What Does Uganda’s Shared Track Among Indebted African States Imply?
The recent report (2023) by the Auditor General pins Uganda’s public debt at a staggering shs. 97 trillion ($25.3 billion). A 12.27 percentage change from 2022 when it stood at shs. 86 trillion. External debt is valued at shs. 52.8 trillion, up from shs. 48.4 trillion the year before. Shs. 44.6 trillion for the domestic debt, having increased from shs. 38.3 trillion the year before. The figure, is equivalent to 52 percent of the country’s GDP, currently at $50 billion according to the permanent secretary of the ministry of finance, planning and economic development, and worryingly surpasses IMF’s recommended threshold of 50 percent for low-income countries.
With each of Uganda’s 46 million citizens now owing shs 2.5 million, the country faces mounting public debt alongside increasing debt servicing expenses, stagnant domestic tax revenues, and declining export earnings. These factors escalate Uganda’s debt distress, heightening the risk of a looming debt crisis.
Interestingly, those that sit at the biggest round tables express varying facts and a sense of calm. Perhaps as it is before storms batter. But that isn’t the same feeling with sections of the local community such as profound economists and civil societies with a great interest in the budgetary and development process.
Christine Byiringiro, a program officer at Uganda Debt Network, recently revealed a concerning trend during an interview with Smart24TV that Uganda’s debt has surged by 107% in the past 5 years, while GDP has only increased by 39% during the same period. This suggests that borrowed funds are not effectively contributing to GDP growth which prompts a question of the realism of Uganda’s current treatment of the debt-to-GDP stance, especially as it surpasses IMF’s recommendations.
Through civil discourse on X, formerly twitter, citizen journalism has in the past many months unleashed horrendous expenditures in a cartel of corruption indexed transactions. The country’s parliament hasn’t been spared. It’s been trapped in a tirade of detest, dismay and disrespect owing to its exorbitant expenditure.
In the discussion surrounding Uganda’s escalating debt levels, Fred Muhumuza, a senior economist, sheds light on the true implications. He emphasizes that regardless of the debt percentage, what truly matters is its effect on the nation and its people.
“Whether it’s 40% or 90%, if we can’t increase education and healthcare funding, that’s the true cost of debt.“Muhumuza warns of potential increases, advocating for reduced borrowing and a smaller government.
In line with this, during a recent appearance before Parliament’s finance committee, Stephen Ojiambo, Treasury Operations Commissioner at the Ministry of Finance, requested 23.9 trillion shillings for debt service to prevent accruing interest from lenders. The Karuma Dam project alone would need shs. 385 billion for interest payments in the upcoming fiscal year.
Multiple factors including increased infrastructure spending and the COVID-19 pandemic have driven up Uganda’s public debt. A drop in aid, budget support and development assistance from partners have ensued. Enactment of the anti-gay law has informed a drop in development funds from shs. 2.781 trillion to shs. 28.94 billion.This has further informed increased borrowing to fix the funding gap. But it’s contrary to President Museveni’s former position, where the quoted scenario was far from reality.
Acquisition of non-concessional loans to fund current expenditures, as well as fresh debt for Budget support coupled with the revenue-expenditure imbalance has always meant government has to borrow to finance the deficit. Rollover of previous debts and bond switches adds to the burden.
Mounting public debt has caused widespread worries and raised alarms over possible sovereign default and a looming debt crisis if the situation remains unchecked. High debt burdens stunt economic growth, limiting both public and private investment. Moreover, they redirect essential resources away from crucial social services, leading to disproportionate spending on debt rather than vital sectors like infrastructure, human capital development, and public health. With a sluggish tax revenue collection, Uganda faces vulnerabilities in servicing its debt. In the medium term, declining domestic revenues may push the country’s debt beyond the current 52 percent of GDP ratio.
Africa’s Outlook: Big Appetite, High Interest Rates And a Gridlock to Meet Public Needs
As of 2024, African economies are on a loose string, dangling with a colossal $1.13 trillion debt. This marks a whooping 374.8 percentage increase since 2000 according to data from the African Development Bank (AfDB), highlighting dire debt-to-GDP ratios. Egypt’s average sits at 86 percent, Sudan’s alarming 198 percent perfectly represents the relentless insurgencies inspired by socio-economic imbalances. Tunisia is at 83 percent, and Morocco savours its 70 percent. Such data hints on regional economic fragility and countries such as Democratic Republic of Congo (DRC), Zambia and Mozambique are grappling with debt levels in excess of 100 percent, a shadow over their financial prospects.
Shem Joshua Otieno, a policy analyst and advocacy officer in sovereign debt management with The African Forum and Network on Debt and Development (AFRODAD), has raised concern about Africa’s financial challenges amidst a tough global economic landscape. He advises countries, like Uganda, to seek debt restructuring due to hefty debt servicing. With over 30 countries in debt distress, Africa faces hurdles in achieving Agenda 2063, losing $80 billion annually to illicit financial flows.
Mr. Otieno made the revelations during the opening session of the recent 4th edition of African Media Debt Initiative (AFROMEDI) in Abidjan, Côte d’Ivoire.
Considering recent facts, Uganda received approximately $120 million in Special Drawing Rights (SDR 90.5 million) from IMF. The fund stream aims at supporting the country’s budgetary activities and overall development, seeking reduction of its dependence on costly domestic and external debt. How that will materialize is highly anticipated considering the current fiscal indiscipline that has belittled the land-locked economy.
None the less, If Uganda doesn’t rein in its current public debt trajectory, it risks facing debt financing challenges for the greater part of this year and the foreseeable future. There are indications that the country could fall into a “public debt safety trap.” The conventional debt sustainability measures are cited to wrongly suggest more room for borrowing, despite the debt sitting below international set limits.
