The total stock of public debt has grown to Shs66.1 trillion, which represents a 15.1 per cent increase compared to the period ended June 2020.
The growth, according to Bank of Uganda, indicates that public debt has in the eight months leading to April 2021, increased by Shs9.6 trillion, the largest spike in over two decades.
As of June 2020 the total stock of public debt stood at Shs56.5 trillion or 40.8 per cent of gross domestic product.
Between June 2019 and June 2020 public debt grew by Shs6.3 trillion due to external debt largely attributed to loans advanced by the International Monetary Fund, Trade and Development Bank.
However, government has also borrowed internally from commercial banks including Stanbic to counter economic distress due to from Covid-19.
Government has since increased borrowing due to Covid-19 related pressures, spiking public debt beyond the 50 per cent mark.
Before Covid-19 was confirmed in Uganda in March last year, government had been borrowing heavily for infrastructural development.
However, much of the borrowing is now directed towards managing economic disruptions resulting from Covid-19.
In its State of Economy report for the period ended June released early this week, Bank of Uganda said the increase in the stock of public debt was mainly due to a 33.6 per cent growth in domestic debt largely attributed to an increase in domestic financing.
“Public external debt also grew by 13 per cent largely due to disbursement of loans by multilateral and bilateral creditors,” the report indicates, noting that the ratio of debt service to tax revenue is expected to average at 30 per cent between the 2020/21 and 2024/25 financial years with a projected increase in debt service costs likely to crowd-out other priority spending.
The report also noted that recent increase in direct monetary financing of fiscal deficits presents additional macroeconomic risks.
However, the Central Bank also noted that incurring large deficits for now was necessary due to the need to invest in people, communities, and businesses to increase to shore up shared economic recovery.
The economy has been weakened by Covid-19 related challenges raising the need for various interventions.
Bank of Uganda has also warned of challenges to the economy that have been presented by the second lockdown that came almost after a year of a three month lockdown that ended in June last year.
This, the Central Bank said, is likely to scar that economy that had been struggling to recover with most sectors still under lock.
“This means the return of fiscal deficits to the 4-6 per cent of gross domestic product remains unlikely in the two – three year time horizon. This leaves little choice, and a focus on improving fiscal revenues will be important,” the Bank of Uganda report said.
Recently, Finance Minister Matia Kasaija said he was getting concerned due to the rapid surge in debt levels which had surpassed the 50 per cent threshold to gross domestic product.
Uganda has heavily borrowed in the just concluded financial year to shore up budget shortages and Covid-19 related expenses.
Public debt to gross domestic product, according to Ministry of Finance, will in the 2021/22 financial year rise to 51.9 per cent.
Out of the debt stock, external debt constitutes 64.98 per cent while domestic debt constitutes 35.02 per cent.