Only oil money can rescue Uganda from the looming debt crisis –BoU official

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By Moses Kaketo

A senior Bank of Uganda Official has said Uganda’s economy faces tough times in the years to come following the ever growing debt. He says the country seems to have run out of options.

Speaking at the Post National Budget discussion held at Serena Hotel in Kampala under the theme: Budgeting for the future generation, Debt sustainability, Agriculture and Human development, Dr. Adam Mugume, the Director ,Research at Bank Of Uganda, said with the falling exports amidst increasing imports, it is increasingly becoming impossible and difficult for Uganda to pay off her public debt.

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Uganda’s earnings from exports are far less than what we spend on imports resulting in a large trade imbalance vis-à-vis our trading partners. In the 12 months to March 2016, Uganda’s imports were worth US$ 5,647 million; compared to export receipts of just US$ 2,669 million, less than 50% of our import bill.

Dr. Mugume revealed the country’s external debt stands at US$10bn; unfortunately only US$ 5.3 billion has been used so far. The balance remains idle yet it is attracting interest.

A recent report by the Uganda Debt Network puts the Country’s total public debt at Ugx. 24 trillion, a figure higher than the 2016/17 National budget.

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As at the end of 2015, Uganda’s public debt stood at 31.2 percent of the Gross Domestic Product. Experts see this figure jumping to 46.1 percent of the GDP by 2018. There are unconfirmed reports that the public debt has since shoot to 38 percent of the GDP. At 50 percent, the public debt is described as unsustainable.

‘‘I don’t see how we can generate enough money to start re-paying interest and debt within in the next few years in the foreign exchange. Now we are assuming we either have the oil revenue coming on board or we ask for debt forgiveness or default’’ he said.

He added: defaulting is also an option. Mexico and Argentina defaulted. They are now back on the borrowing arena. Otherwise, I don’t see how we are going to survive. The only solution is oil revenues.

Social critic and Makerere University lecturer, Prof. Julius Kiiza says the other option for Uganda would be to go back to our lenders to ask for debt forgiveness.

Uganda is among the 38 highly indebted poor countries whose debts were cancelled in the early 1990’s. As a condition, such countries had to divert the debt money into projects like health facilities, schools among others.

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Prof. Kiiza urges that borrowing in itself is not bad, but, the fundamental question is: To what degree, are the borrowed funds used to uproot the obstacles to development, to build durable infrastructures like roads that will last 60 years. He urges that such projects must have the capacity to create wealth and more opportunities for the nationals.

Dr. Mugume agrees with Prof. Kiiza. He says borrowing is not bad, if the borrowed funds are used productively. He cites the example of roads in Fort Portal and Eastern Uganda that are used by the locals to dry cassava. He wonders whether such actions can deliver the foreign exchange needed to pay debt in dollars.

Ordinarily, if a country borrows one billion dollars to put up a road, the road must be able to produce/ transport commodities, send it to external market to generate foreign forex.

‘ ‘If you are not getting foreign exchange from a project you have injected borrowed funds, then you have a mismatch.’’ He says.

Prof. Kiiza called on the government to stop the culture of borrowing to finance: a bigger cabinet( Uganda’s cabinet is now the biggest globally), the expansion of new districts, a huge parliament.

The 10th parliament has 426 members, up from 386 in the 9th parliament. The government is expected to spend Ugx. 14.89 billion on this parliament. A figure higher than what is allocated for agricultural sector, the engine of the economy.

The largest portion the parliamentary budget will go to payment of salaries, allowances, medical cover, travel abroad and committee work. The 10th parliament also has funding gap of Ugx. 203.483bn meant to cater for emoluments, associated benefits and motor vehicle costs.

Another funding gap is the Ugx. 1.800 billion to start construction of a new Chamber, modification of the existing chamber and construction of the Hall of honor to accommodate the huge MP’s as well as public address system. The speaker Hon. Rebecca Kadaga came out recently to add her voice to other politicians who say a bigger parliament will improve service delivery.

The 2016 State of the Nation address, President Museveni noted Uganda shall start pumping out oil in the next four years.

The country is expected to pump 30,000 barrels per day for the refinery and 170,000 barrels per day for the pipeline. The total will be 200,000 barrels per day. Assuming we sell the oil at US$50 per barrel, oil will contribute an additional income of US$3 billion per year.

Government officials have often come out to say that Uganda’s debt in within acceptable range.

Debt sustainability notice was issued based on assumption that economic growth would between 6 and seven percent. However, the growth has dropped to 4 percent. According to analysts, if growth remains at 4 percent, for the next few years, Uganda’s debt will not be sustainable. The unfortunate part is much of the current loans are concession loans which are paid on the prevailing market prices.

Debt sustainability is about borrowing, investing productively and able to generate enough revenue in terms of growth and pay back the debt.

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