Ugan­da’s State of bor­row­ing and its sus­tain­abil­ity

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.