Uganda’s public debt is slowly but surely moving towards hitting the Shs50 trillion mark given the increasing appetite by the government to borrow.
The latest is that government is seeking to borrow USD100M (about Shs380.4bn) from domestic commercial banks for classified expenditure purposes.
“Classified expenditure” means the expenses and commitments incurred by an authorised agency for the collection and dissemination of information related to national security interests.
In a proposal presented by the Ministry of Finance to Parliament, government defended the borrowing, arguing that the approved 2018/2019 budget is Shs32.7 trillion and of this, Shs9.5 trillion is to be financed through both external and domestic borrowing.
So far, Shs605bn has been raised in Net domestic Financing, leaving Shs1.178bn to be raised in the remaining auctions in FY 2018/19.
Defending the borrowing, the Ministry of Finance argued: “…However, an urgent need has arisen which requires to finance a classified expenditure of USD100M approximately Shs380bn expenditure was not budgeted for and is a fiscal deficit, since it is over and above the approved budget for this financial year. These funds are required immediately and since they cannot be raised by an increase in tax collection or external borrowing all of which take long to accomplish, hence the request to borrow locally.”
If approved by Parliament, the extra borrowing of Shs380bn will further increase domestic expenditure from Shs1.783Trn that was approved in the 2018/2019 budget to Shs2.163Trn and further drive up the domestic debt stock to Shs13.386Trn as at end 2017/2018 from Shs5.091Trn at the end of 2011/2012.
Uganda’s public debt hit USD10.53 billion (about Shs40.4 trillion) as at March 2018. External debt comprised USD7.18 billion (aboutShs27.58 trillion), while domestic debt stood at USD3.35 billion (Shs12.8 trillion). The government has since been borrowing and the figure is expected to be nearing the Shs50 trillion- mark.
Bank of Uganda (BoU) has in the past decried continued government borrowing from domestic banks, a thing that is crowding out private sector.
Releasing the Monetary Policy Statement for December 2018 recently, Prof. Emmanuel Tumusiime-Mutebile, the BoU Governor said, “In addition, growth in Private Sector Credit, though on a recovery path, remains below its historical trend and its contribution to economic growth could be weighed down by increased public borrowing requirements and the associated further increase in lending interest rates.”