13 May 2019

Uganda: Public Debt to Grow to 50.7 Per Cent - IMF

Photo: Alex Esagala/Daily Monitor
IMF says Uganda's public debt will rise from 49.0% in the 2020/21 financial year to eventually reach 50.7% in the 2021/22 financial year due to increased borrowing for infrastructure projects. (file photo).

Kampala — An analysis by the International Monetary Fund (IMF) shows that Uganda's public debt will rise from 49.0 per cent in the 2020/21 financial year to eventually reach 50.7 per cent in the 2021/22 financial year due to increased borrowing for infrastructure projects.

The analysis, which was released last week, also indicates Uganda's public debt, which currently stands at 41 per cent, will grow to 45.7 per cent in the next financial year (2019/20).

The findings are contained in a report that was completed in the first week of this month that consulted and compared different government projections for the next 10 years.

"While [Uganda] public debt remains at low risk of distress, we caution that debt metrics has weakened, some investment projects may not generate the envisaged return, and interest payments are rising," the analysis says, noting that it is important that government safeguards growth of debt levels to sustainable levels.

The analysis also warned that vulnerability levels continue to increase, noting that out of every one five shillings collected in revenue, will be spent on interest payment in the 2019/20 financial year.

Government has always argued that Uganda's public debt is still sustainable even as critics continue to caution against the growing debt burden.

Ms Mira Clara, the IMF resident representative in Uganda, last week told Daily Monitor that whereas Uganda's public debt remains at manageable levels, it was worrying that vulnerabilities have been moving northwards.

"Since 2013, debt has increased by 12 per cent of GDP to the latest figure of 41 per cent. Interest costs have increased. The situation could deteriorate and the ceiling could be breached if some potential shocks materialise [ie if the economy slows down]," she said.

Uganda, Ms Clara noted, must therefore, adopt as a guiding principle a debt-to-GDP ratio of 50 per cent in nominal terms to provide a buffer for manoeuvre in the event that the economy experiences shocks.

"Some measures to ensure that public debt stays below the 50 per cent ceiling would therefore be useful," she said, noting that Uganda currently spends more on interest payment compared to what it spends on key sectors of the economy such as health and education.

The IMF also noted that Uganda continues to experience a growing budget deficit, which is expected to widen to 7.2 per cent on account of an increase in infrastructure investment.

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