By Moses Kaketo
Bank of Uganda has warned that the country’s public debt which has reached $ 15.1 billion up from $ 6 billion three years ago, could among others affect economic growth because of reduced public investment.
Over the last decade, the government has ramped up borrowing, mostly from China, to fund infrastructure projects including roads, power plants, fibre cable networks and an airport expansion.
The latest Bank of Uganda report titled “State of the Economy” Uganda’s national debt has nearly trebled in the last three years to more than 50 percent of gross domestic product
According to the report, The provisional total public debt stock (at nominal value) as at end December 2017 stood at Shs. 37.9 trillion, representing an increase of 9.4 per cent relative to June 2017.
The growth in the stock of public debt was mainly on account of a 12.2 per cent growth in public external debt (in Shillings terms), which continues to have the dominant share of 66.3 per cent of total public debt.
In December 2017, external and domestic debt amounted to Shs. 25.1 trillion and Shs. 12.8 trillion, respectively, which is an increase of 12.2 per cent and 4.2 per cent, respectively, compared to June 2017
The provisional stock of public external debt disbursed and outstanding stood at $ 6,902.7 million as at end December 2017, representing an increase of 10.8 per cent from June 2017 compared to an increase of 24.6 per cent in the corresponding period a year ago. The total external debt exposure amounted to $ 11,690.6 million as at end December 2017.
The present value of total public debt as a ratio of GDP stood at 28.1 per cent as at the end of December 2017, which is lower than the PDMF benchmark of 50 per cent.
However, including committed but undisbursed loans, the ratio of total public debt to GDP is closer to the threshold.
This poses a risk of higher exposure or failure to meet external debt obligations in case of exchange rate volatility and slow growth in exports. In addition, high debt may become a drag on economic growth by discouraging public investment due to the high debt service costs. Figures also indicate that all of the domestic debt cost and risk indicators, with the exception of the ratio of the stock of government securities to PSC, were within the Public Debt Medium Framework (PDMF, 2013) benchmarks.
The Good news
In terms of outlook, the medium term fiscal framework is focused on maintaining macroeconomic stability to support inclusive growth, employment and sustainable wealth creation in FY 2018/19. Domestic revenue is expected to increase by 0.3 per cent to Shs. 15.1 trillion in FY 2018/19, supported by revenue administration measures, enhanced efficiency in tax collections as well as reforms in the tax system.
The share of the budget financed by domestic resources is anticipated to increase to 69 per cent in FY 2018/19, from 64.4 per cent this financial year, and to approximately 83.6 per cent by FY 2022/23. Further, total government expenditure and net lending (excluding debt refinancing) is expected to increase to Shs. 22.5 trillion in FY 2018/19, which is equivalent to 21.2 per cent of GDP.
While development expenditure is estimated at 9.6 per cent of GDP in FY 2018/19, recurrent expenditure is estimated at 10.8 per cent of GDP during the same period. Following the anticipated developments in government revenues and expenditure, the overall balance is projected to decline to 5.4 per cent of GDP in FY 2018/19, from about 7 per cent of GDP in FY 2017/18. Domestic borrowing is to be maintained at 1.0 per cent of GDP over the medium term to support private sector development.