More and more debt: Welcome the new normal

Uganda currently owes creditors a whooping total of Uganda Shilling 93 trillion (equivalent to $23 billion). 

This is almost half the size of the country’s national economy estimated at roughly $45 billion according to the World Bank. 

Yet there is no escaping debt and this new normal, which we must admit, is worsening under Professor (turned bureaucrat), Mr Ramathan Ggoobi. In December 2023, alone, the government of Uganda decided to end the year with a juicy Christmas gift by borrowing an additional Uganda Shs7 trillion. 

There is also something disturbing about Mr Ggoobi’s tenure: The fact that now, unlike before, supplementary budgets are approved without funds. And then once approved, Mr Ggoobi goes on a hunting expedition to find creditors who can loan him the money. There are arguments that Uganda’s debt levels have not yet reached worrying levels.

This observation is not off the mark, until you scour to the fundamentals to examine whether there is any end to this accelerated precedent. 

Uganda’s tax revenue (the resource base), an indication of the ability of the government to service its debts, has religiously stagnated at 13 percent of gross domestic product for almost a decade and a half. 

While there are arguments that Uganda Revenue Authority (URA) has not done enough to expand its tax base, the reality, however, speaks contrary to this argument. 

Unlike most countries in the region, Uganda’s tax collections begin at very low levels of income: URA, for example, begins to collect taxes as high as 30 percent at less than Shs300,000 threshold. 

Secondly, the fact that we have maintained a current account deficit (which is the difference between what we earn from exports and what we spend on imports) for as long as President Museveni has been in power, speaks less to the failure of URA to collect tax and more to the failure of those in charge of economic management at the Ministry of Finance to transform the economy that would not only raise incomes for the working citizens and investing firms, but also expand the scope of tax collection for the government.

The economy is often championed as the engine that will catalyse and speed up the integration of peasants in monetarised relations and foster ‘prosperity for all’ Uganda citizens by carrying them to the middle-class paradise. 

Yet there is not much support for this claim.  Unemployment and underemployment abound, characterised by a fragile income support system, poor working conditions, and a very fraught transition to adulthood for the majority of Ugandans. 

Moreover, a failure to live productively during the working years, often between 15 to 64, implies that when the majority of Ugandans finally retire, they won’t have much to retire to, just like they did not have much to live up to during their supposedly productive years.

But are Ugandans uninterested in work or not innovative? The answer is abundantly no. They simply have not received the support needed, despite the state speaking much about improving the business environment for nearly three decades now. 

In fact, several entrepreneurship studies have found that Uganda ranks among the topmost entrepreneurial countries in the world. 

The downside though is that Uganda’s entrepreneurship tilts more towards survivorship than innovation. And here lies the real crux of the issue: there are simply limited opportunities offered by the economy, be it for the worker or investor. So, how does the government expect the URA to raise tax collection when the policies shaping and underlying the economy are those that stifle economic opportunities? 

Agriculture, for example, has suffered the most under President Museveni’s leadership, experiencing declining productivity from 70 percent in 1990 to 20 percent to date. 

Yet the population surviving on agriculture has only increased from 60 percent in 1990 to 80 percent to date. Manufacturing growth, which, empirically and historically is regarded as the biggest driver of large employment growth has only increased marginally: from 9 percent in 1990 to 18 percent to date.

Thus, the economic model that has been steered by officials at Bank of Uganda, the Ministry of Finance and their advisors, often located in Washington D.C at the International Monetary Fund and the World Bank, has clearly not worked. 

Privatising, liberalising, and stabilising without addressing structural constraints to economic growth is only a recipe towards a deadly path of borrowing and more borrowing and ultimately more economic distress for the citizens. We need to rethink this model. And perhaps a good place to start is to think about how to grow exports, production, and productivity. 

Michael Mugisha is a PhD Candidate at the London School of Economics and Political Science and Lecturer at Makerere University.