A new report has revealed the state of Uganda’s indebtedness, with public debt growing by 22% in the last two financial years.
“Uganda’s Public debt stock increased by 22% from Ushs.34.423.52 trillion recorded in the FY 2016l17 to Ushs.42.07047 trillion in the FY 2017/18. The existing debt stock constitutes of Ushs.28.51448 trillion as external debt, while Ushs.13.55599 trillion is domestic debt,” the report of the Committee On National Economy On The State Of Indebtedness, Grants And Guarantees as at June 2018 released this month reads in part.
It adds: “In terms of shares, external debt takes the largest share of total public debt at 68% while domestic debt is 32% of the total public debt.”
The report obtained by this site further adds that the stock of debt has consistently taken on an increasing trend from the FY 2013/14 to FY 2017/18 with the highest increase of 33% attained in FY 2014/15 due to the large investment made in infrastructure and energy projects that was required to stimulate Uganda’s growth as guided by the National Development Plan (NDP). Similarly in FY 2Ol7 118, debt accumulation has rebound to grow at 22%o as was in FY 20151t6.
“This is intended to increase public investment in infrastructure in preparation of oil production, while at the same time increasing investments in other sectors, notably the social sectors and the Agriculture Sector,” the report reads.
The report adds that the debt to GDP ratio increased from 38% in the FY 2016/17 to 42% in the FY 2017/18 increasing the risks of public debt sustainability if the productive capacity of the economy grows at a much lower rate.
“Despite the increase in sovereign debt, it is still sustainable and Uganda is not under debt distress if it stays within the Charter of Fiscal Responsibility budget deficit target (3% of GDP by FY 2020/21. Public debt will be manageable, if infrastructure spending raises growth and domestic revenues improve further,” it says.
External Debt
Uganda’s debt exposure grew by 7% from US$11.37 billion in FY 2016/17 to US$12.14 billion in the FY 2017/18 “largely due to the need to invest in large infrastructure projects to stimulate economic activity.”
However, export growth registered dismal growth of 10.5% due to a fall in commodity prices of the country’s export commodities, which declined by 1.9% compared to last FY 2016/17 prices.
The report further shows that compared to the FY 2016/17, external debt exposure to GDP ratio remained at 44% in the FY 2017/18, as previous FY 2016/17.
Of the total external debt amount, US$7.35 billion was outstanding and disbursed, while US$4.79 billion was committed but still undisbursed, indicating slow implementation of some of the projects.
However, it’s noteworthy that there has been an improvement in the disbursements where undisbursed credit has declined from US$ 5.15 billion in FY 2016/17 to US$ 4.79 billion in FY 2017/18 despite the rise in debt acquisition.
The external debt that is disbursed is largely from China followed by the World Bank, as major creditors, constituting a total of 59%o of the total disbursements, the report reads in part.
“China has become the largest creditor to Uganda disbursing 39% of the total credit in FY 2018/18, surpassing the traditional creditors such as World Bank and the African Development Bank, which disbursed 21% and 8% of the total credit respectively. The UK Government Export Credit Agency (UKEF); together with Standard Chartered Bank are among the new lenders to Uganda,” the report reads.
It adds: “Both China and new entrants like the Eastern and Southern African Trade and Development Bank (PTA) and UK Export Finance (UKEF) are providing non- concessional finance to Uganda, exposing the country to more expensive credit than the previous concessional finance from the World Bank.”
It also says that the shift in the sources of finance is dictated upon by the need for Government to channel resources towards infrastructure especially in the oil and gas industry; energy and roads sector. These are not priorities under the World Bank financing strategy, it says.
External Debt Service
The total Government of Uganda external debt service by end of FY 2Ol7 ll8 amounted to US$275.75 million, which was an increment of 129% compared to US$120.62 million in FY 2016/17.
It adds that total external interest paid amounted to US$80.04 million, which constituted 29% of total external debt service while US$ 185.22 million (67%) of total external debt service, was for principal payment.
“Debt service of Uganda’s external debt is on the rise and outstripping growth of the country’s income, currently at 60%. This poses risks for future debt repayments, especially as the country continues to acquire external debt at less concessional terms, especially to finance the oil development programme,” the report says.
