Public debt rises to Shs41 trillion on Hoima airport, Karuma dam loans

Uganda’s public debt rose to Shs41.5 trillion at the end of the financial year ending June 2018, up from Shs33.9 trillion the previous year, on account of borrowing to finance the construction of Kabaale International Airport, complete the Karuma dam, and the procurement of earthmoving equipment.

The figures were revealed by the Office of the Auditor General in it’s report to Parliament for 2018. The report is an audit and commentary on the accounts of the central government, public offices and corporations, and local government administrations.

Uganda’s gross domestic product at the end of financial year 2017/18 was Shs100.5bn at current prices, translating to a debt-to-GDP ratio of 41.2%. The auditor general notes that although this “is still below the IMF risky threshold of 50% and compares well with other East African countries, it is unfavourable when debt payment is compared to national revenue collected, which is the highest in the region at 54%.”

External loans made up 68% of the debt stock at Shs28.3 trillion, up from Shs22.2 trillion (65%) in 2016/2017. These were comprised of loans from multilateral organisations (Shs19.1 trillion), bilateral loans (Shs9 trillion), and loans from commercial banks.

The World Bank’s International Development Association is Uganda’s biggest multilateral lender with a loan portfolio of Shs16.5 trillion. Moving on to bilateral lenders, Uganda owes Shs7.9 trillion to members countries of the Organisation for Economic Co-operation and Development and Shs1.1 trillion to non-OECD countries.

The auditor general’s report show that the Uganda government borrowed Shs1.7 trillion—including Shs1.3 trillion from the United Kingdom’s export credit agency, UK Export Finance, and Standard Chartered Bank to finance Kabaale International Airport, which was conceived to facilitate oil activities in the Albertine Graben—and Sh500bn for earthmoving equipment for road construction and maintenance.

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The airport will be Uganda’s second international airport and will be situated adjacent to the site of the proposed oil refinery. It will sit on 29 square kilometres of land in Hoima district. Initial official projections said the first phase of its construction will be complete by the third quarter of 2019.

The earthmoving equipment, on the other hand, was acquired from Japan and financed by a concessionary loan from the Japanese Bank for International Corporation. It is meant to ease road maintenance works across the country and will be allocated to district administration units.

The report does not make clear how much money was funneled to the construction of the Karuma hydropower dam.

John Muwanga, the auditor general, called attention to the sustainability of the government’s borrowing. A sample of some of the loans by the auditor general showed that 50%, amounting to Shs3.9 trillion, will expire in 2020.

“If government is to service the loans as projected in the next financial years, it would require more than 65% of the total revenue collections which is over and above the historical sustainability levels of 40%,” he said.

Additionally, he noted that interest payments in 2017/18—amounting to Shs2.3 trillion—came to 17% of total revenue collections. This is above the 15% limit set in the public debt management framework of 2013, and has been rising for the past four years, the report said.