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The East African : Aug 11th 2014
14 STATE OF THE ECONOMY At $7b, Uganda’s debt worries parliament Lawmake≥s wa≥n that the spi≥alling debt will disto≥t budget p≥io≥ities By BARBARA AMONG Special Correspondent U Every Ugandan will be indebted to the tune of over $400 by the end of this year.” Godfrey Ekanya, MP ganda’s debt is rising at a rate that outstrips domes- tic revenue growth, prompting parliament to raise the alarm. MPs who sit in the Com- mittee on National Economy have warned that the spiralling debt will distort the country’s budget priorities. They said that debt should only be restricted to infrastructure projects that have an economic rate of return above 14 per cent. The total stock of public debt stood at Ush17 trillion ($6.54 billion) as at June 2013, of which $3.8 billion (18 per cent of GDP) was external and $2.6 billion, or 12.3 per cent of GDP, was domestic. Uganda’s total public debt as a percentage of GDP rose from 28 per cent in the 2011/ 2012 financial year to 30.5 per cent in 2012/2013 due to increase of external debt from 16 per cent of GDP to 18 per cent — implying a growth of 22 per cent in debt accumulation compared with GDP growth. Domestic debt resulted from the issuance of government securities for economic stabilisation. But the cost of servicing do- mestic loans increased from $197.9 million in June 2012 to $303.2 million in 2013. “While this reflects the fiscal support government has provided to the economy in response to an uncertain economic environment — including investment in infrastructure — the productive capacity of the economy needs to improve to service the mounting debt,” reads the MPs’ report. Increasing debt The government argues that it has been taking out concessional loans, but the increasing level of indebtedness, according to analysts, shows disregard for the 2007 National Debt Strategy, which indicated that Uganda’s increasing debt burden was inimical to government budgeting and the economy. Of concern is that while Uganda is accumulating debt, out of $6.65 billion external public debt as of March 2014, $2.47 billion has not been disbursed. Poverty reduction Since the completion of several debt relief initiatives in the 2006/2007 financial year, which reduced total debt to 20 per cent of GDP, Uganda has increased its debt significantly to 30.5 per cent of GDP as of June 2013. Uganda relies on external borrowing to finance infrastructure development and poverty reduction initiatives. Currently, 15 per cent of its budget is donor funded. Shadow minister for fi- nance Godfrey Ekanya said while domestic debt from commercial banks, Treasury bills and bonds is $3.4 billion, infrastructure projects that government plans to undertake this financial year will see the total debt exposure rise to $15 billion — equivalent to the budget for two financial years. The Masaka-Mbara road under construction. Uganda relies on external debt to fund infrastructure projects like this one. Picture: File The EastAfrican NEWS AUGUST 9-15,2014 DEBT RELIEF Uganda was a beneficiary of debt relief under both the first Heavily Indebted Poor Countries and the Enhanced HIPC initiative in April 1998 and April 2000 respectively, to help it remain on a sustainable debt path for the foreseeable future, but the intention of the debt relief is yet to be realised, economists say.
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