Kampala. US ambassador to Uganda has said the rising debt burden for infrastructure investment is compromising key sectors of the economy such as health and education.
The huge borrowing, which is characterised by growing cost of debt servicing, Ms Deborah Malac said, could lead Uganda into a debt trap and is compromising the growth of some key sectors of the economy.
Speaking during a workshop organised by Usaid to discuss best practices for project financing for Uganda’s infrastructure early this week, Ms Malac said as a result of the growing cost of debt servicing, there has been an imbalance in investing in people with much of the resources spent on infrastructure.
“We have seen government spending on health and education steadily decline over the past eight years,” she said, noting that the increasing cost of servicing debt has crowded out funding for social services, which undermines the development of the country’s human capital.
Uganda’s debt to GDP ratio currently stands at 41 per cent but, according to International Monetary Fund, is projected to rise to 50.7 per cent by the 2021/22 financial year.
Uganda currently spends at least or more than Shs3 trillion on debt servicing, which is higer than what is allocated to the health and education sectors, respectively.
Government has been drawing concessional and non-concessional loans from China, multi-lateral and commercial lenders, much of which is spent on infrastructure such as roads and energy.
During the workshop, Ms Malac said government must consider alternative sources of funding that could help to balance between investment in infrastructure and other key sectors of the economy.
Ms Malac said it was important that government engages the private sector to finance some of the projects instead of drawing expensive loans from external sources.
However, critics have discouraged internal government borrowing arguing that it crowds out the private sector which slows growth.
Between 1998 and 2000, under the Heavily Indebted Poor Countries Initiative, more than $2b (about Shs7.5trillion) in debt was written off bringing down Uganda’s GDP to debt ration down to 20 per cent.
Uganda’s public debt, according to the 2018 Auditor General’s report, currently stands at Shs41.51 trillion, up from Shs33.99 trillion as of June 30, 2017.
Data from Ministry of Finance indicate that in the 2017/18 financial year, public debt grew by 22 per cent, mainly driven by non-concessional and commercial loans.
Ms Malaca said many of the “single-country non-concessional loans do not have favourable terms, which puts the country’s assets at the risk of being seized.
Not a threat
Government, including President Museveni and Minister of Finance Matia Kasaija, have previously insisted that Uganda’s debt was still manageable.
Recently, the IMF said in its economic outlook report that Uganda was still safe from the threat of debt distress.
However, it warned that government must reduce its appetite for further debt, which might put the country at risk in the face of declining growth.