Why appropriate policy actions are vital for debt sustainability

Aug 18, 2015

Dependence on borrowing at times makes some lenders count their losses as chances of regaining their share become slimmer.

By Juliet Akello

Dependence on borrowing at times makes some lenders count their losses as chances of regaining their share become slimmer.

Soaring debt levels can ruin a family, a business, or a nation. However, debt is expected to safely finance private or government investment in productive capital to support economic growth.

In Uganda, external debt has increased from $1.47b in 2006/07 to $4.3b in 2013/14.  A report on public debt by finance ministry indicates that total public debt stock rose from $7b in March 2014 to $7.28b in February 2015 (external debt contributed 57% while 43% is domestic debt) excluding loans approved by Parliament in 2013/14 amounting to $2.74b. This increases Uganda’s debt exposure to $9.97b. This mainly went to finance infrastructural projects.

However, the Government needs to take precautions against excessive borrowing. If not careful, Uganda will find itself in a debt burden trap, hence hurting productivity of future generations.

 Uganda’s oil discovery presents an attractive lending and borrowing situation and the Government anticipates high future oil proceeds, which have led to increasing current spending on infrastructure needs.

However, oil prices are falling, making it difficult for oil-producing countries to service their loans. As priority, the Government should improve and sustain debt management policy actions to avoid another debt crisis. African regional blocks could also explore developing a domestic regional bond market and establish how it performs before fronting international markets.

The writer is a programme officer in charge of governance and rights at the Uganda Debt Network

 

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