Uganda: Government Projects Public Debt to Rise to 54.1% By 2023

3 February 2021

Rising expenditure pressures resulting from the need to finance infrastructure projects and an increase in Covid-19 related borrowing will push Uganda's public debt to 54.1 per cent by the end of the 2022/23 financial year, according projections by the Ministry of Finance.

Details contained in the Debt Sustainability Analysis report authored by the Ministry of Finance, indicates that public debt is projected to increase to 49.9 per cent of gross domestic product by June 2021, before peaking to 54.1 per cent by the end of 2022/23 financial year.

In the next few years, the Ministry of Finance said, public debt is projected to increase on the account of an increase in the pace of borrowing to finance infrastructure projects, especially in the transport and oil and gas sectors.

The stock of total public debt grew from $12.55b at the end June 2019 to $15.27b (Shs56.94 trillion) by June 2020, which represented a 21.7 per cent growth.

Of this, external debt stood at $10.45b (Shs38.97 trillion) while domestic debt was $4.82b (Shs17.98 trillion), according to the Ministry of Finance.

The Debt Sustainability Analysis report informs decision making at different levels of government and is a key input into government's medium term debt strategy, national budget strategy, medium term fiscal framework, and fiscal risks statement.

It is also used to track progress on government commitments under different protocols.

In a preface about the report, Mr Patrick Ocailap, the Treasury deputy secretary, said the report is an important facet of debt management and an avenue by which risks and vulnerabilities associated with the country's debt trajectory can be identified and mitigated.

"The report comes at a time when the world is faced with the worst health crisis - Covid-19. The global and domestic response to Covid-19 has had far reaching implications for the economy, with real gross domestic product growth slowing to 2.9 per cent during the 2019/20 financial year from 6.8 per cent," he said, noting that Covid-19 had presented a number of challenges among them sharp decline in domestic revenues and additional expenditure requirements, which have necessitated heavy borrowing.

Composition of public debt, as at June 2020, indicates that external debt comprised 68.4 per cent of total debt up from 66.5 per cent, mainly on account of Covid-19 related borrowing.

The share of external debt owed to commercial banks increased significantly, from 1.8 per cent of total external debt in the 2018/19 financial year to 7.2 per cent in the 2019/20 financial year.

Government in the last few years has been borrowing directly from commercial such Stanbic, Standard Chartered Bank and Chines lenders for budget support. The share owed to multilateral lenders amounted to 61.9 per cent of total external debt, of which 34.6 per cent was from World Bank's International Development Association compared to 40.1 per cent a year ago.

Bilateral lenders accounted for 30.9 per cent of the total external disbursed and outstanding debt stock in the 2019/20 financial year.

The share of domestic debt in total reduced from 33.5 per cent to 31.6 per cent. As at June 2020, the largest share of public domestic debt was owed to commercial banks, which held about 40.5 per cent of the outstanding stock.

These were followed by pension and provident funds at 39 per cent, with the dominant player under this category being the National Social Security Fund.

There has been a consistent increase in the share of domestic debt held by "others" category, from 8.9 per cent in the 2016/17 financial year to 13.2 per cent in the 2019/20 financial year.

Debt distress

Debt sustainability continues to be a concern for a number of stakeholders even as ratings from both government and international lenders and rating agency indicate Uganda is still safe from suffering debt distress.

However, expenditure on debt repayment continues to sore with Shs15.7 trillion earmarked for debt repayment in the 2021/22 financial year.

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