14 January 2019

Uganda's Poor to Pay Heavy Toll As Govt Sets Eyes On Rising Public Debt

Photo: World Bank
(File photo).

Uganda's poor are set to bear the burden of rising public debt in 2019 and beyond, as the proportion of resources allocated to servicing it increases.

Finance Minister Matia Kasaija was this past week forced to respond to concerns over the implications of Uganda's debt after the 2017/18 Auditor General's report revealed it had risen by 22 per cent in the year to June 2018, even as the watchdog Civil Society Budget Advocacy Group (CSBAG) warned that this was undermining progress on key social commitments.

Mr Kasaija argued that at $10.7 billion, public debt is still manageable over the medium to long term.

"Public debt levels are comfortably below the international sustainability threshold -- which is below 50 per cent of GDP -- and significantly below the sub-Saharan average of 45.4 per cent of GDP," he told a news conference on Tuesday.

In its analysis of the proposed allocations under the National Budget Framework Paper for fiscal 2019/20, CSBAG concludes that national debt levels are a matter of concern despite a positive economic growth trajectory.

At $10.7 billion, Uganda's public debt stock was equivalent to 41.5 per cent of GDP at the end of June 2018. External debt comprised 28.2per cent of GDP while domestic debt accounted for13.3 per cent.

The advocacy group notes that although the proposed spending will expand by 4.9 per cent in the 2019/20 fiscal year, allocations to key social sectors such as health, education, social development, agriculture, water and environment will shrink by 12 per cent.

Spending on that cluster will fall from Ush 7.7 trillion ($2.07 billion) in 2018/19 to Ush6.8 trillion ($1.82 billion) in 2019/20.

The allocation to social development will decrease from 0.9 per cent of the total allocations in the current financial year to 0.6 per cent under the proposals for 2019/20.

Spending on water and environment will fall from 5.0 per cent to 3.0 per cent, health from 9.2 per cent to 8.9 and education from 11.1 per cent to 10.5 per cent.

The biggest cut will be to housing and urban development whose budget whose allocation will shrink from 0.8 per cent to 0.4 per cent in 2019/20.

In total, the government proposes to spend Ush34.3 trillion ($9.2 billion) in the next financial year compared with Ush32.7 trillion ($ 8,8 billion) allocated in the current financial year.

However, debt repayment will take 34 per cent of the resource envelope while interest payments will escalate to Ush2.9 trillion ($779 million), or 11.4 per cent of the total.

"Ugandans should not get excited over the Ush34 trillion budget, because almost half of the items that comprise it will be of no direct benefit to the public," Julius Mukunda, CSBAG executive director, said at a media briefing.

The government plans to contract $1.6 billion in new debt, $885.4 million of which will be non-concessional borrowing, compared with $712 million in the current fiscal year. Concessional loans will drop from $916.6 million procured in the current financial year, to $724.9 million.

Mr Kasaija said external debt, disbursed so far and the pending disbursements accounted for 67.2pc or $7.2 billion.

He argued that compared with other developing countries, Uganda is in a more sustainable position because most of its foreign debt has been contracted on concessional terms, unlike other African countries that are borrowing commercially through Eurobonds.

"Uganda's public debt is mostly from multilateral lenders with a grant element of more than 50 per cent and an average maturity of over 35 years in addition to a grace period not less than six years coupled with relatively low interest rates below 1.5 per cent annually," he said.

CSBAG also warns of a growing gap between policy intentions and budget allocations.

Singling out education, the watchdog says while the government plans to achieve a three per cent increase in school enrolment, funding for that particular program item has been cut from Ush101.5 billion ($27.2 million) in fiscal 2018/19, to just Ush68.9 billion ($18.5 million) in 2019/20.

The group also warns of potential risks associated with the transfer of important social programmes from mandated government institutions, to State House, where they could be hidden behind a veil from public scrutiny.

"It is notable that State House does not have the expertise to oversee the youth programme. It also opens the risk of politicisation of government programmes.

Lastly, State House operations are almost beyond public scrutiny and have limited parliamentary oversight," CSBAG said in its analysis.

In an emerging trend, roles of key government agencies have been duplicated at State House, which has sucked up resources while the core agencies are starved of them.

CSBAG gives the example of the Youth Livelihood Programme, which was introduced under the Ministry of Gender, Labour and Social Development in 2013, to capitalise youth enterprise, and the National Agricultural Advisory Services NAADS that is supposed to run extension services to farmers.

Parallel votes for both programmes have been created under State House for fiscal 2019/20. This will see the allocation to youth programmes in the Ministry of Gender shrink by 93 per cent from Ush66.6 billion ($17.8 million) in 2018/19 to just Ush4.62 billion ($1.2 million) in 2019/20.

Correspondingly, the budget for the youth programme under State House will rise from zero to Ush130 billion (35 million) in 2019/20.

Meanwhile, the allocation to NAADS has been reduced from Ush249.99 billion($67.1 million) in 2018/19 to 100 billion (26.9 million) in 2019/20.

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