We shall reduce borrowing to avoid debt distress - Kasaija

Government presented its budget for the FY2022/23 on June 14, 2022. PHOTO | FILE

Finance Minister Matia Kasaija has said government will reduce over borrowing to safeguard Uganda from falling into debt distress. 

While delivering the Budget Speech in Kampala yesterday, Mr Kasaija said during the 2022/23 financial year, government will align borrowing to suitable financing options to minimise the cost and risk exposure in both short and long term. 

For instance, he said, government will ensure prudent loans acquisition to avoid debt accumulation in a short term and timely disbursement of loan funds to promote long term fiscal sustainability. 

Mr Kasaija said as of December 2021, the stock of public debt had risen to Shs73.5 trillion ($20.7b), of which Shs.45.72 trillion ($12.9b) was due to external debt while Shs27.7 trillion ($7.84b) was domestic debt, which represented a nominal debt to gross domestic product ratio of 49.7 percent.

The rise in debt was mainly due to an increase in Covid-19 related borrowing, external and domestic shocks and financing shortfalls in domestic revenue.

However, Mr Kasaija said, government, as a measure to ensure long term debt sustainability, will reduce the level of domestic borrowing over the medium term to an average of 2.2 percent of gross domestic product, before reducing it further to 1.0 percent in the long term

Other measures, he indicated, will include aligning borrowing to suitable financing modalities, borrow largely on favourable terms and borrowing for projects that enhance productivity of the economy. 

Government has in the 2022/23 Budget allocated Shs8 trillion to debt financing while interest payment has been allocated Shs4.6 trillion. 

Under the charter for fiscal responsibility for the period between 2022 and 2026 government will to reduce public debt 50 percent of gross domestic product. 

While Uganda’s public debt has rapidly increased in the past five years, government has over the years maintained it is still within sustainable levels. 

However, debt repayments continue to present challenges at a time when Covid-19 has constrained tax revenues while creating additional expenditure pressures. 

Public debt movements         

Covid-19 related borrowing has in the last four years seen public debt rise from 35.3 percent of gross domestic product during the 2018/19 financial year to 49.9 percent by the end of the 2020/21 financial. The ratio is projected to slightly increase above the 50 percent threshold by the end of 2021/22 financial year and will peak to 53.1 percent in the 2022/23 financial, before gradually reducing to below 50 percent by the end of the 2025/26 financial year.


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