Uganda to contain external debt rise

By Vision Reporter

The Government has established a new debt strategy to contain Uganda's growing external debt currently standing at $3.8b (about sh9.5 trillions.

2013 10$largeimg207 oct 2013 132811083 350x210

By Umaru Kashaka

The Government has established a new debt strategy to contain Uganda’s growing external debt currently standing at $3.8b (about sh9.5 trillions.
This was revealed recently by the state minister for finance in charge of planning, Matia Kasaija, while meeting the parliamentary committee on national economy over reports by the Auditor General that the ministry signed 13 new loan agreements equivalent to sh1.3trillion without parliamentary approval.
The minister, who was accompanied by the Bank of Uganda governor, Tumusiime Mutebile, informed the committee that the new strategy for 2013-2018 was developed following the expiry of the debt strategy of 2007- 2012. 
The new strategy will guide the Government in current debt stock, as well as future borrowing in both external and domestic debt.
“The strategy provides guidelines to ensure that Uganda’s borrowing is geared towards promoting rapid economic growth and ensures that most borrowing is contracted for projects that will yield high rates of return while maintaining Uganda’s debt sustainability,” the minister told the committee chaired by Buliisa MP Stephen Mukitale.
“The 2013 debt sustainability and risk analysis showed that Uganda can start considering alternative non-concessional financing options to meet its significant infrastructure development financing needs that may not be fully met by concessional external borrowing.”
The alternative financing options, the minister said, include domestic debt issuance, public private partnerships and sovereign bond issuances to finance infrastructure development.
Mutebile said by the end of last financial year, disbursed and outstanding external public debt stood at $3.8b, 18.1% of Gross Domestic Product (GDP), while disbursed and outstanding domestic debt stood at sh7.5trillion (13.4% of GDP).
He said the Government has since signed commitments for an additional $2.8b (about sh7 trillion) of external public debt, equivalent to 13.2% of GDP, adding that this has not been disbursed.
“There are no definitive thresholds for the sustainability of total public debt in frontier markets such as Uganda, but a ceiling of 50% of the Net Present Value of debt to GDP is probably prudent,” Mutebile noted.
According to the finance report on loans, grants and guarantees for financial year 2012/13 that was presented to Parliament in June, the highest debt service payment ($18.9m) was made to the World Bank’s International Development Agency, which accounted for 33.8%, followed by European Investment Bank,
China and African Development Bank with 19.0%, 12.7% and 8.3% respectively and equivalent to $10.6m, $7.1m and $4.6m respectively.
What analysts say
Prof. Augustus Nuwagaba, an economist, is optimistic that the strategy, if implemented, will go a long way in enabling the Government meet its financing requirements at the minimum cost possible.
“The strategy will also facilitate government plans to increase investment in projects with high returns for growth and socioeconomic development, while maintaining a high degree of debts sustainability,” he added.
Niwagaba, however, cautioned that the Government needs to take a strong stance against corruption or else the country will continue witnessing huge sums of money being swindled by public officials.
“Uganda should borrow a leaf from South Korea, which by 1962 was at the same level of development with most African countries, including Uganda. But over the years, the country has grown by leaps and bounds because of its zero-tolerance to corruption and a clear economic transformation policy,” he added.
The commissioner Treasury Services in the finance ministry, Isaac Mpoza, noted that the formulation of the new strategy will enable Uganda take advantage of favourable domestic and external credit-market developments.
“This will be in an organised manner that is consistent with government’s primary debt policy objective of ensuring that the level of public debt remains sustainable, both in the medium and long-term, while being mindful of the future generations,” Mpoza noted.

Uganda to contain external debt rise