Stop Uganda’s rising public debt

The government is in a financial abyss.  Uganda’s foreign exchange reserves have dropped, breaching the four-month import cover in the wake of huge external debt repayment.

Uganda’s cost of debt servicing, for instance, has risen by 44.9 percent to Shs8. 3 trillion by June 2023, up from Shs3.7 trillion in the financial year 2019/2020. All this is pegged to Uganda’s rising public debt.

Uganda has relied on external financing to replenish its reserves but now faces the dilemma of having to make debt repayments without enough inflows.

Uganda’s reserves have also been dropping, partly because of payments to bilateral and commercial lenders with the Bank of Uganda’s intervention to try and slow down the Shilling’s depreciation against the US dollar. The drop in foreign reserves could put a strain on dollar supply, which could cause the shilling to reverse the gains and depreciate further against major currencies.

In the next financial year, Uganda’s public debt, which currently stands at Shs96 trillion, is expected to cross the Shs100 trillion mark by 2025 with the government’s intention of borrowing Shs13 trillion in the next financial year 2024/2025 alone.

The government should quickly think about practicing financial integrity to ensure that we don’t burden the current and future generations with a massive debt burden.

Uganda is on the edge of financial distress with declining domestic revenue, which has forced the State to borrow just to fund recurrent expenditure. But trimming public debt won’t be easy.

To tackle these challenges, the government should prioritise public spending measures with the ability to raise growth and fix revenue collection gaps.  Low domestic revenue collections, which have intensified debt risk, limit the government’s ability to pay down debt.

The government should also consider restructuring Uganda’s debt portfolio. This can reduce the amount owed to creditors by revising the amount and timing of future principal and interest payments.

In 2022, Chad reached an agreement to restructure its external debt under the G20 Common Framework for Debt Treatment. This is an initiative designed to support low-income developing countries with unsustainable debt. Since then, Ghana and Zambia have also launched debt restructuring negotiations under the G20 Common Framework.

The government should also find ways of distributing the tax burden fairly and enhance tax education.