Public debt: Each Ugandan is now indebted to a tune of Shs2.5m 

A public debt analysis published by the International Monetary Fund indicates that each Ugandan is now indebted to a tune of Shs2.5m. 

The analysis authored by Mr Amos Sanday, a research associate at the Economic Policy Research Centre, Makerere University, titled: Uganda’s Public Debt Dilemma: What Lies Ahead in 2024, notes that as of June 2023, according to the 2022/23 Auditor General’s report, public debt had risen to unprecedented levels, increasing to Shs96.1 trillion ($25.3b), of which Shs44.6 trillion was domestic, while 52.8 trillion was external debt.  

“Each of the 45 million Ugandans is now indebted to the tune of Shs2.5m. Rising public debt coupled with growing debt servicing costs, stagnating domestic tax revenues, and declining export revenues are putting Uganda in debt distress and at greater risk of a debt crisis,” Mr Sanday wrote, noting that the country faces a critical challenge as interest payments on loans now consume a significant portion of the budget and domestic revenues. 

Details in the Bank of Uganda December 2023 report indicate that escalating debt servicing costs continue to strain revenue collection, with at least Shs32 out of every Shs100 collected going towards debt servicing. 

Efforts to get a comment from the Ministry of Finance proved futile by press time. 

Mr Patrick Ocailap, the Ministry of Finance deputy secretary to the Treasury, referred Monitor to the Public Debt and Other Financial Liabilities Framework 2023/28, which indicated that government had previously not fully implemented some provisions under the framework such as setting borrowing thresholds and interest rate controls, resulting into a downgrade of the country’s risk position.  

“Uganda’s overall risk of debt distress has shifted from low to a moderate level and Fitch, a credit rating agency, has revised Uganda’s credit rating from B+ Stable to a negative outlook,” the report released on Monday, reads in part, noting that development partners were also now closely monitoring the countries’ borrowing capacity in areas such as debt management, fiscal sustainability and debt transparency. 

Uganda continues to experience rapid growth in public debt due to multiple financing pressures. Debt is expected to surpass the Shs100 trillion mark by June 2025. 

Data contained in the 2024/2025 financial year Budget Framework Paper, indicate that government will borrow at least Shs13 trillion in the next financial year, which will be Shs1.5 trillion higher than the Shs11.5 trillion expected to be borrowed by the end of this financial year. 

Mr Sanday, however, noted that the increasing debt distress, which has strained domestic revenue, was not unique to Uganda, highlighting that a recent International Debt Report by World Bank had indicated that “record debt levels, coupled with high-interest rates have set many countries on a path to crisis”, because “every quarter that interest rates stay high, results in developing countries becoming distressed - and facing the tough choice of servicing debts or investing in priority sectors.  

While speaking at a pre-budget dialogue organised by Civil Society Budget Advocacy Group recently, Finance Minister Matia Kasaija said that whereas there was an increase in funding pressures, government would not borrow indefinitely to risk the country’s sovereignty.

“Almost every Monday when Cabinet sits there are new demands for supplementary budgets. Now, I have learnt to politely keep quiet. Even when the President says  Kasaija find money for this … I say yes, but I don’t do anything because there is no money and I will not borrow indefinitely,” he said.    Government, Mr Sanday wrote, continues to experience mounting funding pressures, against stagnation or decline in domestic revenue, which has pushed the state into more borrowing to fund a shift in spending toward infrastructure and close the gap created by the after-effects of Covid-19. 

Data indicates that as of June 2019, Uganda’s public debt stood at 34.6 percent of gross domestic product but has surged to above 50 percent and is projected to further increase to about 53 percent in the current financial year, which is above the IMF recommended threshold of 50 percent for low-income countries. 

Financing pressures have also resulted from a drop in aid, budget support, and development assistance from development partners, which has pushed government into acquiring expensive loans to fund recurrent expenditures. 

Thus, Mr Sanday wrote that rising public debt has led to growing public anxieties and sparked concerns about potential sovereign default and a debt crisis if the current trend is not promptly addressed.  

Debt trap 

High public debt, Mr Sanday warned, has the potential to hamper economic growth and curtail public and private investment, given that resources could be diverted from critical and priority sectors of the economy to servicing debt. 

“If current public debt trends are not controlled, debt financing turbulences could emerge in 2024. Growing evidence suggests that Uganda may become caught up in a “public debt safety trap” where a favorable debt position, largely based on traditional sustainability metrics, falsely signals that the country has more fiscal headroom to borrow,” he said.

Dr Fred Muhumuza, an economist and a lecturer at Makerere University, said yesterday in a brief phone conversation that there was a high possibility that Uganda was nearer to getting into a debt trap if the country has not reached there yet. 

“I believe we are now in a debt trap,” he said.  

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