What you need to know:
- The Committee on the National Economy has revealed that Uganda’s public debt stock increased by 22 percent from Shs50.9 trillion in the 2019/2020 fiscal year to Shs69.5 trillion by end of the 2020/2021 fiscal year.
A recent parliamentary report has painted a gloomy picture of Uganda’s debt portfolio as the country struggles to keep up payments to its creditors.
The Committee on the National Economy has revealed that Uganda’s public debt stock increased by 22 percent from Shs50.9 trillion in the 2019/2020 fiscal year to Shs69.5 trillion by end of the 2020/2021 fiscal year.
Preliminary statistics from the Finance ministry captured by the committee indicate that Uganda’s public debt stood at Shs78.8 trillion at the backend of June. This represents a 13 percent monthly year-on-year increment.
The committee’s report also reveals that Shs48.1 trillion of the debt stock is classified as external debt, with domestic debt totalling Shs30.7 trillion. The telltale signs of public debt weighing heavy on the government has become more pronounced in recent months. From dragging its feet over disbursing Parish Development Model resources to delaying payment of civil servants in July, things have not been rosy.
Ms Catherine Bitarakwate, the Public Service ministry permanent secretary, attributed the July delay to “a spillover effect on the timelines for processing and payment of salary.” Such, though, have been the mixed messages from the government that some of its functionaries said the delay was tailored to deal with the current inflationary pressures.
While releasing the 2022/2023 Financial Year first quarter budget funds, the Finance ministry Permanent Secretary and Secretary to the Treasury, Mr Ramathan Ggoobi, was more forthright. He revealed that the disbursed funds had been sliced from 25 percent to 19 percent because the government “is experiencing cash flow limitations.”
Of the Shs4.7 trillion disbursed, this newspaper reported in July that Shs230 billion was set aside for wages, pensions, and gratuity. A further Shs662 billion was assigned for servicing domestic debts.
Only recently, Mr Henry Musasizi, the State minister for General Duties in the Ministry of Finance, admitted to the government’s lack of credit when he appeared before Parliament’s Committee on Government Assurance to explain why there are no fuel reserves.
“Whereas we are committed to fully operationalising the oil and gas sector, we are constrained by the resource envelope,” Mr Musasizi confessed, adding that money for fuel reserves will be added to next financial year’s budget.
It was in fact the taxman that lifted the lid on the government’s financial woes. The Uganda Revenue Authority (URA) disclosed that it was struggling to meet a Shs12.3 trillion revenue collection target for the 2020/2021 fiscal year. This was after it found itself staring at a Shs900 billion revenue deficit halfway through the aforesaid fiscal year.
At the start of the fiscal year in question, the Finance ministry had given the taxman an overall revenue target of Shs22.3 trillion. This was Shs3.1 trillion higher than the actual revenue collection from Financial Year 2020/2021. Within this period, domestic tax revenue collections registered a shortfall of Shs951.3 billion, and a performance of 86.7 percent. The taxman further explained that the shortfalls were from direct domestic taxes (Shs273.6 billion), indirect domestic taxes (Shs487.2 billion), and Non-Tax Revenue (NTR) (Shs190.5 billion).
In a recent policy paper, the Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) and US Agency for International Development (USAID) revealed that the majority of developing countries, including Uganda, were grappling with low domestic revenue mobilisation.
“Tax leakages, illicit financial flows, generous tax incentives, and the large informal sector, among others, translate into lower tax-to-GDP ratios. The low revenue collections amid increasing government expenditure result in fiscal deficits thereby raising the country’s appetite for borrowing,” the paper reads in part, adding, “As a result, expenditure on debt servicing is now item number three among the top most allocations on the national budget.”
Uganda’s economic predicament has been a long time coming given the fact that its Gross Domestic Product (GDP) ratio has stagnated at an average of 13 percent for the last decade.
“Customs revenue contribution to total tax collections stood at 35.6 percent in 2019/2020, with the Covid-19 pandemic and trade liberalisation prospects by [the African Continental Free Trade Area] AfCTA, this estimate will even go lower,” the paper states, adding that a Finance ministry report of the Financial Year 2019/2020 showed that a total revenue foregone due to tax expenditures amounted to more than Shs5 billion. This figure translates to 30 percent of the total net revenue collections collected that same financial year.
