Public debt stress in Uganda is avoidable

Wednesday January 23 2019

Mr Ssempijja is a researcher at Uganda Debt

Mr Ssempijja is a researcher at Uganda Debt Network. 

By James Ssempijja

Uganda’s public debt has been escalating over time. According to the Ministry of Finance, Uganda’s total debt stock rose from Shs34 trillion in 2017 to Shs41.4 trillion in June 2018. The current debt stock represents 41 per cent of the Uganda’s net income (GDP).

This means that for every $10 the country earns, $4 are spent paying back debts. Even though our debt to GDP ratio is still below the threshold of 50 per cent for East Africa, there is no time to sit back and relax because if serious measures are not taken, Uganda could fall into the worst scenario of debt stress.

Any country pursuing development motives may find it quite relevant to acquire a debt as a financing alternative for its projects. The Second National Development Plan (NDP-2) and Vision 2040 lay emphasis on a number of key priorities to stir development, including infrastructure development, human capital development, tourism and oil and gas.

The acquired debts have enabled government to set up some good infrastructure, for example, the newly constructed Entebbe Expressway, Karuma and Isimba hydro power dams, CCTV surveillance cameras, and the renovation of Mulago National Referral Hospital, among others.

However, the biggest concern revolves around the unfulfilled potential of the debts acquired. There are a number of reasons that explain this frightening macroeconomic problem.

There is a time lag between acquisition of the debt and project implementation. Most of the project implementation activities like land compensation are time consuming yet can only be done when the funds are available.

For example, a road construction project may delay by two years due to compensation challenges yet the interest on the loan is accumulating.

Even though the acquired debt is meant for productive ventures, a lot of money is lost due to corruption. At the end of the day, sub-standard work is done, and within a short time, repairs must be done, or in rare cases, the entire process is redone.

The complete economic impact of such projects may never be realised. Information regarding debts being processed and acquired is never available for public consumption yet it is the men and women of our nation to payback these debts.

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At the same time, government seems to be in a rush to achieve so much within a short time at a high cost yet the local technical capacity to implement such projects is still lacking.

We have witnessed cases where Uganda has acquired loans from the Chinese government for infrastructure projects, but majority of the workers employed are Chinese. The domestic labour is mostly occupies low rank vacancies with a considerably low-income reward.

In order to avoid the debt trap, it is ideal for government to put in place good negotiators for any debt acquisition process. Any information relating to debt acquisition processes should be made available to the public with room for consultations and debate.
The vice of corruption needs to be dealt with decisively. Otherwise, Ugandans will be choking over increased taxes in order to service the debts.

Finally, it is appropriate for government to consider a gradual approach towards planning, to avoid implementing too many projects at a go.

Mr Ssempijja is a researcher at Uganda Debt Network. jssempijja@udn.or.ug

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