The Bank of Uganda headquarters in Kampala. PHOTO | NMG
Uganda is considering changes to future borrowing in the light of rising debt, with Ministry of Finance officials saying such a move is meant to manage debt and reduce the burden of repayments.
Maris Wanyera, director for cash and debt policy at the Ministry of Finance, says one way will be to re-examine ratios of interest payments to tax revenues, as well as interest payments against export earnings, in addition to the debt-to-economic growth balances.
“Future borrowing will be biased towards concessional loans and the domestic debt market for purposes of budget support, but we shall not acquire commercial loans for project implementation,” Ms Wanyera told The EastAfrican.
Uganda’s debt-to-gross domestic product (GDP) ratio, usually measured as the level of indebtedness based on national wealth, rose to 54 percent in June from 49.1 percent by end of May based on cumulative debt statistics captured between July 2021 and June 2022.
Economic rebasing
It means Uganda owes Ush73.5 trillion ($19.2 billion), with external debt valued in excess of Ush40 trillion ($10.5 billion), recent government data shows.
Member states of the East African Community bloc are required to maintain a maximum debt to GDP ratio of 50 percent in line with monetary union convergence targets approved in 2013.
It is a benchmark also adopted by the International Monetary Fund.
The latest increment in public debt also points to short-lived opportunities realised from previous economic rebasing exercises — an undertaking to revalue the size of an economy, growth benchmarks plus adjustments in key economic performance indicators such as debt to GDP and tax to GDP ratios.
Uganda’s pioneer economic rebasing exercise was done in 2012 and was followed by another in 2019. Results from the 2019 economic rebasing showed the value of Uganda’s economy had grown to Ush137 trillion ($35.8 billion) while its tax-to-GDP ratio had dropped from 13 percent to around 12 percent.
The size of Uganda’s economy grew from Ush148 trillion ($38.7 billion) in financial year 2020/21 to Ush162 trillion ($42.4 billion) in 2021/22.
Return on investment
Findings from the two economic rebasing exercises yielded a debt-to-GDP ratio of 40-50 percent — a scenario that offered technocrats limited breathing space for future borrowing activity, thereby necessitating further review of borrowing plans.
Latest economic data shows that headline inflation averaged less than five percent during financial year 2021/22 while economic growth stood at 4.6 percent during the same period.
The country’s savings to GDP ratio clocked 17 percent by close of 2021/22 while youth unemployment — a leading poverty indicator, was 13 percent in the same period, but economists say debt accumulation thresholds are difficult to meet, even in big economies.
“How much of public debt is put to productive use and what is its return on investment? Uganda’s economy looks less bankable to credible lenders because the rate of debt accumulation exceeds the pace of development experienced in this country,” Madina Guloba, a senior research fellow at the Economic Policy Research Centre based at the Makerere University, said.
Analysts say debt portfolio is not a bad thing, as long as the money is used well.
“Debt levels are going up in various economies yet no country is ready to stop borrowing at this time. What matters is the motive behind the borrowing. For example, is government borrowing to invest in a new power dam while another that has been under construction for long is yet to generate power?” posed Mubbale Kabandamawa-Mugalya, investment manager at Sanlam Investments Uganda Ltd.
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