Uganda’s debt stock has increased by 104% over six years from USD12.55Bn in FY 2018/19 to USD25.59Bn in FY 2023/24.
The Debt service cost as a portion of the National budget in the FY 2023-2024 was Shs18.56Tn (35%) of the annual National Budget of Shs52Tn. This increased from Shs8.85Tn (27%) in FY 2018/19 out of an annual budget of Shs32.7Tn.
According to the Auditor General’s report for FY 2023/24 presented to Parliament recently, it cost Government Shs1.371.38 trillion in interest payments for loans acquired through external sources for the FY ended June 2024. This represents 151% upward trend over the last six FYs from Shs545.91Bn in FY 2018/19.
Edward Akol, the Auditor General in his report notes that fifteen (15) out of the 49 loan funded projects included in the Project Implementation Plan between FY 2018/19 and FY 2023/24 were implemented without having both the Pre-feasibility and the detailed feasibility studies.
“The current loan approval processes are so lengthy with duplicated responsibility centres. I noted that the average time taken during the loan approval process was approximately 756 days, which is over a two-year period. Notable delays were noted in declaring Government loans effective from the date of loan signature. Twenty-seven (27) out of eighty-two (82) externally financed projects listed in the Report had delays ranging from five (05) months to twenty four (24) months between the signature date and declarations of effectiveness,” the report reads in part.
It adds: “There is a growing number of non-performing government loans meant to Finance Government projects and programs. A total of five (05) credit facilities were non-performing. The funds have not been used and the Government is incurring costs in terms of interest repayments, Commitment fees and associated penalties.”
However, there was a downward trend in Commitment fees paid by the Government on Undrawn loan funds.
According to the Auditor General, the Government paid Shs73.82Bn in Commitment fees for the FY ended 30th June 2024, down from Shs90.64Bn (23%) in FY 2018/2019.
There are also notable delays in the completion of the Public Debt Funded Projects.
The report says the projects are completed past the target periods upon securing extensions with the funders. The delays ranged from one (1) year to ten (10) years.
“A total of fifty-two (52) projects were observed to have been significantly delayed. The government obtained two (2) non-concessional loans for FY 22/23 amounting to USD.739Mn for budget support instead of Infrastructure development. It cost Government Shs5.564Bn in penalty charges for the cancellation of a loan obtained from AFD meant for the Muzizi Hydropower plant project alone. And for the period under review, two loans worth USD 156 Million were cancelled,” the report obtained by Business Focus reads in part.
The Auditor General advised the Ministry of Finance, Planning and Economic Development (MoFPED) to become more conscious in contracting new debt to finance the budget deficit.
“Government should also increase its revenue mobilization strategies if a balanced budget is to be realized thus reducing the reliance on debt. The Government should invest in more productive sectors of the economy to increase its domestic revenues, which will in turn be utilized to service debt. The increase in income will reduce the portion of the national budget utilized to service debt,” the Auditor General advises, adding that the Minister for Finance, Planning and Economic Development should obtain loans from cheaper sources as this helps to lower the cost of debt incurred in interest rates payments for Government loans.
He adds that feasibility studies should be undertaken for all projects that the Government intends to finance through Public Debt as this helps to assess the viability of undertaking such projects and to determine any associated risks of the proposed projects.
“The PS/ST should develop and implement a framework in consultation with all stakeholders in the value chain to ensure that all functions related to the Government loan approval processes are approved within the timelines set in the framework,” the AG says, adding that Government should endeavor to prioritize and timely fulfil conditions precedent to the declaration of the loans effective such that loan-funded projects can be executed on time.
“As for the non-performing loans, the Ministry of Finance and the implementing Government agencies should ensure that loan funds are drawn as scheduled in the loan agreements to implement the intended project activities to save Government from paying commitment fees on undrawn amounts. The project implementing Government Agencies are encouraged to draw the loan funds as scheduled to avoid payment of commitment fees on any undrawn loan funds by the Government. This in turn reduces the cost of public debt,” the report says.
Uganda’s Debt stock
Uganda’s Debt stock has been increasing in the last 6 years (FY 2018/19 2023/24), from USD12.55Bn in FY 2018/2019 to USD25.59Bn in FY 2023/2024, an increase of 104%.
The increase is attributed to multiple factors, such as a shift in spending toward Infrastructure development and the impact of the COVID-19 pandemic.
Before the pandemic, public debt was 35.1% of GDP in FY 2018/2019 but increased to 48.4% in FY 2021/2022. Debt has since been on a downward trend, reducing to 46.9% in FY 2022/23 and then to 46.8% in FY 2023/24. It is, however, projected to increase to slightly over 50% by end of June 2025, following a number of expenditure pressures in FY 2024/25. Consequently, Uganda’s overall risk of debt distress has shifted from low to moderate level and Fitch, a credit rating agency, has revised Uganda’s credit rating from B+ Stable to a negative outlook.
Furthermore, development partners are now closely monitoring the country’s borrowing capacity in areas such as debt management, fiscal sustainability and debt transparency.
