The Auditor General (AG), Mr John Muwanga, has warned that Uganda’s national debt has escalated and threaten to overshoot the limit.
The AG cautioned that if government does not restrain its hunger for loans, the debt will be unsustainable and future governments will not be able to borrow.
While handing over his audit report for the Financial Year 2019/2020 to Speaker Rebecca Kadaga yesterday, the AG said Uganda’s public debt now stands at 41 per cent of Gross Domestic Product (GDP). He added that if government acquires more loans, the debt will hit the 50 per cent cap of debt-to-GDP ratio which the International Monetary Fund (IMF) states as the limit.
Mr Muwanga added that Uganda’s public debt has increased by about 70 per cent in the last three years from Shs33.5 trillion to Shs56.83 trillion by June 2020.
Another issue of concern is the astronomical interest on domestic debt that has reached 13.69 per cent, which is higher than the recommended cap of 12.5 per cent at a time when the country’s credit rating outlook has been revised from “stable to negative” by Fitch Credit rating.
Fitch Ratings is a leading provider of credit ratings, commentary and research for global capital markets.
“The above have had a resultant effect of higher cost of borrowing which may deny future generations the opportunity to sustainably borrow,” the AG noted in his report.
Assistant AG Keko Kayemba said the increase in public debt is attributed to both revenue shortfalls and the rising expenditures.
“The government needs to devise a comprehensive strategy to align revenue mobilisation and fiscal policy management as well as reducing or rationalising expenditures,” she said.
Uganda’s GDP currently stands at $41.24b (about Shs151.17 trillion), according to Statista, a global business data platform.
Recently, the Bank of Uganda’s Monetary Policy Report issued in December last year revealed that Uganda’s total public debt had hit Shs63.3 trillion mark. This indicates an increment of at least Shs4.5 trillion between June 2020 which falls in a period under review by the AG and December 2020 when the Bank of Uganda (BoU) report was issued.
“The provisional total public debt stock as at end October 2020 stood at Shs63.352 trillion, corresponding to an increase of 13.8 per cent from June 2020 compared to an increase of 3.9 per cent over the same period the previous year,” the BoU report reads in part.
It is not the first time the AG is warning government over its insatiable appetite for borrowing.
In his 2019 report, he warned that Uganda risked losing its properties due to the increasing public debt since government had mortgaged some properties to secure loans from abroad.
In his report to Parliament yesterday, Mr Muwanga noted that although external debt is still under a Grace Period where there is no payment of the principal amount totaling Shs23.1trillion (60 per cent) of disbursed External Debt, Shs11.2tn (49 per cent) of that debt will require servicing for the first time in 2020/2021 Financial Year.
“As government continues to support economic recovery through the provision of economic stimulus package to various sectors, debt is projected to increase further over the near term. I advised the PS/ST [Secretary to the Treasury] to devise a comprehensive strategy to align revenue mobilisation and fiscal policy management, as well as reducing/rationalising government expenditures,” Mr Muwanga said.
He also warned against borrowing from commercial banks with unstable lending rates, saying this is contrary to the Medium Term Debt Management Strategy for 2019/2020 and government policy on concessional financing as the preferred means of meeting its financial and development requirements.
As the Parliamentary Commission plans to table the report in Parliament before it is sent to the accountability committees for scrutiny, the Speaker called for new arrangements to ensure expeditious handling of audit queries.
“I am considering establishing another committee to do with agency reports. We need to improve the performance of agencies,” the Speaker said.
When accountability committees that include Public Accounts Committee and the Committee on Commissions, Statutory Authorities and State Enterprises (Cosase) sit, MPs are expected to task the government to explain why there is low absorption of loans as indicated in the audit report.
The report indicates that loans worth Shs1.373 trillion expired before being disbursed with the energy sector being the most affected.