The Observer (Kampala)

2 December 2012

Uganda's Debt Worries Experts

Civil Society Organizations have launched a one week campaign against graft - spearheaded by the Anti Corruption Coalition - Uganda. ( Resource: Civil Society in Uganda Launch One Week Campaign Against Graft

Uganda's debt has continued to rise over the last 10 years, according to a new study by the Uganda Debt Network, an advocacy body.

The annual debt stock of the country has grown at an average of 16.6% annually, which the report describes as alarming. Much of the borrowing is driven by the country's budget deficit. Unsustainable debt levels hurt the country's credit rating - a key indicator that investors use to make investment decisions.

High debt levels also mean that a country might not have the money to deliver on crucial social services such as health care, education, infrastructure as the government is consumed by paying off the debt. To control debt, governments usually increase taxes, lay off some workers, among other painful measures - all of which make up for a depressing economy.

Between June 2003 and June 2011, for instance, Uganda's domestic debt rose from just Shs 1.6 trillion to a whopping Shs 4.6 trillion despite the fact that Uganda benefited from huge debt write-offs from key creditors in 2005. The study, Uganda's current domestic debt status and its implications to the economy, shows that government securities alone amounted to Shs 4tn - about 88.6% of the debt while domestic arrears amounted to Shs 515.4bn.

Much of the debt from the government securities is interest paid out to financial institutions. The interest on concession loans that government will pay is estimated to increase from Shs 327.2bn in 2009/10 fiscal year to Shs 713.9bn in the 2012/13 - almost the entire budget of the health sector.

Dr Louis Kasekende, the deputy Governor Bank of Uganda, said debt, if put to good use, is good for Uganda. "As long as the debt is manageable, the country has no problem to keep on borrowing to finance the economy." He added: "The debt itself is not bad. The bad thing is when you can't pay back."

The report notes that Uganda's domestic debt stock to GDP is still at 11.3% for the 2013/12, which is still below the 2007 debt management policy limit of 15%. However, The Economist Magazine's World Debt Clock - one of the latest global indexes that measure debt - notes that Uganda's public debt is $5.1 trillion, translating into 24.3% of GDP.

Kasekende is optimistic that with the expected oil revenues, Uganda will be in a position to service all her debt needs.

However, to Lawrence Bategeka, the acting principal and research fellow at the Economic Policy Research Centre in Makerere University, there is a need to keenly analyse what all the borrowed money is used for. "There might be ghost domestic arrears," he said.

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