Kasaija to limit domestic borrowing as Uganda’s public debt soars

Kampala, Uganda | THE INDEPENDENT | Uganda’s public debt to GDP will reduce by the end of this financial year as the government tries to ensure economic stability and future growth.

According to Finance Minister, Matia Kasaija, Uganda’s public debt stood at 80.2 trillion shillings or over twenty-one billion dollars as of the end of December 2022.

More than half of the public debt or 47.9 trillion shillings or 12.9 Billion dollars was in external debt.

Kasaija said domestic debt stood at about 33.4 trillion shillings or 8.9 billion dollars. The stock of public debt will stand at 88.9 trillion shillings or 23.7 billion dollars by the end of this financial year.

Kasaija while reading the 2023/2024 budget to Parliament however said the public debt to the Gross Domestic Product(GDP) is projected to drop to 48.2% from 48.6% at the end of June 2022.

The government has been under pressure to reduce the amount of public debt. Civil Society Budget Advocacy Group(CSBAG) and other analysts have in the past indicated that debt servicing was taking a huge chunk of the budget.

They have indicated that the rising cost of debt servicing and the costly domestic debts, as well as external commercial loans, were negatively affecting the economy.

At the end of the financial year 2021/2022, the Ministry of Finance projected that debt servicing as a percentage of revenue increased by 30%.

It projected that at the ending the financial year, debt servicing would increase due to heightened domestic interest rates, higher inflation as well as the increasing cost of external debt amidst tightening global financing conditions. Kasaija confirmed that by the end of the financial year, the cost of servicing domestic and external debts will stand at 34.1%.

He agrees that this will limit the amount of money to some of the sectors aimed at the delivery of services to Ugandans.

Some forecasts have indicated that Uganda’s national debt will increase of increase between 2023 and 2028 by in total 7.9 billion U.S. dollars (+29.95 percent).

The national debt is estimated to amount to 34.27 billion U.S. dollars in 2028.

While the Minister seemed to be confident with the debt figures, the Speaker of Parliament Anita Among seemed to have issues with them.

She moved in fast to correct the record as soon as Kasaijja ended his speech. She disagrees with the Minister on the public debt stock

Kasaija promised to cross-check the figures and communicate to the speaker in writing when the house resumes

Debt Sustainability/ Limiting Local Borrowing 

The Public Finance Management Act 2015 and the Charter for Fiscal Responsibility require the Ministry of Finance to ensure debt sustainability. Kasaijja told Parliament to maintain debt sustainability, Government will work to ensure the effective implementation of the Domestic Revenue Mobilization Strategy to boost the capacity to increase domestic revenue collection.

He promised to limit non-concessional debt to high-impact, high-return projects such as Standard-Gauge railway projects, the development of industrial parks, power transmission lines, water for production and tourism roads; and water for production. He also promised to reduce domestic borrowing.

As of the end of June 2022, short-term debt (treasury bills) constituted 15.0 percent of total domestic debt down from 22.5 percent a year before, while the share of long-term debt (treasury bonds) increased to 85.0 percent from 77.5 percent over the same period.

Commercial banks continued to hold the largest share of domestic public debt by the end of June 2022 at 40.1 percent. These were followed by pension and provident funds at 29.8 percent, down from 33.7 percent the year before.

From the minister’s statement, deficit financing of the budget will continue to mostly rely on external resources, given the higher risks and costs associated with domestic debt. The government had promised to scale back on domestic borrowing in the medium to long term to no more than 1 percent of GDP per annum.

Domestic Revenues amount to Shs. 29.7 trillion of which Shs. 27.4 trillion will be tax revenue and Shs. 2.3 trillion will be Non-Tax Revenue. Domestic borrowing amounts to Shs. 3.2 trillion. Budget support accounts for Shs. 2.8 trillion.

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