Govt to borrow Shs13 trillion in next financial year
Finance Matia Kasaija recently said there was a limit to borrowing, noting that government could not borrow to fund certain activities. Photo / File
What you need to know:
- The Shs13 trillion will be Shs1.5 trillion higher than the Shs11.5 trillion government intends to borrow in the current financial year
Government is expected to borrow Shs13 trillion both from the external and domestic markets to fund budget and project financing in the 2024/25 financial year.
The Shs13 trillion is at least Shs1.5 trillion higher than the Shs11.5 trillion, which government would have borrowed by the end of this financial year.
In details contained in the Budget Framework Paper for the 2024/2025 financial year, the Ministry of Finance noted that out of the Shs13 trillion, at least Shs8.9 trillion will be borrowed externally, while Shs4.1 trillion will be sourced domestically.
The amounts are relatively higher from the Shs8.3 trillion and Shs3.2 trillion earmarked to be borrowed from both the external and domestic markets, respectively in the current financial years.
Government has been increasing domestic borrowing through issuance of bills and bonds, but has recently borrowed directly from commercial banks, which experts have warned risks crowding out private sector lending.
The Ministry of Finance has previously indicated that it will in the medium term, maintain domestic borrowing to not more than 1 percent of gross domestic product to avoid crowding out of the private sector.
However, this remains above targeted limits, which still hold above 2 percent.
Debt, which is projected to rise to Shs109 trillion in the next financial year, remains a serious challenge to government due to mounting servicing costs and interest payments against a decline in tax revenue.
In its Budget Framework Paper, the Ministry of Finance indicated that over the medium term, external debt payments were projected to increase due to an upsurge in commercial loans over the last few years, noting that interest payments will amount to Shs7.6 trillion, which is equivalent to 3.5 percent of gross domestic product.
Of the Shs7.6 trillion, Shs5.6 trillion will go towards domestic debt interest payments, while Shs1.9 trillion will cater for foreign interest payments and commitment fees.
The Ministry of Finance also indicated that over the medium term, however, interest payments are projected to drop from 3.5 percent to an average 3 percent of gross domestic product.
Government, through the Charter for Fiscal Responsibility, which maintains public debt within sustainable levels, will mainly concentrate on, among others, reduction of public debt to below 50 percent in the 2024/25 financial year.
However, the Budget Framework Paper also noted that there still existed risks to economic recovery, stemming from both the domestic and global environment, which might affect growth projections and revenue collections.
“Monetary policy tightening in developed economies ... may lead to a significant depreciation of the shilling against the dollar, which would affect the cost of external debt servicing and imports, the Ministry of Finance, said, noting that it may also lead to a significant increase in domestic interest rates due to the exit of offshore investors to markets in developed economies which are perceived to be safe.
