The Auditor General has revealed that Uganda’s ballooning public debt is likely to leave no room for future Governments or generations to borrow if the current Government doesn’t contain its appetite for loans.
John Muwanga (pictured), the Auditor General made the revelation today while handing over the February 2021 Auditor General report to Speaker Kadaga ahead of the report’s scrutiny by Committees of Parliament.
Muwanga noted that although the International Monetary Fund recommended 50% debt to GDP ratio as the point of safety for developing countries, Uganda has reached 41% despite rebasing its GDP last year.
He added that, the percentage of interest to domestic revenue has reached 13.69% which is above the recommended cap of 12.5%, which saw Uganda’s credit rating outlook revised from stable to negative.
“The above have had a resultant effect of higher cost of borrowing which may deny future generations an opportunity to sustainably borrow. Although Government has attributed the debt increment to the need to cover for both the revenue shortfalls and the rising expenditure needs, I have advised Government to have a comprehensive strategy to align revenue moblisation and fiscal policy management as well as reducing Government expenditure,” said Muwanga.
The Auditor General’s report whose unveiling was delayed by the outbreak of COVID pandemic came at the time the December 2020 Monetary Policy Report by Bank of Uganda revealed that Uganda’s total public debt had hit the Shs63.3Trn .
According to the Central Bank report, Uganda’s debt increased by 21.7 percent in FY2019/20 with External debt increasing from US$8.35 to US$10.45 billion approximately Shs38.458Trn while domestic debt increased from Shs 16.2Trn to Shs19.1Trn.
“The provisional total public debt stock as at end October 2020 stood at Shs63.352Trn, corresponding to an increase of 13.8 percent from June 2020 compared to an increase of 3.9 percent over the same period the previous year,” Bank of Uganda noted.
It should be recalled that the Auditor General made the same alarm on Government borrowing in his 2019 report where he warned that Uganda risked losing its properties due to the increasing public debt because some properties had been committed by Government to secure loans from foreign countries.
In the same audit report, the Auditor General also warned about borrowing from commercial banks with unstable lending rate, saying this is contrary to the Medium Term Debt Management Strategy for 2019/20 that is contrary to the Government policy on concessional financing as the preferred means of meeting its financial and Development requirements.
The report highlighted that concessional loans have lower interest rates than the market rates and also provide longer grace periods, “I observed that loans from commercial banks that are non-concessional grew from Shs192Bn to Shs2.80Bn representing a 137% spike over the past three financial years. I noted that the contracted loans had very short repayment periods with high interest rates as compared to concessional loans,” warned Muwanga.
He added that contracting debt at non-concessional terms has exposed the Government to high interest rates and refinancing risk, to which he continued, “I have advised Government to not only explore new financing options including instruments with less commercial borrowing, but to also consider reducing fiscal expenditure during periods of revenue under collection.”
The Auditor General further painted a grim picture on Uganda’s economic situation with a review of the loan disbursements which revealed that 12 loans worth Shs1.37TRn reached expiry before disbursing. The energy sector was most affected due to recurring unresolved land compensation issues affecting project implementation.
“Such low levels of performance undermine the attainments of planned development targets and render commitment charges paid amounting to Euro2.2Million (Shs9.5Bn) in respect of undisbursed funds nugatory,” he added.
