Charles Kazooba
9 November 2009
Nairobi — Uganda's external debt burden could reach unsustainable levels by 2015 unless efforts are made to match borrowing to economic growth.
According to debt indicators, the country's borrowing is rising faster than the rate of economic growth in the face of weak export earnings.
In its latest report, the Parliamentary Committee on National Economy indicates that when it comes to the solvency ratio -- the value of the country's debt to export of goods and non-factor services -- the 200 per cent threshold of would be exceeded by 27 per cent in the next six years, implying that at current rates, export earnings would not be sufficient to support Uganda's debt stock in that time.
Export performance is one of the three key indicators the Ministry of Finance and the Parliament Budget Office use to monitor debt sustainability.
However, the other two -- solvency ratios of debt to GDP (50 per cent threshold) and domestic budget revenue (300 per cent threshold) -- will still be high by 2015.
All the three were assessed against the International Development Association and Resource Allocation Index Scores thresholds, which are based on the country's policy and institutional assessment.
Finance Ministry experts claim Uganda's external debt is within sustainable levels across all the indicators analysed except for the present value of debt to exports which breaches the benchmark from the year 2015.
As at the end of May, Uganda's total debt stock stood at $4 billion.
The external debt had risen to an unsustainable stock of $4.5 billion in 2005/06 before falling to $1.5 billion in 2006/07 following debt relief.
However, the experts have advised that Kampala either increases the volume of exports or reduces the debt burden before 2015 to remain within sustainable levels.
Fortunately, export trade earnings have recently shot up.
Statistics show that exports performed fairly well posting a growth of about 19 per cent compared to the previous period by increasing from $2,600 million in 2007/08 to $3,085 million in 2008/9.
Despite increases in the exports earnings in 2008, the country has continued to experience an unfavourable trade balance.
The trade deficit has more than doubled from $1,061.1 million in 2004 to $2,801.6 million in 2008.
Also, high electricity tariffs, exorbitant taxes and bogus trade policies could hinder government efforts to increase exports to the required levels to reduce the debt burden.
For fear that the debt burden could run out of hand, Members of Parliament suggest in their report, that new financing should not only be on concessional terms, but also prioritised to strategic areas that would help to build the country's productive capacity.
"Parliament continues to recommend that any future sustainability of the country's debt will largely depend on prudent procurement and deployment of borrowed resources," the MPs noted.
"However, it is not only concessionality that guarantees external debt sustainability, but also the volumes of any new borrowings. If this is not achieved, the country's debt might become unattainable again in the near future."
A senior budget officer at parliament, Hannington Ashaba, suggested that to contain the debt burden within sustainable levels, the government should stick to IDA terms of borrowing, reduce its borrowing appetite, limit borrowing for priority sectors and also introduce a borrowing cap.
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Ouch! The bait is already in the trap. "We can get rid of our foreign debt by using oil export revenue!" But you are already dependent on imports. Externalizing your economy to support the export market will only make you more dependent on imports in a vicious circle. You don't need foreign money, borrowed or earned. You need to produce for yourselves using your own labor.