Uganda Plans To Borrow Over Shs10.3 Trillion From External Lenders As Debt Nears Crisis Level

The Government of Uganda is planning to borrow over Shs10.3trillion from external lenders in the FY2021/22 that starts in July.

This website can confirm that according to the latest Budget Framework Paper, maintaining the country’s momentum towards the debt crisis level, the new loans are intended to plug the project revenue shortfalls to fund the planned Shs45.6trillion budget as the government races to fulfil pledges made during the just concluded General Elections.

This development also comes at the time the economy is still in shambles characterized with subdued economic growth, low product demand and high rate of unemployment.

To make the situation even worse, the government is eyeing at borrowing approximately Shs2.5trilllion from the local market, a move that would potentially squeeze local businesses from accessing credit in commercial banks at low-interest rates, according to economic experts.

Paradoxically though, this comes at the time parliament is expanding its House to accommodate the increased number of Members of Parliaments in the 11th Parliament.

Last year, Uganda’s government increased the number of MPs from 449 to 514, signalling increased expenditures on MPs who are entitled to Shs25million monthly salary and a cocktail of allowances.

Uganda’s’ public debt stood at Shs 56.5trillion (US$ 15.3 billion)  at end June 2020, up from Shs 46trillion  (US$ 12.5) as at the end of June 2019, according to the finance ministry, citing increased borrowing most especially from the World Bank and the International Monetary Fund to help fight coronavirus pandemic and save the economy.

This, according to the finance ministry, increases the public debt to GDP from 40.9 per cent to 49.9 per cent by end of June 2021, peaking at 54.1 per cent in 2022/23 before starting to take a downward trend.

However, a section of the global lenders including International Monetary Fund and civil society organisations occasionally raised concerns about the rising public debt, potential problems associated with repayment amid provision of basic services to the citizens.

The experts base their argument on the fact that the government has consistently paid an insurmountable amount of cash to lenders as interest.

For instance, interest payments are projected to amount to Shs 4.9 trillion in FY 2021/22. Of this amount, Shs 3.8trillion is projected to cover domestic interest payments while Shs 1.1trillion will cater for foreign interest payments and commitment fees.

Last financial year, the government paid Shs4 trillion or 8.8% of the entire budget as interest payment on borrowed cash. The interest payments alone are able to finance the Ministry of Education and Sports budget, whose annual budget always hovers around Shs3 trilllion.

Julius Kapwepwe, the Director of Programmes at Uganda Debt Network said the government’s appetite for loans at the time the economy is subdued worsens the country’s debt situation.

“We have also failed to learn from the past where wastage of public resources remains unabated,” he said.

Subdued economic growth

Latest statistics from the finance ministry shows that Uganda’s economy grew by 2.9 per cent in FY 2019/20, which is lower than 6.8 per cent recorded in FY 2018/19. The strong performance was registered in the first half of the financial year (8.1 per cent), although this was countered by the negative growth registered in the second half of the financial year.

The COVID-19 pandemic along with the containment measures implemented by the government, locusts’ invasion and floods in several parts of the country negatively impacted economic activities in the second half of the financial year. All sectors of the economy registered lower growth rates compared to FY 2018/19 performance, with the industrial sector most hit, growing by just 2.2 percent compared to the 10.1 percent growth registered in FY2018/19.

Similarly, the services sector also slowed down to 2.9 percent from the 5.7 percent registered in FY 2018/19. The agriculture, forestry and fishing sector was the most resilient in FY2019/20, expanding by 4.8 percent due to favourable weather conditions and government interventions through the provision of quality seedlings, extension services and pesticides.

However, it is projected that in the FY 2020/21 economic growth will be in the range of 2 to 3 percent and is expected to improve further to between 4 and 5 percent in FY 2021/22.

On May 1, 2019, the International Monetary Fund (IMF) said Uganda remains at low risk of debt distress, even though debt metrics have deteriorated and one in five Ugandan shillings collected in revenue will be spent on interest in FY2019/2020.

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