Shs89 trillion public debt lingers over new budget

Finance minister Matia Kasaija delivered a budget speech yesterday, which refocused attention on government’s stated desire to spend more on the productive sectors of the economy, while grappling with the multibillion shilling question of huge public debt and domestic arrears.

The tricky balancing act being attempted by Mr Kasaija and his colleagues at the Finance ministry was, to some extent, demonstrated in how much he allocated to domestic debt financing, debt interest rates cover and payment of loans contracted from abroad.

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By the end of this month, Uganda will owe lenders (local and foreign) a whopping Shs88.9 trillion, which is almost twice the Shs52.7 trillion budget announced for Financial Year2023/2024. Of the total public debt, Shs47.9 trillion is owed to external lenders, while Shs33 trillion was contracted locally in Uganda.

Although loan repayment is spread over several years, fears about debt sustainability (the ability to meet payment obligations) troubled economy watchers as the government showed little loss of appetite for borrowing this financial year.

The government is, however, confident it is still within manageable limits with the country’s debt to GDP ratio standing at 48.6 percent, a figure slightly below the policy target of 50 percent of GDP, the minister said. 

Uganda’s public debt to GDP ratio is also within the 52.4 percent threshold recommended by the current Charter for Fiscal Responsibility (CFR) which will run up to financial year 2025/26.

Under Section 4(3) of the Public Finance Management Act, the minister for finance is required to prepare a CFR, which sets out government’s commitment to managing the country’s fiscal policy with clear and measurable objectives, and in line with specific fiscal principles, amongst which is “prudent and sustainable levels of public debt”.

Mr Kasaija proposes to spend Shs8.4 trillion on domestic debt financing, and another Shs6.1 trillion to clear interest payments. Separately, Shs2.6 trillion will go towards external debt payments.

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His plan for maintaining debt sustainability includes ensuring effective implementation of the domestic revenue mobilisation strategy to boost the capacity to increase domestic revenue collection.

The government promised to reduce spending on areas of lower priority in order to support fiscal consolidation. It will also look at new sources of financing (climate and green financing, leverage private equity for infrastructure investments and scaling up Public Private Partnerships), among others.

Economy watchers may have been slightly relieved to hear Mr Kasaija promise to “limit non-concessional debt to high impact, high return projects such as Standard-Gauge railway projects, development of industrial parks, power transmission lines, water for production and tourism roads”. If followed through, Uganda should see less of the usually higher interest loans which come with all sorts of strings attached.

There is a parallel promise to “reduce domestic borrowing”, which points to an easing of the stifling effects of the ministry’s monetary contraction tactics deployed to manage inflation in the sharp post-Covid economic downturn.

Domestic arrears
At the opposite end, the news is not very good for businesses owed billions by government. Only Shs215.8 billion was set aside to meet domestic arrears, which is a proverbial drop in the multitrillion domestic debt ocean.

While unmet domestic arrears keep money out of the pockets of Ugandans’, the Parish Development Model and Emyooga wealth creation initiatives were highlighted as vehicles for boosting household incomes and the growth of small businesses.

Kasaija's budget: Winners and losers

Mr Kasaija reported that by February 2022, Shs590 billion had been disbursed to all the 10,459 parishes nationwide, translating into Shs50 million per parish. Outstanding balances will be released in two weeks’ time.

The PDM will be Shs1.1 trillion richer under the new budget, Shs1 billion having been added to its previous allocation. It is hoped that this will stimulate the creation of 2.5 million jobs over the next five years.

A lot of enthusiasm characterised the minister’s impression of how Emyooga has performed in directly funding parish and sub-county level enterprise groups.

By March 2023, seed capital worth Shs249 billion had been disbursed to 6,721 constituency-based Emyooga Saccos. More than 600,000 individuals had successfully applied for credit from their parish-based associations. Nearly half (46 percent) of these were women, youth (25 percent) and PWDs (4 percent), the minister observed.

Poverty alleviation
“These Saccos have mobilised savings of Shs76 billion, and a further Shs80 billion recovered from the loans given to beneficiaries. This demonstrates the sustainability of the Emyooga initiative. Next financial year, Shs100 billion has been allocated to the Emyooga initiative,” he said.

Food security interventions will walk away with Shs110 billion, while Shs249 billion has been provided for tourism promotion. The government plans to aggressively market Uganda as a popular destination for international meetings, conferences and exhibitions.

Private sector intervention as a policy has a Shs2.4 trillion allocation. Small and medium enterprises in manufacturing and export should be able to draw on the $200 million World Bank Investment for Industrial Transformation and Employment (INVITE) project.

The INVITE project promises grants and concessional credit to qualifying SMEs with long term repayment terms of up to 15 years.

The other good news is that once the Auditor General concludes the ongoing countrywide public sector payroll audit, the ban on recruitment of public health workers will be lifted. Both Uganda’s terribly understaffed public health facilities and the huge army of unemployed medics should be relieved by this welcome revelation.

Similarly, Shs22.6 billion has been made available to clear outstanding arrears for medical interns and senior house officers, potentially ending months of protests, citizen distress and strike action once the money starts flowing.

Other allocations
Shs4.5 trillion (13 percent of budget) has been allocated for road maintenance and construction; railway development and rehabilitation, water and air transport development.

Shs2.25 trillion is secured to address flooding, traffic congestion, poor road infrastructure, un-signalied road junctions and unemployment in the Greater Kampala Metropolitan Area.
Shs1.3 trillion is for energy.
Shs192 billion is to accelerate digital transformation.
Shs.447 billion to fast track development of petroleum resources (oil).
Shs257 billion to support science, innovation and technology development.
Security, governance, Parliament and the administration of justice sector was allocated Shs9.1 trillion, up from Shs8.1 trillion in 2023/24.