Interest on domestic debt increases by Shs1 trillion   

Debt repayment remains one of the largest burden, taking a larger share of the country’s resource envelope. PHOTO | file  

What you need to know:

During the first half of the 2021/22 financial year, interest repayment for domestic debt stood at Shs3.5 trillion, compared to Shs2.5 trillion in the same period in 2020.

Interest on domestic debt repayment increased by Shs1.014 trillion during the first half of the 2021/22 financial year, according to a report by Ministry of Finance.

The report, which highlights the management of public debt, guarantees, financial liabilities and grants, indicates that during the period, interest repayment for domestic debt stood at Shs3.5 trillion, compared to Shs2.523 trillion registered in the same period in 2020.

The increase was higher compared to the Shs476b that was registered in the same period in December 2020, mainly due to, according to the Ministry of Finance, an increases in both outstanding stock and interest rates as well as growth in the stock of debt driven by an increase in borrowing to mitigate Covid-19 related disruptions. 

During the period, the Ministry of Finance noted, loan disbursements stood at $1.187b, constituting 83 percent of the total external resources, out of which 36 percent went to public sector transformation, while 33 percent went to integrated transport infrastructure and services programme.

About 31 percent, the report noted, went to agro-industrialisation, digital transformation, human capital development, innovation, technology development and transfer, private sector development, regional development, sustainable urbanisation and housing, energy development, natural resources, environment, climate change and water management.

The report also indicates that as of December 2021, at least Shs3.96 trillion of domestic debt had been cleared in redemptions with outstanding principal repayments in the medium term expected to decrease due to a 1 percent cap on borrowing pegged against domestic gross product.

During the pried, Global Fund disbursed the highest amount worth of grants, releasing $95.4m, which represents 38 percent of total disbursements.

It was followed by International Development Association, which disbursed 23 percent while European Union disbursed 17 percent. United Nations disbursed 12 percent while African Union, GAVI, KfW and Austria disbursed 10 percent each.

The bulk of the money, the report noted, was directed towards supporting Covid-19 related  interventions, among which included capacity building and stocking health facilities with necessary equipment, among others.

The report noted that at least $248.34m worth of grants was disbursed, representing 17 percent of planned disbursements.

The report also noted that in terms of market development going forward, the Ministry of Finance was in the process of introducing a mobile platform for investment in government securities to enable increased saving and retail participation.

Financing Instrument       

The Ministry of Finance is also expected to introduce a new financing instrument through issuance of a tax-free infrastructure bond in the short term as well as reviewing withholding tax on government securities as a way of increasing competitiveness against other regional peers and ultimately reducing the cost of debt.

Uganda’s withhold taxes on government securities remains the highest in the East African community region.

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