.

The Uganda Revenue Authority (URA) registered a deficit of roughly Shs606b ($162.3m) in 2017/18 compared with a revenue shortfall of Shs404b ($108.2m) posted in 2016/17, according to government statistics.

Government economists insist that bigger investments in infrastructure remain a prudent economic choice, but also concede to hidden risks connected to surging public debt levels.

“Our debt-to-GDP ratio remains below the 50 per cent ceiling after the latest economic rebasing. The debt to GDP ratio dropped from 41 per cent to 39 per cent after the rebasing exercise but the International Monetary Fund and World Bank concerns are pegged to the speed at which we are acquiring new debt, particularly domestic debt. However, we are borrowing for new infrastructure projects which will eventually translate into higher economic growth except in cases where projects are poorly executed,” said Mr Albert Musisi, the Ministry of Finance commissioner for macroeconomic policy.

Mr Vincent Phiri, an economist at NKC African Economics, a research company based in South Africa, said that despite the notable increase in Uganda’s public debt over the past decade, it is still sustainable as it is expected to remain below the 50 per cent debt-to-GDP threshold.

However, he says, public debt sustainability faces significant downside risks from the government’s ambitious push for infrastructure development, exchange rate volatility, and rising refinancing risks.

“Poor execution of these projects will hurt economic growth and the country’s fiscal position,” said Mr Phiri.

About 50 per cent of Uganda’s debt portfolio remains unabsorbed, which is a painful cost to taxpayers who are obliged to repay loans even when the funds disbursed are yet to be utilised, says Mr Julius Mukunda, co-ordinator of the Civil Society Budget Advocacy Group.

“Delays in execution of major infrastructure projects result in cost overruns that are passed on to taxpayers,” he adds, noting that: “Parliament needs to rein in rapid borrowing but political will in this matter remains elusive across the political spectrum.”

Tanzania debt rising

Whereas Tanzania’s public debt rose to $22.5b as of August, from $21.2b last year due to an increase in new loans secured to undertake public projects, it remains within sustainable levels.

Finance Minister Philip Mpango, while announcing the debt estimates last week, said external loans amounted to $16.5b while internal debt stood at $6b.

Tanzania’s debt-to-GDP ratio is set to rise to 43.6 per cent this year from 41.4 per cent last year.

Dr Mpango said an assessment conducted by government last December showed that the national debt “was on a sustainable level tolerant in the short, medium and long term by international standards.’’

“Government continues to keep debt sustainable by ensuring that borrowed loans are directed to national development,” he said.

Dr Mpango said the economy remains stable, noting that real GDP has grown by an average of 6.4 per cent per year over the past decade (2009-2018).

He further said the shilling remained relatively stable during the year ending August 2019, with dollar exchange adjusted at an average of Tsh2,289.1 compared to Tsh2,273.7 last year.

Tanzania’s revenue collection is also on the rise. In the first quarter of the financial year, $1.9b worth of tax was collected, with a record of $759m revenue recorded in September alone. (Compiled by Rose Mirembe)