KAMPALA – The Bank of Uganda (BoU) has warned that Uganda’s rising public debt could have long-term ramifications on the country’s economy.
In the State of Economy report for July 2019, BoU said the total public debt is projected to rise from 42.2 percent to 45.7 percent of GDP in nominal terms in Financial Year 2019/20.
“Although Uganda remains at low risk of debt distress, significant vulnerabilities loom large. Uganda’s debt carrying capacity has been raised to strong from the medium. Even though debt burden indicators remain below their indicative thresholds, they have increased compared to the previous Debt Sustainability Analysis (DSA),” the report released on Monday reads in part.
“Uncertainties around spending pressures, contingent liabilities, or a growth shock could push public debt above the debt ceiling in the Charter for Fiscal Responsibility of 50 percent of GDP in net present value terms,” the report adds.
Total public debt rose to $11.7 billion in December 2018, equivalent to 41.8 per cent of GDP. It grew further to $12.2 billion by end of June this year, standing at 42 per cent of GDP.
The Central Bank said the country’s public debt is expected to be offset when oil exports commence in 2023, and infrastructure investment is reduced once the current projects are completed.
“Even though debt burden indicators remain below their indicative thresholds, they have increased compared to the previous Debt Sustainability Analysis (DSA). The assessment rests on four assumptions: (i) infrastructure investments yield the envisaged growth dividend; revenue collection improves by ½ percent of GDP per year over the next five years; oil exports commence in 2023, and infrastructure investment is reduced once the current projects are completed,” the report states.
Nevertheless, the report indicates that with the exception of the ratio of the stock of government securities to the stock of private sector credit which stands at 104.5 percent, above the benchmark of 75 percent, all the public domestic debt risk indicators are within the Public Debt Management Framework (PDMF 2013) medium-term benchmarks.
“In addition, the risk indicators improved relative to FY2017/18, with the exception of the percent debt maturing in one year and the ratio of the stock of government securities to the stock of private sector credit,” the report adds.
However, the BoU reports indicate that the economy expanded at 6.1 percent in FY 2018/19 compared to the 6.2 percent registered in 2017/18.
“Economic growth was supported by accommodative monetary policy stance, growth in the private sector, fiscal stimulus, strong domestic demand, improvement in the agriculture sector as a result of favourable weather conditions and growth in public infrastructure developments,” the report says.
“The growth was partly as a result of strong final household consumption expenditure. Growth in final consumption expenditure more than tripled to a growth of 13.6 per cent in FY 2018/19 mainly driven by final household consumption,” the report adds.