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Can debt be relied on to revamp our economy?

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Added 18th September 2017 12:28 PM

Given the government’s move to undertake these huge projects, it is imperative to question whether the debt can be steadily relied on to boost economic growth and at what cost

Richardssempala 703x422

Given the government’s move to undertake these huge projects, it is imperative to question whether the debt can be steadily relied on to boost economic growth and at what cost

ECONOMY | DEBT

By Richard Ssempala


Uganda through her National development plans has highlighted a number of key sectors that are crucial in transforming the economy. These include transport and infrastructure, agriculture, tourism among others. It has also given a number of sources of income to finance such sectors; among them include external and domestic borrowing.

The country’s debt stock in nominal value however is trending up exponentially, currently at the tune of Shs. 34.0 trillion representing an increase of 14.1% relative to June 2016 and 16.7% in the same period a year ago. 

The  state of economy report published by Bank of Uganda in June 2017, underpins that  about sh21.1 trillion ($5.7 billion)  is owed to  external creditors , commanding a dominant share of 62.4% of the total public debt, and Shs. 12.7 trillion in domestic debt.
 
This clearly represents an increase of sh1.55 trillion since January 2017. It’s still imperative to note, that Uganda’s debt especially domestic debt has shot higher, over and above the set threshold as given by the Public Debt Medium Framework.

Given the government’s move to undertake these huge projects, it is imperative to question whether the debt can be steadily relied on to boost economic growth and at what cost.
 
Firstly, Uganda’s national debt is the amount of money owed by the government to institutions, government agencies and other bodies either resident in or outside a country. However, if government is borrowing to invest in productive sectors and at economically viable terms and conditions, it is possible that the country’s productive capacity can be improved to spur off economic growth.

But this beats my thinking that government spending on capital projects is much the same from year to year. The current report on performance of loans approved by 8th, 9th and 10th parliament indicate that a total of 137 loans have been approved. However, it’s unfortunate that though some loans were approved, many are still dormant with zero disbursement level yet they attract commitment fees.

What needs to be done therefore is to support the private sector, and boost aggregate demand through injection in the agricultural sector which has both backward and forward linkages that can easily translate into the real sector.

Also, the prioritisation of domestic revenue mobilisation efforts remains the primary available option Uganda can incorporate for financing infrastructural development.

Therefore, efforts to improve domestic revenue mobilisation should be scaled up. These include, among others, decisively addressing weaknesses in the legal, regulatory, and institutional frameworks; expanding the tax base; unlocking the potentially large contributions from the informal sector; and reducing tax exemptions. 

In addition, the government can opt for pension funds to finance some of these projects given that   are best financed in local currency.

The writer is a research associate Uganda Debt Network
 

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