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Concern as Uganda breaks ceiling for domestic borrowing

GEORGE OKELLO | PML Daily Senior CorrespondentbyGEORGE OKELLO | PML Daily Senior Correspondent
March 28, 2021
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Finance Minister Matia Kasaija in a teleconference meeting in his office (PHOTO/File).

KAMPALA – The government has acknowledged that it has broken its own domestic debt ceiling, to a level which it calls ‘unhealthy domestic borrowing.’ The amount of debt that the government has acquired from the domestic market has gone up to 6.8 trillion Shillings which is more than 1 percent of Gross Domestic Product (GDP), initially set as the maximum.

The total debt, foreign and domestic will grow to 52 percent by the end of the financial year, which is also above the 50 percent ceiling that Uganda agreed on with the other East African Community countries, with the support of the International Monetary Fund. On the whole, the region’s debt stock has risen to USD 112 billion or 58 percent of the GDP (2019), with Kenya and Rwanda having the highest ratios.

The debt levels have been further pushed up by the effects of the COVID-19 pandemic and the need to contain it. With economic growth declining sharply and in some cases to negative rates, there are now calls for the governments to go for credit relief and other measures. Equally, there are growing calls for the International Monetary Fund (IMF) to approve the issuance of Special Drawing Rights (SDRs) to assist developing countries in their economic recovery.

The SDR is an international reserve asset, created by the IMF to supplement its member countries official reserves. So far, SDR 204.2 billion (equivalent to about USD 281 billion) have been allocated to members, according to the IMF. The United Nations Conference on Trade and Development (UNCTAD) estimates that Africa will require USD 200 billion to address the financial and socioeconomic impacts of the global pandemic.

At a dialogue between government and the civil society, the Uganda Debt Network, SEATINI Uganda, Civil Society Budget Advocacy Group (CSBAG), Transparency International and the African Forum and Network of Debt and Development, urged other countries to press the IMF to release up to USD 3 trillion.

However, the organisations have cautioned the government that even if these options mature to their favour, there is a need to control the rate of borrowing. UDN Executive Director Julius Kapwepwe says that if Uganda and the other countries are to borrow, they should borrow for sectors that directly improve the livelihoods of the masses.

The government is also accused of being extravagant with both own and borrowed resources, which is a result of poor planning. Seatini Uganda Executive Director Jane Nalunga gives the example of the high cost of administration, saying the many administrative units are created without putting in mind the cost of maintaining them.

The Ministry of Finance, Planning and Economic Development says domestic borrowing has gone up to 1.1 percent of GDP and will go further up to 1.6 percent next financial year. Samson Muwanguzi Joash, the Acting Assistant Commissioner in the Domestic Debt Office, says domestic debt cannot be avoided because of its benefits over foreign debt.

He says much as foreign debt interest rates are lower, the loans carry other costs like conditions and the risks associated with changes in foreign exchange rates over the loan period. Domestic loans are also easy to get since they are acquired from within the country, which makes them good for emergency case borrowing.

Muwanguzi says, the government had projected the domestic debt level to rise to 6.3 trillion Shillings, but this will go to 6.8 trillion when it acquires the loan for the initial investment in the East African Crude Oil Pipeline this month.

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Tags: Domestic borrowingFinance minister Matia KasaijaGross Domestic Producttop

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