Govt’s external borrowing to double

Construction works underway at Karuma. Recently, government approved a Shs4.2 trillion loan to finance Karuma Hydro power dam. PHOTO BY JULIUS OCUNGI 

By Mark Keith Muhumuza
In Summary

Why increased borrowing? Government will mainly borrow from the Chinese government to fund infrastructure projects

Kampala.

Uganda is to borrow Shs4.5 trillion in the next financial year mainly from the Chinese government for infrastructure projects. This is a 181 per cent rise in external borrowing from Shs1.6 trillion in the current financial year.

Mr Kenneth Mugambe, the director Budget at Ministry of Finance, told reporters on Wednesday that external borrowing was the major contributor to the 2015/16 proposed Budget increasing to Shs18.3 trillion.

“Most of this borrowing is to finance the construction of Karuma Hydro Power Dam. This was a loan approved by Parliament in March 20,” Mr Mugambe said.

Borrowing to finance infrastructure
In March 2015, Members of Parliament approved a request by government to borrow Shs4.2 trillion from the Chinese Export and Import Bank (EXIM) for the construction of the 600MW Karuma Dam. The remaining Shs300b, according to Mugambe, is for other energy-related projects and oil refinery.

Mr Lawrence Kiiza, the director economic affairs at Ministry of Finance, noted that the current level of debt is sustainable, insisting government still had room to borrow. He played down concerns that Uganda would be unable to meet its debt obligations.

The stock of public debt at the moment is $6.5bn (Shs19.3trillion) before the Karuma project borrowing is added.

Additionally, the government is expected to borrow more money for the construction of the Standard Gauge Railway and expansion of Entebbe International Airport, among others.

“Despite the institutional, legal and policy regime on debt and debt sustainability, we note that Parliament has been weak in studying debt acquisition proposals by Cabinet.

This has contributed to instances of questionable overall transparency in debt acquisition, implementation, accountability and value for money. Overall, external debt and domestic debt are rapidly increasing, even when still in the debt sustainability threshold,” says Mr Julius Mukunda, the coordinator Civil Society Budget Advocacy Group (CSBAG) said yesterday.

Uganda’s Budget is set to expand by 16 per cent from Shs15.8 trillion in the current financial year, with continued focus on infrastructure.

Tax authority’s target
Uganda Revenue Authority will have the task to collect Shs11 trillion, up from Shs9.5 trillion in the current financial year. Additionally, domestic borrowing will increase from Shs1.3 trillion in 2014/15, to Shs1.5 trillion in 2015/16.

The Budget Framework Paper 2015/16 was tabled on Wednesday by Mr Aston Kajara, State minister for Privatisation, noted that the proposals had put into consideration “the roadmap to the forthcoming general elections in 2016 while taking into account the prevailing macro-economic conditions and outlook.”

INTEREST ON DEBT UP
Government has been paying higher interest on domestic debt. In the 2015/16 proposed Budget, interest payments are projected to rise to Shs1.7 trillion, up from Shs1 trillion in 2014/15.