Kampala — Economist Dr Fred Muhumuza and Uganda Debt Network director of programmes Mr Julius Kapwepwe, have protested the latest government urge to borrow Shs736bn domestically, saying the move will expose Ugandans to high cost of capital.
Uganda's debt portfolio - including both disbursed funds and signed credit facilities - has reached a staggering Shs37 trillion, eclipsing the national budget read last year and theoretically exposing each Ugandan citizen to a Shs1m debt liability at birth.
Government borrowing in the domestic market has been happening since 2013 and this has raised the interest rates with some banks charging as high as 24 per cent.
"When you borrow from the same market with the private sector, you are making the interest rates high. This has an effect on businesses which translates to low tax collections," Dr Muhumuza said.
"Borrowing will worsen the state of the economy. We are already grappling with debt issues. Government has not paid its suppliers and yet private sector gets capital from these commercial banks. How will they keep affront to be able to grow?" Mr Kapwepwe wondered.
However, Finance minister Matia Kasaija has explained that the proposal he recently tabled before Parliament was out of need, owing to Uganda Revenue Authority (URA)'s frequent failure to hit revenue collection targets.
"We are experiencing revenue shortfalls. The first half of this financial year, government revenue recorded Shs324 billion on account of lower collection of VAT, International Trade taxes,... as a result of the said shortfall, and in order to bridge the funding deficit, Shs736 billion will be borrowed from domestic market. This borrowing will not have a significant impact on private sector given that liquidity in the market amount to 2 trillion," Mr Kasaija said.
In the current financial year 2017/18, URA was given a net revenue target of Shs15 trillion which is shs1.8 trillion over and above the previous financial year's target.
Despite registering a surplus of slightly over shs35 billion in the month of September, cumulatively over the period July to September 2017, the net revenue collections did not meet the target although general performance was much better compared to the same period last financial year.
Shs48bn of the aforementioned money to be borrowed will go to paying salaries and wages, infrastructure development, procurement of seeds to be distributed to farmers among others.
Government wages and salaries bill currently stands at Shs3.5 trillion and 2.7 trillion has been released covering the first three quarters of the year, Mr Kasaija said.