According to the estimated budget for the financial year, 2023/24 issued by the Ministry of Finance, Uganda Public Debt will rise from its current 48.4% to 53.1% in 2023.
The International Monetary Fund (IMF) states that debt must not surpass 50% of the nation’s gross domestic product (GDP) to be manageable, particularly for emerging countries like Uganda.
The Budget Framework Paper states that between June 2021 and June 2022, the stock of public debt increased from 19.54 billion to 20.99 billion dollars. Over the same period, public debt rose from 46.90% to 48.4% as a percentage of GDP.
Compared to the previous financial year, when growth was 27.45%, this implies an increase of 7.4%. This is a result of the government’s deliberate policy of fiscal consolidation, which aims to ensure that debt stays below the predetermined threshold of 50% of GDP in the medium term.
The report states that out of the nearly Shs50 trillion estimated budget, the nation will spend nearly Shs 9 trillion on debt servicing and repayment. This amounts to 16% of the total budget for the financial year 2023/24.
Even though the research predicts that the debt will peak at under 50% in the financial year 2025/26. Economists and politicians alike have already expressed their concerns regarding this.
Micheal Atingo-Ego, the deputy governor of the Bank of Uganda, warned the parliamentary finance committee in November that the country’s public debt will reach Shs80 trillion by the end of September 2022, or around 50%of GDP.
According to Atingi-Ego, Uganda’s debt servicing in the current financial year 2022/23 is expected to be a ratio of 30% of tax income, which indicates that any additional borrowing with related servicing in the short to medium term may impede government development efforts.
Atingi-Ego added he believes that in terms of sustainability they are still sustainable. The issue they have is what they refer to as the indicators that they use to determine their ability to pay. So he said, the debt service to tax revenue ratio is extremely concerning when examining the tax receipts.
The debt serving to export is one more indicator that has to be examined, he continued, telling the lawmakers. He suggested that any external loan being taken out should be questioned to find out how it will help the government pay off its debt by generating and preserving foreign money.
The deputy governor highlighted that the international reserves had drastically decreased from $4.54 billion at the end of April 2022 to $3.65 billion as of the end of October 2022. It is due to the increased foreign debt servicing costs and government imports of goods and services.
Low foreign exchange inflows, he claimed, have prevented people from buying dollars on the domestic market.
A total of Shs 8.343 trillion is expected as external finance for the upcoming financial year 2023/24. Of this, Shs 2.452 trillion will come from loans for budget financing and Shs 5.891 trillion from loans for projects.
According to the Budget Framework Paper, external debt repayment is expected to be a total of Shs2.453 trillion, from Shs2.412 trillion in the financial year 2022-23.
Due to the growth in commercial loans during the past few years, an increase in the medium-term payment on external debt is anticipated. A predicted Shs6.135 trillion worth of interest payments, or 2.9% of GDP, is expected.
Domestic interest payments are expected to be %.227 trillion, while commitments and payments for international interest are anticipated to total Shs907.9 billion.
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Even though President Museveni and representatives from the ministry of finance have defended this ongoing borrowing by asserting that it poses no threat to the nation, reports indicate that Uganda will need more than 90 years to repay these loans, costing each Ugandan at least Shs1 million based on current population estimates of 44 million.
According to the United Nations Conference on Trade and Development (UNCTAD), borrowing by the government is a crucial tool for financing investments that are essential to attaining sustainable development as well as for addressing short-term imbalances between revenues and expenses.
Although it adds that government borrowing might enable fiscal policy to play a countercyclical role over economic cycles, it also points out that high-debt loads can obstruct sustainable development and prosperity.
Although Uganda’s situation is still somewhat controllable, it has begun to enter a danger zone, particularly if oil earnings don’t start flowing as expected in 2025.
Uganda must work to replace its infrastructure-focused, debt-financed growth model with one in which the private sector drives economic expansion with support from the government in the form of human capital investments and regulations that are specifically designed to encourage green, inclusive, and sustainable growth while reducing inequality.
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