The International Monetary Fund-IMF has suspended lending to Ugandans until the government settles the Shillings 8 trillion debt owed to the Bank of Uganda.
State Minister for Finance, Planning, and Economic Development, Amos Lugoloobi told the Finance Committee of parliament that this credit was taken during the peak of the COVID-19 immediate impact on the country as domestic and external sources were dwindling.
This comes less than a week after Foreign Affairs Minister, Abubakar Jeje Odongo asked Africa’s development partners to transfer their IMF Special Drawing Rights to the continent. According to Odongo, this would help African economies recover faster from the effects of the COVID-19 pandemic and also enable the countries to spare more resources for other budgetary needs.
The Minister was meeting parliamentarians to explain the budget cuts to government ministries, departments, and agencies in the 2022/2023 first quarter budgetary releases. The Public Finance Management Act allows Government to take short-term credit from the Central Bank at a 10 percent interest rate, according to Lugoloobi, so the government had to utilize this window to cater to the rising budgetary needs as global lenders withheld their assets.
“And as a result, we had some arrears with the Central Bank and you know this is short-term credit so you can’t go beyond a certain ceiling, now here we are with this demand of 8 trillion shillings and our lender hasn’t been adequately serviced. The loan hasn’t been adequately serviced, so we have to go a little bit slow and I think that is a problem,” said Lugoloobi.
According to records at the Ministry of Finance, by March 2022, the national debt stock had reached 75.675 trillion Shillings, which translates into 49.6 percent of GDP. The minister told the MPs that there is an agreement with the IMF on settling that debt, assuring the country that the government is using domestic resources.
As such, he says the ministry was left with just 4.67 trillion Shillings to cover the rest of the expenses including transfers to MDAs, out of the initial target of 8.07 trillion Shillings meant for discretionary expenditure. In their report on the state of national indebtedness, grants, and Guarantees as of December 2021, the parliamentary committee expressed worry that debt accumulation was growing faster than the economy, which puts the country at a risk.
“Whereas in Financial Year 2O2O/2l, the economy grew by 3 percent, the public debt grew by 22 percent on account of budget support loans acquired from the IMF and World Bank to support Government’s response to COVID- 19,” says the report in part.
The report shows that Uganda’s external debt exposure (both disbursed and outstanding loans) grew by 16 percent from 15.7 billion dollars (about 61 trillion shillings) in the year 2Ol9/2O to 18.2 billion (70 trillion shillings) in 2O2O/21.
This growth indicates slow implementation of some of the ongoing projects, non-disbursement of the loans as well as new commitments during the year which had not yet been disbursed by the end of the financial year.
However, preliminary statistics indicate that by June 2022, external debt exposure had reduced by 2 percentage points as amortization (repayments of principal) of debt more than offset the new commitments undertaken from June 2021. In addition, there was no new external budget support loans acquired during the period which contributed to the reduction in external debt exposure.
The Permanent Secretary in the Ministry of Finance, Ramathan Ggoobi told a public dialogue on the state of the economy Wednesday, that the increasing indebtedness over the last few years was mainly due to the effects of the Covid 19 pandemic.
This is because the pandemic affected revenue collections resulting in shortfalls of 3 trillion Shillings in 2019/2020 and 2.2 trillion Shillings in 2020/2021, though the shortfall was further reduced last year to less than 600 billion Shillings.
“However, as the revenue collections were register shortfalls, expenditure was increasing. The government needed to spend more on health, governance, and security,” he said. He says that among the solutions that the government is doing is to reduce expenditure in some areas, including spending on government officials’ travel expenses.
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