Govt seeks changes in borrowing terms to curb rising debt  

Government is considering changes to future borrowing in the face of mounting pressure to manage debt and repayment, according to Ministry of Finance. 

The changes, according to Ms Maris Wanyera, the Ministry of Finance director for cash and debt policy, will include re-examining ratios of interest payments to tax revenues, interest payments against export earnings and debt-to-economic growth balances.

“Future borrowing will be biased towards concessional loans and the domestic debt market for purposes of budget support, but we shall not acquire commercial loans for project implementation,” she said.

Debt has been mounting with government last month conceding that it was no longer sustainable. 

However, Finance Minister Matia Kasaija last month said government would continue to borrow unless Ugandans paid more taxes to fund a rise in priority demands. 

Uganda’s debt-to-gross domestic product (GDP) ratio, measured as the level of indebtedness, rose to 54 percent in June from 49.1 percent based on cumulative debt data captured between July 2021 and June 2022. 

Public debt, according to government data, currently stands at Shs73.5 trillion ($19.2b), with external debt valued in excess of Shs40 trillion ($10.5b). 

State Minister for Planning Amos Lugoloobi last month said Covid-19 related borrowing resulted into higher debt levels pushing debt ratio to GDP beyond the threshold of 50 percent.

Therefore, Mr Lugoloobi said, there was need for government to rethink the financing architecture of the National Budget with the view of increasing tax ratio to GDP through focused increase in production and infrastructure, create markets and promote trade. 

“Trade is [one of the least] funded sectors  ... we need to begin planning for trade and markets,” he said.

The East African Community member states are required to maintain a maximum debt to GDP ratio of 50 percent in line with monetary union convergence targets approved in 2013.

It is a benchmark also adopted by the International Monetary Fund.

The latest increment in public debt also points to short-lived opportunities realised from previous economic rebasing exercises - an undertaking to revalue the size of an economy, growth benchmarks plus adjustments in key economic performance indicators such as debt to GDP and tax to GDP ratios.

Uganda’s pioneer economic rebasing exercise was done in 2012 and was followed by another in 2019. 

Data from the 2019 economic rebasing showed the value of Uganda’s economy had grown to Shs137 trillion ($35.8b) while tax-to-GDP ratio had dropped from 13 percent to around 12 percent.

The size of Uganda’s economy grew from Shs148 trillion ($38.7b) in the 2020/21 financial year to Shs162 trillion ($42.4b) in 2021/22.

Findings from the two economic rebasing exercises yielded a debt-to-GDP ratio of 40-50 percent - a scenario that offered technocrats limited space for future borrowing activity.

Latest economic data shows that headline inflation averaged less than five percent during financial year 2021/22 while economic growth stood at 4.6 percent during the same period.

Savings to GDP ratio reached 17 percent by close of 2021/22 while youth unemployment - a leading poverty indicator, was 13 percent in the same period. 

Productive use        

Ms Madina Guloba, the Economic Policy Research Centre senior research fellow at Makerere University, wondered what portion of public debt is put to productive use and the return on investment. 

“Uganda’s economy looks less bankable to lenders because the rate of debt accumulation exceeds the pace of development experienced in this country,” she said. 

“What matters is the motive behind the borrowing. For example, is government borrowing to invest in a new power dam while another that has been under construction for long is yet to generate power,” Ms Mubbale Kabandamawa-Mugalya, an investment manager at Sanlam Investments, said.

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