Uganda’s State of borrowing and its sustainability

Published 1 year ago -

By Godfrey Mwesigye

For the past few months, the government through Parliament has sought approvals to borrow sums of money to implement its activities and projects. The most recent includes; a government request for the authorization of the borrowing of up to US$ 104million from Standard Chartered Bank to finance the National CCTV Network Expansion Project delivered in a motion tabled by the Finance State Minister, Hon. David Bahati on 18th Tuesday, September 2018. The Speaker of Parliament, Rt.Hon. Rebecca Kadaga referred the loan request to Parliament’s Committee on National Economy for considerations before approval by the Parliament.

Also, the government had previously presented several loan requests to Parliament meant for budget support, to finance the Strategic Towns Water Supply and Sanitation Project (STWSSP), the Local Economic Growth Support (LEGS) Project and to support the Uganda Intergovernmental Fiscal Transfers Programme for Results. It should be remembered that these loans were catered for in the current national budget which was approved by the Parliament on 1st June this year.

Uganda’s vision 2020 is to achieve middle-income status, whereas Vision 2040 is to become a transformed Ugandan society, from a peasant to a modern and prosperous country. The pathway to vision 2020 is the National Development Plan II (NDP II), which under the macroeconomic framework, has an objective of maintaining macroeconomic stability and the need to raise resources to address the infrastructure deficit.

The ceiling on public debt is 50% of the country’s GDP (Gross Domestic Product) in the present value terms. Truly, the country has not reached the public debt ceiling of 56% for Country Policy and Institutional Assessment (CPIA) medium performers in the low-income countries debt sustainability framework and 50% for both the Public Debt Management Framework (PDMF) and the East African Monetary Union (EAMU) Protocol. However, this seems to catalyze further borrowing resulting in increasing domestic and external, and the question is whether the country’s state of borrowing is a sustainable measure for development. On 2nd October 2018, the State Minister for Planning David Bahati indicated that Uganda’s domestic and external debt has hit UGX 41.3 trillion, a figure over and above the country’s total budget FY 2018/19.

Government borrowing, just like individual borrowing becomes a burden at the time of paying back, especially because of the interest charges on top of the principal.  Most of the time, the government can only pay its loans by raising money from the tax-payers. If public borrowing translates into public investment that supports social-economic development of the country, it becomes justifiable and it is a ‘good loan’ because it can easily be paid back. However, if borrowing does not transform the economy, the tax-payers feel much burden in paying back due to the fact they will have to pay taxes even when the economy is not thriving, this becomes a ‘bad loan’. In an attempt to understand Uganda’s debt, one may ask; is it sustainable? Uganda’s debt stands at 38.6% of Gross Domestic Product which I think is not the most desirable for the economy’s performance because it is not too far from the ceiling. Our aim should not be to hit the debt ceiling of 50% but to reduce the country’s debt burden which is more likely to affect future generations.

Certainly, we also need to interrogate whether the debts are sustainable for Uganda. For the last couple of years, much of the borrowing has been for infrastructural development, particularly roads and energy. These are irrefutably good for economic development since they are long-term investments that can boost the country’s production. That notwithstanding, Uganda continues to experience load-shedding and poor road-networks in some parts of the country. What are we not doing right?

In my opinion, in order to make Vision 2020 a reality and make a move to achieve vision 2040, there should be transparency and accountability for public debts for better and effective national planning. There is a need to ensure that the reports on public debt and the performance of loans presented by Ministry of Finance to Parliament are put into consideration such that the country does not borrow for programmes and projects where we already have nonperforming loans and problems with debt servicing. The situation analysis of the country’s standing in terms of loans can help to establish where much of government borrowing should be directed.



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