Over the last five years, the parliamentary Committee on the National Economy pointed out that the stock of debt-to-GDP has consistently been on an upward trajectory. It has cumulatively increased from 30 percent in the Financial Year 2015/2016 to 47 percent in the Financial Year 2020/2021.
“This trend has been attributed to the large investment in infrastructure and energy projects to stimulate Uganda’s growth in line with the National Development Plan (NDP) and the need to finance Covid19-related expenditures,” the report notes, adding, “Debt continues to rise as the government continues to increase public investment in infrastructure in preparation for oil production while at the same time increasing investments in other key sectors such as agriculture, energy, education, water, and environment and roads.”
The committee recognises that Uganda’s public debt accumulation has continued to grow faster than economic growth. Take the financial year 2020/2021 when the economy grew by three percent. The public debt also spiked by 22 percent on account of budget support loans acquired from the International Monetary Fund (IMF) and World Bank to support Uganda’s response to Covid-19.
In March, the IMF revealed that $1 billion will be disbursed under the so-called Extended Credit Faculty ECF programme in semi-annual tranches of over three years. The first tranche, of $258 million, the IMF said, was disbursed when the programme was approved by the IMF executive board on June 28, 2021, with the aim of supporting the East African country’s recovery from the Covid-19 pandemic.
“The budget deficit and debt will be reduced over time (as the Covid-19 shock eases) through lower non-priority spending, the phase-out of crisis measures, and higher government revenue. Greater public sector efficiency will ensure increased spending on social programmes, including on health, education, and social assistance,” the IMF said.
Uganda’s external debt exposure, according to the Committee on the National Economy, grew by 10 percent from $15.7 billion in the Financial Year 2019/2020 to $18.2 billion in the Financial Year 2020/2021.
“This was largely driven by disbursed and outstanding debt (DOD) that increased by 19 percent, driven by the budget support disbursements, which are disbursed in one financial year, unlike the project disbursement that is spread over a number of financial years, resulting in committed but undisbursed debt (CUD),” the parliamentary report says.
Some of Uganda’s wounds have been self-inflicted because there is an increase in committed but undisbursed debt which increased by 11 percent from $5.3 billion in the financial year 2019/2020 to $5.9 billion in the financial year 2020/2021.
“This growth indicates slow implementation of some of the ongoing projects, non-disbursement of the loans as well as new commitments during the year which had not yet been disbursed by the end of the financial year,” the parliamentary report says.
Multilateral creditors, according to the report, maintained the largest share of Uganda’s external debt in the financial year 2020/2021 and the first half of the Financial Year 2021/2022. Despite the drop in the share of external debt owed to multilateral creditors by nine percentage points from 72 percent in June 2017 to 61 percent in December 2021, the report says multilateral creditors continue to have the highest share in total external debt.
“The World Bank’s International Development Association (IDA) recorded the highest share of multilateral debt at 57 percent followed by African Development Fund (ADF) accounting for 19 percent,” the report reveals.
The share of debt owed to bilateral creditors in the financial year 2020/2021 declined to 29 percent from 31 percent in the financial year 2019/2020. For bilateral creditors, EXIM Bank of China maintained the largest share of bilateral creditors, accounting for 73.3 percent ($2.59 billion) of total bilateral debt as of June 2021. Projects that are funded by money got from Exim bank include $350 million (Shs1.3 trillion) for Entebbe-Kampala Expressway, $200 million (Shs758 billion) to revamp the Entebbe International Airport, $100 million (Shs379 billion) to improve road networks, $483 million (Shs1.8 trillion) for Isimba hydropower plant and $1.4 billion for Karuma Dam, inter-alia.
Total foreign loan and grants disbursements, according to the committee, increased by 20 percent to Shs9.395 trillion in the financial year 2020/2021 from Sh7.799 trillion during the financial year 2019/2020.
“Despite the increase, external resources performed at 76 percent of the expected disbursements mostly on account of the low performance of project support loans at 52 percent,” the report says.
During the first half of the financial year 2021/2022, the report further reveals, total foreign aid performed at 86 percent of the programmed levels. This was mostly due to the underperformance of project support grants.
“Project-based financing remained the major channel used to finance the country’s development agenda as opposed to budget support. This also attests to the fact the foreign aid agencies are still opposed to budget support to finance the country’s priorities,” the report reveals, adding, “Grants have continued to have a small share of the national budget (20 percent). However, their performance significantly varies from the budgeted levels. Therefore, domestic revenue mobilisation measures need to be enhanced since grants are unreliable.”