The minister of finance used a hastily called press conference on Tuesday to deny that the government’s borrowing is out of control, days after the auditor general’s critical report to Parliament.
Matia Kasaija said Uganda’s public debt stock remains sustainable with a nominal debt to GDP ratio of 41.5% [the correct figure is 41.2%]. Last October, the minister told Parliament that government is “committed to ensuring that debt does not exceed the 50% threshold [of the debt-to-GDP ratio] that we agreed under the East African Monetary Union convergence criteria”.
“Uganda’s public debt has been provided largely by multilateral creditors who offer concessional terms that include a grant element of more than 50% with an average maturity of over 35 years and a grace period of not less than 6 years, coupled with relatively low interest rates below 1.5% annually,” Mr Kasaija said.
“Moreover, with the investments that our debt is financing, the capacity of our economy to service its debt obligations will significantly increase,” he added.
“In addition, the increase in revenue arising from implementation of the new domestic revenue mobilization strategy will reduce the country’s borrowing requirements in the future.”
The investments include “flagship projects like the power generation plants at Isimba and Karuma, the development of Kabaale International Airport and the construction of Entebbe express highway” said Mr Kasaija.
But the auditor general sees potential problems
In his annual report to Parliament released last Friday, the auditor general said that although Uganda’s debt-to-GDP ratio of 41.2% “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%.”
Because of this, Uganda’s debt sustainability heavily relies on rolling over domestic debt, according to the auditor general.
“50% of the loans sampled totaling Shs3.9 trillion will expire in 2020,” the report said. If government is to service the loans as projected in the next financial years (2018/2019 and 2019/2020), it would require more than 65% of the total revenue collections which is over and above the historical sustainability levels of 40%.”
The auditor general also pointed out that “significant value loans have stringent conditions which could have adverse effects on Uganda’s ability to sustain its debt.”
The conditions include waiving the government’s sovereign immunity on its properties and itself from enforcement of judgments, adopting foreign laws in proceedings to enforce agreements, and requiring government to pay all legal fees and insurance premiums on behalf of creditors.
In addition, according to the report, the government “does not have a clear strategy that would protect the country against foreign exchange risk as a result of debt denominated in foreign currency.” In 2017/18, there was an exchange loss of Shs2.4 trillion due to foreign denominated loans.
The government has “committed to addressing the above shortcomings” by increasing efforts to raise domestic revenue, cutting back on short term domestic borrowing, introducing policies to reduce imports and increase exports, and developing policies to deal with foreign exchange risk and developing new guidelines for loan negotiations, said the auditor general.