Public debt rises to Shs44 trillion

Increase. The entrance to Karuma Hydro Power station. Financing for such infrastructure has forced a growth in Uganda’s public debt. PHOTO BY STEPHEN OTAGE

What you need to know:

Increased. The public debt, according to a report by Ministry of Finance, increased to Shs44.67 trillion in the 2017/18 financial year up from Shs36.7 trillion in the 2016/17 financial year.

Public debt has increased to Shs44.67 trillion, according to details contained in a Finance Ministry report.
The increase represents a 22 per cent surge for the financial year ended June 2017/18 up from Shs36.7 trillion in the 2016/17 financial year.

According to data contained in the Ministry of Finance reports and consolidated financial statements, the surge resulted from a deficit in financing from securities worth Shs1.7 trillion and drawings targeted towards investment in infrastructure projects in roads and energy.

Key among the projects was Karuma Hydro Power Project, earth moving equipment and Kabale International Airport.
However, the report said, despite the increase, the public debt is still manageable and continues to be below the 50 per cent threshold, beyond which, experts have warned, becomes unsustainable.

Currently, Uganda’s public debt has grown to 41.7 per cent of gross domestic product ratio.
Public debt financing, experts have warned, has become a major problem for Uganda given that it continues to increase, which might lead to a slowdown in economic growth.

The growth has been precipitated by a growing appetite for Chinese loans, which currently, according to Ministry of Finance stand at about Shs6 trillion.

Debt financing
In the 2018/19 budget, government provided Shs5.271 trillion, specifically to refinance domestic debt.
Ms Maris Wanyera, the Ministry of Finance director debt and cash management, told Daily Monitor yesterday in a telephone interview that the increase in public debt was driven by a surge in new loans that were earlier contracted and improvement in the absorption capacity of disbursed funds.

Low absorptions, she said, has been a challenge with borrowed money going unspent for years, which at times had made some lenders to hold back on already committed loans.

“So due to increased disbursements and improved absorption capacity as well as the effect of the foreign exchange rate, public debt has increased,” she said.

The report shows that the proportion of the total budget excluding external project financing amounted to 77 per cent.
Government registered an increase in development expenditure as compared to the increase in revenue collections with development financing largely funded through concessional and non-concessional loans and to a lesser extent through domestic borrowing.

Domestic borrowing increased tremendously within the period from Shs612b in the 2016/17 financial to Shs1.79 trillion.
The report, according to Ministry of Finance, provides a record of the government’s financial performance, consolidated cash flows, and consolidated financial position for the financial year 2017/2018.

President Museveni has previously insisted that Uganda’s debt is sustainable.
However, government institutions such as Bank of Uganda have sounded a red flag against increased borrowing, warning that it risks negative impact on economic performance.

Revenue mobilised
Within the period, government mobilised Shs16.23 trillion in revenue compared to Shs13.93 trillion in the 2016/17 financial year. This, the report notes, represented a 17 per cent growth with consistent improvement in overall tax collection in the last seven years.

During the period, the economy grew at 3.9 per cent up from 3.2 per cent in the 2016/17 financial year. The economy grew to a gross of Shs101.8 trillion, which was equivalent to $27.9b in the 2017/18 financial years.